Has 2016 been a good year or a bad year for the adult industry? Well, the market has definitely grown, says Samir Saraiya, head of Indian company Digital E-Life. In this highly interesting interview, Samir gives us his explanation for this growth, and we also talk about the other big developments in the adult market, for instance the erosion of the traditional supply chain, increasing competition as a result of market saturation, private equity, product innovation, sex tech, and brands and private brands.
The year is not over yet, but looking back at the developments in the adult market, what’s your verdict on 2016 so far? Are we in a period of growth or stagnation? What have been the biggest changes and developments of the year so far?
Samir Saraiya: My belief is that 2016 has shown growth and we will continue to see growth over the next few years largely due to the digital revolution and better product availability via online commerce as well as better product information via videos and online literature. This has helped change consumer mind sets and people are becoming more open to try these products and then talk about it. The industry is maturing and people’s perceptions are changing from the ‘adult’ or ‘erotic’ positioning to more of ‘sexual health and wellness’.
On the manufacturing side, we see more products from the big, established players like Shots, CalExotics, and Pipedream and we do see a few new brands entering the industry like Mystery Vibe and b-Vibe. This is in addition to the ever growing private label brands entering the market.
Samir Saraiya, CEO of Digital E-Life
I haven’t seen any radical developments this year, but I see a growing momentum in the male toy category with large as well as new companies like Blewit focusing on it. Additionally, I notice a trend where brands are putting more emphasis on product evolution in terms of better styling and packaging. Brands such as We-vibe, System JO, DONA, Sensuva, and Intimate Earth have done some great work redesigning and repositioning their products to bring about greater acceptance among a larger audience.
I believe this trend is moving in the right direction as this will further bring down the negative inhibitions of buying sex toys to that of buying fun items. My prediction is that the year 2017 will have a lot of innovation based on sex tech, especially virtual reality.
Has competitive pressure in our industry increased?
Yes, competitive pressure has indeed increased with more choices available to consumers. I see the industry fragmentation slowly moving towards consolidation as the larger enterprises are constantly expanding their product portfolio by adding new products across their various segments and using their marketing and distribution strength to get their products in front of audiences.
Over time, this may marginalise some of the smaller niche players who lack the financial, brand, and distribution skills to compete with the larger players.
The erosion of the traditional supply chain (producer – wholesaler/distributor – retailer) is causing new problems as producers from the Far East are trying to work directly with retailers in Europe and the US. What can be done about this development?
This is a natural evolution of globalisation and we see this development across varied Industries. The power of the internet has changed the landscape of information and communication and the traditional supply chain of yesteryears will slowly erode. Product innovation and design still remains to be a stronghold of the West while manufacturing has moved East.
My advice to western companies would be to invest more in brand building, product innovation, and creating entry barriers at retail channels to sustain the onslaught of low priced products flowing in from the East.
In this industry, I believe enterprises which have the highest access to consumers in terms of communication have an advantage. A lot of companies today are wearing multiple hats of manufacturer, distributor, and retailer which is clearly creating a conflict of interest. Large distributors and retailers in the West are steadily building their private label portfolio with low-cost manufacturing in the East. These retailers will create challenges to the traditional pure play manufacturers as they are in a position to influence the end customers via their touch points.
Additionally, we see some of the larger companies expanding their geographies which further complicates the supply chain and intensifies competition. European and American manufacturers and distributors are entering each other’s geographies via subsidiaries. Companies like Lovehoney have increased their presence in Australia too. I believe that market forces will play out and unless the market grows correspondingly, we will see some of these companies retracting to focus more on their home turf.
“I don’t see too many product innovations coming from the larger players in the industry. I believe product innovations will come from small start-ups.”
Venture capital and private equity are having more and more impact on the international adult market. Do you think this is a positive development, or are there also risks?
The scale of venture capital and private equity is very small in this industry. The legacy factor of ‘taboo’ is still prevalent and financial exits seem limited. We do see a few cases of private equity in companies like Diamond Products (Pipedream, Jimmyjane, Sir Richards), United Consortium (System JO and DONA) in the USA and Sonoma Internet (Amorelie) in Germany, but we need to see a lot more.
I personally believe that large scale capital is good for the industry as it will provide the necessary marketing and brand-building capital to grow the market exponentially, which is something the industry desperately needs. I hope that in the near future, companies such as Lovehoney (ranked among the Britain’s top 100 most profitable private businesses) get publicly listed which will demonstrate a lot of confidence to the investor community.
Additionally, I do see a few new brands like Kiiroo (Netherlands), Crave (USA), Eva (USA), MysteryVibe (UK) and Blewit (USA), all of which have been supported by crowd funding initiatives and are bringing product innovation and design to the industry. I see this trend continuing and hopefully some of these new companies will grow fast enough to attract big ticket financial investors to the industry.
Social acceptance of adult products is growing and there is still untapped potential in the market for sex toys. How likely is it that companies from outside the adult industry swoop in and establish a dominating position in the traditional adult market?
This has already commenced with condom focussed companies like Reckitt Benckiser (Durex) and Church & Dwight (Trojan), who are investing in their adult product portfolio with products like lubricants, vibrators, cock rings, and more. These consumer brands are very powerful and have the capability to disrupt the industry with their traditional distribution strongholds like pharmacies and super markets.
