Issues

Sonance currently faces several issues – to grow profits should Sonance go back to its original

way of selling via custom installers or find new channels to sell their products, can it be

successful in selling to the mass market or should it stick to its existing target segments, should

Sonance stick to its core products or extend its product line and if so should it launch the Iport or

Architectural series, and if the Architectural series, at what price point? And how to do all this

keeping in mind the competition’s prices and its customers margins.

Options

There are several options that Sonance faces: Channels – Should it use custom installers or

retailers like best buy keeping in mind the margins and volume it can expect to sell through these

channels. Target Markets – Should it stick to its original target segment of custom installers or

go the mass market way knowing that custom installers are not happy that their products are

available via both channels and can it be successful selling directly to the consumer which it has

never done before. Product Line – Should it stick to its core product or should it launch new

products and if yes, should these product be targeted towards custom installers or the mass

market. Also how will these products compare to the competition and will there be a market for

these products. Price – If it decides to launch a new product, which product and how should it be

priced not only keeping the competitions prices in mind but also its margins and the channel

margins as they need their resellers to believe that this product can be successful and profitable.

Recommendation

Sonance should continue with its model of selling its original series to the mass market through

best buy, home depot, etc. It should also continue to provide the original series to the home
production market. It should launch its new Architectural series to the market through custom

installers and price it at $900 to the installers and $2500 to the end consumer.

Option Chart

Option 2 Option 3 Option 4 Option 5

Description Aggressively Target the mass Target the high end Target Mass
pursue the market with the Niche Houses with Market with
production Iport custom installers Original and High
housing segment (Architectural Series end with
with the Original at $2500) Architectural
Line and no new Series priced at
products. $2500
Overall Do not Do not Do not Recommend Recommend as it
Assessment recommend as recommend – as this can neglect will be a good
this will alienate although a the mass market strategy for
the installer profitable segment which has Sonance to have
segment and venture from a good volumes. two products
neglect the hi BEV point of which serve two
end and mass view, this will different
market. neglect its segments within
current target its existing
segment model.
Strategic Not consistent as Sonance does This option is within Consistent with
Fit it is targeting not have Sonance’s core current model of
two segments experience ability to sell to selling to the
with the same selling directly installers installers and
product at to the retailers. This
different price consumer. But approach will go
points. this will far in retaining
diversify the installers who
Sonance have been
offerings. alienated by
having the same
product available
in the mass
market.

Financial Low Medium - Medium – Market High – Market

Attractiven Market share of Share of 4.71% will Share of 4.71%
ess 2.4% will allow allow BE will allow BE
BE
Noteworthy Custom installers It will pit Sonance will have to No diversification
Risks will leave Sonance against convince the as Sonance will
Sonance, much more installers about the completely
 Consumers will formidable sustainability of this depend on the
be forced to go players who model. home market
the mass market have experience
way and dilute selling directly
the reputation as to the
a hi end seller. consumer.
Recommendation – Justification

Target Segment – There clearly is a market for Sonance in the Mass Market and the high end

segments. This approach of a product for the mass market and different product for the high end

niche market will cater to both these segments and will not alienate the custom installers.

Channel – Mass Market Retailers and Custom Instalers. The hi end market and mass market

segments use different channels to buy their product, and by using both channels, Sonance can

effectively serve both target segments.

Products – Launch the Architectural series. Speaker craft’s new product is threatening to take

the hi end market away from Sonance, the Architectural series will be effective in competing

against Speaker craft, and this product will not cannibalize the Original series or vice versa.

Price – The Architectural series should be priced at $900 to the custom installers and $2500 to

the end consumers. The $900 price ensures that Sonance has a 350% margin thus helping it

improve profitability. The $2500 price will give the custom installers a 177% margin which is in

line with the original series thus motivating them to sell these products. At $2500 Sonance needs

to capture 4.71% (see appendix – table 3 and 4) of the Hi end homes market, which should be

achievable considering it has 25% market share with the original series. At $750, this would be

least profitable product and will require 33% of the market. The target consumer is not very price

conscious and will be open to buying at these prices given the superior technology and design.
Appendix

Table 1 – Channel Margins

Original Architect Architect

to Original ural - ural -
Custom to Mass Redesign Priced at Priced at
MARGINS Installer Market ed Iport 2500 750
Manufacture Cost 50 50 125 200 200
Sonance Margin 180.00% 140.00% 92.00% 350.00% 50.00%
Cost to Retailer 140 120 240 900 300
Retailer Margin 185.71% 50.00% 25.00% 177.78% 150.00%
Cost to Consumer 400 180 300 2500 750

Table 2 – CLV

Producti
Custom on
CLV Installers Homes
Customers 500 125
Jobs per Year 15 80
No of Speakers 20 12
Speakers Sold 150000 120000
Manufactur Cost 50 50
Retail Price 140 90
Margin 90 40
Total Margin 13500000 4800000
Retention Rate 80 98
CLV 36000000 39200000

Custom Installers Retention Rate - Has lost 500 customers in 3 years, so 20% from each

year starting with 1000 customers.

Table 3 – BEV 1

Redesigned Architectural - Architectural -

BEV Iport Priced at 2500 Priced at 750
Manufacture Cost 125 200 200
Cost to Retailer 240 900 300
Sonance Margin 115 700 100
Sonance Costs
R& D 1625000 2000000 2000000
Marketing and Sales 3500000 200000 200000
Total Cost 5125000 2200000 2200000
BEV 44565.2174 3142.857143 22000
Consumers Needed 44565.2174 157.1428571 1100

20 Speakers needed for each Architectural Installation

Table 4 – Market Estimation, Market Share needed for BEV

I Port Market Estimation

World Wide Sales 4540000000
% Sales in US 47.00%
US Sales 2133800000
Ipod Price 250
No of IPODS in US 8535200
Ipod Dock Market 1707040
Sonance BEV 41000
Market Share needed 2.40%

20% of Ipod users will want a dock

Architectural Series Market Estimation - Luxury Homes

New US Homes 2500 2500
Old US Home 833 833
Total Homes 3333 3333
Sonance BEV 157 1100
Market Share Needed 4.71% 33.00%
Current market Share
with Originals 25 25

Currently Old home number = 1666, 50% of this was taken as they fluctuate