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Department of Marketing
First Batch, Session: 2011-2012 BBA 3rd Semester

XPERIA (Sony Smartphone) and its Market Structure Analysis

Submitted To:

Nusrat Jahan
Lecturer Department of Marketing University of Barisal

Submitted By:

Muktadir Hasan
Roll: M 385 Session: 2011-2012 Department of Marketing University of Barisal

Date: 17/02/2013

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Contents
Chapter Page

Introduction

03 04 05 08 08 09

1. Brand Overview 2. Competitive Analysis 3. Market Structure 3.1 A Few Large Producers 3.2 Differentiated Products

3.3 Control over Price but Mutual Interdependence 09 3.4 Entry Barriers 3.5 Mergers 4. Conclusion 10 10 12

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Introduction
Economists group industries into four market structure. They are Pure competition Pure monopoly Monopolistic competition Oligopoly

These four market models differ in several respects: the number of firms in the industry, whether those firms produce a standardized product or try to differentiate their product from other firms, and how easy or how difficult it is for firms to enter the industry. Pure competition Pure competition involves a very large number of firms producing a standardized product. New firms can enter or exit the industry very easily. Pure monopoly Pure monopoly is a market structure in which one firm is the sole seller of a product or service. Since the entry of additional firm is blocked, one firm constitutes the entire industry. Because the monopolist produces a unique product, it makes no effort to differentiate its product. Monopolistic competition Monopolistic competition is characterized by a relatively large number of seller producing differentiated products. There is widespread nonprice competition, a selling strategy in which one firm tries to distinguish its product or service from all competing products on the basis of attributes like design and workmanship. Either entry to or exit from monopolistically competitive industry is quite easy. Oligopoly Oligopoly involves only a few sellers of a standardized or differentiated product. So each firm is affected by the decisions of its rivals and must take those decisions in account in determining its own price and output.

Here I am trying to analyze XPERIA (Sony Smartphone) and its market structure deeply. Besides other electronic products Sony introduced us with its attractive and popular Smartphone series XPERIA.

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1. Brand Overview
Sony Xperia is the family of Sony Smartphone and tablets. The line has been manufactured since 2008 and currently accounts for more than half of the company's mobile phone sales. The name Xperia is derived from the word "experience", and was first used in the Xperia X1. Its tagline was - "I (Sony Ericsson) Xperia the best".

The Xperia X1 was the first phone to be released in the Xperia range. It was released in 2008. It featured a high resolution display (311 pixel density) and it was intended to fill the widening gap of smartphones as other competitors were producing high-end smartphone devices such as HTC and Apple. The X2 was released in the following year, which included an 8.1 MP camera and included Wifi and GPS. By this time there was a clear shift towards the smartphone end of the spectrum. An exception was the Xperia Pureness, a translucent phone without camera that was sold by selected retailers in selected cities. The X10 was released at the start of 2010. It was the first in the Xperia line to feature the Android operating system, where previous models ran on the Windows Mobile OS. The phone was praised on its design, but its downfall was the outdated version of Android which was 1.6 at a time when competitors were on 2.1. There was a great delay in the update of the firmware, due to the heavily skinned OS, as well as Timescape and Mediascape which needed to be reprogrammed every time an update was made. The phone also lacked pinch to zoom, but this was added later as well as HD video recording. The X10 Mini and the X10 Mini Pro were, as the name suggests, miniature versions of the X10. These were welcomed with good response and proved to be very popular as there were no other smartphones on the market at that time which was as small as the two.

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2. Competitive Analysis

Xperia has strong competitors. At 1Q 2012 top two of them grabbed 53.3 % market share wprldwide. Though Xperia own only a small percentage of market shares in the international market, this percentage may vary in respect of countries. The market share of Xperia is higher in UK than other countries. The descriptions of Xperias competitors market shares are given below:

Chart 2.1 Competitive of Xperia At 1Q 2011 the market share of Samsung Smartphone was 11.3 % but at 1Q 2012 it increase at 29.1% and it was the top market share in 2012. Apples market share was 18.3 % at 1Q 2011 and it raises 24.2% at 1Q 2012. As a result Nokia suffered. Its market share heavily falls in the market. 1Q 2011 it was 23.8% and at 1Q 2012 it falls to 8.2%. Peoples are choosing Android rather than Symbian. There are some other competitors those have also better market share. At 1Q 2012 RIM had 6.7% and HTC had 4.8% market share when Xperia had 4.5% market share worldwide. Now-a-days Xperia has many more competitors except these. Nexus, Motorola, HP, LG, Huawei, ZTE, Lenovo and Alcatel also compete to Xperia.

