SONY: BETTING IT ALL ON BLU-RAY Prepared by, Sunil Chhajar CASE STUDY:
Q1.Classify the high-definition DVD market using the product life-cycle framework. Based on this analysis, what objectives and strategies should Sony and the other competitors pursue ? Are any of the competitors deviating from this formula?
Product Life Cycle Time Product Develop- ment Introduction Profits Sales Growth Maturity Decline Losses/ Investments ($) Sales and Profits ($) The course that a product’s sales and profits take over its lifetime
Product Development : When the company finds and develops a new-product idea . During product development, sales are zero and the company’s investment costs mount. Introduction : It is a period of slow sales growth as the product is introduced in the market. Profit is nonexistent because of heavy expenses of product introduction. Growth : It is a period of rapid market acceptance and increasing profits Maturity : It is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyer. Decline : It is the period when sales fall off and profits drop.
<ul><li>The time this case was written, the technologies were just being introduced to the market. High Definition DVD were than in the introductory stage of the product life cycle. But this changed quickly over the course of 2007 and 2008. Now , the product is going through the growth stage. </li></ul><ul><li>Introductory phase: </li></ul><ul><li>A period of slow sales growth . </li></ul><ul><li>Low to non-existent profits. </li></ul><ul><li>Given an end to the introductory stage and starting of growth stage, the companies involved should be doing the following: </li></ul>
<ul><li>Promotion: </li></ul><ul><li>Spending heavily on promotion and advertising. </li></ul><ul><li>Promotion should be focused not only on informing consumers but also creating brand preference through differentiation and expanding market share. </li></ul><ul><li>Distribution : </li></ul><ul><li>In the growth phase, companies should invest heavily in expanding distribution networks. </li></ul><ul><li>This situation is unique, given that each side is backed by a coalition of corporations that span the supply chain, even including entertainment content companies. </li></ul><ul><li>Thus, there is a heavy emphasis on getting the players distributed as well as having a strong distribution of content that will be playable on the players. </li></ul><ul><li> </li></ul>
<ul><li>Price: </li></ul><ul><li>As far as pricing goes, </li></ul><ul><li>Skimming and a Penetration strategy are appropriate for introducing a product. </li></ul><ul><li>In growth stage the company must continue to penetrate the markets for mass awareness and mass reach. </li></ul><ul><li>Product: </li></ul><ul><li>Based on the information in the case, Toshiba, the first to market, has two models while Pioneer has only one. </li></ul><ul><li>In order to maximize the market share the company must offer: </li></ul><ul><li>Product extensions </li></ul><ul><li>Services </li></ul><ul><li>Warranty </li></ul>
Q2.As sales of the new DVD players increase, what will happen to the characteristics of the home video market and the strategies employed by Sony and other competitors?
CHARASTERISTICS 1.SALES <ul><ul><li>2.COSTS </li></ul></ul>3.PROFITS <ul><ul><li>4.CUSTOERS </li></ul></ul><ul><ul><li>5. COMPETTORS </li></ul></ul>INTRODUCTION 1.LOW SALES. 2. HIGH COST PER CONSUMER 3. NEGATIVE 4. INNOVATIVE 5.FEW GROWTH 1.RAPIDLY SALES. 2.HIGH COST PER CONSUMER 3.RISING PROFITS 4.EARLY ADOPTERS 5. GROWING NUMBER MATURITY 1.PEAK SALES. 2.LOW COST PER CONSUMER 3. HIGH PROFITS 4.MIDDILE MAJORITY. 5. STABLE NO. BEGINNING TO DECLINE DECLINE 1.DECLINING SALES 2. LOW COST PER CONSUMER 3.D ECLINING PROFITS 4. LAGGARDS 5.DECLINING NUMBER
ANALYSIS <ul><li>HOME VIDEO SYSTEMS ARE IN THE DECLINING STAGE. </li></ul><ul><li>SALES : DECREASING . </li></ul><ul><li>PROFIT :DECLINATION . </li></ul><ul><li>COST :LOW COST PER CUSTOMER. </li></ul><ul><li>CUSTOMERS:LAGGARD. </li></ul><ul><li>COMPETITORS: GROWING NUMBERS. </li></ul>
