Sony Case Vignette

Sony Case Vignette

Anthony Aguirre
Shidler College of Business

Sony Case Vignette

Executive Memo
Date: 25 September 2015
From: Anthony Aguirre
To: Sony Corporation
Subject: Sony Corporations Problem and Recommended Solution
As your business consultant, I have extensively gone over your case study and have
identified the problem, analyzed what has caused this problem, and how you can solve this
problem in order to be a successful business again. The main issue is your electronics industry.
While you have been able to succeed in the past in numerous electronic fields, you are now
putting emphasis on the wrong markets; : your television, digital camera, and gaming sectors.
The main field in which your company should now shift its focus to is mobile devices,
smartphones and cellphones in particular. With demand decreasing for traditional electronics and
demand rising for smartphones and tablets, you must meet the needs of society by providing
them with mobile devices that they are willing and able to consume.
Currently, Apple and Samsung dominate the mobile device market. One reason your
company is suffering in this market is because your company is not putting its focus on
expanding this high-demanded industry. You are not innovating and creating ground-breaking
products that meet todays demands, a slogan to which your company was previously known for.
Rather, your company continues to market and promote its traditional electronics, such as
televisions and cameras, both declining industries. In addition, the price point at which you sell
your smartphones is nearly triple the market price. Customers lose all incentives to buy your
products when the price is at an ultra-premium.

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In order to revive your electronics business, your company needs start by creating a
profitable market for your mobile devices. Your company needs to innovate certain features that
separate your products from the competition. One way you can do this is by incorporating the
use of your traditional electronics into your mobile devices, such as being able to use Sony
smartphones as a remote control for your televisions and PlayStations, or even manufacturing
your smartphones with the picture quality of your digital cameras. Doing so would provide your
consumers with Sony-exclusive features that will separate your products from the competition.
After innovating these new ground-breaking features, you need to promote your new products in
order to inform consumers about new alternatives to Apples and Samsungs current devices.
Lastly, your company needs to price your products, particularly your smartphones, at a
competitive price by partnering with mobile carriers (Verizon, AT&T, etc.) in order to avoid
consumers paying the non-carrier price, which usually is triple the cost of purchasing the
phone with a carrier. Providing consumers with a ground-breaking, competitively priced
smartphone will revive this industry, other branches of your electronics division, and bring back
the prestige of the Sony name.

Problem Identification
Although Sony has been one of the most successful technological companies since being
founded in 1946, a vast majority of the last decade has been a struggle for the previously
household name. While its entertainment industry has thrived, the electronics industry is causing
a huge problem for the company. Problems branching from the top of the companys powers
have led to disastrous losses in profit.

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Increased competition from other companies has only sent Sony plummeting in the
electronics market. In particular, Sonys television business, which previously dominated the
market, has seen its profit rank drop to third, behind Korean companies Samsung and LG. In
addition, two other large television producers saw mass losses in TV profits, Sharp and
Panasonic, both also Japanese companies. However, the TV market was not the only business
Sony saw losses in profit in. The company began to chase Apple in sales of music players and
music downloading and in the smartphone industry where demand increased greatly, Apple and
Samsung dominated the mobile phone market share, which Sonys far behind.

Analysis
In order to revive its electronics industry, Sony needs to keep up and eventually surpass
all of its competitors. New competition has left Sony behind because of a lack of adjustments the
company has made to keep up with the changing times. Sony has become content with its spot in
the electronics industry and didnt come up with new innovations to increase the gap between
competition. For example, when Sony had all of the available resources to create a music player
that could compete with Apples iPod, it chose to settle, not wanting to allow customers to
download mp3 files for free (thus taking away sales from their music purchases). As a result, the
iPod instantaneously became a huge hit, and Apple sales began to skyrocket. Because of these
business practices Sony has taken part in, the company has seen sales in its electronics industry
drop drastically, while competing companies have begun to flourish.
In particular, Sonys profits in the television industry and plummeted. Korean companies
Samsung and LG have surpassed Sony in sales, leaving Sony and two other Japanese companies,
Sharp and Panasonic, behind them. The reason behind this is because Sony was late to the party,

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not producing these new, flat-screen televisions before Samsung and LG. In fact, even new
companies are beginning to creep up on Sony, such as Vizio. Vizio is one of the top television
brands in the United States, creating its products by using components and inputs from numerous
other producers and then marketing a final product. With the global television industry being
monopolistic in competition, all of the products sold within the TV market serve the same
purpose and are at around the same price point, but differentiate in ways that gather more or less
interest from consumers. These ways include quality, style, convenience, technology
advancements, and brand name. One big reason for Sonys decline in this specific industry is that
it hasnt produced a product that stands out from the others, whether it be the features it has or
the price point its sold at. The last industry leading product Sony has produced in the television
industry is the DVD recorder, and who still uses those anymore? Because of a lack of innovation,
Sony has been left behind.
Throughout Sonys decline in the last decade, new ownership has taken place multiple
times, to no success. In fact, in 2004, Business Week rated former Sony CEO Nobuyuki Idei as
one of the worst executives, with Sony shares down 25% that year ($1 billion loss). Even with
Sony replacing its executive members and calling for huge reconstruction for the electronics
business on multiple occasions, the company has still faced losses in the electronics business
year after year.Each reconstruction Sony has gone through in its electronics industry has called
for similar measures. In 1999, Sonys first major reconstruction for the electronic business called
for plant closures and large layoffs. The same happened again in 2003, to no success. Then, in
2005, after hiring new CEO Howard Stringer, the first non-Japanese to lead the company,
another electronics reconstruction happened. This attempted rebuild cut the Sonys workforce by

