Harvard Business School Case

Steinway & Sons: Buying a Legend

“Build the best piano possible

and sell it at the lowest price

consistent with quality.”- Henry Engelhard

Steinway

On April 18, 1995

Steinway and Sons was sold for $100 Million.

Purchased by Dana Messina and Kyle Kirkland.

COMPANY

BACKGROUND

Established in New York City in 1853 by Henry Engelhard Steinway.

Recognised as a leader in the market for high quality grand pianos.

Steinway pianos have long been received enthusiastically by knowledgeable

musicians.

All steinways are assembled by craft methods, with limited use of assembly-line

techniques.

THE

STEINWAY

TRADITION

TYPES OF PIANOSVERTICAL

PIANO

GRAND

PIANO

Pre - Acquisition Analysis

In 1994, Steinway & Sons had sales of $100 million.

Grand pianos Vertical pianos Boston pianos0

500

1000

1500

2000

2500

3000 2698

600

2300

Units Sold

Sales of Steinway pianos in different Countries

Sales in 1994

United StatesGermanyJapanEnglandSwitzerlandOthers

Prices of Steinway pianos in 1995

Grand Pianos : $26,400 to over $70,000

Vertical Pianos : $11,900 to over $17,000

Boston Pianos : $6,395 to over $30,000

INDUSTRY

TRENDS

1994

1980

0 50000 100000 150000 200000 250000

Number of units sold in United States

233000

100000

Downturn in the piano industry, with global sales dropping by 40% since 1980.

INDUSTRY

TRENDS

Consolidation of the piano manufacturing industries in the United States

and Europe.

In the United States, where there were several hundred piano makers at the turn of the century, there were only 8 piano makers by 1992.

INDUSTRY

TRENDS

Emergence of several Asian manufacturers.

Four Asian companies combined for 75% of global sales by the 1990s.

Two Japanese companies , Yamaha ( ∼200,000 units) and Kawai(∼100,000 units).

Two South Korean companies, Young Chang and Samick (∼75,000 to 100,000 units each).

INDUSTRY

TRENDS

Opening of new and potentially large markets.

Japan, South Korea and China represented huge opportunities for the world’s piano makers.

Potential Competitors were:

Baldwin Yamaha Kawai Bosendorfer and Fazioli

COMPETITION

BALDWIN

American Manufacturer of high quality grand pianos.

Large-scale producer of vertical and grand pianos.

It has a network of 700 dealers.

In 1994, the company sold about 20,000 pianos domestically and abroad, generating revenues of $122 million.

YAMAHA

100-year old Corporation.

Largest producer of pianos in the world.

It held a 35% share of the world market.

And a 50% share of the Japanese market.

KAWAI

70-year old Japanese Corporation.

Produced about 90,000 vertical pianos and 10,000 small grand pianos per year.

Pianos were manufactured on highly automated assembly lines.

Focused efforts on making a high-quality concert grand piano.

BOSENDORFER

And FAZIOLI

Bosendorfer was an Austrian manufacturer, whereas Fazioli an Italian producer.

Both focussed exclusively on very small volumes of top quality grand pianos.

In 1994, Bosendorfer produced 400 grand pianos while Fazioli produced 60 grand pianos.

Post-Acquisition Dilemma

QUESTIONS

Whether Steinway would continue its high-end, niche strategy of being the world’s pre-eminent maker of high quality vertical and grand pianos?

Did it make sense for Steinway to sell a mid-priced line of vertical and grand pianos?

What role should Messina and Kirkland play in the running of Steinway?

???

There was APPREHENSION

Because...

There were almost no synergies between

Selmer (Company already owned by

them) and Steinway.

The unit sale of Steinway grand pianos had

slipped from 3,576 in 1990 to 2,698 in 1994.

Yamaha, continued its efforts to challenge Steinway as the maker of the world’s finest

concert grand piano.

Doubts over Boston piano as represented a

significant departure from the handicrafted

pianos that made Steinway famous.

Simultaneously, there was EXCITEMENT

Because...

Steinway was the pre-eminent brand name in

the music business and the producer of the

highest quality grand pianos in the world.

Steinway was the piano of choice for the world’s greatest artists including Rubinstein, Rachmaninoff and Horowitz.

Economic conditions were improving in U.S.

And Europe, Steinway’s two largest markets.

Steinway had yet to take full advantage of a

growing Asian market.

Finally, Steinway was a company that would be fun to own.

THANK

Created by : Shubham Maheshwari, IIT Guwahati during an internship by Prof.

Sameer Mathur, IIM Lucknow.www.IIMInternship.com

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