Sony Shifts To Tony Side Of Town
Is Sony India reaching for the moon when it re-positions itself solely as a premium market player in India, which is its fourth-largest market globally?
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Sunil Nayyar was the head of Sony’s North America retail operations when he was asked to return to India to spearhead operations here. The excitement of coming back home was somewhat marred by the anxiety of confronting a market that was “cost-conscious”. Two Sony brands that Nayyar cherished, namely Vaio laptops and Ericsson smartphones, had already been pulled out of the Indian market by Sony Corporation as part of its global restructuring exercise.
The new managing director of Sony India, which recently celebrated its silver jubilee, was determined though, that the multinational would not be playing the “volumes game” in this market. It would be a player in the premium range of electronic products. “In our country, people drive a Maruti, people drive Audi (and) people drive a BMW. And there’s a reason to drive those cars. So, driving pleasure is different in each brand. We talk of the same thing when it comes to our televisions and that’s what I’m trying to do continuously in this market since I came back because I learned this from the United States,” says Nayyar, who is the first Indian to helm Sony India.
“For example, you go to any of the (electronics) stores (such as) Croma or anywhere, they will tell you why you should buy a Sony, although it’s a 20/30/40 per cent premium (over other products). That’s big money to pay like people pay ten times more for a luxury car. So whether it is digital imaging, home theatre, a headphone or television, Sony is only talking about premium,” says Nayyar, speaking exclusively with BW Businessworld. We notice Nayyar’s fetish for premium brands like a Tag Heuer and BMW.
At one point, the major growth drivers for Sony India were its high-end Bravia televisions, the Vaio laptops and the Xperia handphones, contributing to a whopping 70 per cent of its total revenue. After pulling out the smartphones and the laptops from the Indian market, Sony has over the last few years zeroed in on audio and digital imaging products.
The Indian arm of the Tokyo-based transnational now generates around 65 per cent of its revenue from the television segment, 15 per cent from audio, 10 per cent from the camera and the remaining 10 per cent from other products. Sony Corporation expects its India operations to be its third-largest in the world in the coming decade. Sony India already oversees its fourth-largest market globally, which overtook its businesses in Brazil and Russia a few years back.
India now trails behind the US, China and Japan in that order in terms of global revenue. “India is currently the fourth largest contributor to global sales by value and remains a strategic and important market, given the favourable demographics and growing affluence of the middle class,” says Nayyar. He points out that India is growing at a faster pace than any other part of the world.
“Although we say five to six per cent (GDP growth) is not enough, the fact of the matter is we still have the highest growth. We believe it has the potential to be among the top three markets for Sony globally, given the Indian economy’s potential to reach the $5 trillion dollar mark in the future,” says Nayyar confidently.
Sony aims to reach for the stars just when the market for consumer goods has turned dull in tandem with slowing economic growth. The Purchasing Manager’s Index (PMI) for instance, is the lowest ever since May 2018. The PMI was 51.4 per cent in September, having slipped from 52.5 in July. The Purchasing Manager’s Index maps new orders, inventory levels in the manufacturing sector, production, supplier deliveries and the employment environment. The index suggests positive demand for manufactured products when it is above 50.
Going by Registrar of Companies data, Sony India’s revenue from operations dropped by 8.3 per cent to Rs 6,417.52 crore in FY 2018-19 from the previous year. Sony’s sales peaked to Rs 11,010 crore in 2014-15 but revenues have slid since FY16. Mohit Yadav, founder at Veratech Intelligence says, “During 2015-19, Sony’s CAGR has declined by 5.86 per cent and net profit has increased at 18.54 per cent.” Yadav says Sony India was rapidly losing its market share to Chinese brands. “The company needs a strategy that revitalises growth by leveraging brand Sony to increase topline and market share,” opines Yadav.
Sony India’s premium products across categories such as Bravia television, digital imaging and personal and home audio make up about 20 per cent to 25 per cent of its revenue at the moment. Apart from aiming for steady growth in the bread-and-butter television segment, the consumer electronics major is also eyeing enhanced contribution from segments such as audio products and digital imaging.
