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Requirement
It is a Report.The Topic is based on Smartwatch.
Utilising the research gathered for assignment ONE you are to analyse the data in the context of the potential market for a new entrant to that market. Prepare a 2,500 word report as if written for the company wanting to enter the market. Explain what you have learned about the market and how that data is useful to guide their marketing strategy. Within this include an explanation of the value of customer feedback and recommend how feedback might be gathered.
Solution
INTRODUCTION
The Internet of Things (IoT) is leading as the third wave in the history of the Internet. The IoT has an enormous potential.Its five key verticals are: Connected Wearable Devices, Connected Cars, Connected Homes, Connected Cities, and the Industrial Internet. Numerous opportunities are provided by smart, connected products . They also offer more reliability, product customization and utilization that varies across segments. The continuous evolving nature of products is leading to disruption in value chains which is forcing companies to rethink their strategy.
The smartwatch segment began to flourish in 2014 with the announcement and release of a range of smartwatches raising the profile of the new segment, that has predominantly been the domain of several small start-ups. Android Wear and Apple Watch were launched in the upper premium segment of the smartwatch market in terms of capability. Since then the trend has been more improvement of the watches in terms of aesthetics instead of additional functionalities in the devices. Several vendors have come up with even more limited capabilities than those released by the mobile segment behemoths. (Moar, SMARTWATCHES ~ CLOCKING THE TREND, 2016)
This implies there will not be a “killer app” for smartwatches, rather devices featuring many different capabilities. New entrants as well as established players must aim for small scale, targeted releases or allow much more customization and flexibility in their offerings. With the Apple Watch getting firmly established in the market, it is a signal that smartwatches and luxury brands can mix. In this report, Reebok, a global sportswear brand, has been chosen as a potential new entrant in the smartwatch industry.
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SMARTWATCH CHARACTERISTICS
Around 90% of today’s smartwatches are equipped with a technology that require them to connect to the internet to function. (Smartwatch group, 2014) Most of the smartwatches connect to the user’s smartphone with Bluetooth Low Energy (BLE) protocol. Certain brands combine BLE with conventional Bluetooth to reach the required bandwidth for audio applications. Other protocols such as NFC (Near Field Communication), ANT, WiFi, or Zigbee are not so popular.
The fitness segment is the oldest in the smart wearables market, with the first connected pedometers entering the market in 2000. Since the expansion of smartwatches, we have seen drives in two directions in the market –
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one towards greater functionality in general, such as providing notifcations, alerts and call functionalties alongside fitness tracking;
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another towards greater specificity in the metrics measured, moving from step-tracking to heart-rate, to VO2 Max (blood oxygen saturation level) and other advanced metrics.(Moar, 2016)
SMARTWATCH MARKET SIZE& GROWTH POTENTIAL
Based on data obtained from Juniper Research, the Apple Watch has clearly dominated the smartwatch industry in 2015, accounting for over 50% of all device shipments. (Moar, SMARTWATCHES ~ CLOCKING THE TREND, 2016)
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In September 2015 Apple reported 10,000 apps available for the platform, while Android Wear reported 4,000 apps in May 2015.
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Samsung’s shipments experienced a lull in 2015; with no new releases until the Gear S2, much of the year was simply below-the-line sales of existing Gear models, without promotion to drive up sales.
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With Samsung’s Gear S2 released late in 2015, it is expected that the bulk of its sales will be made in 2016. However, the lack of apps and devices for Tizen indicates that there will be fewer users drawn to the platform, until smartwatch uses become more standardised.
