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Strategic Analysis of SONY inc.

Technical Report · November 2019

DOI: 10.13140/RG.2.2.29378.40643

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 Strategic Analysis of SONY

Francesco DAMICO 251422

Michael DBOUK 255423
Shahzada Muhammad Emaad DURRANI 252663
Waseem KHAN 252664
Mohamad Usama KUNNATHUR 249895
Leslie Michaella TCHEUKO NGALEU 250902
Duryodbek TOLIBJONOV 253721
Contents
1. Introduction .......................................................................................................................................... 2
2. External analysis.................................................................................................................................... 2
1.1. Sectors........................................................................................................................................... 2
1.2. Market........................................................................................................................................... 2
1.2.1. Market Segmentation ........................................................................................................... 2
1.2.2. Market Positioning ................................................................................................................ 4
1.3. Competitors .................................................................................................................................. 4
1.3.1. Console gaming ..................................................................................................................... 4
1.3.2. Digital camera ....................................................................................................................... 6
1.4. Five forces analysis........................................................................................................................ 6
1.5. Other factors ................................................................................................................................. 8
1.5.1. Cultural impact ...................................................................................................................... 8
1.5.2. Act of God ............................................................................................................................. 8
3. Internal analysis .................................................................................................................................... 8
3.1. Resources and Capabilities ........................................................................................................... 8
3.1.1. Intangible resources.............................................................................................................. 8
3.1.2. Tangible resources .............................................................................................................. 10
3.2. VRIO analysis ............................................................................................................................... 10
3.3. Core competencies ..................................................................................................................... 11
3.4. SWOT analysis ............................................................................................................................. 12
4. Other key analysis ............................................................................................................................... 13
4.1. Business analysis ......................................................................................................................... 13
4.2. Product diversification ................................................................................................................ 14
4.3. Vertical Integration and value chain ........................................................................................... 15
5. Conclusion ........................................................................................................................................... 17
6. Summary ............................................................................................................................................. 18
7. References .......................................................................................................................................... 19
8. Appendix ............................................................................................................................................. 19
1. Introduction
Sony, once a market leader in digital cameras lost its ground to Canon and Nikon. On the other hand, it
is a market leader in console industry where Nintendo was once a market leader (see Figure 1: Console
market share). What happened?
The case of Sony is unique as it has been in every possible situation a firm can face. It has been
innovative and has also been criticized for not being innovative enough. It has been a market leader in
many industries for decades; then it was not even in the top 3 in the same segments. Once a consumer
electronics giant, now faces uncertainty.
Still, Sony is a big company. It operates in many sectors and analysis of all the sectors will be out of
scope. For this report, two key market segments are identified based on their contribution to the total
profits of the Sony. A systematic approach is adopted in identifying the key points in the strategy in
those sectors past, present or future. It is also compared with its main competitors to provide context.
External factors are also considered. Finally, future prospective of Sony is discussed.

2. External analysis
1.1. Sectors
Two of the most profitable segments for Sony is Gaming & Network services and Imaging and
semiconductor division. The former comprises mainly of PlayStation consoles while the latter consists of
digital cameras as well as camera sensors. This report focuses on two business areas Console Gaming
and Digital cameras, where Sony has some uniqueness.

1.2. Market
To succeed in today’s competitive marketplace, companies must be customer-centered, wining
customers from competitors and keeping them by delivering greater value. Since companies cannot
satisfy all consumers in a given market, they must divide up the total market (market segmentation) and
design strategies for profitably serving chosen segments better than the competition (market
positioning).

1.2.1. Market Segmentation

Market segmentation is the process of dividing a market into distinct groups of buyers with different
needs, characteristics, or behavior who might require separate products or marketing mixes. Every
market has market segments, but not all ways of segmenting market are equally useful. A market
segment consists of consumers who respond in similar ways to a given set of marketing stimuli. Smart
companies focus their efforts on meeting the distinct needs of one or more market segments.

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 A. Digital Cameras
Digital camera market can be segmented based on:
I. Market segment by product:
a. Digital single-lens reflex (DSLR) cameras
These are high-end, versatile cameras. They come with large image sensors to generate better quality
images and are bigger in size as compared to compact consumer cameras. Market Leaders in DSLR
Cameras are Canon and Nikon.
b. Compact digital cameras
These are simplest forms of cameras that are currently available in the market. They are also called
point and shoot cameras. Market leaders are Panasonic, Canon, Sony & Fujifilm
c. Mirrorless interchangeable lens cameras
Sony has invested lots of energy in mirrorless cameras. These cameras do not have viewfinders and
therefore, are smaller than Traditional DSLR cameras. They have stronger image sensors than compact
cameras and can support a change of lens. While Canon and Nikon focused mostly on DSLR cameras.
Sony followed different approach trying to compete with mirrorless cameras. Market leaders are Sony,
Olympus, Panasonic & Fujifilm.
II. Market segment by End User:
a. Professional
Professional cameras are used in a broad range of fields including journalism to fashion shoots.
Furthermore, professional cameras have high-resolution power, automatic functions and they are water
resistance. Canon and Nikon are the market leaders in the professional segment. Hardcore DSLR
cameras are used for professional purposes.
b. Personal
Personal cameras are such kind of cameras which enables users to get high quality pictures and easy to
use mechanism having light weight and smaller size, consumers prefer compact digital cameras and
mirrorless interchangeable cameras over DSLR for personal use. Sony has all the capabilities to lead this
segment in the camera industry.
III. Market segment by Region:
Digital camera makers in the regions like India and China are waiting for the money-making growth of
the market while on the other hand countries like USA and European market are evidencing mature
conditions and North America has been claimed dominant in the market in the recent age. And forecasts
of the industry structure claims USA and Europe to be the pioneer of the market in upcoming era, they
will be able to conquer the market.

