Generation Rent: Dixons Carphone's solution to keep consumers spending on technology
Dixons Carphone CEO Seb James has announced an ambitious scheme to break into the potentially lucrative market of subscription based retail.
The electronics specialist is looking to kick-start a new revenue stream from a market where technological advances and innovative products are outpacing the willingness and ability of consumers to become early adopters, by offering a flexible rental model with full technical support.
The idea has potential, as many consumers avoid purchasing the latest electrical items with the expectation that a more advanced version will be released in the near future or that prices will come down shortly after the launch, rendering their barely out of the box appliance obsolete. Dixons’ challenge in marketing this ‘membership scheme’, will be convincing consumers that this is more than an upmarket Brighthouse, and is the most convenient, and cost effective, way to keep up with ever changing must-have technology, especially in regards to connected home products.
Dixons’ entry into the market should focus on small domestic appliances and audio visual goods such as TVs and high-end speakers. It would provide an opportunity for Dixons to bring the illustrious smart home tech market to the masses, giving people the confidence to upgrade without the cost of an entirely new purchase - particularly since interoperability issues and significantly higher costs have so far resulted in a stuttering market.
Dixons claimed that its £3.8bn merger with Carphone Warehouse in 2014 was driven by the potential of the connected device market, and the likely demand for services around such products. As yet the merger has done little to help it achieve this, despite the obvious success of the transaction to date. Even now, when James finally hints at launching something which could help achieve those connected device ambitions, it is difficult to identify how the acquisition will help.
While there is little detail available about how this membership scheme would work, one of the prime drivers would be to leverage its Knowhow service business which has been very successful and provides higher margins than its core electricals offer.
Questions remain about whether there will be a minimal rental period, or if customers will be offered the option to buy after a certain number of months or indeed what products are in scope. And while the initiative will allow Dixons to participate in the rise of the sharing economy, this currently works more effectively for low usage or high priced items such as cars and expensive DIY tools, compared to frequently used and lower value electricals such as TVs or vacuum cleaners which are regularly used and generally have a shorter life cycle. This would result in a higher turnover of appliances and greater service callout volumes, putting pressure on Dixons’ logistical network and profitability of the rental scheme.
While a membership system offers flexibility for consumers, it will require an impressive marketing campaign to persuade people to pay a monthly direct debit for such a service – unless it can guarantee its members first access to ground breaking technology and brand exclusives.