Sony Corporation Is a Global Thesis
- Length: 20 pages
- Sources: 8
- Subject: Business - Advertising
- Type: Thesis
- Paper: #75579401
Excerpt from Thesis :
Retailers are the primary tier of buyers in the television segment of the global consumer electronics market. There are a variety of retailing channels used in this industry. The primary channel of distribution is through electronics retailers, like Best Buy, which comprises 65% of the total market value. Hyper and supermarkets, such as WalMart and Target, make up only 14.4% of the market. Sales via department stores, like Sears, only contributes 3.7% of the market's value. Although they typically don't sell televisions, music, video, books, and stationery retailers do contribute 3.1% of sales for the overall consumer electronics market. Lastly, a variety of other retailers make up 13.8% of the sales in this industry ("Global consumer," 2010) (See Figure 3).
The primary manufacturers in this market segment, like Sony, are often highly valued by retailers, as they provide branded products that retailers' buyers, the end consumers, have come to know and trust. Despite this desire to have these well-known brands on their shelves, retailers are not powerless in the market segment of this industry. Many retailers are large enough to exert pressure on pricing of the manufacturer. This is especially true of global retailers, such as WalMart and Target, with thousands of stores under their corporate umbrella, as well as large national electronics chains, that offer a high volume of television sales, across many states. These retailers especially can negotiate pricing with even the larger manufacturers. In addition, some retailers, such as large discount department stores like WalMart, may chose to focus their product lines on unbranded products that are offered at a lower price point ("Global consumer," 2010).
However, retailer's power in the industry is lessened by the increasing possibility that manufacturers can forward integrate their businesses and sell products directly to consumers. Factory stores have been an option for decades for manufacturers, with companies like Apple opening stores in malls and strip shopping centers around the world. This forward integration will result in higher operating costs; however, manufacturers also receive higher margins through direct sales to consumers. In addition, stores can be used as marketing tools, helping build the manufacturer's brand image ("Global consumer," 2010). Less effective in marketing, but less costly in operating costs, manufacturers can also forward integrate by offering a virtual factory direct store.
Backward integration by retailers is less of a threat in the industry. Although larger retailer may choose to offer a variety of products under their own house brand, in the consumer electronics industry, and specifically the television segment, true backward integration would be a costly venture. True backward integration would involve manufacturing costs that would mean the house brand would likely not be able to compete in this highly price sensitive industry. For this reason, it is more common for retailers to partner with a manufacture to produce their product line ("Global consumer," 2010). For these reasons, although retailers due hold some sway in the industry, it is not a significant concern for manufacturers.
Suppliers in the television segment of the consumer electronics industry include a variety of companies, including electronic components and a variety of related products, as well as manufacturing services. Sony, is one of the few exceptions in this segment, with the operation of their own manufacturing facilities that produce much of their own products. In Sony's instance, they may outsource the production of certain OEM components, such as the LCD panels for their televisions. However, in this industry, suppliers must meet stringent requirements before they are accepted by larger manufacturers. Suppliers must prove they are financially sound organizations, with a positive future outlook. Suppliers must demonstrate that their skills will merge well with the manufacturer, and that they have an adequate distribution network. Suppliers have to meet certain environmental requirements. Most significantly, suppliers must meet the product quality demanded by the manufacturer. To meet these requirements, suppliers often have to make improvements to their operations. These improvements can be expensive, as such, once a supplier has made this investment for a manufacturer, they're often eager to retain that relationship, which weakens their power ("Global consumer," 2010).
The threat of backwards integration also weakens supplier power. This is especially true for larger television manufacturers with the manufacturing capabilities already in place, such as Sony. Some substitute inputs are also possible, such as LCD and plasma screens which have a select variety of alternatives for manufacturers ("Global consumer," 2010).
Suppliers do have a small amount of power due to the cost of replacing them for manufacturers. Not only are there costs involved in the process of developing a new supplier relationship, but there is often time involved in the new supplier ramping up production. In addition, selecting a supplier that doesn't fit the requirements, especially quality requirements, the manufacturer needs could also negatively affect the brand reputation of the manufacturer. As such, there is a moderate switching cost associated with changing suppliers ("Global consumer," 2010). For these reasons, supplier power is limited in the television segment of the global consumer electronics industry.
The threat of new entrants to the television segment of the consumer electronics market is a minimal concern to existing players, like Sony. "Fixed costs are fairly high, as is initial capital outlay, especially if a company proposes to set up its own production plant" ("Global consumer," 2010). In addition to this initial expense for new entrant, economies of scale are a significant factor in the television segment of the consumer electronics market. Companies that previously established economies of scale in manufacturing, in other electronics products, may have an advantage as a new entrant, over start-up organizations that have neither the experience nor the purchasing power to be competitive.
Government regulation in this industry is not particularly burdensome for new entrants, especially those doing business domestically. However, new organizations must comply with waste disposal, recycling and safe handling of chemicals regulations that apply to their particular business. In addition, because the television segment of the market is comprised of several strong brands that have garnered consumer loyalty over the years, market penetration can be especially difficult ("Global consumer," 2010).
Although the consumer electronics industry, and specifically the television segment of this industry, offers products that often are very similar to one another, in some instances "there is significant intellectual property embodied in an established player's products" ("Global consumer," 2010). However, retailers do typically wish to offer consumers an array of brands and price points; therefore switching costs are not very high for these retailers. These factors, coupled with the nearly stagnant market growth in recent years, means the threat of new entrants is minimal for Sony and the television segment of the consumer electronics industry.
Consumer demand regarding the possibility of substitutes is a significant factor in a retailer's decision making process. Potential substitutes in the television segment may include personal computers and computer monitors, which can substitute as home entertainment centers. Smart phones, such as the Apple iPhone and Google's Android platform, are also potential product substitutes. However, for consumers desiring larger screened televisions, there are few other alternatives ("Global consumer," 2010), therefore for Sony's 3-D product line, and the television segment in general, the threat of substitutes is minimal.
Rivalry is the most significant factor in the Five Forces Analysis. This rivalry is affected by the size and the number of manufacturers in the market. For new entrants, manufacturers must recover the cost of their initial investment in manufacturing equipment, as well as the acquisition and training of their staff, and the development and implementation of their logistics network. These factors significantly raise the barriers to exist the television segment of the consumer electronics market. This high exit barrier increases rivalry within the industry ("Global consumer," 2010).
Furthermore, the similarity between manufacturers, especially in the television segment, means manufacturers must rely on the strength of their brand image as well as their ability to differentiate their products from the other products in the marketplace, through continual product improvement and research and development. This is especially difficult when the underlying design of a product is very similar across the product category, such as is often found in televisions. Manufacturers often rely on promises of superior performance to build value in their particular brand ("Global consumers," 2010).
Pricing is another primary competitive factor in this market. As Datamonitor notes in their Global Consumer Electronics (2010) report, consumers in this market segment are often skeptical of very low-priced products, when compared to competitors. However, a small step-down in pricing for one player can result in a price war, with the end result being a substantial threat to margins for all manufacturers involved ("Global consumer" 2010). The nearly stagnant market growth in recent years has significantly…