Steinway & Sons Flashcards
Steinway & Sons History
I - Steinway’s Historic Point of Differentiation and Value Creation:
- Quality of product
- Luxury positioning
- Endorsed by best pianists
- Strong Dealer Network
Steinway positioning:
Steinway customers:
II - Recent challenges to Steinway’s value creation:
Industry:
- Entrance of new competitors
- Yamaha, Kawai and other Asian manufacturer took over vertical and grand piano market
- Downturn in the piano industry
- -40% in global piano sales
- Growth of the used piano market
- Popularity of other instruments
Missteps by Steinway
- Too many dealerships
- Pricing structure too high
- Unused marked opportunities in Asia
- Long production times
Industry challenges:
New competitors:
Yamaha, Kawai and other Asian manufacturer took over vertical and grand piano market: four Asian companies combined for 75% of global sales by 1990
Downturn in the piano industry:
-40% in global piano sales from 1980 to 1905. (Steinway however only had a 17% decrease in sales over that period)
Missteps by Steinway:
Product quality
- CBS looked to reduce production costs and increase throughput
- High management turnover during the CBS years (4 presidents in 10 years), by the sale of the company to non-piano people in 1985, and by the sale of the company to two investment bankers in 1995
Critics questioned whether the traditional quality of Steinway pianos had suffered
Increase in Dealer Network
- Accepting dealers who carried Yamaha pianos as their primary product line
The defection of Andre Watts
Piano industry relied heavily on artist endorsements and perceptions of product quality. In 1988, the prominent Steinway artist, Andre Watts, switched his allegiance from Steinway to Yamaha.
It was not about the intrinsic quality of Steinway pianos but about the quality of service Watts was receiving from the Steinway dealers (related to too many dealers + costs for servicing piano, offered free by Yamaha)
The Boston Piano, Good or Bad?
Mid-priced piano introduced in 1992. Designed by Steinway & Sons but manufactured in Japan by Kawai
The Essence of the Steinway Brand:
Historical brand (more than 100 years)
Messina & Kirkland, Reasons not to Buy Steinway:
Messina & Kirkland, Reasons to Buy Steinway:
Risk/Reward Profiles for Various Steinway Strategies:
Conservative Strategy:
Doing what the brand is already doing.
- Limit new product introductions and focus on turning out the classic, high-quality Steinway grand pianos
- Maintain current dealer and promotional efforts
Potential damage is limited but Upside potential limited to the current performance profile. Slow steady growth that is greatly tied to the health of the economy
More Aggressive Strategy
- Expanding the presence of the Boston Piano line.
- Expanding the reach of the Steinway brand name into emerging market countries (e.g., China)
But geographic expansion to emerging markets exposes Steinway to unstable market forces and to economic cycles, such as the Asian crisis of the latter 1990s.
- Raising prices of the existing Steinway products (bc price insensitivity of the Steinway consumer, prices should be raised 20% or more almost immediately)
But while raising prices may be profitable in the short-term, it may be perceived by consumers as gouging, damaging the brand in the long run.
Increased upside potential for this more aggressive strategy, but there is also increased downside potential
Most Aggressive Strategy:
Aggressively leverage the Steinway brand name beyond the current product portfolio. New owners should start thinking about brand extensions or cross-licensing arrangements that get the Steinway brand name on a diverse set of products
- Introductory level piano?
- High-end furniture?
- Other types of musical instruments?
Brand extension will come at significant risk to the brand such as long-term dilution of the Steinway brand name
