COMPETITOR ANALYSIS
ASSOCIATES:
DEREK POTTER
ROBERT COLEMAN
NING ITTIPONG
SCOTT WOODEN
Table of Contents
INTRODUCTION
EXECUTIVE SUMMARY
MAJOR PLAYERS (MANAGEMENT)
THE COMPANY
STRATEGY
THE CUSTOMER
BRAND IDENTITY
DIFFERENTIAL ADVANTAGE ANALYSIS
POSITIONING
FORECAST
SUMMARY
2
INTRODUCTION
EXECUTIVE SUMMARY
The following work is an exhaustive marketing analysis of one of our client’s
competitors, SanDisk, Inc. The analysis includes an overview of the company, principle
managers, historical strategy, customer relationships, brand identity, and market
positioning. The analysis is concluded with a forecast of SanDisk, Inc.’s actions and
marketing strategies for the near future.
THE COMPANY
SanDisk, Inc., is a global corporation with over 900 employees and annual sales
of nearly $2 billion. Headquartered in Sunnyvale, California, the company was founded
in 1988 by Dr. Eli Harari, a world-renowned authority on non-volatile memory storage.
The company is currently the world’s largest supplier of flash memory products, utilizing
over 400 internally developed patents.1
SanDisk’s primary product line-up includes memory cards, flash drives, gaming
cards, and MP3 players. As our client’s interests lie in the personal compressed audio
market (MP3), we have largely neglected SanDisk’s other offerings in order to focus on
this product. SanDisk reaches its end users through the use of over 100,000 retail
storefronts and a multitude of partnerships with original equipment manufacturers
(OEMs).2 In addition to manufacturing and distributing its own products, SanDisk also
licenses its intellectual property to other companies in technology-oriented industries.
1
2
SanDisk home web page http://www.sandisk.com/
Sandisk corporate statement 2005 http://www.sandisk.com/corporate/
3
MAJOR PLAYERS (MANAGEMENT)
Chief Executive Officer and President
Since the beginning the driving force behind SanDisk, Inc. has
been its founder, president, and CEO, Dr. Eli Harari. Dr. Harari is a
rare example of a technician turned entrepreneur. He was able to hold
onto the reigns of the company he started and guide it to enormous
success. Dr. Harari personally holds over 100 patents involving
memory storage, which he developed with advanced degrees in physics and solid state
sciences. Regarded as a pioneer in the flash memory field, he has over 30 years
experience in the electronics industry.2
Chief Operating Officer and Vice-President
SanDisk’s COO and VP, Sanjay Mehrotra, is a co-founder of the
company and has extensive experience in the electronics industry. Mr.
Mehrotra also has a technical background, with advanced degrees in
electrical engineering and computer science.2
Senior Vice President – World Wide Sales
SanDisk’s VP of sales, Greg Rhine, is a relative newcomer to
the company, but has over 15 years of experience with technologyoriented firms. Mr. Rhine holds advanced degrees in business
administration, making him one of the few major players in the
organization without a technical background. His expertise lies in channel development
and marketing.2
4
STRATEGY
SanDisk first entered the MP3 market during the summer of 2004. It was a natural
step for the company since they were already a major producer of flash memory products,
the core technology used in the new generation MP3 players.
SanDisk began shipping MP3 players in September of 2004; by January of 2005
they were the industry leader in the newly created flash-memory, portable player
segment. However, this status was quickly overtaken by Apple with their introduction of
the iPod shuffle, another flash based product which immediately gobbled up 43% of the
flash based market share. Still, SanDisk maintains the number two position in the total
compressed audio player market, (mini hard-drive and flash based combined), with 6.2
%. (San Francisco Chronicle)
SanDisk, Inc., has a straightforward strategy – sell quality MP3 players at a lower
price, while using their pre-existing retail / distribution channels to reach an established
customer base. They are able to cut significant costs by utilizing their own flash memory
cards in their Players. Due to SanDisk’s pre-existing relationships that have been built
around the success of their memory products, the company has been able to get their
products prominently displayed in retail stores such as Circuit City, Best Buy,
CompUSA, Sears, Kmart, Costco and Radioshack. SanDisk is currently distributing their
memory products on Wal-Mart’s shelves, but no SanDisk MP3 players are available as of
November 2005.
