Retail Marketing Management – Report
“Starbucks Customer Service Strategy”
Ehab AbuSabha
eabusabha@yahoo.com
Table of contents
1. Introduction ----------------------------------------------------------3
2. Starbucks Customer Service Strategies ---------------------------------4
a. Strategic Advantage through Customer Service -------------------------4
I Customization Approach -----------------------------------------4
II Standardization Approach----------------------------------------4
b. Starbucks as Service Provider -----------------------------------------4
c. Service Goals ----------------------------------------------------------5
3. Strategies employed by the retailer to achieve business objectives ----------5
-The Gaps model for improving Starbucks Service strategy:
3.1 Research Target Customer Expectations and Perceptions -----------5
3.2 Using Customer Research ----------------------------------------------------6
3.3 Commitment to service Quality----------------------------------------------9
3.4 Give information and Training----------------------------------------------10
3.5 Provide instrumental and Emotional Support --------------------------12
3.6 Improving internal Communications -------------------------------------12
3.7 Empower Store Employees---------------------------------------------------13
3.8 Providing Incentives ----------------------------------------------------------13
3.9 Develop Solutions to service Problems ------------------------------------13
4. How the target customers are actually getting affected by these strategies-14
- How Starbucks increase customer satisfaction -------------------------------------14
- Customer Evaluations of Service Quality --------------------------------------------14
a. The Role of expectation -------------------------------------------------------14
b. Perceived Service ---------------------------------------------------------------15
5. Conclusion ----------------------------------------------------------------------15
6. References ----------------------------------------------------------------------16
7. Appendix 1--------------------------------------------------------------------------17
1- Introduction :
The main objective of this report is to study Starbucks Customer Service Strategy , and how it used to keep up with today highly competition in UAE and how Starbucks use Customer service to setup activates and programs to differentiate it self from other retailer to make the coffee experience more rewarding for their customer , this report explain how activities increase the value that customer receive from the Service , built customer loyalty and develop sustainable competitive advantage .
Starbucks category based on competitive and marketplace strategic , The product itself is derived from actual Starbucks Coffee: More than 30 blends and single-origin coffees. Handcrafted Beverages: Fresh-brewed coffee, hot and iced espresso . Merchandise: An exclusive line of Starbucks Barista home espresso machines, coffee accessories, and assorted gift items. Fresh Food: Baked pastries, sandwiches and salads. Starbucks Entertainment: music, books and film , Global Consumer Products: bottled Starbucks Frappuccino , Starbucks Card. (Starbucks, 2007).
Starbucks is the leading retailer and roaster for brand specialty coffee in the world ,Starbucks open first store in the U.A.E at Dubai International Airport on 17th April 2000. There are currently 46 stores in the U.A.E. operating in leading shopping malls and other commercial locations. Starbucks employs around 1,500 people across the Middle East including 370 in the U.A.E. (ameinfo UAE ,2006)
Starbucks mission statement :Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow(about Starbucks, 2007) .We are going to see how Starbucks using one of the most effective weapon in marketing today and how they are using free advertisement like word-of-mouth though excellent customer service strategy to generate positive communications to attract new customers and build competitive advantage using customer service.
2- Starbucks Customer Service Strategies
a- Strategic Advantage through Customer Service :
One of the best marketing weapons today is to build Strategic competitive advantage through Customer Service, there is many organization factors that contribute to customer service either direct or in direct Starbucks believes Good Service keep customer return to Store , one of theirs factors as example product , employees in Starbucks store contribute to customer service by making sure the products is available when needed , in addition to that factor location and design contribute by increasing the customer convenience . one big company as Starbuck know well that providing high quality service is difficult for retailers , the solution is automated manufacturing makes the quality of most Starbucks product consistent, but still the quality of service can be vary from store to store , the real challenge of providing consistent high quality service offers an opportunity for a retailer to develop sustainable competitive advantage for example :Starbucks much time and effort to developing an organizational culture stimulates and support excellent customer service
Customization and Standardization are two approaches Starbucks use to develop sustainable customer service advantage , the real success behind this relies on the degree to which customer interaction can be customized , Starbucks use customized approach to make their service much the needs of there individual customer, the customized approach typically results in most customer receiving superior service . The standardization approach on starbucks relies more on policies and procedure and store design and layouts .
b- Starbucks as Service Provider:
* Provide a great work environment and treat each other with respect and dignity.
