Sony: Betting It All on Blu-Ray
Synopsis
This case was written on the eve of the introduction of two high definition DVD formats, Sony’s Blu-Ray and the competing HD DVD. A historic parallel is given to the competition between Sony’s Beta and VHS videotape formats of the 1970s and 1980s. This time around, however, there are many factors that are different. First, Blu-Ray was developed and is being supported not only by Sony, but by a strong coalition of companies. HD DVD is backed by a similar coalition. However, Sony and Toshiba appear to be the dominant players in each camp.
Similar to the battle for VCR formats, this battle finds both sides vying for superiority on image quality, disc capacity, price, and availability of content. But there are factors that may make these issues not nearly as important as they were three decades ago. First, both technologies are evolving very rapidly. Thus, the technology that initially has the advantage on any given factor could quickly find the tables turned. Second, since the early 1990s, the video-game industry has demonstrated that three competing formats can exist with each one succeeding. Third, given that both formats utilize the same size disc (unlike Beta and VHS), it may result that hardware technology will rapidly evolve to create players capable of playing both Blu-Ray and HD DVD. And fourth, many industry insiders predict that the wave of the future will be non-physical media, including online video and video-on-demand television. This may result in both formats failing as consumers bypass the concept of a disc altogether.
Discussion Questions
- Classify the high definition DVD market using the product life-cycle framework. Based on this analysis, what objectives and strategies should Sony and the other competitors pursue? Are any of the competitors deviating from this formula?
The answer to this question will depend on the evolution of high definition DVD and when this case is analyzed. At the time this case was written, the technologies were just being introduced to the market. Likely, as Principles of Marketing 12e is released, high definition DVD will still be in the introductory stage of the product life cycle. But this could change quickly over the course of 2007 and 2008. Nonetheless, this case could still be analyzed as per the written case.
The introductory phase is characterized by a period of slow sales growth and low to non-existent profits. This should be considered, not in terms of how many units have been sold to date, but in the perspective of the potential of the product category. In other words, it may appear that both formats are selling a high number of units. But relative to the potential size of the market, when is rapid growth really taking place? Given an introductory stage, the companies involved should be doing the following:
Promotion: Each should be spending heavily on promotion and advertising. Promotion should be focused on informing consumers of the new product, rather than seeking to create brand preference through differentiation. In this case, it appears as though both formats are touting points of difference from the get-go, trying to jockey for early advantage in what should be a highly competitive market. The text (Table 9.2) indicates that sales promotion should used liberally to entice trial. However, this is a durable product, not a consumable. Thus, consumer sales promotions are not necessarily appropriate. It does not appear that either camp is using consumer sales promotions and introduction. Of course, if sales are sluggish, that would very likely change.
Distribution: In the introductory phase, companies should invest heavily in building distribution networks. It appears that this is the case for both formats. This situation is unique, given that each side is backed by a coalition of corporations that span the supply chain, even including entertainment content companies. Thus, there is a heavy emphasis on getting the players distributed as well as having a strong distribution of content that will be playable on the players.
Price: As far as pricing goes, both a skimming and a penetration strategy are appropriate. From the information in the case, Pioneer introduced the first Blu-Ray machine using a skimming strategy and a price of $1,800. While Toshiba’s entry price of $499 to $799 is much lower, it could hardly be considered a penetration strategy given that it is relatively much higher than standard DVD players. But it is clear that Toshiba is committed to accelerating product adoption through its pricing strategy despite possibly selling it at a loss.
Product: In the introductory stage, the product is generally basic with few versions or options. Based on the information in the case, this is true. Toshiba, the first to market, has two models while Pioneer has only one.
- As sales of the new DVD players increase, what will happen to the characteristics of the home video market and the strategies employed by Sony and other competitors?
The answers to this are contained in Table 9.2. Students should use this table and the accompanying text as they respond to this question. They should be encouraged to study and learn this material. Instructors should also be certain to point out the pattern in strategy as a product progresses from one stage of the product life cycle to the next. For example, sales go from low to high to highest, then decline. In parallel, profits, competitors, and customers also follow this pattern. Accordingly, the strategies for each of the four Ps progress appropriately.
