How has the CNS category evolved so far? How will it evolve in the United States and Europe?

Question

What will be an ideal response?

Answer 1

Six years after launch, CNS unit sales in Japan reached 578,500, representing 1.95 percent penetration of all cars and 9.64 percent penetration of new cars. In addition to the reasons stated above, the CNS market developed first in Japan because
• Japan is home to the world’s leading consumer electronics manufacturers.
• There is intense competition among these companies.
• A large segment of Japanese consumers is interested in electronic gadgetry.
The following three trends have characterized the evolution of the CNS category in Japan:
• The aftermarket has led the original equipment manufacturer (OEM) market. In 1995, 80 percent of CNS units sold in Japan were in the aftermarket. The reasons are
* Car manufacturers design new features into new cars, even as options, only when demand is evident in the aftermarket.
* The integration of a new option into the overall design of a new car takes a while. In addition, dealers have to become accustomed to providing installation and after-sales service.
* Auto enthusiasts who are highly involved in their cars want to be first to incorporate the latest gadgets.
Looking ahead, the OEM proportion of newly installed CNS units is expected to increase vis-á-vis aftermarket units.
• The product technology has evolved rapidly from simple GPS models to more complex hybrid models with multiple features, some standard, some optional.
The major Japanese manufacturers offer an array of models at different price points and with different levels of featurization. Looking ahead, market growth will depend on further reduction in retail prices for heavily featured units, on a more sophisticated understanding of the additional prices consumers are willing to pay for each additional feature, and on the development of even more user-friendly CNS that can be sold broadly through electronic stores and department stores rather than solely through specialist auto accessory chains.
• Power is shifting from the hardware manufacturers to the software suppliers. The relationship is, of course, symbiotic; the hardware cannot sell unless sufficient digital maps are available to make it worthwhile, while the heavy investment required to do the mapping can only be recouped if affordable hardware is penetrating the consumer market.
Regarding the United States, students have two broad views. One perspective (summarized in Exhibit TN–1) envisions a trickle-down diffusion of CNS similar to the Japanese experience. However, in the United States, the early adopters are expected to be traveling businesspeople and salespeople who see the value in use of CNS; car rental agencies provide a sampling mechanism for this segment. Not as many of the early adopters are expected to be auto enthusiasts as in Japan.
Given the evidence of consumer interest in CNS in Japan, it is likely that the U.S. car manufacturers will soon offer CNS as an option with their vehicles. Indeed, the forecast is for the United States aftermarket OEM ratio to be the same as Japan’s by 2000. However, because the added value of CNS in the United States is less obvious to consumers, the price will have to be attractive (below $1,000) to achieve strong penetration.
This brings us to the second perspective on U.S. market evolution, which argues that only a pull marketing approach incorporating penetration pricing and a well-advertised brand (like Sony) will be able to stimulate demand. Under this scenario, the feature sophistication of the product is not as important as price, at least initially. Once the basic value in use of the product is established, other features (including portability) can be added to cater to specialist applications.