Sony Indias Retailing Strategies

Case Study Reference No. SDN0012C

2007, IBSCDC

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This case was written by Dileep Warrier under the direction of Saravanan. I.B, IBSCDC. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. This case was compiled from published sources.

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Sony Indias Retailing Strategies

I wouldn't like to make any predictions, but my goal is to grow consumer's mind share and the market share of Sony. This will be done through more direct communication to the end consumer, through the shop front and the Internet and call centers. We have to raise the brand profile through direct touch points with the consumer1. Keichi Sakamoto, MD, Sony India, March 25th 2003 We have just become the second largest audio visual products brand in the categories we operate in India. The next phase of growth would be driven by the young consumers. The smaller retail formats gels in with their positioning in malls which attracts large footfalls2. Mohit Parasher, General Manager (Sales & Marketing), Sony India According to Interbrand-BusinessWeek survey, Sony Global was ranked first among consumer electronics brands in the world in 2006. When it started its operations in India in 1994, it faced competition from Indian rivals like Videocon3, Onida4 and BPL5 and multinationals like LG6, Samsung7 and Philips8. Products from Sony were initially sold through multi-brand outlets and dealers in India. In order to increase its brand visibility and to introduce lifestyle concepts, Sony launched a retail outlet called Sony World which had Sonys entire product range displayed in a single show room and targeted high end customers in urban areas. These stores were a platform for Sony to understand customers and their preferences. In spite of its well recognised brand name and its retailing strategies in India Sony was still not the No.1 in consumer electronics retail. In order to reach more customers and become more youth oriented, Sony India decided to launch format stores under three different store brands- Sony Digital Kiosks, Walkman, and Sony Ericsson. By March 2007, it expected to open 100 small format outlets under these retail brands. What prompted Sony to shift its retailing format from huge stores like Sony World to smaller kiosks? Would Sonys new retail formats be successful with the youth and increase its visibility, enabling it to become the top retailer in the consumer electronics sector in India?

Sony -The Beginning

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http://www.thehindubusinessline.com/2003/03/26/stories/2003032601980200.htm Sony India retunes Strategy focus, The Economic Times, September 23rd 2006 3 Videocon- Videocon is an Indian multinational and a global force in consumer electronics, home appliances and display industry, www.videoconinternational.com 4 Onida Onida is an Indian company which sells consumer electronic products and household equipments. 5 BPL It is an Indian company whose business areas include home appliances, multimedia equipments and home entertainment. 6 LG is a Korean company whose business areas include Electronics, Chemicals, telecommunication & Services having 130 overseas subsidiaries 7 The Samsung Group is composed of numerous South Korean businesses including Samsung Electronics. It is helmed by Chairman Kun-hee Lee. Samsung Electronics is headquartered in Seoul, South Korea. 8 Royal Philips Electronics N.V., usually known as Philips, is one of the largest electronics companies in the world. In 2005, its sales were US$38.7 billion. Philips is organized in a number of divisions- Philips Consumer Electronics, Philips Lighting, Philips Medical Systems and Philips Domestic Appliances and Personal Care.

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In 1946, Akio Morita co-founded Sony with Masaru Ibuka, an electrical engineer with its headquarters at Tokyo, Japan for producing home audio and radio products. The brand Sony was the creation of Morita and his brilliant marketing skills. On a trip to the US, he was delighted by the power of the booming American economy, and with the performance of Philips Electronics Company. In 1955, he returned to the US with the confidence that Sonys transistor radios would

