Running head: CASE ANALYSIS 1

CASE ANALYSIS 12

Case Analysis

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Case Analysis

1. What are the current strategic situation and options available to Sonance? Please evaluate each option.

A. A Situation Analysis

Sonance

Sonance is the company that proposes a variety of different services and products related with design and architecture. The main vision of Sonance, Inc., is to expand from the local market to the international one. The mission of the company is to provide such services that will satisfy customers' needs. The main mission of Sonance is to find an individual approach to every client. It means that the company should know everything about its clients.

Speaking about history of Sonance, it is necessary to note that it is full of prominent events. Sonance started its activity in 1982 with the design of the first in-wall speaker for home installation. Such a start was a further way to the development of the Sonances market. However, despite its long history, Sonance entered the mass retail market only in 2000. It is worth stating that it was not an easy task to win the consumer electronics market. The company constantly undergoes both falls and ups. For example, if the company was successful and profitable in 2003, then it suffered from losses in 2004. The main trends of Sonance are to widen the available trends, as well as benefit product development and distribution strategy as these aspects define its success. The problem of Sonance is that this company is too sensitive to various economic changes and is unstable to the increases in the dealer channels.

Since Sonance has been operating at the market for a long time, it means that this company is one of the leading ones. For example, its growth was evident in 2003 (the revenue was $ 53 millions). However, in 2004, the revenue decreased to $47 millions. This decrease was connected with the instability of marketing policy. Lack of the cyclical flows of retailing is the main reason for lack of dynamic growth of this company despite it has all perspectives and opportunities.

The main location of Sonance is in Southern California. It means that the company produces for the USA customers. However, in 2005, it opened many offices in China. However, Sonances revenue and product strategy has proven that it can operate at the international market.

Sonance's Business Strategy should be based on the differentiation strategy, high quality, innovation, strong graphic performance with great design, creation of brand loyalty, and so on.Sonance should develop a great variety of its products and adapt to the international market. The company has been offering different qualitative and innovative tools. Integration into the global market is a new way to its further development. The information about Sonance, Inc., as well as about its products is available via direct mailings, the Internet, and in person. This aspect is aimed at satisfying different customers needs and attracting different consumers from different countries. Sonance should take into consideration all the target markets. It is possible to make a conclusion that the company does not copy anything in its competitors. Sonance tries to be unique and original. Its continual investment in development and research is the way to continual success.

The high-quality services and a knowledgeable staff of Sonance are the indicators of good Human Resource Management. Different innovative products and technologies are the results of good performance and knowledge management. Sonance is characterized by such tangible resources as retail locations, and the well-fortified and global supply chain. Indeed, all its competitors have also such resources; thus, Sonance cannot consider all these tangible resources as its weapon against all its competitors. The main weapons of Sonance against its competitors are the intangible resources, such as the talented development team, industrial design capability, and relations with the original equipment manufacturers. These resources are difficult to obtain, but Sonance will cope with this task.

Customer Perspective

Segmentation of the market of Sonance can be done in the following way: the ordinary customers who are very sensitive to prices and are always looking for reductions and the luxury customers who are not sensitive to the process, but are very demanding regarding quality and need an individual approach. Speaking about the market structure of Sonance, it is necessary to note that it is not complex as Sonance is a subsidiary of Data Innovations. As to the power of buyers, Sonance is completely dependent on high demand and technology. The varying needs of consumers make Sonance innovate and develop. The threat of substitutes also makes Sonance be on the alert. Many other companies produce such products; thus, Sonance is afraid to lose its consumers. The threat of a new entry, demands for many resources, as well as development of the brand are other dilemmas of Sonance. On the one hand, competitor rivalry is a constant issue, but on the other hand, it is a driving force that stimulates to further development.

