Maintaining brand appeal by preventing heavy discounting is just one strategy this global electronics giant uses to make money in India, even as its other global operations bleed cash
As of April this year, Japanese electronics giant, Sony, reported its fifth straight quarter in the red, posting a staggering $5.7 billion in losses. Yes, the company was hit hard by the earthquake and tsunami in Japan last year which caused major disruptions in power, and, therefore, production. A strengthening yen didn’t help either. But, Sony’s reality is that it has steadily lost ground to its competition, especially the hard-driving Koreans. Sony’s vaunted television business, for instance, has lost money for eight straight years, thanks to Samsung’s incursion into this market.
Sony’s India operation, however, has been a star performer. Under the leadership of Masaru Tamagawa, the company grew by nearly 16 per cent to Rs 6,313 crore last year — modest by Sony India’s standards if you consider the 47 per cent growth to Rs 5,446 in revenues that it posted the previous year, or even the 30 per cent it intends to grow by in the upcoming financial year. Tamagawa, a 52-year-old father of three, who has been in India for the past five years and is credited with converting the Indian subsidiary into an aggressive unit, says, “I am confident we can achieve this growth this year.”
While its parent is busy trying to trim workforce across the world, Tamagawa’s operations will add 500 people in the current financial year, taking its overall headcount to 3,800, while its marketing and promotions budget for this year will swell by 25 per cent, touching Rs 450 crore.
Sony’s success in consumer electronics in India has partly to do with its brand appeal. Abroad, it has struggled, thanks to nimble-footed rivals such as Samsung, who are perceived to be at the cutting edge of technology — a pedestal occupied by the Japanese giant in the 1980s and 1990s. Then consumers looked forward to Sony products like the way they see Samsung and Apple today.
Here, Sony is also fighting the Korean chaebols Samsung and LG, but the difference is that it continues to command a significant premium in the marketplace. By an estimate, Sony products are priced at least 10-15 per cent higher than rivals. Yet, it has seen no dearth of business here.
“Sony has come down heavily on the practice of discounting to avoid erosion of brand equity,” says the chief executive of a consumer electronics company declining to be named. “This has ensured Sony dealers get good margins even if the price is steeper than products of other companies. This also results in a strong network for Sony,” he adds.
According to trade sources, other companies do not determine what the market operating price for their products should be. They leave that decision to their individual dealers. Sony, instead, routinely sets the standard, telling dealers they cannot go below a certain price point. If they are found discounting, their dealership is simply revoked.
The right stuff
There is another reason for Sony’s success in India—flogging the right stuff to the right people, namely the aspirational middle class. The array of products that Sony has in its portfolio in India includes flat-panel television sets, digital cameras, camcorders, laptops, tablets, audio products, gaming consoles and home theatre systems. Of these, flat-panel television sets under the Bravia name, digital cameras under the Cyber-shot name and laptops under the Vaio name are key items, contributing 70 per cent to Sony India’s revenues. The rest comes from other categories.
To attract more customers, the company has cut prices — but again, not so much that they dilute the premium quotient of the brand. In Vaio laptops, for instance, entry-level price points have moved from Rs 40,000 to Rs 27,000 in last two years. In Bravia TVs, technology leaps have led to falling price points. A 32-inch Sony flat panel, which cost over Rs 32,000 two years ago, is now priced at Rs 27,000. But, in comparison to rivals, Sony is still tad expensive. An LG 32-inch flat panel, for instance, costs Rs 25,000. "Our endeavour has been to price our products in such a manner that we get within reach of many core consumers, but our brand promise isn’t eroded at the same time," says Tamagawa.
Smartphones, another hot area, is part of a separate legal entity called Sony Mobile Communications, says Tamagawa. Sony Corporation took full control of the business following the buyout of the 50 per cent stake of Swedish partner Ericsson in their 10-year-old joint venture last year.
Tablet PCs are, however, a new business for Sony, a rapidly growing and vital product line in which its competitors Apple and Samsung have a huge head start. Sony launched its own tablets last year in India in an attempt to break into a category that was seeing significant traction.
But, how these products, especially tablets, do here is something that Tamagawa declined to comment on specifically. “These are categories of the future,” he says. For instance, Sony is looking to launch a Windows 8 tablet in India shortly. So far, its three tablet models are based on the Android platform priced between Rs 29,990 and Rs 36,990.
Experts say Sony may not find it as easy to crack open these areas as it did in the case of laptops, digital cameras and flat-panel TVs — the categories where it ranks among the top three in the country. There are also question marks over how long it could remain at the top in the flat-panel TV segment in India, given that Sony’s new CEO, Kazuo Hirai, who took over from Welsh-born Howard Stringer this April, announced cost cuts in the TV business, which has been ailing for some time.
Hirai plans to focus his attention on smartphones, gaming and digital imaging, as Sony looks to put its past behind it. Tamagawa says these developments will not impact the India business, since Sony globally is not moving out of the TV business completely. “If anything, we propose to sustain the pace of growth in flat-panel TVs in India,” he says. “In the financial year ended March 2011, we sold 830,000 Bravia TVs, which increased to 900,000 units last year. We intend to keep this pace of growth going in the current year,” he says.
Yet, much like Playstation, which was a huge global success, thanks to its adoption by millions of youth whom the company could convert into brand loyalists, eventually, the future of Sony seems to point to similar product categories.
And, India, with one of the largest youth populations in the world, is a good place to extend that strategy.