Morningstar | Sonova's Product Refresh Needed to Reverse Struggles in U.S. Market
Sonova benefits from favorable trends, including an aging population, increasing noise pollution, fairly low penetration rates for hearing aids in the developed world, and virtually untapped patient populations in emerging markets. Its broad product offerings should allow the company to capitalize on these trends, while its strong brand and superior technological know-how should yield market share gains.Sonova controls more than one fifth of the world's hearing aid market by value, possessing roughly the same share as key competitor Demant. The two rivals are very similar in their approach to the market. Both tend to focus on the higher end of the spectrum of device sophistication, and both flip their product portfolios fairly frequently and have strong sales and distribution networks, including a notable presence in retail channels. Both firms also have small presence in hearing implants, although they are significantly behind the market leader, Cochlear. The hearing aid industry is undergoing a transformation, and one that is not too favourable for all the manufacturers. Big-box retailers, particularly Costco, are encroaching on the independent channel, which had historically been the most supportive of the premium brand manufacturers. The private-label strategy pursued by Costco as well as the largest global retailer, Amplifon, diminishes brand value and puts downward pressure on pricing. Products are becoming more homogeneous, with real differentiation not as pronounced as historically (although perception still strongly favors the top two makers) and update cycles shrinking.In response to this evolving environment, Sonova and Demant have opted to build up their own presence in retail via acquisitions of retail chains. This vertical integration strategy is largely a defensive move, and while a combined wholesale-retail model has its advantages, namely control over inventory, it also carries lower margins and returns and creates yet another wedge between the firm and its independent audiologist clients.Sonova Holding is a hearing instrument manufacturer based in Switzerland. Co. specializes in the design, development, manufacture, and worldwide distribution of technologically advanced wireless and hearing systems for adults and children with hearing impairment. Co. offers a range of digital hearing instruments, along with high tech specialty products and complementary wireless communications systems. Co. comprises two hearing instrument divisions, Phonak and Unitron Hearing, as well as Phonak Communications, a developer of wireless communication devices for both hearing instrument and other applications.
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