Sony's Marketing - Creating and Sustaining Superior Performance and Competitive Advantage - Case Study Example

Sony Marketing Introduction Sony, whose core business is the manufacturing of electronics consumer goods, currently oversees many subsidiaries and affiliates that are responsible for particular business sectors such as movies, music content, video games and financial services. Sony Corporation's current management team proposed the creation of a new management structure designed to expand upon its core strengths as a global electronics, entertainment and technology company. Today the value of Sony's brand name has slipped drastically with the fierce competition in the industry including Panasonic, Apple etc. Unknowingly, Sony has fallen first to last, or near last, in many measures of growth in Japan's top 10 exporting multinationals. Marketing Mix The marketing mix is the way that the four parts of a company’s marketing policy are combined in order to achieve its objectives. It is also known as the 4 Ps. These are product, price, place and promotion. The way they are combined depends on the type of product and the nature of the competitors. The marketing mix of its competitors will also affect it too. Product is about how the product has changed and how it will change over time in the future. Product Customers buy a product because they want to get something from them and this will come from what the things like the brand name and what the product actually does. It all goes into what the product is. The product will need to change over time because the market is continually changing and so if they don't change and update it then its competitors will make newer and better models and they will take over. The market research will show the company how they need to change their product from what the people they ask tell them and this will help them develop their marketing strategy. From what they are told in the market research they can devise ways to improve their existing product and to create new ones. They will also get new ideas on their marketing. Place Place is about where the best place is to put stuff. Sony has a short channel of distribution. They go straight from the producer to an intermediary to the customer. The shops will buy direct from Sony and then the customers will buy it from them. The internet is fast becoming a popular place to buy from. So this is a good place to sell from. Sony sells through their website so people looking there can buy something if they see it and want it. By selling over the internet it means that Sony will get bigger profits as they will not have to give some to the shops that sell them normally but there will be high starting costs to set up selling online. It will also mean that the customer can buy from their homes and 24 hours a day which makes it easier for them. When the company is deciding which shops they should sell their products from they will need to think about lots of different things. They might sell their product through different places at different stages at the product life cycle. (Bradford, 2000, 49-54) PEST Analysis In PEST analysis there were lots of young professional people that would buy DVD players and there are also a lot older people over 50 than there used to be. If Sony sells their DVD players in lots of different places rather than just in electrical shops then they will reach a wider range of people and young people who have lots of spare money to spend can just buy a DVD player if they see one and want one. For example, if they were in a supermarket and they saw a DVD player they could just buy it there and then if they wanted and not have to go somewhere else to buy it. Also people with young families might want to shop and buy all their things in the same place rather than having to go to lots of different shops with their children. Promotion Promotion is about where products are displayed and promoted to the target market. Different methods include advertising, sales promotion and public relations. If there is no promotion then the marketing will not be effective Sony promote their DVD players in lots of different ways. They have adverts on television showing their products as very futuristic and modern. This is so it reaches a large general audience and gets the message across about their new DVD player. Sony also advertises in newspapers and magazines as this also reaches a large audience. Direct marketing is also used by Sony when they send out letters to their customer database to tell them about their new DVD player. Sony has a recognized brand name and most people know it. This means that people are more likely to buy it than a non-branded DVD player. Branding is important because it helps to create consumer loyalty and to increase sales. If a product is branded then generally the company will be able to charge more for it than a non-branded one. Some companies put logos on their products so they are instantly recognizable by the logo but Sony does not have a logo, they just have their name that is printed on their products. This means that it gets free promotion when their products are used in television shows or in films because people watching will see their brand name of products and think they want one too. Advertising provides people with information about the product. Sony can choose which programmes they want to advertise in and they will chose programmes that their target market watches. This is expensive though so to run a big advertising campaign during primetime programmes would end up costing the company a lot of money and might not be worth it for the extra sales they would make. Sony’s main time for television advertising is in the run up to Christmas but they don't