5
SanDisk has a strong reputation within the compressed memory industry and with
business professionals, but has very little marketing recognition within mainstream
American society. (Market survey) This does not seem to be of much concern to SanDisk
executives, as represented by a statement from Greg Rhine, senior vice president of
worldwide sales. "Our marketing approach really is ... simple. We don't spend $50
million on a national campaign to bring attention to our product… When a customer is
predisposed to buying a digital audio player and walks into a retailer, we want to be well
presented on the shelf and stand out on the shelf." This strategic approach will only lead
to growth for SanDisk if they produce a quality product that consumers can promote by
way of “word of mouth.” There is a segment of consumers that will buy portable players
on impulse, walking into a store and walking out with something that caught their eye.
However, with the nature of the current pricing structure, (most of SanDisk’s products
are $100 and up), the majority of people will research their purchase to some degree
before they buy. As a result Sandisk will only see increases in sales if they are
distributing a product that at the very least meets customer expectations.
The cost of flash memory and MP3 players is declining, and will continue to
decline in future years. This is demonstrated by the already sliding prices of the iPod,
newer, better models are priced at 75% the cost of their predecessors. As the experience
curve continues to grow for the industry, competitors will really only have two options:
become a commodity or continue to innovate. It is through this commoditization that
SanDisk will succeed. As the technology improves and becomes ever cheaper and more
capable, many brands will emerge with the ability to produce very high capacity, quality
products at low prices. In fact within three to five years it is not unlikely to see a player
6
priced at $50 capable of what the $350 iPods do now. The question will then become
“What justifies higher prices?” The industry will hit a limit on the amount of memory
people actually need for their songs. At the high end of the MP3 price range, that limit
has already been hit. Who actually needs a 60-gigabyte hard drive on their music player?
Does anybody actually have a practical use for 15,000 songs? Apple already realized this
and has begun scaling back the size of hard drives in exchange for a smaller, sleeker
design. Out of this phenomenon an interesting trend will emerge.
There are 3 basic components that people desire from of their portable audio
player: capacity, battery life, and a small sleek design. Price aside, this is what everyday
people want from their player. There are other decision variables that go into the
purchasing process; for example, software programming and pop culture appeal.
However, the driving forces behind the industry as a whole are the three criteria listed
above. It is because of these simple demands that Apple will slowly lose their massive
market share, and companies such as SanDisk will emerge as major competitors. For
each of those three criteria listed above there is a point of diminishing returns. At some
point battery life will be sufficient, at some point people will not require any more
memory, and at some point people just won’t want their player to be any smaller. The
technology will continue to progress and the three criteria will be met by many
competitors, offering products at lower costs than currently exist. When this occurs,
players will no longer differentiate themselves on basic performance. Producers will have
two choices: become a commodity and lower prices, or innovate and differentiate,
creating new markets altogether. It is at this time SanDisk will begin to gain significant
market share, employing a cost leadership strategy that will emphasize order qualifiers as
7
opposed to order winners. They will be able to achieve this through their existing
distribution channels and by creating profit margins with their in-house memory cards.
A look at SanDisk using traditional marketing techniques reveals the following Core
Strategy:
Core strategy
Core strategy defines the differential advantage to be communicated to the target
customers. The advantage can be divided into two groups: economic differential and
differentiation based on product offering (Lehmann,2005). To obtain differential
advantages, the company has to deliver more than what customers expect. There are five
areas of concern for differentiation: quality, status and image, branding, convenience, and
service and distribution (Lehmann, 2005). Using these criteria, SanDisk’s core strategy is
simple: Sell MP3 players at lower prices and use existing retail partnerships. The
company’s cost savings come from the fact that it makes its own flash memory.
Moreover, the company sees the MP3 player market as an opportunity to sell more flash
memory3. (www.sfgate.com).
