Microchip Shortage Still Impacting Consumers in Auto, Tech and Beyond
Understanding How It Happened and What Vendors Can Do to Provide Value
Microchips may be little, but they're having a big impact on the global supply chain. While the pandemic has directly impacted global health, labor and travel, subsequent supply chain snags like the microchip shortage have created complex challenges for both brands and consumers across a range of product categories.
As the digital world has continued to advance and grow, so has our reliance on computer chips to power devices large and small. Using integrated circuitry of semiconductors, microchips are essentially the brains of all our electronics like smartphones, electronic toothbrushes washing machines and even cars. Chips range in size, and there are an estimated 100 billion of them powering the world daily.
When the pandemic forced chip factories to shut down, the backlog of orders started a domino effect throughout several industries—especially the automotive market, which is of particular note for Quotient’s new partner AutoZone. How are consumers dealing with this crisis, and what other areas within our industry is this affecting?
Read on to discover the areas hardest hit by the microchip shortage and how to provide consumers with value in the face of unfulfilled demand.
What is the microchip shortage?
The chip shortage has affected the automotive and electronic industries tremendously. Today’s globalized world depends on communicating via technology and shipping goods cross-country and overseas, so it’s easy to see why chip availability impacts consumers in their day-to-day lives as well as product manufacturers as they source and deliver goods. As Patrick Penfield, Supply Chain Practice Professor at Syracuse University, explained, “We’ve just never ever seen anything of this magnitude impact us before.”
The current chip shortage was set off by a slew of factors, but it’s rooted in sheer demand that had been ramping up since before the pandemic. As lockdowns forced workers to rely more on home technology, simultaneous factory shutdowns meant chip producers couldn’t possibly keep pace with skyrocketing demand.
Though chip technology was first developed in the US, as of 2020, only about 12% of microchips were assembled on American soil. When ports in Asia closed during the pandemic, production-ready semiconductors sat in shipping containers for months. Even as transportation docks have reopened, bottlenecks are so massive that supply chain infrastructure is slow to get moving again.
On top of the broad production and supply-chain issues, a fire at the Taiwan factory responsible for one-third of the world’s microchips further compounded the issue. Additionally, Taiwan’s severe drought has played a role in the shortage as water is necessary in the chip-making process.
How is the microchip shortage affecting the auto industry?
So, why is the auto industry particularly impacted by the shortage? Each year, car companies make predictions on the number of microchips they will need. At the beginning of the pandemic with the economic outlook bleak, automakers anticipated slumping demand and reduced their semiconductor orders accordingly. At the same time, demand for technology shot up as consumers streamed more entertainment, worked from home and relied more heavily on their smartphones. Microchip makers restructured their facilities to fill demand of those products, further exacerbating the shortage of chips for automakers.
The auto industry is getting hit hard. Estimates claim that 3.4 million new cars and trucks will be sold in the 2021 third quarter in the United States. This is a 13% decrease from 2020’s third quarter and a 22.7% decrease compared to 2021’s second quarter.
How is the microchip shortage affecting holiday shopping?
Leslie Blackwell, Director of Public Affairs at Better Business Bureau Serving Central Virginia, put it best when she said, “Whether it is a microchip or a potato chip, there seems to be a supply shortage going on right now.”
The holiday season brings an annual surge in product shipments as consumers order gifts and prepare meals for friend and family gatherings. Experts advise shoppers to be aware of what products will be in short supply and shop early. In fact, some are predicting even Black Friday was too late to receive gifts in time for the holiday season.
How can vendors provide consumers with value through the microchip shortage?
In the auto market, the best option for vendors and brands looking to serve shoppers who are directly affected by the microchip crisis may be to offer products and advice for servicing their current vehicle.
Outside of the auto and tech markets, prices are anticipated to rise throughout various industries as shipping costs accelerate, so it will be important to provide consumers with value when possible. Savings on products that have been less impacted by the chip shortage can help consumers' dollars stretch further and provide relief amid increased prices. For example, digital coupons offer a range of targeting and measurement capabilities that advertisers can use to provide value to consumers on a personalized, one-to-one level.
James Lewis, Senior Vice President and Director of CSIS’s Strategic Technologies Program, told Popular Science, “We’ve probably got about nine, 10 months of this to live through. If you can afford to wait, prices will go down.”
Generally speaking, consumers are price conscious and make value-driven decisions. With more consumers engaging with digital promotions for the first time, brands have the opportunity to reach consumers through new touchpoints. Vendors and brands can appeal to consumers by making it easier to find information on deals and lower prices—leveraging communications such as digital campaigns and social media.
As consumers search for deals to ease the effects of elevating costs, providing them with personalized promotions is key to delivering the most relevant value to consumers. By leveraging shopper data, brands have a better understanding of consumer behavior and preferences—enabling them to deliver highly strategic and efficient offers to audiences by reaching the right consumer with the right messages at the right time.
Using digital promotions, brands can effectively target consumers with online coupons for products that they know they’re already interested in.
Interested in more information on industry trends or how your brand can provide value to shoppers throughout the microchip crisis and beyond? Contact us at [email protected].