B. Gaming consoles
Gaming consoles market can be segmented in following:

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 I. Geographic segmentation:
American market, the Japanese market, the European market, UK and Chinese markets are considered
the core segments for gaming consoles, evidencing higher sales of consoles during 2017 being china the
dominant segment, and statistics for 2018 seems to dominate previous years. Some previous stats and
future forecast are mentioned in Figure 2:Console revenue forecast
II. Demographic segmentation:
In 1994, when first video console was released by Sony, at that time core focus was on the marketplace
of younger people from age 12- up to 17-year-old boys. Additionally, an important and profitable
demographic segment could be the college market because according to a study only a few percent of
students report not playing video games.
III. Behavioral segmentation:
Sony concentrates on a strong customer loyalty status in the behavioral segment. Besides its popular
brand and the high reputation of its products, the company tries to win over its former consumers by
the implementation of a backward compatibility which enables to play video games from its previous
video game consoles (PlayStation 1, PlayStation 2 & PlayStation 3).

1.2.2. Market Positioning

Market positioning is arranging for a product to occupy a clear distinctive and desirable place in the
minds of target consumers relative to competing products. In positioning a product, a company first
needs to identify possible competitive advantages upon which to build the position. The company’s
entire marketing program should support the chosen positioning strategy.
Sony has traditionally been a product differentiator. It offered high quality products at a premium price.
However lately, it has been pursuing some elements of cost leadership. The Figure 3: Market Positioning
shows 2 full frame camera offerings from top 3 companies. As can be seen Sony cameras have high
specs for price and in some cases high specs for lower price. Why it has not been able to gain lion’s
share of the market? Simple, Lack of complementary products. In this case it is wide variety of lens
selection.
The case for Console is just the opposite. Sony consoles are priced higher than the competitors and have
higher market share. The reason, complementary products (Popular Exclusive titles) are more.

1.3. Competitors
1.3.1. Console gaming
The market for interactive video entertainment is highly competitive as evident very rapid changing of
dominators in the console gaming industry. There are two main competitors in the market for Sony:
Nintendo and Microsoft. As Video game console market is sufficiently saturated and highly competitive,
there are many formidable barriers for new players to entry, so there are no realistic possible entrants.
The Figure 4: Console sales shows units sold for each console.

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Sony relies on innovative products and tries to launch new products on the market to attract consumers.
The company invests a lot in developing new games especially developing new virtual reality
technologies. It usually offers killer app games series like Final Fantasy that is available by only Sony
consoles and next generation of console with backwards-compatibility, that can read, write or view
older formats. It ensures that consumers try to retain the value of older version and consumers will be
more likely to buy more games and retain them for longer periods. This also reduces the size of the
secondary game market and keep the value of Sony brand.

A. Microsoft
Microsoft tries to offer first new types of products to its users. In order to lower marginal cost company
produces majority of gaming consoles in Asian countries. Microsoft invests a lot in marketing in order to
approach consumers the best way and attract them. In 2007, Microsoft spent 150 million dollars for ad
campaign of new Xbox 360 console. As a result, Xbox 360 was sold more than 80 million units until
October of 2013, best sold Microsoft console. Main advantage of Xbox 360 over its competitors was due
to the release of high-profile games from both first party and third party developers. The Xbox One was
released in 2013, as the successor of the Xbox 360. The Xbox One competes with Sony's PlayStation 4
and Nintendo's Switch as part of the eighth generation of video game consoles. Xbox executive Kudo
Tsunoda believes that, in the future, Xbox one can make its success due to relations between PC Games
by stating that “For a long time we’ve had PC gamers and console gamers who weren’t able to play
together,” That’s why cross-play is still such a powerful idea. “You should be able to play what you love,
and play together, regardless of what device you’re playing on. It’s about connecting people.”

B. Nintendo
Nintendo’s approach focuses on earning profits from the sale of game consoles as well as from game
software sales. It had succeeded to reach success developing intuitive and easy games differently from
other players in the market. Strategy matches to children and casual gamers and encourages people
around the world to play video games. Before releasing Nintendo Switch, Nintendo has never held
technological advantage in the industry. 1980-2000 years was golden period for Nintendo, as it was the
only major player on the market with its Tetris and Super Mario’s. As it was stated, Nintendo paid more
attention to games software’s and particularly “small” games. Therefore, new players in the market,
later on evaluation of smartphones and mobile games made a huge competition for the company. As a
consequence, Nintendo lost its positon on both small games and home consoles to better innovated
players. In last decades, there has been “console war" between PlayStation vs. Xbox, first in the guise of
the Xbox 360 vs PS3, Xbox One vs PS4, Xbox One X PS4 Pro and so on. However, Nintendo could make a
comeback by introducing a new type of console Nintendo Switch. Switch is greatly different from its
competitors and even from its predecessors with different aesthetic than what usually found on the
competition, making handheld or living room console, with a hybrid version where the player stands the
thing up on a kickstand and uses it in its "tabletop" form. And Last year, the PS4 vs Nintendo Switch vs
Xbox One competition was with market share 19,64%, 11,85% and 8,21% respectively.