3
Yi, M., & Evangelista, B. (2005). Sandisk quickly climbs up music charts Sunnyvale firm takes advantage
of its flash memory. Retrieved from
http://www.sfgate.com/cgibin/article.cgi?f=/c/a/2005/04/25/BUGGLCDPUF1.DTL
8
MP3 player
Segment 3
Segment 4
iPod
iPod Shuffle
Sandisk
Creative (Nomad,
Zen Nano)
Creative (Zen)
HD Based
Flash Based
Seagate
Sandisk (storage)
Lexar Media
Western Digital
Sony
Hitachi Global Storage
Kingston
Segment 2
Segment 1
Storage
Joint Space of Sandisk MP3 player indicates which segment of Sandisk MP3 Player and
it’s positioning.
Segment 1: Storage-Flash Based4
Segment 2: Storage-Hard Drive Based5
Segment 3: MP3 Player-Hard Drive Based6
Segment 4: MP3 Player-Flash Based
Sandisk Players:
4
5
Mintel Group. (2005). Flash Memory and Other Removable Data Storage. Retrieved from http://0reports.mintel.com.oasis.oregonstate.edu/sinatra/reports/my_reports/display/id=160954&anchor=at
om/display/id=169806
IDG News Service. (2005). Hard Drive Shipments Stay Strong:Seagate Technology and Western Digital
remain atop the market, research shows. Retrieved from
http://www.pcworld.com/news/article/0,aid,122254,00.asp
6
Becker, D. (2004). It's all about the iPod. Retrieved from
http://news.com.com/Its+all+about+the+iPod/2100-1041_3-5406519.html
9
Digital Audio Player
Price: $179.99
SanDisk Digital Audio Player
Price: $129.99
Digital Audio Player
Price: $89.99
10
THE CUSTOMER
One of the most highly influential economists, political commentators, and
essayists of the century, Milton Friedman, is reported to have said, “The business of
business is business.”7 Since business is not possible without customers, then it stands to
reason that one of the primary concerns for today’s market leaders should be
understanding and retaining their customers. Analyzing competitor’s customers to better
understand their buying patterns and loyalties is becoming common practice in the hightech world and plays a substantial role in marketing strategies. SanDisk, Inc.’s customers
should be regarded as future customers of our client and therefore the following
information can be used to develop an appropriate marketing strategy to capture them.
The first question to be addressed is “Who are SanDisk’s Customers?” We will
answer this question by investigating their geographic, sociographic, and psychographic
characteristics. SanDisk is a global company with products appearing in stores
worldwide. Obviously with the United States being the largest consumer nation in the
world, a considerable portion of their marketing effort is spent promoting and gaining
product placement in the United States. Although many Sandisk players are sold via local
7
Figure 1.1
http://cepa.newschool.edu/het/profiles/friedman.htm accessed on November 19, 2005
11
retail stores, the availability of Internet and global e-commerce giants like Amazon.com
makes SanDisk MP3 players available worldwide with just the click of a button. (Figure
1.1)
A careful observation and comparison of the sales
price, offered features, and general characteristics of
SanDisk MP3 Players and Apple iPods (SanDisk’s largest
competitor) is beneficial to our analysis of SanDisk’s
customers. As discussed earlier, Apple iPod, with over 70%
of the digital portable audio market, is obviously trying to
capture everyone as their customer. SanDisk, with only 6%
Figure 1.2
of the market, either is not tailoring their product for
everyone, or just hasn’t had enough time to be successful at
it. Therefore, a comparison of players
Lowest Price
Found at
Brand
will show what social group SanDisk
Device Type
is pursuing and what values they
Memory Type
Installed
Memory
expect their consumer to demand. The
differences and similarities in features,
prices, and characteristics available on
the different SanDisk players (as
Supported
Digital Audio
Formats
Power Source
Average
Battery Life
Additional
Features
iPod Shuffle
$119.85
21 stores
Apple
Mp3 Player
Internal Flash,
Memory Stick
1 GB
iPod Nano
$188.99
20 stores
Apple
Mp3 Player,
Multimedia Player
Sansa M230
$116.08
1 store
SanDisk
Internal Flash
Internal Flash
GB
Figure21.3
Mp3 Player
1 GB
MP3, AAC,
ACC, Apple Lossless,
MP3 VBR,
MP3 VBR, MP3, AIFF, WMA, WMA DRM,
WAV
WAV, Audible
MP3
Integrated USB
Battery
Lithium Ion Battery: 1
AAA: 2
12 Hrs
NA
14 Hrs
19 Hrs
FM Tuner (20
Presets), Voice
Recording feature, 1
Equalizer/ Bass Boost
Yr Warranty
described in Section I) compared to those of the iPod Shuffle and iPod Nano
Table 1.1
12
are worthy of note. The overall size and look of these three players can be seen in Figure
1.28 (SanDisk m230 and iPod Shuffle) and Figure 1.39 (iPod Nano and iPod Shuffle). A
feature and price comparison between the 1GB Shuffle, 2GB Nano, and a 1GB Sandisk
Mp3 player is shown in Table 1.1, which is derived from Figure A1 in the Appendix.
