NEW YORK –
Sony’s unilateral pricing program (UPP) – which covers 140 upscale products – and its companion “strategic investment program” with its retailers are designed to improve profitability and its communication with dealers and consumers.
During a press briefing at the Sony Building, here, last Thursday Phil Molyneux, Sony Electronics’ president/ CEO said its UPP — starting April 1, the beginning of Sony’s fiscal year — involves 140 products, which includes the company’s Alpha, EX- and HX-Bravia lines, selected headphones, RS receivers, HX and TX projectors, 4K products, Sony tablets and “pretty much all of our premium products.”
While they are premium products, the 140 SKUs under UPP are out of “tens of thousands” of Sony Electronics products available by April 1.
Penalties for those retailers that do carry these Sony products and do sell below the UPP would include Sony “not shipping products to retailers for a certain period of time.” However, the program is being implemented “in collaboration with our partners,” Molyneux said.
UPP, which he described as being “one tool” in achieving better profitability applies “to all channels, online and physical stores,” he said, including Sony stores. “We play by the same rules.”
As for the importance of this program, and similar ones in the industry, Molyneux said, “This is always a tough industry, especially in the U.S. Recent financial results for retailers and manufacturers show how tough it is. We must switch to the value of the product versus driving volume” as a strategy.
Sony is emphasizing those products that can generate profit, so its 2012 TV line will have 22 models, compared with the 40 in the 2011 line.
“But that does not mean that we are pulling out of TV. It is the center of the living room and of home entertainment,” Molyneux said. “We have to rationalize the number of SKUs to generate profits.”
As for TVs specifically, when asked about entering the OLED market, Molyneux said Sony has the “capabilities to enter the market” if needed, but does not have plans at this time. Sony does sell OLED pro products up to 25-inch screens, and has used the technology in professional camcorders. He reminded that it showed its Crystal LED at International CES, “so we have that option.”
The “strategic engagement program is designed to change the game,” the Sony CEO said. “What we want is for retailers, in collaboration with us, talk about the value of the product to the consumer and the benefits … of a $399 tablet. We are in a negative spiral. We need to explain to consumers that these products have functions and values, and focus on that.”
There has been some conjecture about Sony’s program, as well as similar types of plans from Samsung, Panasonic and LG, that it might result in more derivatives in lines for specific retail channels. Molyneux said the opposite is the case with Sony. “The number of derivatives we are taking into fiscal 2012 is greatly reduced. We are clear about our products and what we expect from our retailers … so that need is reduced.
As for Sony’s “strategic investment program” with retailers, which also begins April 1, Molyneux said that since he became president on Sept. 1, 2010, he has studied the relationship it had with its dealers. He described Sony’s approach to the marketplace as “fragmented” and said, “We were paying for participation vs. paying for performance.”
And over the past nine months, “we have developed a comprehensive criteria for retailers to work with us, collaborate with us … to drive value of products, services,” and to collaborate on a common message for Sony and its dealers “in terms of visibility, control of inventory — what is selling — to set up a better working framework.”
The goal of UPP and the “strategic investment program” is “not to drive volume through price discounts but to engage dealers [and explain to consumers] the value [and features] of our products. That should result in better margins for dealers and for Sony, so we can invest more in R&D for future products. The consumer benefits because dealers will be able to provide a better effort on explaining what the experiences” Sony products can provide.
UPP has been part of the Alpha line since 2008 and was described as “very successful” by Molyneux and when asked why it took until 2012 to broaden the program he responded that the “strategic investment program” that has been developed enables Sony to offer “focused promotions” among other advantages.
Molyneux also said that Sony would be willing to take a smaller market share in TV to make this work. “Corporately our objective is to move from 40 million unit sales in TVs to 20 million to reduce losses and make a profit.” He added that Sony was as of a few years ago “chasing volume” and now with the new programs set to begin “we can change the game with value retailers, stabilize our business and get profitable growth.”
Sony has also cut costs by cutting the number of layers of management at the company. In recent months 300 employees were laid off. “The benefit is not only cost reduction and profitability but to act with more speed and accountability.”
Sony Electronics’ structure was redefined under “five core pillars,” Molyneux explained. “There is a new sales organization to our strategy — a brand activation and communication team; integrated messaging from the shop front to the media; a revamping of [Sony’s] service organization; a consolidation of product marketing — changing our culture to think about consumers in our daily schedule — [and a change] in our corporate communications to include social media, to come out with a consistent voice” to communicate with retailers and consumers.