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1.3.2. Digital camera
Last decades demand for digital cameras has declined due to increasing usage of mobile phones for
casual photography. Evaluation of mobile phones’ cameras is overtaking quite fast, so more and more
people are using their phones for taking photos, editing, sharing. But high and sophisticated
photographers prefer to use DRLS or mirrorless cameras and customers still yearn for better digital
products as they are produced. Focusing on competitors in the digital camera market, Sony faces fierce
competition from two main competitors: Nikon and Canon. Any company that deals in technology has
opportunities to control the market share through unique products or products that are user friendly
and technologically advanced. In cameras manufacturing better products gives the company a chance to
remain competitive. While mirrorless cameras have grown more than DSLR sales over the past year, the
older style continues to sell more, at nearly 2.4 million DSLRs in the first four months compared to about
1.3 million non-reflex cameras.

A. Canon
Canon manufactures consumer imaging products including printers, scanners, binoculars, compact
digital cameras, film SLR and digital SLR cameras, lenses, video camcorders and digital visual solutions.
Quality has been a strong point for Canon in that the products produced have always been regarded for
their high quality in the market. So, Canon has a competitive advantage over its competitors. The
diversification of the products that the company has is also a very strong strategy to remain in business.
This is the case because the company does not rely on a single product to get its revenues thus diversify
the risks in the markets. The big recent change in cameras came in the form of micro four-thirds and
mirrorless designs. Major player Nikon recently launched their lineup of mirrorless cameras and Canon,
one of the largest camera manufacturers not to be outdone in this segment, did the same a few days
back, with their EOS M line of mirrorless cameras.

B. Nikon
The company is old player in the market and Nikon has a reliable brand that is based on high level
technological supremacy and resource and development. With rapidly changing technology, Nikon has
to keep pace with new technology in order to be competitive in the market. In 1986, Nikon introduced
the first digital single-lens reflex (DSLR) camera, In the mid-to-late 1990s, DSLR cameras became
common among consumers. By the mid-2000s, DSLR cameras had largely replaced film cameras.
However, Nikon has a poor marketing strategy where promotion of products has been low and the
products have not been known to many consumers. The marketing systems have been reluctant and not
aggressive enough to make the products known in all regions. It is also clear from that last year, Sony
first managed overcome Nikon and gained second place in USA for full-frame interchangeable lens
camera sales.

1.4. Five forces analysis

I. Threat of substitute products or services: Medium/High

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The presence of substitutes can result in consumers’ switch to the cheapest product, since they are
more sensitive to prices. In the market of console there are few substitute products available for the
customers, indeed the experience they can get from the console like PlayStation 4 or PS Vita are not
comparable with respect to videogames potentially played on smartphone or other platforms.
Nevertheless, the world of gaming on PC is evolving with the exponential improvement of
microprocessors’ power put into the fastest computer: with them video game players can enjoy the
almost-real graphics available with videogames run in 4K monitors at 60 fps (frame per second). In the
next year, if SONY will not improve their technical feature on both graphics and power, PCs could
represent a serious substitute product for consoles, also because the rate at which the microprocessors
depreciate their value is higher than the PlayStation’s one.
Otherwise, in the industry of camera, potential substitutes products are surely mostly represented by
smartphones. Advances in sensor technology and microprocessor development transformed the
smartphone; companies annually release them with improved cameras and every year they add more
and more feature available for the users. It has become a powerful tool capable of offering similar
results to modern digital cameras in a smarter and easier way. Because of the market of smartphones is
truly competitive, there could be mobiles holding good cameras and low price attracting people.
II. Bargaining Power of Buyers: High
The power of buyer is very high in both of the camera and console industries, because of the huge
number of information available for the customers relating to all the features of the divide they are
going to buy. The presence of online shops has further increased the comparability between product, in
terms of both technical features and price. Moreover, since there is not switching cost to change brand,
they can easily choose the cheaper product on the market.
III. Bargaining Power of Suppliers: Low
The bargaining power of suppliers does not represent an issue for the SONY’s business. In fact, because
of they built an efficient supply chain with multiple medium-low size suppliers, they are able to easily
shift from one to another to find the convenient price. These companies, relying on the fact that trading
with Sony also means high volume of product sold, compete each other and fight to propose lower
prices.
Lastly, as a firm with high bargaining power, SONY has established a scenario where some suppliers
depend only upon the firm, thus they are indirectly managed by Sony and their bargaining power is very
low.
IV. Threat of New Entrants: Low
Threat of new entrants is low: both camera and gaming industry are capital intensive. The entry into the
market requires indeed high capital invested in infrastructure, huge economies of scale, efficiency in
technology as well as innovation and know-how. New entrants also would need to invest a lot also into
marketing campaign, due to the high competition existing in these industries.