Some basic assumptions can be made at this point: SanDisk is pursuing a more
price-conscious, probably PC-oriented, active person who demands and desires multiple
features and multi-functional controls. The SanDisk player shown in Table 1.1 is one of
SanDisk’s top-of-the-line products and is still cheaper than the iPod Shuffle, which is
worthy of note. The entire Sandisk player will fit in the palm of your hand, and after
nineteen hours of playback, a quick switch of the batteries gets you ready to go again.
The Apple products must be re-charged through the USB port on the computer or have an
expensive Lithium-Ion battery replaced.
The typical SanDisk MP3 Player customer is not a habitual purchaser. They
demand a quality product and only re-purchase when dissatisfied or when new
technology makes their current product obsolete. Unlike an iPod user, SanDisk customers
are less likely to flaunt their purchase or associate themselves with their player to the
extent that the possession becomes a part of their identity.10 When asked “How does this
product affect your life?” a SanDisk comsumer will frequently respond with, “I use it
when I’m working out or running”11 as opposed to an iPod Nano owner’s response: “I
“iPod Shuffle vs. Sandisk MP3” By David Ciccone, posted Saturday, Jan. 22nd, 2005
http://mobilitytoday.com/articles/iPOD_Shuffle_Sandisk_MP3/3.html
9
http://www.flickr.com/photos/niallkennedy/41524711/
10
Journal of Consumer Research, Vol. 15 September 1988 “Possessions and the Extended Self”, Russell
W. Belk
11
Anonymous SanDisk MP3 Player owner
8
13
love it and take it everywhere with me. It’s like I’m adding a soundtrack to my life.”12
Most SanDisk customers would buy another SanDisk product, but it is debatable whether
they would if an alternative player with similar features were offered at a lower price.
Sandisk customers are very price conscious and are constantly searching for the best deal.
Overall, most SanDisk owners are happy with their purchases as evidenced by customer
reviews readily accessible on the Internet on such sites as newegg.com (4.2 out of 5) and
circuitcity.com (4.8 out of 5). While these reviews should not be viewed as an absolute
indication of customer satisfaction, they do point toward a significant level of
contentment.
The next area of customer behavior that should be explored is “Where are
SanDisk’s customers shopping?” The pure fact that someone shopping for a MP3 player
is probably somewhat computer savvy already suggests that there would be wide
availability of SanDisk players on Internet shopping websites. Such is indeed the case,
with Amazon.com listing hundreds of available players and the SanDisk homepage
linking customers to their products and offering to ship directly to their home. On the
more traditional front of Brick and Mortar stores, where approximately 70% of their
players are sold, SanDisk has positioned its players in such stores as Circuit City, Best
Buy, Fry’s Electronics, Radio Shack, Staples, Office Max, and Target. It should be noted
that Fred Meyer, Bi-Mart, and Wal-Mart do not carry SanDisk players which leads us to
conclude that SanDisk is avoiding discount stores and marketing its product as superior
to cheaper versions available in those stores.
As with any electronic gadget, the Christmas season is an optimal time for
12
Erin T. Danielson, iPod Nano owner
14
purchasing reflected by quarterly sales seen in Figure 1.5 13.Clearly the fourth quarter for
each year (2002-2004) showed higher revenues than the other quarters and since this
quarter falls during the Christmas season, our earlier assumption appears legitimate. It
should be noted, however, that sales are fairly evenly spread throughout the rest of the
year, indicating relatively constant purchasing behavior by customers. We can also see
that at any given time period, between 40% and 50% of SanDisk’s revenues come from
North American sales, further substantiating our earlier claim that SanDisk spends a
considerable portion of their marketing effort on promoting and selling in the United
States.
