Abstract

Characteristics of the Brazilian PC Market

Strong Growth Potential

In 2006, Brazilian PC penetration rate was 11.2% - marking the 64th in the world - , and as the country has the world's 13 highest GDP (US$5,731), demand for PCs is expected to continue expanding. In addition, the government is continuing to promote the IT industry and value-line PC trend. With lower taxes, better currency exchange rates, well-designed installment plans, and increasing national incomes, the Brazilian PC market still has huge growth potential.

SME and Consumer Markets Outperform

After the Industrial Act - A Lei de Bem - was implemented in 2005, large-sized companies began replacing their older PCs bought in 2000. As a result, the Brazilian commercial market growth was limited after the completion of PC replacement between older and newer models in 2005. If a standard PC upgrade cycle is 4 or 5 years, large-sized enterprises' PC upgrade demand is likely to weaken in 2007. Therefore, SMEs (Small- and Medium Enterprises) - which previously had little purchasing power for PCs -have replaced large-sized enterprises to contribute the growth of the commercial PC market.

With lower PC prices and well-designed installment plans, consumers are highly encouraged to purchase PCs. In addition, as consumer purchasing power has increased, PC demand of households in the lower income quintiles has been quite robust. ABINEE statistics indicate that, in 2006, new PC demand came mainly from Class C, Brazil's largest class group. With the size much larger than class A or B - the only groups had purchasing power for PCs in the past-, Class C is thus expected to become next primary driving force in the Brazilian PC market in the future.

Gap Between Rich and Poor Widening

The notebook PC market is still small compared to the desktop PC market, but as the demand for notebook PCs is increasing, notebook PCs are becoming next focus for PC brands in Brazil. In addition, as lower income consumers' purchasing power for notebook PCs are rising, PC brands -which used to focus on the high income consumers -begin to readjust their PC specs and price, targeting the mid and lower income segments.

Retail Channels Become Mainstream

Due to the Brazilian government's continuous efforts to reduce taxes and crackdown on smuggling, the gray market's price advantages have been considerably reduced. In addition, owing to the emergence of SME and consumer market segments, retail channels are highly favored by the brands, and thus become their primary distribution channels in Brazil.

The key reason for the rise of retail channels is the cooperation between the government and large retail chains, under which installment financing is available for consumers. The PC Conectado plan of 2005, for example, provided US$70 million for lower income citizens with monthly income between US$210 and US$2100, or SMEs with fewer than 50 employees to purchase value-line computers offering Internet access. The installment plans helped lower income citizens from Classes C, D, and E purchase computers. In 2007, the government announced that it would continue to support such financing plans, further consolidating the leading role of retail channels.

New Opportunities in the Brazilian PC Market

Brazil has a huge consumer market with a large gap between rich and poor, and thus market segmentation is evident. The surging demand from mid and low income consumers have given Brazilian PC companies much incentive to offer more product lines. But it is certain that clone products - despite the cost advantages - could never satisfy such market made up of specific customer segments. Brazilian PC companies, therefore, should offer customized products for the large and diverse population in Brazil so as to achieve success in this market.

Customized Products for Specific Customer Groups

Brazil's younger generation is expected to eventually become the main consumers of IT products. As national incomes are rising, it is anticipated that lower income consumers' purchasing power for PCs will increase significantly as the PC penetration for the lower income consumers still remains low and leaves much room for development. The youth market and the group of consumers who in the past were not able to purchase computers both are expected to create new market opportunities for PC companies.

School children - aged between 0 to 13 year olds - make up 24.2% of Brazil's total population. The Brazilian government has placed more emphasis on education, and parents are giving more priority to educational spending, leading to strong and new opportunities for the educational and children's PC market. In terms of form factor, PC makers can roll out products with educational software, durable waterproof exteriors, and designs with cartoon characters.

In Brazil, youngsters aged between 13 and 19 year olds are the most active computer users and are the driving force behind the growth in internet use for e-mail, chatting, and online communities. Consequently, they are expected to become the leading PC buyers. PC makers can add features to PCs targeting at this group, including WLAN (Wireless LAN) functionality and high resolution web-cameras, coupled with compact form factor.

Strengthening Physical Retail Channels

Brazilian consumers - who want to purchase high-end PC products - would like to buy PCs from a retailer rather than to purchase online. In addition, many Brazilians still prefer to visit supermarkets or shopping centers during their leisure time, and shopping is a major pastime for many people. Many purchases are made on impulse, and this creates opportunities for Brazilian retailers. Furthermore, as consumer purchasing power is increasing, it is anticipated that PC makers will look for acquisitions or cooperation with retail channels to remain competitive.

Carrefour and Wal Mart are Brazil's top two PC retailers, and are also on PC vendors' top list of PC retailers in Brazil.

Income Levels Lead to Flexible Pricing

In Brazil, there is a large gap between rich and poor and consumer purchasing behaviors are depending on income levels. Higher income consumers don't worry so much about price, and see high-end PCs as a sign of status. Products for this high-end group can focus on cutting edge technological features, with high price flexibility.

Lower income consumers, however, are highly price sensitive. This group has little flexibility when it comes to prices. Along with practical specifications and user-friendly features, PC makers can take consideration the levels of discretionary income that the lower income consumers are willing to spend on PCs.

Installment Plans and Service Warranties are Key Marketing Focus

Many Brazilians engage in impulse buying and focus on instant pleasure, so marketing can focus on using eye catching ads to lure consumers, with installment financing for consumers.

In the past, the Brazilian PC markets were greatly affected by gray market products, which flooded the market and left consumers with no where to turn when quality related problems appeared. But with incomes and brand awareness both increasing, after sales service is becoming important. In terms of product marketing, PC vendors may consider to offer extended warranties, real-time delivery, and prompt repair services.

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