The wearables segment is expected to witness continued growth as 2nd and 3rd generation iterations enter the market. According to the International Data Corporation (IDC ) Worldwide Quarterly Wearable Device Tracker , The worldwide wearable device market is expected to reach111.1 million units shipped in 2016 as perInternational Data Corporation (IDC ) Worldwide Quarterly Wearable Device Tracker. It has grown by 44.4%from2015. It is progjected to grow at CAGR of 28% in 5 years and reach 214.6 million unitsin 2019.One of the most popular variants of wearables, the smartwatch, will reach a total of 34.3 million units shipped in 2016, up 61%from the 21.3 million units expected to be shipped in 2015. The net shipement of smartwatches is expected to be 88.3 million units by 2019, growing at a 5 year CAGR of 42.8%.(International Data Corporation, 2015)
COMPETITOR ANALYSIS
The IDC report also highlights that –
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Apple Watch will lead the smartwatch market throughout 2019, the final year of the forecast. Apple’s leadership is based on its loyal and exclusive fanbase of Apple products owners and a rapidly growing application selection, including both Apple Watch- designed apps and native apps. Although there is plenty of room for design or functionality improvement of WatchOS (the operating system of Apple Watch), Apple Watch has gained enough early momentum to stay ahead of the race.
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Android Wear presently holds the market chaser/follower position behind Apple Watch, a distant second though. The vendorlist of Android Wear has grown to include hardware manufacturers such as ASUS, Huawei, Motorola, Sony and LG, and traditional watchmakers such as Tag Heuer and Fossil. The user experience of Android Wear has been same across devices leaving little room for original equipment manufacturers (OEMs) to develop functionalities further and users opting to select based on price and aesthetic design solely.
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Smartwatch pioneer Pebble comes at third. Its simple user interface and devices provide an easy-to-understand use case. Its low price point relative to other platforms makes it one of the most affordable smartwatches in the market.
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Samsung's Tizen has seen some growth recently and it is expected to pose a threat to Android Wear devices as it includes compatibility with most Android devices and and application selection rivalling Android Wear. Tizen has also been able to incorporate a QWERTY keyboard on a smartwatch touchscreen and cellular connectivity, functionalities that offer it a clear technological edge.
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Among the rest, Real-Time Operating System (RTOS) driven smartwatches have a significant market share but not enough to trouble the existing behemoths.
Operating System 2015 Unit Shipments 2015 Market Share 2019 Unit Shipments 2019 Market Share 2015-2019 CAGR
Android 0.4 2.1% 1.1 1.2% 25.8%
Android Wear 3.2 15.2% 34.3 38.8% 80.5%
Linux 0.2 0.9% 1.1 1.2% 54.5%
Pebble OS 1.8 8.6% 2.3 2.6% 5.8%
RTOS 0.8 3.8% 1.9 2.2% 23.8%
Tizen 1.7 8.2% 2.5 2.8% 9.5%
watchOS 13.0 61.3% 45.2 51.1% 36.5%
Total 21.3 100.0% 88.3 100.0% 42.8%
The above table shows top smartwatch operating systems with shipments, market share and 5-year CAGR (Units in millions). (International Data Corporation, 2015)
SMARTWATCH INDUSTRY ANALYSIS
Porter’s Five Forces (Smartwatch Industry):
Figure 2: Porter’s Five Forces (smartwatch industry)(Porter & Heppelmann, 2014)
Porter’s Five Forces provide the framework necessary for understanding the significance of the transformative changes in the smartwatch industry.
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Bargaining Power of Buyers (Low): Smartwatches have lot of scope for product differentiation depending on the functionalities, aesthetic design variants and in terms of the connectivity through a smart app. Thus the competition is not on price alone. Knowing how a customer uses the device actually enhances a company’s ability to segment the customer base, customize the device accordingly and set prices to better capture value along with value-added services. Companies also tend to have a closer customer relationship through capturing product usage data. This in turn increases the cost to switch to a new supplier and mitigates the bargaining power of buyers.
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Bargaining Power of Suppliers (High): In smart device industry, the traditional supplier relationships are no more. Smart devices often introduce powerful suppliers that manufacturers have never needed so far. In terms of sensors, technology stack, software application, data storage devices, data analytics tools etc., the suppliers can have greater bargaining power if they can showcase their prowess in the above fields.
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Threat of New Entrants (Depends whether High or Low): New entrants in smartwatch industry faces certain obstacles such as high fixed cost of embedded technology, aesthetic design of the devices, and the technology stack. As the device specifications broadens with newly added functionalities, barriers to new entrants also goes up. Smartwatches generate higher loyalty among customers (for e.g. Apple Watch) resulting in further increase in barrier to new entrants. On the other hand, barriers to new entrants go down when these smart devices invalidate the strengths and assets of the existing players in the market through technological obsolescence. This may also result if the existing players fail to fully realize the potential of various functionalities that a smart device can offer.