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Sony in India

Sony India began its operations in 1994. It was present in Electronics, Music, Movies and the Entertainment segments. Its electronic products included color televisions, audio systems, digital cameras, DVD players, home theatres, notebook PCs, projectors and accessories. It did movie business through Columbia Tristar Films India Ltd. Through Sony Entertainment Television, it telecast entertainment programs. The challenges faced by the company were price and value sensitivity of consumers, the need for a well developed distribution network and competition from local players. To overcome these challenges and for intensive brand building, Sony aggressively advertised through TV commercials, and promotional shows in metros and launched new products with attractive discounts during festivities. It regularly allotted 4-5% of its annual turnover to advertising and marketing. It even acquired exclusive rights for telecasting ICC Cricket tournaments from 2002 to 2007 owing to the popularity of the sport in India. It also had a tie-up with Hyundai for supplying car audios. There was a surge of multinational companies in India during 1990s. The companies which entered India included Samsung in 1995 and LG in 1997. With reduction in import duties, following liberalization and approval for foreign investments and consequent growth of Indian middle class, motivated these companies to open outlets in India. Philips was already an established brand in India leading in audio systems and lighting. It had a well developed distribution network and sold consumer durables in urban and rural India. It sold customized products like toaster, steam iron, radio cum cassette player and upgraded its audio products with CD and DVD options. Samsung India sold consumer electronics, telecom and home appliances through 600 technology centers and retailers. It had second position in flat TV market and it was leader in color screen phones11. It also promoted Indian cricket team as Team Samsung in order to familiarize brand. LG also used campaigns wherein cricket captains endorsed its products and it also sponsored 1999 Cricket World Cup. LG communicated directly with the distributors and
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Bulova is a New York based corporation making watches and clocks. Electronics Sectoral- Jan 24-29, 2005, KPMG report for IBEF, www.ibef.org www.ibef.org

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A tremendous make-over took place in 1982, when the government allowed the sale and import of color televisions in India. The telephone exchanges became digital and several developments took place in the modes of communication and entertainment in India. The industry grew to higher proportions between 1984 and 199010. Businesses began to digitalize and utilize more electronic components and technology to improve their productivity. After the 1980s, when televisions and transistors became cheaper, the demand for consumer electronics began to rise. The cable TV connections became common in the 1990s, and Indian public became more informed about changes at different parts of the world and their aspirations grew.

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be received with enthusiasm in the US market. Although, Bulova Watch Company9 agreed to buy and market them, Morita did not go ahead with the proposal because he dreamt of developing Sony as an international brand. Sony Corporation of America, headquartered at New York, was established in the United States in 1960. Sony moved to the UK in 1968 and established itself in Germany and France by the 1980s. Morita was inspired by the idea of the handy music player and Sony Walkman came into existence in 1979 which became a big hit all over the world. As Sony grew internationally, Morita insisted on thinking globally and acting locally for all its business units. As developing countries, were passing through different phases of liberalization, Sony realized the necessity to establish itself in developing countries. The liberalization process in India in the 1990s created a favorable atmosphere for Sony to enter India.

Sonys Marketing Strategies

Initially when Sony India was set up in 1994, it focused on developing a wide network of distributors and dealers for its products. In the beginning it focused only on metros and urban areas as the consumers were more brand conscious in cities. They were available in stores nearer to middle class and upper class residential areas and they targeted customers who had higher disposable incomes to buy upgraded versions of electronic products with several features. It had a network of 1400 multi-brand outlets in 2003 which grew to 4500 by 2006. The rising number of city centers, super markets and hypermarkets had widened its reach towards the people, but volume of sales through these outlets had not pushed it to No.1 status in India. With the development of the multi brand outlet and city centre concept in India, and extension of product range into several consumer electronic equipments, the company decided to open exclusive showrooms also. Its premium outlets were called Sony World (Exhibit III). They were designed attractively and were aimed at differentiating themselves from similar stores of other companies. These stores had an area of 3000-4000 sq. feet with aesthetic interior design and store display. In the spacious showrooms of Sony World, all the products and its different ranges were displayed under a single roof. The stores were designed in such a way that it gave customers the ultimate retailing experience and projected the image of Sony as an innovator of quality and excellence. The ambience, salesmanship and customer service in these showrooms were refined and liked by many. The stores were located in metros like Delhi and Mumbai and in mini-metros. In a market survey conducted by RK Swamy BBDO, an advertising agency in India regarding the market potential
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Electronics Sectoral, Jan 24-29, 2005, KPMG report for IBEF, www.ibef.org Sony India grows 47% on retail strategy, Business Standard, November 13th 2006 14 Sony India retunes Strategy focus, The Economic Times, http://economictimes.indiatimes.com/articleshow/2019344.cms September 23rd 2006. 15 Differentiated retail strategy- Different retail formats for different consumer segments 16 According to a study conducted by Stewart-Allen/GMI Brand Barometer in January 2006.