A main factor that could alter the normal progression through the product life cycle is if (as predicted by one observer at the end of the case) the high definition formats go into decline before ever really getting off the ground.
- Analyze the development of Blu-Ray and HD DVD according to the stages of new-product development process.
While this is a very relevant question for an emerging technology, the case does not present sufficient information to be able to identify activities carried out at each stage of the new-product development process. Some suggestions are given for some of the stages here:
Idea generation: Unlike many new products where the concept simply didn’t exist, the concept of high definition DVD was almost prescribed. The basic idea is backed by years in the high-tech industry where successive generations of a given product focus on boosting data storage or data processing power. Thus, as the first standard DVD players were hitting the market in the mid 1990s, the concept of high definition DVD was already being developed. The advent of high definition televisions further begged for better content quality and players. Students might speculate that idea generation for these products was relatively simple: players and discs would remain basically the same in terms of size, usability, and function. The differences would be in the invisible technologies contained therein, many of which could not be developed until later stages.
Marketing Strategy Development:
- Product positioning and target market—the product is positioned as a technology product capable of delivering home video and audio far superior to that of existing technologies. The positioning includes exclusivity and quality based on price. The initial target market would be the classic innovator—well-educated, venturesome, risk-taking individuals who crave the latest in high-tech and home cinema offerings.
- Planned price—the introductory pricing strategies for each camp are made very clear in the case. Pioneer’s and Blu-Ray’s strategy is best illustrated in this quote: “Consumers interested in buying technology that gives them the best display or audio quality won’t balk at the price. This is why our player is $1,800. We focused on getting 1080P, because that is something we knew would resonate with the initial target market, whereas the $499 strategy is probably going off in the wrong direction, because the folks who are really paying attention to this right now want the highest resolution.” The HD DVD and Toshiba philosophy focuses on accelerating product adoption through lower pricing.
- Long-run sales, profit, and marketing mix strategy—the case does not give sufficient information to outline this portion of the marketing strategy for either format.
Business Analysis: This is the phase where companies involved should have been reviewing sales, costs, and profit projections for the new products to determine feasibility. What was the history of DVD sales? If the market makes the shift completely to high definition, what is the potential, therefore, of the market? The case states that the home video market is worth more than $24 billion. What isn’t clear is whether that refers only to hardware players or includes the entertainment content on DVD. But companies during this phase should have examined historical figures for both products, as well as sales and trends of HDTVs.
Product Development: This is the phase where each camp and the companies therein needed to determine the specifications of the products, including storage capacity, image quality, and content availability.
- Who are the current combatants in the battle for the home video market? Who will they be in five years?
This is an interesting question because the two competing formats are represented by numerous companies. Thus, Blu-Ray is backed by a coalition of companies that includes Sony, Hitachi, Pioneer, Philips, Panasonic, Samsung, LG, Sharp, Apple, HP, and a host of other companies. HD DVD is supported by a similar coalition including Toshiba, Sanyo, Kenwood, Intel, and NEC, among others. Thus, all these companies are combatants with a vested interested in the home video market.
However, notice that the question asks about home video and not high definition DVD players and discs. The point of this question is to force students to consider the alternatives pointed out in the case. Home video is a broad market being fought over by Blu-Ray, HD DVD, and other physical formats. But it is also being fought over by online options and video-on-demand television. Thus, the cable companies are combatants. Additionally, many of the same companies who are part of either the Blu-Ray Disc Association or the HD DVD coalition are also competing either directly or indirectly with their own physical formats. For example, Apple backs Blu-Ray, but has been one of the strongest companies in developing technologies to download movie content over the Internet and store it locally on hard-drive devices. Microsoft backs HD DVD, but is also has its hand in various ventures leading down the path of online video.
Thus, the question of who the combatants will be in five years is purely speculative, but fun and challenging for students to consider.