Sharp to Dealers: Actions Speak Louder Than Words

We recently spoke to Mike Marusic, senior vice president of marketing and the Business Solutions Group for Sharp Imaging and Information Company of America (SIICA) to get an update on what it’s doing to combat the since-refuted speculation published by Japanese online publication Nikkei late this summer that the company might sell its copier and appliance businesses (See below for what we’ve learned about the back story on Sharp’s financial troubles.) Sharp Corporation in Japan issued a statement the very next day in Japan categorically denying the rumor and SIICA immediately sent out  a letter explaining that to all of its dealers. 

Since then, Sharp Corporation has secured a $4.6 billion loan to cover its operating costs through June of next year according to reports in Reuters.

Still, Sharp has faced some upset from its dealers and not surprisingly there have been cases of competitor sales reps spreading rumors and trying to win away customers. Marusic points out that it’s difficult—and awkward—to defend against a false rumor. “You can tell people over and over, it’s not true, and it can sound a little hollow. Talk is cheap,” he said. So he encourages dealers to look at what Sharp is doing: supporting its dealers and expanding its business. Rather than hunkering down and cutting back on programs, it is supporting its dealers with new programs, introducing—and selling out—new products, holding road shows to support the launch of the new products and scheduling its 2013 Dealer Sales Meeting.
 

Early in October, SIICA rolled out its Premium Plus Pricing Program. Announced at its 2012 Dealer Sales Meeting in Dallas, this program encourages dealers to buy Sharp products anytime, in whatever quantities they want, by offering consistent pricing. Typically, Marusic explained, manufacturers offer end-of-month or end-of-quarter discounts in exchange for the dealer taking on more inventory than he or she needs. Dealers feel forced into doing it because they’re worried that if they don’t, and their competitor down the street takes advantage of the offer, the competitor will be able to offer customers better pricing. But this behavior often actually puts dealers at a pricing disadvantage. For example, a dealer may have gotten a 15 percent discount to take on four months of inventory, only to find that a few months later, the manufacturer is offering a higher—say 20 percent—discount. If his competitor takes advantage of the higher discount, that means the first dealer paid more for a large quantity of the same product that his competitor, who acquired it for a lower price, will be able to offer a better deal on.

To determine the new pricing, which is inclusive of other pricing promotions, Sharp examined all the sales its dealers had made over the previous six months and set the new pricing a little below the average. Now dealers don’t have to stock up on inventory and can be confident that they can buy only what they need when they need it, knowing they are getting it at the best price. Marusic said Sharp is the only vendor in the industry with this type of program and that dealers are very excited about it, particularly smaller dealers who couldn’t have afforded to buy in the quantities required to get the price discounts. “If they want to buy one unit this week, and one unit next week, that’s fine,” said Marusic. “With economic conditions as they are, who wants to burden dealers with having to load up on inventory?” Not only does the new program benefit the dealers, it also benefits Sharp with more predictability. It further gives Sharp the flexibility to adjust pricing when it makes sense for all parties, without worrying about having a lot of inventory out in the channel. By keeping inventory low, price changes can take effect evenly for all dealers.
 

Marusic pointed to the new everyday low pricing as the kind of measure a company would not take if it were worried about going out of business.

Here’s some other evidence Marusic points to that supports the case that for Sharp’s copier division, it’s business as usual.

• The copier division is one of the company’s most profitable businesses, with a 5% profit ratio this fiscal half.
• Sales for the half fiscal year from April to the end of September were slightly up over the same period last year, which is an even more  positive result considering that Sharp benefited from unusually high sales the previous year owing to the fact that, unlike some competitors, its operations were not affected by the tsunami.
• Employees in Sharp’s document imaging division received salary increases on schedule in August and there have been no significant layoffs.
• Director and Senior Executive Managing Officer Fujikazu Nakayama, general manager of Sharp Corporation’s Business Solutions Group and Document Solutions Group and a member of the board of directors for Sharp Corporation, flew out to the US from Japan in October to get feedback from dealers on Sharp’s new products. “If Sharp leadership was in crisis mode, he wouldn’t have taken a 14-hour flight to get feedback from dealers,” noted Marusic.
• SIICA has not been asked to cut any marketing budgets or activities. The company is holding road shows to support its new product launches and has already secured its plans for the 2013 sales meeting, with the multimillion-dollar expenditure getting quick approval.
• The company’s new color MFPs and production monochrome devices have sold out of inventory, which is why BLI has not yet gotten test units. And dealers are also selling through.
• In conclusion: “We’re optimistic,” said Marusic. “Judge us not by what we’re saying or what our competitors are saying, but by our actions and what we’re doing for our dealers.”

According to news reports, Sharp’s recent financial troubles stem from debt associated with building the world’s largest factory for large TV LCD panels in Sakai. The plant was completed in 2009, just prior to the start of the recession. With weak global demand and competition from other vendors, the factory was at only at 40 percent utilization last spring, so production and sales didn’t come close to covering its costs. Terry Gou, chairman of contract electronics manufacturer Hon Hai (Foxconn), personally bought almost 50 percent of the shares in the plant, and for a while Hon Hai was in negotiations to purchase a stake in Sharp Corporation. Those talks reportedly stalled over Hon Hai wanting a management role in the company and wanting a stake in Sharp’s business in small LCD panels, which are used in smart phones and tablets. With the utilization rate at the Sakai plant now up to between 80 and 90 percent, the losses have been stemmed and Sharp is focused on returning to profitability. According to recent reports in the New York Times, talks with Hon Hai continue and Sharp is also considering alliances with other firms.