WHAT PEOPLE BUY: AUDIO EQUIPMENT AND STEREO SYSTEMS

About one-fourth (26 percent) of consumer households purchased audio equipment or stereo systems in 2003, as compared with just about one-third in the previous study years of 2001 and 2000 (see Figure 7.2). This represents a slight downward shift in purchase incidence in the audio equipment category.

	2000	2002	% CHG '00–'02
Total Personal Consumption in millions	$24,037	$25,898	7.7
Source: Bureau of Economic Analysis

Figure 7.2: Audio Equipment Industry Snapshot

Industry Snapshot

Consumers continue to invest some of their discretionary budgets to update their home entertainment systems, including the audio equipment that enhances their music listening experience. Since 2000, personal consumption of audio equipment rose 7.7 percent to reach $25.9 billion in 2002. This product category appeals both to the youth market, especially young men who buy audio equipment not just for their home but also portable equipment to carry their favorite music wherever they venture, as well as the aging baby boomers, who are replacing their analog music libraries of "oldies" with new digital recordings of their favorite rock 'n' roll classics. This migration to digital has led to investment in new sound systems and the proliferation of surround-sound home-entertainment systems that antiquate yesterday's two-speaker systems.

The Bose Company, founded in 1964 by Dr. Amar Bose, an electrical engineering professor at MIT, has made reproducing the sound quality of live music in a little box their goal. Through extensive research in the fields of speaker design and psychoacoustics—the human perception of sound—the company aims to deliver to the listener a sound experience that captures the emotional impact of live music. With sales in excess of $1.3 billion, the company surely must be delivering what they promise. In the years to come, consumer demand for better quality and more authentic sound technology will keep this market vibrant.

Retailer Overview

In Unity Marketing's latest survey, electronics and appliance stores, such as Best Buy, Circuit City, and others, are the shopping choice for the majority of audio system buyers. Some 63 percent of buyers used these kinds of stores for audio equipment purchases in the past year.

The next most popular source for these items are discount department stores, including warehouse clubs, used by 29 percent of shoppers, followed next by nonstore retailers, including mail order and Internet, frequented by 13 percent of audio shoppers.

According to Roper, there are over 30,000 audio and electronics stores in the U.S. Best Buy, with over 500 stores, and Circuit City, with more than 600, are the market share leaders at retail (see Figure 7.3). While Best Buy offers major home appliances along with a wide selection of electronics and computers, Circuit City has stopped selling major appliances in favor of the more profitable and faster-moving electronics.

	EST. 2002 SALES
Best Buy Company (550 stores)	$19.6 billion
Circuit City Stores (629 stores)	12.8 billion
RadioShack (7,173 stores)	4.6 billion
Fry's Electronics (22 stores)	2 billion
Bose Corp. (100 stores)	1.3 billion
PC Richard & Son (43 stores)	925 million
Good Guys (79 stores)	820 million
Tweeter Home Entertainment (170 stores)	796 million
Source: 2002 Directory of Computer & Home Electronics Retailers by Chain Store Guide

Figure 7.3: Electronic Stores Market Share Leaders

Purchase Drivers

Consumers accent their life with music, using it to set a tone or a mood in the home. As they spend time in their homes, consumers see a need for high-quality audio equipment to bring the sounds of life into the home. One respondent explains: "My husband has been studying classical music and composers for the last couple of years. While we have a portable CD player, [it] became less adequate as his interest in music grew. So this year we bought a complete home-entertainment system that has surround sound. It even plays DVDs, so we had to get a new flat-screen television, too, to get the most from the system."

Demographic Variables

Men are the prime purchasers of audio sound equipment in the household. Some 30 percent of men reported their households bought such equipment in 2003, compared with only 22 percent of women, suggesting that more men than women are bringing new equipment into the home. This is a youth market, with purchase incidence highest among the youngest households, aged 18 to 24. Purchase incidence remains strong, however, through age 54, when it drops to 13 percent; after age 64 purchase incidence continues to decline.

A key question for audio retailers and marketers is now that the leading edge of the baby boom generation is over age 55, will this generation's continued aging signal a declining interest in music, as has been found among previous generations? Or will boomers continue to have a steady appetite for music and audio systems like they did when they were young?

This is a category more favored by the affluent households, with purchase incidence highest among households with incomes of $50,000 and above. The presence of children under age 18 in the home relates positively to increased purchase incidence of audio equipment.

Key Demographics of Audio Equipment and Stereo System Buyers.

• This is a male-dominated market.

• Upper-income households buy more.

• Households with children buy more.

• Younger households aged 18 to 34 buy more, with a sharp drop after age 55.