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A short description on Xperias competitors are given below:

Samsung
Samsung Galaxy is a series of mobile computing devices produced by Samsung Electronics, all of which use the Android operating system. It is the top profit earning Smartphone now and it has the top market share. At 1Q 2012 Samsung grabbed 29.1% market shares worldwide. It is the number one competitor of Xperia.

Apple
The iPhone is a line of smartphones designed and marketed by Apple Inc. It runs Apple's iOS mobile operating system, known as the "iPhone OS" until June 2010, with the release of iOS 4. The first generation iPhone was released on June 29, 2007. The most recent iPhone is the sixth-generation iPhone 5. It released on September 21, 2012. The user interface is built around the device's multi-touch screen, including a virtual keyboard. The iPhone has Wi-Fi and cellular connectivity (2G, 3G, 4G, and LTE). An iPhone can shoot video (though this was not a standard feature until the iPhone 3GS), take photos, play music, send and receive email, browse the web, send texts, and receive visual voicemail. Other functionsgames, reference, GPS navigation, social networking, etc.can be enabled by downloading apps; as of 2012, the App Store offered more than 775,000 apps by Apple and third parties. It is the second biggest competitor of Xperia. At 1Q 2012 it grabbed 24.2% market shares.

Nokia
Nokia Corporation is a Finnish multinational communications and information technology corporation that is headquartered in Keilaniemi, Espoo, Finland. Its principal products are mobile telephones. Nokia was the world's largest vendor of mobile phones from 1998 to 2012. However, over the past five years it has suffered a declining market share as a result of the growing use of smartphones from other vendors, principally the Apple iPhone and devices running on Google's Android operating system. As a result, its share price has fallen from a high of US$40 in late 2007 to under US$2 in mid-2012. Since February 2011, Nokia has had a strategic partnership with Microsoft, as part of which all Nokia smartphones will incorporate Microsoft's Windows Phone operating system (replacing Symbian). Since then previously increasing smartphone sales have been collapsing and the previously profitable smart devices business unit went loss-making.

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RIM
Research In Motion Limited (RIM), trading as BlackBerry, is a Canadian telecommunication and wireless equipment company best known as the developer of the BlackBerry brand of smartphones and tablets. The company is headquartered in Waterloo, Ontario, Canada. It was founded by Mike Lazaridis, who served as its co-CEO along with Jim Balsillie until January 22, 2012. Its current CEO is Thorsten Heins. It is also a competitor of Xperia. At 1Q 2012 it grabbed 6.7% market share worldwide.

HTC
HTC Corporation is a Taiwanese manufacturer of smartphones and tablets. Initially making smartphones based mostly on Microsoft's Windows Mobile operating system (OS) software, HTC expanded its focus in 2009 to devices based on the Android OS, and in 2010 to Windows Phone OS. HTC is a member of the Open Handset Alliance, a group of handset manufacturers and mobile network operators dedicated to the advancement of the Android mobile device platform. The HTC Dream, marketed by T-Mobile in many countries as the T-Mobile G1 or Era G1, was the first phone on the market to use the Android mobile device platform.

Google Nexus
Google Nexus is a line of mobile devices using the Android operating system produced by Google in conjunction with an original equipment manufacturer (OEM) partner. Devices in the Nexus series do not have manufacturer or wireless carrier modifications to Android (such as custom graphical user interfaces), and have an unlockable bootloader to allow further development and end-user modification. Nexus devices are the first Android devices to receive updates to the operating system. The Galaxy Nexus is one of the few smartphones recommended by the Android Open Source Project for Android software development. As of November 2012, the latest devices in the series are the Nexus 4 phone by Google and LG, and the Nexus 7 and Nexus 10 tablet computers by Google with Asus and Samsung respectively.