Competitors

Sonance, Inc., has been facing competition with other companies, including emerging ones. These companies are Yamaha, Bose, Polk, Klipsch, and Boston Acoustics. Bose, Niles, Sonance and SpeakerCraft are key players in the production developer segment. Sonance, SpeakerCraft, Elan, Linn, Meridian, Niles, B&W are key players in the custom installation segment. It is evident that Sonance is competitive in both segments. Yamaha, Bose, Polk, Klipsch, Boston Acoustics and Niles are among the most recognizable companies that offer quite similar services and are the main competitors of Sonance, Inc. It should be noted that all the above-mentioned companies offer remote and on-location services. These companies are modern ones and always keep an eye on the latest market tendencies. It means that they are always changing according to time. However, it is a positive fact that Sonance has so many competitors as they always stimulate it to further development. It is evident that Sonance has a number of challenges because of competition as it is very difficult to adapt to the dynamics of this market. Sonance has a competitive advantage comparing with other companies because the corporate strategy is its driving force. The corporate strategy of Sonance includes the diversification of business, thus making the oil business a dominant and constraint diversification.

Channels

Exhibit 1. A Chart of the Distribution Structure

It should be stressed that there is a direct connection between Sonance that is a manufacturer and custom installation dealers who buy its products and services. As a manufacturer, Sonance is a powerful producer of a great variety of architect design products. The company pays much attention to customers as their number defines its success. Sonance also deals with distributors since the direct marketing with them benefits retailing.

Exhibit 2. The Characteristics of Channel Members

Sonance (Manufacturer)

Sonance, Inc., produces design-sensitive audiophiles, custom installers, products for architects, home theater systems, amplifiers, in-ceiling speakers, music systems, multi-room audio systems, AV automation products, and electronics, programming tools, connectors and wires, home audio system software, IR products, navigator program manager software, cables, connectors, wall-plates and knobs, grilles and cover-plates, volume controls, mounting plates, acoustic enclosures, keypads and remotes, and brackets.

Distributors

Chip Brown used the Sonance brand for the new production home developers.

Customers

These are the mass market consumers, architects, home builders, and interior designers.

Retailers

Best Buy and Lowe's are big retailers of Sonance.

Exhibit 2 proves that there is an interrelation between channel members. Distribution is well-arranged in Sonance and satisfies needs of every side.

Exhibit 3. Architectural Series Analysis

 

Dealer Margins and EVC Analysis

Speaker-Craft

Sonance Original Series

Sonance Arch Series $750/pair

Sonance Arch Series $2500/pair

Sonance Arch Series Priced at Dealer, EVC=0

Steps to Ccompute

EVC=0

A

Retail price

$300

$875

$750

$2500

$140

$500

B

% margin to customer installation

45%

45%

75%

75%

100%

100%

C

Cross margin to dealer (AxB)

11025

39375

56250

187500

87500

50000

D

Time to install (hours)

3

3

3

4

3

4

E

Cost per installation work hour

$70

$90

$70

$90

$90

$70

F

Cost to install (DxE)

$210

$270

$210

$360

$270

$280

G

Total profit to a dealer per speaker pair (C-F)

$10815

$39105

$56040

$187140

$87230

$49720

H

% profit to custom installation dealer (G/A)

36,05%

44,6%

74,7%

74,8%

62%

99%

I

Speaker craft

$400

$500

$400

$400

$500

$500

J

Dealer's margin per 2 hrs of labour 1 (2 * C I D)

7350

26250

37500

93750

583333

25000

K

Dealer's EVN2 labour hour vs. Speaker Craft

600

500

500

600

500

500

L

Vendor's (Sonance and SC} margins analysis:

 

500

400

400

500

400

400

M

Price to the dealer

400

300

300

400

300

300

N

COGS

$50

$50

$50

$50

$50

$50

O

Vendor margin per pair (L-M)

100

100

100

100

100

100

Exhibit 3 proves the growth of Sonance. This increase proves that there is the right business strategy used by the company. Its growth proves that Sonance is a very prosperous company that aims at becoming one of the leading and competitive ones in the market. It is evident at annual revenue is constantly growing, and the main task of Sonance is to move in the same direction. Sonance needs a rapid expansion from the local market to the international one in order to keep its success. The operating income loss is the result of the increased market costs.

