Case Study Presentation_MacDonald

7/30/2019 Case Study Presentation_MacDonald

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~.J8 , a i c l t ~ 0 I ; l h e N e x i i l i l f p f o d l l c t : "< N , A 1 1 is not well in the Sony dynasty. The company's\t"\..performance in recent years has been less thanstellar for this global brand icon. The Sony brand was

')cOhce a byword for innovation; now it is seen as failing~()tap new opportunities, being complacent and over-Tidiant on past successes. Its share price has fallen byrwo-thirds in the space of five years, and its credit rating-!!as been downgraded. Its pioneering electronics"iivision is struggling, sales have plummeted and profits-'are in decline. Aggressive competitors are stealingmarket share in key markets where once it dominated.?-Towhe company is being criticized for its lack of focus,'


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T h e m a r k e t i n g e n v i i O n m e n fdeveloped into a highly respected and sought-afterbrand, instantly recognizable the world over. Itsproducts have the reputation for being highlyinnovative, extremely reliable and possessing highquality standards. The company has evolved to becomemore than just an electronics business. It has a largepresence in the music, movie and television business,banking, insurance and Internet services. The companyhas several key divisions within the group (seeTable C5.2).Some of these divisions are owned outright, while othersare joint ventures with leading multinationals. Forex.'am.ple,the finn =erged its mobile phone businesswith Swedish telecommunications giant Ericsson.This 50:50 joint venture, called Sony Ericsson, aims toleverage the core competences of both firms, in an effortto beat market leader Nokia in the mobile telephonemarket. The new venture is performing well, with itsrange of phones equipped with high-end camera andWalkman-branded capabilities turning the mobilephones into portable digital music devices. It is hopedthat these devices will be the future 'iPod killer' and help

Sony regain the portable music market that it oncedominated. However, the venture is experiencing rapidlosses, coupled with the stellar success of Apple's iPhoneand the continued strong performance ofNokia. Thedivision needs a hit, but nothing has captured thepublic's imagination.

One of the biggest areas of concern for Sony is itselectronics business. This accounts for nearly 70 per centof it revenues and is the cornerstone of the business. In2008, Sonys electronics division decreased 17 per centon revenues. This sent shockwaves around the world'sinvestment community and higWighted that there wassomething inherently wTOngwithin Sony. At present thefirm is over-reliant on the success of its PlayStationgames console business, involved in intense pricecompetition, experiencing ever tightening price margins(prices have deflated by 30 per cent in some cases), andlosing ground to competitors. The company's sales of itsCybershot digital cameras, Vaio laptops and Handycamcamcorders are seeing decreased demand. The companyis still yearning for a blockbuster product that will

Name Details" I I

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Manufactures a "videvariety ofelectronic products-for both consumer andindustrial markets. Products include DVD players, plasma screens, digitalaudio players; semiconductors, camcorders.notebook computers. anda variety of other electronic products

.M:arketsthe SonyPlayStation family of products and produces gaming .content for these devices; Over 70 million PlayStations have beensold. Manu.factures media storage discs such as CD, DVD, Blu-Ray andUniversal Media Discs .A50:50 joint venture with Swedish firrnEricsson focused onthe mobiletelephonyindustry, Ioint.venture established in October 2001. 'Thedivisiondevelops innovative mobile phones Integrating camera, digital audio andgaming technology. Uses linkages with SonyBMGand SorryPictures withregard to content. EmploysSOOOstaffworldwide.Sales are down 19%.Losses489 million in 2008 ..Second largest musicpublisherin theworld. A'musiccolossus, owningseveral music labels in a variety of genres. Artists on roster includeBeyonce, Jennifer Lopez, Outkast, Bruce Springsteen, Leona Lewis andRodStewart. Owns huge back.catalogue.of masterworks,including ElvisPresley, Johnny Cash and Louis ArmstrongJ{)intventure with the lateMichael Jackson, who 0""Iled a treasuretrove ofa music-back catalogue includingrnusic from the Beatles, Bob Dylanand-I imiHendnxIh e firm owns and administersthe copyright of these songs


