Creative Technology Limited Case

Creative Technology Limited Case Creative Technology Limited’s principal activities are designing, manufacturing and distributing digitized sound and video boards, computers and related multimedia and personal digital entertainment products. Creative was founded in Singapore in 1981 by Sim Wong Hoo. Nowadays, Creative Technology Limited is the leader in digital entertainment products for the personal computer (PC) and the Internet. General external environment of creative operates through industry environment due to the fact that the technology requires patents and a huge organization due to research and manufacturing, threat of new entrants is low. Power of buyers are high as they denote how players should be sold, Product substitutes include apple iPod. Intensity of rivalry is high as patents are fought due to protection of intellectual property. Competitor environment, competitors will fight for patents in creation of their own intellectual properties, and intention is to gain monopoly. This leads to a world wide global demographic network that includes traditional marketing channels, original equipment manufacturers and internet. Economically it is doing well having publicly listed in 1994. Technologically, creative is widely recognized as global leader for product innovation on audio and PDE segments. Politically and legally, Creative is bound by international laws as it operates world wide depending on the region. Internal environment, financial resources, there are from public stock exchange being a public listed company and the board. Organizational resources include through controlling systems of worlds wide headquarters. Physical resources include the 3 labs creative own. Technological resources include patents and rights of the products and trademark they own. High

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capabilities through 3 research labs. A core competency is technology research having 3 research labs 1 in America one in Europe and one in Asia. (Aker Mills 2005) Starting with the launching of the multimedia revolution and its Sound Blaster sound cards; Creative has become famous in the technology industry. Through time of development, the company has changed itself to one of the driver in digital entertainment on the PC platform with products like its highly acclaimed ZEN line of digital audio players. Since then, huge user base and strong brand name are the results of Creative Technology Limited’s audio technology. Unfortunately, Creative Technology Limited made a huge mistake in the mid of 1990s when they were forced to write off nearly USD $100 million dollars in inventory when the market collapsed due to a flood of cheaper alternatives. The failure of their plan lied on the venture which they spent for the CD-ROM market because it turned out that DVD was released thereafter. Even though the company has been through several failures but Creative is still widely recognized as a global leader for product innovation in the audio and PDE segments. The company is offering consumers a complete, high quality digital entertainment experience through Creative's hardware, software applications and services. To strengthen their competitive advantage, creative made strategic investment in a number of US-based companies. They are also a shareholder in US-based sigmatel, a sound chip maker for MP3 players.

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Creative Technology Limited is offering more than 25 different types of digital media players, which is one of the advantages in their differentiation strategy comparing to the seven offers of Apple. Creative’s brand alone has ten different variations ranging from the Jukebox Zen Xtra to the Zen Nano Plus and all the way up to the Zen Vision, all with different feature sets, capacities, and so on. Beside that, Creative also sold more than eight million players worldwide, compared with to its major competitors such as Apple and ScanDisk and other minor competitors such as Sony, Samsung, and etc. Meanwhile, Creative's sales are slumping. Even as the larger MP3 player business booms, Creative's revenues for the first nine months of the year fell to $896.7 million, from $919 million a year earlier. The loss in the most recent quarter was $114 million on sales of $225.7 million. The company will need better luck before the judge than it has had at the hands of consumers. Apple faces patent dispute, apple could be in fight with rival creative rival technology used in iPod music players. Creative announces with BBC that its plans to pursue aggressively a US patent it owns on a system used to navigate music on digital players. Creative was the first to market digital music players in 2000, but has since been overshadowed by apple. So far apple dominated with iPod sales accounting for 80% of sales for digital music players using hard drives to store music. Creative has struggled to keep up, being a distant second. Creative Zen vision has a striking resemblance; gadget is a direct competitor to apple’s iPod video. Creative are touting Zen as far more powerful player than apple’s offering, with additional functions such as FM radio and built in mike.

