Retailers that offer heavy discounts on games and DVDs over Christmas may be missing out on profits unnecessarily, according to global marketing group GfK.
Presenting at GfK's Oz Toys conference in Sydney last week, business unit director Gwenno Hopkin said that entertainment hardware, including game consoles, CD and DVD recorders, camcorders and home theatre systems, has enjoyed steady sales throughout the first half of 2002, which will lead to software sales in Q4, regardless of prices.
"Customers will purchase whether the software is discounted or not," said Hopkin. She added that retailers should aim to preserve margins and engage in piggyback sales of software and additional peripherals like speakers, now that consumers' interest in digital entertainment has been triggered.
Meanwhile, the retail channel copped a serve from Columbia Tristar managing director Michelle Garra, who said it was difficult to assist resellers in making a profit when they "put market share before financial gains".
Price erosion on DVD-related gear is more pronounced in Australia than in any other Western country. According to Hopkin, it wiped $53 million off DVD hardware revenue between January 2000 and September 2002.
"We've seen the retail price on titles fall from $35 to $26 since last year," said Garra. "The price on new releases has fallen from $34 to $29.10." Discounting by independent retailers saw discrepancies of up to $170 on games and DVD titles.
Retail outlets also performed poorly in a Columbia user-group survey, with staff ignorance being the primary flaw in the shopping experience. Forty-two per cent of respondents indicated that they were dissatisfied with the allocation of floor space committed to DVDs, while 50 per cent were unhappy with the level of product knowledge that staff had. A quarter indicated they were dissatisfied with their interaction with store staff.
"The retailers in the room today would expect a 90 per cent score on a question like this," said Garra, indicating a severe blind spot when it comes to customer needs.
GfK estimates household penetration of DVD and home theatre to be 30 per cent by the end of this year, which translates into $148.6 million spent on hardware and a further $120.6 million on software through retail outlets. By 2004, it is predicted to reach 70 per cent, which leaves significant room for growth and complementary sales.
As upgrades come into effect around 2004 and old DVDs end up in the children's bedroom, a plethora of opportunity for children's games and educational software will emerge, according to Hopkin.
"This will create a new wave of opportunity for software in the right genre and at the right price," she said.