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Steinway and SonsCase analysis

Group 4Abhishek.E

Michelle wendySunny

Tasha joseVishnu santhosh

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Executive SummaryProblem:

As a result of the declination of sales in the piano industry, Steinway

and Sons needs to find a way to uphold its historical brand reputation while

gaining market share world wide and using innovative technology;

particularly in the Asian Market

Background:

In late 1994, Steinway and Sons was yet again a company on the

market to be sold. For their own personal reasoning, the Birmingham

brothers decided to sell the piano manufacturer. On April 18, 1995 Kyle

Kirkland and Dana Messina, already controlling multiple firms, decided to

make the purchase. The investment bankers purchased the New York piano

manufacturer for an incredible $100 million.

Discussion:

The piano industry has been in rapid decline over the past 2 decades

and in particular, Steinway and Sons has taken a hard financial hit. Global

sales of the industry have dropped 40% over the past 24 years and with the

introduction of major industry competitors, Steinway and Sons have

continued to struggle. In addition to the negative impact of these industry

trends, Steinway and Sons introduced a new product line to address

customer demand. They produced a more mid-priced product line; the

Boston Piano. This step, “breaking tradition,” was taken with the intent to

gain market share in Asia while increasing profits.

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Recommendations:

Continue to produce the mid-priced Boston line of pianos to gain

market share

Make grave attempts to take advantage of the Asian Market by

attractively meeting demands; i.e. satisfying demands for “free” in hall

tuning and delivery for pianists endorsements and establishing

customer base with customer service

They should use quality and their reputable sophistication to market

more to the institutional market which makes up only 10% of vertical

piano sales and 20% of grand piano sales

History

Steinway and Sons was established in New York City in 1853 by Henry

Engelhard Steinway, an immigrant from Germany. The business excelled

because of it technical brilliance and shortly, a year later, the company won

a gold medal at the Metropolitan Fair in Washington D.C. The following year,

Steinway and Sons introduced the cross-stringing technique in a piano with a

cast iron frame, an innovation that is now universal in all grand pianos. Due

to the company’s innovative ability and technical supremacy, orders grew

rapidly and a new larger factory was constructed in 1860. For the next 140

years, Steinway and Sons would be recognized as the leader in the market

for high quality pianos (Gourville).

Over the past 25 years, Steinway and Sons have been somewhat

tumultuous. After 120 years of being a closely held family operation, it was

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decided Steinway and Sons could no longer survive in this manner. The

company was sold to the CBS Musical Instruments Division in 1972 for $21

million worth of CBS stock. The primary reasoning for the sale was

associated with finances which hadn’t changed in the following few years;

the company’s return on capital was only about 5% (Gourville).

In the beginning, CBS invested several million dollars in the first few

years after purchasing the company. This may not seem like an

exceptionally large amount; however the Steinway family had never before

invested more than $150,000 per year in capital improvements. In addition,

to ease the transition and to ensure quality focus, CBS employed Henry

Steinway as president of Steinway and Sons for five (Gourville).

Looking for a reasonable return on investment, CBS wanted to increase

revenue and decrease manufacturing costs by increasing production. Their

first step was to increase dealers by almost 40%. While these changes did in

fact increase sales volume and profits, it damaged the reputation of

Steinway and Sons. Critics and buyers began to challenge the quality of

Steinway and Sons’ pianos. Over the next 10 years, Henry Steinway is

replaced by several CEO’s, only to worsen the calls from critics challenging

the quality of Steinway and Sons’ pianos. In November of 1984, CBS

announced the sale of Steinway and Sons for $50 million to John and Robert

Birmingham (Gourville).

Although the Birmingham brothers had no experience in the musical

business, they set out to re-establish Steinway and Sons as the maker of the

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highest quality pianos in the world. CEO Bruce Stevens set out to assure

everyone, customers, employees, and dealers, that the new owners were

highly committed to quality. The company now became refocused and

returned to what had made them so successful. Aside from the newfound

focus on quality, the Birmingham brothers expanded Steinway and Sons’

product line. It now included the Boston Piano line introduced in 1992, the

Steinway Limited Edition pianos introduced 1993, and the Crown Jewel

Collection of Steinway pianos introduced in 1994. Despite these positive

changes by Stevens and his team, the running of Steinway and Sons was

once again constrained by limited financial resources. The company was

again sold on April 18, 1995 to Dana Messina and Kyle Kirkland for $100

million (Gourville).

Messina and Kirkland had already acquired the Selmer Company, a

meat processing and a paper company, and felt as though Steinway and

Sons was a well run organization which could reap the benefits of their

financial expertise (Gourville).

Industry Trends

Over the years, piano sales have increasingly dropped from as high as

223,000 units in the 1980s to nearly 100,000 in 1994 (Gourville). People

have different arguments of why piano sales dropped so dramatically over

the past 20-30 years. The first of these arguments includes the idea that the

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decrease in sales is simply a trend and that it is predicted that in the future

piano sales will once again rise significantly. In addition, computer home

entertainment and electronic devices such as keyboards were being sold

more than traditional pianos.