A glimpse into the relationships a SanDisk customer might experience with their
MP3 Player could resemble Figure 1.6.
Figure 1.6
This concept of “brand community”14 has been introduced as a model of
understanding the way relationships surrounding the customer affect their lives and
13
SanDisk Quarterly Metrics, http://media.corporateir.net/media_files/irol/86/86495/metrics/QtrlyMetrics72105.pdf
14
“Building Brand Community”, McAlexander, James H, Schouten, John W, Koenig, Harold F, Journal of
Marketing, January 2002 Vol. 66 Issue 1 p38-54
15
weave an intricate web of bonds. As you can see, the customer purchases the product not
solely because she/he perceives it to fulfill a need, but also because it has an image of
quality, it’s backed by a guarantee, it has the characteristics which suit the customers
personality, and it fits the limitations of her/his bank account. While the player may not
enhance or define the customer’s social status, it compliments their lifestyle and is
compatible with their technological inclinations. The customer will likely research fellow
consumer’s opinions and will be influenced up to the point of purchase, but beyond that
point, the only personal contact they are likely to have is with the company for tech
support, warranty issues, and future upgrades. The SanDisk Mp3 Player customer is not a
complex purchaser influenced by a myriad of factors, but rather an assertive consumer
who knows their desires and needs and has found SanDisk to be the company that offers
a product that meets their criteria.
16
BRAND IDENTITY
As discussed earlier, SanDisk is the worldwide leader in flash storage card
products. It designs and develops the flash devices used in a wide variety of consumer
electronics products. SanDisk’s flash storage card products enable mass-market adoption
of digital cameras, feature phones, MP3 players, and other digital consumer devices. In
2004, the company launched their own digital audio players with embedded flash
memory: the Sansa e100 Series and Sansa m200 Series. To analyze the brand identity of
SanDisk’s MP3 player, we will use a differential advantage analysis framework to
compare the competence of SanDisk with Apple and Creative Technology. As a result,
the advantages and disadvantages of these companies will become apparent.
Differential Advantage Analysis
A useful way to examine a competitors’ competence is to divide the vital
information into five categories (Lehmann, 2005):
1. Ability to conceive and design: this category measures the quality of new product
development effort.
2. Ability to produce: this category relates the production capabilities of the company.
3. Ability to market: this category relates how aggressive, inventive, and effective the
company’s marketing strategy is.
4. Ability to finance: this category relates how effectively the company uses its financial
resources.
5. Ability to manage: this category relates the efficiency of company management, such
as decision processes, planning, and organizational structure.
17
The overview of the 3 main brands
-
iPod (shuffle) – compared with the iPod shuffle because it has a similar function
with SanDisk’s MP3 Player, and it is flash-based. Apple dominates the market,
and it has shifted the digital audio player "from a consumer electronics product to
a cultural phenomenon with the uniqueness of the iPod brand” (sfgate.com).
There are two capacities: 512 MB and 1 GB.
-
Creative, Inc. is famous for its Sound Blaster sound cards and for launching the
multimedia revolution. Creative, Inc. is now driving digital entertainment on the
PC platform with products like its highly acclaimed Zen and MuVo lines of
digital audio players. Here, we compare NOMAD (Muvo) and Zen Nano with
SanDisk due to all of them being flash based. There are four capacities of flash
memory: 128 MB, 256 MB, 512 MB and 1 GB.
-
SanDisk produces MP3 players that are flash based. There are four capacities: 256
MB, 512 MB, 1GB and 2GB.
Differential advantage analysis:
Category
iPod (shuffle)
Creative
SanDisk
Ability to conceive
and design
Consumers perceive
that Apple is the leader
of designing its
product. Most of
Apple’s products are
trendy and innovative.
The iPod shuffle has
trendy features.
The company is well
known in with the
Sound Blaster
product line. Today,
it adjusts this
competence and
enters the MP3
player market.
The company is the
leader in producing
flash memory storage.
It brings this
competence to use in
producing MP3 players.
It is easy to use the
interface.
