Smartphone Prices Can Further Increase Post-Lockdown; Phone Sales Can Be Down By 40%
Last month, the COVID-19 pandemic and the lockdown following the curb of the virus had caused Oppo, Vivo and Samsung to shut down their operations in India. Also according to a report from Strategy Analytics, global smartphone shipments dropped 38% annually in February to 61.8 million devices.
Looking at the grim situation, there is more bad news on the smartphone market front!
Once the lockdown ends, the smartphone brands in India are most likely to further increase prices due to supply shortages of components and currency fluctuation.
Read to find out more…
What is the Fuss About?
According to the market research agency International Data Corporation (IDC), the smartphone brands have already hiked prices due to the GST increase from 12%-18%.
Navkendar Singh, the Research Director, IDC India, told ET, “Brands will be under immense pressure to find growth this year and will increase prices. The demand will continue to decline for a few quarters as consumers spend on essentials than buying phones. Revival will only start by end Q3’20 during festive times.”
According to Singh the decreased demand will impact replacement buying, which generally helps in Average Selling Price (ASP) growth. He said that the ASP’s will remain between US $155-165 with fewer upgraders in 2020, with no major upside or downside expected.
As per IDC estimates taking into consideration the COVID-19 outbreak in India, the country’s overall handset maker is expected to decline by 20-25% in 2020, while smartphone and feature phone categories could decline by up to 5%.
As per Singh, the brands will be forced to relook at the marketing investments. They can come up with initiatives like extended phone warranties to earn the goodwill of the existing consumers and engage through social impact messaging and campaigns which can help in building a positive brand association.
Why Will the Prices of the Smartphones Increase?
The cautionary spending will take a front seat resulting in decreased retail walk-ins, spends and overall revenues for the brands during the year. He said, “This can lead to prolonged replacement cycles, price increase by the brands, weaker than expected consumer demand throughout 2020.”
The component supply and demand chain has also been disturbed in Q2 2020. Most of the factories in China are resuming operations but at a slow pace and will gradually ramp up the capacity into late April or early May.
In addition, the lockdown of 21-days in India has imposed restrictions on the transportation. The priority being given to the medical equipment, essentials etc. over parts of phone components will surely add to the shortage of components coming into India and reaching manufacturing plants. According to Singh, this shortage in manufacturing due to shortage of components is expected to revive not before the end of 2Q’20 or early 3Q’20.
A Marketing Blitz Expected at the End of the Year?
From around mid-March 2020 onwards, e-tailers attempted to revive the demand with a few sales festivals offering attractive discounts, but no significant rise in sales was observed.
IDC also expects eCommerce platforms to go all in, in terms of marketing and investments around delivery as the retail walk-in and purchase slowdown will persist for next few quarters.
Singh also said, “The last 4 months of the year will see huge marketing blitz across price points and channels. Of course, this is under the assumption that we see recovery by the September timeframe, just in time for festival season to kick in.”
IDC expects the pent-up demand from the first half of the year will gradually shift to the second half, extending to the Q1 of 2021 as well.
In addition Singh said, “The channel ecosystem, especially the e-tailers should focus on contactless and sanitized product delivery which can have long term impact on consumers opting for online purchases as against offline.”
Retail and Offline Smartphone Market in Danger?
Singh said, “Postponement of the smartphone purchase has been witnessed across all channels, price segments, and city tiers.” A drastic dip in the walk-ins has been seen across multi-brand outlets small -medium-large and even the modern trade counters as the lockdown was imposed.
Singh added that a large portion of brand investments in retail and offline marketing will slow down till the Q2, as footfall on retail counters remain low. “Instead, an increase in TV and Digital Media spent by the brands is expected to leverage the rising TV viewing trends during the lockdown period.”