Five Forces Model of Competition
Porter’s uses the five forces to give appropriate strategies that help in analyzing company’s position against any competitors within the market. The forces used include; the power of suppliers, new entrants, threats posed by substitutes, customers power and rivalry.
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Threats posed by new entrants
The music industry is one of the industries with extremely high start-up costs, this provides low rate of new entrants. The internet firms Napster, Kazaa, and Apple’s have explicitly utilized the distribution channels and also based their sales on strong brands making it difficult for the new entrants to penetrate.
This has made the competitors in this industry to try small markets in place of large markets that have been occupied by the bigger companies. Napster, Kazaa, and Apple’s have built a strong base over the years hence creating popular space within the computer industry (McGuigan, Moyer and Harris 382).
Status of the suppliers within the market
The business of music and computers is maintained using constant supply from numerous suppliers in the market. The larger companies Napster, Kazaa, and Apple’s makes the position within the market to be low since they can switch suppliers any time and feel no negative effects.
This has made the suppliers from the music industry to adjust on their prices and quality of products in order to attract bids from the big companies. This clearly shows that the competition is too high and leaves the suppliers with tough decisions to make (McGuigan, Moyer and Harris 333).
The status of Buyers within the market
Customers of internet firms Napster, Kazaa, and Apple’s have many options of computer companies where they can do their purchases. The costs involved when switching to any option is low making the buyers move at will. This is brought by the differences in cost, quality and services provided.
This has made the power of buyers to be strong within the music industry. Napster, Kazaa, and Apple’s should create a strong differentiation of products in order to counter this since it will raise the costs required for an individual to shift from one company to another. The companies can only find it difficult when differentiation is done within the computer operating systems (McGuigan, Moyer and Harris 64).
There are numerous substitute products in the music industry that are readily available for download. These companies have to put extra effort in order to convince customers of the superiority of their products. This calls for more differentiation of the music products that these companies deal with.
The differentiation of the operating systems of these companies can command higher pricing only when channelled through other options other than individual buyers. Napster, Kazaa, and Apple’s can counteract this by locking business facilities to enable change to occur within the facility or more than one region. The connectivity of music industry within the internet has increased the possibility of switching individual units keeping other things constant (McGuigan, Moyer and Harris 230). Level of Rivalry
Napster, Kazaa, and Apple’s have other competitors with the potential of commanding larger portion of the market share. Competition is high in the music industry since the switching costs are very low. The internet music industry has so many companies copying one another. This has made it tricky for Napster, Kazaa, and Apple’s to expand (McGuigan, Moyer and Harris 383).
Why was the Internet a disruptive technology for Sony music?
The internet brought about possibility of mass piracy and theft of intellectual property. It was a disruptive technology for Sony since it allowed consumers to easily share music songs which offered high competition to the offline distribution companies like Sony.
It contributed towards elimination of business intermediaries and reduced the costs involved in transacting businesses. Internet technology also eliminated the constraint that Sony Corporation had on limiting themselves only to best selling music due to storage space (McGuigan, Moyer and Harris 383).
What should eSony music’s competitive strategy in response to this crisis?
Sony Corporation’s strategy is to use major and independent labels. This is done by construction of viable and licensed infrastructures used for selling music within the digital market to prevent further infiltration of disruptive technologies. In-order to compete fairly Sony offers catalogues rich in modern and popular songs; they also provide interfaces that are easy to use, offering relatively low prices, information on live concerts and recommendation data.
Elimination of certain costs that goes with selling of products. For example, packing and shipping by distributing all songs and albums through online music stores. Sony also plans to apply the use of Internet proxies which prevent the direct connection between up loaders and down loaders.
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This interruption is made possible by digital middlemen. The files pass through other set of computers before finally being downloaded. The use of software that enhances privacy and the methods used in file download system. This software enables a song to be scrambled and downloaded as raw opaque data, which is not clearly understood. The actual song is not downloaded until the actual keys are granted (McGuigan, Moyer and Harris 545).
Sony Corporation’s business mainly deals with manufacturing of electronics. It currently runs business programs that deal with distribution of movies and music contents, video games and financial services. The fierce competition comes from big companies such as Apple’s and Panasonic. The strength of Sony lies in its wide range of products, the ability to source internally key components and getting involved in strong alliances (McGuigan, Moyer and Harris 644).
The opportunities that the company can utilize include actions such as moving into new market segments within the global environment that provide lucrative returns. They also need to increase their responses to market needs and diversify their production line. In order to do all these, there is need for the company to carry out quarterly analysis of available market opportunities in order to identify rich consumer markets (McGuigan, Moyer and Harris 333).
Product differentiation strategy
Sony Corporation has to utilize its resource strengths that include the strong brand name, ownership and distribution strategies. The competitive strategy for Sony is product differentiation since most of its products are more less the same as those for other companies i.e. CD player for Sony is the same as that for Panasonic.
Therefore for Sony to achieve competitive advantage in the line of product differentiation, the company should focus on building new core products that appear unique, interesting and of high quality like play stations. The creation of new core products makes it difficult for other competitors to enter the market place. For example, Sony should manufacture mini disc players that have in-built default memories to facilitate downloading of music (McGuigan, Moyer and Harris 62).