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The analyze of SonyEricsson position on the market

Last year wasn't beneficial for SonyErisson though all its management thought it would. The leaders of the company periodically announced that one more effort and the company would become gainful, the mentioned dates were coming, but nothing was happening. Meanwhile, the facts showed the contrary situation, the share of the market was rapidly reduced and in the 2. quarter of this year it was only 5.4%. The consolidated company was strongly criticized by Ericsson, which together with Sony, financed the joint enterprise. Ericsson leaders threatened not to allocate 500 million dollars till the end of the year, which they promised to invest in SonyEricsson. Aase Lindskog admitted: "We are not going to repeat the mistake. We won't invest additional funds in the enterprise if it wasn't bring results." Such blunt publish statements were only the echo of strong debates that were in Ericsson. Let's view it from the very beginning.

What were those reasons which forced Ericsson to create a joint enterprise with the other company? At that time a mobile phone business in Europe was not in advantageous position, sales were decreased, it was a stagnation and a crisis of overproduction. There were no any phones in the line that would have been more preferable than the rival models. The advantages that Ericsson would like to gain from this integration are the following: better production distribution, reducing of production costs, the support and may be new design ideas. Another factors were not so significant, though they also were taken into account. The integration process began, companies commenced to elaborate new procedures, unite different subdivisions. Not much time was wasted for it but it was.

Meanwhile, the activity on the European market was increasing. Quite unexpectedly Ericsson T68 became a hit model before the Christmas, it was soled very quickly. Ericsson wasn't ready to such events and all the stocks were unloaded. Differed demand was created because it was impossible to satisfy all the needs. Ericsson improved its procurement activities owning to T68, and then T68i, produced under joint trade mark. Sony production was sold worse and worse, rather large sums were spent to serve the phones, because the rejection rate was too high. All these things caused discontent in Ericsson. Integrating, they presumed that the situation in the new company would've been better then just Ericsson had.

In reality all was not so optimistic, design of the new models under SonyEricsson trade mark was typically Japanese and the part of the loyal consumers was scared. The company had to cut down elaborations from Sony, though the time was wasted. The most promising phone - Z700 had too many errors of software and it was canceled.

At the same time the classical line from Ericsson was curtailed and the remaining models were stopped producing. For example, Ericsson T39. The life cycle of this popular model was too short, though the company could've sold it for a long time. The refusal of its production was a political decision, which was made to promote new products from SonyEricsson.

But a series of misfortune continued. SonyEricsson was incapable to put quickly a new phones line in a mass production, it was a paradox, old models were virtually disappeared from the market, but new ones weren't launched yet.

We can see a misbalance in the sale structure of SonyEricsson. T68i and the cheapest models had the best sales, while the handsets of the middle class were the outsiders. But the vast majority of manufacturers cash in namely on this price group, not only because of the margin but also because of sales volume. It was necessary to save the situation, again the company decided to produce new models, elaborated by the third companies. The advantages are obvious: reducing of production costs, lighten the plants, the disadvantages are incompatibility with old accessories, problems with component parts. But the third companies couldn't offer the products of the middle class, only either entry-level or fashion phones.

Ericsson had an experience of working with ODM suppliers, Ericsson A3618s and Ericsson R600 are such elaborations for instance. If the sales of the first model were quite good, the situation with the second one was not excellent. The phone was announced long before it was launched, the deadline was constantly postponed because the supplier couldn't provide the necessary volumes of commodities, as a result the model was launched half a year later. Almost at the same time a new phone - SonyEricsson T200, which had the same features as R600, appeared. So, practically, two similar models of the one class were launched. The company should've had to refuse from the one of the models but it didn't do it for some reason. As a result the company quoted artificial prices for these models, T200 was positioned as the more expensive phone. It won't be any problems here, if the company produced only these two models and the fashion phones. But after T200 the next handset (SonyEricsson T300) must have been launched. It was anticipated that T300 would've become a hit model in the middle class. This phone has a platform of T68, colour screen and rather good capabilities. Firstly, it was planned that T300 would've cost 300$ and then the price would've gone down to 250. Such pricing policy would've allowed T300 to become really a leader in its market segment, since Nokia 3510i was expected only in several months and its price must've been higher.

Now it's time to remember T200 and the fact of its price difference with R600. It turned out that T200 got in price gap. On the one hand, it cost half as much as R600 and has the same features, on the other hand, more advanced T300 costs only 50$ more. Such situation made T200 senseless. The prices were jumbled. The price of T300 was increased, R600, which has already been supplied to some countries cost about 200$. This price was chosen to cut it to 120-130$ afterwards and to represent T200 as the substitution in the class of 200$. One wrong decision and the company crushed the middle segment itself. Now, at least within half a year it couldn't improve the situation. The attempt to announce a new model might cause the sales decreasing of T300, the attention of consumers would be diverted between several models.

Thus, SonyEricsson has offers in the top (T68) and low price segments, also it has the artificial middle segment, which couldn't be successful from the beginning. To fill up a formed gap the company made a genius decisions - to produce a very cheap handset, which could be profitable because of the sales volumes and which perfectly join the line. It is logical that it should be an ODM product, otherwise, the company would be pressed for productive capacity, but it even can't cope with the current volumes. A margin will be minimal, but the warranty service probably will be rather expensive, if to proceed on the assumption that the rejection rate won't be very high. Unfortunately, while producing ODM products this rate can't be controlled and degree of risk is increasing. If to take into account that the most of expenses will incur the manufacturer, anyway, the remaining costs (the work of service centers, transportation expenses and others) won't be compensated. So the company runs risks on purpose because of narrow circumstances.

It won't be complete information if we don't tell that soon T68i will sink in price, firstly, because competing products from Nokia will be launched and secondly, because the demand in this price group has been already satisfied. The average price of T68i will be a limit price of T300. Hence, another handset might be appeared in the top pricing group, let's name it, for example, T800. It should be an elaboration from SonyEricsson, the main peculiarities might be 16-tones polyphony and a display, which can show up to 65000 colours. A fashion phone from the third manufacturer will be put in simultaneously, it will substitute SonyEricsson T600. All these events will take place in the 1. quarter of the next year, the products will be announced within 2-3 months.

In the end we would like to say some words about SonyEricsson P800. The date of launching of this smartphone was permanently postponed, though it was obvious from the beginning that it can't be launched until December. Manufacturers would like to make a competitive product to Nokia 7650, they should decide whether to produce a raw product or no to fulfill the plan. Some managers announced that P800 would launch soon, but later they forgot their words. The most interesting is that December 2002 is the primordial date of launching. Then the company postponed it to the 3. quarter and afterwards to the 4. quarter again. Many analysts tell that namely P800 will be the product, that makes a profit to SonyEricsson, it is really advanced phone with great amount of functions. But in practice, P800 won't play a key role on the market, the latter will belong to the products of the middle class, which the company doesn't have. They could appear only by the summer 2003.

The company is under the pressure of other players now. Nokia produced various rival models to exhaust the competitors. From the commercial point of view such strategy is losing in future. None of the manufacturers can serve the inflated line more than 2 years, neither manpower nor bankroll will be enough. Recent discharges in the company are another evidence of this. In the whole, the company tries, on the one hand, to increase the sales of its phones due to the variety of the models and prices, and on the other hand, to force competitors to begin the race for the number of models. We think that in a year the line might be reduced to 6-9 models.

Motorola also has a progress, the popularity of this brand has been increased and it's also not good for SonyEricsson. Siemens is above the mark as always - good marketing policy and ideal balanced phone line.

SonyEricsson should extirpate disagreements and form a full line of models. Only after that it can consolidate its position on the market.