Sony Corporation: The Walkman Line Harvard Case Solution & Analysis

Sony Corporation: The Walkman Line Case Study Analysis

Does Sony produce too many, too few, or the right number of Walkman models for the domestic market?

Sony produces right number of walkman models in the domestic market, because the product demand is lower than the overseas market and the company knew that if they produce more than the optimal; they would lose their profitability and if they produce in less quantity; they will lose to competitors. In 1985, the company produced eighteen modes under five categories for domestic market, and it remained same till 1992.However,the features of the products were updated for the customers’ satisfaction and innovation of products while categories remained the same.

However, in 1993; there was a pressure when the market trends started to change globally and Sony also came under the pressure to focus on electronic goods, with an extended life and stopped focusing majorly on the products’ variations. However, their 60 to 70 percent sales was from youngsters who wanted variations and latest technology in products and at that time; the consumers found Sony Walkman to be limited in the market as compared to competitors’ products.

How does Sony’s target costing system work? Why does Sony have such a primitive target costing system?

The target costing system was used to predict the allowable cost of a product designed. Target cost was determined in a two-step procedure. First, the target price of each product was calculated by eliminating the dealer and wholesaler's margins from the price point plus 10%, then, the initial cut-off target cost for a new product is measured by subtracting the group target profit margin from the product's target selling price. The resulting target cost was compared with the new product’s estimated cost.

Given that the target cost was much higher; the target margin was allowed to drop if another product with a sufficiently high target margin is detected to compensate for the loss. Once, all the individual product decisions were completed, a simulation of overall group profitability was run to ensure that the group's goal was achieved. If the group target is not achieved; the process was repeated until the acceptable target costs were determined to enable the group, in order to achieve its’ profitability targets.

Sony hired experts in their departments.However, initially their expenses were higher. As a result; Sony product planners were relatively confident about most of their predictions because of their successful predictions in the past, which made the company earn substantial profit. This trust allowed them to exchange the margins between products, rather than requiring each product to reach its target cost. The company did not have an absolute freedom to mitigate the products’ target cost.

As per the company policy; Sony will avoid selling products at a loss and in most circumstances; it will not sell the products that are below the minimum profit margin and this policy is made by the relevant managers of different departments. There is only one exception to this rule, and that was strategic products that Sony’ssenior management foundnecessary for investments, in order to create or grow the company’s market share, and managers believe that this would pay them off in the long run.(Cooper, 1997)...............................


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