very often use television for their main advertising campaigns. Newspapers are also effective ways of advertising for Sony. This is because they too reach lots of people and are cheaper than television. As there are a lot of professional young people and people over 50 that Sony would want to target its advertising campaign at they would want to advertise in a newspaper like The Times rather than The Sun because this is what they would be reading. It might be worthwhile for Sony to have adverts in The Sun though because there are a lot of young people that do read. It would not be worth it for Sony to advertise in local newspapers because they would not get enough readers even though they are relatively cheap compared to National newspapers. With Sony advertising in magazines they have to make their advert to the point straight away. One recent one showed their DVD player in a dressing room along with the slogan 'The best performer in pictures and music' to show that its almost like being there because the picture and sound is that good and better than everyone else. Sony uses newspapers and specialist media magazines to advertise in mostly. There are also sales promotions which can be used. These will make the customer more aware of the product and will mean that if they are stuck deciding between two products that they want they will usually go for the one with the promotion as they will be getting something free. At the moment Sony has a free offer on VHS tapes and they also have competitions. Price The price at which a company sells their product is an important part of the marketing mix. It usually starts off high when it is first brought out and gets lower over time. If Sony prices their DVD players too low then people might think there is something wrong with them and they are poor quality. If they are priced too high then people will not buy them instead go for a more reasonably priced DVD player. As their DVD player is a premium product Sony can charge a high price and hope that people think it is good enough to buy it. One way to set the price is to make supply and demand. If Sony was to keep supply of their new DVD player limited then there would be a huge demand for it as people would think it must be so good so they would be prepared to pay a high price for it. Skimming pricing is when people want a new product so badly they are prepared to pay any price to get it. This is a strategy Sony may use when they bring out a new DVD Player. They set the price high and as it is a new model with lots of new features on it people will pay lots of money for it. This is mostly effective if the demand is inelastic and people want the product at any price. Positioning pricing is where the company will price the product high because that is how people think the product should be priced. For example, if Sony only charged £ 10 for their DVD player people would think there must be something wrong with it to be priced so low and wouldn't buy it, instead going for a more expensive make. Sony has their price set high but it is not so high that people won't buy it because it is too expensive. When they are deciding on what their price should be they will have to think about how competitive the market is and what the existing range of prices is. Sony will have to decide if it wants its price to be higher or lower than its competitors and they will need to make sure that the price covers their costs to make the DVD player. When they set the price they will need to identify who their customers are and whether they will be able to afford the price and they will also need to look at their competitors’ prices and decide whether they are going to charge more or less or the same as them. In PEST analysis people of all ages want to buy DVD players and the lifestyle changes will affect this. Because there are more people over 50 and people are waiting until they are older to get married and have children it means that people have more money to spend so Sony can charge a higher price than they would. Also because there is very low unemployment it means that more people have money to spend on DVD players. As videos are stopping being used so much now people will want to be buying DVD players now so Sony can charge quite a high price for them. SWOT Analysis In the Sony SWOT analysis, a number of threats and opportunities can be identified for the Company. Sony has the advantage in terms of strong customer loyalty as well as leading edge in R&D. Sony is the king of the consumer electronic market and because of this it still stands strong in a number of different worldwide markets. Finally, Sony also has a competitive advantage in both the area of quality and innovation. Despite these strengths, Sony still has a number of weaknesses. The once unthinkable decline of many of the world's largest corporations has become all too common in recent years. There is intense competition between competing firms in electronics consumer products. The inability to adapt to the speed and turbulence of technological change has proved to more critical danger. Price wars for electronics products like flat-screen TVs and other consumer electronics gadgets have caused the financial results in red for Sony as it fail to keep up with the fast changing market environment. The problem of Sony is that it fails to formulate a successful business level strategy, which is the lack of sustainable competitive advantage like achieving cost leadership and product differentiation. Firms that are in the technological industry should position itself in a direction that practice radical change in order to achieve first mover advantage, competitive advantage, and also to achieve above average returns in current highly competitive