Market Challenges for Smart Watches

by Parks Associates | Sep. 16, 2015

Like any new product category, smart watches are forging a path way into consumer lifestyles. Parks Associates research shows 6% of U.S. broadband households own a smart watch, with an additional 9% expressing an intention to buy one by the end of 2015. This growing interest in smart watches over the past couple of years has resulted in an increasing number of players throwing their hats into the smart watch ring.

However, as smart watch manufacturers wrestle with taking the smart watch from a novelty purchase to mainstream adoption, key challenges exist.

1. Migration from gadget-like design to style-conscious design. Though early entrants to the smart watch market were focused on the technology of the device, new entrants with backgrounds in fashion are influencing consumer expectations for design and aesthetics. Style is becoming an increasingly important factor for consumers—product appearance ranks as the third most important factor in a smart watch purchase decision.

2. Lack of manufacturer clarity on use cases and functionality. Smart watch manufacturers are wrestling with the decision of whether to position their product at a niche market with a targeted use case or as a general purpose mobile platform catering to a range of use cases and functionality. The lack of a clear value proposition or a “killer app” has resulted in a host of me-too products that are undifferentiated from the competition.

3. Distribution channel confusion. The smart watch as a product category straddles two distinct worlds—technology and fashion. Each of these industries has its own channels for reaching the consumers. This dichotomy in distribution channels make it challenging for smart watch manufacturers to get their products into consumers’ hands.

4. Consumer ambivalence to current smart watch pricing. Smart watches launched during the last twelve months are generally priced between $150 and $300. This price range reflects the BOM costs and margin requirements on the OEM side, but is not the price consumers usually pay for a watch. Consumers who can afford a luxury watch have upscale style and social status considerations that current smart watches do not fulfill. Mass market consumers, on the other hand, may find it difficult to justify spending over $150 on a smart watch that offers only limited convenience.

5. Battery life. Limited battery life is another huge challenge that hinders the adoption of smart watches. Consumers do not want another mobile device that they have to charge frequently.

The smart watch as a product category is on its way to firmly establishing itself as the next growth opportunity. How smart watch manufacturers achieve the delicate balance between fashion and technology will ultimately determine the winners and losers in this race.

For more information on the growing smart watch industry, see Parks Associates’ report Smart Watch: Extending the Mobile Experience

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