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Sony to begin direct sales

The move risks channel conflict, the bane of manufacturers that try to sell both through retail or corporate resellers and directly to consumers.

In an apparent effort to boost its flagging VAIO line, the U.S. unit of Sony Electronics today said that it will sell consumer PC desktops, laptops, and Sony peripherals direct from its Web site, by phone, and through the mail.

In going direct, Sony risks channel conflict, the bane of manufacturers that try to sell both through retail or corporate resellers and directly themselves to consumers. But Sony sees its direct-sales effort, called VAIO Direct, as supplementing its existing channels.

Sony, which last week announced that its second generation of laptops is due to ship next month, also confirmed that Friday it will announce new desktop models for the holiday season, available by November. VAIO, which stands for Video Audio Integrated Operation, is targeted at the so-called "convergence" market of PCs and home electronic devices, where Sony made its name.

"When we were deciding to get into PCs, when we met with key retailers; we were telling them that we had plans to do direct marketing," said Patrick Vogt, national sales and marketing manager of Sony's U.S. direct sales and marketing division. Sony had planned the move into direct sales for more than two years--longer than its PC line has been on the market.

Bruce Steven, group vice president for worldwide PC research at International Data Corporation, said Sony is now fifth or sixth among PC makers in the retail channel. "The halo effect of Sony's brand name has not worked yet for its PCs," he said, referring to expectations that Sony would do well in PCs because of its brand name.

"We didn't enter the PC market to be a PC manufacturer, but to enable our other technologies," said Lisa Young, a Sony spokeswoman. "We got into PCs so all our products could work together and do a lot of things."

PC sales have been "well above our expectations," she added.

"They're getting a little desperate," countered noted retail analyst Seymour Merrin, president of Merrin Information Systems. "Why would anybody buy from them?

"They think brand is everything, [but] in our business, it's performance at the price," Merrin added. "Brand is an important reinforcer, but people don't buy on brand. People will switch among top brands at the speed of light unless they can deliver more performance at a lower price."

E-commerce analyst Vernon Keenan of Zona Research is more bullish on Sony's sales via its Web site, which it plans to launch eventually but is not available now.

"It just makes sense for Sony to be moving into direct marketing, over the phone, over the Web, and through catalogs," Keenan said. "Dell has clearly demonstrated that an online sales channel can be incremental for sales and can promote higher profit margins by decreasing the amount of service for configuring and buying systems."

But he acknowledged that a retail-oriented brand such as Sony runs the danger of alienating its channel partners, unlike PC manufacturers such as Dell, Micron, and Gateway 2000 that sell only direct.

Sony is making efforts to reduce channel conflict in its program, Vogt noted. It won't accept purchase orders, a common form of payment by businesses, at its phone centers and will refer corporate leads to its reseller network.

"Our target in these direct-marketing activities is consumers who are predisposed to buying direct," Vogt said, estimating that about 35 percent of the population prefers to buy direct.

Sony positions its direct sales as complementing its resale channel, arguing that highly targeted mailings to buyers of other Sony products will stimulate demands at retail too.

"When we run a direct advertisement; we're only getting a 1 percent or less response from a sales standpoint; so 99 percent of those consumers aren't purchasing from us. Studies indicate that 75 percent are taking away the name Sony and model advertised," Vogt said.

Sony plans a direct marketing blitz next month, with ads in consumer-oriented computer magazines, a direct mail effort, a catalog effort, and an online catalog that points customers to a toll-free number to buy products.

"No one is putting together an integrated direct-sales marketing effort like we are," Vogt said. "We're not here to compete with Dell or Gateway--we will be targeting Sony customers."

Sony's direct strategy is aimed as much as selling peripheral add-ons to Sony computers: digital cameras and accessories, printers, carrying cases, power adapters, network or personal docking stations, and so on.

"We play in the high end, and our specifications with other manufacturers are pretty competitive," said Vogt.