era. Price is one of the four important factors that formed up a successful marketing mix. Organization that adopts successful marketing mix tends to cover a higher percentage of the market share. Sony should conduct quarterly market opportunity analysis to identify consumer electronics markets and market factors in the economy and the industry that will affect the demand for and marketing of a product. (John and Richard, 2000, 118-23) Electronic products such as CD player, TVs, refrigerator, digital camera, and washer in most electrical store like Harvey Norman, Courts, and Best Denki do not have a clear product differentiation between rivalries. Firms like to benchmark its competitors in manufacturing the same product range in order to obtain a market share in that industry. For example, Sony CD player is more or less the same as the one that Panasonic has. Therefore, in order to achieve competitive advantage in product differentiation. Cost Leadership In most electrical store, Sony products are categories as one of those premium brands that consumers trust because it provides high product quality and assurance as compare to other brands. Although Sony had achieve cost efficiency through economies of scale in it production level, it had not achieved cost leadership in terms of its plasma and LCD TVs and other electronic gadgets as compare to its competitors from various brands like TCL, Enzer, and Hyundai etc. Sony must first cut down its cost to the minimum which new Sony chief Howard Stringer says that "if you don't act, you will kill the company" For example, by resizing the firms internal structure, change of distribution methods, and search for new raw material that are cheaper in costs. Strategic Leadership & Management Sony needs to change its management style. Sony has long thrived on a hyper-competitive culture, where engineers were encouraged to outdo each other, not work together. People in Sony agree that they need to change but 90% of them don't want to change themselves because of the company kindness and all the generous qualities example lifetime employment. Leadership will change the Sony culture in a positive light. From a start, Stringer will face the culture's conflict and company's management politics. Refer to the article of Newsweek; "Stringer says Sony has become too bureaucratic, and that the key to regaining its place as the premier manufacturer of consumer electronics is to once again make the engineers the stars. But he also concedes that he is no engineer himself." According Stringer speech that makes it very difficult for the insider who has to attack the problems of too much management, and truing that around. Sony did not make any real market research before deciding whether to invent and produce a new product or not. By following that procedure, the company is facing a high degree of risk and a lower profit, like when we developed the Trinitron-system. These small problems have not become some big problems yet, so we should pay attention to them, and prevent they cause some serious problems in the future. And currently, the unemployment rate is really high. This means there are a lot of unemployed younger people in the labour market currently. As the population ages, companies find paying older workers expensive, so Sony should look towards cutting down the numbers of aged employees, and get some younger employees. This will bring down the total wage expense. Technological Trends The fact that technology has become a component of every day life and people are becoming more used to it contributes to popularity of the digital entertainment. The Internet as a distribution channel of digital entertainment is an inexpensive way for Sony to target various age groups and penetrate various markets. Continual technological innovations create more realistic entertainment experiences contributing to market demand. (Thompson, 2004, 166-70) Technology trend in game consoles is to give new level of experience and quality, in comparison to personal computer games as competitors. The interest of market in new entertainment technologies and trends is enormous, contributing to the Sony's bottom line as one of the opportunities. Important point in analysing an industry is to be able to understand, define and establish industry boundaries. The following part discusses competitive forces that Sony faces in the industry of consumer electronics; specifically, gaming console segment. Porter's five forces model has been used in this case to analyze Sony's industry environment. Threat of entry by potential competitors is not very high. For a new company to enter the consumer electronics market, it would mean huge capital requirements - highly competitive and costly development of new products and technologies and even more expensive establishment of distribution channels, as well as marketing and positioning of the company on the market. Developing leading edge game console requires couple of hundred top engineers with variety of skill range. Only large and established companies are able to get such amount of the best people. There is a possibility of established companies trying to enter new segments of the industry, the same way as Sony did when it entered gaming industry. Bargaining power of buyers is mostly influenced by economic factors influencing consumers' spending power. For example, if the spending power is lower due to economic downturn, Sony is forced to decrease prices in order to maintain profitability and vice versa. Buyers can demand also higher quality products and new technologies, forcing industry to tougher competition. Also, competition among major industry players is high, making loyalty of consumers harder to maintain. Therefore, bargaining