n April 1996, Masao Morita, president of the Sony Personal and Mobile Communication Company, a division of the Sony Corporation, pondered how to recover Sony’s initial leadership in car navigation systems in Japan. As the first company to launch a reasonably priced (around $2,000) after-market model in 1993, Sony could claim to have created the world’s largest car navigation systems market in Japan. Since the late 1980s, Sony led a group of 40 companies in establishing an industry standard (called NaviKen) which enabled consumers to benefit from mutually compatible digital map software while manufacturers reduced their risk by sharing development costs. Sony’s efforts grew the Japanese market from 58,000 units in 1992 to 160,000 in 1993. Sony held a 60 percent market share in 1993. Exhibit 1 reports unit sales of car navigation systems in Japan through 1995 and forecasts from 1996 through 2005. Market growth fueled intense competition in Japan, leading to many new product launches and lower prices. The average retail price per unit decreased from $4,000 in 1990 to $2,500 in 1995.1 Ironically, competitors not in the NaviKen group were able to introduce new and improved products more often and more rapidly by developing or acquiring proprietary digital map technologies. Increasingly sophisticated consumers sought out differentiated products with the latest features. In contrast, NaviKen member companies, including
Sony, lost time while trying to agree on standard software upgrades. Sony’s unit sales increased, but at a slower growth rate than the market; Sony’s market share fell from 60 percent in 1993 to 23 percent in 1994 and 17 percent in 1995, and was estimated to drop to 15 percent in 1996. Exhibit 2 summarized the major competitors’ market shares. Exhibit 3 compares sales performance of NaviKen and non-NaviKen companies. In Europe and the United States, Sony was also the first to launch car navigation systems in the automobile after-market. Fewer than 1,000 units sold in test markets to gather information in each region by the summer of 1996. In Europe, local manufacturers, such as Philips and Bosch, started to market competing products aggressively. Other Japanese competitors, such as Alpine, Matsushita, and Pioneer were expected to enter Europe and the United States by 1997. Exhibit 4 summarizes market forecasts for car navigation systems by geographic region. SONY CORPORATION: COMPANY BACKGROUND The Sony Corporation was founded in 1946 in the remains of a bombed department store as the Tokyo Tsushin Kogyo (Tokyo Telecommunications Engineering) by Akio Morita (Masao’s father), and Masaru lbuka. As a young company, Sony did not have a keiretsu of affiliated companies and lacked the strong domestic sales base and the distribution networks that supported the other companies. With only $500 in capital, the founders realized they would have to differentiate themselves from
1 $2,500 was the retail price with a monitor. A system retailed at around $1,500 in 1995 if a monitor was sold separately as shown in Exhibit 1.
Copyright ©1996 by the President and Fellows of Harvard College Harvard Business School Case 9-597-022, Rev. 4/14/98. Doctoral Candidate Yoshinori Fujikawa prepared this case under the supervision of Professor John A. Quelch as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Reprinted by permission of the Harvard Business School.
EXHIBIT 1 Market Development and Forecasts in Japan
Actual 1990 Entire Market Unit Sales Growth Rate Year-on-Year (%) Retail Sales (¥ millions) Growth Rate Year-on-Year (%) Retail Price/Unit (¥) % Penetration of New Cars Cumulative Number of Car Navigation System Installed % Penetration of All Cars AFTER MARKET Unit Sales Growth Rate Year-on-Year (%) % of Entire Market (%) OEM MARKET Unit Sales...