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Sony Shortcomings: Dear Howard, What about the Customers?

listenAsk a politician and they’ll tell you, consistency in policy and staying on point is essential. Stick to the Message.  If you flip flop from pro to con, then con to pro, credibility will disappear.  Without credibility, there’s little trust.  Without trust there’s won’t be a favorable vote.    In retail, similar maxims apply.  There’s the famous “the customer is always right.” There’s also the old “K.I.S.S.” principle: “keep it simple.”  You can confuse your customer with too many changes, or too many choices.  That’s bad marketing.  Better practice is to offer them value, offer them what they ask for; what they want or need.  Do that and they’ll probably purchase your product.  Don’t and the sale is going to be difficult to close.   

Lately, it seems more and more like Sony (especially the gaming division) has gotten off point, or keeps forgetting the message.  Since launching the PS3 gaming platform in November 2006, they’ve made multiple marketing mistakes and repeatedly juggled their lineup and pricing models to adjust.  I can recall at least three changes in the console’s first year on the market.  Now they’re at it again.

Sony announced they’ll discontinue both the 20GB and 60GB models of the PS3 in Japan.  Instead, they plan to offer only the 40GB model. This incarnation, also lacks the backward compatibility of other models to play prior generation PS2 and PS One titles.

I’m a fan of many Sony products.  Technologically, they’re often innovators.  I’m also a fan of Sony’s chief, Howard Stringer (based on what I’ve seen and heard).  He’s got a folksy, down to earth, frank speaking manner.   Seeing the repeated snafus, I want to write him and ask “Dear Howard, What are your people thinking?”

When the PS3 launched, Sony originally offered it in two model configurations.  They were differentiated by hard drive capacity (60gb vs. 20gb), wireless support and price.   At the time, Sony was concerned about losses (it was more costly to manufacture the Blu Ray equipped console than they could sell it for).  The pricing was a hedge.  Strategic planners seemed to think multiple retail price points would help them protect margins (minimize loss exposure) and also create an opportunity to reach different segments of the market.  As it was, the console was already the most expensive on the market so there was cause for concern. 

Unfortunately, the planners were wrong.  The $100 price difference wasn’t significant enough to influence buyers purchase decision or draw them to the register. Instead, the choice created confusion over which configuration was a better value.  By April, Sony confirmed that 60gb PS3 was outselling its little sibling by a factor of 10:1 in the U.S.  Sony discontinued the 20gb PS3.

That first mistake could have been excused and corrected.  Instead, Sony’s marketers have compounded it.  In July, with Microsoft embroiled in an Xbox product warranty quagmire, rumors circulated Sony would cut the prices on the PS3 to capitalize.  Sony denied it.  “Absolutely not”, was the official word. A week later, no became yes.  They cut the prices.  Sony also revealed, despite problems segmenting the market before, that they’d try again with a second model (this time with an 80GB drive and one-hundred dollars of added expense, rather than less).

The price cut turned out not to be the whole story.  It soon became clear  that Sony was actually going to phase out the 60gb model they were lowering the price on.  Instead of being a true price reduction, the lowered price was actually an inventory reduction gimmick to help them shift their product line.   That was deceptive.

In September and October, Sony Gaming chalked up more missteps. First, they delayed the launch of their PS3 Virtual Community project (called PS3 "Home") until 2008. Next, product pricing rumors circulated.  Finally, a 40gb console was revealed with a new price. The change prompted one commentator to write an article on the Motley Fool website titled: “Will the PS3 Soon be Free?”

Now they’re tinkering again?  Even if these changes remain isolated to the Japanese market it raises the caution flag.

It’s been like a comedy of errors. One misstep has followed another.  Each time a mistake has been made, instead of correcting it, Sony’s faltered.  Then they’ve repeated the mistakes. That’s mismanagement.  For all the technological brilliance of the PS3 (their work with the Stanford Folding at Home project is amazing), the gaming division is not looking healthy. Seven consecutive losing quarters is not good.

