Handset, TV makers to cut output 20% after festive slump

India’s biggest electronics selling season has turned into a costly inventory problem. Smartphone and television brands are preparing to run production as much as 20% below their plans for the next two to three months after festive sales volume slipped about 25% year on year.

The trigger is a pricing shock, not a collapse of interest. Memory chip costs have jumped two to three times in ten months as AI-driven demand outpaces supply, forcing smartphone prices up 35-40% and television prices up 20-25%. Entry-to-mid-range buyers, who make up the majority of the market, have pulled back.

Why the festive engine stalled

The festive window from Onam to Diwali normally delivers nearly 30% of annual sales for phones and TVs. This year, the arithmetic changed before the season began. Higher component costs left brands with little room for the aggressive festive discounts consumers have been conditioned to expect.

Pradeep Jain, managing director at contract manufacturer Jaina Group, put it plainly: “Smartphone production is going to come down by 20 per cent.” He expects some recovery next year as users eventually replace devices even at higher prices.

Haier India chief executive Satish NS said brands had built festive inventory conservatively, but “no one expected festive sales for memory products such as televisions to be impacted so badly.” TV unit sales are down 15% from the last festive season, and printed circuit boards containing memory chips for 32-43-inch sets have doubled to $80, with a projected rise to $110 by January or February.

The psychology: a broken reference price

This is classic reference price behaviour. Consumers carry an internal benchmark of what a device should cost, shaped by last year’s models and festive offers. When entry-level prices rise 20-40% in one season, the purchase stops feeling like a deal and starts feeling like a financial stretch. Demand falls even where traffic stays high.

Counterpoint Research found smartphone unit sales fell about 19% in the first wave of festive sales, despite strong online traffic from tier-2 and smaller cities. Online channels accounted for nearly 65% of sales. The interest was there; the willingness to pay the new price was not.

How brands responded

With limited room for direct price cuts, brands leaned on affordability mechanics rather than discounts. Research analyst Shubham Singh said the shift went to no-cost EMIs, bank discounts and exchange offers. That protects the sticker price while reducing the immediate outgo, a sensible move when input costs cannot be negotiated down.

• Protect the monthly anchor: use EMIs and exchange offers instead of deep discounts.
• Clear inventory before demand planning: production cuts alone do not fix channel stock.
• Segment the pain: entry-level buyers are the most reference-price sensitive, so shield them first.

Sony India managing director Sunil Nayyar said the market is under stress, with sales failing to match last year’s levels even in value terms despite higher prices. That is a warning sign: when value falls despite inflation, the issue is demand destruction, not just a pricing mismatch.

For brand managers, the lesson is that a cost-driven price rise is still a psychological event for the buyer. You can pass on costs, but you must also manage the reference price—through financing, trade-ins and careful segment targeting—or you will spend the next quarter clearing the festive stock you hoped to sell.

Source: ETRetail.com