I believe that large FMCG and pharmaceutical companies like Unilever, P&G and J&J will soon recognise the enormous opportunity of this category and start launching products in markets where the social acceptance crosses a certain line. Companies like Victoria’s Secret have a natural brand fit with the lingerie and cosmetic side of the industry and it is only a matter of time before they jump in.
Let’s talk about the new products of 2016: What’s your toy of the year so far?
I would say that the womanizer product has been the toy of the year for both 2015 and 2016 and its success has been quite extraordinary. They say ‘imitation is the sincerest form of flattery’ and we see that with a lot of companies trying to copy it.
Having said that, the one company which is producing outstanding innovative sex tech products is Kiiroo. Their virtual reality products bundled with real time blue tooth + Wi-Fi sex toys add a new dimension to existing products on the market and provide a good peek at what sex products will be like in future.
I believe that technology will drive sex product innovation and we will see more such products with mobile apps, virtual reality, or teledildonics. I believe that technology will take sex toy personalisation to a new level and personalisation will soon become a new mantra for brands. Lastly, we are not too far away from the day when strangers will be having cybersex with each other, with privacy, using these products, in the comfort of their homes while physically being in different locations. I honestly believe it will be good for society and add to the general sexual wellbeing of people.
“I believe that technology will drive sex product innovation and we will see more such products with mobile apps, virtual reality, or teledildonics.”
There are many products in our industry, but some people feel that too many of them are too similar. Is real innovation becoming a rarity in our industry?
I don’t see too many product innovations coming from the larger players in the industry. I believe product innovations will come from small start-ups. In the past, we have seen innovative products like womanizer, Hot Octopuss, We-vibe, and Kiiroo, all of which were start-ups. Unfortunately, the industry is not well protected by Intellectual property rights (IPR) and the cost and effort of protecting IPR is exorbitant for most companies in the industry.
This has led to large scale imitations and the Far East manufactures have thrived on this. This has resulted in a product and brand explosion while the market has not grown correspondingly.
The end result is a plethora of similar choices for the consumer and very little brand recognition. I personally believe that with the availability of crowdfunding and High Net Worth Individuals (HNWI) investment, we will see more real product innovation. I also sincerely believe that there should be an industry body set up to support companies who’s IPR has been infringed.
Private brands seem to be a response to all these similar-looking products. But is that really a solution? Don’t private brands mean that there will be even more products swamping the market?
Since there is a lack of consumer brands in the industry, it is very easy for companies to launch their private label products, especially if they have a strong touch point with the consumer. Companies that have large consumer touch points like chain-stores or distribution strengths find it more attractive to promote their private label than sell traditional manufacturer’s brands.
This will lead to more products swamping the market and will create issues between manufactures, distributors, and retailers. External capital, product innovation and consumer brand-building is the only way out of this vicious cycle.
“Since there is a lack of consumer brands in the industry, it is very easy for companies to launch their private label products, especially if they have a strong touch point with the consumer.”
Usually, a brand would be good way to set your products apart from the competition. But for that to work, there’d have to be brand awareness and brand recognition. Do we have real brands in the adult industry – brands whose name makes a difference to the consumers?
There are very few Tier 1 consumer brands in the industry like Durex and Trojan. There are strong business to business brands like Pipedream, Doc Johnson, Shunga, JOYDIVISION, and pjur, to name a few which have also invested in building consumer brands, but are at a different level compared to Tier 1 brands since they are not that well recognised by the end consumer yet.
There are, however, a few brands in the market that are heavily focused on raising their profile with the consumer. Lovehoney for example has adopted an innovative approach by building brands through a licensing strategy. The brand licensing of Fifty Shades of Grey for sex toys was a game changer and Lovehoney has continued with the same formula by launching Motörhead and Mötley Crew branded sex toys.
A brand like Hot Octopuss has done some powerful PR to engage the consumer with their ‘GuyFi’ campaign which grabbed the attention of the mainstream press and end consumers. Fleshlight is building and marketing products in association with porn stars. Recently, Topco Sales partnered with Pornhub for their Twerking Butt product and got visibility on the Pornhub website.
These examples demonstrate a different path to creating brand awareness with significantly less marketing dollars. The industry needs to not only innovate on products, but also on brand building and distribution.
You’ve been to many countries all over the globe. Drawing from your experience, would you say that consumers prefer products that are made in the USA or in Europe? Do these products have a better reputation than sex toys made in Asia? Do the consumers care about things like that?
Consumers pay very little attention to manufacturing. Sure, the brand’s heritage and history are important. Apple is an American brand that manufactures in China, and most consumers love Apple. Similarly, in our industry, a lot of Western brands manufacture in China, but the brand remains Western.
Countries like Germany, Canada, and USA have done a great job by building trust and Western consumers prefer western brands especially for products which are skin-sensitive or edible.
Similarly, we hear that Japanese people prefer Japanese products and I constantly hear Western companies complaining about the difficulties they face carving out a market share in the East where the local companies seems to be doing very well. Over time, I believe the consumer will pay less of a premium for Western manufacturing except in the luxury category where quality wins over price.
Let’s look at the road ahead: What do you predict for 2017? Will Fifty Shades become another big blockbuster? Will it continue to create interest in adult products among mainstream audiences?
Personally, I believe that Fifty Shades hit its peak and will not be able to recreate the response it got a few years ago. However, there will be new revolutionary concepts that will become game changers for the industry. I believe that sex tech will be the new mantra in 2017 and a lot of companies will start developing products that can be personalised to each consumer.