Price Sensitivity Makes a Comeback as a Result of the Downturn

I have just finished taking a run through hoards of user data that our Embedded Hardware Practice has collected from close to 500 OEM and Systems Integrator customers consuming merchant embedded boards and integrated systems for VDC’s 2010 Embedded Hardware Market Intelligence Service. Just when the embedded market had reached a point when time-to-market and SWaP reduction product requirements had become more important than product price/cost, as proven from our user data from the previous three years, the recession hit and put price/cost squarely back at the forefront.

Cost/price has always been one of the most important customer considerations even over the past three years when we had seen it drop slightly lower in customers’ rankings of their most important product selection criterion. However, in recent years it had been a top three or five product and vendor selection criteria and this year it has returned to the number one spot by a significant margin.

I have processed three separate user data sets on slightly different embedded topics since the beginning of 2010. In all three price/cost came as the number one vendor selection and product selection criteria when it hadn’t come as the top criteria in these categories in any of our studies in the previous three years. So clearly the industry downturn caused by the macroeconomic recession has had a lasting effect on the psyche and product requirements of embedded customers and has brought price/cost back to the vanguard.

Extreme price sensitivity is likely to exist in customer’s minds for at least another 24-30 months. Embedded suppliers must be prepared to address cost containment and to sell their greater value proposition in the explicit terms of cost reduction.

What can embedded suppliers do to differentiate themselves in such a cost competitive world? Some of the answers lie with the vendor selection criterion that came directly after cost – in order: technical support, reliability, and availability/delivery. The price tag of an embedded board or integrated system is not the only factor in considering the total cost of a product; in fact it’s probably not even the biggest. Embedded vendors should make clear to their customers how they can save them even more money than they might save buying a product with a slightly lower price tag through delivery of highly reliable products that don’t create costly downtime or expensive/complex technical support. Executing on the full logistics value proposition and consistently providing customers with the exact amount of product they need and exactly when they need it, not two weeks early and not two weeks late, can also go a long way in proving superior cost containment.

A final possible answer and perhaps the most important is to make reducing complexity for the customer a big part of the cost reduction discussion. Whether it’s through off the shelf development kits, programmable logic processor solutions, or tested/certified turn-key integrated systems; these development and programming time accelerators can be the most influential arguments in the cost containment discussion.

For more information on our full 2010 customer datasets cut by vertical market, click here.