7
Moreover, the customer’s loyalty in this aspect play a fundamental role: SONY classified 10th as the
“most loved company in the world” according to forbes.com in 2017. This also represent an entry barrier
for potential new companies.
V. Intensity of Rivalry: High
Industry rivalry is very high due to numerous companies competing into the electronics industry. Sony
has been able to survive thank to its focus on quality and innovation, as well as the management of its
brand through expensive marketing campaigns and the control over its supply chain, which allow it to
get best quality components at lower prices.
Since the moment economies of scale represent an advantage and an entry barrier for Sony against new
entrants, it also represents a high exist cost for firm which want to came out of the business. As a result,
the industry rivalry is even higher.

1.5. Other factors

1.5.1. Cultural impact
The impact of the culture cannot be overlooked in the case of Sony. Culture has traditionally had a huge
impact on the Japanese companies and Sony is not an exception. Without it the PlayStation division
which makes the most profit for Sony would not exist. The console's origins date back to 1988 where it
was originally a joint project between Nintendo and Sony to create a CD-ROM for the Super Famicom.
However, Nintendo in 1991 announced that it would be breaking its partnership with Sony, opting to go
with Philips instead but using the same technology. The breaking of the partnership infuriated Sony
President Norio Ohga, who thought they didn’t “honor” the agreement. He responded by appointing
Kutaragi with the responsibility of developing the PlayStation project to rival Nintendo.

1.5.2. Act of God

Japan is an area which is prone to earthquakes and even tsunamis. These disasters had traditionally hurt
the company leading to loss in millions of dollars. These unforeseen events force the company to
evaluate the short-term strategy and make necessary changes to sustain in the long-term. Typical
response would be increasing the price which in turn hurt the sales.

3. Internal analysis
3.1. Resources and Capabilities
3.1.1. Intangible resources
A. Technology
Leading in innovation in current circumstances is not easy. However, Sony has been dominant in the
market due to its product quality and latest technology being used in those products. The secret of Sony
success is based in innovations in electronics goods and equipment’s. Sony is one of leading

8
manufactures in manufacturing, video games, information technology, communication and electronic
products in the world. So far Sony has maintained its variation in production line from simple electronic
Gadgets to professional high tech products used worldwide. The company now aims to focus on the
“Stable Profit Generators” Sony is trying to prioritize the generation of positive cash flow from its
leading products such as imaging products and Video & Sound. By optimizing fixed cost and inventory
control Sony is targeting profit maximization and ROI.

B. Finances
This Figure 5: Revenue by segment shows a distribution of Sony's sales and operating revenue in the
company's 2017 fiscal year, broken down by business segment. Sony announced a revenue of 75.5
billion in 2014 which has been the highest revenue recorded from the year 2008. In the year 2014 Sony
reported revenue generated from mobile and communication sector to be 15.23 billion the reason was
due to invention of SONY’s Xperia the only cellphone with a camera that could record at 1080p.
The success of Sony’s smartphone was not very long due the competitors like apple and Samsung had a
huge market and core competencies in mobile network. The change in the market gave a drastic impact
on Sony mobile network and operating income fall down to 10.38 million mobile phones to end users
worldwide.
Invention of PS4 was one of the game changer in SONY’s fortune. In 2014 company sold 17 million of
entertainment products (PS3, PS4) worldwide which generated a worth of 20 billion US dollars which is
considered as the biggest revenue recorded from 2008.

C. Human capital
Sony is comprised of approximately 128,400 employees with an increase of 3,100 due to operational
and manufacturing activities in ASIA PACIFIC which is the largest market Segment for Sony. Sony has the
ability to innovate and come up with revolutionary products by miniaturizing the electronic products
Sony has created a high value to its customers through differentiation of products. The main reason of
success is based on high number of employees that are working in the electronics sector as can be seen
in the Figure 6: Personnel by Business segment.
Reason of High Number of Employees in Electronic Segment,
i. Innovation and Miniaturization of Products
ii. Differentiation in Products
iii. Meeting the Demand of Market
iv. Promoting Growth Drivers (GAMING and Camera)

D. R&D Research Development & Innovation

Sony is spending 8% of its total revenue (see Figure 7: Revenue and R&D) on R&D which make Sony’s
core competency being innovative. The Company has aim to work on the concept of “Future lab
Program”, which aims to promote artificial intelligence and products made according to customers’
demands which AI (Artificial Intelligence) Technology within them. Future lab Program relies on
technological research and development of products with creative environment and direct

9
communication with the consumers has given Sony a competitive advantage of making things in line
with the demand which co-creates new lifestyle and user value. By this approach the program will share
prototype with all details to the users while it will be in the development stage giving leverage to the
end users which will help them to refine the product according to their needs.

3.1.2. Tangible resources

Sony being the innovator has to keep up the demands of the world with high tech equipment, its
domestic and industrial infrastructure is extensive as company has capability to extend its infrastructure.
In past Sony has acquired two companies U.S based CBS records in 1988 and Colombia Pictures in 1989
named it as SONY MUSIC ENTERTAINMENT and SONY PICUTRES ENTERTAINMENT these two companies
emerged to be the largest Entertainment producers for the world. Due to its extensive product quality
Sony took the market segmentation of Gaming sector and become as the Market leader in this sector.
Sony has an extensive chain of plants in domestic and internationally, by 2003 Sony own 55
manufacturing plants of which 15 were shut down. Sony has 12 domestic industry sector in JAPAN.