* Embrace diversity as an essential component in the way we do business.
* Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.
* Develop enthusiastically satisfied customers all of the time.
* Contribute positively to our communities and our environment.
* Recognize that profitability is essential to our future success (4).
c- Setting Service Goals
high quality service required goal setting , Starbucks develop customer service based on their believes about proper operation of the store. Employees are good in achieving service goals, when the goal and objective are specific measurable search as Starbucks approach customer in store area or respond to order , email or enquires ASAP. Starbucks uses Customization Approached on its service to meet each customer needs, in addition , Starbucks approach standardization to make sure rules and procedure at each store are same and consistent with each other however , I found that Starbucks stores at UAE still follow the global Starbucks structure to allow its employees to participate in service setting by giving them space for creativity, which lead to great work environment to treat each other with respect and dignity.
3- Strategies employed by the retailer to achieve business objectives:
-The Gaps model for improving Starbucks Service strategy
just 16 percent of traditional, retail store shoppers are extremely satisfied with their most recent customer service experience. (Retailing Management ,Levy) , lets keep this level of satisfaction in mind while study the following model .
The Gaps Model (Fig1) indicates what Starbucks need to do to provide high-quality customer service. When starbucks customers' expectations are greater than their perceptions of the delivered service they are dissatisfied and feel the quality of the Store service is poor. Thus
, Starbucks need to reduce the service gap to improve customers' satisfaction with their service.
Fig1
Four factors affect the service gap at Starbucks :
Knowledge gap is the difference between expectations from visitors and the Starbucks perception. while Standards gap is differences between Store perceptions and the Starbuck guest, then comes Delivery gap which is differences between the store service standards and the actual service provided to guest & finally comes Communication gap which is difference between service provided and the service promised in the Store promotional campaign.
These 4 gaps all together increases the service gap. Starbucks objective is to reduce the service gap by reducing each of the 4 gaps. Starbucks improving its service quality by :
- understand the level of service customers expect,
- set standards for providing customer service,
- implement programs for delivering service that meets the standards.
3.1- Research Target Customer Expectations and Perceptions
The most critical step in providing good service is to know what the customer Needs. Lack of information can result in poor decisions. for example, a Starbucks might hire extra people to make sure the Products and store layouts as organizes so customers will always find what they want, but it may fail to realize that customers are most concerned about waiting in line to order. From the customer's perspective, the Store service would improve if the extra employees were used to serve individual guest lines rather than to working in the backroom.
Starbucks can reduce the knowledge gap and develop a better understanding of customer expectations by undertaking customer research, increasing interactions between Store managers and customers, and improving communication between managers and employees who provide customer service.
Market research also can be used to better understand customers' expectations and the quality of service provided by starbucks in UAE. Methods for obtaining this information range from comprehensive surveys to simply asking customers about the store's service.
Question:
**For the full survey see Appendix 1
Starbucks can track service performance, determine whether it is improving or declining, and identify opportunities for improving service quality, in the above questionnaire the customer was somewhat satisfied with 50% which means there is a lot to do to make customer satisfied
Gauging Satisfaction with Individual Transactions Another method for customer research is surveying customers immediately after a retail transaction has occurred. For example, Starbucks employees who service customer at store ask you guest to fill a short survey which describing how helpful, professional, and organized the customer service employees were. Customer research on individual transactions provides up to date information about customers' expectations and perceptions. The research also indicates the Store interest in providing good service. Because the responses was higher and linked to “very satisfied “, which means they work to satisfy the .in some case ,this research like this can provides a method for rewarding employees who provide good service and correcting those who exhibit poor performance.
Customer Panels and Interviews I have surveying many customers, with help of Starbucks employee panels of 30‑ customers to gain insights into expectations and perceptions. Another example in how this can be done internally , some store managers might meet once a month for an hour with a select group of customers who are asked to provide information about their experiences in the stores and offer suggestions for improving service, I have choose the first method to go with.
Interacting with Customers Owner managers of small retail firms typically have daily contact with their customers and thus have accurate firsthand information about them. In large retail firms like starbucks , managers often learn about customers through reports, so they may miss the rich information provided by direct contact with customers.
Customer Complaints complains allow retailers to interact with their customers and acquire detailed information about their service and merchandise. Handling complaints is an inexpensive means to isolate and correct service problems. In starbucks case when I asked the following question to its customer , I got 50% of them “once “ and 33.4% twice , which still show that starbucks here dose not have good customer complains system as in USA.
