Overview Of Consumer Electronic & Computer Repair Services Industry
The Consumer Electronic and Repair industry consists of companies engaged in providing repair and maintenance to electronics, such as cell phones, computers and other devices. This report delivers analysis on the current state of the industry. After identifying the industry’s dominant features, succeeding methods of analysis consist of the Porter's Five Forces to evaluate the attractiveness of the industry, a Pestel analysis to understand the general trends in the macro-environment, and a strategic group map to identify competitive positions in the industry. Although the industry has declined over the past year, experts are expecting the industry to continue to decline over the next 5 years to 2023. Through our Porter’s Five Forces analysis, we found that the overall competition in this industry maintains at a medium, and the trend is steady. There is a slight high level of competition between existing companies. The overall attractiveness of the industry based on competitive rivalry is negative. From the PESTEL analysis, we found that trends including the industry are not expected to see growth. Even with the major decline ahead of us, our findings through our analysis concluded that the industry is an unattractive one. As a mature industry, it is unlikely for new entrants to threaten existing firms in the industry.
The Industry’s Dominant Features
According to IBISWorld, companies in this industry are involved in repairing and maintaining one or more of the following: consumer electronic equipment, computers, office machines, communication equipment and other electronic and precision equipment; items are not sold new. The major products and services in this industry are:consumer electronics (including radio, TV and VCR) repairs, communications equipment repairs, computer and office machine repairs and other electronic equipment (including medical equipment) repairs. This industry is in need of repair itself. The increasing affordability of electronics has prompted consumers and businesses to purchase new products rather than replace their existing equipment, leading to a drop in demand. The life cycle of electronic goods has shortened over the five years to 2018, and the introduction of new technology has provided further incentive for consumers and businesses to replace their old equipment. According to IBISWorld, in the next five years, industry revenue is expected to decline. There are no companies with a dominant market share in this industry. According to Google, the leading companies in this industry include uBreakiFix, Tech Store, Geek Squad, Fix Stop and IFixYouri.
Overall, between all firms existing in the industry, the products and services offered are all similar. They include electronic repair services. Ever evolving technology has to be in sync with the sales of this industry. The cost of repairing your electronic and time that goes into it VS purchasing a new equipment can make or break this industry. Simultaneously, technology is also becoming more advanced and sophisticated. Some electronics may be more complicated to repair or the professional will constantly need to be refreshed on techniques.
Porter’s Five Forces
Intensity of Competitive Rivalry
The electric and repair industry is highly fragmented. Small and medium size businesses make up a majority of the market share. The top four companies DXC Technology, Best Buy, International Business Machines and Micro Focus International make up less than 10% industry revenue. An increase in disposable income and manufactures lowing prices has caused revenues to decline over. 50% as of 2018. The decline in demand has increased competition between existing companies. The services offered among competitors is standardized with little to no switching costs. Due to standardization, organizations must compete on the following factors: location, convenience, quality, speed and price. Competitors that have business in a more sought after locations, for instance, storefronts with more visually appealing and greater tech using population, will have a competitive advantage. A new customer is going to base the quality of service on the appearance and location of the store. An example is, Silicon Valley who alone has 12. 1% of market share. Competitors that are known for quality repair and components will gain an advantage from reviews and testimonials. However, competitors mainly compete on price. Price competition hurts the industry profit margins greatly and causes competitors to go out of business. Employment in the industry have dropped over 6% in the last five years; it is expected to drop at a rate of 1. 4% every year after 2018.
The companies with strong supplier connections and economy of scale will be least affected. The competition in the industry is medium and the trend is steady. The overall attractiveness of the industry based on competitive rivalry is negative. The only way to maintain competitiveness in this environment is to develop economy of scale, a reputation for quality repair and have certifications to issue warranties.
Threat of Substitute Products
The major substitute is not a similar product or service, but instead replacing products instead of repairing. With the increase in technology manufactures can now produce components for cheaper, in return costs are lowered for consumers. The national average cost per hour at a repair facility is anywhere from $50 to $70 dollars an hour. On average it costs around $180 dollars to repair an iPhone 6 cracked screen. The consumer has options, fix the phone for $180, upgrade to the latest iPhone for zero dollars down, or get a new phone for around $240. Given the different options most consumers find it more valuable to replace the phone. The increase of disposable income of household (average 2. 8% per yr. ), has also influenced replacement of products. The convergence of products into one device has lowered the market share for repairs on items, such as cameras and video recorders. A smartphone alone can now offer communication, the internet, media, music, camera and recording. If a consumer does choose to repair the device, a repair shop is no longer the only option. It is easy to order almost any repair component for a device on Amazon, or an aftermarket website. Websites, such as YouTube, have made it easy for consumers to repair products on their own. The threat of substitutes is high and negatively affects the industries attractiveness. As technology and disposable income increases, the demand for repair is expected to decline at an annual rate of 3. 1%.
Threat of New Entrants
The electric repair industry is in its decline stage. In the last five years, establishments have closed at an annual rate of 1. 2%. Does this leave an opportunity for new companies to take market share? It is very unlikely, organizations are leaving because declining demand and low profit margins. The companies that are still in business have the advantage of economy of scale, strong distribution channels, and reputation for quality service. To prevent new entrants from taking market share, existing owners often lower prices (price war). The new entrants are unable to meet low prices from lack of resources and are forced to close down. Value added services, such as technical expertise, convenience and speed of service, serve as barriers preventing new entrants. Existing companies with good reviews and a professional reputation are more likely to get new and returning customers. The ability for an organization to offer warranties also serves as a barrier.
