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Impact of electronic innovations on economies, consumer prices

Impact of electronic innovations on economies, consumer prices

The main characteristics of the menagerie are that it is open, uncontrolled and uncensored. This may encourage vulgarity and personal abuse, but the general feeling about it is more favourable than unfavourable in a free society.

A striking phenomenon of the 21st century is the sight of people, mostly in their teens and 20s, walking along a street using their mobile phones for gossiping and texting. It is surprising that they have so much to talk about. Personal electronics are designed for rapid and universal communications in a society that can't live without them. The entrepreneurs who started such businesses were ahead of the pack in seeing the possibilities.

Traditional mass marketing is a process of brands in search of customers. The innovators in the electronics field made the great discovery that the reverse process was possible. Their customers are on the search for brands because of the advanced level of technical innovation, which encourages high involvement. This is different from low involvement, like most grocery shopping for low-price fast-moving consumer goods (FMCG). In this, most buying is repeat purchase of brands that are already used and customers devote little thought to the process.

With expensive high-involvement goods like cars, household appliances, jewellery and clothing, the customers are price-conscious and respond to price cuts. But the American buyers ,who spend 12 hours waiting for the opening of a store that will be selling a new digital device, are not driven by low prices. They are excited by the innovation. At last, the manufacturers have found the magic secret of finding buyers in search of brands: a secret that opens fascinating opportunities for innovators as long as they are at the leading edge of technology. The range of devices is large. What is remarkable about these adjuncts to our lives is their ubiquity. They are used by people of all ages in the First, Second, and Third Worlds, by everyone from the 89-year-old Queen Elizabeth to barely literate four year olds.

There is a disharmony between low-involvement markets and the new world of digital high-involvement. The modern concept of marketing originated with low-price, low-involvement goods, with its emphasis on stability and repetition. But in North America and Western Europe, the FMCG markets have stagnated. Procter & Gamble (P&G), the leading manufacturer, achieves an annual sales growth of less than one per cent. Stability and repetition lost their relevance (and FMCG lost their dominance) when new types of personal electronics made their glamorous debut. Here, news of the innovation prompts trial and rational consideration. Apple, the leading digital firm, experienced a six per cent rise in sales in 2014. And Apple is already twice the size of P&G.

In the absence of a generic phrase to describe personal electronics, I offer one: the digital menagerie, a phrase intended to cover the devices themselves and their multiple uses. A smartphone can work as a phone, and also as an Internet link, source of vast information, Global Positioning System, camera, clock, compass, flashlight, thermometer and more. Underlying the development of digital electronics is a piece of pure drama: the extraordinary development of electronic innovations has led to parallel scale economies and the collapse of consumer prices, because printed circuits cost little to manufacture despite their complexity.

The Inhabitants of the Menagerie

The Internet was a going concern by 1995. Cellular phones made their impact first in countries that did not have strong landlines, and a million units were in use in 1990. At the moment, in economically developed countries and among the large and growing numbers of people with discretionary income in countries that are on their way up, notably China and India, people possess a range of personal devices. And they all spend a remarkable proportion of their waking hours fully engaged with them. In most cases, their daily 'fix' is at least two hours, but some people even spend six hours or more. These devices are mostly multi-purpose and are used by people at different times and in different places and for different purposes. The very act of using the devices encourages people to experiment, with the result that new uses expand organically. This applies especially to apps, with new ones being invented continuously.

The use of the appliances has grown at an exponential rate. The number of mobile phones worldwide has risen from one million in 1990 to 6,000 million in 2015. So many calls were carried that scale economies brought about a massive reduction in the cost of long-distance, especially international calls. In aggregate, computing power doubles every 18 months, meaning that exponential increases are common in all parts of the menagerie.

The Menagerie and the Marketing Mix

The menagerie has developed so dramatically that it has been called the Second Industrial Revolution. It would be surprising if this had not influenced the whole process of marketing, as summarised by the conventional acronym of the 'Four Ps' - product, price, place and promotion.

Product: The menagerie has given new interest to high-involvement brands, which are now the focus of most future activity. In the First World, low-involvement brands have stagnated, and with them the marketing objectives of stability and continuity. In the Third World, low-involvement goods continue to grow, although their share of aggregate sales is slowly declining as the menagerie surges forward.

Price: High-price, high-involvement brands show the greatest growth. Consumers are normally price-sensitive. In FMCG, competitors in oligopolistic markets use tactics based on price-driven sales promotions. However, in the menagerie, competition is driven by major technical innovation as the key competitive force. Price is less important.

