Company Case Study of Technics SL Ltd

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Company Case Study of Technics SL Ltd

Background

The company that I have chosen to look at is Technics SL Ltd, a subsidiary company of Technics Ltd, which is now owned by Panasonic. Technics main purpose of business is home entertainment systems but Technics SL Ltd concentrate their efforts toward turntable production. They currently produce 2 products, the SL1200MK2, SL1210MK2. (Appendix 1)

• Technics announced the world’s first direct drive turntable in 1969, the SP10.

• In 1971 they marketed the SL1100 direct drive system featuring an innovative design, which had the world’s first diecast aluminium case.

• In 1972, Technics launched the Silver SL1200MK1 direct drive turntable, which out shone all their previous turntable releases because of its superb handling and design.

• In 1973, Technics were awarded the blue ribbon award for the SL1200MK1, they personally thanked hip-hop DJ’s such as Africa Bambattaa, Grand Master Flash and Cash Money, amongst many others, for promoting their product.

They began to believe at this point that, the use for which the product was sold (mixing), was actually marketing itself as the DJ culture rapidly grew.

In light of this they spent little on advertising from this point onwards believing that this would achieve much higher perceived customer value. They realised that their market was very much a niche market, so in the same way that Ferrari, market themselves, they concentrated less on advertising, more on word of mouth, and invested heavily on research and development (R&D).

In 1980, Technics launched the SL1210, which was a black version of the SL1200. They had identical operating mechanisms inside both. Technics did this because they saw that most home entertainment companies during the 1980’s were bringing out the majority of their products in black. Technics understood that although the majority of their clientele did consist of DJ’s and clubs, they also had demand from consumers wanting a luxury product for home use, as part of a hi-fi system as vinyl was the most used format to that date. This option of black casing was designed to cater for this segment.

After almost 9 years of development, Technics released the SL1210MK2 turntable a slightly more robust, solid version of the MK1, built specifically to satisfy professional use. For this, they received The Gold Disc Award from the Spanish magazine ‘Disco’, which itself was dedicated to club culture, for their innovative quartz lock design which was implemented into the SL1210 mark two.

In 1987, Technics held their first DJ Mixing Competition (DMC) brought on by the rapid rate at which the 'DJing' craze was now growing and the following that it developed. They saw this as the only advertising they needed and sponsored the event offering a pair of Technics SL1200MK2 turntables to the winner. For them, there was nothing better than the best DJ’s from around the world competing head to head showing off their much studied and self-developed talents to the people that were interested in them. Technics were at the forefront of this DJ culture as at the time they had no rivals in the market. No other manufacture had attempted to challenge Technics and their innovative product and design, and so Technics continued to build and sustain their reputation and image as the industry standard for the serious DJ.

By 2001, Technics SL-1210MK2 featured in the London Science Museum 'Most significant Exhibition in living memory’. The role of the Technics SL-1210 turntable as a major influence on popular culture has been acknowledged by its inclusion in this exhibition. It featured with 150 of the most important and influential objects from the last 250 years including Stephenson’s rocket and the Apollo capsule as well as more modern items.

Today, Technics SL Ltd. is worth over $12 million and they sell to every major city in the world.



Research Objective

Technics have relied heavily, until now, on their established brand name as industry standard to sell itself and have held pride in the fact that their product has stayed as market leader, with no major changes being made to it, for almost 21 years. They have trusted so much in the product that they believe by changing it, they would lose their market share and competitive edge. My own observations suggest that, yes this may have been the case when Technics were manufacturing their product up until the mid 90’s. But at this point other manufacturers such as Vestax, Gemini and Numark began to emerge into the DJ turntable market. My belief is that the innovative functions that these new turntable manufacturers began to offer had a different appeal to DJ’s than the much trusted Technics SL’s. My research will aim to show :

• If lack of product development has hindered their competitive edge?

• How they can increase market share? and reduce the effects from their competitors in future?



For the purpose of this research I will assume the position of an external marketing advisor acting in good faith for the company. I aim to be as accurate in my observation and evaluation as possible, giving a clear indication as to how the company can re-build their competitive edge and the effect these progressions may have on future organisational activity.



