Stephen Baker, vice president and technology analyst, The NPD Group, Inc.

Numerous retail pundits have posited that technology will be far and away the hottest segment this holiday season. But cutting-edge technology can be intimidating, for both consumer and retailer. Strategizing over how retailers can help new customers leap over the fear-and-indecision threshold this holiday season, we’ve come up with a formula:

The right tech offerings + The right balance of in-store and online interaction = New Customers and increased customer purchases/spend

In our recent Future of Tech report, we found that approximately 10 percent of consumers spend 40 percent of tech industry dollars; and the next 40 percent comprise the next 40 percent of spending.

Here’s one of the challenges. In the tech category, the ability to bring in new buyers is especially important, because so often, older technology is good enough, and it’s hard to justify the expenditure when prior-generation devices are still working perfectly well.

Fortunately, some consumers do get bored, and they have a near-insatiable appetite for novelty; likewise, some “smarter” products require hardware upgrades to run the next software platform. So if the retailer is able to give the consumer a new and shiny product that’s demonstrably more advanced than what they already have, that can be enough to give them the push to go out and buy it during the holiday season. But this particular magic is becoming a lot harder to accomplish than it has been in seasons past.

Given that tech retailers have already won over nearly the first 10 percent, a near-saturated consumer segment, the crucial question for this holiday season is, what can retailers do to attract that next 40 percent of buyers? What essential combination of inventory selection, pricing, and online vs. offline strategy should be deployed during this time of year when consumers are actually willing to open up their wallets and spend? Moreover, how do you get them to spring for unfamiliar items that are potentially daunting from a tech point of view?

Know Your Categories: This Season’s Hottest Tech Items 

Tech starts with product and ends with the customer—not the other way around—so manufacturers, in thinking through next-generation products, and the retailers that sell them, need to make sure the merchandise they are offering resonates with early-adopter customers. Then their next challenge is bringing those aforementioned next-stage buyers into the market.

Three areas where the tech segment is growing are TVs, headphones, and smart home products. While the newest large-screen TVs and wireless headphones have already expanded well past the early adopter phase, smart home products are now poised to make that leap too. These categories are all on offer at a price point that has the potential to bring in more customers, getting beyond the “easy” 10 percent to a fully penetrated, fully saturated market.

Indeed, the smart home category—by which we mean home automation through security systems, smart lighting, smart entry, etc.—is expected to jump into that 40 percent critical consumer mass this holiday. Our Checkout E-Commerce data shows that home automation revenue was up 63 percent in the 12-month period ending August 2017. If you add in buyer growth, it was up 72 percent.  Even so, because smart home may sound intimidating or complicated to consumers, retailers will want to build into their marketing strategies enough education to alleviate their fear of these products.

When we look at online receipt data for smart home products, we see a large percentage of repeat purchasers. In the 12 months ending September 2017, 22 percent of consumers in the smart home products category were repeat buyers—that’s to say they’d purchased home automation products in the 12-month period ending September 2016—while 68 percent were first-time buyers. The savvy retailer will find ways to go beyond selling to people who already know what they want, and convert buyers who need to be motivated to enter this category. The levers that retailers will be moving to bring more people into the category, whether it’s price, education or assortment, and the impact of online or in-store on smart home purchases, can be adjusted by understanding your customers’ buying behaviors.

This is less the case for large-screen televisions—for tech retailers, TVs always drive the holidays. Consider that in the last two years, TVs by themselves accounted for an average of 10 percent of online sales revenue. There are two questions in this category: How much is a customer willing to spend on the next generation big-screen television? And, how different is the buying pattern in stores versus online? We’ve seen that typically customers will spend about $600 on a 50-inch-screen TV, though these prices are declining.

While bigger, more expensive televisions have typically done much better in stores, we’ve seen TVs come through to getting their fair share of e-commerce, too—in the 12 months ending September 2017, online sales grew 27 percent.

In this sense, televisions are perhaps the clearest example of the importance of striking a balance between online and in-store offerings. Consumers are researching their large-screen TVs online, but they want to see and experience the new TV in person—for picture quality, size for placement in their house, and so on. And now, because these TVs have gotten so large, customers also need to have them delivered.  For retailers, figuring out how the marriage between online and in-store works best is an opportunity to create the perfect path for the consumer this holiday season.

With the decline in TV prices, other categories, such as smart home and voice-activated speakers, continue to grow and take over market share in tech.  Bluetooth headphones have become an enormous category, with U.S. dollar sales up 66 percent (12 months ending September 2017) over last year, according to the NPD U.S. Retail Tracking Service, and online sales up more than 70 percent over the same time period, according to NPD Checkout E-Commerce.

With different kinds of wireless offerings come different decision-making processes—we’re seeing that more expensive headphones come with a mix of sentiment over whether to buy online, experience their audio quality and purchase in-store, or partake in showrooming.  Here is where retailers need to invite consumers into a sensory experience, with a solid assortment and environment that makes purchasing in-store worth the trip.  Especially for wireless headphones, the main thing people want is branded technology—which brings up another point.

Retailers can manage their selection online and in the store to optimize for both without having to stock every brand in every channel—essentially curating those products that are most likely to pull in the next 40 percent, who aren’t as product- and tech-conscious and are more price-sensitive than the early adopters. If you’re selling 65-inch televisions, for example, you’ll want to make sure your selection includes high-end brands such as Samsung, Sony and LG.

But for headphones, our data help us understand the motivation for a purchase, whether consumers are buying for brand or value. From the buying behavior we track, we’re seeing that while Apple and Bose are among the fastest-growing brands online, Sennheiser and Anker round out the top 15 online brands. All are gaining share.

Likewise with smart home products: consumers will be doing research online before coming into the store—being aware of the most highly rated brands, and carrying them, is essential.

How Data Analytics Plays In

Retailers can’t force their customers to buy what they have to sell; in our consumer-driven marketplace, and especially in tech, it’s easy to get the first 10 percent of customers over the hump with shiny new products that feed their addiction to new technology just for its own sake.  However, for winning over the next 40 percent their purchase patterns need to be analyzed and understood—spending thresholds, purchase frequency and sequence, retailer and brand choices—so retailers have the facts on whom to target, and when this important mainstream segment is ready to take the plunge.

To sum up, we’ve discussed two categories of customers:  the repeat, tried-and-true customers—the 10 percent—and the indecisive 40 percent who need to be escorted across the threshold. Sound stocking and promotion decisions can help bring that next 40 percent into the fold. Retailers will find that there’s a different way of approaching each type, but targeted analysis can take the guesswork out of getting through to those next-stage customers this holiday season.