A. Innovation
Innovation and marketing are the pillars of the company. These were considered as the core strength of
the company from the advent, their skills and effective leadership set the foundation and a cultural
norm of a company to be innovative. Sony has developed many solutions to the problems worldwide
through innovation. Sensors are now the modern era innovation suit that Sony is good at, which has
helped Sony to work on the artificial intelligence and make human life as easy as possible. The ability of
the company to innovate a come up the new innovations which matter to the world has widen up the
profits for Sony. Sony has substantial quality innovation resources including scientific capabilities they
are rare and hard to be imitated. (see Figure 8: Semiconductor segment)

B. Accounting ratios in the Past

Sony operating profit margin accounting ration id merely 0.018 (0.045 in year 2001), return on stock
holders equity shows a miserable market loss which was 0.06 (0.007 in year 2001) and return on total
assets reveals as same in 2001. These poor results indicated that the company has not managed well in
its operations and has been unable to generate prosperous results. Sony’s debt to asset ratio in 2002
was 0.71 this ratio shows that the company is highly leveraged (not Liquid) the company can be in
danger if the creditors as for the repayment of the capital invested.

3.2. VRIO analysis

The VRIO framework is a tool used to analyze the resources and capabilities of a firm in order to
understand how they contribute to the level its competitive advantage.

Human Patents Brand Research & Miniaturization

Capital portfolio portfolio/ Development
reputation
Valuable Yes Yes Yes Yes Yes

10
 Rare Yes Yes Yes Yes Yes

Difficult to Yes Yes Yes Yes

Imitate
Organization Yes Yes/No Yes

Competitive Sustained Temporary Competitive Temporary Sustained

implications competitive competitive advantage and competitive competitive
advantage advantage significant advantage advantage
unused
competitive
advantage
3.3. Core competencies
Sony corporation is a company that operates in electronics, entertainment and financial services and
whose core competencies are mainly based on technology innovation which leads to a remarkable
product differentiation achievement.
The very first top competency to mention about Sony is miniaturization which generally represents the
process of downsizing their products where Sony is leading the market. For instance, the main
advantages of Mirrorless cameras over DSLRs (Digital Single-Lens Reflex) are related to the size and
weight even though presenting some disadvantages such as the life battery, still the preference of one
to another is based on each photographer expectation but from a more general view the Mirrorless is
preferred over Sony’s traditional products and competitors thanks to the vertical differentiation brought
by the company’s ability of miniaturizing. Another area in which Sony is excelling is semiconductors with
revolutionary image sensors. After the CCD (charge-coupled device), the company kept innovating and
came up with the “back-illuminated” and the “stacked” CMOS (Complementary metal-oxide
semiconductor) Image sensors which provide both high speed and high picture quality, with also the
advantage of low power consumption and higher sensitivity.
Moreover, Sony also performs outstanding results with their fast storage ability, for instance with their
latest external Solid-State Drive (SSD) which USB Type-C compatible, thus can be used with a variety of
Android devices; it is an ideal tool for professional photography as it provides lighter portability, better
accessibility and higher storage capacity of data.
In the game industry, after introducing the Blu-ray Disc technology for PS3, Sony came up with exclusive
games available only PS4 which enhanced the ability of Sony Entertainment to capture value.
Additionally, another good factor of the company is its compelling customer responsiveness. Sony
presents a total commitment to their policy “respect our customers' viewpoints in striving to deliver
product quality and customer service that exceed their expectations” in order to improve their ability to
design products based on how customers want it, and enhance their product quality and quality
management system.

11
The core competencies mentioned above have been established through remarkable resources and
organizational capabilities, more particularly, the company with its outstanding Human Resource capital
has always focused on giving the best working environment to its staff, in order to create a sustained
brand loyalty and exploit at best this particular cultural motivation of Japanese workers (“Job for Life”)
as Sony is a Japanese company in its core. Also the integration of non-Japanese workers would have
certainly created that good conflictual rate that actually enhanced their competencies. Moreover Sony
has also invested considerably in marketing with its following catchy slogans: from “The One and Only”
(1980-1982), “It’s a Sony” (1982-2002), “like.no.other” (2005-2009), “make.believe” (2009-2014) to its
current slogan “BE MOVED”; which has largely contributed in their successful brand reputation.
But it is also there to notice that there are some activities run by the company even in their core
competencies that are not unknown to its customer’s base such as making smartphone’s cameras for
others companies like Samsung, Apple which has an impact on Sony’s ability to capture value.