power of buyers is assessed as high. Rivalry among Existing Competition Competition and rivalry among the three companies (Sony, Nintendo and Sega) is very strong. Companies are competing through the technological and performance improvements as well as moderately aggressive pricing strategies. It seems that PlayStation is playing the prime position with its competitive strategies focused on the development, pricing, quality and performance of the graphics technology as well as more sophisticated ways to target gaming community. Opportunities and Threats Sony's accidental entrance to the gaming industry has proven to be one of the greatest opportunities in the Company's history. While the Company faces threats coming from the intense competition in the industry and changing demographic trends, it is also building on the opportunities that come from the technological trends and market demand. Game players seem to never get enough, asking for more realistic entertainment experiences - providing necessary market pull resulting in a technology push that comes from Sony's development activities. Value Chain Analysis Michael Porter (1998) defines the value chain as a tool for identifying ways to create more customer value for the specified product. (Porter, 1998, 89-92) In order to audit the firm's resources, we used the value chain analysis framework and divided Sony's activities into two categories - primary and secondary (support) activities. Sony Play station's value chain starts with the actual production of the game console. There are following five primary activities that are involved in physical creation of the product. Sony's self-efficiency as well as strong buying power in relation to its suppliers (parts, components, chips, etc.) and established long-term relationships within the industry is some of the Company's definite strengths. Sony has a strong presence in all of the major markets, which is strength to the Company. The fact of Sony's presence in various continents aids the outbound logistics because distribution of the products is much easier and less costly as the manufacturing facilities are located directly in the geographic areas serving particular markets. This strengthens Sony's position in a form of the costs saving related to distribution, shipping and warehousing. Sony's competitive advantage comes from the ability to efficiently transform inputs to outputs while providing additional value to its customers. Additional value comes from PlayStation's performance and quality of games. There's also innovation factor involved in performance of PlayStation. Sony developed a new product that added to the game experience - CD could hold more information, more high-quality sounds and graphics, adding to the experience. All of these factors resulted in high levels of customer responsiveness. Sony achieved competitive advantage by managing their value chain better than other companies in their industry. Technology development and innovation, price leadership and product segregation were some of the main strengths enabling Sony to achieve a competitive advantage within its market. Product differentiation created a unique position in Sony's market through product functionality, performance and quality. Ansoff's Product/Market Matrix Ansoff's matrix is the most decisive parameter to determine strategies for growth. Sony falls in the Product development box. As suggested by Ansoff, this is riskier than the market development strategy. While a firm pursues new markets with existing products in market development, Sony's strengths lie not only in relationship with its existing markets but also with the product itself (the excellent engineering and R&D team involved in development). The suggestion is that Sony should not change the product. It is definitely a riskier approach, but is a calculated risk i.e. Sony has developed a product that its customers want, who is just not aware of its benefits. Secondly, Sony can look at market penetration for its brand and develop market in other regions or geographical locations. The 'itch to think big' leading to adoption of such calculated riskier alternatives will lead Sony to success. (Jobber, 2004, 141-45) Sony falls under the market penetration. The term market penetration means to increase market share. Sony strategy is to increasing marketing effort in the same marketplace and against the same competitors. Marketing tactics such as price discounting, advertising and promotion can be effective in gaining market share in a short term but maintaining it could be a problem. Longer term result can be achieved by developing strategies to increase product usage. It is to encourage existing customer to increase their usage of the plasma TV by increasing the quantity consumed per occasion. Examples include package deals where some incentives are given for buying a combination of products. Sony can offer to their existing customer to buy more electronic accessories by giving them free small electronic appliances with each purchase. This will help to prolong rapid sales growth and dominate the marketplace. Boston Matrix Sony falls under the star stage which means these are high share products in high growth markets. It is important that Sony needs to allocate resource to plasma TV in order to maintain their high share status if further expansion or research and development are required. Market share objective: Hold/increase if possible Strategies: consider geographic expansion and product differentiation. Upgrade product Adopt an aggressive marketing such as: advertising, pricing, sales promotion and service levels. Continue to invest for capacity expansion Bowman's Strategy Clock Sony modern electronics appliances will position