Sony Shocks Japanese Dealers with Direct Sales Web Site

In a move that has sent shock waves through its extensive dealer network, consumer electronics giant Sony Corp. (NYSE: SNE) launched a Web site today that will sell mass-customized VAIO personal computers and peripherals directly to consumers in Japan.

The Tokyo-based conglomerate formed a new company, Sony Style, in joint capitalization with its domestic sales unit, Sony Marketing (Japan).

At a news conference today, Sony Style president Kazumasa Sato said that the company aims for sales of $95.2 million (US$) in its initial year.

Sony Style will be Japan’s first consumer electronics manufacturer to sell directly to consumers on the Internet. Consumers will be able to buy VAIO computers and specify the memory, software and peripherals that will make up the package.

In the U.S., Dell Computer Corp. has led mass customization of computers for consumers.

Big Plans for E-Commerce

Though Sony Style will launch with the sale of customized VAIO computers for consumers, Sony plans to add a range of consumer electronics later in the year. Additional products slated to go up on Sony Style this spring include digital cameras, portable music players, digital video cameras and other audio/visual equipment. The site will gradually add set-top boxes as well as digital televisions.

As an incentive to create direct relationships with online consumers, Sony Style will offer frequent customers free Internet access through Sony’s So-net Internet provider. The program will be based on a point system derived from the total amount consumers spend at the site.

In an earlier statement, Sony president Nobuyuki Ideo said he aims to build Sony into a vast “e-empire” that will sell everything from consumer electronics to music. Ideo expects that Sony will ultimately sell 30 to 40 percent of its products online.

Dealer Ties Run Deep

During the news conference, Sato said that Sony aims to sell 20 percent of its consumer and enterprise products online over the next three to five years. Sato also pointed out that the site will initially sell only consumer designed VAIO packages that are not available through retailers.

Sony’s move to direct sales comes as a shock to Japanese retailers that sell Sony products. Japan has a tradition of strong ties with its dealer networks, which has kept Japanese e-commerce subdued.

Companies such as Matsushita Electric Industrial Company and Toyota Motor Corporation have been careful to maintain their dealer relationships in the face of e-commerce opportunities. Much like the U.S. auto industry, Japan’s manufacturers are cautious to protect their dealer network while making moves toward selling directly to consumers.

Resolving Channel Conflict

Some analysts believe that Sony’s actions will likely have a substantial impact on the willingness of other electronics manufacturers to sell directly online, although such decisions are fraught with problems.

Most significantly, analysts point to pricing as a key issue. What price will manufacturers sell at online?

If they sell at their suggested retail price, they will not compete effectively with most e-tailers that sell at discounted prices. In effect, pricing at suggested retail does their customers a disservice.

If they decide to discount, however, where do they set their prices? Furthermore, what does that say for the integrity of their suggested retail pricing?

In short, while Sony has taken a bold step into direct sales online, analysts see many tough decisions down the road as manufacturers try to satisfy customer demand, while at the same time maintaining good relationships with their existing distributors.