A Five Forces Analysis of SONY Corporation
Sony is a Tokyo, Japan based Conglomerate. Its diversified business portfolio consists of a large variety of products and services including electronics, gaming, entertainment products and financial services. Apart from being the fifth largest manufacturer of television as of 2016, the brand is also a leader in electronics industry. Till some years ago it was also a maker of another market leading product that is VAIO laptops. However, its PC division ran into losses for years and the result was that SONY was forced to discontinue its laptops business. Apart from having a great brand image the innovative technology of SONY is also a reason that the brand is still so popular in the market. It is a celebrity brand in several areas that include gaming consoles, video camcorders and professional and medical equipment. SONY’s smart phone business was also not running very profitably due to which it was forced to cut down on smart phone production. It employs more than 128,000 people globally. This is a Porter’s five forces Analysis of SONY analysing how these five forces affect its competitiveness and profitability. These five forces are a part of very business and industry and affect its competitiveness.
Bargaining power of suppliers:
The bargaining power of SONY’s suppliers is low to moderate which is because of the high financial clout that SONY has. The brand holds a high level of control over its suppliers. The suppliers, while smaller in size and being scattered globally hold little control and exercise only low to moderate bargaining power. It is easy for SONY to switch suppliers but on the contrary for the suppliers it can mean a major loss. Some of the suppliers due to their size have some higher clout. Still, they are subject to the same rules and regulations. SONY has framed some rules that the suppliers must adhere to in order to ensure an accountable and transparent supply chain. In this way, the overall bargaining power of the suppliers is low to moderate.
Bargaining power of buyers:
The bargaining power of buyers in the 21st century has increased. While the direct competitors of SONY may be few, still there is heavy competition in the market. Moreover, SONY products are mostly priced higher than the competitors. While the quality of its products can be comparatively better, still the competitors too are focused on innovation and the challenge is growing bigger for SONY. In such a case, the fight for every individual customer has grown intense. Every customer is important and he is armed with enough information in the digital era. He is free to make his choices and there are hardly any switching costs to act as a barrier. Another factor that has led to increase in the bargaining power of the buyers is the availability of shopping choices.
Most buyers now shop online and use smart phones for shopping. Every user wants a personalized shopping experience. The advent of social media and IT, have all taken the war to the next level increasing the buyer’s power many fold. So the overall bargaining power of the buyers gets to be moderate. There are some moderating factors too which control the customers’ bargaining power like the brand image, innovative technology, level of trust and popularity which moderate the bargaining power of the customers.
Threat of substitutes:
The number of substitutes of SONY’s products is limited. However, since the switching costs are low, this leads to increase in the level of threat from the substitutes. There are also factors that limit the threat from the substitutes. These factors are the brand image of SONY, the quality of its products as well as the low level of differentiation. Some of the products from SONY like its Play Station moderate the threat from substitutes through their popularity and utility. The overall threat from the substitutes in this way remains moderate.
Threat of new entrants:
The threat of new entrants for SONY is low. The electronics industry and gaming industry, all are capital intensive. To grow into a competitive brand is not easy and any brand would need to make a large investment in operations infrastructure, technology and hiring skilled workers. Overall, to establish an electronics brand is a costly affair. The growing legal barriers also make it a difficult venture to pursue. Moreover, due to the high level of competitive threat from the existing players, any new entrant would have to spend a significantly large sum on marketing and will have to bring a product with distinctly good quality to the market to compete with a brand like SONY.
Competitive Rivalry between the existing players:
The level of competitive rivalry between the existing players is very high in the electronics industry. The number of competing companies may be limited but then because of low switching costs, the risk of losing a customer to a competitor is very high. The result is that the firms invest aggressively in marketing and innovation. There are several other factors too that intensify the competitive rivalry between the existing brands. Brands invest in quality as well as in building loyalty.
This was a five forces analysis of SONY that shows that the electronics industry is marked by a very high level of competition. The major factors which work in the favor of SONY are its image, its financial clout and its focus on quality and innovation. Its control over the suppliers allows it to demand lower prices and higher quality from them. These are some of the most critical strengths which have helped it survive the competition and become a market leader. Overall, this analysis shows that SONY is a part of a highly competitive market, with aggressive rivalry between the existing players and based on its brand equity does not feel threatened by new players.