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Steinway & Sons : Buying a Legend (A)

Piano Industry Trend In - 1994

Piano sales have increasingly dropped from as high as 223,000 units in the 1980s to nearly 100,000 in 1994 (Gourville). Industry under consolidation phase Many Asian piano manufacturers arose 75% Change in market size High-priced, high end pianos may limit piano sales

Why Legend Buying looks Un Attractive

No synergies between Selmer and S&S. Unit sales at S&S have dropped from 3,576 in 1990 to 2,698 in 1994. Yamaha is a very strong, aggressive competitor. S&S had recently introduced a mid-priced line of pianos marketed under the name Boston Piano.

Why Legend Buying Looks Attractive

The acquisition was considered attractive for the following reasons: S&S has the highest quality product and reputation in the marketplace. Economic conditions are improving in S&Ss two largest markets U.S. and Europe. S&S has yet to take advantage of the growing Asian market. S&S is a company that would be fun to own Brand Equity

About Steinway & Sons

Founded in 1853 by Henry Engelhard Steinway. Next thirty years, Henry and his sons developed the modern piano. They built their pianos one at a time, applying skills that were handed down from master to apprentice, generation after generation. It crafts approximately 2,500 pianos a year worldwide In an age where many piano manufacturers have outsourced the building of their pianos to areas with cheaper labor, Steinway & Sons continues to handcraft its pianos only at its Astoria, New York and Hamburg, Germany factories using many of the same techniques developed by the Steinway family. Over 1,500 prominent concert artists and ensembles across the world bear the title Steinway Artist

The Legacy Brand : How was it built

Basic Idea Build the best piano possible and sell it at the lowest price consistent with quality Technical Excellence Won gold medal at Metropolitan Fair at D.C. in 1984 Artist Management Inviting piano legends to Steinways Concert & Artist Program. These Artists were like its Brand Ambassadors and Evangelists Steinway Village Self contained company town with its park, library, kindergarten, etc. Uniqueness No two grand pianos sounded the same

What could be done better

All pianos were assembled by Craft method Limited use of Assembly line techniques Long Manufacturing cycle 2 yrs Hence, small volumes were produced (~3k / yr) Traditional Processes and inertia, along with the Family Management problems, impacted the Financials (5% return on Capital in 1970s) and the co., eventually, was sold to CBS in 1972

Good things happened at CBS

CBS invested several million dollars in the first few years for Capital improvements Piano production & dealer network grew which led to increase in sales & profit

Not so Good
Questions on Quality It was not the same co. what it used to be Repairing Business boom Original Steinway pianos were repaired and sold Management Turnover Presidents changed one after the other

The Birmingham (1985 1995)

John & Robert s aim was to re-establish Steinway as the maker of the highest quality Piano Human Efforts Pls put suitable heading Assurance to its employees, dealers & customers about their commitment to core benefit Quality Build sense of responsiveness by making personal visits to top dealers Unboxed 740 pianos & re-tune & re-voiced each one Manufacturing Purchase of new machinery Introduction of statistical process control Documentation of piano manufacturing process

Dealear Network Efforts were focused on distribution Reduced over extended and unfocussed dealer network Development of partnership program Within dealers retail space, steinways product was showcased in a separate quality environment

Product Line Mid priced piano - Boston Piano line was introduced in 1992 Diversion from the old philosophy of staying in the exclusive niche top of the line prestige piano Designed by Stainway, manufactured in Japan by Kawai Half the price of a stainway, to be sold through steinway dealers, competing with Yamha for high margin product in mid market price range

Limited Edition Sold 140 units @ 25 % premium Every 2 years new limited edition models were sold with engraved names of Steinway artist Crown Jewel Collection Quality of wood was upgraded and sold @ 20%-30% premium Financial constraints Extensive investment in inventory management (over $75 Mio) Focus shifted from selling Pianos to negotiating with banks for funds and survival In 1994, for personal reasons they decided to sell off stainway.

Steinway should continue with its high end niche strategy because technical excellence is its brand DNA build the best piano possible Steinway entry into mid segment may initially boost its sales but would eventually lead to brand dilution damage Steinway reputation for exclusivity and quality

Boston Pianos could be marketed as a separate brand not mentioning much about the mother brand. This would not much affect Steinway brand image and would still add to bottom-line. Steinway need to take care of prominent Artist remaining involved and loyal to Steinway Artist concert. Defection of prominent Steinway Artist to competitors could prove deterring for Steinway brand.