Sony Corporation :

The Walkman Line

GAURAV NAIR – B19017

NIKHIL JINDAL – B19030
RONIT RAY – B19040
SAHIL GUPTA – B19041
Executive Summary:
Sony corporation is one of the largest electronics companies in the world. It began with
the tape recorded and since has ventured and created a strong hold for itself among
various consumer and industrial electronic products. One such breakthrough for Sony was
the Walkman. It was a new category created by Sony and it enjoyed almost half of the
market share over its lifetime.
We have assessed the pricing strategies, new product development methodologies,
target as well as product costing system at Sony. We recommend that Sony should
continue with the dynamic regional pricing strategies it is currently following so as to not
lose market share due a global pricing decision not in line with the economics of a country.
For new product development, we recommend to only enter mass production after
consumer surveys, technical, economic and legal feasibility analysis of the product.
With regards to the target and product costing, we do not recommend any changes for
the product costing system currently being followed by Sony as we believe it is the best
in the industry and is the most accurate one available and deviation from the same would
be a downgrade. For target costing we recommend also considering consumer’s
willingness to pay to estimate the expected sales price and then deduct a group margin
percentage to arrive at a target cost.

Problem Statement:
Sony was founded in 1945 in Tokyo, Japan and was incorporated in 1946. It is now one of
the largest electronics companies in the world. It started by manufacturing tape recorded
and rose to popularity with its radio transistors. In the 1970s Sony ventured into several
electronic products for mass markets both in Japan and worldwide. They launched the
first revolutionary Walkman in July 1979. After its launch in the coming 15 years the total
number of Walkman sold were 250 million units out of which Sony alone accounted for
120 million units.
The target market in Japan was focused on urban commuters and in the US market was
focused on in home use. There was very less competition in the domestic market but
relatively higher competition in the US and Europe. Sony prices its products competitively
in the US markets but the price/demand curve did not follow the usual shape as per
classical economics. Hence, it was priced at a premium.
Sony’s overall strategy was to be a technology leader and not a price leader. They
aggressively tried to make their own products obsolete by bringing out new models on a
regular basis. Sony competed only in markets where products hadn’t reached
technological maturity yet.
Sony followed a target costing system to determine the total allowable cost of a product
before it was designed and ascertain group margins. Once the annual group profit target
was set, the group was responsible for its own profitability.
Sony’s product costing method was a traditional one but very precise and accurate. It
distributed the costs into direct and indirect costs. Direct costs were those which were
directly attributable to a product and were also allocated to the same product on the
same basis. Whereas Indirect costs were those which could not be directly identified and
were further divided into 2 parts. The first was allocated to the products expected to be
manufactured and the other was allocated to all products on the basis of a percentage of
a material cost.
Sony had 70% of the ‘mind share’ of the consumers but only 45% actual market share,
hence the difference was seen as a loss of opportunity. Thus, we have to figure out a
strategy to capture this share and capitalize on our brand value.

Alternatives Available:
On the basis of the current business scenario of Sony and the problems identified we have
to select among the various areas where we want to assess the various alternatives
available. The alternatives available with Sony for the various areas of operation and
improvement are:
• Pricing Strategy: Since the economic market scenario is completely different in
Japan as compared to the rest of the world especially US and Europe. They focus
on $9.99 price point in the US, whereas the 15000 – 20000 yen price point is what
sells in Japan
• Product Development: Since Sony has the aim of being a technology leader and
not a price leader, they have to continue to innovate to stay ahead of the
competition. They must also keep a check to develop only those products which
are feasible and help Sony achieve their target group profits.
• Target Costing: Sony currently uses the past prices of their similar products to set
the estimated prices of new launches. They reduce an expected margin percentage
 from this expected selling price and come to a target cost for a product which they
wish to achieve. Instead of this approach, Sony could focus on the actual minimum
cost required to manufacture a product and compare it with the expected selling
price based on the features and willingness to pay of the customers in that market.
• Product Costing: The current costing method used by Sony is very extensive. It
directly records all costs associated with a product to the very minute detail and
allocated the common expenses even on the most specific basis. This appears to
be the best in the industry based on the extensiveness of the system but it could
have higher costs associated with it.

Evaluation Criteria:
From our analysis of the various operating divisions of the, the evaluation criteria differs
for different areas where we are considering an improvement. Hence some of the
evaluation criteria are as follows:
• Pricing Strategy:
1. Maximize Profit margins
2. Does NOT affect market share
3. Ensure maximum penetration according to area (Regional pricing)
4. In line with consumer’s willingness to pay
• Product Development:
1. Ensure regular innovation
2. Large scale development only after feasibility analysis
3. Accuracy of costing estimates
• Target Costing:
1. Accuracy of Targets
2. Accuracy of margin estimates
3. The degree of variances from targets
• Product Costing:
1. Optimum allocation of costs
2. Fair distribution of indirect costs
3. Cost and Time considerations
Most Probable Solution:
After an in-depth analysis of the situation and the relevant market conditions prevailing
at the time, we have evaluated the alternatives available to Sony on the basis of our
evaluation criteria and which would benefit Sony the most in this scenario. Hence, we
recommend that:
• Pricing Strategy: We recommend continuing pricing regionally on the basis of
economic conditions existing at the region. We do not recommend changing to a
global pricing strategy as it could result in losing market share.
• Product Development: Sony should continue developing new products rapidly to
retain its title as a technology leader and not settle to become a price leader and
in this technological age, Sony must stay two steps ahead of their competition or
they stand to instantly lose their market leader spot. Sony must ascertain the
technical, legal, economic feasibility of the product before going into mass
production.
• Target Costing: We recommend that Sony should conduct a market survey and
launch its products in test markets first, by this method they would better be able
to ascertain the consumer’s willingness to pay and price its products accordingly.
Unlike the current method of not considering consumer surveys, they must
incorporate it in their target costing strategy.
• Product Costing: We do not recommend any changes in the product costing
system followed by Sony. It is very accurate and is working correctly. They level of
detail and depth is the best in the industry and we do not want Sony to
compromise on that. For example, where possible, these estimates were based
on the actual process technology that would be used for the new product. So if
rubber feet were to be screwed on instead of glued on, then the time taken to
screw on the feet would be computed and considered for costing.