“Stop selling those machines!” … we don’t really need a new one.
This is a 3-part series on the state of home appliance products and our generation’s experience with it. In part one I debate on how we Millenials experience these products and how weird it is for us to own and use them. In part two I demonstrate the reasons why white goods are produced and sold this way. In part three I focus on a possible service-centric solution, basically “what if you would rent that machine” instead of owning it.
Part II: The industry state
In this second part of the 3-part series on state of home appliance industry I focus on the state of the home appliance industry.
I am not the expert in manufacturing anything but hypothetical worlds. The purpose of this article series is to come up with a new business model and showcase it, not to predict the future. The world I will deconstruct in this second part is the way I see it, limited, but interesting I hope.
The reader should take this as a set of assumptions that will serve as a base for the prototype showcase in the next article.
The assumptions are:
- Manufacturers have failed to build strong, transparent and lasting relationships with white goods consumers.
- Brand value is eroding: retailers are battling price wars and don’t care about brands while manufacturers seem to have specialized in production optimization and cost reduction, rather than quality and experience where the value lies.
- Feature creep has severely affected domestic appliance products due to failed understanding of what users really need.
- Ecological taxes and EU, eco legislation is a failed attempt to push manufacturers and users into being green — resulting in ineffective solutions and frustration for both.
- The smart home shouldn’t be a feature, but an environmental effort. Being efficient and self-sustainable isn’t just cool and better living, but a necessary future.
Let’s dig a little bit deeper into each of these assumptions.
Insincere and cloudy customer relationships
Technological advance has brought appliance producers to a seeming threshold of innovation. Instead of using technology to produce long-lasting, high-quality products, they artificially shorten life-cycles of products in order to boost sales. Selling us features wrapped in fancy names and using technology in order to force us to buy more, has the opposite effect: we stopped believing.
Don’t get me wrong, it is perfectly fine for devices to have a pre-set lifespan. Conversely, the more accurate the predicted product life cycle, the better, at least we know more accurately what to expect, right? It is also totally fine to lock features and offer upgrades on devices — as long as it is clear who pays for what, it is OK. What is not acceptable is hypocrisy about this: it is not fair (and not even legal) to sell products to consumers without offering clearly what they are buying. It is not fair to lie, and it also isn’t a good investment.
VW estimated to have lost US$10 billion in brand value since emissions scandal emerged.
Is longevity something consumers want? Will eventually producers be forced to become transparent about product life cycles?
While we are witnessing other industry giants (Volkswagen) being caught green-washing consumers it is easy to believe that white goods manufacturers are also washing their sins away both legally and illegally to keep being labelled green. It might be as well that the legislation was written without the user in mind, or it might be that manufacturers don’t really care. Whatever the case, offering mysterious ECO buttons and programs without users knowing the impact on environment is definitely at least ineffective if not downright irresponsible and hypocritical.
ECO buttons are a perfect example of this slacktivism — press it and your sins will be forgiven. Environmental responsibility can be measured in Euros not in ECO-buttons and will not be paid back in heavens, but on your backyard.
The World needs producers who are true to their mission to enable people to live better, instead of having the business goal to produce more and sell more. We need transparent, honest, working, sustainable solutions.
Brand value erosion
After months (years?) of her washing machine washing really badly, my friend’s mom finally decided to do something about it. Did she do a thorough online research and invest time into knowing what she wants / needs? No. She went to the petrol station (!) and she bought a washing machine there, because it was heavily discounted using her loyalty points. Brand value? Sure, Petrol’s!
As online shopping continues to grow at the expense of store visits, the premium in the future will be on creating unique, brand-defining experiences that keep customers coming back — whatever the channel.