Question :
Using Technology New, affordable information technology packages are enabling even small retailers to improve their customer service by maintaining and providing customer information to sales associates. The Customer service staff at Starbucks in U.S. uses a clientele application with its customer database to track the buying history of its B2B customers and provide customer service. . in addition its applied to B2C in small Scale . in Emirates its not implemented yet .
Feedback from Store Employees: Customer Service ,sales and other employees in regular contact with customers often have a good understanding of customer service expectations and problems. This information can improve service quality only if the employees are encouraged to communicate their experiences to high‑level managers who can act on it.
Some retailers regularly survey their employees, asking questions like,
I. What is the biggest problem you face in delivering high‑quality service to your customers?
2. If you could make one change in the company to improve customer service, what would it be?
3.2- Using Customer Research
Collecting information about customer expectations and perceptions isn't enough. The knowledge gap is reduced only when retailers use this information to improve service. For example, store managers should review the suggestions and comments made by customers daily, summarize the information, and distribute it to store employees and managers ,see the Starbucks customer survey Appendix1 .
Feedback on service performance needs to be provided to employees in right time. Reporting the March service performance in next year January makes it hard for Store employees to reflect on the reason for the reported performance. Feedback must be prominently presented so service providers are aware of their performance, this leds to if starbucks care about customer they need to take the survey into account now not later .
3.3- Commitment to service Quality
After retailers gather information about customer service expectations and perceptions, the next step is to use this information to set standards and develop systems for delivering high‑quality service. Service standards should be based on customers' perceptions rather than internal operations. For example, STARBUCKS manger might set an operations standard of a customer service every day which leads to Service excellence which occurs only when decision maker provides leadership & commitment. And they need to be able to increase the expensive with high quality service Targeted ,This commitment needs to be demonstrated to the employees charged with providing the service. For example in my research I found customer has 44% vary satisfied and 33% about average starbucks in UAE , at lease of this what they are thinking , may be because of one of previous 4 Gap explained before., but this show that the quality of product is not fresh at all especially the food
Question:
3.4- Give information and Training
Starbucks store employees need to know about the retailer's service standards and the coffee product they offer, as well as their customers' needs. With this information, employees can answer customers' questions and suggest products. This knowledge also instills confidence and a sense of competence, which are needed to overcome service problems. For example,: in the question about Starbucks- UAE- Store service employee are well trained., 50 % average agree , this mean the customer perception need to be changed by train the real employee to show that they are well knowledgeable.
Question :
Question :
In addition, store employees need training in interpersonal skills. Dealing with customers is hard‑particularly when they're upset or angry. All store employees, even those who work for retailers that provide excellent service, will encounter dissatisfied customers.
3.5- Provide instrumental and Emotional Support
Service providers need to have the instrumental support (the appropriate systems and equipment) to deliver the service desired by customers. For example, starbucks chain installed a computer system to speed up the order and track process.
3.6- Improving internal Communications
When providing customer service, store employees often must manage the conflict between customers' and the Starbucks needs. For example, many retailers have a no questions asked return policy. Under such a policy, the retailer will provide a refund at the customer's request even if the products wasn't purchased at the store or was clearly used improperly. From customer side its was fantastic because of most of customer believes that starbucks has good return policy !
3.7- Empower Store Employees
Retailers use message boards, chat rooms, and blogs on their Web sites to provide a valuable service by enabling customers to communicate with one another. Message boards are locations in an Internet site at which customers can post comments. Chat rooms are locations at which customers can engage in interactive, real time, text based discussions.
3.8- Providing Incentives
many retailers use incentives, like paying commissions on sales, to motivate employees. But retailers have found that commissions on sales can decrease customer service and job satisfaction and motivate high-pressure selling, which leads to customer dissatisfaction. However, incentives can also be used effectively to improve customer service. For example, in one retail chain, managers distribute notes to store employees when they solve a customer's problem. The notes can then be converted into a cash bonus. This program was particularly effective because the reward was provided at about the same time the appropriate behavior occurred
3.9- Develop Solutions to service Problems
The previously discussed approaches for closing the service gap rely on informing, empowering, and motivating store personnel to provide better service. Starbuck also use systems and technology to close the delivery gap.
