Page 341 - Introduction to Business

CHAPTER 9 Developing the Product and Pricing Mixes 315

Case in Point

Sony’s Product Lines Are an Important Asset
as It Considers Merger and Acquisition Possibilities

Sony’s financial performance which involve top-flight artists like Michael Jackson.
between 1998 and 2002 was mediocre. It was Some of Sony’s recent movies have been box
mainly caused by the poor performance of its office successes, including Spiderman, Spiderman 2,
electronics division, and the outlook for its media Men in Black, Stuart Little, Crouching Tiger, Hidden
sector is not good either. Its consumer electronics Dragon, and Black Hawk Down. Making the
divisions—TVs, DVDs, games, and camcorders— entertainment division even more attractive is that it
are very strong. Industry experts suggest that Sony finally became profitable in 2002, after years of
should jettison some of its non-competitive products, losses, due mainly to cost-cutting successes in film
such as computer peripherals, components, and and TV production.
chips, and either merge its entertainment section
Source: Ronald Grover, Tom Lowry and Irene M. Kunii, “How Sony
or spin it off. Could Sharpen Its Picture,” Business Week, March 11, 2002, p. 80.
A merger with MGM has been rumored; selling
the division outright makes financial sense. It has
Questions
been estimated that spinning off the entertainment
sector could fetch as much as $17 billion, more than 1. Should Sony get rid of its entertainment division?
three times what Sony spent in the 1980s to Why or why not?
acquire the music and film operation. Sony’s trump 2. Why are Sony’s movies, TV shows, and musical
card in any merger or acquisition decision is its recordings so valuable?
vast array of entertainment products. It owns the 3. What problems might Sony encounter if it
rights to 3,500 movies, 35,000 episodes of TV merged its entertainment operations?
shows, and 500,000 musical recordings, many of

This Schick ad introduces its new product, the Intuition razor, by indi-
cating the product’s benefits to purchasers.

and obtain digital photos. Its Xbox home console estab-
lished its presence in the video game market. And a new,
bold venture into home networking was also being consid-
6
ered. Not-so-successful Sunbeam—it filed for bankruptcy
in February 2001—is also introducing a number of new
products. CEO Jerry W. Levin realizes that without any new
small appliance products to complement its Mr. Coffee cof-
feemakers and Oster blenders, Sunbeam’s “prospects are
bleak.” Accordingly, a home electricity generator that is
powered by fuel cells and the Thalia line of “smart” appli-
ances—one of which is an alarm clock that downloads traf-
fic reports from the Web—will be added. 7
Why do Microsoft and Sunbeam and countless other
firms around the world develop new products? There are a
number of reasons. They develop and market new products
in order to remain competitive. Many firms believe that they
need to have at least 25 percent of their sales in five years
accounted for by new products in order to keep up with
competitors, who will also be bringing out new products
in that time period. There is also the need to replace

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