Sony Needs a Change of Direction
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sony (NYSE: SNE), the company which invented the walkman and was once a symbol of high end Japanese technology and creative power, seems to have lost its ability to globally compete in the electronics industry. The company has been losing money since 2008 and has not launched any successful products for a long time. Mr. Kazuo Hirai, recently appointed CEO, may be facing a last chance to save Sony and bring it back to its successful roots.
While Sony used to be a differentiated brand that commanded higher pricing power due to its superior quality and designs, that position seems to be occupied by Apple (NASDAQ: AAPL) nowadays. It was precisely Apple who took Sony’s leadership in personal music devices when it successfully launched the iPod and its iTunes store.
While Apple was having big success revolutionizing the music industry, Sony was too worried about protecting the intellectual property of its music division: its early digital music players, for instance, used proprietary files and were incompatible with the fast-growing MP3 format. Once Sony decided to join the prevailing trend with Sony Connect, it was already too late.
The Japanese company made a successful entry into the games business with its Playstation consoles, which was able to capture premium pricing. However, competition in that industry is quite high and Microsoft (NASDAQ: MSFT) has been gaining market share from both Sony and Nintendo lately. The software giant entered the online games trend before Sony, and it got a first mover advantage there.
One particularly worrisome trend seems to be the dilution of Sony´s brand value, the company has been using the same brand for products as dissimilar as TV sets, air conditioners, cameras, computers and toys as well as a music level and a movie studio. Mixing such a wide variety of products under the same brand can clearly be detrimental for brand differentiation, especially when those products have dissimilar quality levels.
It´s not over for Sony yet, the company sill manufactures products with above average quality and there is value in the brand, but Mr. Hirai needs to refocus on product innovation and brand differentiation. Companies like Samsung and other Korean manufacturers have important cost advantages and trying to compete in that price segment could be a dangerous idea. Once customers associate the brand with a low end product, the decision can be irreversible.
Mr. Hirai has recently launched the “One Sony” initiative, which is a plan to recover some focus; according to the company´s CEO Sony will concentrate efforts in three businesses: mobile devices, including smart phones and tablets; cameras and camcorders; and games. The new plan means letting go of 10.000 employees this year, which can reduce operating costs and increase focus, but is hardly a morale booster for employees.
The company has a chance to structure a successful transformation as long as it goes back to the high quality strategy that created so many well performing products in the past. The low end of the electronics business, however, is a dangerous place for a company like Sony, which is competing with low cost manufacturers from China and Korea and runs a big risk of completely destroying its brand value.
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