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Sony was already a known brand before it entered India. Sonys product range satisfied different generic needs of consumers from listening to good music to watching an entertaining film in a home theatre. It had more than 2000 products which included DVD players, cameras, personal computers, televisions and hi-fi equipments. The new products which Sony introduced during 2005-2006 were Video Audio Integrated Operation (VAIO) notebook PC, an updated Walkman version and BRAVIA flat screen televisions. The products of Sony had high quality and had the biggest brand value in the world16. The company targeted consumers who were ready to spend for higher quality and brand name. Although the Sony World had high visibility, customers visiting were less compared to other format stores.

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penetrated into semi urban and rural markets also. It had 46 branches, 110 area offices and 4500 dealers in India as of 2006. LG and Samsung had localized their strategies by making changes and adopted new product and market development methods which helped them to become more popular than Sony. The total size of the electronics industry was US $11 billion as of 200512. The leading products were colour TVs, Disk players and electronic watches (Exhibit I & II).Sony India had grown at a compounded annual growth rate of 47 % during 2004-0613. Its turnover in 2004-05 was Rs.1700 crores which grew to Rs.2500 crores in 2005-0614. It adopted a differentiated retail strategy15, which emphasized its premium image, by adopting various retail formats.

covering 784 towns in India, the cities Delhi, Mumbai and Chennai were considered to be hyperactive in sales.(Exhibit IV, V & VI). According to the report, Hyderabad, Bangalore, Ahmedabad and Pune were the other towns which had shown moderate market growth. The company had several exclusive showrooms in these cities and it covered minor cities through dealers and retailers. Sony World outlets were used as tools to promote the Lifestyle Concept of Sony. In its stores, different forms of consumer electronics products, from television to computer hardware were available in one shop. In these outlets Sony had a section called Sony Select, through which customers could buy select products from Sony International also. The promotional measures for its products and stores increased the ad-spend of Sony and it usually spent 4-5% of turnover on brand building17. During the festive seasons, the company conducted special programs for building a rapport with customers by conducting road shows and customer meets. These outlets were also used as points of test marketing new products and technology to gather information about consumer buying behavior. In order to tailor new marketing strategies and for giving a personal touch to their promotion methods, Sony World outlets were used extensively. About 37% of its total sales were through Sony World outlets The company decided to expand by launching category Pro-shops18 and asking some of the selected stores to exclusively stock Sonys range. Such stores would be branded as Sony Car Audio Pro Shop, Sony Home Theatre Pro Shop and other names according to the product sold. The Pro- Shop category of outlets was selling only different ranges of single category of a product like home theatres. Sony had set up 200 such stores by 2005. The Sony Zune and Sony Exclusive outlets sold all the different product ranges of Sony. (Exhibit VII) They also had internet enabled services to help customers buy products by selecting models available in foreign countries too. These stores were available in most of the cities in mini metros, semi urban areas and towns. In order to differentiate according to nature of ownership, selection of brands and localities were stores were located, Sony had various retail formats. The kiosks that Sony was going to develop at different locations were also categorized accordingly for digital products, mobile phones and audio devices. By 2006, Sony had 7000 channel partners, 210 Sony World and Sony Exclusive outlets and 21 branch locations19. The company also wished to relocate stores closer to residential areas rather than in marketplaces. It also launched a web site for displaying its entire product range. Although there was rapid growth for the company during the first five years of its entry into India, it had slowed down because of explosion of brands and competition. The customers had also become price conscious as they had many options. The customers who went to Sony exclusive showrooms did not have a chance to compare prices with other models. Even though they liked Sony products, they were able to compare between different brands at multi-brand outlets. As MBO20s were mass marketers who focused on volume of sales, they gave discounts and other incentives even for Sony products. The retail shops were not pompous and spacious as Sony World. This characteristic attracted even middle class consumers to buy Sony products from these outlets.