4 - How the target customers are actually getting affected by these strategies :
- Starbucks increase customer satisfaction , Service problems give chance to Starbucks to show its commitments to Provide high quality customer service in the store , by encouraging customer complaints , starbuck has the opportunity to strengthen its relationship with its customer , start bucks has very effective way for handling the problems which summarized on the following three points :
1. Starbucks employees listening to customer, give chance to customer to be the king , listen to them and allow them to speak without interruption .
2. Starbucks Providing s fair solutions to customer and during the problem Store employee try to get the customer back
3. Starbucks resolving problems Quickly because store customer satisfaction is effected by time.
- Customer Evaluations of Service Quality: When customer try to evaluate Starbucks as they compare the perception of the service they receive with their expectation , customer used to be happy when perceived service meet or exceeds expectations
a- The Role of expectation : Starbucks customer expectation comes from their knowledge , expectation and brand awareness , they donot expect to get repose on telephone call same as email , technology is dramatically changed the way in which the customer or the retail store interact , for example using high tech equipment at starbucks store has followed with great customer satisfaction referred to as customer delight , making free parking space has been widely expected from store you need to spend long time on it (second home)
Starbucks spend up to 30% of their operating budget to meet customer satisfaction .
b- Perceived Service
Based on research one quarter of customer unsatisfactory service as more likely to drive customer away from store permanently than any other aspect of the visiting experience , its very hard for starbucks customer to evaluate intangible service based on unsystematic way ,there is five key used to guide the customer in their evaluation : reliability ,assurance tangibility , empathy and responsiveness .
1. Reliability :accuracy of accounting system , meeting promised delivery dates for some coffee machine as example.
2. Assurance : trust and return policy for some purchased item
3. Tangibility: appearance of store and employee
4. Empathy :personal service and email , phone and call by name.
5. Responsiveness: returning the call service using email or telephone or massage .
5- Conclusion to UAE Starbucks .
My conclusion based on the survey , Starbucks is bag U.S retailer chain has more than 44 subsidiaries in UAE , still the UAE branches has no strategies on some area , others they follow the mother company , Starbucks in UAE from customer service point view need to Know what they want. Talk to customers to know about their preference to help them choose Starbucks product that satisfies them . Sell for the whole week. 24hour 7 days in some selected locations. Build their knowledge in store. Use point-of-sale material to educate consumers about coffee characteristics. Encourage alternate usage ideas. They need creative preparation ideas to encourage consumers to try something new. Help them learn more. Direct your consumers to local web site for recipes and more information about Starbucks products and service in UAE
9. References
1- Philip Kotler ,2006, 12.th edn, Marketing Management, Prentice-Hall
2- Roger D. Blackwell, Paul W. Miniard, James F. Engel ,2006, 10.th edn, Consumer Behavior, Thomson, South-Western
3- Blackwell,R D, Miniard,P W and Engel, J F, 2006 , 10thedn ,Consumer Behavior, Thomson, South-Western.
4- Kotabe, M. and Helsen, K. 2001, 2nd edn, Global Marketing Management, Wiley
5- Schneider, S.C. and Barsoux, J.L., 1997,1st edn, Managing Across Cultures, Prentice-Hall
6- About us, “Starbucks coffee company” ,2006 , http://www.starbucks.com/aboutus/default.asp?cookie%5Ftest=1 (15 june 2007)
7- Abigail Mathias, Gulf News Report.” Ah! that perfect brew” , 2005 , http://archive.gulfnews.com/supplements/cafe_culture/main_story/188968.html. (15 june 2007)
8- M H Alshaya ,”Address for Starbucks Coffee in United Arab Emirates” 2006 , http://www.alshaya.com/showstoresdetail.jsp?ctryid=7&brandid=22 (16 june 2007)
9- Wikipedia,” Strategic management” 2006 , http://en.wikipedia.org/wiki/Strategic_management (20 june 2007)
10- Czinkota, M.R., Ronkainen, I.A. and Moffett, M.H. 7th edn ,2005 International Business,Thomson/South-Western.