Dear Howard,
I can’t begin to imagine how difficult it must be to run a company as large, global and storied as Sony.  As if the geographical distribution of the company isn’t enough, I’m sure you have to fight the egos and stubborn ways that come with such an entrenched, established business. People fear change. They like their autonomy.  Different organizations probably think of themselves as individual businesses rather than parts of a whole.  I think I heard you call the old Sony “Silo’s” once before.  I know you’re trying to change that. I know getting the business units to work together doesn’t happen overnight.   It’s plain to see you’ve got your work cut out for you.   I commend you for the effort so far, I do, but please…do more.  Schedule some focus groups. Get the product managers and marketers and customers together in a room. Teach them to listen. 

It’s easy to arm-chair quarterback.  The difficulties of managing Sony are surely large.  But that shouldn’t excuse common sense from slipping through the organizational cracks.     Many things have gone wrong.  Mistakes happen. But some simply shouldn’t have. 

Given games sell consoles, it’s difficult to grasp why there wasn’t more focus on securing flagship games earlier in the development cycle.   In October, almost a year after being on the market Sony finally lowered the costs for the Software Development Kit necessary to build games.  Why weren’t there more incentives to game developers before the console even launched?  The console went to market to meet last year’s holiday shopping season without the “air support” of blockbuster games.   Why? Microsoft has Halo, Nintendo Super Mario Galaxy.  Sony has not had a standalone, “must-have” title exclusive to their platform. That’s costing them. 

Another question: why so many changes to the product line and pricing?  How come management can’t get the pipeline in order?

It’s not just the gaming division that deserves to be under fire.  Given their past successes and their current shortcomings, they just happen to be the easiest target.  Trouble is, in other divisions too, Sony’s suffering from similar customer-disconnection. 

In 2005, there was the “Root Kit” fiasco.  Then, the music group added copy protection software to music CDs.  When a customer played the disc on their computer, this software automatically installed itself on the Windows desktop.  Installed without customer consent, the software was largely considered Spyware.  That’s bad. Worse, the software interfered with how Windows plays CDs and adjusted Windows so you wouldn’t know the Sony application was there.  It even opened security holes that exposed customers to viruses and malicious code.  Sony recalled all of the effected CD’s but not without putting themselves in the crosshairs of a PR nightmare.

The Sony Connect music store is another example.  It was built around the proprietary ATRAC music compression standard which put restrictions on how a customer could listen to the music.  Instead of offering consumer choice, it limited it.  The store failed.

Just two weeks ago, Sony announced they’d drop their rear-projection TV business after misjudging consumer demand. (In October, they lowered sales projections from 700k units to 400k).  

This week, their DRM-Free offering is in the spotlight.  Billed as a breakthrough, closer inspection suggest far from it.  The strings attached to Sony’s initial experiment with selling DRM-Free music appear long enough to hang themselves with.  Platinum Music Pass is a service that addresses needs of retailers but makes little sense for consumers.

It seems to be the same problems:  Sony is consistently either misjudging or neglecting what their potential customers want.  They’re not listening.

Dear Howard,
How do we get Sony to listen?  Your flexible screen technology and upcoming OLED products look so promising.  I’d hate to see them fall to the same traps as the PS3 and other divisions.    You’ve acknowledged the company has been late before and won’t be late again.  That’s great, but there’s more to it.  You could have had a big presence in MP3 market.  You could have pre-empted the iPod. Being late wasn’t the reason you failed.   It was the fact that nobody listened to the customers.  The products didn’t serve the market.  The Root Kit fiasco, ATRAC and the failed Sony Connect store, Betamax, Memory Stick….there’s a pattern long predating your arrival.    Will someone finally listen?

For all Sony’ strengths – and developing great technology is unequivocally one of them – there are a too many signs the global electronics giant has lost touch with their customers. 

Sony’s financial goals call for 5% operating margins. They may hit the number.  But their goals should also include serving their potential customers better.  Who knows, maybe then they’d even be able to aim for 7%.  As an investment, the company may do well regardless but if your investment philosophy weights management effectiveness as much as products, there’s cause for some hearty due diligence.

Dear Howard, is anybody listening?


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