… says PWC’s 2015 report on retail industry. Typical retail margins average about 18%: from 12 (small local) to 24 (international). For white goods this is even less, due to factors such as big online competition, the little emotional value these products have and because other product categories have better margins. Bacause of already small and shrinking sales margins, retailers operate only by big numbers, focusing on quantity of sale rather than quality of purchase. Basically, retailers treat white goods as cheap, low-value, almost consumables, mostly not caring nor for the brands nor for the shopping experience. How is that? Well, surely, they are just selling what manufacturers are offering and what customers are buying. This IS the standard.
What becomes of brands that sell consumable products with close-to-none emotional value and recognition. They lag:
(2014 to 2015, Brand Finance) While Apple (128,303$, 1st) keeps its first place, they even grow for for 23%, leaving Samsung (81,716, 2nd) far behind growing still 4% and Amazon farther (56,124$, 7th) but attacking with 24% growth. While this at the top end of the top 500 most valuable brands, there is LG ( 12,112$, 98th) lightly rising, Bosch (9,419$ 126th) lightly falling, Panasonic (9,280$; 130) and Philips (8,082) both plummeting. Miele ( 1,751$) and Whirlpool ( 2,492$) don’t even get on the list. But look, there is Ikea (18,540$, 51st), a highly respected retailer selling Whirlpool’s products (reportedly at cut-throat margins). It is hard to acquire a clear picture about the exact value of white goods brands out of these numbers, but it is very clear what best brands are doing differently and that home appliances is not really the most pleasant market to be in.
Surely, the market is shaking and producing dishwashers that catch fire randomly and then recalling half million of them hurts badly. It seems that white products brands are being bought and sold hastedly as manufacturers search for their lowest cost production plants set-up. New brands (Beko) are rising and pouring money into advertising to get their stake of the cake.
While manufacturers optimize for low-cost production, shorten life cycles and produce a confusing number of devices which are not usable, brands are lagging and losing value. Instead of focusing on themselves, brands should find ways to control and integrate as much customer experience as possible, but most of all focus on the value for the customer.
Feature creep into products
A common pitfall of most electronic device manufacturers is that while they search for ways to appeal more to consumers and sell more, their marketing often wrongly listens only to power-users (early adopters) and then they fall for a seemingly logical conclusion that when it comes to product features, “the more is better”. Products indeed seem better with more features, they can be sold as better than the latter model and they can be differentiated among themselves — however meaningless the differentiating factor might be.
Also in terms of manufacturing, it is much easier to add features to existing products than to redesign the whole thing from a scratch.
Often manufacturers introduce features to machines variably through each market, to adopt to market position and to avoid inter-market product purchases. The result for consumers is a product mess, hundreds of barely differentiable products and product lines.
But customers actually demand more features and buy them, I hear you. Yes, customers indeed trip on more features. As HBR beautifully puts it, it is like a kid in a candy store. If asked to choose, customers will always want all bells and whistles.
Beside the feature love customers express, the reality is that they are very aware that more features means more complexity and less usability — which they absolutely hate.
Even though more features might appeal to customers at the time of the purchase (thus higher short-term sales volume) it backfires when users begin to use devices and experience the complexity (thus brand damage and long-term sales loss). Before use, capability mattered more to the participants than usability, but after use, usability drove satisfaction rates. As a result, satisfaction was higher with the simpler version of the product, and in a complete reversal from the earlier studies, the high-feature model was now rejected by most participants.
As it always turns out, asking customers what they want is not really the best idea.
Between the feature bloat of “customers demanded it and we listened” sales propositions on the one hand and usability that drives long-term customer relationship on the other, what is the just right amount of features to introduce? The answer lies in:
- Rather than listening to what users say through inept market research, work with prototypes and usability-test products, observing users’ behaviour patterns.
- Getting back to the drawing board and dropping obsolete features, simplifying products to do few things really well.
- Giving people the option to experience the use of devices instead of deciding upon features.
Even for the best, featuritis stays the no.1 business problem and a clear notion that something is not right on the market.
No one will save you, but yourself
Manufacturers panic with the sales numbers plummeting is old news and while Apple and Samsung still continue to grow in consumer electronics in the face of the new economic crisis, the prospects for home appliance industry appears even more dramatic.