Research Approach

The literature that I will be using to conduct my research is:

• Kotler’s (1996) Product Concept

• McCarthy’s (1964) 4P Framework

• Porter’s (1980) Porter’s Generic Strategy

• Porter’s (1980) Porter’s Five Forces



Using the idea’s from Kotler’s (1996) Product Concept and The Marketing Concept I will look at the 4 main competitors under McCarthy’s 4P Framework: Product, Price, Place and Promotion.

This is a widely used philosophy that underlines all marketing decisions and assessment. The Product concept identifies that by improving the product in terms of Product, Price, Promotion and Places sold it will increase competitive edge and product profitability (Kotler, 1996).

Adcocks (2001) states that much off the criticism of the traditional 4P’s is based on the restrictive nature of the elements and the naïve application, which can lead to real strategic problems. Nevertheless, many of the outcomes of an organization can be categorized using the traditional framework of the 4P’s.

However, using the 4P’s as an analysis tool to examine marketing strategies maybe, if applied correctly, some what beneficial but, it sheds little light on the ‘how and why’ the company derived at there product position and strategic marketing decisions. It simply acts as a snapshot tool that assesses what company is doing currently. It does not highlight problems such as purchasing of parts, the manufacturing process, and management structure and whether there is sufficient money for product development.

For example, rival companies such as Vestax maybe able to offer a cheaper retail price of their product due to lower cost bases. The 4P’s will not highlight such factors. However, the purpose of this analysis is not to delve into financial and supplier matters too much, but to establish how Technics can build higher perceived value and benefits to customers and thus, an increased competitive edge over rivals. By looking at the Four P’ we can strategically analyze what one company is doing and what one is not doing.

Also, the 4P’s does not involve a customer perspective (Adcock, 2001). The results do not show what the customers needs, wants and demands are but simply show what the customer is currently getting. Therefore, a customer perspective will be taken from numerous surveys that have been conducted by the magazine DJ and sapphires.co.uk, dated between December 2000 and March 2002. I found these surveys and reports to be the most relevant to my research as to identify customer needs, wants and demands as they where mainly compiled from DJ’s themselves from home users to professional users. One of the problems with using such information is that it can often be interpreted wrong leading to incorrect customer perspective if one view is followed to tightly. So I have used this information in conjunction with my own observations and interactions as a DJ.

Michael Porter (1980) has argued that a firm’s strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation and focus. They are called generic strategies because they are not firm or industry dependant. Using Porter’s Generics Strategies, I will aim to suggest ways in which Technics can increase their competitive edge.

The problem with Porter’s Generic Strategies(1980) is that the principles seem to exist without consideration to competition, buying power, suppliers power, threat of substitutes and make no suggestion as to how the strategy is actually implemented. However, they do provide a basis on which to idealize different forms of strategy that are available to an organization and the risks and benefits involved in implementing each one.

Next, by adapting Porters’ Five Forces, we enable ourselves to see how some of the characteristics of the generic strategies may effect any decisions made by the organization. The results of this will provide the last step of the framework in order for a manager to build competitive strategies for the organization.



Results

Using the results from market share studies done by DJ magazine the following market shares were given.









The graphs show a considerable drop in market share for Technics, from 50% in 1996 to 37.5% in 2001. They identify the main competitors in the market as Vestax, Gemini and Numark.

Firstly using McCarthy’s (1964) 4P Framework we can comparatively look at Technics SL ltd and the main competitors in the market under the headings Product, Price, Place and Promotion. For the purpose of this research it is unnecessary to delve into every single aspect of each company and each turntable. This would become much to complex for the reader to contemplate and it is only necessary to point out the major differences between the companies on these grounds.