A second observation is that the piano industry has become a

consolidation of many of the top piano manufacturers. Many of the

industries in the United States and Europe have been going through

consolidation efforts. In the early 1900s there were several hundreds of

piano makers whereas in 1992, there were only eight (Gourville).

A third trend is that many Asian piano manufacturers arose. Four

Asian companies including Yamaha, Kawai, Young Chang and Samick

accounted for 75% of global sales in the 1990s. “Asian imports achieved a

35% unit share of the vertical pianos market and an 80% unit share of the

grand piano market by 1994,” (Gourville)

The fourth trend in the industry market was the change in market size.

With countries such as South Korea, Japan, and China representing a very

large portion of the market, the United States and Western Europe were no

longer the industry leader in sales (Gourville).

A fifth and final issue that faces the piano industry is that these high-

priced, high end pianos may limit piano sales. Owning a Steinway and Sons

piano may be viewed by some musicians as a symbolic representation of

high status. Only a small percentage of people who are looking to purchase

a piano can afford a product of Steinway and Sons. In 1995, Steinway and

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Sons grand pianos were priced from $26,000 to over $70,000, verticals were

priced from $11,900 to over $17,000, and Boston pianos were priced from

$6,395 to over $30,000 (Gourville). The Boston models are around half as

expensive, however they continue to be out of the price range of the

average customer. The majority of the public is just not willing to pay that

kind of money on a discretionary item such as a piano. The recession of the

early 1990’s can also be linked to the decrease in piano sales in recent

history (Gourville).

Industry Competition

Steinway and Sons had only a few competitors that were considered

threats to their market share. After the industry’s consolidation of

manufacturers from hundreds of makers to a mere eight companies that

were considered major competition, their high volume manufacturing

competitors included Kawia, Yamaha, and Baldwin. Their competition in the

low volume, high quality market was Bösendorfer and Fazioli.

Baldwin Piano and Oregon Company was the only remaining

competitive large scale producer of grand and vertical pianos in the US in

1995 aside from Steinway and Sons. Baldwin sold many varieties of pianos

ranging from factory manufactured vertical and baby grand pianos, to

expensive hand made grand pianos. Baldwin was seen as a major

competitor in 1994 selling 20,000 pianos worldwide and generating $122

million in sales (Gourville).

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Yamaha Corporation, a 100 year old company, was the largest

producer of pianos in the world. Yamaha had $1 billion in sales in 1994 with

35% world market share and 50% Japanese market share. In 1994 Yamaha

produced 175,000 pianos using highly automated, assembly techniques

(Gourville). Yamaha also produced high concert end grand pianos using

traditional craft methods with the goal of producing the best grand piano in

the world. Yamaha would often seek new strategies to compete with

Steinway and Sons in the grand piano market. Yamaha claimed that the

wood used in Yamaha pianos was from the same wood mill as Steinway and

Sons’. Yamaha also would purchase Steinway and Sons’ pianos, disassemble

them, and try to recreate a better piano that Steinway and Sons’ model.

Yamaha marketed their pianos to major universities, in order to gain on

Steinway and Sons. They would often “loan” pianos to universities for

students to use and to be considered for purchase later.

Kawai was a competitor from Japan which produced 90,000 vertical

pianos and 10,000 small grand pianos a year (Gourville). Much like Yamaha,

Kawia wanted to special in a high quality concert grand piano. Kawai was

not a major competitor of Steinway and Sons since their materials used in

their pianos were considered low quality by many critics.

Bösendorfer and Fazioli were two companies that competed with

Steinway and Sons in the top-quality grand piano market. Bösendorfer from

Austria produced 400 grand pianos in 1994 to Fazioli’s 40 (Gourville). These

two companies used the same handcrafted techniques as Steinway and Sons

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and were considered top notch among customers for being made in low

volumes.

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Target Market

Steinway and Sons’ two major markets to sell their pianos in were the

home or private market and the institutional market. These two markets

were grounds for selling Steinway and Sons’ vertical and grand pianos.

Vertical pianos have their strings mounted vertically while grand pianos have

their string mounted horizontally.

The home market, often called the private market made up most of

Steinway and Sons’ sales buying 90% of its vertical pianos and 80% of its

grand pianos. The home market generally was 45 years old and had over

$100,000 incomes a year. To find their market, Steinway and Sons had to

figure out who the music lovers were and who had enough money to

purchase their pianos (Gourville).

The institutional market accounted for 10% vertical piano sales and

20% grand piano sales. This market included universities, music institutes,

hotels and performance halls (Gourville). Steinway and Sons wanted to get

their pianos in these institutions so that it would lead to more sales in the

home market.

Marketing Strategies

Steinway and Sons have shown a decline in recent years on the sale of

Grand Pianos. Some of the reasons that for the decline is price, new

technology, new markets, and the fact that people that have pianos have

had them for a while and will not need to refurbish a piano that often. The

first question that needs to be asked does Steinway want to continue is

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strategy as the world premier grand piano or does it want to take more

aggressive marketing strategy and give up that title for a better profit

margins and market share. Steinway needs to take advantage of the

different marketing strategies and use the Asian market to their advantage.