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3. Market Structure

First I wondered what would have been the type of market model in the Smartphone market recently. An oligopoly market have large amount of companies that produce Smartphone in the industry all over the world. There are only a handful of firms offering the great product such as Apple, Samsung, HTC and so on. Meanwhile a monopolistic would occur if there were thousands of companies out there making Smartphone as it certainly involve large number of suppliers. As for the type of product, they are differentiated in terms of features in the Smartphone since the phones are differentiated in the oligopoly system. It is also difficult to enter the industry due to high barriers such as patents, copyrights, and advertisement and also economic of scale. Oligopoly hence characterized by mutual interdependence and strategic behavior. Price implementing, quality, service and advertizing strategies are parts of the market structure to expand their profit. Unlike the monopolists which has no rivals, the oligopolist have to consider how its rivals will react to any change in price, outcome, product characteristics and other in terms of mutual interdependence. Furthermore oligopoly system is also to be said as few numbers of firms that will aware of each other and anticipates each others moves. Hence, after analyzing the situation I believe that a Smartphone is an oligopoly. The Smartphone market is similarity dominated by a handful of companies. These companies have deep relationship with the handset provides and are relationships become selfreinforcing as they grow.

Characteristics of Xperia (Sony Smartphone) as a member of oligopoly market:

3.1 A Few Large Producers:

The phrase a few large producers is necessarily vague because the market model of oligopoly covers much ground, ranging between pure monopoly, on the one hand, and monopolistic competition, on the other hand. In an oligopoly system there can be companies around 15, 25, 35, 45 or more but the market will be dominated by big three, four or six firms. If we analyze the Smartphone market we see that at every quarter of most year top three, four or five Smartphone companies dominate the market around the world. We can see at the chart 2.1 that at 1st quarter of 2011 and 2012 top five Smartphone manufacturers companies dominated the market and in 2011 they grabbed 76% market share. In 2012 they grabbed 73% market share. Now there are top five competitors for Xperia and they are Apple, Samsung, Nokia, RIM and HTC.

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3.2 Differentiated Products:

An oligopoly may be either a homogeneous oligopoly or a differentiated oligopoly, depends on whether the firms in the oligopoly produce standardized or differentiated products. Many industrial products such as steel, zinc, copper, aluminum, lead, cement, industrial alcohol etc. are virtually standardized products that are produced in oligopolies. Alternatively, many consumer goods industries like automobiles, tires, household appliances, electronic equipment, breakfast cereals, cigarettes and many sporting goods are differentiated oligopolies. Smartphone market is a differentiated oligopoly. Each Smartphone manufacturer differentiates its phone with features, operating systems, design etc. We know the differentiated oligopoly typically engage in considerable nonprice competition supported by heavy advertising. Here we can see heavy advertising and nonprice competition among Smartphone manufacturers.

3.3 Control over Price but Mutual Interdependence:

Because Smartphone manufacturer firms are few in oligopolistic industries, each firm is a price maker, like the monopolists, it can set its price and output levels to maximize its profit. But unlike the monopolists, which have no rivals, the oligopolist must consider how its rivals will react to any change in its price, output, product characteristics or advertizing. Oligopoly is thus characterized by strategic behavior and mutual interdependence. Firms in this industry develop and implement price, quality, location, service and advertising strategies to grow their business and expand their profits. But because rivals are few there is mutual interdependence. So Smartphone companies base their decisions on how they think rivals will react. For example, Xperia Z and Galaxy S III are same in feature and quality and they are launched at the same time. Sony will set price for Xperia Z after analyzing Samsungs pricing strategy for Galaxy S III.

Xperia Z

VS

Galaxy S III

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3.4 Entry Barriers:

The same barriers to entry that create pure monopoly also contribute to the creation of oligopoly so as Smartphone companies. Economies of scale are important entry barrier in the industry of Smartphone. In this industry now five or six firm such as Samsung, Apple, Nokia, RIM, HTC and Sony have sufficient sales to achieve economies of scale, but new firm would have such a small market share that they could not do so. They would then be high-costproducers and as such they could not survive. We can give an example. Some Chinese companies are trying to enter the Smartphone market but they can not survive beside Samsung, Sony Xperia, LG and HTC. Because they can not produce quality Smartphone at a very low cost but they have to charge a very low price if they want to compete firms like Samsung, Sony Xperia, LG and HTC. Another related barrier is the large expenditure for capital- the cost of obtaining necessary plant and equipment- required for entering certain industries. Patent for design, software and operating system is another entry barrier for new firms. They can not copy any technology, invention, design, software etc. No other firms can use amazing camera like Sony Xperia because its their invention. Nokia has signed a deal with Microsoft that only they (Nokia) will use Windows Mobile operating System for their new Smartphone.

