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Tuesday, June 3, 2008

It's All About Branding, Creative



We stumbled upon this old article written in 2005, which tell a story of the mp3 player war between Creative and Apple. How Creative had tried to counter attack each of the Apple's marketing moves and fallen from the leader of the mp3 market to the current 4th position with only 2% market share.

WATCHING Creative Technology's share price slump to a two-year low in recent weeks, founder Sim Wong Hoo must have realised how far he was from being king of portable music gadgets.

Where had it all gone wrong? It certainly wasn't through lack of foresight. After all, Creative started selling MP3 players before Apple joined the show.

And it wasn't lack of effort. Told that his MP3 players were not as cool as Apple's iconic iPods, Mr Sim had taken drastic measures to outgun his rival.

When Apple came up with a player with four colours, he unveiled one with 10. He ran a promotion cheekily called iBetter, offering iPod owners the chance to trade in their little treasures for free Creative players. And not only were they cheaper, they had more capacity and features too.

But instead of boosting the Creative brand, the products he dubbed 'iPod killers' remained the dowdy cousin of Apple's sexy urban fashionista.

Worse, profit margins soon dwindled. Then share prices began falling; from January's $27.20 to a two-year low of $10.80 last month.

Even when share prices rallied two weeks ago, after Microsoft chairman Bill Gates spoke up for Creative, the recovery was short-lived. Yesterday, Creative shares closed at $12.40, down 20 cents from the previous day.

What is Mr Sim's biggest problem? It is not that he is not selling enough MP3 players, say experts, but the razor thin margins at which he is selling them.

In the March quarter, Creative sold two million MP3 players, four times as many as in the same quarter last year. Yet at the same time Creative saw its net profit slide from US$57 million (S$95.6 million) to US$15.9 million.

In contrast, Apple's net profits in the March quarter, boosted by the sale of 5.3 million iPods, shot up sixfold, to US$290 million.

Apple's most recent results spell even more bad news for Mr Sim. The iPod maker had a net profit of US$320 million in the June quarter, selling more than six million MP3 players.

This all seems a far cry from last November, when Mr Sim declared war on Apple, promising to spend US$100 million on a marketing blitz to unseat the market leader.

But instead, the battle that followed has decimated Creative's profits and raised questions over its ability to sustain a price war.

An analyst from research firm IDC, Mr Claudio Checchia, said Creative faces an uphill struggle. The iconic status Apple has built around the iPod, assisted by endorsements from rock stars like U2, will be hard to match.

Until it topples Apple, if it can, 'Creative has no choice but to follow when the market leader drops price', he said.

What is Mr Sim's next move? He is keeping it secret, deciding not to speak to the local press. The company has decided to let its products do the talking instead.

The Zen Micro Photo, a palm-sized music player that doubles as a digital photo album, will hit the shelves next month. Creative's manager for product marketing, Mr Clarence Lim, said it will be priced competitively against Apple's new $528 colour-screen iPod.

He also showed off the new Zen Vision, a portable video player that lets frequent travellers watch full-length films on long flights. It will sell for about US$449 next month.

Few would dispute the quality of Creative's output, but has it got the magic, that essential Ingredient X that implants a brand name in the mass consumer consciousness?
Singapore Management University adjunct professor of marketing John Davis said: 'Why do people buy a Rolex watch? Because it says something about them; it makes a statement of who they are.

'Apple's success is similar. Its customers perceive themselves as different, and they are devoted to Apple because it reflects their values.'

If Creative is not beating competition at the top end of the market, how will it fare against competition from below? Cheaper music players that store fewer songs - called flash-based players - are hitting the shelves in ever-increasing numbers.
Mr Checchia said he expects electronics giants like Samsung to spend millions of marketing dollars muscling into this market.

Last month, Samsung launched five new MP3 players and a further five to 10 more are expected by the end of the year. The company wants to grab between 15 per cent and 20 per cent of the market.

Then there are smaller companies like Korea's iRiver, which will launch about seven flash-based players this year.

Accurate figures for the worldwide MP3 market are hard to come by, especially in new markets like China, where there are thousands of electronics retailers.

But at home in Singapore, at least, Creative retains a respectable market share. In May, it had 26 per cent of the domestic MP3 player market, just shy of Apple's 30 per cent, according to research firm GfK.

For low-end, flash-based players, Creative is doing even better, leading the market with 30 per cent, while Apple's iPod Shuffle comes in at just 15 per cent.

But at the high end of the market, said GfK analyst Janice Lee, Creative has failed to make it big, grabbing only 24 per cent of the market to Apple's 68 per cent.

Creative is now banking on the Zen Neeon, a sleek, metallic music player that offers 5GB of storage (about 2,500 songs' worth). It is also smaller and more pocketable than Apple's iPod mini.

Some users say Mr Sim should focus on selling a lifestyle product, instead of simply trying to match Apple punch for punch.

A prime example of flawed tactical thinking occurred last year, after Apple launched a special edition iPod bearing the signatures of U2. Mr Sim responded by launching a special edition Creative player - with his own signature on it.

Mr Lee Kin Mun, 35, who writes online under the moniker Mr Brown, pointed out that even Apple CEO Steve Jobs 'doesn't sell an iPod with his signature on it, and he is way more of an icon. Who wants to buy or win an MP3 player with some CEO's signature on it?'

'You can have more gigabytes, longer lasting battery, an FM radio and twice as many colours, but if you cannot get the branding and marketing right, you won't get customers lusting after your devices.'

via Straits Times

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