Consumer Electronics: Innovate or Die

Here are four ways the industry can fix what's broken and revamp its business strategies

By Sohrab Vossoughi

In May 2008, The Wall Street Journal reported that 11%-20% of all electronics goods are returned. Sony's (SNE) senior vice-president, Mike Abary, explained that defects "aren't even the top three reasons for returns." The top reason? The products "didn't meet expectations." According to the article, an Accenture report shows that it costs the U.S. electronics industry $13.8 billion to rebox, restock, and resell the returned items, eroding the industry's ability to attract and then create loyal customers. Quite a high price to pay for a problem that has a solution.

This becomes especially poignant given the current decrease in spending on consumer electronics (CE). Data from MasterCard Advisor's retail service showed holiday sales for this sector plummeted 26% from 2007. To survive the market shifts long-term, CE companies need to view this extraordinarily challenging period as an opportunity to innovate, to fix what was already broken, and revamp their business strategies. It'll take a lot more than blanketing the media with clever ads. Here are four recommendations to consider:

Know your customer

The problem at the heart of the industry today is that CE companies still design for their original, early adopter geek audience. Tech geeks drove the development of the CE industry when it was new and there was a steep adoption curve. But, now that grade schoolers and hockey moms carry iPhones, consult their GPS for driving directions, bank online, and share family photos on Flickr, CE companies need to do more than rely on consumer curiosity to stay alive. The digital lifestyle is no longer one-size-fits-all, and today's impatient and fickle mass consumer expects more than the complicated, unsatisfying out-of-the box experiences that have become an industry norm.

Create a 360-degree experience

CE brands need to match the right product to the right consumers and then connect with them meaningfully at every point of contact. The "360-degree experience" includes everything from packaging, design, and marketing to after-market support such as programs to help customers discover product benefits, end-of life recycling programs, and user support executed with the care of a concierge service, rather than with the complication and delay of an overwrought bureaucracy.

It's true, we need an example other than Apple (AAPL) to demonstrate a successful 360-degree experience, but Apple nails it every time. They do not try to be everything to everybody. Packaging is elegant. The product is beautifully designed. Set-up is simple. Support is available (though there is room for improvement here). Messaging is consistent and clear at every touch point.

Make meaning: Right now, CE companies start losing before they've even said "hello." Research for our own CE clients, such as Logitech (LOGI), has revealed that consumers are overwhelmed and confused at retail stores like Circuit City (CCTY.Q) (no doubt a contributing factor in its recent bankruptcy filing).