December 16, 2024 (press release) –
AI-powered appliances will take centre stage at CES 2025, and not only limited to the premium range. We expect a greater number of medium- to high-end products being AI integrated as companies seek to lock consumers into their ecosystems. Once in, companies will prioritise servitization to monetise the opportunities that AI will present.
On the sustainability front, we expect AI to enable companies to focus on circular economy initiatives, allowing businesses to refocus on eco-friendly innovations and long-term value creation. Incentives for heat pumps are also expected to increase as wider adoption and more efficient models come to market together with increased incentives.
Lastly, the expansion of Chinese brands in the Latin America and Southeast Asia regions continues. These brands provide a value proposition to consumers increasingly being challenged by uncertain macroeconomic conditions and high living costs.
The shift from smart to AI has started
The trend towards smart appliances has been around for at least the last 15 years. As we move into the AI era, we expect products that used to be sold as “smart” to be integrated with AI features and marketed as AI appliances. Even European brands, which have been reluctant to fully embrace “smart” technologies, exhibited a range of smart appliances and services at IFA 2024.
With the potential market for smart homes expected to be greater than USD600 billion in 2030, companies are only accelerating their AI efforts
Source: Euromonitor International
We expect AI to be integrated first in appliances such as air conditioners, refrigerators, washing machines, ovens, robotic vacuum cleaners, air purifiers, or coffee machines. AI integration will enable brands to offer a host of services, opening a new revenue stream.
Moving forward, we expect AI to be a part of brands’ premiumisation efforts, together with a servitization approach which we will discuss next.
Servitization – selling an appliance with a service
Appliance prices have been depressed for the past 20-30 years, with price increases in nominal terms largely negligible, due to intense competition. Additionally, companies have had to operate with small profit margins, typically below 20%.
The move towards servitization has the potential to address these challenges and boost brand loyalty. With a potential market size of USD50 billion, the rewards can be transformative for companies. Servitization is a business model that involves companies selling products and providing additional services to customers.
LG has shown the possibilities of the servitization model, especially its appliance subscription programme and product care service, which is expected to grow by 60% in 2024.
With this success, LG has expanded its subscription service to Malaysia, Taiwan, and Thailand, with plans for India before the year ends and, in the long term, Europe and the US market. Responding to this success, towards the end of 2024, Samsung launched its own subscription service focused on AI appliances. We expect other brands to follow suit in 2025.
Sustainability goes circular
The growing challenge of e-waste has led to companies devising sustainability initiatives around the appliance lifecycle. For example, in a Miele survey, three in four surveyed consumers trust circular appliances, and over 80% would consider refurbished spare parts. This shows the tremendous opportunity for companies to not only be sustainable but also manage resources while doing it. Circular appliances are products made with recycled materials.
At IFA 2024, Miele showcased this thinking in action. Miele's design study for a circular vacuum cleaner, the "Vooper", adheres to the cradle-to-cradle principle by using recyclable materials, modular components, and sustainable design techniques, making it easier to repair and recycle.
Another example comes from Haier. In line with the Chinese government’s national programme of “exchanging old for new appliances”, Haier announced its recycling factory in China together with its Q3 2024 results. The factory has a target of achieving 100% recycling and reuse of used appliances in China. Haier’s plant is unique in that it accepts used appliances, irrespective of brand.
Chinese brands’ expansion accelerates across borders
The real estate market slump in China has given extra impetus to Chinese brands to accelerate their expansion plans beyond their domestic market. According to Euromonitor’s data, these brands have been growing the fastest in Southeast Asia and Latin America.
In the Southeast Asia air conditioners market, Chinese brands saw their share increase to 22% in 2024 compared to 12% in 2018. These brands have been successful due to a focus on price-sensitive consumers looking for value products. Through a combination of creative marketing, buy now pay later (BNPL), and feature-heavy products, these companies have been able to gain shares at the expense of established brands. 2025 will see an acceleration in this trend as competition among Chinese companies becomes more intense.
Euromonitor will be following this trend closely with a planned briefing analysing the factors behind the success of Chinese brands in Southeast Asia and Latin America in 2025.
Could the heat pumps market make a comeback in 2025?
Global sales of heat pumps contracted in 2023 and will likely do so in 2024. While Euromonitor does not expect sales trends in 2025 to be much different, barring the introduction of new incentives, the long-term future for heat pumps remains strong, especially in the EU.
Starting from 2025, the EU will stop subsidising the sale of new fossil fuel boilers in buildings, which could lead to a ban on sales of fossil fuel boilers by 2029
Source: Euromonitor International
Additional manufacturing capacity for heat pumps will also come online in Europe, which will hopefully bring down costs. A combination of these factors, together with additional incentives expected in 2025, will hopefully give a boost to the market.
Euromonitor will be launching a white paper and briefing on this market in 2025. For further insight on consumer appliances, read our article, Growth Opportunities for Consumer Appliances in Asia Pacific.
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