Exhibit 4. iPort Analysis

 

iPort and Architectural Series Breakeven Analysis

iPort

Arch.Series

Arch.Series

     

Price

Price

     

$750

$2500

 

Brokeven Analysis

A

Sonance sale price to retailers

$245

$995

$2745

B

Cost to Sonance

$125

$875

$2625

C

Sonance margin from sale (A B)

$120

$120

$120

D

Sonance % margin on sales (C/A)

49%

12%

4%

E

Additional R&D

 

$2,000,000

$2,000,000

F

Marketing 'ask' for launch

     

G

Cost to bring to market

$5,125,000

$4,000,000

$4,000,000

H

Breakeven # of units to sell (G/C)

 

42,708

$33,333

$33,333

I

Breakeven $$ (H x A)

 

33,5

12,1

 

Market Sizing

I

Total number sold worldwide in 2005

22,500,000

2,100,000

2,100,000

J

% sold in the USA

47%

50%

45%

K

Number sold in the USA in 2005

 

10,575,000

5, 575,000

5,000,000

L

% Market share needed for breakeven

0,40%

0,20%

0,30%

M

Average # speakers sold by each dealer per year (30* 15)

 

30

24

N

Number of new dealer accounts for AS breakeven (H/M)

 

1111

1388

From Exhibit 4, it is evident that Sonance is a successful company; though, it has gaps in stability and feasibility. Sonance's financial success is defined by the revenue earned from the sales of products and the provision of services. While analyzing financial results of Sonance, it is necessary to note that it belongs to those companies with high performance. The increasing number of competitors is only a driving force for development of Sonance.

Despite different challenges, Sonance has available options and alternatives for further development. First of all, Sonance should decide in which product to launch its costs: the detachable iPort, the Architectural Series or the coming CEDIA EXPO. From these exhibits, it is evident that the Architectural Series should be a leading product for Sonance as it will provide higher profits. Oother alternatives for Sonance are to launch the Detachable iPort and to pay more attention to the mass market retail. The launch of iPort will allow increasing its sales and profits.

The production strategy of Sonance deals with the creation of new locations for its products. The company correlates its capacity with demand, and as a result, it has not seen the losses, but only very high profits. Sonance has chosen the well-analyzed goals and objectives for the implementation of its global strategy. In order to win international marketing, it is recommended for the company to open more stores, to use streamlining, and to launch new products. The R&D strategy of Sonance is well-developed. Thus, it is possible to state that innovation, development and implementation are the key activities of the R&D strategy of this company.

2. What should Sonance do to generate profitable and sustainable and sales momentum for its products?

In order to generate profitable and sustainable growth, as well as sales momentum for its products, Sonance should change its product, distribution, promotional and pricing strategies. The company should implement new products and develop the Architectural Series and iPort as they are in demand among customers. It is important to adapt its products to the international market as it opens new perspectives. Since Sonance, Inc., operates in the USA, it should change its distribution strategy in order to integrate at the global market. The regional and local markets will not make Sonance a strong competitor. On the one hand, Sonance, Inc., should develop its promotion as it uses the retailing system for selling. On the other hand, online promotion is a more innovative variant for this company than that of promotion. Besides, Sonance, Inc., should take into consideration the pricing strategy and offer a flexible system of reductions.

In order to be profitable, Sonance should be based on such criteria: consistency, consonance, feasibility, and advantage. Sonance has the issues in following certain policies and goals. Thus, the company should do its best in order to make its goals, strategic management and leadership consistent. It should be mentioned that organizational conflicts and managerial disorders are not typical of Sonance, and this can be considered as its positive aspect. Consonance is another criterion used to evaluate the strategy. Consonance requires examining the sets of trends necessary for the development. Positive reactions towards the external environment prove that there is consonance within the company. As to Sonance, there is such a criterion as consonance in its business strategy. However, Sonance deals with global, demographic, political, economic, socio-cultural and technological issues that should be solved. Feasibility is the next criterion of the evaluation strategy. This criterion requires solving different problems and creating the available resources. As to Sonance, it is not characterized by feasibility. The physical, financial and human resources of the company are not fully satisfied. Advantage is another criterion of the evaluation strategy. It requires creating competitive advantage of activity. As to Sonance, advantage is its typical feature. However, the company is not superior in position, skills, and resources.

2A. Should Sonance change its marketing strategy to target consumers directly? If yes, should Sonance pursue mass-merchandising accounts? Why or why not?