STRATEGIES 1.PRODUCT 2.PRICE 3.DISTRIBUTION 4.ADVERTISING 5.SALES PROMOTION I NTRODUCTION 1.OFFER BASIC PRODUCT 2.USE COST PRODUCT 3.BUILD SELECTIVE DISTRIBUTION 4.BUILD PODUCT AWARENESS AMONG EARLY ADOPTER 5.USE HEAVY SALES TO PROMOTION ENTICE REATIL GROWTH 1.OFFER PRODUCT EXTENSION AND SERVICE 2.PRICE TO PENETRATE MARKET 3.BUILD INTENSIVE DISTRIBUTION 4.BUILD INTENSIVE DISTRIBUTION 5.REDUCE TO TAKE ADVANTAGE OF OF HEAVY CONSUMRE DEMAND MATURITY 1.DIVERSIFY BRAND AND MODEL 2.PRICE TO MATCH& BEAT COMPETITOR 3.BUILD MORE INTENSIVE DISTRIBUTION 4. STRESS BRAND DIFFERNCES AND BENEFITS 5. INCRAESE TO ENCOURAGE BRAND SWITCHING. DECLINE 1.PHASE OUT WEAK ITEMS 2. CUT PRICE 3. GO SELECTIVE PHASE OUT UNPROFITABLE OUTLETS 4. REDUCE TO LEVEL NEEDED TO RETAIN HARD CORE LOYALS 5. REDUCE TO MINIMAL LEVEL
STRATEGIES <ul><li>The strategy adopted by Sony and other competitors are as follows: </li></ul><ul><li>DISTRIBUTION : Sony has conquered the distribution chain which was again a strategic key factor as it was in the original VHS-BETAMAX confrontation. This time Sony won in both the distribution of players and rented movies. Distribution strategy therefore remains as a critical component. </li></ul><ul><li>CONSUMER CONVENIENCE : One of the strategy adopted by Sony and the others was consumer convenience. In this various additional features like Wi-Fi facility and memory slots were provided with PlayStation 3. This helps in value-buying for the customers. </li></ul><ul><li>SUPPLIERS -Positioning the offering with the suppliers is as important as positioning offering with customers. The suppliers in this case were the content providers- the movie studios. Warner Brother’s support for Blue-Ray and Paramount’s shift of allegiance from HD-DVD to Blue-Ray were killer blows for Toshiba. </li></ul>
Q. 3 Analyze the development of Blu-ray and HD DVD according to the stages of new product development process?
Data from the case <ul><li>Blu-ray and HD DVD formats emerged as front runners. </li></ul><ul><li>HD DVD players priced at $499 and Blu-ray players priced at $1800. </li></ul><ul><li>Pioneer went for 1080P progressive scan technology as compared to Toshiba’s lower priced technology. </li></ul><ul><li>Blu-ray could contain 200 GB versus HD DVD’s 90GB of data. </li></ul>
Analysis <ul><li>Toshiba camp focused on accelerating product adoption through penetration pricing and Sony camp used diffusion of innovations thereby targeting early adaptors. </li></ul><ul><li>Both the camps decided the products specifications in a manner they thought would be most viable technically and commercially. </li></ul><ul><li>Convincing content makers and sellers to market their respective products. </li></ul><ul><li>Market testing was not done properly. </li></ul>
Q4. Who are the current combatants in the battle for the home video market? Who will they be in five years?
<ul><li>CURRENT COMBATANTS IN THE BATTLE OF HOME VIDEO MARKET </li></ul><ul><li>BLUE-RAY - Backed by Blue-Ray Disc Association, a coalition of companies that includes Sony, Hitachi, Pioneer, Philips, Panasonic, Samsung, LG, Sharp, Apple, HP, and a host of other companies. </li></ul><ul><li>HIGH DEFINITION DVD - Supported and commercially backed by Toshiba, Sanyo, Kenwood, Intel, and NEC, among others. </li></ul><ul><li>CABLE COMPANIES/PROVIDERS - More consumers are giving preference to on-demand, nonphysical media, including online video and video-on-demand television. Internet video is also catching up giving a tough competition with 46% of online consumers now watching movie via the web. </li></ul><ul><li>EXISTING COMPANIES – Companies who are part of either the Blue-Ray Disc Association or the HD DVD coalition are also competing either directly or indirectly with their own physical formats. E.g. Apple and Microsoft. </li></ul>
<ul><li>FUTURE COMBATANTS FOR THE HOME VIDEO MARKET </li></ul><ul><li>IPTV – Internet Protocol Television (IPTV) is a system where a digital television service is delivered using Internet Protocol over a network infrastructure, which may include delivery by a broadband connection. Tough competition can be expected from this segment in the near term. </li></ul><ul><li>SATELLITE OPERATORS – This include Direct TV, Echo Star, etc. which is expected to have market share of around 30%. </li></ul><ul><li>3G - 3G refers to third generation of mobile phone standards and technology. 3G networks are wide area cellular telephone networks which evolved to incorporate high-speed internet access and video telephony. </li></ul>