Steinway and Sons
PresentersTeam 02
MKTG 445-02
Ashley SidesDerek Moss
Andrew WyattLindsey BrooksJason Bryant
Lindsey Brooks
Table of Contents
Executive Summary 3
History 4Industry Trends
5Industry Competition
6Target Market
7Marketing Strategies
8SWOT Analysis
10Conclusion 11
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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.
Recommendations:
Continue to produce the mid-priced Boston line of pianos to gain market
share
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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
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).
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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
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
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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 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)
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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 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
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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).
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
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companies used the same handcrafted techniques as Steinway and Sons 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 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
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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. 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.
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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.
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.
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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
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
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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
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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