Industry analysis using 4P framework: Product, Place, Price and Promotion



Technics currently only market two products, the SL1210 and the SL1200, which are actually the same product in two different colours, silver and black, standard retail price is £325. Vestax, Numark and Gemini all offer a range of turntables from beginner turntable to professional turntables. The prices vary between £100 and £450. Vestax have opted for a higher price and higher quality on their products in an attempt to adopt higher customer value than Technics claiming that the additional features it offers are shown in the price, £400-£450. Gemini and Numark mainly concentrate their focus on the lower priced turntables, which are not as robust, but this is reflected in their low price. They have done this in an attempt to penetrate the lower end of the market.

Some of the main features that have come out in the last 5 years have been the reverse play mode, replaceable pitch, replaceable display light, 78rpm option and detachable power and audio leads (Appendix 2). All of which are not currently available on Technics turntables.

In terms of places sold, it hardly varies from manufacturer to manufacturer. Turntables are purchased mainly by specialist retailers, who then compete between themselves to offer the best prices. Specialist retailers seemed not to compete on which product was sold as the customer in this buying situation is often sure which turntable he wants, but not how cheap he can get it. However, the differences I found from researching was that the specialist retailers competed in margins of £20- £30 between each, nothing that enormous and so most people often purchased from the place that was closest or offered free delivery.

In terms of promotion, the major differences found were that Gemini and Numark often produced magazine advertisements which was not found in Technics or Vestax. Alternatively, Technics have opted to stick with their much recognized DMC tournament to promote their product and Vestax have followed suit with their ITF championships.

From the 4P’s we can see that the main problems hindering the competitive edge of Technics is innovation of new features and price. Competitors have only succeed by offering a product which either exceeds the capabilities of a Technics turntable or is offered at a cheaper price.



Application of Porter’s Generic Strategies

The following table illustrates Porter’s Generic Strategies



Porter's Generic Strategies

Target Scope Advantage

Low Cost Product Uniqueness

Broad(Industry Wide) Cost Leadership Strategy Differentiation Strategy

Narrow(Market Segment) Focus Strategy(low cost) Focus Strategy(differentiation)



By looking at the different strategies as identified by Porter(1980) we can assess the benefits and risks involved in Technics deciding to implement one of them.



Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a given level of quality. It suggests that Technics could either sell its products at average industry prices to earn a profit higher than rivals could, or below the average industry prices to gain market. In the event of a price war, Technics would be able to maintain some profitability while the competition suffers losses. Even without a price was, as the industry naturally matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership usually targets a broad market.

Some of the ways in which Technics could acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their cost bases by similar amount, the firm may be able to sustain a competitive advantage based on cost leadership.

Firms that succeed in cost leadership often have the following internal strengths:

• Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome

• Skill in designing products for efficient manufacturing, for example, having a small component count to shorten assembly process

• High level of expertise in manufacturing process engineering

• Efficient distribution channels



Porter(1980) explains that the adoption of each generic strategy adds its own risk, including the low cost strategy. For example, other firms may be able to lower their costs as well. As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive edge. Additionally, several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share.



Differentiation Strategy

Adopting Porters differentiation strategy would call for the further development of the product or service (turntable or the way it is sold) that offers some unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. This higher price will aim to cover the extra costs incurred in the offering of the new product. Because of the product’s unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find a substitute product or equally attractive product(turntable) easily.

Firms that succeed in differentiation strategy often have the following internal strengths:

• Access to leading scientific research

• Highly skilled and creative product development (this is shown to be true in other areas of Technic and Panasonics business e.g. Home entertainment systems where they are often pioneers of new technology)

• Strong sales team with the ability to successfully communicate the perceived strengths of the product

• Corporate reputation for quality and innovation

The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Additionally, various firms pursuing focus strategies may be able to achieve greater differentiation in their market segments.



The Focus Strategy

The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly. Because of the narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers. However, firms pursuing a differentiation- focused strategy may be able to pass higher costs on to customers since close substitute products do not exist.

Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well.

Some risks of focus strategy include imitation and changes in the target segments.

Furthermore, it may be fairly easy for a broad market cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out sub segments that they can serve better.