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On 9th august 2005 Creative awarded US Patent on user interface for portable media players. Creative’s invention for user interface for portable media players enables selection of at least one track in a portable media player as a user sequentially navigates through a hierarchy using three or more successive screens on the display of the player. The user interface covered by Zen patent was invented by creative research and developmental engineers in Creative advanced technology centre in US. Creative was awarded the Zen patent, which helps to protect the invention and recognizes out innovation in portable media players. Sony is trying to make a comeback with their latest series of MP3 compatible players, but it is Creative who has practically declared war on Apple. They are aiming to capture around 40% of the market dominated by Apple and are planning to spend big bucks on advertising. Their budget is reported to be in the region of USD 100 million. Like other Singapore makers of electronics, which account for almost half of the non-oil exports, Creative is struggling to compete with rivals like Apple and Samsung Electronics. The competition is hurting profit margins, Pratik Gupta, a Singapore-based analyst at Citigroup, said. Creative has experienced difficulties since sales of its flagship product started to falter -it posted its lowest full-year sales in nine years as reported in February 2004. To stem the loss, Creative turned to producing other consumer products such as digital music players, most recently launching the Zen Neon model to compete against Apple's iPod and digital music players from Samsung and Sony. Beside, Creative has also been dealt a double blow by having to cut prices in order to lift sales to offset falling revenue from Sound Blaster cards, with strong competition from other industry players further driving down prices in the MP3 market. The company seems to be

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engaged in a MP3 price war with Apple. It is said that Creative slashed prices for its MuVo and Zen Micro players after Apple reduced prices for the iPod mini and introduced newer and cheaper gadgets such as the iPod shuffle. To send a message back to Apple and other competitors, Creative has created a similar product which provides better choice for people to chose. Three years after launching X-Fi (Xtreme Fidelity), Creative Technology has taken a major step to push this highly rated sound processing technology into mass adoption by incorporating it into a new line of digital media players. And the Singapore firm expects to see X-Fi in more devices in future.

X-Fi has been touted by Creative as an upgrade to the sound quality of compressed digital music. It does so via two key digital signal processing techniques. One, called Crystalizer, recreates music details that have been lost via MP3 music compression, while another, called CMSS-3D, it turns stereo into surround sound.

Then when Creative introduces the new ZEN X-Fi digital media players, this technology could yet find its largest audience. The Creative spokesman reiterated that the company wants to make X-Fi the heart for all its new audio products and devices. ZEN X-Fi is also seen as a keen challenger to Apple's iPod touch player - with its raft of similar features like a large video screen, wireless connectivity and high-capacity flash memory. Creative's new digital media players, however, only cost about half as much.

The ZEN X-Fi with Wireless LAN costs around $400 and $330 for the 32GB and 16GB models respectively. The iPod touch is listed at about $850 and $700 for the 32GB and 16GB 5

models respectively. The 8GB ZEN X-Fi, which does not include the Wireless LAN function and will be available later this month, costs around $230. In comparison, an 8GB iPod touch, which has WiFi, it costs about $500. But a notable difference between both product lines is the interface: Apple's iPod touch uses a touch-screen while Creative uses push-buttons. The Creative spokesman declined to comment on whether the company is working on a touch-screen MP3 player.

Here in Singapore, customers already have the option of going for an iPhone competitor like Samsung's pretty-looking but hard-to-use Omnia. But local company Creative has stepped into this window of opportunity by offering people its most compelling media player yet, the ZEN X-Fi. Released on 16th of July 2008, the ZEN X-Fi looks physically similar to the standard ZEN series, but there are some nice gizmos within to persuade people to part with their cash. The first cool feature is wireless support, which is available on the top two models - those with 16GB ($329) and 32GB ($399) storage capacities. This means it helps to access all the music on computer while walking around your house. No need to transfer it all onto ZEN X-Fi first, and enjoy comfortable mobile freedom.

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Question 1. Analysis the current situation of Creative Technology Limited by using a model of Competitive Rivalry and explain how the company can use its strength to compete against others competitors.

Model of competitive rivalry happens when two or more firms fight with each other in pursuit of advantages market position. It occurs when one or more competitors feel pressure or see opportunities to improve market position. It can have a major effect on firms’ profitability, as rivalry increases, profitability of firm decreases. (Tony morden 2007) Starting with the launching of the multimedia revolution and its Sound Blaster sound cards; Creative has become famous in the technology industry. Through time of development, the company has changed itself to one of the driver in digital entertainment on the PC platform with 7

