The mobile market is in good shape to weather the economic storm

The mobile market is in good shape to weather the economic storm
Christmas seems a long way off for many consumers, despite being in just a few weeks’ time. Having no chimney will not be the main reason for Santa not delivering everything on our lists this year.

Although the government and the Bank of England have only recently upgraded their economic storm warning from hurricane to tornado, from GfK’s perspective there is little doubt that consumer demand has slowed. GfK’s Market-i report (monthly analysis on the £45bn consumer durables sector) has, over the past six months, highlighed a decline in sales for many sectors, with current performance reflecting the last recession in the early 1990s.  

While the housing slump, which had an impact on domestic appliances, appears to be levelling out, the current crisis is affecting
high-end consumer electronics (flat panel televisions, monitors and digital SLR cameras), which have historically caused growth in this sector. But what about the mobile sector? It has boomed over the past 10 years within the consumer market and has not experienced a recession. Consequently, it finds itself in unchartered territory.

So has the recent downturn in consumer spending affected the mobile industry? Essentially, no. The market is resisting the urge to come out in sympathy with other sectors and positive growth is still occurring. GfK figures show the combined total of prepay and contract is 12% more than the same period in 2007.

GfK analysis has identified two key trends – resilience is occurring in the prepay market and contract smartphones are proving to be a hit with consumers.

The prepay market

At GfK we have seen a change in the market over the past 12 months, with a growth of 22.6% when looking at cumulative year to date, and 11.9% when comparing year on year.

This growth has arisen from three main factors. Firstly, operators have expanded their handset ranges with many contract hero handsets extending their life cycle in this sector. Secondly, the competitive nature of the sector means that the consumer can choose from quality brands and products below the £50 level, making it more likely that consumers will change handsets within a six to 12-month period.

Finally comes the success of Sim-only. Within the harsh economic climate, consumers value being able to reduce their contractual monthly spend while not being penalised by a monthly allocated airtime usage and a minimal contractual obligation.

It is no secret that the contract tariff market has faced challenges over recent months, with existing customers possibly looking to terminate rather than renew, switch to Sim-only deals or migrate to prepay. GfK monthly figures show a year-on-year decline of 9.9% for the contract market.

That said, the contract market has been rejuvenated by smartphones, and in particular the appeal of Apple’s iPhone. This particular device has revolutionised the way consumers look at handsets from a multi-application perspective and has identified those who are willing to pay a premium through a contract or handset purchase.

With consumers recognising the value of such devices, manufacturers have been quick to react to this growth sector with the launch of specific models hoping to grab a slice of the market.

For operators, demand for such products has helped to retain existing clients, and exclusivity has attracted those on competing networks who are willing to churn.

The idea that we will all be using smartphones in the next few years seems improbable for the mainstream customer. For the industry, the continued launch of innovative handsets aimed at wowing buyers within the contract market will be of paramount importance if margins are to be maintained, while prepay will continue to attract those who essentially just require a handset. At present, getting the marketing correct the first time around has never been more important.

David Evans is Telco account director at GfK Retail and Technology david.evans@gfk.com
Smartphones
Written by Mobile Today
Mobile Today

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