Assess Sony’s strategy and current position in Japan.

Question

What will be an ideal response?

Answer 1

Sony did not launch the CNS category; the first product was developed by Honda. However, Sony did contribute to the take-off of the Japanese market in 1993 with the introduction of a reasonably priced after-market model. Sony organized the Naviken consortium of 40 Japanese companies for the following reasons:
• To prevent the existence of competing, incompatible standards dissuading consumers from adopting CNS
• To encourage new entrants, which builds the market
• To facilitate CNS price reductions and more rapid diffusion
• To share research and development insights and costs
Unfortunately, the need to secure agreement among the consortium members (some of whom were probably free riders) delayed product development initiatives. Sony’s major competitors did not join the Naviken consortium and launched new products ahead of Sony; these included Matsushita (hybrid), Alpine (turn-by-turn route guidance), and Pioneer (system upgrade with flash memory chip). Sony took 15 months to respond to Matsushita’s launch of the first hybrid model, and then its NVX-S1 launched in 1995 received poor reviews (Exhibit 16). Since Exhibit 14 shows hybrid models were dominating the CNS market in Japan by 1995, Sony had clearly lost control of the category evolution.
Despite 14 product introductions in three years, 41 percent of Sony’s cumulative sales were from one model, the NVX-F10, which was no longer in production in 1995 (Exhibit 15).
Further evidence of Sony’s weakening grip on the Japanese market includes the following:
• The annual growth in unit sales of Sony and other Naviken CNS was less than for Alpine and its associates (see Exhibit 3). Sony unit sales in 1996 were 2.5 times what they were in 1994, Alpine’s were 3.0 times what they were and Pioneer’s were 1.9 times what they were.
• Sony’s CNS unit market share in Japan declined from 60 percent in 1993, and 23 percent in 1994 to an expected 15 percent in 1996, spread over seven models. The reason for the faster growth of Alpine and Matsushita CNS models is that they are based on proprietary software but can also read Naviken—hence their stronger appeal to consumers who want to avoid buying into a standard that may become obsolete (Exhibit 2). Alpine’s market share (with only two models) rose from 10 percent to 15 percent. By 1996, Sony was in a tie for third place after Matsushita (18 percent) and Pioneer (19 percent). Sony’s market share decline was especially steep in the aftermarket auto parts chains where the most knowledgeable auto enthusiasts shop (Exhibit 17).
• Sony is much stronger in the after-market than in the OEM market. By 1996, the OEM market is growing faster than the aftermarket (254 percent vs. 155 percent in 1996). Firms like Alpine and Mitsubishi appear to be much better balanced than Sony in their sales mix (Exhibit 2). In 1996, the OEM market, in which Sony will hardly participate, is expected to account for 35 percent of unit sales (Exhibit 1).
• Sony’s best selling model, the NVS-S1, is rated poorly compared to the best sellers of competitors (see Exhibit 16). However, this is somewhat unfair since the Sony product line now includes advanced competitively priced, hybrid models.
At the same time, Sony’s prospects are not all bad:
• Sony has the highest installed base of CNS (Exhibit 15) and, assuming customer satisfaction and the availability of leading-edge product, is poised to resell to earlier adopters interested in trading up. Of Sony’s seven CNS models in 1995, three are recently introduced hybrid models (priced between $1,500 and $1,800) and two are GPS models with a hybrid option.
• Sony has sold 302,000 units to date at a unit contribution margin of $1,300 * 15/65 (23 percent) = $300 for a total contribution (before SGA) of $96 million (Exhibit 6).
• Sony and the Naviken consortium have developed 20 CD-ROMs covering a variety of applications to fuel the interest of specific market segments. However, since Aline and Matsushita models can read Naviken format, these CD-ROMs are not exclusive to Sony.