products like its highly acclaimed ZEN line of digital audio players. As the 1st mover in Sound Blaster, Creative gains above average returns; loyalty of customers who may become committed to firm’s goods or services. Market shares can be difficult for other competitors to take during future competitive rivalry. Being as the second mover for Portable Media-Player with friendly usage interface and WiFi, it helps Creative to avoid certain mistakes from first mover which is Apple. Apple is the first company which introduces the iPhone and iTouch with advance applications and technology in portable audio and video player. However, as the second mover, Creative has create a reaction to Apple new products by introducing innovative Zen X-Fi. Likelihood of attack, Creative is second mover as it is unable to keep up with rivals like Sony, Samsung and Apple but the company did retaliate quickly with advertising and technology research. Interface rivalry action and response in which case creative is a second mover, it responses to creative’s competitive action apple’s patent in arrangement of music, through imitation or move designed to counter effects of action. It evaluates customer’s reactions to product innovations through market research researches technology of players first. Tries to find any mistakes the first mover made, avoid them and improve quality Apple didn’t find patent for technology. It can avoid some mistakes, risks and high investments of first movers in the case of patent, seeking apple’s mistake and learning from it. Finally, it helps to develop more efficient processes and technologies into advertising and research. (James Hulbert 2005) Creative is a big organization with more than five thousands employees. They have both tangible and intangible resources to research and develop such technology products in order to compete with other competitors. With the use of number of labs that spread around the world, it

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helps to boost the response speed of Creative to the change of the industry. Beside, it is one of the strongest drivers within the industry. A very good example for this ability of Creative is that through years and years, the company has developed numbers of innovative technology products in order for them to compete and gain the market share of others competitors. The results for such a quality dimensions in its service and product is that Creative has won two time of the "Best of CES" Award for the audio and visual product category at the annual Consumer Electronics Show 2004 and 2003 in Las Vegas with the highly innovative product, the Zen Portable Media Centre. Explain competitor action, tactical action, actor reputation, market dependence resource availability and discuss how it relates to the above case study. Likelihood of response is next, type of competitor action being strategic actions receive strategic responses, strategic actions elicit fewer total competitive responses. The time needed to implement and assess a strategic action delays competitor’s responses. Like it took 4 years for the patent user interface to be licensed. Tactical actions responses are taken to counter effects of tactical actions like changes in price, competitor is likely to respond quickily to tactical actions. Creative implement price war while Sony tries to come out with better quality products. Actor’s reputation actions by market leaders with strong positive reputation for risk taking and unpredictability are less likely to gain a response from competitors. Like for Apple, with strong reputation for risk taking, creative gives a fast response. Firm’s studies responses that competitors made when attacked previously to predict likely responses.

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Market dependence is extent to which a firm’s revenues or profits are derived from a particular market. In general, firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position. Creative’s market position being superior in technology may be threatened if it has to buy royalties from apple. Resource availability, response requires having available resources; firms with fewer resources are more likely to respond to tactical actions than to strategic actions. Tactical actions require fewer resources and easier to implement. Like in the case of a tactical price war whereby most firms like sony and samsung are easy to meet up to while unable to do strategic actions to register for patents as need many months of research of the product. (Herbert S, Daniel J R, Barry R A 2006) In a fast cycle market, firm’s competitive advantages are not shielded from imitation; imitation is often rapid and inexpensive. Competitive advantages are not sustainable, competitors use reverse engineering to quicken imitate or improve existing products. In which case, they are laws and patents protecting them. And Non-proprietary technology is diffused rapidly. In which case Creative, Sony, Samsung and Apple are all in this cycle. Having fight for patent due to rapid copying and new products from Sony and Samsung are being high in sales. (Morkel, Hubbard, Daveport, Stockport 1999)

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Question 2. What is differentiation strategy and how does Creative implement their differentiation strategy into their products? Through the differentiation strategy, the firm produces non-standardised products for customers who value differentiated features more than they value low costs. The success of the firm’s differentiation strategy depends on its ability to continuously and consistent upgrade the differentiated features. (Thomas L.Wheelan J.david hunger 2002) Creative produces new products with higher technology and has registered patents to support it. (viewed on 22/8/2008 creative awarded patent on user interface) It has been in the leading edge of constantly producing higher technological goods. Creative Technology Limited is offering more than 25 different types of digital media players, which is one of the advantages in their differentiation strategy comparing to the seven offers of Apple. Creative are touting Zen as far more powerful player than apple’s offering, with additional functions such as FM radio and built in mike. The result of the research shows that Creative always focuses in developing the features of its products in order to make it different than the rest of the competitors. A very good example is that Creative are touting Zen as far more powerful player than Apple and the other competitor is offering, with additional functions such as FM radio and built in mike. Beside that, Creative’s invention for user interface for portable media players enables selection of at least one track in a portable media player as a user sequentially navigates through a hierarchy using three or more successive screens on the display of the player. This is one of most unique features and application that Creative implements on its MP3 players.

