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Market Research and my thoughts on how to do it.
The USA market for electronic alarm equipment is by far the largest in world. Researchers agree that even the entire European (CE) market is smaller, and by reason of its continuing fragmentation and varying standards and practices, cannot be considered a single market.
In contrast, the US market displays remarkably little variation in product requirements and standards in different states, though such variations are not entirely absent. A manufacturer can sell the same product in every part of the US, using the same marketing approach and techniques. Such differences as do arise regionally are mainly limited to the fire equipment market and to construction differences which make wireless systems more or less desirable..
Market Size and Growth
A number of estimates exist for market size and growth. The consensus figure for the total security equipment market, to dealers, including fire, intrusion, access and CCTV is around $5 billion to $6 billion and the total market is growing at around 5 to 8% per annum. In 1991, 1.8m systems or upgrades were installed, and this figure had grown to 3.2 m in 2002. These are not numbers, however, that are routinely tracked in the industry, unlike other electronic industries. The growth in units is dominated by low-end residential systems. (These figures include fire, intrusion, access control and CCTV systems).
In spite of falling crime rates, the public’s concern about crime continues to rise. This coupled with steadily falling prices for alarm equipment at the end user level, has created substantial growth in the alarm business as a whole. The security industry, in line with most others, experienced a slow down in late 2000, disproving the theory that security is not affected by the economy in general. However, the sad events of September 11 and the focus on homeland security ever since has generated growth for the security industry ever since.
Market Drivers
While the natural assumption about the security market is that the crime rate is the main driver, this is most certainly not the case in the US in recent years. In fact, crime rates have been falling for some years. The FBI reported 1,336 burglaries per 100,000 inhabitants in 1986, falling to 729 in 2006. One would expect the public to have noticed such a marked reduction. In addition, the market does not exhibit the strong regional variations that would be the case if crime rates drove the market (crime rates vary by up to a factor of six from state to state).
In fact the commercial market has been driven in recent years by three major factors, two of them closely linked.
- The marketing efforts of the national companies
- Falling prices for alarm equipment
- The need to protect the corporation from liability
This last factor is primordial in the US, and a phenomenon on a scale unknown in other countries. The legal environment, in particular, the tort laws problem, has given rise to an ultra defensive mentality in the upper management of every corporation. They are obliged to consider not only property protection and life safety as required by insurance companies and/or legislation, but also the risk of being sued for frighteningly large sums of money:
- By a member of the public, injured on the premises, or by an employee
- By an employee injured, attacked or even just distressed by an intruder or vandal
This has changed the security market substantially in recent years. Strong growth has been created in the access control, and particularly, the CCTV market by this factor. This has been coupled with falling prices, and improving capabilities in the equipment, further boosting growth in unit sales in these markets. At the same time the intrusion market has not grown at anything like these rates in dollar terms. The fire systems market has continued its very steady growth, boosted a little in recent years by the Americans with Disabilities Act (ADA), which has prompted some additional retrofit business. Faced with a limited budget, the security director will put his money into access control and CCTV in preference to intrusion, for the simple reason that these systems can be seen to be protecting people, while the intrusion system protects only property.
Finding out more
The classic way for a company to start investigating a new market is to buy a market research study. There are half a dozen studies available on the US security market as well as some specialized ones covering access control, fire equipment and home automation. Most of these studies are of limited value to a new entrant in my view. Only a couple of the research firms actually have enough industry experience to properly formulate a research study. The others do not understand the subtleties of the market - the distinction between a dealer and a systems integrator; the terms dealers use to define equipment; the challenge of adding up sales numbers when many of your respondents are branches of a national company. As a result, the data in these studies is often wildly inaccurate.
For a company that has already made the decision to enter the US market, I recommend doing much more specific market research than is available in the general market studies. The key piece of information needed for the market entry decision is whether or not the product will be acceptable to the market. This cannot be deduced from any published data or generalized research. Some specific research is needed.
I absolutely do not recommend taking a booth at a trade show as a means of assessing a new market, though I seem to be swimming against the tide on this one - it seems to be the most common first step for new entrants. I believe that it is one of the most inefficient and inaccurate ways to determine whether or not your product will succeed. If you would like a fuller explanation of this view, email me for more information.