11- Emerson,” Starbucks History and Timeline: ” 2003 , http://pages.emerson.edu/Courses/Fall03/IN115A/Assignments_In/midterm/vendriger/coffee_culture/page7.html (25 june 2007)
12- Guardian Newspapers.” Starbucks breaches Great Wall of China” , 2005 , http://blogs.guardian.co.uk/news/archives/2005/09/20/starbucks_breaches_great_wall_of_china.html. (27 june 2007)
13- Power of attorneys,” Starbucks Takes To The Courts In China” 2004 , http://www.power-of-attorneys.com/starbucks_china_lawsuit.htm (29 june 2007)
14- Gprussia,” Strategy” 2004 , http://fac-staff.seattleu.edu/gprussia/web/mgmt380/Strategy.ppt (1 june 2007)
15- MTVnews,” Starbucks Coffee - Executive Summary: ” 2003 , http://www.echeat.com/essay.php?t=28401 (16 june 2007)
16- McGraw-Hill Companies,” Starbucks Corporation:Public Company 1992 : ” 2003 , http://www.mhhe.com/business/management/thompson/11e/case/starbucks-2.html (16 june 2007)
Appendix
Saturday, August 25, 2007
Sony Betamax failure By Ehab Abusabha
Sony Betamax 1975- 2002
History of Sony:
The VISION: to give shape to the future, The COMMITMENT: to create new technologies, The INSPIRATION: to fashion a new lifestyle, The CONVICTION: to launch the digital era, The COURAGE: to achieve the digital dream.
SONY. DOING WHAT OTHERS HAVE NOT.
1- How It All Began
In a burnt-out department store in Tokyo in May 1946 just after World War II, Masaru Ibuka and Akio Morita founded Tokyo Tsushin Kogyo (Tokyo Telecommunications Engineering Company), with the aim of developing products and technologies
In 1950, Ibuka and Morita created Sony’s first hardware device: a tape player/recorder called the G-TYPE recorder. Materials were in such high demand that the first tapes were made of paper with hand painted magnetic material applied by Sony’s first engineers.
In 1953, the company earned licensing rights to the transistor from Western Electric.
In January 1958, the company name was subsequently changed to Sony Corporation. In 1955 they introduce electric rice cooker, followed by Betamax in (1975) , Trinitron color television (1968); Walkman personal stereo (1979); Compact Disc player (1982) ; Betacam for broadcast use (1982); Floppy Disk (1983); Handycam (1985); MiniDisc (1992); PlayStation (1994); DVD (1997); Memory Stick (1998); AIBO (1999); PlayStation 2 (2000) and CLIE, Sony's personal entertainment organiser (2000)
2- Betamax
During the 1970s, Sony developed a machine designed to deliver home video-taping equipment. The machine used Betamax technology, and hit the stores in 1975. In its first year, 30,000 Betamax video recorders (or VCRs) were sold in the United States alone. But a year later Sony’s rival JVC came out with the VHS – short for ‘video home system format VCR.
By January 1977, there were four more Japanese electronics companies manufacturing and marketing VHS-based machines.
At the same time only Sony manufacturing Betamax which has tape quality superior to its rival at that time consumers were forced to decide between them, from 1981 onwards Betamax-based machines were rapidly losing popular favor and owners were becoming increasingly aware of one serious failing. Whereas VHS machines could record for a considerable length of time, Betamax machines could only record for one hour (football matches couldn’t be recorded)
Actually, Sony focus on enhancing sound and picture quality (took as many as three cassettes to show an entire movie) , This caused frustration both among video owners, who had to swap tapes over, at same time VHS succeed was that you could get a whole movie on a tape and consumer came to know that VHS delivered value on a dimension that mattered to consumers which lead to Sony lost market share but the number of units sold still continued to rise in 1984 with peaking of global sales of 2.3 million units, three years after in 1987 VHS had gone way beyond the tipping point with a 95 per cent share of the market.
On 22 August 2002 Sony finally announced it would be discontinuing Betamax products
And they introduce the first Sony VHS player at the same time of this announcement, now, of course, VHS itself is under threat from the rapid rise in digital versatile disc (DVD) players.
3- The reasons of Sony Betamax failure
The reasons of failure will be explained from two points of view:
3-1-The Market Researchers View:
• Sony researchers focused during their research only on what the market need not the customers need which explain the failure by Sony to appreciate the advantage in consumers' minds of extended taping time versus reduced tape.
• Sony refused to license its format or technology with other companies which will directly affects the win or loss risks.
• Betamax VS VHS: in 1976 Matsushita developed new product called VHS which is bigger in the size, Shared by 4 companies, Had extra features & less in price.
• in 1979, Universal Studios and Disney took legal action against Sony, claiming VCRs were infringing the copyrights of movie producers.