Place: Devices in the menagerie are sold by specialist retailers. In contrast, FMCG are sold in grocery stores of varying sizes. In India, the small size of the 'organised' retail sector has always held back the growth of brands. The menagerie does not suffer from this impediment. It is not obvious how the menagerie can boost 'organised' retailing of FMCG, but lessons will be evident to enlightened retail entrepreneurs, for example the demonstrable efficiency of computerised stock control.

Promotion: This embraces sales promotions (normally price-based) and consumer advertising. The menagerie is exercising an important influence on the latter. Direct response has a special, unique place in the advertising business because its results can be easily measured. The Internet has shown itself to be a highly effective medium for direct advertising. But the medium had a false start with FMCG advertisers, who spent years trying to conduct brand-building campaigns with it. They employed 'banners', which are inexpensive per contact, but offer no creative advantages over conventional media.

The interactive use of the Internet means a high cost per contact - a real economic problem - for FMCG but not for high-price, high-involvement brands. FMCG advertisers continue to use the Internet experimentally. One leading advertiser is employing it as a means of testing a wide range of selling appeals for its brands. The most successful appeals can then be rolled out into conventional TV campaigns. The Internet probably has a future for FMCG, but no one can predict it in any detail.

In the Shadows

The main characteristics of the menagerie are that it is open, uncontrolled and uncensored. This may encourage vulgarity and personal abuse, but the general feeling about it is more favourable than unfavourable in a free society. It performs valuable services to vast swathes of the population in all countries. It greatly improves business efficiency. Wealth and employment are generated (entrepreneurs who started the business have become immensely rich). It is the end-product of the human intellect. Economic life has been substantially transformed.

But this is not the complete story. Many unpleasant creatures are lurking in the shadows of the menagerie. Three of the most serious ones can be identified, though they are not easy to combat. First, digital communication has been penetrated by thieves, cheats, bullies and sexual predators. Such hacking has been around for a long time. It is growing in the extent of the damage inflicted and the numbers of victims.

Second, there is unwelcome surveillance of individual users. This takes place at more than one level and represents outsiders gaining access to personal information, much of it confidential. The worst surveillance organisation is the National Security Agency in the US. The government is exceptionally protective of its secrecy, and whistleblowers are treated like criminals and forced to flee the country because they refuse to go to jail. The British General Communications Headquarters 'scoops up and stores data, including e-mails and telephone calls from millions of unsuspecting Britons.' (The Economist, March 8, 2014, page 59).

There is also private surveillance, developed for commercial purposes. This is the Internet of Things, a huge and dense network of connections between individual pieces of information. 'In the world of the Internet of Things, your car, your heating system, your refrigerator, your fitness apps, your credit card, your television set, your window shades, your scale, your medications, your camera, your heart rate monitor, your electric toothbrush, and your washing machine - to say nothing of your phone - generate a continuous stream of data that resides largely out of reach of the individual but not of those willing to pay for it or in any ways commandeer it.' (Sue Halpern, The Creepy New Wave of the Internet, New York Review of Books, November 20, 2014, page 23).

The third danger is the long-term effect of prolonged viewing on children. According to psychologist Dr Aric Sigman: 'Prolonged screen time can lead to reductions in attention span because of its effects on the brain chemical Dopamine.' (BBC News, October 9, 2012). American research suggests 'the Internet may actually be changing how our brains work. Too much hypertext and multimedia content has been linked in some kids to limited attention span, lower comprehension, poor focus, greater risk of depression and diminished long-term memory.' (CNN Opinion, May 21, 2012).

Of these three worrying issues, the only one that is being tackled seriously is the first one, the dangers of hacking. It is the concern of technocrats, firms in the digital industry, and various governments. But although progress is being made, the malefactors tend to keep ahead of those who are trying to defeat them. There is an overall lack of leadership and 'grip.'

It is unlikely that widespread surveillance will be reduced, mainly because governments have so much stake in it; and so now do many businesses. George Orwell foresaw the future in the late 1940s, and this future is still with us.

The potentially dangerous effects of the menagerie on children are not recognised by the main organisations in the menagerie and even the rest of society. Children spend so much time on the Internet and playing digital games that it would be extremely difficult to restrict their viewing. Yet this might be desirable for a very good reason. The stunting of children's intellectual development could result in the growth of people with less free-ranging imagination than previous generations: like the generation that produced the menagerie. How absurd it would be if the further development of the menagerie itself would be held back by self-inflicted wounds!

(John Philip Jones is Professor Emeritus, Newhouse School of Public Communications, Syracuse University, New York. He is a specialist in the behavioural effects of advertising and has published 15 books)

Published on: Jun 14, 2015, 10:46 AM IST
Posted by: Gaytri Madhura, Jun 14, 2015, 10:46 AM IST