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Beating the odds with better value proposition

Posted: 03 Apr 2014     Print Version  Bookmark and Share

Keywords:value proposition  Apple  Ikea  electronics supply chain 

Like many other industries, the electronics business is locked in a cycle of ups and downs. With this in mind, is it possible for an entire industry to suffer from post-traumatic stress disorder? Ever since the Internet bubble burst in the early 2000s, it feels as if many members of the electronics supply chain have traded "irrational exuberance" for an over-abundance of caution. And each ensuing dip in the economy has reinforced this survival-mode mindset where cost reduction strategies seem to increasingly dampen our industry's drive for innovation.

Some will say that this cost-cutting crusade is an understandable, and necessary, response to ongoing economic instability and the subsequent volatile demand for "luxury" items such as modern phones, tablets and even household appliances. Well, how then do they account for Apple's record performance in the height of the recession? In 4Q09, Apple sold 3.05 million Macintosh computers, 10.2 million iPods, and 7.4 million iPhones. In 2010, Apple reportedly sold 1.7 million iPhone 4 models in the first three days of the phone's release.

According to Terry Brewer, president and founder of Brewer Science, it all comes down to value proposition. Brewer was one of several executives participating in the closing panel discussion of the SEMI Industry Strategy Symposium in January. He debated the price/value tradeoff with panelists, including John Chen, PhD, VP of technology and foundry operations at Nvidia. Chen argued that price sensitivities in the consumer market place make affordability a priority for manufacturers today.

Brewer, however, contends that the "persistent emphasis on cost reduction" in the tech industry threatens to bring about a "decline in the value of the manufacturing supply chain." Citing the Apple example, Brewer said, "Steve Jobs came out with an $800 phone when everyone else was trying to reduce cost. Apple won because it had a better value proposition."

While both panelists had valid points, in my heart, I must side with Brewer. That does not mean I advocate throwing caution, and money, to the wind. I am a big proponent of learning from history, and I am keenly aware of the fact that our industry has changed, irrevocably, in the past 15 years. But, I do believe there are some ideals we cannot give up. Foremost among these is the concept that innovation is, and always will be, the very foundation of our industry and the single greatest driver of growth in our economy. If we lose sight of that, we forfeit everything that has made our industry so extraordinary.

It's easy to get so caught up in penny pinching that we forget that our industry was built by people, both producers and consumers, who place a premium on exceptionalism and originality. But, if you take the time to look around, there are also plenty of reminders.

One example is the experience of Swedish furniture maker Ikea. Though this case falls outside the tech sector, the premise translates across industries. Ikea is generally known for two things: its unique designs and its low prices. But the company came up against an unusual challenge when it sought to market its products in China. The low-price message was not resonating with Chinese consumers. To the Chinese middle- and upper-class consumers, Ikea is an "aspirational brand," a representation of the prosperity of the Western world. With their newly earned disposable income, these customers are looking to buy exclusivity and branding.

The bottom line here is that consumers (whether commercial or industrial) value innovation, and even in the most troubled times make it a priority in their spending. It's our job, as members of the electronics supply chain, to do our part to bring them the products and technologies they just can't do without.

- Lynn Torrel

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