More than a flash in the pan

The GCC region’s burgeoning reputation as a tourist destination continues to buoy demand for fast moving consumer electronics, including MP3 players, making it a lucrative market for consumer electronics vendors eager to cash-in on the market for new and innovative products.

With Apple’s all-conquering iPod dominating the market for hard drive-based MP3 players, rival vendors have turned to the increasingly dynamic fl ash memory market to claim a stake in the sector.

In the hustle for pole position, rival vendors have sought to cram more memory into increasingly compact devices. This trend has seen consumer demand explode for flash memory devices, which has led to OEM wholesale prices for flash memory chips falling to as little as US$25 for 2GB. Despite the greater storage capacity provided by hard drive MP3 players, flash memory has proven more cost-effective in models with a memory configuration of less than 4GB.

According to market research supplied by GfK Marketing, consumer demand for hard drive-based MP3 players in the UAE dropped below 10% in the final quarter of 2006. Observers have cited the compact size, durability and economic efficacy of flash-based memory as making it a logical choice for digital audio products.

“Most consumers use their MP3 players everyday,” says Samsung Gulf’s sales and marketing manager, AV division, Makarand Phadke.

“This puts a higher premium on the durability of a particular product as the devices are more vulnerable to daily wear-and-tear. Flash memory has enabled vendors to develop products that are both lighter and less likely to be damaged in the event of an accident. The reduced cost of flash memory also aids price rationalisation and maintains healthier margins for channel players.”

GfK observes that fl ash memory-based models constituted 85% of the UAE market for MP3 players, in terms of units sold in the first quarter of 2006, with this fi gure rising to 90% in the final quarter of the year.

As a relatively new player in the market, Samsung aims to challenge Apple’s hegemony with its recently launched flash-based K5 and T9 models.

“Samsung has been trailing in the MP3 player market as consumers tended to favour products with larger storage capacities using hard disk drives,” admits Phadke.

However, the company maintains the initial lag in sales is to be expected.

“Samsung’s typical market strategy is to analyse product sectors before committing to them fully and exploiting any gaps it identifies,” claims Phadke. “We are confident we can quickly make significant gains in terms of market share with the release of these new products.”

Samsung is heavily promoting the fact that the K5 is the first MP3 player released on the market to feature built-in slide-out speakers.

“The K5 enables users to enjoy their music individually or in a group without the need for cumbersome speaker accessories,” Phadke claims.

The K5 and T9 models are also the first Samsung digital audio players to feature the company’s impressive OLED display technology.

“Samsung’s use of fl ash memory and OLED displays has enabled it to rollout a product that combines class and quality, at an affordable price,” claims Phadke.

The entry-level K5 retails for US$190, approximately US$25 more than Apple’s iPod nano. Phadke claims that the player’s additional features will ensure its popularity among consumers.

“Samsung is confident that the K5 and T9 will challenge the dominance of the [iPod] nano as they offer consumers more features and better value for their money,” claims Phadke.

While Phadke says Samsung has traditionally faced slim margins in the highly competitive fl ash memory market, the new products are priced to ensure greater returns for the company and it’s partners.

“We have traditionally had to contend with 7% profit margins in this sector,” he concedes. “Our objective in this market segment is to shift large volumes in order to maximise our returns.”

The increasingly bare profit margins typically associated with the Middle East MP3 player market have forced other vendors such as Creative Labs to review their market strategies.

“Our response has been to revamp and reposition our products in the mid- to high-end sector, which is providing us with healthier margins,” claims Leonard Yap, associate marketing manager of Creative Labs ME.

Yap claims that the premium sector of the market offers the greatest prospects in terms of growth.

“Consumers are becoming increasingly sophisticated in terms of their demands and buying patterns – they’re opting for quality over economy,” says Yap.

“We strive to distinguish our brand from entry-level competitors by emphasising the quality of our product portfolio and by ensuring competitive price points. Many of the major brands are recognised for their ‘lifestyle accessories’ ranges and Creative has to compete with the peer-acceptance of brands such as Apple and Sony.

Intense competition has even forced some entry-level vendors to abandon the market completely. Dubai-based Nikai is currently reevaluating its strategy for the sector.

“We are currently operating at a loss in the MP3 player market,” says Amit Vardhan, Nikai’s assistant general manager. “As a result, we are developing a range of products, that boast multimedia capabilities such as a portable DVD-MP3 player.”

Nikai also reports that the rapid pace of technological development in the market, which has done so much to spur consumer interest, means that smaller brands are in danger of being swept aside by the major players.

“These factors have led consumers to expect improved performance for less money,” says Vardhan.

“That’s spells bad news for smaller brands that do not have the resources to develop new technologies.”

At present, the iPod’s market dominance seems unassailable as the company leads the market in terms of sales, brand recognition, and aesthetic design.

However, Apple’s switch to flash-based memory with its iPod nano could signify a power-shift in the global market for MP3 players. For example, if Samsung can leverage its expertise in the field of flash memory, it should succeed in establishing itself as a major force as both as a manufacturer and a brand in its own right.