Some market observers seem to believe that Sony India would be able to defy the trend in consumer apathy. Says Jaipal Singh, Associate Research Manager, Client Devices, IDC India, “Sony maintains high loyalty amongst its consumers and enjoys a strong presence in the offline channel. However, online is still dominated by the new entrants which are aggressive in their pricing.” Singh says, “Although Sony can definitely find a space in the premium segment when it comes to the online channel, yet it will be difficult for the brand to compete against the new brands in the entry and mid segments.”
Richard Rothman, MD, OpenMind Opportunity Consultancy, however, sounds a word of caution. “As an electronics major, Sony is a declining brand. Sales of its electronics products continue to decline, with no end in sight,” he opines. “The company makes far more income from its other divisions, such as gaming, financial services, music, and imaging and sensing solutions,” he says.
The slice of pie
The Rs 22,000 crore hyper-competitive Indian television market witnessed a disruption with the advent of smart TVs (flat panels, bigger screens and broadband compatible). Ironically, the larger display TVs have greater acceptance in tier-2 and tier-3 cities than in tier-1 cities. This trend is mostly due to increasing preference for larger displays where players like Samsung, LG, Panasonic, Phillips and Sony account for a major chunk of the pie. At present, the entry-level 32-inch and 43-inch segment accounts for over 70 per cent of the total television market.
While Samsung has been a market leader in the overall television category for 13 years with a market share of 30.5 per cent, brands like TCL, Onida Kodak, OnePlus, Micromax, Redmi (a sub-brand of Xiaomi) and Thomson have further strengthened their presence online, which now account for 30 per cent of total television sales. “Sony is perceived better in terms of display and sound quality of their TVs as the brand has been consistent in providing good experience with full HD and 4K TVs in India,” says Singh at IDC, “But these TVs are priced much higher compared to brands like Xiaomi, TCL and VU television.”
Sony India has been severely impacted in the 32-inch television space by high-spec, online-focussed Chinese players. Sunil Nayyar, though, is extremely confident of market leadership. “The Indian TV market is like a pyramid and Sony’s products like the A9G TVs naturally fit somewhere near the top,” he tells BW Businessworld. “The chunk of the market is competing for volumes near the bottom of this pyramid,” Nayyar says, adding, “However, there are a growing number of buyers looking for premium products, and we’re encouraged by market growth in the premium segment.”
Sony India’s dominance in the large-screen premium segment of televisions was evident in FY18 when it posted a growth of 90 per cent in the large-screen segment (55-inch and above) including in festival sales. Among the money-spinners was the Bravia OLED model, which registered an exponential growth of five times and moreover the previous fiscal. Sony India affirms that FY 2018 had been an exceptional year when the company had also zeroed in on segments beyond television. It had achieved 250 per cent growth in the full-frame mirrorless camera and lens segment.
“The fastest-growing market in the country is 55-inch and above and my growth is almost in triple digits in this segment,” says Nayyar. “We have two technologies i.e. 2K (resolution) accounting for 60-70 per cent of the market and 4K (resolution) which is 30-40 per cent (of the total market) and is growing at a phenomenal pace,” he says. Sony India’s managing director admits that 2k was declining in terms of market share, but the 4K was growing. Yet three years ago 2K had had a hold over 80 per cent to 90 per cent of the market and 4k only had a minuscule contribution. “Now I’m aiming to corner 40-50 per cent market share in the next couple of years with 4K,” says Nayyar. He admits though that “There is still some time before we adapt to the 8K phenomena. When the market is ready, we will consider launching 8K televisions in India.”
Was Sony charting out a unique path for itself, or is the high-end the saviour of all players in the television market? Raju Pullan, Senior Vice President, Consumer Electronics Business, Samsung India, too sees merit in “introducing game-changing products in the Indian market” which he says had helped Samsung consolidate its position as a market leader. “We aim to close the year with 34 per cent market share in the TV category,” says Pullan. “In 2019, in the 55-inch and above TV category, we witnessed 55 per cent growth in non-metro cities whereas in metros and tier-1 cities, it was 40 per cent. We aim to achieve a market share of 60 per cent in the 55-inch and above TV category from the current 48.5 per cent and maintain 82 per cent market share in the 75-inch and above TV category,” he says.
