A golden era in consumer products is dawning. Over the next decade about a billion new consumers will likely join the world’s middle class. Such economic growth in so short a time frame would be the biggest consumer boom ever known.
These new consumers will want digital products such as SanDisk sells and SanDisk appears to be planning to sell them all they want.
For the most part these new consumers won’t live in the United States. Rather, they will come from countries like China, India, Russia, South America and such, the new rapidly emerging economies.
Competition for these consumers is going to be brutal as the global market place becomes very very complex. Today’s established business models will be stress-tested and those which fail will have to change or fall by the wayside. Its going to take phenomenal innovation and on-the-fly adaptation to leverage current success into future earnings. Last, but not least, winners are going to need an advantage, an “unfair” advantage, as SanDisk CEO Eli Harari likes to humorously put it.
What is SanDisk’s “unfair” advantage? NAND flash.
One could make a strong argument than NAND flash has become the disruptive technology powering the digital revolution in portable devices. SanDisk not only controls its own supply, but much of the key IP. One heck of an advantage and SanDisk knows it.
SanDisk is planning to leverage this advantage right up the food chain and in the process transform itself from just a very strong semiconductor-based company, into a very broad-based global consumer electronics company.
A good example of how this advantage can work successfully is the SanDisk Sansa MP3 player, which has ridden the coattails of the iPod Nano’s success to a solid #2 US market share today for flash-based MP3 players.
The digital revolution came to portable audio in 1998, when the first non-mechanical MP3 players were introduced. Storage capacities on these early models were minimal. By the end of 1999 capacities improved when hard disk drive (HDD) based MP3 players were introduced. The HDD-based MP3 player remained dominant until Apple introduced its flash-based iPod Nano in 2005. SanDisk soon followed with its redesigned Sansa flash-based MP3 player .
With the Apple Nano juggernaut running roughshod over the competition, SanDisk quietly slipped in behind, leap-frogging the competition and securing the number 2 market position behind the Nano.
SanDisk was able to move quickly not only because it already had the flash technology and supply, but also because it already had an established retail channel and a strong consumer brand. These are two generally unappreciated aspects of the SanDisk story.
Sandisk has become a corner stone in the memory category on the strengths of its memory card and USB drive business. In working with SanDisk, retailers have a proven single-source supplier for all memory products regardless of form or capacity. As a result, SanDisk has risen to the status of category captain and now works directly with retailers in planning strategies, promotions, and activities.
In 2006 57,000 SanDisk storefronts were added around the globe. Now there are over 200,000 worldwide. HP has around 115,000 storefronts and Apple sells its iPod through just 40,000.
The SanDisk brand is on the rise, not only in the USA, but around the world. According to SanDisk’s consulting firm, unaided brand awareness jumped from 12% in 2004 to 48% in 2006. The consulting firm said that such a jump was unprecedented in its experience.
The Sansa MP3 player redesign borrows heavily from the iPod Nano. I don’t believe Eli necessarily thinks this a bad thing. In 2006 while describing the Sandisk USB drive, a product that SanDisk copied from msystems, he said, “This is the USB flash drive, which we didn’t invent, but we are number one in the world. The lesson there is … its OK to be a good follower. You can be a follower and still be #1. You don’t have to invent everything. Other people have some pretty good ideas, you need to keep your eyes open.” A refreshing attitude. Better to sell a lot of product than to be too proud.
Probably the most important reason that SanDisk has not tried to expand geographically until now, is simply that it didn’t have enough of its own flash memory to warrant the big push. With the current ramp up of production SanDisk now feels that it can begin an aggressive overseas push.
Now that SanDisk has recognized the international opportunity in consumer retail and has the memory coming online to support an international product push, what’s going to be its international plan?
Same plan as in the USA: Add retail storefronts ASAP; build retail partnerships; build brand awareness; establish category captain status; invest in international sales and regional marketing; and build out the required logistics supply chain.
Consumer packaging is an indication that SanDisk is starting to internationalize its marketing. In 2004, SanDisk would export any product anywhere as long as the packaging could be in English. Now SanDisk is doing its packaging in 14 languages. After all, English goes only so far in the global consumer world.
One of the pleasant surprises of Q2 2007 was the unanticipated strength of SanDisk’s retail sales, where international markets made a strong contribution. This is an indication that SanDisk’s investments in its global consumer electronics strategy are beginning to pay dividends.
As Eli said last week:
“The second key factor [driving the flash industry] is rapidly growing global markets in the new consumer economy, which is fueling surging demand in consumer electronics and mobile markets. The US economy used to be the engine of growth for the rest of the world. Today, the world economies are charging ahead across many geographies, with Europe and Pac Rim countries expected to fuel global growth of consumer demand for the foreseeable future. SanDisk will be a benefactor of these global
economic trends, because we are becoming a trusted global consumer brand and because we continue to invest aggressively in global distribution of our products and in a global logistics supply chain.”