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7% and called for the termination of non-profitable product lines. Still, even after all of this
occurred, profits continued to drop.
Constant new management from Sony has proved to be unsuccessful thus far. In addition
to the Sonys television industry falling, new Chinese and Koreancompetition in other electronic
industries has also caused other areas of Sonys share to fall. In the recent years, demand for
traditional electronics such as televisions, camcorders, and digital cameras has decreased while
demand for mobile electronics rose. These mobile electronics include smartphones and tablets in
particular. Still, even with a huge demand increase in these mobile products, Sonys mobile
business was still far behind Apples and Samsungs, the two dominators in this market.
However, this comes to no surprise to most, as both Apple and Samsung have become household
names for many. With Apples iPhone and iPad, and Samsungs extensive Galaxy line,
Sony has been left behind through a lack of innovation and customer loyalty.
Overall, Sonys lack of risk-taking has put them in a poor situation compared to
competing companies. During this decline, Sony has watched other companies market groundbreaking products while they have continued to put out outdated, low-demanded products. Sony
was previously regarded as the premier brand in electronics responsible for many innovative
products and was one of the most well-known brands in the world. In 1997, profits for the
company peaked with the introduction of the Sony PlayStation, a coveted game console that no
one had seen anything like. During this time, the PlayStation dominated the gaming industry and
forced other companies, such as Microsofts Xbox, to catch up. However, more innovative
products from Sony have come few and far between, as profits have reflected. In fact, in 2013
Sony faced a near $1.5 billion loss in operating profit from its previous year in the electronics

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segment as a whole. Sony is now the company chasing others, attempting to bring its name back
to the top.

Recommendation
Throughout the last decade, Sony has struggle to make profits in its electronics the same
way it does its entertainment industry. This is due to numerous reasons, but in particular, you are
not putting emphasis in its marketing of high-demanded electronics. Before continuing to rebuild
your television, camera, and PlayStation lines, you should focus on strengthening your
smartphones and tablets first, the field with the highest current demand (mobile devices).
With demands on smartphones and tablets so high, your company needs to focus on
innovation in this market. Despite having competitive smartphones out on the market, consumers
are still choosing to purchase other brands, especially Apples iPhone and Samsungs Galaxy.
This is where your company continues to fail. The company needs to create separation from
these phones by innovating ground-breaking features that will allure customers. For example, for
numerous years, you have thrived in creating televisions, cameras, and gaming. One technique
your company can practice is attempting to incorporate these other fields in order to make them
compatible with your smartphones and tablets, like being able to use Sony smartphones and
tablets as a remote for all of the consumers Sony devices. Having certain features exclusive to
your brand will separate consumer products in this field from the others and create incentives for
consumers to purchase your products.
To add to this, the price point at which one must pay for Sony smartphones is nearly
triple as competitors. This is due to your inability to partner with major cell-phone carriers
(Verizon, AT&T, Sprint, etc.), forcing consumers to pay the non-contract price of a smartphone,

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which generally triples that of the market price. In order for your company to succeed in the
smartphone industry, you must partner with cell-phone carriers in order to sell your products at a
competitive and comparative price to other devices, such as the iPhone and Galaxy. Doing so
will increase demand for your devices (due to the law of supply and demand).
Another area where your company continues to fail is marketing of these high-demanded
goods. When was the last time consumers saw an advertisement for your smartphones and
tablets? Your company continues to market its traditional goods such as its televisions, cameras,
and PlayStations. Informing consumers about the companys new, innovate smartphones and
tablets will provide consumers with another option to think of when purchasing one of your
devices.
Lastly, regarding your companys operations, more risks need to be taken in order to
create positive impacts. Each new CEO that has walked into your companys doors has taken
similar measures, reconstructing the electronics business by making large cuts in the workforce.
Ultimately, each time has ended in the same result, another loss in profit. Rather than cutting
workers in non-profitable fields, your company should increase the work force in the mobile
device field, possibly bringing in young, modern minds to keep the company up to date. In
addition, instead of distributing funds evenly for each subfield (televisions, cameras,
smartphones, etc.), you should distribute more input funding to markets with high demand, such
as mobile devices. Doing so would give your company greater ability to innovate greater
consumer-demanded products, therefore generating greater profits.

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Reflection
Before reading Sonys case study, I didnt realize how poorly Sonys electronics business
is performing. Growing up, Ive always regarded Sony as one of the premier consumer
electronics companies. However, after reading this case study, it occurred to me how difficult it
is to run a conglomerate corporation. With conglomerate corporations (usually) being multiindustry companies, the organization must be able to balance each industry it takes place in and
be able to thrive in all of them. This is clearly where Sony is struggling. While they have thrived
in recent years in entertainment and financial services, they have faced a drop-off in electronics.
This displays the opportunity costs Sony faces. Being able to succeed in entertainment has
caused their electronics industry to suffer.
Another concept found within the case study is supply and demand. With demand high
for mobile devices, Sony should be willing to supply more for this market (and vice versa). From
a consumer standpoint, demand for Sony smartphones has been so low because of the premium
price one must pay to purchase their smartphones. As price goes up for consumers, demand goes
down. The concept of supply and demand also connects with a major move that Sony has made
recently. On February 6, 2014, Sony sold its struggling PC business to a Japanese investment
firm. The Sony Vaio line will no longer be sold outside of Japan. Sony did this because of
demand for the computer market (and also their computer line) decreasing, therefore supply
decreased (to zero).
Anthony: Excellent work. I always enjoy reading your work. Your writing style is easy to read
and follow. You are very structured in your approach and has great focus. Just some minor
considerations for improvement. Keep it up.
Executive Summary - 8/10

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Problem Identification - 10/10
Analysis - 9/10
Recommendation - 9/10
Reflection - 10/10
Grade 46/50

10