Print

Mail

wiki links

Sony attempting to avoid price cuts

Brand image * Sony is targeting customers who are willing to pay a premium for a "superior brand." * Matsushita has opted for a low-price strategy, hoping for high-volume sales to boost profits. * Price cuts can lead to price wars, hurting companies but benefiting consumers.

Since April, a dozen Sony Corp marketing executives have crisscrossed Japan almost every day to meet managers at Laox Co and other big retailers. Their mission: To determine how long Sony's Vaio personal computers and other electronic gadgets stay on store shelves.

Knowing consumers' likes and dislikes -- information once gathered only sporadically -- helps Sony avoid price cuts that would tarnish the company's image, said Fujio Sugano, president of Sony's manufacturing unit. Sony says it will help preserve profit margins five times higher than its biggest rival, Matsushita Electric Industrial Co.

As Japan struggles through its third recession in a decade, Matsushita is expanding market share by cutting prices. Though Sony cut the price of its PlayStation 2 in May overseas and in Europe last week, it's holding the line at other cuts.

"A segment of customers are willing to pay a premium for Sony's products," said Fumiyasu Sato, who helps manage 150 billion yen (US$1.3 billion) at CDC IXIS Asset Management Japan Co. "Sony targets such customers and its strategy to sell a premium brand is proving to be effective."

At 7.6 percent, Sony's profit margins top Matsushita's 1.6 percent by far. Operating profit at Sony's electronics business rose 33-fold in the three months ended June 30 to 49.1 billion yen.

Yet Sony's stock price dropped by more than a quarter in the past five months, compared with a 22 percent decline for Matsushita. Some investors are starting to wonder how long Sony can resist the lure of lower prices.

"Sony may have to review its strategy of offering products with premium prices," said Nobuaki Murayama, who manages 60 billion yen at Cigna International Investment Advisors KK. "Matsushita's strategy to offer products at more affordable prices works well when an economy is in bad shape."

Matsushita jettisoned its longstanding aversion to price cuts late last year, when it began offering everything from vacuum cleaners to DVD players for less than rivals.

In March, Matsushita priced its new DVD recorder at 93,000 yen, the lowest in Japan at the time. Sales rose eightfold between April and June. The company posted an operating profit of 14.6 billion yen, compared with a 38.7 billion yen loss.

There are pitfalls. Though lower prices expand market share, they can spark a price war both within Japan and overseas.

Matsushita executives need look no further than Aiwa Co to see the dangers of relying on price. Aiwa, of which Sony will gain full control in October, lost money for three years because of rivals from China and Taiwan that make televisions and stereos for less.

"Consumer-electronics makers have no choice but to choose a side -- to be Sony or a super-low-priced product supplier," said Sato from CDC IXIS Asset Management. "Matsushita's position is difficult because it is at a halfway point between the two."

The company says it remains undeterred. "We want our DVD recorders to be widely used," said Shunzo Ushimaru, director of marketing for the Panasonic brand, whose worldwide sales rose 8 percent in the quarter. "We want to be the market leader."
This story has been viewed 2394 times.