SONOS INC.: PRODUCT DEVELOPMENT AT THE SPEED OF SOUND
CASE STUDY SOLUTION
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pl
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SYNOPSIS
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Kurt Preston, vice-president of Global Sourcing and Product Operations at Sonos Inc. (Sonos), had been
considering a joint development manufacturing (JDM) model for future Sonos products. In 2022, Sonos
began to expand its product offering to target value-conscious consumers and grow market share with more
modest price points. Historically, Sonos designed every aspect of its products in-house and used contract
n
manufacturers (CM) for production. However, the JDM approach offered an opportunity to partner with a
supplier to potentially decrease the product development time and cost. However, this approach also meant
tio
giving up control of several aspects of product design, and this had many at Sonos very worried.
With only days before Preston needed to prepare a recommendation on JDM to Patrick Spence, chief
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executive officer of Sonos, on April 23, 2023, students will be asked to examine the differences between
CM and JDM, and provide their recommendation.
So
OBJECTIVES
• Clearly articulate the differences between CM and JDM.
• Determine the trade-offs between speed and cost versus control.
• Determine how to apply a value chain assessment to make better supply strategy decisions.
The Case Solution Starts From page 5
,ASSIGNMENT QUESTIONS
1. How would you define Sonos’s strategy to date? Has it been a success? What are the implications of
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Sonos’s shift toward a more value-conscious consumer?
2. What are the key differences between the CM model and the JDM model?
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3. How might the JDM model address concerns over both the product development process and
production costs? Use the data in the case pertaining to the Ray to quantify the impact; clearly state any
m
assumptions that you make.
4. If, as Preston, you wanted to recommend JDM, how might you address the concerns raised by your
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colleagues at Sonos?
5. As Preston, what recommendation would you make to Spence?
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tio
lu
So
The Case Solution Starts From page 5
,ANALYSIS
1. How would you define Sonos’s strategy to date? Has it been a success? What are the
implications of Sonos’s shift toward a more value-conscious consumer?
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Sonos’s strategy to date revolved around developing high-quality and innovative audio products that
pl
disrupted the market. By being one of the first to offer Bluetooth technology in its audio devices, Sonos
showcased its commitment to staying at the forefront of technological advancements. This strategy required
m
substantial investment in research and development—between 9 and 12 per cent of sales annually—to
continually push the boundaries of audio technology and deliver superior products. Students should
recognize that a major factor contributing to this success was Sonos’s control over the entire product
Sa
development cycle. Contract manufacturers only became involved after the first prototype was developed,
and Sonos’s engineers were continuously present at the CM facilities to ensure manufactured products met
quality specifications. Sonos has primarily targeted the premium customer segment, catering to consumers
who value exceptional audio experiences and are willing to pay a premium for it. This has contributed to
n
its strong gross margins of 47.8 per cent. Overall, Sonos’s “Flywheel” strategy has proven effective in
tio
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So
The Case Solution Starts From page 5
, EXHIBIT -1: REDUCED SOURCING AND MATERIALS COSTS
Case facts Assumptions
Annual sales (US$ billions) 1.75 Target margin (%; slightly above average + 5%) 47
Average revenue per unit (US$) 279 Retailer margin (%) 45
Average margin 42% Component discounting (%) 1–5
Products 19 Actual margin, 30% below target (%) 33
Non-strategic components 75%
Calculating Unit Sales per Product
$1.75 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠
𝐹𝑌22 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑 = 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 6,272,401 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑
$279 𝑢𝑛𝑖𝑡
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6,272,401 𝑢𝑛𝑖𝑡𝑠
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𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑 𝑝𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 = = 330,126 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
19 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑠
Calculating COGS for the Ray
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Sa
𝐶𝑂𝐺𝑆 = $279 × (100 − 45%) × (100 − 33%) = $102.96
= =
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tio
lu
So
The Case Solution Starts From page 5
CASE STUDY SOLUTION
e
pl
m
SYNOPSIS
Sa
Kurt Preston, vice-president of Global Sourcing and Product Operations at Sonos Inc. (Sonos), had been
considering a joint development manufacturing (JDM) model for future Sonos products. In 2022, Sonos
began to expand its product offering to target value-conscious consumers and grow market share with more
modest price points. Historically, Sonos designed every aspect of its products in-house and used contract
n
manufacturers (CM) for production. However, the JDM approach offered an opportunity to partner with a
supplier to potentially decrease the product development time and cost. However, this approach also meant
tio
giving up control of several aspects of product design, and this had many at Sonos very worried.
