Steinway & Sons: Buying A Legend(A)

Steinway & Sons: Buying a Legend(A)

ўс. Statement of Problems and Issues

Summary

For 140 years, Steinway & Sons has set the standard for the quality manufacture of pianos. Why is Steinway legend? What made it so a great master? After first step into piano industry ÐŽoSteinwayÐŽ± and the word piano are almost synonymous. Working a long-term ЁC and still going- technical and market strategy that emphasized quality is to say, since the first Steinway family members arrived in New York from Germany in the middle of the 19th century, the company has pursued a strategy of making high-end quality product, selling them through its own sumptuous outlets and through a network of dealers, and gaining exposure by encouraging premier performing artists to use the pianos.

In the early 1970s, Steinway encountered competition from low-cost producers based on in Japan. While SteinwayЎЇs fine image and reputation was unquestioned, the business wasnЎЇt particularly profitable. In addition to it, due to some stockholders who were unwilling to invest but mainly interested in income, SteinwayЎЇs financial conditions became worse, so the family company came to an end, was sold to CBS. CBS recognized that the business didnЎЇt fit its corporate strategy. In 1985, CBS sold the company to John and Robert Birmingham, Boston-based investors. Under Birmingham, Steinway returned to its former stature, stressing quality and focusing on the high-end market. But ten years later, Steinway is also sold two investors, Kyle Kirkland and Dana Messina because of financial problems.

Problems and Issues

Now, the two young entrepreneurs have some questions and need to decide something important. Whether Steinway would continue its high-end quality piano or alternatively, pursue some bolder, more aggressive plan? Also they should decide what to do with the recently introduced line of Boston pianos. Did it make sense for Steinway to sell mid-priced pianos and how can they leverage the Steinway brand name to further enhance revenues? Finally, what role should they play in the running of Steinway?

We will mainly focus our analysis on the market share, financial problem and brand strategy. Now we start our analysis to choose the right creative to solve dilemmas which Kyle Kirkland and Dana Messina are facing.

ўт. Analysis of Current Situation

1. External analysis: Market & competitor, Consumer behavior

Description

Market Industry Trends1. Sustaining downturn in the piano industry (global sales dropping by 40% since 1980)2. Consolidation of the piano manufacturing industries in US & EU3. Emergence of several Asian manufacturersThe Used Piano Market1. The impact by an active market for used pianos is considerable2. Because of the extremely long life, ÐŽodurationÐŽ± of pianoЁЁ threat to the piano industry seriouslyThe proportion of SteinwayЎЇs marketUnited States (58%), Germany (8.6%), Japan (7.3%), England (6.1%),Switzerland (2.9%)Decreasing unit sale of Steinway grand piano from 1990 to 1994The unit sale of grand piano was decreased by 24.5%

Competition Yamaha1. The largest producer of pianos in the world2. Using highly automated, assembly-line techniques3. Traditional craft methods also used for making grand piano4. Strategies for improvement and promotion its grand piano- used noticeably higher quality raw materials- effort to duplicate the techniques of Steinway- employeeЎЇs high degreed skills and limit of worker discretion- launching an ÐŽoArtist ProgramÐŽ±Baldwin1. High-quality grand piano manufacturer2. Respected by trained musicians, choice by big artists and ÐŽoofficialÐŽ± piano of organizationsKawai1. Manufactured on highly automated assembly lines2. Produced good quality verticals and small grand piano3. Manufactured Boston piano on behalf of Steinway

Consumer behavior Brand choice is driven by product quality, prompt delivery and competitive pricing

As shown in the table above, the unit sale of Steinway grand piano was decreased by 24.5%, while the sale of grand piano in USA was increased by 4.5%(27,742 ÐŽÑŠ 28,999 units).

This result indicates that Steinway should do any action to recover its market, if not, its formidable competitors may waste SteinwayЎЇs life.

Unit Sales of piano producers in 1994

Producer Model Unit Sales Dollar Sales Market share

Yamaha VerticalSmall grand 157,50017,500 $1.0B 35%

Baldwin Grand 20,000 $122M 4.36%

Steinway VerticalGrandBoston 6002,6982,300 $101M 3.61%

Kawai VerticalSmall grand 90,00010,000 - -

Bosendorfer Grand 400 - -

Fazioli Grand 60 - -

Market share

Yamaha has a far greater share of the overall piano market than Steinway and even has more diversity of grand piano price. (Steinway grand pianos range from $26,400 to $68,800 otherwise, Yamaha grand piano range from $15,090 to $87,990)

Steinway, to broaden its market share, should diversify own product because brand choice is driven by product quality, prompt delivery and competitive price.

As shown in the proportion of SteinwayЎЇs market, Steinway needs to reinforce marketing activities into Asian market, so more competitive priced product is material to it.

Mid-priced & lower priced piano

The Boston piano is a mid-priced instrument made by Kawai in Japan to Steinway specifications. Although Boston piano line represented a significant break with tradition, this mid-price is for ÐŽocustomers who were not yet ready to acquire a SteinwayÐŽ±. Moreover, Boston made big revenue over 600% from 1992 to 1994. This is saying about Steinway should take in the future. In other words, to make more money Steinway needs lower price of piano than Boston.

So we suggest that Steinway should introduce new lower-priced brand through cooperation with other Asian manufacturer except for Kawai for technology protection.

2. Internal analysis: Strength and Weakness based on the internal analysis

Strength Weakness

Product Brandthe pre-eminent brand name Quality the highest