With consumers’ attention spans shrinking, brand loyalty eroding, and product and technology life cycles shortening, even the best company can lose the hearts and minds of fickle consumers in just one or two innovation cycles.
EU initiatives approaching the problem with crying to mother attitude suggest that reducing the red-tape and flexing the eco laws would result in more profitable production, more choice (!) for the customers and enable them to innovate in fields such as IoT.
While reducing red-tape and implementing enabling legislation might certainly help, it is most definitely better to adopt to the market and listen closely to consumers — what can you do to really change how people behave about their consumption? Sell more devices with eco buttons and eco labels? “Stop selling those machines” definitely sounds a better 2025 plan.
Technology in the fields such as IoT, smart home and smart grid are indeed the way to go. Since washing machines are one of the biggest energy consumers in a modern home and homes represent about half of the electricity consumption (and volatility), the use of connected services would inform and empower consumers to use their existing machines more efficiently or new machines with less or zero impact to environment. The formula of environmentally friendly household is: energy self-sufficient home, not-really-stupid devices and empowered consumer.
Product-service experiences
Even when people buy good, high quality products … they are destined to fail. Not only because of shortened product life-cycles, but because things aren't made to be used forever (well, some, at least). Then, introduce the second tier of problems: the service.
Supposedly you buy a fine machine — that eventually gets broken. Rightly so, you are one lazy bad owner, you! Did they “forget” to tell you how to treat your machine rightly? Nah, it’s all your fault, you are the owner! Suddenly a whole host of additional problems arise: deciding which service, deciding how much to pay, dealing with the service, getting them to fix it, making sure they actually did … and all those hours wasted listening to the awful call-centre waiting tunes. Disgusting. This paradox seems scarily true: the better the machine you buy, the less experienced you are with servicing it, the less chance there is you will get a good service. Because the only way you do get a better service is choosing a better one.
Whether this is true or not, quite possibly the biggest cause of unhappy experiences with appliance brands are poor customer and servicing experiences. Appliance manufacturers have zero influence on the product experience, when people decide for uncertified services. The older the machine, the less control over the quality and brand value. The newer the machine the more prone to (un)intended damage. Brands don’t seem to care, don’t worry, if it doesn’t work, junk it and buy another one, its dirt cheap!
Apart from the lost opportunity to control and maintain quality, manufacturers are loosing a big share of revenue, money people would gladly pay if things would be working as promised.
Is there a better way? Oh, there is, and it will hurt. Its Apple (oh, stop that!), the shining star of the brands on top of every list. And it is Ikea and McDonalds, companies that have tweaked the service experience to the inch and have mass commercialized it. And experiences matter more than products, and much more so for the new generations. We began to hate products and love brands that make us experience stuff (RedBull, WaltDisney and GoPro).
I love this overly-simplified breakdown by TNW of what Apple did better:
- Make it easy for customers to view and access all products
- Simplify and streamline transactions
- Implement a ‘community’ element
- Keep the experience clean and uncluttered
- Enable customers to do more than just buy your products
If brands could control the distribution chains and service, they would integrate profit margins of both retailers and service partners. This is what Apple did.
Conclusion
The white goods industry is living a nightmare: consumers aren't buying as much as they’d need to survive, retailers are growing in power and squeezing margins and EU eco laws are getting in the way of producing stuff cheaper. They cut corners here and there, but people still don’t care about brands, yet the promise of IoT and smart-home new consumerist wave has evaporated after years of techno-enthusiasm.
Dear producers, don’t cry. Stop loopholing and start observing what we love. Stop producing and start doing things we really need. Do we need new, more products with more features? We might say that, but believe it or not, we really don’t. What we want is better relationships with you. We want to believe in you, what you do from A to Z and feel it in every touch with your people and your products.
Read on
part 2: The industry state
