WHAT PEOPLE BUY: COMPUTERS AND SOFTWARE FOR HOME USE


WHAT PEOPLE BUY: COMPUTERS AND SOFTWARE FOR HOME USE

The purchase of computers, hardware, and software for household use, rather than for use in a home office, rose from 40 percent in 2000 to 47 percent in 2003. Today consumers generally are upgrading their older home computer models with the latest technology as the price for computers has fallen below $1,000 for a fully equipped model. House-holders also are adding new software and hardware accessories to handle photograph files, music recordings, and household records. Seemingly, the appetite for the latest computer technology is unquenchable.

Industry Snapshot

Personal consumption of computers, peripherals, and software peaked in 2000 when sales reached $43.8 billion, according to statistics compiled by the Bureau of Economic Analysis (see Figure 7.6). After dipping in 2001 to $42 billion, personal consumption of home computers, related equipment, and software rose back in 2002 to $44.2 billion, up slightly from results in 2000. Now that the majority of American homes already have a home computer, and the computer systems they own are not becoming obsolete as fast as they did back in the 1990s, further growth in the sales of home computers, peripherals, and software is going to be hard to come by.

 

2000

2002

% CHG '00–'02

Total Personal Consumption in millions

$43,834

$44,162

0.7

Computers and peripherals

33,514

33,721

0.6

Software

10,320

10,441

1.2

Source: Bureau of Economic Analysis


Figure 7.6: Computers and Software Industry Snapshot

In order to move the home computer market off its current plateau, manufacturers must feed the consuming public's desire for new technology and upgrades, as well as convince the nation's 49 percent of households that do not yet have a computer to go out and buy one. Today, the upgrade market is very different from the new computer market. The market for new home computers targets a lower-income demographic because far more lower-income households have no computers. On the other hand, the market for computer upgrades is toward the upper-middle and affluent consumers. According to the latest government census, nearly nine out of ten family households with incomes of $75,000 or more have at least one computer and about eight in ten have at least one household member using the Internet at home. Among households with incomes below $25,000 a year, only three in ten have a computer and about two in ten have Internet access.

The desire to purchase a home computer and equip it with Internet access is particularly strong among households with school-aged children. Having children in the home is a key demographic associated with buying and/or upgrading home computers. Two-thirds of households with school-aged children have a computer and about 53 percent have Internet access.

Retail Overview

As the price of computers declines and their ease of use increases, computers, computer peripherals, and software can be found at a growing range of retail outlets, from local Wal-Mart stores, office supply stores, such as Office Depot and Staples, specialty computer stores, such as Gateway and CompUSA, home appliance centers, such as Best Buy and Circuit City, and even local video, game, and books stores. Online and direct marketing retailers, such as Dell and Gateway, are also an important retail resource for this category of goods.

When consumers seek computers and software for home use, they look to electronics and appliance stores first (see Figure 7.7). Some 57 percent have made purchases of home computers and software at these stores in the past year. Next are the discount department stores, visited by 31 percent of computer and software consumers. The discount stores are a surprisingly important place for consumers to buy computers. Because they offer little in the way of customer service, being strictly cash-and-carry type outlets, their appearance as the number two most important source for consumers to buy home computers suggests that the computer shoppers in 2003 are confident about their ability to unpack the box and get the computer working on their own without any special assistance or store support. It also demonstrates the role of price in leading shoppers into the store to buy.

 

EST. 2002 SALES

CompUSA (224 stores)

$7.96 billion

CDW Computer Centers (2 stores)

4.3 billion

Gateway (300 stores)

4.2 billion

Micro Electronics (18 stores)

1.5 billion

PC Warehouse (87 stores)

480 million

Source: 2002 Directory of Computer & Consumer Electronics Retailers by Chain Store Guide


Figure 7.7: Computer Stores Market Share Leaders

Nonstore retailers are also an important place that shoppers turn to buy computers. Some 30 percent of consumers have made a purchase through a nonstore outlet, including the Internet, television shopping, and mail-order catalogs in the past year. Demographically, the older consumers, aged 55 to 64 years, are the most likely to choose nonstore retailers in making their home computer purchase. This suggests they feel more confident and comfortable buying these items from home, rather than in the store face-to-face with a store clerk.

Increasing convergence of electronic technology is a key trend in the electronics sector as a whole. Computers, traditionally thought of as work tools, are converging with entertainment electronics, notably televisions, home theatre systems, gaming systems, and audio equipment. The rapid growth of the Internet and its worldwide communications capability is linking consumers even more closely with their computers and extending the computer's potential as a multifunctional home appliance. Due to this convergence, retailers will find many opportunities in this marketplace to serve new and emerging consumer needs for state-of-the-art electronic tools.

Purchase Drivers

The need to upgrade an existing home computer is a key driver for new computer buying. As one recent computer purchaser explained: "We just bought a computer. We already had one, but it was about 300 years old in computer years. We needed a faster computer. Now with the new computer, if I wanted to work at home, I could." Another consumer purchased a second home computer with the plan that this machine will last for a few more years. "We just bought a computer. This was our second computer. I could have lived with the old computer, but I wanted a new one. I hope we don't have to upgrade it anytime soon, so we got all the bells and whistles. We even added surround-sound speakers."

In buying new computers, consumers are looking for expanded functionality—the ability to do something with the computer they never could do before, positioning computers squarely as a utilitarian discretionary purchase. As one respondent put it: "We just bought a new laptop computer. We didn't strictly need it, since we have three others at home already. But we needed the laptop because of changes at my work. I have to drag things back and forth for work so the laptop is a real convenience."

Often, the educational needs of children justify computer purchases. In our research, one parent told us: "A basic computer is almost a necessity today, especially for the kids who have to do research on the Internet and write papers. The educational component of the computer is very important. Your kids have to keep up."

Once the computer is in the home, consumers often want to upgrade their machines to add capabilities and functionality. Another respondent said: "We added a CD burner to our computer so we can pick and choose the songs we listen to. The reason I purchased the CD burner is because we recently suffered a number of deaths in my immediate family. It made us realize that life is too short. You should have fun. If something gives you pleasure, then you should enjoy it. We deserve it, and it makes you a better person and a more pleasant person to be around. Music is important to our family, and now we can do custom mixing, so we enjoy life more."

Demographic Variables

Men take the lead in household computer purchases, with 50 percent of men reporting the purchase of a computer, software, or hardware for home use, as opposed to 44 percent of women. Youthful households, especially those aged 55 or younger, are more likely to have purchased a computer or related equipment in the past year. However, 38 percent of households headed by persons aged 55 to 64 bought a computer in the past year, suggesting that the perceived need for a computer is spreading in the mature market as well.

Middle-to-upper-income households are far more likely to have bought a computer, with purchase incidence exceeding 60 percent for households with incomes greater than $50,000. A computer purchase is also strongly linked to the presence of children in the home; 58 percent of households with children, compared with only 40 percent of those without, reported buying a computer and related equipment in 2003. Households with "some college" and those with more educational attainment are much more likely to purchase computers.

Key Demographics of Buyers of Computer Hardware and Software for Home Use.

  • Buyers are more likely men.

  • The presence of children favors purchase.

  • More educated households buy more.

  • Households under age 55 buy more, with the strongest purchase among households 25 to 44 years of age.

  • Households with income levels of $50,000 and above buy more.