3.4. SWOT analysis

STRENGTHS
 Marketing & Brand
 Even though Sony supplies their rivals
with sensors for digital camera and
smartphone business, the company
keeps their best sensors for their own
products Good quality cameras
 Full frame mirrorless cameras
 Great success in PlayStation; it ensures
profits despite competitive rivalry
 Popular exclusive games for PlayStation
 Strong R & D
WEAKNESS
 Cost (Value for money)
 Not much variety in lens selection
 Less customer support for cameras than
rivals
 Sony’s cameras have a complicated
structural menu compared to other
brand cameras
 Loss of many workers and managers
because of structural reforms that has
affected the company’s power of
innovation

OPPORTUNITIES
 Growth in electronics market and
increasing demand.
 Expansion in large markets like China &
India
 Increasing trend of massively multiplayer
online games
 Head start in full frame mirrorless is
something which can be exploited
 Artificial intelligence is a big opportunity
for Sony special as being a strong
innovative company and one strong
evidence is the release of AIBO by Sony
THREATS
 Strong Yen
 Threat of being hacked
 Full frame mirrorless cameras are being
developed by Canon & Nikon
 Price competition from competitors
 Expansion of Nintendo to the market
compared to the previous years by
Nintendo switch
 More than 53 million members are active
on Xbox Live
 Digital piracy leads to big loses in the
revenues of Sony

12
4. Other key analysis
4.1. Business analysis
Sony has been the leading firm in technological advancement and electronic entertainment, the best
part of being innovative is that Sony does not focus only on one sector but its diverse in electronics. In
the present world Sony has earned a name specially in the market segments of CAMERA’s and
PlayStation Network. Sony’s vision is to make new digital entertainment experience of the customers to
enjoy latest generation content. In the last decade Sony has taken the market for consoles and cameras
just by meeting the customers demand by spending a maximum of R&D which gave Sony a boast in
superior profitability against its competitors.

A. PlayStation
PlayStation was one of the best inventions of Sony. The PlayStation 4, launched late last year, reached
10 million sales in August. Due to improved technology and introducing the concept of Blue ray
invention Sony has taken up differentiation in the console market by beating the competitors by cost
advantage. The starting price of PS4 was around 400$ and where Microsoft which is one of the strongest
competitor of Sony launched a new console named “XBOX One” with a starting price of 600$. The
results obtained from the market over past two years were quite evident that Sony has taken the
market of consoles by selling more than 25 million units of PS4 and 14.2 million units of Xbox sold (see
Figure 9: Estimated units sold (consoles). The company estimates that its consoles outsell the rival in the
ratio of three to one. As far as concerned with the profit obtained from console during last two years,
business saw operating revenue rise 35.4 percent year-on-year 433 billion yen with operating income hit
up to 54.8 which marks up to 188.3 percent rise in the gaming industry.
Factors that gave rise to the PlayStation Network.
 Invention of the BLUE RAY killed the concept of pirating of discs in the market and enabled to
improve graphics that highly attract people while playing. The revenues generated by the Sony
were now in good stance.
 A 25 percent markup on each Disc sold into the markets gave rise to Sony’s gaming and
networking services.
 Strong PSN network that connects players all over the world to play games online and usage of
Sony servers exclusively.
 Signing contract with famous game networks such as “FIFA 18”and “Uncharted” attracted
customers to enjoy the gaming to its full extent.

B. Cameras
One of the core competencies of Sony being innovative is to be best at making sensors. Sony as leading
technological firm has core competency in the virtue of sensors. According to the analyst, sensors used
in Sony cameras have changed the dynamics of Camera usage, due to this the company has introduced a
concept of “Lighter, Smaller and Cheaper”. Sony sought out the problem by challenging full frame

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DSLR’s. Featuring imaging sensors that are of the same size as on top of the line DSLR cameras, the new
mirrorless system will offer the same image quality at smaller size, lower weight and above all – cost!
This is how they attract customers by “Cost Benefit”.

4.2. Product diversification

A. Cameras
SONY makes interchangeable lens cameras, lenses, compact cameras and lens style cameras as well as
produces CMOS sensors and modules.
I. Sony Interchangeable Lens Cameras
 E-mount 35mm full frame: High Performance mirrorless cameras, with 35 mm full frame image
quality in a light weight body. It includes cameras models α9, α7R III, α7 III, and all α7-series.
 E-mount APS-C: Small and stylish mirrorless cameras, a large APS-C sensor and cutting edge
technology. It includes models α6500, α6300, α6000, α5100, α5000,
 A-mount: Advance features for professional performance, in a DSLR-like body. It includes
models α99 II, α99V, α77 II, α68, α58
II. Lenses

 E-mount lens: To match its compact and mirrorless E-mount cameras, this expanding lineup
offers different full-frame and APS-C option.
 A-mount lens: This lens offers versatility to cameras like alpha77 II, and Alpha99 II.
 α Lenses: these lenses provide opportunity to its α series users to expand their creativity and
vision with a range of lenses for every purpose and occasion.
 Converters and adapters for their lenses.
III. Compact cameras
Sony also produces compact cameras for the market segment of personnel use, specially market region
of Asia and china, this category contains;
 Casual Shooting cameras: These Small, stylish point-and-shoot cameras which deliver great
snapshots and excellent view.
 Big Zoom Cameras: These compact cameras are equipped with 50x optical zoom which brings
object closer to capture.
 Expert capability: These are power cameras delivering professional-quality results in a pocket
friendly package.
IV. CMOS Image Sensors and modules
Sony also produces CMOS image sensors modules for its smartphone and DSLR camera producing
consumers such as Samsung, iPhone and Nikon. It includes models Exmor, Exmor R, Exmor RS and
Modules for Exmor.