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Value creating strategies associated with the differentiation strategy that Creative implemented Value creating activities associated with the differentiation strategy (Morkel, Hubbard, Daveport, Stockport 1999). Differentiation through brand name Brand name is not generally a primary vector of differentiation, especially in hightechnology products. However, brand name reputation can effectively suggest an underlying vector of differentiation. It can trigger Creative customer’s feeling of value the underlying vector can establish and maintain the value of a brand name. It’s imperative that the underlying vector is understood; otherwise, the company can take in itself into believing that differentiation based on its brand name is sufficient. As for Creative they have spent millions of dollars in marketing and building such a famous brand name within the industry. However, at this point of view, its competitors also have such similar quality brand names which they can be used to compete with Creative, such as: Sony walkman, Samsung MP3 and Apple iPod. Differentiation through design Creative has also set new audio standards with the launch of its latest Xtreme Fidelity (XFi) audio platform. The cutting-edge technology has gained wide industry recognition and was selected by Popular Science as the "Best of What's New in Home Entertainment" in 2006 for bringing outstanding audio quality to MP3 music. Most of the MP3 players in the market, has different unique designs, but what special the most about Creative products is that the company

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has each of their design in more different color comparing to others. This provides more choice for customers on the color design side. Differentiation based on convenience Like brand name, convenience is not usually a primary vector of differentiation for hightechnology products. In the PC market, Dell and Gateway enabled customers to order computers directly to their desired configuration on loaded selected application software on the computers before shipping them to customers. This made the purchase and setup more convenient for customers and provided a competitive advantage to some extent. Creative has brought the convenience into the ZEN X-Fi, where people can find it so convenience by using the new Creative MP3 player. Equipped with wireless capability, there is also no need for messy cables anymore as users can download and stream music from your PC to your player instantly within a home network and enjoy in X-Fi audio quality. Convenience has a higher value in markets where little else distinguishes Creative products to its competitor expect the Apple iTouch. However, the applications of Creative are compactable with most of the operating systems and softwares. Five forces that Creative has to look out in their differentiation strategy Rivalry with existing competitors, well positioned relative to competitors because, brand loyalty to a differentiated product tends to offset price competition. Creative’s marketing strategy could have failed in the sense that Apple’s ipod has a better branding and differentiated on marketing terms. However, the pricing method that Creative is having is more attractive Bargaining power of buyers can mitigate buyer’s power by, producing well differentiated products, reducing customer sensitivity to price increases. Creative retaliated with a technology

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patent which was effective in protecting their intellectual rights and strengthen their competitive advantage instead of fighting a price war. (viewed on 22/8/2008 creative awarded patent on user interface.) Bargaining power of suppliers can mitigate supplier’s power by, absorbing price increases due to higher margins, passing along higher supplier prices because buyers are loyal to differentiated brand. People who like advanced technology like creative and navigation in music players like Apple. Potential entrants can defend against new entrants because new products must surpass proven products. Entrants new products must be at least equal to performance of proven products, but offered at lower prices. Creative constantly research and push new higher technological products at lower prices. Product substitutes, well positioned relative to substitutes because: brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands. Customers that are loyal to Creative due to higher technology and cheaper prices may not change. (Tony morden 2007) Overall, Creative has been quite successful in their differentiation strategy. They have applied the right features and innovative applications to its MP3 player. Especially for the last test MP3 product, the company has integrated the best technology which brings convenience and more value adds to its users. However, the strategy that they have been implementing is not strong enough to beat its major competitors in the MP3 and portable media-player.

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Question 3.

What are the advantages, benefits,

leadership/differentiation

and

how

does

and risks involved in cost

Creative

use

integrated

cost

leadership/differentiation strategy in its product? Creative

firm

has

been

successfully

in

implement

an

integrated

cost

leadership/differentiation strategy; it provides a better position to: –

adapt quickly to environmental changes, such as: Creative always introduce compete-able product one there is changes in other competitors product range.

–

learn new skills and technologies more quickly which help Creative being one of the best leader in technology industry.

