Corporate Finance: Can Sony TV Turn Into A Soni TV?

MARKETING
Can Sony TV Turn Into A Soni TV?

Only if the Japanese consumer electronics conglomerate can rethink all the Ps of marketing for small-town India.

By Ranju Sarkar

H. Matsumoto, CEO, Sony India It's a Sony. Nope, it's a Small Town Sony. Four years after Sony India (Sony) set up shop, it is, finally, taking its global brand into small-town India. The Japanese giant has made up its mind: it needs volumes in an industry characterised by fast growth and intense competition. According to ORG-MARG--whose data has been disputed but not by the global No. 1--Sony has a mere 2.50 per cent share of the Rs 3,900-crore national CTV market.

Despite its meagre marketshare, Sony is still profitable. After incurring cumulative losses of Rs 2.07 crore in the first 2 years, the company's net profits shot up to Rs 11.20 crore in 1997-98 against Rs 1.20 crore the previous year. Indeed, Sony's bottomline has proved to be the blackest among the transnationals that started operating in this country in the last 5 years. And that has emboldened the CEO of the Indian operation, Hiromi Matsumoto, 54, a marketing whiz who used to work in the competitive South Korean market.

Claims Matsumoto, the architect of Sony's semi-urban thrust: "The growth-rates in those markets are increasing. So, they are the key to market-development." He will, therefore, take Sony to both B-Class (population between 5 and 10 lakh) and C-Class (between 2 and 5 lakh) towns--like Ludhiana (Punjab), Nashik (Maharashtra), Siliguri (West Bengal), and Coimbatore (Tamil Nadu). To do so, Sony is introducing cheaper models, discarding its distributors, expanding its dealer network, and providing dealer-credit--all for the first time.

INVADING THE SMALL TOWN. Since January, 1999, Sony has been selling directly to its dealers in 27 of 60 select towns. It also plans to increase the number of its dealers from 1,350 to 2,000 by 2001, 80 per cent of whom will be located in the smaller markets. To ensure better control, the company has set up branch-offices in Chandigarh, Cochin, and Lucknow. And it is also planning to upgrade its network by adding 20 service-centres in the semi-urban markets; already, 71 of its 77 service-centres are in non-metro India.

Clearly, Sony wants to grow. Especially since it has been lagging behind Samsung Electronics and LG Electronics (LG), which have 6.50 per cent and 3 per cent, respectively, of the CTV market. That has partly to do with the fact that Sony Corp.'s investments in the country have, so far, been minuscule: between 1995 and 1999, it brought in Rs 60 crore, mirroring the reluctance of the conservative Japanese to invest in this nuclear power. In contrast, Samsung and LG have invested Rs 120 crore and Rs 200 crore, respectively, in their consumer electronics business.

No wonder the fast-growing semi-urban market is alluring. While the CTV market in the 5 metros is growing at 10 per cent per annum, Sony estimates growth-rates of between 30 and 40 per cent in the semi-urban areas. Moreover, the shift from B&W TVs to CTVs is taking place there; the penetration of CTVs in smaller towns is 10 per cent as compared to 50 per cent in the metros. Reasons Takashi Itagaki, 42, General Manager (Marketing), Sony: "Since these markets already account for 55 per cent of our sales, we decided to improve our penetration in those areas." The popularity of Sony TV channel in these areas will rub off on the brand.

DOING AWAY WITH THE DISTRIBUTOR. Sony is, obviously, trying to get closer to its customers, and its strategy may be workable. Explains S.K. Palekar, 47, Vice-President (Marketing), Eureka Forbes, who earlier worked for Mirc Electronics: "Sony made a mistake in its entry-strategy, which it is now trying to correct. Why did it opt for distributors in the first place?" Answers Rajeev Karwal, 36, Vice-President (Sales & Marketing), LG: "They (Sony) over-estimated the brand. Now, they are trying to get their act together." True.

Most CTV majors, even Samsung Electronics, deal directly with dealers. In the distributor route, the company creates an extra intermediary that distances it from the customer. But Ravinder Zutshi, 43, Vice-President, Samsung Electronics, questions the timing of this change since Sony is now trying to sell more in the semi-urban areas: "Pulling out the distributors helps only in the major towns. Up-country markets must be serviced by distributors." In fact, players like lg have opted for the reverse route: approach the dealers in small towns directly, and then, in the second stage, opt, increasingly, for distributors.

As is, the profiles of the urban and the semi-urban markets are worlds apart. Typically, the small towns have fewer dealers (usually between 2 and 5), with individual dealers often contributing between 70 and 80 per cent of the local sales. Naturally, the cost of servicing these markets is higher.

Finally, small-town customers, especially in the 30-plus age-group, seem to mistrust brands claiming to possess state-of-the-art technology. While LG and Philips, which have launched TVs with on-screen displays in Hindi, are trying to address these concerns, the buyer is also more price-sensitive than her urban counterpart. So, Sony will have to change the price-positioning of its products, which are, generally, priced at a 10 per cent premium to those of its rivals.

Agrees Matsumoto: "The customer in the semi-urban town tends to be more price-sensitive although not quality-insensitive. Our strategy, therefore, will be to introduce economically-priced models." For instance, Sony has launched a 21" low-end model, the g-21, priced at Rs 17,000, which sold 55,000 units in the last fiscal. In the audio segment too, Sony is trying to expand the range by launching portables and mini-systems. Adds Itagaki: "We are not only looking at the low end of the market, but the medium-range too." Warns Palekar: "If they are segmenting the market, they cannot change only their distribution; they need to change all the Ps."

LAUNCHING LOW-PRICED PRODUCTS. Sony's price positioning is changing. According to TV Veopar Journal, a trade magazine that publishes the prevailing market prices, LG's lowest-priced 21" model (Rs 17,000) costs more than Sony's lowest-priced 21" (Rs 16,100). That's because Sony's model is a stripped-down version, which doesn't offer any features. Warns lg's Karwal: "LG can never hope to sell at a price higher than Sony's unless we offer more features. The consumer is looking for value-for-money. That doesn't mean you have to be cheaper."

In any case, cheaper models require higher indigenisation--and this has been Sony's Achilles' heel. It has managed to achieve only a 25 per cent localisation in ctv production as compared to 70 and 50 per cent by Samsung and LG, respectively. The reason: Sony has to import its Trinitron colour picture tube (CPT), which accounts for 55 per cent of the cost (including the Customs duties) of a CTV set. Not only is Sony unlikely to set up a plant in India, as the minimum economic size of 1 million units per annum makes it difficult to justify such an investment, its 600,000 units per annum plant in Thailand has to service other markets--including India--to remain viable after the Asian crisis.

Eventually, Sony will need to set up a CPT plant here--sooner rather than later. Unless, of course, the Customs duties (40.04 per cent on CPTs) come down. If Sony manages to achieve its targeted volumes of 500,000 units by 2001, it may do so. While more product-launches--a mini audio-system with a VCD-playing facility; a flat-screen Wega CTV; and the Mavica, a camera that stores images on a floppy--will help Sony enhance its premium positioning, Matsumoto will need more support (read: funds) from his parent to make a dent in the semi-urban market. If that happens, Sony's decision to go down-market will be sheer multimedia to Matsumoto's eyes and ears.

Issue Contents Write to us Subscriptions Syndication