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The Sony World View, Business Line, www.hindu.com, March 20th 2003 Sony set to expand its retail presence, http://www.thehindubusinessline.com/2003/03/07/stories/2003030702100600.htm, Business Line,. March 7th 2003 19 http://www.sonyindia.co.in/corporate-profile.html 20 Multi-Brand Outlets

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Challenges Ahead

Sony Ericsson, the mobile phone range of Sony was second only to Nokia in India. India, being one of the fast-growing mobile phone markets in the world added on an average 18 million subscribers every year. About 135 million Indians are using mobile phones as of 2006. Nokia had 70% market share in GSM mobile phone segment as of 2006, followed by Motorola (15%), Sony Ericsson (9%), LG (5%) and Samsung (3%)23. Nokia and Motorola had become popular as
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Unique Selling Proposition Samsung now leader in LCD TVs, Plasma panels, The Economic Times, http://economictimes.indiatimes.com/articleshow/1620495.cms?epaper , June 5th 2006 23 Lakshman Nandini, Indias Huge Market for Cheap Phones, BusinessWeek, http://www.businessweek.com/globalbiz/content/jan2007/gb20070108_778272.htm, January 8 th 2007

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Even though Sony was a well recognized brand in India, it was unable to become a market leader as in other Asian countries and the US. The booming consumer electronics market in India was characterized by young Indians becoming more quality conscious and brand conscious in nature. Samsung India was the leader in LCD and Plasma TV segments with 47% market share and 36.5% market share respectively, as of 2006. LG followed Samsung in LCD segment with 40.6% and Sony comes third with 11.2% market share22. Samsung went with the market trend by setting up a manufacturing facility for LCD segment in Noida. The companies foresee erosion in revenues with fall in prices by about 25% by 2009. In spite of the rising demand for LCD and plasma televisions, Sony which believed in price for quality could not create an impact among customers. Samsung and LG also had a dealer network of 3000-4000 outlets and had tied up with many retail chains. Although Sony had a wide dealer network, it had to focus on price competition and availability of its products in different regions of India. According to market analysts, there was a positive trend in the market as household consumers were captivated by the innovative designs and preferred to buy LCD and Plasma TVs. With new generation products like VAIO notebook PCs and BRAVIA flat TV, Sony was able to become a trend setting company, but in order to penetrate the minds of young consumers, it had to localize its advertising and marketing strategies.

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Sony India promoted its products through product branding and product specific advertisements. It used catchy slogans like Think Design, Think Technology and Owning a Sony has never been easier. As the slogans suggested, Sony was attributed with superior brand image with quality and technology as its USP21. But, the consumer profile was changing, with the younger generation becoming more and more dependent on electronic gadgets and with higher disposable incomes and a fancy for new models. Sony began retuning its retail formats again in 2006, in order to reach the youth and middle class consumers. These stores were launched under three brand names- Sony Digital Kiosks, Walkman and Sony Ericsson. The company was of the opinion that smaller formats in shopping malls could bring more customers for their products as they visited supermarkets and malls frequently.