Ability to produce
Apple out-sources its
component
manufacturing to
countries that have low
labor costs. So the cost
Creative’s pricing
strategy is its ability
to manufacture highquality, sophisticated
products in
SanDisk has low cost in
production due to the
economy of scale ( its
MP3player is based on
flash memory)
18
of production is low.
commercial volumes
at a relatively low
cost at its facilities in
Malaysia and China,
using modern surface
mount technology
assembly lines.
Ability to market
(Source: Mintel
Group)
Apple is well known in
computer industry and
it has many distribution
channels to sell their
product. Therefore, the
company already has
based on selling and
advertising its product.
Moreover, the company
has a huge investment
for advertising and
promotion (10% of
Manufacturer share of
total MP3 player
advertisement, 2003).
As a result, the iPod is
well known among
MP3 player’s
consumers.
The company has a
huge investment for
advertising and
promotion (13% of
Manufacturer share
of total MP3 player
advertisement, 2003).
In addition, the
company has been
awarded a patent in
the US for the
interface used on
many digital music
players. From this
award, it gains
reputation on its MP3
player.
Consumers have
already known that
Sandisk produces flash
memory. However,
some consumers know
that it produces
MP3player (it might be
that the company has
just launched this
product line in the
fourth quarter of 2004).
The company did not
invest more for
advertising. However,
the company intention
is to well present its
product and stand out
on the shelf.
Ability to Finance
(market share of
MP3players flashbased: according to
NPD Group)
The first quarter of
2005, the company has
46.3 percent share.
Pricing $99-$129
The first quarter of
2005, the company
has 2.4 percent share.
Pricing $29-$129
The first quarter of
2005, the company has
10.8 percent share.
Pricing $80-$160
Ability to finance15
15
Paul Thurrott's Internet Nexus. (2005). Flash-based MP3 player market share. Retrieved from
http://www.internet-nexus.com/2005_08_28_archive.htm
19
Analysis:
iPod Shuffle :
Strength: Market leader (in design and technology), strong community of users (a cultural
phenomenon with the uniqueness of the iPod brand), marketing strategy, distribution
channel, and outsourcing.
Weakness: Inconvenient interface.
Creative, Inc. (NOMAD, Zen Nano):
Strength: Sounding system, outsourcing, advertising and promotion, pricing, interface
(has been awarded).
Weakness: Feature design
SanDisk:
Strength: Economy of scale (leader of flash memory), capacity of flash memory,
interface, distribution channel and pricing.
Weakness: Feature design, advertising and promotion.
20
POSITIONING
Beyond deciding which segments of the market the company will target, it must
decide what positions it wants to occupy in those segments. A product’s position is the
way the product occupies in consumers’ minds relative to competing products.
Positioning involves implanting the brand’s unique benefits and differentiation in
customers’ minds (Kotler, 2004)
The company and competitor’s objective
SanDisk’s objective: to gain 40% market share.16
Choice of competitor targets
Positioning involves some prioritization of the competitors. The hope is to
identify the weakness of a company and easily overcome its sales. The leaders often take
defensive steps and focus on second competitors, (Lehmann, 2005) which is SanDisk.
SanDisk is not a statistically significant rival in market share of the iPod; however, it
should not be considered insignificant, but rather a potential threat because of their rapid
growth. This growth stems from features, customer appeal, and an interface that is
perceived to be easier than iPod shuffle17. Thus, in the future, it is possible that the
company may steal market share from iPod shuffle.
16
17
Sanjay Mehrotra,. (2005) Si20 Company Performance:Sandisk Corporation. Siliconindia , 58.
Mobility Today. (2005). IPod Shuffle vs Sandisk MP3. Retrieved from
http://mobilitytoday.com/article.php?a=iPOD_Shuffle_Sandisk_MP3.html
21
FORECAST
SanDisk is positioned in the portable compressed audio market as the closest
competitor to Apple iPod. They currently hold 6% of the market share since entering the
market in summer of 2004. SanDisk went from 0% to 3% upon entry and jumped from
3% to 6% between June and July of 200518. They have three defined products19 and their
existing distribution system from memory devices is helping them to infiltrate the market.
They issue a product that is perceived to be high quality at a price that doesn’t directly
compete with Apple iPod.
The future at SanDisk Inc. in the MP3 Player department looks to be very bright.