• Sony researchers do not segment their market, but they used the mass marketing strategy.
• There were no plans to collect customer’s feedback to do the necessary modifications needed on their product.
• MRs has no alternatives plans to cover the risk of loss such as they can develop the VHS to create new product (Super VHS) to help establishing a broadcast-quality picture(which is better in Sony-Beta) also as a new standard home video format.
Marketing Mix Element Sony
Product Product technology did not meet consumers’ needs
- Could only record for one hour
- Superior band width and resolution (opportunity for differentiation) but viewers couldn’t perceive a difference
Price - Skimming strategy conflicts with mass market approach
Promotion - Pitched the product to the mass market
- Did not promote product’s superior features to back-up technophiles
Distribution - Missed prerecorded tape distribution (very important to VCR owners)
Refused license to Hitachi
Targeting - Did not target early adopter categories; focus was on the mass market
Timing of market entry - Commitments to production of U-Matic design delayed entry to home market for VCRs
- Refused to delay entry to establish relations with Matsushita
3-2- Our Opinion:
• Sony failed to recognize that many consumers buy such items on impulse.
• Sony sells back on word of mouth advertising.
• Sony competitors (Toshiba-NEC-Sanyo-Zenith-Radio Shack & Aiwa) also sell back; this was a painful for Sony because it’s the only company, which produced Beta VCRs in the decline period of sales.
• Users & video shop owners where more likely to buy VHSs because to its recording time (2-6) hours which allowed them to store a full movie in one cassette, Saving shelf space, No need to arrange extra cassettes or to follow the recording timing when they need to record un attended movie or to copy it.
4- Sony from Failure to success:
All market indicators are showing that Sony has:
• Redefine the problem.
• Analyze it, by take a close look at the causes. And they know now what consumer want.
• Depersonalize it. While Sony must analyze their mistakes, you won't learn anything if you're too busy beating up on yourself.
• Change it. OK, they now know what went wrong. And change their Product strategy.
• Get over it. Sony has Move on, they start manufacturing VHS player,
5- Lessons from Betamax
1- Don’t go alone. ‘Contrary to popular belief, what would help every category pioneer is competition,’ says Al Ries. True, providing the competition isn’t pushing a format incompatible with your own.
2- Let others in. Whether Sony refused to license its format or not, there is no question that the company would have had a better chance if its rivals had adopted Betamax.
3- Cut your losses. Sony’s decision to ignore VHS until 1987 was, with hindsight, an undeniable mistake.
4- Supply equals demand. When the manufacturers of pre-recorded tapes decreased their supply of Beta format tapes, demand for Sony’s Betamax recorders inevitably waned
History of Sony:
The VISION: to give shape to the future, The COMMITMENT: to create new technologies, The INSPIRATION: to fashion a new lifestyle, The CONVICTION: to launch the digital era, The COURAGE: to achieve the digital dream.
SONY. DOING WHAT OTHERS HAVE NOT.
1- How It All Began
In a burnt-out department store in Tokyo in May 1946 just after World War II, Masaru Ibuka and Akio Morita founded Tokyo Tsushin Kogyo (Tokyo Telecommunications Engineering Company), with the aim of developing products and technologies
In 1950, Ibuka and Morita created Sony’s first hardware device: a tape player/recorder called the G-TYPE recorder. Materials were in such high demand that the first tapes were made of paper with hand painted magnetic material applied by Sony’s first engineers.
In 1953, the company earned licensing rights to the transistor from Western Electric.
In January 1958, the company name was subsequently changed to Sony Corporation. In 1955 they introduce electric rice cooker, followed by Betamax in (1975) , Trinitron color television (1968); Walkman personal stereo (1979); Compact Disc player (1982) ; Betacam for broadcast use (1982); Floppy Disk (1983); Handycam (1985); MiniDisc (1992); PlayStation (1994); DVD (1997); Memory Stick (1998); AIBO (1999); PlayStation 2 (2000) and CLIE, Sony's personal entertainment organiser (2000)
2- Betamax
During the 1970s, Sony developed a machine designed to deliver home video-taping equipment. The machine used Betamax technology, and hit the stores in 1975. In its first year, 30,000 Betamax video recorders (or VCRs) were sold in the United States alone. But a year later Sony’s rival JVC came out with the VHS – short for ‘video home system format VCR.
By January 1977, there were four more Japanese electronics companies manufacturing and marketing VHS-based machines.