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Its competitors like LG, Samsung and Philips were able to attract customers attention as they were not concerned about the size of retail stores, provided the stores were reputed and located in residential areas. As customers form a habit of shopping frequently, they prefer familiar retail formats, and familiar places. According to Sony, the customers could visit their showrooms at a convenient time if the outlets were nearer to their residences. It also gave the customers a chance to feel the products before buying. The company hoped that these outlets could exploit the urge for holiday and leisure shopping too. Understanding the limitations that customers faced in visiting stores at marketplaces, Sony decided to move its outlets near to residential areas. (Salient features of the Consumer Buying Process is given in Exhibit VIII)

Sony had a wide portfolio of quality products but was second to many brands in India. Sony Picture Entertainments Channels were able to bring brand recall and entice more consumers to become loyal. The usage of consumer electronic products, especially television, increased in rural and urban areas in 2005 (Exhibit IX & X). Sony had realized that world class and innovative products which were sold in European and US markets were a fetish in India also. The young population in India had started adopting technology products like audio systems and mobile phones as essential living accessories. According to NCAER25 statistics, the income levels of households and individuals in India had increased. About 60% of middle class and 99% of rich have CTV in their households. The relative increase in disposable income of individuals and moderate prices of consumer electronic products attracted middle class and rural consumers too. There was an upward trend in usage and penetration of products like televisions and sound systems in both rural and urban markets. The increase in their individual incomes had fascinated youth to explore new market formats like city centers and shopping malls (Exhibit XI & XII). Sony India changed its retail formats and developed a differentiated retailing method for selling its products. While, Samsung and LG followed Sony with exclusive showrooms to develop brand visibility Philips, which is a well known brand, adopted a supplier-dealer relationship model for its sales. By introducing unique models like exclusive kiosks in shopping malls and city centers, Young Indians were likely to be attracted to buy its new models. Even though Sony was a world leading brand, its competitors were modifying their strategies according to taste of Indian consumers. The competition was flexible in pricing and built their market by improving retailercustomer relationships. The smaller format stores of Sony in residential areas and shopping malls was a suitable marketing strategy to bring more customers and gain adequate market share to become leader in consumer electronics in India.
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The Worlds Youth- 2006 Data Sheet, Population Reference Bureau NCAER National Council for Applied Economic Research is a government body which conducts marketing research

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Sony believed that customers would obviously look for its products as they were of good quality and had additional features. As other multi-national firms who were equally competitive brought out similar products, the consumers had a tendency to judge by price and then by features. As the Indian youth constituted 34% of the total population in India and had higher disposable incomes, they were likely prospects for its products24. To reach them, Sony decided to open showrooms at city centers and shopping malls. This strategy, it hoped, would help to reinforce its brand presence in Indian households.

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Motorola had reduced prices for many of its models. The mobile phone market was price and design sensitive in nature. Chinese firms were also planning to enter the Indian mobile phone market. Nokia and Motorola were planning to invest US $ 100 million and US $ 150 million respectively to build manufacturing facilities in India. Nokia had separate advertisements for Indian consumers with catchy slogans in the visual media and influenced the youth directly. Sony Ericsson advertisements were similar to their global promotion and had a global touch. Further, Nokia had made a name for itself as being more user-friendly. Motorola and Nokia had launched models, suitable to the rural market and brought their prices down to make it more affordable. Sony had to develop a close relationship with dealers, and make Sony Ericsson mobile phones available at all major cities and towns in India. Further it produced fewer model at the low-end segment to cover the needs of rural India and low-income consumers. It had to focus on adding innovative features to models and ensure adequate communication with customers to motivate them to buy its products.

Exhibit I Consumer Electronics Production-Major Products

Source: Information Technology Annual Report 2005 -2006, Ministry of Communications

and Information Technology, Government of India. Exhibit II

Consumer Electronics Production Statistics 2004-05

Source: Information Technology Annual Report 2005 -2006, Ministry of Communications

and Information Technology, Government of India. 8

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Exhibit III Sony Retail Formats

Source: Sony India Pvt. Ltd., www.ibef.org

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Exhibit IV Market Potential of Towns (The 80/20 Rule)

Source: The Pain and Gain of India, Rama Bijapurkar, Businessworld, May 24, 2004

Exhibit V

Source: The Pain and Gain of India, Rama Bijapurkar, Businessworld, May 24, 2004

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MPV-MII Plot of Major Cities in India

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MPV is Market Potential Value calculated on the basis of the factors- the number of consumers in a town, the consumption behaviour, and their disposable income and awareness levels. MII is Market Intensity Index which indicates character of the market calculated from these factors.