In order for an organization to issue a warranty, they must be licensed from the manufacturer. In order to obtain a license, a company must prove its history of quality service. Manufactures also require that the organization repair a specific amount of products per month, high repair volume is a must. These barriers make it extremely hard for a competitor to gain market share. A true threat of entry would be if the manufacturers such as Apple opened a repair sector. Apple sells insurance policies on products known as AppleCare+.
Why doesn't Apple offer repair? Apple and other manufacturers want consumers to replace and buy their new products; they make more money that way. Apple currently has 0% of market share in repairs, it is highly unlikely that Apple or other manufacturers will target repair any time soon. The threat of new entrants is of medium relevance to the attractiveness of the industry. Small-to-medium sized new entrants will have a hard time competing with established competitors. Manufacturers have no interest in entering the repair sector.
The Power of Buyers
In the electronic repair industry, the customer getting their device fixed is the buyer. The customer (buyer) is direct and the end user. According to Bureau statistics, in the industry there are approximately 57, 049 competitors, compared to a declining demand of buyers. This gives buyers the power to control market conditions and prices. If a buyer is not satisfied with the price of the repair, they have the power to negotiate or choose another company. It is hard for competitors to compete on anything except price, since all offer standardized services with little to no switching cost. Competitors with higher operation and fixed costs suffer low profit margins. The United Census Bureau estimates that declining profit margins and high operational cost will cause a. 7% decline in competitors, only 134, 236 companies by 2023. However, there is a growing demand for competitors that offer specialization in the medical and dental repair. There are not many competitors out there that have the certification to work on medical equipment. With few competitors and demand expected to increase by 6. 0% in the next 5 years, this gives the competitors power over the buyer. Highly specialized medical equipment is required to undergo annual maintenance/inspection. This is great for industry, continuous spending from the public sector. The buyer in the standardized market has high power, this is very unattractive for the industry. In order for competitors to gain power over the buyers they must enter specialized markets. The medical repair sector is highly attractive for the industry, as there are endless buyers compared to few sellers (repair companies). This allows competitors to have strong negotiation power over price and terms of service.
The Power of Suppliers
The suppliers in the industry are manufacturers and aftermarket suppliers. Manufactures such as Apple, Toshiba, HTC, Sony, LG, Samsung, and Nokia have strong power and market influence. The manufacturers also have strict regulations governing the use of component. According to Apple, a company must have a history of providing quality service and have high volumes of repair. If the company meets standards, they will be issued a license and contract. The issued contract gives manufacturers power to control pricing of components and repair. Some manufacturer contracts state that companies must use their brand components only. The use of only one supplier gives the manufacturer power; it also creates company dependency. Profit margins for using manufacturers components are low, due to high cost of parts. The reason component cost is high is due to the fact that manufacturers want customers to replace products, not to repair them. The alternative suppliers are Amazon and other aftermarket companies. Aftermarket companies have low power, this is due to fragmentation. The buyers (repair companies) can often negotiate on pricing and quantity discounts. The negative side is that aftermarket companies are usually less reliable, and components are of lesser quality. The use of inferior products can tarnish a company reputation and increase costs to re-repair. The power of suppliers mildly affects the companies’ attractiveness. If a company produces in high volumes, manufactured components are reasonable. If sales are low, there are plenty of aftermarket suppliers to choose from.
Trends in the General Environment (PESTLE)
“Electronic and Computer Repair Services industry will continue to decline over the five years to 2023, with revenue expected to fall at an annualized rate of 0. 3% to $18. 2 billion, ” (IBISWorld 2018). This is an ongoing trend that has been noticeable since 2006. With the industry declining, this will in turn cause higher product replacement, as well as placing immense pressure on the industry for higher profits. Even though the computer repair industry is expected to steadily decline, the GDP is expected to increase by 2. 2% annually. Despite the advancement in technology, with the focus in precision equipment, there is not enough advancement in the equipment to repair the rapidly evolving technology. The most noticeable trend in this industry is, the life cycle of products. Depending on the quality of a computer and several other factors, the average computer will last between 3 to 5 years, before needing to be replaced. The average life cycle of a table is about 5 years. This may seem like a reasonable amount of time to own a computer device, however it does not take into consideration technological advancements in the product each year, as well as wear and tear from the user. Since there is constant evolution of new technology, typically users find it more cost effective to replace the product, rather than pay to have it repaired.
Social status within an environment also plays a large part in the life cycle of this industry. Each year a new an improved phone or computer will enter the market, it then becomes a social statement to have the latest piece of technology on the market. Therefore, the life cycle is significantly shorter than the predicted life cycle of the product. In order to increase profits in this industry, some companies have tried to outsource their technical support. However, in the case of Dell, they received significant backlash, and in turn have now returned their technical support to the United States. When analyzing the environmental responsibility that the computer repair industry has, it is significantly low. In 207, it was expected that 50 million tons of electronic waste were to be dumped. This has increased almost 20% from the year 2016. Electronic waste is hazardous to the environment because they contain materials such as lead, mercury, silver, and flame-retardants. Currently, the government has implemented electronic waste recycling laws in 25 states in the United States. Although there is a fee for disposing the waste properly, there is financial reimbursement through the Covered Electronic Waste (CEW) Recovery and Recycling Program. There are companies who push for refurbished electronics, however, society still has a preference for purchasing new devices.
Overall, the industry trends reflects the direction of the computer repair industry in potentially becoming obsolete. This would be due to the advancement of technologies, as well as the shortened life cycle of the products on the market.
