You are on page 1of 1

Abhiram (B16003), Gurpreet (B16019), Shubhendu (B16051), Sushank (B16056)

SONIC CD CASE ANALYSIS

MARKETING MANAGEMENT II || GROUP 10 || BM-A

Situation Analysis:

Sonik CD is a wholesale CD buying club for hard-to-get and out-of-print releases with an annual membership. It
made money by selling CDs, on package shipping and handling charges paid by customers and the annual
membership fees they paid. It offered CDs at the lowest prices and was a niche player. It was considering 3 growth
options.

1. Continue the Niche strategy: It could continue with the same strategy and acquire new members every year
without any major investment and retain a major chunk of its existing customers. It would stay true to its value
proposition and be a niche player. It also had an option to spend extra $0.5 million per year to increase customer
retention rate from 90% to 95%.
2. Mass-market strategy: It could do away with its subscription model, add other music genres and build a mass-
market brand. This means giving up its niche value proposition. It would require some investment, its reach would
increase by a lot and its customer retention rate would fall.
3. Distribution strategy: AmeriNet Radio had approached Sonik to distribute CDs. Sonik would close its retail
operations and become the sole distributor of AmeriNets CDs sold through its websites, charging a normal
handling fee. Sonik would have to change its whole business from being a niche music CD seller to a large scale
CD distributor to a 3rd party brand.

Evaluation Criteria:

We chose 3 criteria to evaluate each option. The criterias are listed below:

(a) Profitability (3 yrs NPV) the more profitable the strategy is, the better it is.
(b) Long term prospects the strategy adopted should have good long term prospects.
(c) Business risk lower the risk associated with the strategy, the better it is.

Evaluation of option on the given criterias

We did NPV analysis of revenues and costs for 3 years. According to the analysis, continuing with the existing
niche strategy is the best option. Niche strategy will have limited growth and limited customer base due to the
nature of positioning. Hence, in the long term, it will have bleaker prospects. Mass market strategy has the best
long term prospects among the three. Due to a more generic positioning and multiple music genres added, Sonik
could get a huge customer base and build a mass brand.

Competition entering the niche market with the same value proposition is a huge risk. In the distribution strategy,
Sonik would be completely dependent on Amerinets brand to drive sales, which, again, is a huge risk. Hence,
from the perspective of business risk, Mass market strategy is the best option. Mass market strategy actually
reduces risk by venturing into a wide range of genres and building a huge customer base.

Even though Niche strategy is better when short term profitability is concerned, the strategy adopted should
consider all evaluation criteria. After considering all the evaluation criteria, we recommend that Sonik adopt the
Mass market strategy to grow in the short and long run.

Strategy\Criteria Profitability analysis Long term prospects Business Risk


Niche Strategy High Bleak Moderate - high
Mass Market Strategy Medium Good Low
Distribution Strategy Medium-high Moderate High

Decision

Based on above criteria and option evaluation we suggest the mass market strategy.

You might also like