These generic strategies are not necessarily compatible with one another. If a firm attempts to achieve an advantage on all fronts, in this attempt it may achieve no advantage at all. For example, if a firm differentiates itself by supplying very high quality products, it risks undermining that quality if it sees to become a cost leader. Even if the quality did not suffer, the firm would risk projecting a confusing image. For this reason, Michael Porter(1980) argued that to be successful over the long term, a firm must select only one of these 3 generic strategies. Otherwise, with more than one single generic strategy the firm will be ‘stuck in the middle’ and will not achieve a competitive advantage.

Porter argues that firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy. By separating the strategies into different units having different polices and even different cultures, a corporations less likely to be ‘stuck in the middle’.

However, my viewpoint suggests that a single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality, style, convenience and price. There have been cases in which high quality producers faithfully followed a single strategy and then suffered greatly when another firm entered the market with a lower quality product that better met the overall needs of the customers.



Generic Strategies and Industry Forces

These generic strategies each have attributes that can serve to defend against competitive forces. The following table compares some characteristics of the generic strategies in the context of Porter’s five forces



Industry Force Generic Strategies

Cost Leadership Differentiation Focus

Entry Barriers Ability to cut price in retaliation discourages potential entrants. Customer loyalty can discourage potential entrants. Focusing develops core competencies that can act as an entry barrier.

Buyer Power Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives.

Supplier Power Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

Threat of Substitutes Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products & core competency protect against substitutes.

Rivalry Better able to compete on price. Brand loyalty to keep customers from rivals. Rivals cannot meet differentiation-focused customer needs.



This table allows us to see how, by entering into any of the generic strategies, Technics may be presented with further obstacles to decrease their competitive edge. These must be considered before the final decision is made.



Recommendations

From analysing the main competitors under the 4P framework we can see that the main competitor strengths lie in:

Vestax; being able to offer innovative functions that Technics offer at a premium price.

Gemini and Numark; being able to offer a wide range of low priced turntables with innovative functions.

However, from the market share graphs we can see that Vestax hold the greatest market share next to Technics. Therefore, we can assume that there is more demand for a premium priced turntable, which offers innovative functions and added benefits.

It must be said however, that on the basis of Porter’s Generics, Technics have the ability to enter into any of the strategies identified due to the size of the company, substantial capital they have and also the already, well- established distribution channels.

I would suggest that Technics have two main options.

Firstly, they could adopt a Cost leadership strategy in the premium end of the turntable market. Due to the fact that Technics are still seen as a premium product they should try and lower cost bases and slightly and reduce the retail price to around £275-£300. This would raise the customer value of their turntable and hinder competitors marketing edge.

Alternatively they could opt to change their product and add such functions as; a replaceable pitch control, and reverse play mode. By adding these two functions I feel that Technics would not have lost their stylish image that they strive to hang on to. However, it would be more beneficial to Technics, if they opted for a differentiation strategy, that they should try to create a functions that has not been implemented into competitors designs already. However, the two functions named above are very important to DJ’s currently as they implement their use in their style of mixing.



References:

Texts

Marketing Strategies for Competitive Advantage; Dennis Adcock 2001

Principles of Marketing; Kotler, Saunders, Armstrong, Wong 1996

Competitive Strategy; Michael Porter 1980



Websites

www.mintel.com

www.emerald.com

www.quickmba.com

www.ft.com

www.technics.co.uk

www.technics.com

www.sapphires.co.uk


Journals

DJ magazine (issues dated between December 2000 and March 2002)

What Hi-Fi? (issues dated between December 2000 and March 2002)


Appendix 1:

Above the Technics SL1200 turntable in silver

Above the Technics SL1210 turntable in black


Appendix 2:

Reverse Play Mode; this enables the turntable to play backwards as well as forwards giving a different sound to the record.

Replacable display pitch; this enables the home user to replace the pitch control at ease and his/ her own convenience

78rpm otion; this gives the user the option of playing records at 78 revolution per minute instead of the just the usual 33 and 45 rpms

Detachable Power leads; this allows the user to disconnect the power leads from the back of the turntable as most turntables come with fixed power leads.

Article name: Company Case Study of Technics SL Ltd essay, research paper, dissertation