The falling price of fl ash memory has opened the way for Chinese and Taiwanese OEM manufacturers to match the major players in terms of product quality and beat them on retail price. A likely scenario is that leading multinational companies will no longer be able to rely on customer loyalty and peer acceptance to maintain market leadership as consumers become more demanding in an increasingly dynamic market.

Sony

The Japanese consumer electronics giant launched its latest range of Walkman-branded MP3 players at November’s GITEX Dubai.

Packaged in a unique cylindrical aluminum casing, Sony’s new NWS200 is being pitched as ‘sports-oriented’ MP3 player. Available in 1GB and 2GB capacities, Sony is stressing the product’s versatility, strong performance and enhanced battery life.

Sony claims the NW-S200 requires just three minutes of charge to guarantee three hours of continuous playback. It also boasts a range of innovative features including a calorie counter and music pacer, which enables the device to automatically switch between fast and slow-paced music playlists depending on the activity of the user.

The company also showcased its NW-S700F Walkman featuring unique noise canceling technologuy.

“Digital music players are fast becoming a fashion item as people incorporate them into their everyday lives, “ says Takakiyo Fujita, senior manager of Sony Gulf, Audio Division.

“We have considered all these influences and designed the Walkman NW-S200 series for everyday use. It is also ideally suited to a range of physical activities including jogging or playing sports with its fitness friendly features.”

Sony Walkman
Model ranges: Sports series and E series.
Middle East distribution partners: Jumbo Electronics.

Apple

The iPod easily lays claim to the title of electronics gadget of the new millennium. However, with no shortage of companies looking to land the elusive killer blow on Apple’s dominance in the MP3 player market, the company is relying on its tried-and-tested formula of combining sleek aesthetics with user-friendliness to keep ahead of its rivals.

The latest flash memory-based iPod nano features Apple’s ‘Click Wheel’ navigation system and a smaller, thinner and lighter design than its predecessor. It is also available in a variety of coloured aluminium casings and memory configurations up to 8GB. The latest range sees Apple continue its use of flash memory from the iPod mini and shuffle ranges originally rolled-out in 2004.

“The all-new iPod nano gives music fans twice the storage capacity at the same price plus 24 hour battery life and a gorgeous aluminum design in five colours,” says Apple CEO Steve Jobs.

iPod nano
Model ranges: iPod, nano and shuffle series.
Middle East distribution partners: ABM.

Samsung Electronics

South Korea’s Samsung Electronics is aiming to become a major player in the MP3 player market as it continues to invest heavily in research and development of flash memory chips and OLED LCD displays.

Samsung Gulf’s Makarande Phadke says the company plans to “leverage its dominance in LCD display and chip making to win [mp3 player] market share in the Middle East.”

The company is also looking to establish itself as an innovator in the field, demonstrated by the release of its stereo speaker-equipped K5 player late last year and the imminent launch of its handset-styled T9 this month. Samsung claims the models, which are available in a range of memory configurations, boast battery life of up to six hours.

Samsung T9
Model ranges: K5, T9, YP-C, F-, T- and U series.
Middle East distribution partners: Eros Electronics, SMB Distribution.

Creative

Creative’s long-running battle with Apple came to a head last year with the Singapore-based company winning a US$100million windfall from Apple for copyright infringement of its ZEN patent.

However, this did not prevent the company reporting a US$40million drop in sales from Q1, 2005 to Q1, 2006.

In a press statement, Creative said it was confident the release of its new ZEN V Plus and Neon 2 MP3 players would prove a turning point in the company’s financial recovery.

Packing up to 8GB of flash memory in a 44 x 68 x 16mm casing, Creative is planning a massive marketing campaign promoting the Zen V Plus in key markets including Saudi Arabia, the UAE and Iran this year.

Creative MuVo
Model Ranges: ZEN Micro, Neon, Sleek, Touch, V and Xtra series.
Middle East distribution partners: BDL.

LG Electronics

The Korean juggernaut aims to head-off opposition from both Apple and iRiver in the flash memory MP3 player market with the launch of the FM30. The FM30 packs up to 4GB of flash memory into a 42-x66- x14.9- mm (WxHxD), reflecting LG’s marketing pitch that the best things come in small packages. LG claims that the FM30’s battery can provide up to 60 hours of music playback and 14 hours of MPEG4 usage.

Combining neat packaging and durable battery life, LG is clearly targeting the multimedia fanatics of the Middle Eastern market with the FM30. The company is also positioning itself in direct competition with its South Korean rival Samsung by electing to include a 1.77-inch OLED display as standard across the FM range.

However, LG appears to be hedging its bets in the MP3 player market with the recent release of the hard drive-based JM53 model, which is available with up to 8GB memory capacity.

LG FM30
Model ranges: FM12, 15, 17, 30 models and JM53 range.
Middle East distribution partners: Al Sayegh Brothers.

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