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 B. Consoles
For Sony PlayStation 4 the main benefit, especially compared with its competitor is its functionality as a
multimedia center and its state of the art technology, nevertheless Sony has considered that its
consumers are located in different market segments with different demands and wishes. Therefore,
Sony took a keen focus on diversification of its PlayStation in order to attract maximum revenues with it,
its PlayStation 4 has interred in many market segments along with being a gaming consol.
Video game players will surely go for its high tech consoles and a lot of different available games, it’s
also a potential device for movie lovers because it involves DVD drive with HD Blu-ray technology
enables customers to watch their favorite movies HD quality, despite of it consoles can also be used to
view pictures with the help of provided memory card reader, customer can also use the consoles to surf
in the internet and variety of different internet applications or to use it instead of a computer because
its Linux operation system provides similar functionalities.
The Sony PlayStation 4 is console gaming at its finest. It serves up a plethora of game titles, a rich
assortment of accessories and an array of multimedia options that make it a central piece of any home
entertainment setup.

4.3. Vertical Integration and value chain

A. Product design
It is the first stage of the value chain; which Sony keeps in-house.
The company emphasizes on “building high-performance, easy-to-use and beautiful products with a
distinctive Sony flair”
There are numerous benefits of the vertical integration of product design. Evidence suggests there is
strong correlation between the launch of new products and market performance. Consequently, new
designs and products can capture and retain market shares and increase profitability. Thus, by having
ownership over the product design and innovation stage, Sony can maintain complete control in
creating its own competitive advantages to have an edge in the market.
Why doesn't Sony outsource the product design? (Transaction costs)

 Firstly, because, holding the company unique product technology, there could be some
opportunistic behaviors for the contracted company. The latter, in fact, could expropriate that
technology to other companies as well as Sony’s rivals. That why, to protect itself, Sony should
make very complex and costly contracts, which represent a useless transaction cost.
 Moreover, there is a further transaction cost related to the measure of the fee which must be
paid to the contracted company associated with the performance of the designed product
 The labor cost of the vertical integration is lower than this sort of transaction cost.
However, there is a risk and a cost in holding in-house product design.
 The risk is about the flexibility to change plants for an innovative product. Indeed, when all the
skills and capabilities are fixed on products which follow specific trends, one might lose the

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 opportunity to come up with new technology. This means being anticipated from the rivals f.i.
Sony lost the trend of mp3 because it was fully integrated with its portable music devices.
 The cost is related to the administration costs and R&D

B. Manufacturing and assembly

Sony both own these departments but have outsource part of them as well.
Managing this stage of the value chain, linked with logistics, is fundamental to quickly respond to
changes in consumer demand and market trends.
Outsource it means also have a strong relationship with the partner, and this requires further complex
contracts which translate into high transaction costs
Insource these departments have mainly two issues:
i. Labor cost in Japan is very high compared to China
ii. The appreciating Yen make the Sony’s products less competitive
The overall costs increase since the company needs more manager to coordinate all the activities. This
money could have been invested in other stages, such as product design, which is the key success factor
for the industry.

C. Distribution
In its business model, Sony chooses to be vertically integrated in distributing its products all over the
world, thanks also to the "Sony supply chain solution, Inc. “the main benefit to be integrated in this step
of the value chain is that:
a) Control of the process, without the need to rely on third parties;
b) Because of the huge amount of deliveries, the variable transaction costs which can occur in
contracting with external companies would be very high. Otherwise, having Sony reached the
minimum optimal scale, the best strategy is to keep the distribution inside the company
c) The remaining capabilities of its distribution can be used to make further profit offering that
service to other companies too.

D. Marketing
It is another step kept inside the bounds of Sony, contracting only with few third professional agencies
when Sony has to market different products of different type. This strategy is very worthwhile: because
of Sony cannot reach the minimum optimal scale by making advertising campaign in its own, and
because of these marketing campaigns is very expensive, rely on these agencies would be the best to
do.

E. Retailing
Three types of vertical relationship:
i. Franchise agreements: cost saving vs not having control of the quality of operation

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 ii. Direct channel retail stores: interaction with customers to improve future product design vs high
administrative costs
iii. Partnership: reputable retailers could be useful for the wider distribution

5. Conclusion
The reason the console & camera division were analyzed was because it was the main focus in Mr.
Hirai’s turnaround strategy. Losses had plagued the company for years as most of its division were
operating at a loss. Some, divisions such as VAIO computers had to be scrapped. Sony quickly realized
that in some industries, it was really hard to compete. For example, mobile division is not attractable to
Sony which has been a product differentiator. In the smartphone industry there is only one true
differentiator and that is Apple bolstered by its own OS. Android phone manufacturers are all competing
also on cost which is not in line with Sony. Although, Sony still makes smartphones, that is not its focus
of innovation.
Mr. Hirai was quick to realize the big picture. Compete where it genuinely has a competitive advantage
over others. Sony was able to think long-term as one strong example is the full-frame mirrorless
cameras. It never focused on DSLR and continued to bet on mirrorless and today its main competitors
are trying to catch up. Sony has already started developing fifth generation of PlayStation as PS4
approaches its end of the life cycle. Even now consoles are its main source of revenues. With Sony
eyeing on its record operating profits and its stock price ever increasing, Sony has already some plans for
the future.
Sony increased its budget on its semiconductor division which is responsible for manufacturing the
sensors. VR is another key department where it has invested a lot. While these two investments are
guaranteed to give it a lead, some investments remain the center of skepticism. Doubts remain about
how Sony is planning to position itself as a technology company in the new battleground of artificial
intelligence, where Amazon and Google hold an indisputable lead. The good news is Sony can afford to
take some hits in the short-term as console & camera division can make it up for that. However, long
term is a different story. Sony should know better how hard it is to sustain market leadership for long.
Can Sony return to its former glory? Can these profits be sustained in the long term? Only time will
tell.