Exhibit VI A. Grading of Towns Surveyed

Source: The Pain and Gain of India, Rama Bijapurkar, Businessworld, May 24, 2004

Source: The Pain and Gain of India, Rama Bijapurkar, Businessworld, May 24, 2004

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B. Character of Towns

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Exhibit VII Sony- Different Retail Formats

Type Sony World

Product Range Full range and imported products entire product range entire product range particular product

Features Its a paltform for brand building, test marketing and promotion

Sony Zone

Latest products can be searched through internet and internet enabled purchase to help customers Latest products can be searched through internet and internet enabled purchase to help customers Life style products like home theater, car audios having separate outlets for Sony Walkman, Sony Ericsson mobile and Sony Digital

Sony Exclusive

Proshop

Sony kiosks

Source: Service Branding Strategies: A Look at Major Retail Chains of Consumer Electronic Goods, Kumuda Tripathi, Advertising Express January 2007, The Icfai University Press.

Exhibit VIII

Retail outlet first and brand second: When a number of consumers follow this sequence of decisionmaking, display of point-of-purchase material and building the image of the outlet becomes important. The manufacturer of the brand may have to ensure that the brand (and the variants demanded) will be available at the key outlets in a locality. Point-of-purchase materials which are to be used at the retail outlet may require primary research - should visuals be used, should product features be used, should the POP material be in the regional language? There may also be a need to monitor competition from other retail outlets to ensure that consumers are kept satisfied in terms of service, price, promotional deals and ambience. This is especially applicable to durables retailing in India (in cities). Retailers try to increase consumer traffic by providing a number of `add-ons'.

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Marketers often find it difficult to understand and draft a pattern of consumer buying patterns from retail outlets. There are three fundamental patterns which a consumer can follow and they could be- (a) Brand first, retail outlet second, (b) Retail outlet first, brand second and (c) Brand and retail outlet simultaneously.

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particular product
Retailing Customer Preferences

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Brand first and outlet second: The brand influenced the consumers first in some cases because (i) the consumers may not have developed a relationship with any retailer which is strong enough to get into the `evoked retail set' or (ii) the brand has got into the evoked set because of advertising or positive word of mouth. Local advertising with the mention of brand names which have already got into the evoked set would enable consumers to be `pulled' to the outlet. Brand and retail outlet simultaneously: When consumers think of the brand and retail outlet together, it means that they have a certain preference for the outlet and would like to check the evoked set of brands there. The marketer would have to carry out primary research to find out specific markets where consumers have a very positive relationship with retailers. This is important because of the influence of retailers over the purchase behavior of consumers in the Indian context. The local advertising could be different from the national advertising for the brand. A brand may be advertised on features nationally but the retail outlet may prefer to highlight the effective after-sales service associated with the brand as this may be a priority of consumers. The combination of `push-pull' strategy is shown in the table below.

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Source: Consumer Behaviour and Retailing Decisions, S. Ramesh Kumar, The Hindu Business Line, Jan 08 2004

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Exhibit IX Ownership Pattern of Consumer Goods in India

2005

Exhibit X

Ownership Pattern of Televisions in Urban and Rural India (Per 1000 Households)

Source: The Great Indian Market, NCAERs Market Information Survay of Households, Aug 9 2005

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Source:

The Great Indian Market , NCAERs Market Information Survey of Households, Aug 9

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Exhibit XI Demand for Consumer Durables ( in 000s)

Source: The Great Indian Market, NCAERs Market Information Survey of Households, Aug 9 2005

Exhibit XII

(Income figures in 000 per annum at 2001-02 prices, household in 000 numbers) Source: The Great Indian Market, NCAERs Market Information Survey of Households, Aug 9 2005

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Growing Prosperity (All India)

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