–

effectively leverage its core competencies while competing against its rivals

Benefits of Integrated Strategy that Creative has implemented: •

Successful firms using this strategy have above-average returns

•

The company can offers two types of values to customers –

some differentiated features (but less than a true differentiated firm)

–

relatively low cost (but not as low as the cost leader’s price)

There are some risks facing the company that chooses to implement an integrated cost/leadership differentiation strategy: -

There is a possibility the company become neither the lowest cost nor the most differentiated firm

-

Becoming ‘stuck in the middle’

-

Lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy

-

Earning below-average returns

-

Competing at a disadvantage 15

However, the company can mitigate the risks with some of the solutions that have been developed through years of Creative’ expriences 

focusing on consistently reducing costs



adding differentiated features that customers value and for which they are willing to pay a higher price



avoiding becoming "stuck-in-the-middle" by failing to consistently pay attention to the competitive requirements of either or both generic strategies

Being "stuck-in-the-middle" implies that the company will not be able to manage successfully the five competitive forces and will not achieve strategic competitiveness. In fact, these companies can only earn average profits when industry structure is favourable or when other companies in the industry also are "stuck-in-the-middle." Even so, the integrated strategy is an appropriate choice for firms possessing the core competencies to produce somewhat differentiated products at relatively low prices.

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References 1. BBC Website, 2005, “Apple Faces iPod Dispute”, viewed August 22 2008,

http://news.bbc.co.uk/2/hi/technology/4510044.stm 2. Business Week Website, 1997, The Sweet Sound of Success for Creative Technology”,

viewed August 29 2008, http://www.businessweek.com/archives/1997/b3543095.arc.htm 3. Business Week Website, 1999, Splendor on the Web for Creative Technology?, viewed

August 29 2008, http://www.businessweek.com/archives/1999/b3659197.arc.htm 4. Business Week Website, 2006, “Creative Technology Takes on Apple”, viewed August 29

2008, http://www.businessweek.com/technology/content/may2006/tc20060516_960123.htm 5. Chen, 1996, “Competitor Analysis and Interfirm Rivalry toward a Theoretical Integration”, Academy of Management Review, ch. 21, pp. 100-134 6. Creative Technology Ltd. Corporate Website, viewed August 22 2008,

http://sg.creative.com/ 7. Hitt, Ireland, Hoskisson, 2004, “Competitiveness and Globalization: Concepts and

Cases”, Strategic Management 6th edition. 8. Hulbert, J, 2005, “Strategic Management”, John Willey and sons: West Sussex England. 9. McGrath, Michael E., 2000, “Product Strategy for High Technology Companies:

Accelerating Your Business to Web Speed”, McGraw-Hill Professional 10. Morden, T, 2007, “Principles of Strategic Management”, Ashgate: Hampshire England.

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11. Morkel, Hubbard, Daveport, Stockport , 1999, “Strategic Management”, Prentice Hall: Austrailia, NSW 12. Pearce and Robinson, 1997, Times Mirror Higher Education Group USA. 13. Physorg Website, 2005, “Creative Awarded Patent on User Interface”, viewed August 22

2008, www.physorg.com/news6135.html 14. S. Herbert, J. R. Daniel, R. A. Daniel, 2006, “Strategic Management”, University Press of America: Oxford, UK. 15. The Business Times, 2008, “More Creative's ZEN X-Fi is a Winner”, Factiva, viewed

August 29 2008. 16. The Business Times, 2008, “More Device Makers Could Use Creative Sound

Technology”, Factiva, viewed August 29 2008. 17. The Business Times, 2008, “More Pint-sized Videocam from Creative”, Factiva, viewed

August 29 2008. 18. The Business Times, 2008, “Streaming Music in the Palm of Your Hand”, Factiva,

viewed August 29 2008. 19. Wheelen, Thomas L., Hunger, J. David, 2002, “Strategic Management”, Prentice Hall: New Jersey, USA. 20. http://forums.macworld.com/thread/51217?tstart=0 21. http://news.techwhack.com/613-apple-creative-sony 22. http://www.iht.com/articles/2005/04/25/bloomberg/sxcreative.php

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23. http://www.openlearningworld.com/olw/courses/books/Business%20Strategies/Business

%20Strategy/Integrated%20Cost%20Leadership%20%20Differentiation%20Strategy.html 24. http://www.marketing-interactive.com/news/1389

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