Let’s deep dive into the various reasons that contributed to the Sony Ericsson failure case study and the lessons that business leaders can learn from it.
Before we start, Sony Ericsson was a joint venture between Sony and Ericsson, founded in 2001 and headquartered in Sweden. The company focused on designing and manufacturing mobile phones.
Sony Ericsson was considered a pioneer in the mobile phone industry due to its innovative designs and features, such as high-quality camera capabilities and music playback.
As a result, Sony Ericsson was able to establish a strong brand presence in 2001.
Unveiling the case study of Sony Ericsson’s failure:
Every business faces a hard time every now and then. Especially a new product, a new partnership etc.
The Sony-Ericsson joint venture confronted challenges since the beginning, and their target profit deadline was moved from 2002 to 2003.
They were unable to compete with the industry’s major competitors and came to fifth position in the market.
There were various reasons which played a significant role in Sony downfall:
1. They failed to innovate
There are countless companies that went out of business because of their lack of innovation. And one that tops even this is- not understanding the changing customer’s preferences.
While companies must pursue innovations and offer customers satisfied products, it is equally critical that companies are aware of the fact that customers constantly seek out the latest and most innovative products.
The primary reason why Sony phones failed was the market misrepresentation of their product.
Hence, to provide consumers with novel and individual mobiles, companies should always employ the most effective R&D tools and techniques.
A business cannot provide solutions to customers’ demands unless proper R&D is conducted. Sony Ericsson’s research and development were out of date.
Therefore, the company could not create a product that would appeal to mobile phone users.
2. Industry shifts and economic downturn:
New innovations keep emerging in the world. Once, shifting from a dial keypad to digital could never be expected and look at the mobile industry now!
Business leaders need to be well aware of the industry shifts taking place and act accordingly.
For example, in 2003, mobile phone prices began to decline, but Sony Ericsson continued to produce expensive cell phones, resulting in lower-than-expected profits.
Additionally, Sony Ericsson made significant investments without an in-depth knowledge of present market conditions.
If only Sony had been smart enough to invest in the changing market trends, things could have been better.
3. Misunderstanding R&D’s importance:
Bad leadership can ruin even the best of teams as we saw in the Commodore failure story too.
Sony, at that time, also prioritized cost-cutting initiatives and job losses.
The company had 12,000 employees in June 2008, and after launching this cost-cutting initiative, it reduced its global workforce by approximately 5,000 people.
What they didn’t realise was, that R&D is an essential department for any organization, it is also essential for mobile phone manufacturers.
R&D is like the oil of an innovation engine.
Still, Sony Ericsson perceived this as a financial burden and closed R&D departments worldwide.
As a result of this change, Sony Ericsson was unable to produce innovative products for customers, which was the primary reason for the joint venture’s failure.
Maybe it’s time to give those R&D people applause for the work they do!
4. Poor marketing and brand positioning
Another major issue that Sony Ericsson faced was their inability to cater successfully to different markets.
After forming a joint venture, the business began operations without a comprehensive understanding of its customers’ requirements.
As a result of this lack of knowledge, their products begin to suffer losses, and they are forced to withdraw their product line from the market.
For instance, in 2002, Sony Ericsson discontinued production of Code Division Multiple Access (CDMA) mobile phones for the US market and began concentrating on GSM as the dominant technology.
The number of jobs in the research and development department has been reduced due to this shift in the United States and Germany.
Marketing sure plays the biggest role in a business’s success and failure and thus, having a good marketing strategy is a must.
5. They were slow at changing
Sony’s Walkman series and Ericsson phones had numerous innovations, such as a coloured screen and a digital camera.
However, their innovation began to slow down when they started manufacturing Android phones.
The Xperia X10, for example, received positive reviews for its design. The disadvantage was that it used Android 1.6 during a period when competitors were using 1.
Because of the highly skinned OS, the firmware update took a long time.
6. The tough competition
Moreover, other businesses gradually began to offer similar features to Sony at a lower cost.
Sony Ericsson attempted to add new features, such as a 4K screen, but it was pointless since a 6-inch screen doesn’t need a 4K screen.
Sony continued to produce expensive phones but missed a significant differentiating component. As a result, they progressively faded from the market.
Additionally, the expensive price tag was a significant weakness in Sony’s phones. Sony attempted to compete directly against Apple.
However, since Apple was the market leader, it had a competitive edge over other manufacturers. No other phone provided a better user experience than Apple’s iPhones.
The mobile manufacturers at the time were focused on inexpensive phones.
Their strategy was to obtain as many customers as possible, even if it required sacrificing features. But Sony went in the reverse direction. They began producing high-end phones.
However, they were unable to compete with iPhones and began to lose market share.
In 2012, Sony Mobile’s CEO said, “That is where the value is, that is where the money is,” referring to the top segment and explaining that the objective was to “play to our strengths – the premium brand that Sony stands for.”
Hideki Komiyama, the Chief Executive of Sony Ericsson, said in 2009, “We just happened to be number three in the third quarter. I’d like to be No. 3 by ourselves by 2011.”
“Right now it is not clear how the industry will be shaping up in 2009 or 2010. We know it is challenging.” he said, adding that the company was “preparing accordingly.”
He added, “We have to start analyzing products where we generate higher margins and eliminate the models where we have lower margins.” He also stated, “At this moment we’re under heavy rain. You have to look for shelter. But when you’re in the shelter you start preparing.”
In 2011, Sony acquired Ericsson’s stake in the joint venture.