3.5 Mergers:
Some oligopolies have emerged mainly through the growth of the dominant firms in a given industry but for others the route to oligopoly has been through mergers. The merging or combining of two or more competing firms may substantially increase their market share, and this in turn may allow the new firm to achieve greater economies of scale. A strong example of merging oligopoly firms is Sony Ericsson. Swedish telecommunication company Ericsson and Japanese company Sony merged their company together. In the United States, Ericsson partnered with General Electric in the early nineties, primarily to establish a US presence and brand recognition. Ericsson had decided to obtain chips for its phones from a single sourcea Philips facility in New Mexico. In March 2000, a fire at the Philips factory contaminated the sterile facility. Philips assured Ericsson and Nokia (their other major customer) that production would be delayed for no more than a week. When it became clear that production would actually be compromised for months, Ericsson was faced with a serious shortage. Nokia had already begun to obtain parts from alternative sources, but Ericsson's position was much worse as production of current models and the launch of new ones was held up. Ericsson, which had been in the mobile phone market for decades, and was the world's third largest cellular telephone handset maker, was struggling with huge losses. This was mainly due to this fire and its inability to produce cheaper phones like Nokia. To curtail the losses, it considered outsourcing production to Asian companies that could produce the handsets for lower costs.

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Speculation began about a possible sale by Ericsson of its mobile phone division, but the company's president said it had no plans to do so. "Mobile phones are really a core business for Ericsson. We wouldn't be as successful (in networks) if we didn't have phones", he said. Sony was a marginal player in the worldwide mobile phone market with a share of less than 1 percent in 2000. By August 2001, the two companies had finalized the terms of the merger announced in April.

Google and LG have recently made Nexus 4 as a merger. Nexus 4 is now in top five Smartphone by sales. Nexus 4 (codename: Mako) is Google's fourth Nexus-branded Android Smartphone. The phone was designed with and manufactured by LG Electronics. On October 29, 2012, Google announced the Nexus 4 and scheduled its launch for November 13, 2012.

Mergers- Google and LG made Nexus 4

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Another motive of merging is the desire for monopoly power. The larger firm that results from merger has greater control over market supply and thus the price of its product. Also since it is a larger buyer of inputs, it will probably be able to demand and obtain lower prices on its production inputs.

4. Conclusion
Although Sony Xperia could not grab the highest market share yet, it is being popular day by day after Sony acquired Ericssons share. Sony acquired Ericsson's share in the venture on February 16, 2012. Sony Mobile Communications has research and development facilities in Tokyo, Japan; Chennai, India; Lund, Sweden; Beijing, China and Silicon Valley, United States. Sony Mobile is the world's 10th-largest mobile phone manufacturer by market share in the first quarter of 2012. It is the world's third-largest Smartphone manufacturer by market share in the third quarter of 2012. On October 27, 2011, Sony announced that it would acquire Ericsson's stake in Sony Ericsson for 1.05 billion ($1.47 billion), making the mobile handset business a wholly owned subsidiary of Sony. The transaction's completion was expected to occur in January 2012. At their keynote at the 2012 Consumer Electronics Show, Sony's Kaz Hirai announced that Sony Ericsson would be known simply as Sony Mobile Communications pending completion of the transaction. On January 26, 2012, the European Union approved the buyout. On February 16, 2012, Sony announced it had completed the full acquisition of Sony Ericsson. On January 7, 2013, Sony Mobile completed moving its headquarters from Lund, Sweden to Tokyo, Japan in order to fully integrate with its parent company. The first Sonyonly mobile was the Sony Xperia S along with launch of Sony Xperia U and Sony Xperia P at the 2012 Consumer Electronics Show. Sony Mobile Communications has decided to phase out all the feature (non-smart) phones by September 2012 and focus on smartphones segment. On July 2, 2012, Sony announced it is buying Gaikai, a cloud service to support its expansion into the cloud gaming realm. Sony is paying a reported $380 million to acquire Gaikai. The Sony Ericsson Liquid Energy Logo which was the hallmark logo used on Sony Mobile products up until the 2012 series of phones was replaced with a new signature power button design as the new design signature hallmark to easily identify a Sony phone which debuted with the 2013 series of Xperia mobile phones. At the 2013 Consumer Electronics Show the Sony Xperia Z and Sony Xperia ZL were announced.

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