Sony India is confident of generating unprecedented numbers from non-metro cities too. As Nayyar points out, “Tier-2 and tier-3 cities are equally attractive when it comes to volumes. I’ll tell you why, because purchasing power there is not bad at all. So we have witnessed, especially this Diwali and even last time, that many of my high-end products like OLEDs in 65-inch and 55-inch saw record numbers.” He says, “ Of course, significant numbers came from metros, but there was a decent number which came from non-metros. So some of the pockets in India are very affluent and can afford those kinds of products.”
The tony side of town
“You’ll be shocked or amazed actually when I will tell you that we are growing almost a hundred per cent in value when it comes to the Digital Imaging category, which includes our mirrorless full-frame cameras, mirrorless APSC cameras, professional cameras and lenses, right? The entire portfolio is growing at triple-digit compared to last year,” says Nayyar. “Initially, we were ruling the digital single-lens reflex (DSLRs) market and now, we are doing tremendously well in the mirrorless camera segment. We expect this growth momentum to continue as the full-frame camera market is at its flourishing best in India at the moment,” he says.
Sony India has a market share of between 60 per cent and 70 per cent in the overall audio segment and has emerged as the numero uno in the premium headphone segment. It has 30 per cent market share in noise-cancelling headphones, 30 per cent share in the market for Bluetooth speakers and a massive 80 per cent share of the home theatre segment.
“We established Absolute No.1 position with the cultivation of party lifestyle in India. In addition to powerful sound, we promoted unique fun features, like lighting and TAIKO for party entertainment. We have been the pioneer in cultivating the soundbar market in India with product offerings such as HT-X8500, HT-S350, HT-S700RF and HT-S500RF, which are designed and tuned for Indian customers,” exults Nayyar. “We are working in collaboration with Dolby to provide new sound experience to our customers with Dolby Atmos technology, starting with HT-ST5000 and we plan to expand the line-up in future,” he goes on to say, adding, “Thanks to the active noise cancellation (ANC) devices, especially the premium headphones and in-ear active headphones, we’ve grown almost triple-digit here too.”
Quizzed on whether or not the company had to change its go-to-market strategy to suit evolving tastes and preferences of the new-age consumers, Nayyar says, “Absolutely. Our product strategy has changed. That includes all the channels. We were earlier selling differently and now we sell across channels, including the online medium. We have also changed the retail experience for consumers now.” Richard Rothman is sceptical. “At the high end, older consumers consider it to be the best quality brand. But Sony has done little to build brand image among younger consumers. Therefore, its brand strength is likely to decline over time,” he says.
Sony is known to be exploring new product categories for the Indian market. Speculation is rife that it is supporting the development of a mobile air-conditioner device, the Reon Pocket, in a startup acceleration programme. Sony India is also leveraging on the government’s ‘Make in India’ initiative and firming up plans to ramp up its local projects for its TV category. Even though the Japanese giant has no immediate plans to establish a self-owned manufacturing facility, it has struck a long-term deal with Foxconn, a Taiwanese contract manufacturer, to establish a dedicated facility for Sony-branded products. Sony-branded audio products are also expected to be assembled in India from the next fiscal.
“We began making TVs in India in 2015 and now nearly 95 per cent of our TV products are ‘Made in India’. We are now also evaluating prospects to make products in other categories in India,” says Nayyar. The Indian arm of the Japanese electronics major will also open its first research and development centre in Bangalore in Karnataka in 2020.
Notwithstanding the economic slowdown, Sony India expects a sales growth of 10 per cent to 15 per cent this fiscal, snapping out of two years of de-growth. Going forward, the company expects its audio segment to be among its drivers of growth, contributing to around 20 per cent of its revenue in the next three to four years. It also expects the premium segment’s share to shoot up by up to 40 per cent over the next couple of years.
“I am expecting a growth of 10-15 per cent this year across the board. If we are able to deliver that, then we would be in a very good spot,” says Nayyar. “Two years back, the contribution of TV was 80 per cent. So we are making a shift and balanced portfolio in the country, which is profitable and driving the growth of the industry,” he says, exuding confidence.