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T h e m a r k e t i n g e n v i r o n m e n tchanging needs of the market. The company is facing1nte:n~ecornpetuion irom several key competitors inseveral diverse markets in which it operates. Intelevisions, where it was once so dominant, it lostimpetus by failing to provide a viable LCD screen andplasma screen offering. Competitors like Samsungdevoured the market, while Sony continued. t


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I 1 S o m e b l a m e S o n y s c u r r e n t p r o b l e m s o ni t s p a s t s u c c e s s e s , m a k i n g i t c o m p l a c e n t w i t h

r e g a r d t o ~ e c h a n g i n g n e e d s o f t h e m a r k e t / 1

division has an impressive roster of talent and is nowthe second largest music label behind Universal MusicGroup. With Sony possessing so much clout in themusic business, it has the ability to set digital standardsin the burgeoning online download market. The strategyof owning the content and the technology has yet toyield its full potential. Some question the logic behindthe strategy, citing that Apple's success in becoming thedominant player in the digital music landscape was notdue to it owning a record label. Some commentatorsview the entertainment division as an unnecessarydistraction for Sony, and feel that it curtailed thedevelopment of digital technology because it was tooconcerned with the effects on piracy and the copyrightof its Entertainment Division. Other rival electronicsfirms have no such qualms (e.g. trying to placate theirentertainment divisions) and have developed hitproducts quickly. The music business itself is facingenormous challenges as sales are falling and mostrevenue is generated through touring rather thanalbum sales.

One of the main challengesfacing Sony is leveraging thecontent that it owns through itsentertainment ventures with itshardware technology. It had toabandon its Sony Connectinitiative as an alternative musicdistribution channel similar toiTunes. This was due to a lack ofpopularity in comparison torivals. The market wanted content that was 'DRl\1 free:where consumers could transfer content with ease tomultiple devices. Innovation within Sony remains thecore challenge. For the company to maintain its productleadership status, and command a price premium,developing products that are cutting edge and that themarket wants is pivotal to its future. The company isinvesting heavily in Organic Light Emitting Diode(OLED) technology, which it hopes will set standards inhigh-definition, flat-screen technology. Furthermore itis abandoning pet R&D projects, like robotic dogs.

Back in the early 1980s, Sony lost a bitter technologystandard war, which damaged its brand and resulted inthousands of disgruntled Sony customers. Sony backedthe losing video recording technology: Betama..x,Betamax was indeed a superior product, however themass market chose a rival format, VRS, which becamethe industry standard for all video tapes. Now Sony haswon the latest format war, with its BIu-Ray formatwinning the war to be the next generation of DVD. BIu-

Ray boasts greater storage capacity, can record,possesses anti-piracy technology and has the ability todeal with high-definition broadcasts. Sony beat itsJapanese rival, Toshiba, which with its partners wasbacking RD-DVD (an alternative format). Sony wondue to the support of all the major movie studios.

This BIu-Ray format victory for Sony could provedecisive. In an effort to encourage the adoption of theBlu-Ray disc, Sony integrated the technology into itsPlayStation 3 console release. This Trojan horse move, ithoped, would provide the much needed impetus to gainmass-market support. Success on the BIu-Ray disc is abig gamble for Sorry, it hopes to gain lucrative royaltiesfrom sales of the technology, more sales for its moviebusiness as consumers buy Blu-Ray movie discs, and tosell copious amounts of BIu-Ray electronics players.However, this may prove futile as more consumers aredownloading content thought their broadbandconnection, rather than using disc storage.

The other big gamble for Sony was the most recentlaunch of its PlayStation console- PlayStation 3-~whichit hoped would give the companya much needed boost. Six yearshad elapsed since the launch ofPlayStation 2, which had sold 75million units. The gamesindustry is very cyclical, withnew consoles fighting for marketdominance. Microsoft andNintendo have both launchedtheir respective next-generation

consoles. The PlayStation 3 launch date was delayed onseveral occasions due to delays with production. Thenew console is equipped with the latest technology, suchas the super-fast 'cell' computer processor and Blu-Raydisc format. The company placed a lot of hope in thenew 'cell' processor technology, which will be used inother Sony products too. This latest technology camewith a big price tag, which initially put off consumers.The delayed launch also gave rival games console brandsmore sales momentum that could curtail Sony's success.