As the industry becomes more commoditized Sandisk will emerge of one of the cost
leaders, in turn helping them achieve an increase in market share. Greg Rhine, Senior VP
of worldwide sales for SanDisk, Inc., said his firm's MP3 business is here to stay. In fact,
the company is getting ready to start selling a new line of music players that include slots
for additional flash-memory cards for more music storage space. "We are fully engaged
in and driving (our) MP3 business," he said (San Francisco Chronicle) SanDisk already
has a strong foothold in the flash memory segment and is going to be able to use this
foothold to springboard other better products into the market. We foresee SanDisk as
becoming a major competitor for Apple, as well as our client, and a major industry player
in the next 5 years.
Forecasting techniques often assume only one factor versus time, or at most the
relationship between two factors. This is very limiting, as real-life shows us that factors
18
19
“MPD Group/MPD Tech world
http://www.sandisk.com/Products/Catalog(1010)-MP3_Players.aspx
22
influence each other constantly. Cross-impact analysis can be used to account for the
interactions among effects.11 The initial external determinants and their initial
probabilities are shown in the far left column and the conditional probabilities are
assigned given the likelihood of the event occurring. (Figure 1.7)
Conditional Probablility
then what is the likelihood of this Event occuring:
Flash memory
SanDisk beats SanDisk market
storage capacity
iPod prices on growth continues
continues to
similar players at a reduced rate
increase
If the Event in this column
occurs:
SanDisk beats iPod prices
1
0.6
0*
on similar players (.8)
SanDisk market growth
continues at a reduced rate
0.5
1
0*
(.5)
Flash memory storage
capacity continues to
0.6
0.5
1
increase (.8)
Flash memory keeps getting
0.8
0.6
0
cheaper (.8)
*Flash memory is a technology which grows independently from market growth.
Figure 1.7
Flash memory
keeps getting
cheaper
0*
0*
0.7
1
The Kane Simulation or KSIM is a deterministic simulation model, which uses
event-impact concepts of traditional cross-impact analysis, but adds a time dimension
through application of a differential equation.20 Using similar events and probabilities
shown in the cross-impact analysis and inputting the data into the KSIM in the format
required, yields a graph that resembles Figure 1.8.
20
Dr. Sillars, Module 7 CEM 550, Professor Oregon State University, November 2005
23
Figure 1.8
When using these types of forecasting models it is important to keep in mind that
this is an academic model with probabilities and effects that are based on informed
assumptions and in no way should these results be interpreted as statistical results.
Rather, this tool is helpful for viewing cause and effect relationships over time given
probable scenarios. As you can see from Figure 1.8, if SanDisk continues a marketing
strategy where they attempt to beat the price of iPods and if flash memory continues its
historical trend of rapidly increasing storage capacity and decreasing price, then SanDisk
will likely see an increase growth in market share over time.
24
SUMMARY
The analysis indicates that our client’s competitor, SanDisk, Inc., has the
capability to compete in the compressed personal audio market. Although the company
currently holds only 6% of the pie, it can be categorized as a future threat. The industry
trend towards commoditization and the optimization of the three demand categories; slim
sleek design, memory size, and battery life, will soon lead to an advantageous position
for SanDisk. It is our assertion that SanDisk will indeed increase market share over the
next three to five years. Whether they meet their stated goal of 40% is yet to be
substantiated; however it is not unreasonable to expect market share to more than triple,
up to around 20% of the total market. As the growth rate of the market slows down and
eventually creeps towards maturity, a situation will emerge where a limited number of
competitors have control of the market, instead of the thirty plus market players currently
in the field. From what we have researched, it has become apparent that in the future, no
one company will have a monopolistic hold on the category. Existing conditions lead us
to believe that the top competitor may have roughly 40% market share with the other
competitors distributing the remaining 60% in descending order amongst themselves.
Since the market is still growing at an astounding rate, a decrease in market share could
still mean a substantial increase in units sold. We believe a strong percentage of
SanDisk’s future customers will be first time buyers of MP3 players as opposed to
switchovers from competing companies
When both SanDisk’s market share, and the market itself continue to grow, it will
create a situation of compound opportunity for SanDisk’s portable audio division. This is
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an opportunity that SanDisk will grasp, thus thrusting them into a long-term position of
power within the portable compressed audio industry.
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