Why do retailers insist on coming out with their own mobile devices?
By Chantal Tode
August 23, 2013
Other retailers look to repeat Amazon's Kindle Fire strategy
Tesco and 7-Eleven are the latest retailers hoping to find success with mobile devices bearing their brand even as others have tried and failed with similar strategies.
Retailers expect to be the next Amazon, whose Kindle Fire tablet has gained some traction in the marketplace. However, they may not be taking into account that Amazon is not making much, if any, money with its tablet or that there is a significant amount of work involved in developing and maintaining a mobile strategy.
“The thought is always, well these devices have become a commodity, therefore why shouldn’t I have my brand on it rather than some Chinese manufacturer’s name or something of that sort,” said Carl Howe, vice president of research and data sciences at Yankee Group, Boston.
“The temptation is that they think their brand will carry the device if it is priced low enough and will therefore make the customer more loyal to their brand,” he said. “We don’t really have any data to support that in OEM world.
“It is a really long, multi-year slog to try to establish yourself as a device manufacturer and seller. Even the carriers have found that slapping your logo on somebody else's device doesn’t make it your device, so I would have to view this with some skepticism that any of them are going to gain serious traction.”
The commoditization of mobile
Convenience store chain giant 7-Eleven is reportedly considering teaming up with a mobile components supplier to make smartphones and tablets at stores in Taiwan following the roll out of 7-Eleven-branded television sets this summer.
At the same time, supermarket chain Tesco is reportedly working on a low-priced tablet intended to compete with Apple and Amazon with a content strategy that includes books, films, music, applications for accessing the retailer’s online grocery store, bank and Tesco’s music and film downloading service Blinkbox.
Tesco’s offering will supposedly be available in time for Christmas shopping season with the goal of helping it sell more DVDs and books.
As the prices for mobile devices continue to drop and adoption grows, retailers are looking for a way to insert themselves into an already significant marketplace that is expected to only get bigger.
However, these strategies face significant hurdles, as evidenced by Barnes & Noble’s experience.
The company poured significant resources into developing its Nook line of ereaders and tablets over the past couple of years. While the devices were well reviewed and were able to drive some sales, they never really took off in a meaningful way in part because of the significant competition from the likes of Apple and Samsung.
Now, Barnes & Noble is shutting down its manufacturing operations for Nook and looking to partner with a manufacturer to offer co-branded devices going forward. The company insists it is not out of the tablet game completely but has been resorting to increasingly bigger price reductions to move its tablets (see story).
Toys “R” Us also came out with its own tablet late last year that is designed for children. So far, it has not made much of an impact on the market.
“A few [companies came out with tablets], and they never went anywhere,” Mr. Howe said. “We’ve seen this movie before, and it never has a happy ending.
“It is usually just a lot of money down the tubes, and they wind up with a lot of devices in a warehouse that they have to get rid of,” he said.
Mobile track record
A few retailers have been successful in consumer electronics.
For several years, Best Buy has offered its Insignia line of consumers electronics such as HDTVs that appears to be working for the chain.
While many would put Amazon in this category, it is important to remember that Amazon does not make much if any money from its tablets.
“I would argue that the only reason Amazon is still in the device game is that they are not trying to make money on it,” Mr. Howe said. “Otherwise they would be struggling a lot against dirt cheap Chinese vendors.”
Driving brand loyalty
Retailers hope to leverage their distribution networks and brand recognition to drive sales for mobile devices and brand loyalty.
However, many consumers are more apt to purchase a cheap device from someone like TracFone, who has been around for a while, than from a retailer who is a newcomer to the space.
Driving interest at the high-end of the market could be even more challenging.
“Retailers, like Amazon and 7-Eleven, have good self-distribution networks and famous brands, which give them a head-start,” said Neil Mawston, London-based executive director of the global wireless practice at Strategy Analytics.
“Retailer-branded devices can do well at the low end of the market where pricing is king,” he said. “But retailer-branded devices will nearly always struggle to gain traction at the high end of the market where brand cachet and reputation are more important than pricing.”
Retailers face other challenges such as the need to service devices when they break and the need to have a strong content strategy.
Still, it is possible that another retailer could come along and find success as a mobile device manufacturer.
“You have to start with the question, why are you doing it?” Mr. Howe said. “If you have a good answer to that question, you might be able to succeed.
“Still, I just don’t get what the value add of it saying 7-eleven on the front of it rather than some other brand is,” he said.
Chantal Tode is associate editor on Mobile Marketer, New York
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