Sales for the games console have been less than stellar due to strong competition from Microsoft andNintendo. Although the PlayStation 3 was the mosttechnologically sophisticated, rivals have exploiteddifferent gaps in the market to enormous success.TheNintendo Wii, with its fun innovative gameplay, has lessgraphical finesse, but its addictive gameplay became a

!runaway surprise success. Furthermore, the Xbox 360continues to thrive thanks to a strong games portfolio,and online gaming capability (with over 20 million


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T h e m a r k e t i n g e n v i r o n m e n t

online subscribers). In addition, the company facesstrong competition from Nintendo and Apple in thehandheld gaming market. The future of gaming relies onimmersive games like the Grand The ft Auto series,addictive gameplay, games that cater for divergentmarkets (e.g. Nintendo sells 54 per cent of its DSconsoles to females), and motion-sensitive technology(where physical movement is captured on-screen ingaming environments).

In the wake of the 'Sony shockwave', and after severalyears in charge, the Sony president stepped down and,for the first time, a non-Iapanese executive took over thereins of Iapans leading company. Sir Howard Stringer,a Welsh-born US citizen, who had headed up Sony'sEntertainment Division, was the surprise choice for therole. The former television producer, who speaks little orno Japanese, has the onerous task of turning around thefortunes at Sony. He transformed their entertainmentoperations and now it is hoped that he will find the samemagic for the core business. Sony was seen by many astop heavy in terms of top management, too bureaucratic,and as not possessing enough cohesion between divisions.The firm has undertaken several initiatives to turn aroundthe business. These have focused on cutting costs,removing layers of management, greater coordinationof expenditure on research and development, andstreamlining the business, consolidating importantbusiness activities such aswarehousing and informationtechnology. The new Sony chief bemoans the fact thatApple has a higher market value based on a smallhandful of products, whereas Sony has thousands.

It is not all doom and gloom in the Sony camp,however: its Entertainment Division is doing well, andthe brand still enjoys massive retailer support Sony hasadopted a new tag-line for its business, using the slogan'like.no.other. Sony's brand status is being eroded bystrong competition, with competitors such as Samsung,LG and Toshiba investing in high-profile globalsponsorships and brand advertising. However, the Sonybrand is still as strong as ever. When Sony launched itsBravia series of LeD screens, it released a classictelevision advert where over 250,000 brightly colouredballs were released down the hills of San Francisco. Thisnew sub-brand is helping Sony regain its lead in thismarket sector. The company, under its new revitalizationplan, has decided to reduce its product portfolio by afifth, consolidate its manufacturing sites through

closures, reduce its global workforce and focus on highgrowth markets. Sony is tempted to sell off non-coreactivities such as Sony Life Insurance and SonyChemicals, but ironically these businesses arecontributing a healthy profit to the business.

The company, under a new management initiative,wants greater cross-company collaboration, removingthe silos that developed within the company, hinderingthe cross-fertilization of ideas, and inhibiting growthand innovation. It is hoped that this will removeduplication of effort and improve coordination ofactivities. Its new chief executive wants the company to

renew its focus on world-class technological innovation,. - with products and services focused around the needsof customers. Its new chief executive and president, SirHoward Stringer, believes that the future for Sony liesin the company exploiting new projects, new strategies,new ideas and new alliances. He is in the process ofradically overhauling the business, making it lessbloated by altering a top-heavy management structure,removing bureaucracy and making it more reactive tothe needs of the marketplace. The company has set upfive different strategy committees focusing on product,production, technology, procurement and sales. TheWelshman has a number of challenges facing him atthe helm of Sony: he has to stem the losses at Sorry'selectronics business, make a greater profit, improve thecoordination between Sony's disparate divisions, renewthe focus on research and development, and figure outwhere Sony is headed in the next five years.

Discuss the importance of product innovationto the future success of Sorry, in regard to thechanging marketing environment.Conduct a SWOT analysis of Sony.What are the strategic options available to Sony,in the wake of the 'Sorryshockwave'!Recommend a course of action for Sony, givingreasons for your answer.

This casewas written by Conor Carrell, Lecturer inMarket ing , Un i ver si ty o f L imeri ck.

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