Sonance should change its marketing strategy to target consumers directly as it will be more beneficial for them. The customers of Sonance are active, successful people. Their household incomes range between $70.000 and $100,000 annually. People with such profits can afford to buy the products of the company. The current customers of Sonance tend to live in the USA. However, the future goal of the company is to target customers from all over the world. Direct targeting of customers will give the possibility to create an individual approach to every client and increase the level of customer satisfaction. Sonance should pursue mass-merchandising accounts as they will benefit the development of new products of different categories. The main components of the corporate strategy are: marketing strategy, production strategy, financial strategy, and R&D strategy. The marketing strategy of Sonance should be based on the orientation towards the global market development. The company should follow a global strategy in order to creating the products interesting for customers from all over the world. Sonance should promote its products worldwide as a standardized product. Sonance should control its pricing and monitor the demand for its products at the international market.

2B. Should Sonance more aggressively pursue production home developers? If so, how and why?

While analyzing Sonance's challenges, it is worth noting that Sonance should pursue the production home developers more aggressively because it deals with a big competition. Thus, in order to be successful and profitable, the company should act more persistently. Sonance should diversify its product policy involving changes and innovations. Besides, its persistence should be evident in widening the circle of consumers. This aspect is aimed at satisfying different customers needs and interests. As to the production home developers, Sonance should find new locations and new markets in order to increasing the profits.

Innovation and implementation of new product development processes are the current strategies of Sonance. The advantages of implementing the development processes of new products are in that they bring various benefits and open new opportunities for such companies as Sonance. Innovation and technology are two driving forces that will this company to develop accordingly in the future. The advantage of the new and modern technologies is that they change the ways in which products and services are produced, developed, and discovered. Another advantage is that the technologies improve the performance of employees who produce different products and provide services, advance safety performance, and reduce various environmental impacts. Furthermore, the implementation of the innovative processes helps to consume the oil resources more efficiently. New technologies increase architecture development by 70%. The R&D strategy is a must for further development of Sonance. The company is constantly developing and implementing new technologies in order to be innovative and up-to-date. It is evident that the implemention of new processes for the development of Sonance has its disadvantages. First of all, the implemention of new technologies requires additional investments and costs. Moreover, training for employees in the use of new technologies need to be conducted, which takes up a lot of resources and time.

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2C. Should Sonance re-focus its strategy on high-end installers and try to win back the custom installation dealers lost under Chip Browns reign as CEO? If so, how and why?

OnIt should be noted that Sonance should not re-focus its strategy on high-end installers. It should try to win back the custom installation dealers lost under Chip Browns reign as CEO as it will mean changing the product strategy, marketing policy, and investment. Since there is a constant development of new technologies and innovations in all spheres of life, any company should move forward. All companies should provide their customers with the most qualitative services and products that will satisfy their needs and demands. As a result, Sonance is faced with the issue regarding the improvement of its activities and operations. It is very difficult to ignore the following issue as it influences further perspectives of the company. There are a number of ways that allow solving this issue, but the most important thing is that they should concern this company, as well as its weaknesses and strengths. The above-proposed alternatives should become basement basis for refocusing of the marketing strategy of the company.

2D. Should Sonance target architects and interior designers of custom homes directly?

Sonance, Inc. should target architects and interior designers of the custom homes directly as it will mean a direct contact with them. A direct targeting will give the opportunity to find and establish an individual approach to each client. The company can offer every client some additional products that will be interesting for him or her. It is worth noting that because of the indirect contact, a client has failed to know about a number of additional products. A direct targeting will increase profits of the company as it should not spend too much money on dealers.

2E. Should Sonance lower the price of its products? Why or why not?

It is proven that lowering the price of products is a good marketing strategy. It should be noted that lowering of prices will be not beneficial for Sonance. Firstly, there will be losses in profits and revenues. Secondly, it will be not profitable for Sonance. However, Sonance could propose its constant customers a flexible system of reductions. This measure will allow Sonance to attract new customers and keep constant ones.

2F. Should Sonance be prepared to do something different altogether? Why or why not?