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6. Summary
 Console and camera division of Sony are analyzed based on high profitability.
 While its main competitors were focusing on DSLR, Sony opted to focus on Mirrorless instead.
 Battery life and lens selection KSF in cameras which Sony is trying to improve.
 Since mirrorless is the future. The competitors are trying to catch up.
 PlayStation is already a market leader but it faces indirect competition from PC
 Nintendo Switch, a blue ocean strategy disrupted the market a bit but Sony still leads it
 Offering to one particular type of customer is not a smart thing. So, Sony uses high degree of
product diversification and market segmentation.
 With threat of substitutes and customer bargaining power being high, there’s a price pressure.
 Historically a differentiator, now also competing on cost. A mixed strategy.
 Culture also plays an important role. Without it, console division would not exist.
 With its resources focused on R&D and Technology, Sony is trying to be innovative again.
 From VRIO analysis, it can be concluded that human capital & miniaturization leads to a
sustained competitive advantage. While its brand has room for exploitations.
 Other core competencies are sensors and storage media (a complementary product).
 While Brand and strong R&D are definitely a strength, cost has always been its Achilles’ heel.
 With consumer electronics market ever growing, it can expand in markets like China & India.
 Products such as Nintendo Switch and full frame mirrorless from competitors pose a threat.
 A business strategy similar to Razor & Blade model for consoles has been effective.
 For cameras, it is to offer superior camera at lower price. Although lack of complementary
products (lens selection) poses a hurdle.
 A highly vertically integrated company in the past. Now, it is less vertically integrated.
 Though, it keeps the product design and other important things in-house
 CEO Mr. Hirai announced long-term profit strategy focusing on camera & console division
 It is expected to record highest profit in 20 years. Shows strategy is working.
 It overtook Nikon to be #2 in full-frame interchangeable lens camera sales in US
 Shares are also steadily increasing with 30% increase coming just in last year.
 Other focus includes VR and AI. Although the latter has garnered lots of skepticism.
 The ultimate goal is to sustain the profits in long-term. Investment has increased a lot.

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7. References
(2018, April 17). Retrieved from Canon news: https://www.canonnews.com/Rumors/new-rumors-two-
mirrorless-full-frame-cameras-under-development
Coldfusion. (2015, October 29). The Story of the Sony Playstation. Retrieved from Youtube:
https://www.youtube.com/watch?v=Y0kpYoGJE0k
Coldfusion. (2017, February 21). What's Happening to Sony? (The Rise and Stagnation of Sony).
Retrieved from Youtube: https://www.youtube.com/watch?v=eSHgFkYEb2o
Grant, R. M. (2016). A contemporary strategic analysis. Wiley.
Inagaki, K. (2018, February 6). Sony reaches profit milestone but cautions over comeback. Retrieved from
Financial Times: https://www.ft.com/content/2ee3aad6-0aff-11e8-839d-41ca06376bf2
Mochizuki, T. (2017, October 31). Sony Anticipates Highest Fiscal-Year Operating Profit in Its History.
Retrieved from Wall Street Journal: https://www.wsj.com/articles/sony-profit-tops-
expectations-1509433263
PlayStation. (n.d.). Retrieved from Wikipedia: https://en.wikipedia.org/wiki/PlayStation
Porter, M. E. (1996). What is strategy? Cambridge, USA: Harvard Business Review.
Sony. (n.d.). Retrieved from Wikipedia: https://en.wikipedia.org/wiki/Sony
Sony Interactive Entertainment. (n.d.). Retrieved from Wikipedia:
https://en.wikipedia.org/wiki/Sony_Interactive_Entertainment
Sony's total revenue from 2007 to 2017. (n.d.). Retrieved from Statista:
https://www.statista.com/statistics/279269/total-revenue-of-sony-since-2008/

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8. Appendix
Figure 1: Console market share

Figure 2:Console revenue forecast

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 Figure 3: Market Positioning

100
80
SPECS (UTILITY)

60
40
20
0
0 500 1000 1500 2000 2500 3000 3500
PRICE IN $

Nikon Canon Sony

Figure 4: Console sales

Sony Playstation 4 Nintendo Switch XBox One Nintendo 3DS

Sony Playstation Vita Sony Playstation 3 Nintendo Wii U Xbox360
Sony PSP Nintendo Wii Nintendo DS

Unit sales in millions

0 10 20 30 40 50 60 70 80 90 100
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008

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 Figure 5: Revenue by segment

Figure 6: Personnel by Business segment

Figure 7: Revenue and R&D

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 Figure 8: Semiconductor segment

Figure 9: Estimated units sold (consoles)

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