Thursday, May 3, 2007

Creative Zen Stone : can it renew to success ?

How to succeed against Apple ? How to come back to profitability ? What product should a company create in order to try to bring its sales closer to the 10 000 000 iPods shipped during last quarter ?

When Apple stock sky rocket to $100.40 , reaching his highest level for the past 10 years, Creative stocks falled from $31.75 in March 2000 to $5.91. The market sanction is tough, the lesson to learn tougher. However, one should acknowledge the number 2 position of Creative Labs in terms of sales.

Manufacturing an MP3 player is easy. Technology becomes affordable, design shop houses are opening at every corner of the street to propose the 'iPod killer' design to any manufacturer, software is know. So , why is it so difficult to find the iPod, why is it difficult to get profitable on that market ?

First of all, more than on any other market, margins are tight, really tight. Accurate distribution process, strict inventory control, proper component prices are some of the key elements that can turn your 'gold mine' products into a financial disaster for your company. For a product sold at $99, it is not rare to have a margin around 5%. When you have to consider the taxes, import duties, shipment and retail margin, any swing in market price, key component, inventory is extremely dangerous. Driving profitable MP3 sales is becoming a exercise close to driving an F1 formula.

A key success element comes through your product creation. However, companies like Creative Labs need to make choices. How to you want to fight Apple ? Choose your battle and strategy and stick to it. When you have an opponent as strong as Apple in front of you, the direct and frontal attack rarely succeeds. It might hurt from time to time, disturb you but it is unlikely it is going to win over the long run.

Trying to fight Apple can be assimilated to a judo fight. Use your opponent strength against him. If your opponent is stronger and heavier, be faster and smoother. Make him swing until he falls on the floor.

Apple does not succeed only because iPod is better designed, integrated with iTunes or properly supported by the music industry. iPod is becoming a generic name, an icon. People want to buy an iPod regardless of your technology or your price.

It is not because you will offer a $10 cheaper product than iPod that you will sell it. It is not because you offer an higher capacity product than the iPod that you you will sell more. The result will only be a drop in your margin.

Creative new product Zen Stone is a nice designed product. However, will it capture the iPod shuffle product market ? It will certainly capture some sales and take some market shares from other competitors but will not shuffle the iPod supremacy.

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