Sony: Battling the Marketing Environment's "Perfect Storm"

After a decade of struggle, the year 2011 was supposed to be a comeback year for Sony. The consumer electronics and entertainment giant had one its best batches of new products ever heading for store shelves. Even more important, Sony was heading back into the digital big leagues with the launch of an iTunes like digital network that would combine Sony's strengths in movies, music, and video games for all its televisions, PCs, phones, and tablets. Analysts forecasted a $2 billion profit. "I really and truly believed that I was going to have a year to remember," says Sony's chairman Sir Howard Stringer. "And did, but in the wrong way."

Instead of a banner year, 2011 produced for Sony. For starters, in March 2011, eastern Japan was devastated by a mammoth earth quake and tsunami. The disaster forced Sony to shutter 10 plants, disrupting operations and the flow of Sony products worldwide. In April, a hacking attack on the company's Internet online data breach in U.S. historyforced the company to shut down its PlayStation Network. Only four months later, fires set by rioters in London destroyed a Sony warehouse and an estimated 25 million CDs and DVDs, gutting an inventory of 150 independent labels. To round out the year, floods in Thailand shut down component plants there.

When the rubble was cleared, Sony's projected $2 billion profit ended up as a $3.1 billion lossthe largest in 16 years. That had begun with yet another environmental upheavalthe Great Recession and global spoke out publicly about Sony's "sense of crisis," projecting yet another annual loss in excess of a billion dollars.

There's no doubt that environmental unforeseeable have dealt Sony some heavy blows. But not all the blame for Sony's woes goes to uncontrollable environmental forces. Sony's current difficulties began long before the recent string of events. More to blame than term inability to adapt to one of the most powerful environmental forces of our timedramatic changes in technology.

Interestingly, it was Sony's magical touch with technology that first built the company into a global powerhouse. Only a dozen years ago, chant of cool. Not only was it the world's largest consumer electronics company, its history of innovative productssuch as Trinitron TVs, Walkman portable music players, Handycam video recorders, and PlayStation video game consoleshad revolutionized entire industries. Sony's innovations drove pop culture, earned the adoration of the masses, and made money for the company. The Sony brand stood for innovation, style, and high quality.

Today, however, although still an $ 88 billion company, Sony is more a relic than a rock star lost in the shadows of high fliers such as Apple, Samsung, and Microsoft. Samsung overtook Sony as the world's largest consumer electronics maker nearly a decade ago. Samsung's sales last year bested Sony's by 50 percent, and Samsung earned profits of $14 billion while Sony lost $3.2 billion. Likewise, Apple has pounded Sony with one new product after another. "When I was young, I had to have a Sony product," summarizes one analyst, "but for the younger generation today it's Apple." Apple's zooming stock price has made it the most valuable company in history. Meanwhile, Sony's stock price recently hit a low of around $15, a stunning slide from its high of more than $300 just a decade ago. All of this has turned Sony's current "Make. Believe." brand promise into more of a "make-believe" one.

How did Sony fall so hard so fast? It fell behind in technology. Sony built it once-mighty empire based on the innovative engineering and design of standalone electronicsTVs, CD players, and video game consoles. As the Internet surged, however, creating a more connected and mobile world, standalone hardware was rapidly replaced by new connecting technologies, media, and content. As our entertainment lives swirled toward digital downloads and shared content accessed through PCs, iPods, smartphones, tablets, and internet-ready TVs, Sony was late to adapt.

Behaving as though its superiority could never be challenged, an arrogant Sony clung to its successful old technologies rather than embracing the new. For example, prior to the launch of Apple's first iPod in 2001, Sony had already developed devices that would download and play digital music files. Sony had everything it needed to create an iPod device, including its own recording company. But it passed on that idea in favor of continued emphasize on its than-highly successful CDs business. "[Apple's] Steve Jobs figured it out, we figured it out, we didn't execute," says Sony chairman Stringer. "The music guys

didn't want to see the CD go away."

Similarly, as the world's largest TV producer, Sony clung to its cherished Trinitron cathode- ray-tube technology. Meanwhile, Samsung, LG, and other competitors were moving rapidly ahead with flat screens. Sony eventually responded. But today, both Samsung and LG sell more TVs than Sony. Sony's TV business, once its main profit center, has lost nearly $8.5 billion over the past eight years.

It was a similar story for Sony's PlayStation consoles, once the undisputed market leader and accounting for one-third of Sony's profits. Sony yawned when Nintendo introduced its innovative motion-sensing Nintendo Wii, dismissing it as a "niche game device." Instead, Sony engineers loaded up the PS3 with pricey technology that produced a loss of $300 per unit sold. Wii became a smash hit and the bestselling

game console; the PS3 has lost billions for Sony, dropping it from first place to third.

Even as a money loser, the PS3 with its elegant blending of hardware and software had all the right ingredients to make Sony a leader in the new world of digital entertainment distribution and social networking. Executives inside Sony even recognized the PlayStation platform as the "epitome of convergence," with the potential to create "a fusion of computers and entertainment." But that vision never materialized, and Sony has lagged in the burgeoning business of connecting people to digital entertainment.

To his credit, Howard Stringer made a credible effort to reignite Sony. After taking over in 2005, he drew up a turnaround plan aimed at changing the Sony mind-set and moving the company into the new connected and mobile digital age. Under his early leadership, the consumer electronics giant began

to show renewed life as revenues and profits rose. Then came the Great Recession, once again knocking the bottom out of profits. And just as Sony began digging out from that disaster, it was struck by the string of 2011 environmental calamities.

Thus, environmental forceswhether unforeseeable natural and economic events or more predictable turns in technologycan heavily impact company strategy. Sony's difficult times provide a cautionary tale of what can happen when a companyeven a dominant market leaderfails to adapt to its changing marketing environment. Despite the setbacks, however, giant Sony still has a lot going for it. It recently announced new plans to revitalize its core electronics businesses through renewed

innovation. Now, if Sony can just get the economy and Mother Nature to cooperate. . ..

Questions

1.Which factors led Sony fall so hard so fast in the marketplace?

2.How could have Sony maintain its leadership position and avoided financial loses?

Solve these two questions retated to case study.