Sonance should be prepared to do something different since the company cannot be developed and innovative without the implementation of new products and marketing practices. For Sonance, the customer perspective is the most crucial one. Thus, Sonance should pay more attention to its customers. Customers take a prominent place, and their level defines the profit and future perspectives of the company. The number of customers defines the level of business. This perspective places the customers at the leading position. Specifically, Sonance should organize this process in such a way that all its products are to be sold. It is not an easy task to sell goods to customers since it also involves a lot of activities before the actual selling. It is essential to create such a marketing policy in order to satisfy all the customers needs and requirements. Sonance should constantly improve the quality of s products and services, as the high quality products and services will be competitive in the market. The creation of new products and services will benefit the company and allow increasing the number of customers.

The global, demographic, political, economic, sociocultural and technological factors influence the general environment of Sonance. Thus, it should adapt to all of them. Sonance may deal with the issue of spending additional costs on production as wages begin to increase. Another global problem that Sonance may face is the government laws and policies on the environmental concerns. The company could face such demographic issues as the decrease in the buying power of consumers and aging population. These issues can result in the decrease in profits, as well as sales and demand on their products. Political issues are connected with the battle of Sonance with its competitors for being the first and its desire to mitigate the American taxes. Economic issues are interrelated with the recent recession in selling. Sociocultural issues are connected with consumers environmental concerns, creation of new devices by other companies, and outdating products of Sonance. Technological issues are interreated with rapid changes in technology, therefore making Sonance' products obsolete. The industry environment of Sonance is influenced by the power of supplies and buyers, as well as the threats of substitutes, new entry, and competitor rivalry.

Nowadays, there are a number of companies specializing in selling online. It is evident that consumers choose the products and services that are not very expensive. Thus, Sonance should propose different products for its customers online. The companyt should be lenient and friendly to its customers. It is recommended for the company to propose a flexible system of reductions. The Internet facilities are the most optimal variant for the company to attract new customers. The distributional strategy includes the diversification of business, making a business a dominant and constraint diversification. Supply chain, exploration, production, transportation, marketing, sale and distribution are the main operations of Sonance. If these operations are successful, they will become the driving forces for the development of the company and the distribution of its products.

3. How does your proposal position Sonance for the best short-term and long-term success?

It is evident that the above-described propositions could be become a basis for the success of Sonance. However, this will be short-term success. For the long-term success, Sonance should launch the Architectural Series and arrange the Dealer channel in a proper way. The Architectural Series should be a leading product for this company. It will allow earning a high retention rate. The implementation of the Architectural Series will attract 50% of dealers. It is a good strategy to propose the implementation of the Architectural Series at $750 and $2500. This strategy has been motivated by the advice of the focus group and the recommendation of the internal marketing group. It is also recommended to leave the mass retail market customer and pay more attention to the custom and semi-custom installation markets. It also recommended for the company to reduce the prices of Original Series Speakers to the Dealers. Currently, Original Series Speakers cost $140; though, the price of $90 will attract more dealers.

It is evident that Sonance reduces its prices, it will improve the Dealers' gross margin to 75%, which will be equal to Speaker Craft and will lower the margin net of the installation costs. Besides, this action will lead to an increasing in the Retention Rate with the help of the Dealers' sales of Original Series Speakers. As to the existing iPort product, it will also increase the Retention Rate. Other long-term options for Sonance are to implement the Detachable iPort instead of the Architectural Series and to pay more attention to the Mass Market Retail. The implementation of the Detachable iPort demands a very low Retention Rate. It should be noted that the sales of the iPort are growing to 40%. As Sonance is trying to return its leading position at the already crowded and competitive market, it should be priced at a premium. The decrease in profits was a negative phenomenon for the dealers. As a result, they were not satisfied with Sonance's position at the market.

4. If your proposed strategy is a success, what would be the next step for Sonance? Can it remain independent in a highly consolidated industry? Why?

If the proposed strategy is a success, Sonance should implement new practices for price, product, place, and promotion.

Price

In order to implement new products, Sonance should consider the pricing strategy as both very high and very low prices may deter the consumers. The company should offer its new product freely. On the one hand, Sonance should earn some money, but on the other hand, its prices should be reasonable. Besides, Sonance should make discounts for its constant clients. Both internal and external factors influence the pricing strategy. The internal factors comprise inbound logistics, human resource management, outbound logistics, marketing and sales, operations, service, firm infrastructure, technology development, and procurement.