At the same time only Sony manufacturing Betamax which has tape quality superior to its rival at that time consumers were forced to decide between them, from 1981 onwards Betamax-based machines were rapidly losing popular favor and owners were becoming increasingly aware of one serious failing. Whereas VHS machines could record for a considerable length of time, Betamax machines could only record for one hour (football matches couldn’t be recorded)
Actually, Sony focus on enhancing sound and picture quality (took as many as three cassettes to show an entire movie) , This caused frustration both among video owners, who had to swap tapes over, at same time VHS succeed was that you could get a whole movie on a tape and consumer came to know that VHS delivered value on a dimension that mattered to consumers which lead to Sony lost market share but the number of units sold still continued to rise in 1984 with peaking of global sales of 2.3 million units, three years after in 1987 VHS had gone way beyond the tipping point with a 95 per cent share of the market.
On 22 August 2002 Sony finally announced it would be discontinuing Betamax products
And they introduce the first Sony VHS player at the same time of this announcement, now, of course, VHS itself is under threat from the rapid rise in digital versatile disc (DVD) players.
3- The reasons of Sony Betamax failure
The reasons of failure will be explained from two points of view:
3-1-The Market Researchers View:
• Sony researchers focused during their research only on what the market need not the customers need which explain the failure by Sony to appreciate the advantage in consumers' minds of extended taping time versus reduced tape.
• Sony refused to license its format or technology with other companies which will directly affects the win or loss risks.
• Betamax VS VHS: in 1976 Matsushita developed new product called VHS which is bigger in the size, Shared by 4 companies, Had extra features & less in price.
• in 1979, Universal Studios and Disney took legal action against Sony, claiming VCRs were infringing the copyrights of movie producers.
• Sony researchers do not segment their market, but they used the mass marketing strategy.
• There were no plans to collect customer’s feedback to do the necessary modifications needed on their product.
• MRs has no alternatives plans to cover the risk of loss such as they can develop the VHS to create new product (Super VHS) to help establishing a broadcast-quality picture(which is better in Sony-Beta) also as a new standard home video format.
Marketing Mix Element Sony
Product Product technology did not meet consumers’ needs
- Could only record for one hour
- Superior band width and resolution (opportunity for differentiation) but viewers couldn’t perceive a difference
Price - Skimming strategy conflicts with mass market approach
Promotion - Pitched the product to the mass market
- Did not promote product’s superior features to back-up technophiles
Distribution - Missed prerecorded tape distribution (very important to VCR owners)
Refused license to Hitachi
Targeting - Did not target early adopter categories; focus was on the mass market
Timing of market entry - Commitments to production of U-Matic design delayed entry to home market for VCRs
- Refused to delay entry to establish relations with Matsushita
3-2- Our Opinion:
• Sony failed to recognize that many consumers buy such items on impulse.
• Sony sells back on word of mouth advertising.
• Sony competitors (Toshiba-NEC-Sanyo-Zenith-Radio Shack & Aiwa) also sell back; this was a painful for Sony because it’s the only company, which produced Beta VCRs in the decline period of sales.
• Users & video shop owners where more likely to buy VHSs because to its recording time (2-6) hours which allowed them to store a full movie in one cassette, Saving shelf space, No need to arrange extra cassettes or to follow the recording timing when they need to record un attended movie or to copy it.
4- Sony from Failure to success:
All market indicators are showing that Sony has:
• Redefine the problem.
• Analyze it, by take a close look at the causes. And they know now what consumer want.
• Depersonalize it. While Sony must analyze their mistakes, you won't learn anything if you're too busy beating up on yourself.
• Change it. OK, they now know what went wrong. And change their Product strategy.
• Get over it. Sony has Move on, they start manufacturing VHS player,
5- Lessons from Betamax
1- Don’t go alone. ‘Contrary to popular belief, what would help every category pioneer is competition,’ says Al Ries. True, providing the competition isn’t pushing a format incompatible with your own.
2- Let others in. Whether Sony refused to license its format or not, there is no question that the company would have had a better chance if its rivals had adopted Betamax.
3- Cut your losses. Sony’s decision to ignore VHS until 1987 was, with hindsight, an undeniable mistake.
4- Supply equals demand. When the manufacturers of pre-recorded tapes decreased their supply of Beta format tapes, demand for Sony’s Betamax recorders inevitably waned
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