They also need to look at price and technology to enhance their profits in the

piano industry.

Steinway decided to relive the fact that people are not spending the

money on 70,000 dollar grand pianos they decided to introduce a new more

affordable piano called the Boston Piano. The Boston piano which is

produced by Kawai in Japan enables Steinway to sell a mid priced piano with

through the Steinway name. Since the introduction of the Boston piano in

1992 the sales increased from 2.7 million in 1992 to 16.7 million in 1994

(Gourville). This piano gains some of the market share that has not been

tapped by Steinway before because of the cost of their pianos. Steinway

also introduced a Limited Edition piano which sold out to dealers within hours

of being made available. Steinway needs to continue to look at different

ways and new marketing strategies to counter the price issue it has with the

Steinway grand being highly expensive.

Another marketing aspect that Steinway needs to focus on is how to

tap into the Asian market which is the fastest growing market. Steinway can

capture this market by introducing the Boston piano to rival that of the

Yamaha and Kawai that are produced in Japan. The more affordable Boston

Piano will enable Asian people to purchase a Steinway without going broke.

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By expanding overseas Steinway would make up for some of the lost

revenue in the United States market.

Steinway and Sons is known for their impeccable brand image and

traditional quality and durability. Due to their immaculate products, the

concept of repeat buyers is virtually non-existent. As a result, the used

piano industry has flourished. For every new Steinway and Sons piano that

is sold, about five used Steinway and Sons’ pianos are also traded. These

used products hold their value extremely well and most are sold for about

75% of their purchased price.

Steinway needs to focus on developing new technologies and might

want to expand into electronic keyboards which are now becoming popular

with the younger generations. By creating a keyboard with the Steinway

name that could gain market shares in the growing music industry of

electronics. They could also reach younger people earlier and begin to make

them aware of the Steinway name.

Steinway and Sons’ Concert and Artist program has become an ever

successful marketing strategy. The program allows for a “bank” of over 330

pianos in which gifted artists may choose from for their performances. The

performers have their preferences regarding tones and sounds which are

satisfied by master technicians. In exchange for their performance, Steinway

and Sons is granted exclusive use of the artists’ names for their own

publicity purposes. With the use of artists’ names, Steinway and Sons is able

to better appeal to the industry.

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In addition to the new product lines, the utilization of artists, new and

used pianos, technology and innovation, and the Asian market share,

Steinway and Sons’ also takes advantage of the use of independent dealers.

Approximately 1000 independent dealers are responsible for selling over

95% of new pianos. The dealers carry Steinway, or Yamaha, as their primary

brand along with entry level brands with lower retail margins. These

independent dealers are effective and efficient for the sale of Steinway and

Sons’ pianos.

Steinway must focus on many different marketing strategies and need

to begin to increase the sales of their pianos without losing the high quality

that the Steinway and sons piano brings. Focuses need to be shift if they

want to continue their great music tradition.

SWOT Analysis

Strengths

Steinway and Sons have an established brand reputation of quality and

durability

There are minute differences between the sound of each crafted piano

which allows for differentiation and customization of the product

The Steinway Concert and Artist program has around 850 artists whom

choose the Steinway and Sons piano

Weaknesses

The durability and quality of their products limits the concept of repeat

buyers and brand loyalty

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The average customer is over 45 years old and earns in excess of

$100,000/year

With the introduction of the Boston piano line, Steinway and Sons’

image took a step away from tradition

Growing technology and innovation has taken toll on traditional pianos;

they have been replaced by keyboards and other computer technology

Opportunities

Establish a larger customer base in Asia to increase market share

Steinway and Sons could increase their industrial market by offering

discounts to universities or concert halls and/or being more customer

service oriented

Using innovative technology, Steinway and Sons could potentially

increase markets by appealing to lower and middle class purchasers

with low to mid-priced products

Threats

With the expansion of Asian manufacturers, global market share is no

longer being controlled by American manufacturers

There are levels of inexperience of the current younger owners/CEOs

Conclusion

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As a result of their decline in sales due to the rapid change of the piano

industry, technology, expansion of new markets and foreign competitors,

Steinway and Sons will need to make some drastic changes to utilize these

industry trends. In order to expand market share and gain profits, Steinway

and Sons need to take steps towards using technology to enhance their

products while maintaining their traditional brand reputation. While

continuing with their high-end products as well as introducing a mid-priced

line, Steinway and Sons will be able to reach more of the markets demand.

Concentrations should also be made towards reaching new customers all

over the world. Their products remain of high quality and durability which

allows for less company loyalty. Establishing a customer base is vital for

their success. In order to restore their historical success while implementing

changes and preparing for growth, Steinway and Sons will have to use this

declination of the piano industry to their advantage.

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References Gourville and Lassiter. “Steinway & Sons: Buying a

Legend (A).” Marketing Management: Case Analysis by Teams: pg 147-166.

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