Product

Sonance, Inc., produces design-sensitive audiophiles, custom installers, products for architects, home theater systems, amplifiers, in-ceiling speakers, music systems, multi-room audio systems, AV automation products, and electronics, programming tools, connectors and wires, home audio system software, IR products, navigator program manager software, cables, connectors, wall-plates and knobs, grilles and cover-plates, volume controls, mounting plates, acoustic enclosures, keypads and remotes and brackets. It is recommended for the company to pay more attention to the quality of its products as low quality may result in a bad reputation.

The product strategy of Sonance is to offer the innovative technologies.

Place

It should be stressed that Sonance operates only in the USA; though, it has all opportunities to enter the international market. The internet facilities are the most optimum alternative to attract new customers. The main operations of the company include supply chain, exploration, production, transportation, marketing, sales, and distribution. If the above-mentioned operations are successful, they will become the driving forces for further development of the company. The distribution strategy of Sonance is to transfer from the regional and local markets to the international ones.

Promotion

The promotional strategy of Sonance is aimed at communication with consumers in order to know their tastes, as well as to collaborate with competitors in order to find out their marketing strategies. It has been suggested that the promotional strategy is efficient in order to attract new customers and the community, as well as to win the world markets. This company does its promotion through television, radio, newspapers, and the Internet. The promotional aspect is aimed at satisfying different customers needs and attracting different consumers from various countries with different tastes.

Advertising is an effective tool of marketing communication. Advertising can improve the status of any company. It promotes the companys image, attracts new customers, and increases the income. It is considered as essential significant and influential component of the communication strategy of any company. Advertising and public relations play an important role in any industry. It is worth noting that an attention-getting image and a well-composed slogan will allow Sonance to catch the customers interests.

Some additional elements of the extended marketing mix are people, process, and physical evidence. People are the basis of Sonance as both customers and employees are involved in the development of the company. Employees performance is not perfect and has its drawbacks. Sonance deals with such human resource issues as productivity, arrangement and execution of training, recruitment of employees, and prevention of discrimination. For Sonance, customers are the users of tits products and services. Hence, the company should provide its customers with qualitative services and products. The creation of new services will benefit the company and increase the number of customers.

This study has shown that Sonance, Inc, has many challenges connected with its marketing policy. However, it has all opportunities to become again a leading and competitive one. Its leadership, as well as strategic plan, goals and tactics are connected with the innovations and implementation of new technologies. Investors, customers, employees, communities and competitors are main stakeholders. It is evident that the complex activity collaboration and communication of all the stakeholders belong to the corporate strategy of Sonance. The current strategic situation of Sonance is not the best one as profits are always alternating. However, there are many options available to Sonance. These options are the implementation of Architectural Series and iPort. It is proved that the launch of iPort is more attractive for the dealers and customers.

In order to become successful, Sonance should cooperate with other companies, create new products and services, decrease prices, and increase the quality of its products. Sonance should cooperate with other companies in the introduction of new services and products, as well as their further distribution. The creation of new products and services will bring benefits to the company and attract more customers. Sonance should reduce the prices on its services and products as high prices discourage the customers. The company should work on improving the quality of its products and services since the high quality products and services are always competitive in the market. In order to generate profitable and sustainable growth and sales momentum for its products, Sonance should employ competent workers who will produce quality products and services. It means that the company should develop human resource management. The strengths of Sonance are that it provides a wide variety of marketable products. Sonance should be creative and flexible in its planning. It is worth noting that planning will provide a successful adaptation to different dramatic changes in the future, as well as help to improve outputs and to increase value for money. However, planning should be realized by the competitive and creative staff of the company.

A well-formulated direction will ensure further perspectives for Sonance. Thus, this company should define the purpose of its activity, set the exact goals, determine the main strategies and approaches, define the main actions for realization, as well as monitor and update the plan. In order to overcome various barriers, Sonance should identify its strengths, weaknesses, opportunities and threats, define the main priorities, create the programs, and establish the plan of actions.

 

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