As a continuation from an earlier opinion article on the connected home, this article explores the product categories for growth and highlights the key to success for the connected home. While the infrastructure is ripe for the connected home to flourish, manufacturers need to adopt the right development strategy and address the challenges ahead to gain a strong foothold.
Pockets of potential success in connected homes
Among all consumer appliances, which categories have the greatest potential for the connected home? We identify split air conditioners and automatic washing machines as key categories in consumer appliances for early connected home success. From a global retail volume perspective, split air conditioners and automatic washing machines constitute the largest retail volume share within air conditioners and home laundry appliances, respectively, and so the impact of developing smart appliances in those categories will be comparatively more significant. From a research and development cost perspective, as these products are more developed and therefore relatively more advanced in control technology in their respective parent category, less development effort is required to include smart functions. More importantly for consumers, the percentage increase of these products’ unit cost and unit price for developing smart appliances will be relatively smaller, as they are already targeted at the middle class and wealthy families.
Among major appliances, refrigeration appliances have the least potential for smart appliance applications. With its main function as a storage device, the remote switch on/off control function is rendered unnecessary, since food will go bad if electricity is cut off. In addition, the analytics function for food inventory is hard to achieve currently, because the bar code and RFID scanning technologies, which are mainly developed for commercial applications, are not mature and popular at the consumer level yet.
Bar refrigeration appliances, manufacturers of the above recommended key categories for smart appliances should look to target consumers who are looking to purchase new appliances or replace their existing appliances. With a typical replacement cycle of six years, consumers who bought their non-smart appliances recently are unlikely to replace existing ones in the near term. Therefore, to capture the potential demand from the second consumer segment, manufacturers can look to invest in smart modules that can transform existing non-smart appliances into smart appliances.
Within consumer electronics, internet smart televisions are gaining the most momentum due to consumers’ insatiable appetite for media consumption and the popularity of online media streaming providers such as Netflix and Hulu. The convenience of an embedded app store, typically based on Google Play Store, and access to a web browser directly through internet smart televisions are allowing it to achieve mainstream success. Despite the decline in overall television sales, the growth opportunity will come from internet smart televisions as they are expected to exceed the 50% mark in 2015 and will grow to account for 74% of total television sales in 2020.
Global Televisions by Network Connectivity
Source: Euromonitor International
Keys to success of the connected home
Although manufacturers have been actively developing and promoting smart appliances for the connected home, they need to address the following challenges to succeed.
Interoperability between devices and appliances is one of the keys to the success of the connected home. Currently, the ecosystem is highly fragmented with no well-defined network protocols for devices to communicate with one another. Apps launched by manufacturers to control smart appliances such as Whirlpool Corp’s BLive app and BSH Bosch & Siemens Hausgeräte’s Home Connect App are often only compatible with their own brand or a select number of brands. Households typically purchase their appliances from a variety of manufacturers and having separate apps for each appliance will only further complicate the user experience, thus weakening the value proposition of smart appliances to consumers. The numerous cross-industry consortiums such as the AllSeen Alliances and Open Interconnect Consortium are a good step forward in defining the communications standards for the Internet of Things (IoT) to succeed. However, there needs to be more integration among manufacturers and a consolidation of the consortiums to drive this forward.
Secondly, manufacturers should clearly communicate the real benefits of the connected home to consumers in marketing campaigns. For example, how remote commands to appliances from a smartphone at home or even miles away from home can benefit consumers. How much energy can be saved by using smart appliances. How analytics can help consumers in managing lifestyle. The individual benefits to the “procurement manager”, “finance manager” and other members in the family. If manufacturers are not able to demonstrate the value proposition of smart appliances to consumers, why would consumers spend extra money to buy products with functions of ambiguous value to them?
Thereafter, manufacturers also need to address privacy and security concerns. Euromonitor International’s hyper-connectivity consumer survey conducted in December 2014 across 17 markets with 500 respondents in each market, showed that 44% of the consumers surveyed do not want to share any personal information, compared to 22% who are willing to share personal information freely. To assuage consumers’ concerns over data privacy, the onus will be on the manufacturer to step up its security protocols to prevent possible data breaches. Manufacturers should collaborate with IT security firms such as International Business Machines Corp (IBM) and Cisco System Inc to develop the security mechanism during the initial design phase instead of it being an afterthought when the product is in its late stages of production. Manufacturers also need to assure consumers through security certification and communicate clearly to consumers how they will ensure that consumers’ data privacy and security concerns are met. In addition, governments would be recommended to set up acts to regulate manufacturers and third party service providers on the data usage and cloud analytics to protect consumer privacy. This will give consumers a strong confidence booster in terms of connected home appliances.
In addition, defining the right price points for smart appliances is critical to maximise revenue. A price comparison of selected sample smart appliances models and their non-smart counterparts of compatible performance specifications are shown below for reference:
Sample Price Comparison between Smart and Non-Smart Air Conditioner
Source: Euromonitor International from company research
Sample Price Comparison between Smart and Non-Smart Fridge Freezer
Source: Euromonitor International from company research
Sample Price Comparison between Smart and Non-Smart Automatic Washing Machine
Source: Euromonitor International from company research
The above sample analysis shows that the price difference between smart appliances and their non-smart counterparts ranges from 9% to 60%. Will consumers perceive the smart functions added to appliances as justifying a 60% mark-up in price? Is a 9% price premium enough to differentiate between smart appliances and non-smart counterparts? To answer the above questions, a price sensitivity survey and conjoint survey of decomposed value attributes need to be conducted for each category in each key market to design the customised pricing strategy.
Despite several leading manufacturers having launched their smart appliances and smart TVs in the recommended categories, the connected home has not reached the mainstream market. However, if the key challenges are addressed well, we expect that the connected home will be a key growth driver for both the consumer appliances and consumer electronics industries in the 2015-2020 period.