itself to focused differentiation. Focus strategies avoid diluting or distracting strategy implementation, provide a way to compete when resources are limited, by pass assets and competencies of large competitors, provide positioning strategy and reduce competitive pressures. Sony can include extra product feature such as unique exterior packaging, weigh less and better components quality. Sony can also include extra services such as extension of warranty, after sales services, free delivery and discount on the plasma TV. Boston Consulting Group Box (BCG Box) The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities. One of the best portfolios planning method is Boston Consulting Group Box (BCG Box). First step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organised. Using the BCG Box a company classifies all its SBU's according to two dimensions: On the horizontal axis: relative market share - this serves as a measure of SBU strength in the market and on the vertical axis: market growth rate - this provides a measure of market attractiveness. (Heibing, 2003, 118-21) Recommendations and Implementation of Strategy Alternatives Sony faces various issues that need to be addressed. The major potential problem of stability and growth was Sony's intuitive, rather than strategic decision to go ahead with the development of its own console game system. Instead of strategic planning process, Sony took a risk of letting the major competitor on the board and then letting it go. Sony has to define criteria that will help to make decision in solving these issues. The most important criteria in decision making process are continuous growth of the Company, while maintaining leading edge in research and development, as well as maintaining competitive advantage. One of the alternatives is to focus on changing management style so it more reflects on core values and principles that Sony fosters. By doing this, Sony can ensure long term stability without risking sudden impulsive moves that might cause Company to lose their ground in the future. Another viable alternative is to make strategic merger or acquisition of their major competitor - Nintendo. This move would ensure Sony's firm position in the market while combining the best technologies and gaining majority of the market share. Sony's focus on strategic management in future Company's directions is important. However, it could result in a lack of creativity and innovation, which is a driving force behind the current success of modern companies. Acquisition of Nintendo would strengthen Sony's market position, contributing to the growth of the market share and the Company. In line with the market trends analyzed earlier in the case, consumer interest in entertainment technologies will only grow, contributing to the bottom line of Sony PlayStation's business. However, this could result in a monopoly-like environment resulting in potential weakened or non-existent competition. This could cause a decrease in quality of the games and various users' needs. For example, if Sony focuses on developing games for 14+ markets, the younger age demographics will be affected, resulting in loss of the customers. Conclusion In conclusion, although Sony is doing well in our business performances, there will almost always be something we can change or do better. Therefore it's very important that we continuously are asking ourselves; 'what are we doing right now?' and 'how can we be better?' One of the most dangerous things for a company is to rest on their laurels while they are currently doing well. In the real world times are a changing, the environment is dynamic, not static At the corporate level, Sony's strategy would be that of the creation of criteria to better enforce the strategic management principles for better decision making. To accomplish this, management would need to be reorganized a little to better ensure clear communication. Once this is all in order, the next step would be a buyout of the competition, Nintendo. From there, the next step would be to integrate the resources of Nintendo's console into Sony's own Play station for a possible future console, giving Sony an advantage over future competition. This merger combined with the reorganization of management will hopefully ensure that Sony can stay ahead of the competition in the video game market and be successful in future ventures into other markets. On a business level, the reorganization of management would involve a shift of power to the lower departments, and the creation of clear communication between the lower levels and the upper levels of the company. By empowering the lower levels of the company, more educated decisions about the future of Sony's subsidiaries can be made, as the lower levels of management know more about the products and what they're capable of than upper management. Since this would focus the company, the lower levels can better focus on R&D and specialization in their individual product lines. In short, lower levels of the company would have a larger, if not largest, say in company decisions. References Bradford, Robert W., Duncan, Peter J. Tarcy, Brian (2000) Simplified strategic planning. Prentice Hall: 49-54 Heibing R, Cooper S, "The successful Marketing Plan", McGraw - Hill, 2003: 118-21 Jobber, D. (2004). Principles and Practices of Marketing. McGraw Hill. 141-45 John A. Pearce II and Richard B. Robinson Jr. (2000) Strategic Management Formulation, Implementation and Control McGraw-Hill, USA 118-23 Porter, M., E. (1998) "Competitive Advantage: Creating and Sustaining Superior Performance." Free Press. 89-92 Thompson, J.L. (2004). 'Strategic Management Awareness and Change' (3rd edition) Thomson International Business Press. 166-70 Read More