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Threat of Substitute Products (High): Smartwatch functionalities can be developed through certain other smart devices which may turn out to be more convenient to end users. The smartphones are already a strong substitute that already has an existing base way stronger compared to the samrtwatches. Regular watches also pose a significant threat to the smartwatches as the former comes in a much cheaper price.
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Incumbent Rivalry (High): With the advent of technological advances in consumer electronics and smart devices, new companies are popping up with their own Smartwatch differentiated by either aesthetics or device functionality. The cost structure in the industry is slowly migrating towards high fixed cost and low variable cost. This migration is governed by higher upfront costs of software (application) development and high fixed costs of developing the technology stack. This in turn would result in more and more technologically integrated solutions cropping up increasing the incumbent rivalry within the industry.
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Reebok, being a global sportswear and accessories brand, holds a good chance to leverage on the existing brand value of its watch portfolio (product line expansion). Reebok also has a strong customer base for its sports equipments sold worldwide. This customer base is also the potential customer profile suitable for a fitness and convenience-centric smartwatch manufacturer. Reebok smartwatches can also thrive under the brand value of its parent company Adidas.
On the other hand, many users find the convenience benefits of smartwatches questionable, which affects users’ attitudes to pricing, thus demonstrating a beneficial use case to an user is the largest problem in the industry. While a smartwatch most commonly claims to improve convenience and ‘free’ users from their smartphone, several users and reviewers express that this simply shifts the burden of notification to another location, rather than lessening the load.(Moar, SMARTWATCHES ~ CLOCKING THE TREND, 2016)
This inevitably has a knock-on effect on price expectations. The current price and limited functions are deterring those who might consider buying a wearable. Customers buying the devices are probably doing so because they like technology, rather than for any other reason (Can be categorized under tech-geek psychological segmentation). This is probably the biggest threat that Reebok may encounter as a new entrant in the industry.
GO-TO-MARKET STRATEGY FOR REEBOK SMARTWATCH
Based on the primary research data, we have devised the following go-to market strategies for Reebok in the smartwatch segment.
4P Analysis:
Product: The smartwatch is recommended to have the following features –
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aesthetic fashionable design
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proprietary operating system*
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simple user interface (to facilitate ease-of-usage)
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cellular connectivity through dedicated application
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personalized exclusive app for smartphone connectivity (both Android and iOS platforms)
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complex fitness tracking mechanisms
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smart notification generation features
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censors for additional functionalities (if any)*
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high quality and durability*
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1 year manufacturing warranty
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strong after-sales service*
The * marked items may prove to be a major differentiator with the existing competitors’ products in the market. The features of the device are grounded on our primary research data, as the in-depth interviews suggested notifications, convenience, saving battery life of smartphones and affordability are the key aspects that a customer looks for in a smartwatch.
Price: As per our primary research, there should be multiple price points of the smartwatch variants that the new entrant can propose. The price of the devices may vary depending on the functionalities provided. Our respondents believe that smartwatches are in general cheaper compared to other smart devices with similar utilities such as, Google Glass. Also the price range suggested by the respondents is within £200-£300.
Place: Initially, test marketing can be performed in any 2 of the major cities of US, where the existing partners, if any, can play a major role in creating a market for the new device. Some channels which can be leveraged:
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departmental stores
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speciality stores
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mass merchandisers
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e-commerce websites
On successful beta testing and customer feedback analysis, the smartwatch can be channelized to other parts of the world gradually.
Promotion: Total advertisement and promotional expenses should be 6% of the total estimated sales of the device per annum.
Since our target customers will be students mostly (18-25 year category), the promotional avenues will include –
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advertisements in local and national dailies
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point of purchase displays and pamphlet distribution in the following outlets –
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academic institutions
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IT parks
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apparel outlets
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mobile and other smart accessories outlets
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display during trade events and road shows
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direct marketing by leveraging existing salesforce
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Personal Selling: A dedicated link should be given in the website, pertaining to the new product launch. 24 x 7 helpline number for “at home”delivery, proper guidelineson how to use the device etc. could also ensure repeat purchases.
