Adaptability is the key to survival, and with micro and mini systems putting the squeeze on the portable audio market, these products are going to have to pull some impressive tricks out of the bag in order to survive.

Previously the ghetto blaster style product had been the favoured way to introduce the younger generation to the joys of audio reproduction. However, falling prices in the mini and micro market have meant that they are taking over this role, potentially rendering the portable audio system a redundant product with little or no value to the independent retailer.

Nonetheless, there is innovation taking place in what is becoming not so much a dying market, as a niche one. Roadstar, for example have recently unveiled a four-in-one entertainment unit that positions itself as a cutting-edge gadget. Sporting a small LCD screen, the machine is capable of playing DVD movies, CDs, and receiving television and radio broadcasts.

Others, such as Sony, are keeping value in the market with products such as the ZSM30. Not only does Sony's portable unit feature a built-in MiniDisc player/recorder, it also features a line in for PlayStation and PlayStation 2.

Furthermore, with the summer coming up people will be not only be hauling themselves off to the beach and dancing to The Strokes, but also dragging the radio behind them in the garden.

Indeed, while it may seem that micro systems are putting the squeeze on the portable audio sector, the outlook for the market is extremely sunny. The volume of this sector is around one million units and the value is 31m [pounds sterling] and increasing year on year. During the past four years, the value of this sector has increased by a phenomenal 50%, largely due to manufacturers' investment in high value products driving the market.

However the radio cassette recorder--the largest slice of this market--is down 6.8%, with a market value of 126m [pounds sterling], perhaps reflecting the impact of the systems. Independents will of course be wondering what value is left in the market for them? The answer is simply to stock the more expensive gear.

Distribution of audio products through independents is down in volume but slightly up in value. Some bottom end (value-driven) volume has most likely gone to the mass merchants channel, which is in growth, with the more expensive portable audio still going through independents, as a result of their product knowledge.

Nonetheless, Thomson Multimedia marketing manager for audio, James Payne points out that there is stiff competition in the face of the multiples and now the grocery stores.

"It appears that business is declining. The major multiples and the grocery sector are prepared to shave margins to hit key price points, where some independents want to maintain higher margins at the same price points as the competition."

This, combined with the squeeze put on the sector by micro and mini systems, has seen the market go through something of a tough time.

"The average price of audio systems has tumbled with the introduction of the micro system," explains John Foster, product group manager at Morphy Richards. "The average retail price of the micro system is 131.50 [pounds sterling], compared with mini systems which average 183.69 [pounds sterling]. With the introduction of the micro system, the price differential between audio systems and the RCR [radio casette recorder] has decreased, and so consumers are more likely to trade up from RCR to micro system."

On the other hand, there is the argument that things have not been as bad for the portable audio market as they could have been. Arthur van Rest, Philips marketing manager for audio explains: "The expected impact on sub-100 [pounds sterling] CD-RCR has not materialised, and well featured models with high quality sound output have done very well and the market at 100 [pounds sterling] has actually increased."

Thomson's Mr Payne feels that there has been a detrimental effect on the market, but remains adamant that there is a place for these products. He comments: "It is clear that the introduction of reduced price points on Micro has affected the portable market. Price points have decreased, which has been reflected in the average selling price dropping significantly. However, people are still buying them simply because the are portable. It's difficult to find a power supply when you're on the beach."

Of course, while there is a need for people to have these products, there may not necessarily be a continuing demand--at least not unless manufacturers continue to provide reasons for people to trade up. The fear is that there is are few places left to go within this category.

"There has been some stagnation over the last couple of years as there have been no major product innovations," comments Morphy Richards's Mr Foster. "However there are some developments taking place in the audio market which should see this change."

Indeed, with regards to those developments Philips's Mr Van Rest completely refutes the accusation that innovation in this category has stagnated.

"This is absolutely not the case!" he exclaims. "New technologies and the convergence of these in single systems will continue to make new opportunities for retailers. Growth of the Expanium MP3-CD market is making a very significant impact on market values will all help to grow the value of the portable audio market."

Indeed, Mr van Rest highlights the importance of getting to grips with this kind of technology, as in coincides with the target market of portable audio.

"Retailers must understand and be able to demonstrate new technologies and added value features in store. Opportunity to take ownership of MP3-CD is enormous. The market potential is very significant, with 40% of all teenagers now regularly using MP3. The features and benefit need to be further reinforced by p-o-s."

At the other end of the scale, the aspiring homemaker has a lot to gain from updating their radio every time the season's fashions change. Roberts Radio chief executive Lesley Burrage elaborates: "Design and colour play a key role as this is often the deciding factor for those purchasing a secondary product to the main music system.

"The increasing fascination for home improvements led by the home and style magazines along with the popular home makeover TV programmes, has also helped drive the market.

"A radio product for the bedroom or bathroom is no longer seen as functional but a design accessory that should complement the design of the room.

"Consumers are also looking for simplicity and can be put off by too many features, many of which they may not use, therefore different designs and colourways with simple features are popular."

Elsewhere, other attempts to add value include Morphy Richards's new touch screen radio. Unlike any radio currently on the market this compact portable radio is operated through a touch sensitive LCD display panel.

Mr Foster explains the thinking behind the product:. "Touch screen technology has become more accessible and more widely understood over the past two years. Creating a portable radio that capitalises on the simplicity and functionality of touch screen technology is a really exciting advancement in the audio sector."

In addition to being easy to use the Touch Screen radio has four wavebands, FM/MW/LW/SW. It has 40 pre-set functions (10 per band) and dual time settings. There is a comprehensive radio alarm function with a 90-minute adjustable sleep timer and a snooze function.

The Morphy Richards Touch Screen radio can be operated by batteries or from the mains. It has a built-in speaker and can be listened to with stereo headphones. At 49.99 [pounds sterling] and will be available in June.

In addition to this touch screen radio Mr Foster hints at further developments, including those long awaited portable DAB tuners.

"As digital radio becomes less expensive, we will see many changes regarding product functionality take place in the portable market. Morphy Richards is currently working on several new product innovations that will drive innovation forward in this market and give consumers a reason to update their audio products."

In fact, the move towards DAB tuners in portable products continues apace, with Roberts Radio's Mr Burrage promising further developments in this area, though he concedes that more needs to be done on the part of those responsible for the signal.

"The imminent innovation is the move towards Digital Audio Broadcasting (DAB) products. Roberts launched the world's first portable DAB product in 2000 and is currently testing phase two, a smaller product in a more traditional portable design. The launch date of this model is subject to more wide spread availability of reception."

Meanwhile, Philips's Mr van Rest intimates that we may see some of the more cuffing-edge audio formats trickling down to the portable sector, saying: "We will continue to see convergence of new technologies and higher end audio technology being introduced on portable audio products."

There are still places for these products to go that will keep them as a viable sector for the independents, especially with digital likely to make a few more waves in the market.

If retailers can persuade people to trade up for better features, as well as be able to talk confidently about the new technologies becoming available in this sector, there is no reason why it shouldn't remain a profitable, if commoditised sector.

COPYRIGHT 2002 DMG World Media Ltd.
COPYRIGHT 2002 Gale Group