With only days before Preston needed to prepare a recommendation on JDM to Patrick Spence, chief
lu
executive officer of Sonos, on April 23, 2023, students will be asked to examine the differences between
CM and JDM, and provide their recommendation.
So
OBJECTIVES
• Clearly articulate the differences between CM and JDM.
• Determine the trade-offs between speed and cost versus control.
• Determine how to apply a value chain assessment to make better supply strategy decisions.
The Case Solution Starts From page 5
,ASSIGNMENT QUESTIONS
1. How would you define Sonos’s strategy to date? Has it been a success? What are the implications of
e
Sonos’s shift toward a more value-conscious consumer?
2. What are the key differences between the CM model and the JDM model?
pl
3. How might the JDM model address concerns over both the product development process and
production costs? Use the data in the case pertaining to the Ray to quantify the impact; clearly state any
m
assumptions that you make.
4. If, as Preston, you wanted to recommend JDM, how might you address the concerns raised by your
Sa
colleagues at Sonos?
5. As Preston, what recommendation would you make to Spence?
n
tio
lu
So
The Case Solution Starts From page 5
,ANALYSIS
1. How would you define Sonos’s strategy to date? Has it been a success? What are the
implications of Sonos’s shift toward a more value-conscious consumer?
e
Sonos’s strategy to date revolved around developing high-quality and innovative audio products that
pl
disrupted the market. By being one of the first to offer Bluetooth technology in its audio devices, Sonos
showcased its commitment to staying at the forefront of technological advancements. This strategy required
m
substantial investment in research and development—between 9 and 12 per cent of sales annually—to
continually push the boundaries of audio technology and deliver superior products. Students should
recognize that a major factor contributing to this success was Sonos’s control over the entire product
Sa
development cycle. Contract manufacturers only became involved after the first prototype was developed,
and Sonos’s engineers were continuously present at the CM facilities to ensure manufactured products met
quality specifications. Sonos has primarily targeted the premium customer segment, catering to consumers
who value exceptional audio experiences and are willing to pay a premium for it. This has contributed to
n
its strong gross margins of 47.8 per cent. Overall, Sonos’s “Flywheel” strategy has proven effective in
tio
lu
So
The Case Solution Starts From page 5
, EXHIBIT -1: REDUCED SOURCING AND MATERIALS COSTS
Case facts Assumptions
Annual sales (US$ billions) 1.75 Target margin (%; slightly above average + 5%) 47
Average revenue per unit (US$) 279 Retailer margin (%) 45
Average margin 42% Component discounting (%) 1–5
Products 19 Actual margin, 30% below target (%) 33
Non-strategic components 75%
Calculating Unit Sales per Product
$1.75 𝑏𝑖𝑙𝑙𝑖𝑜𝑛 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠
𝐹𝑌22 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑 = 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 6,272,401 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑
$279 𝑢𝑛𝑖𝑡
e
6,272,401 𝑢𝑛𝑖𝑡𝑠
pl
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑 𝑝𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 = = 330,126 𝑢𝑛𝑖𝑡𝑠 𝑝𝑒𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
19 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑠
Calculating COGS for the Ray
m
Sa
𝐶𝑂𝐺𝑆 = $279 × (100 − 45%) × (100 − 33%) = $102.96
= =
n
tio
lu
So
The Case Solution Starts From page 5