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low-cost and effective social media marketing techniques with “retargeting” and online query resolution can facilitate the sell of the smartwatch
Segmentation-Targeting-Positioning:
Geographical: Reebok should target tier-I and tier-II cities initially, but later in other parts of the world in a phased manner.
Demographic: The target segment includes the upper-most consumer segments in the Socio-Economic Classification i.e. A1, A2 and B1, and also higher middle-class B2. The different set of consumers are –
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B2C consumers: Middle-income tech-professionals, business professionals, college students, sales executives should form the target consumers in the B2C segment.
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B2B consumers: IT firms, BPOs, KPOs, banks, academic institutions should be targeted in the B2B segment.
Behavioral: The smartwatch can appeal to tech-savvy and fitness-concerned people who are willing to pay a premium for extra convenience.
Psychographic: The psychographic segment would highlight on convenience in getting notified without the hassle of engaging in smartphone – i.e. on-the-go “Cyber Individualists”. These include around 9% of the consumer base and mostly comprise of working professionals and students. They lead a lifestyle of “Thinkers” and they are “Hardcore Loyals” when it comes to brand loyalty.
ASSESSING CUSTOMER RESPONSE
As the smart devices market is already getting dominated by the existing smartphone giants, it is extremely important for the new entrant to differentiate its smartwatch from the ones already established firmly in the market. Smartwatch being a premium smart device targeted towards the upper segments of the SEC, it is difficult to differentiate the product in terms of low-cost. But one key aspect of differentiation can be a customer-centric culture that can foster high customer satisfaction and drive brand loyalty within the customer base. As already discussed, the new entrants target segment includes “Hardcore Loyals” and it is of utmost importance to gain brand loyalty in order to firmly establish the brand among competitors.
Certain measures that can assess customer satisfaction on the smartwatch are listed below –
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1. Home Customer Survey: The new entrant can send home customer surveys to its potential customers through email, phone or take-home surveys attached with customer receipts. This very well solicits the customer’s experience of the product.
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2. Customer Service Questionnaire: These are brief surveys that the customer fills up after getting a problem fixed by the customer care representative. This method provide light on how well the concierge service is functioning.
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3. Social Media Follow-up: Online social media platforms are one key resources (pages, ads etc.) that can provide deep insights on customer satisfaction on the smartwatch. It is important to get the device trending by creating a buzz (through hashtags, launch promos etc.) even before the official launch to gauge what the customer perception is surrounding the device. This also, in a way, helps in sales figure estimation. Social media platforms are also useful in providing prompt concierge services.
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4. Customer Suggestions: Customers often fill up voluntary surveys and provide suggestions that can be seen as a strength or a scope for improvement. Creating customized services by incorporating these suggestions can help build brand loyalty.
The survey techniques mentioned above should not be elongated with too many questions. The survey questions should solicit both objective and subjective responses from the respondent. The survey should be designed aesthetically to have a compelling effect on the respondent to fill up.
REFERENCES
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1. International Data Corporation. (2015). Worldwide Quarterly Wearable Device Tracker. International Data Corporation. Framingham: International Data Corporation. Retrieved April 12, 2016, from http://www.idc.com/getdoc.jsp?containerId=prUS40846515
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2. Moar, J. (2016, January). Juniper Research. Retrieved April 12, 2016, from Juniper Research: http://www.juniperresearch.com/document-library/white-papers/fitness-wearables-~-time-to-step-up
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3. Moar, J. (2016, January). Juniper Research. Retrieved April 12, 2016, from Juniper Research: https://www.juniperresearch.com/document-library/white-papers/smartwatches-clocking-the-trend
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4. Porter, M. E., & Heppelmann, J. E. (2014, November). How Smart, Connected Products Are Transforming Competition. (H. B. Review, Producer) Retrieved April 12, 2016, from Harvard Business Review: https://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition
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5. Smartwatch group. (2014). Overview of Smartwatch Industry. Retrieved April 12, 2016, from Smartwatch group: http://www.smartwatchgroup.com/overview-smartwatch-industry/
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