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Barco Case Analysis
Barco Case Analysis
Erik Dejonghe, the iconoclast Senior Vice-President and chief operating officer of
Barco Projection systems was in a quandary regarding a befitting riposte to an
ominous product launch bulletin by a rival firm Sony.
PROBLEM/DECISION
Barcos consternation knew no bounds when Sony announced an imminent
launch of their new product, the 1270 projector series. The latest offering by
Sony promised to be more advanced, claimed superior, unheard of performance
and significant cost reduction to the buyers. Barco, who were caught off-guard by
this pre-emptive strike by Sony, were light years away from catching up with
Sony on this front, had to effect immediate changes in the wake of a significant
market share washout and also to hold fort against their rivals antics.
OPTIONS
In order to counter the impending repercussions of Sonys new product launch, it
is imperative that Barco weigh their options in terms of product and price
modifications.
Pricing options:
- Induce a considerable price reduction its leading model viz-a-viz the
BG 400
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Product options:
-Complete the portending production of its pipeline project, the BD 700.
Although not at par with the 1270, it would certainly pass off as a
statutatory reply to Sonys move.
-Work on developing their proposed model, the BG 800. Arguably, the best
option available to Barco, introducing this latest addition to their product
line would effectively negate the threat posed by Sony. A breakneck scan
speed eclipsing that of Sonys 1270 by far (90 khz compared to 1270s 75)
and nonpareil performance would strip Sony of the benefits it seeks to
gain with its fresh offering.
CRITICAL EVALUATION
HOW SONY MANAGED TO STUMP BARCO
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The margin contribution of the BG400 is 29%, indicating that the cost to produce
is $17,040. These margins do allow for a certain, albeit limited price reduction. In
case the price of the BG400 is maintained (resulting in an estimated market
shareloss of 30%), the total profit will still be higher compared to a reduction in
price of theBG 400 to $21,000 (Refer to annexure).
2) The 1270 is launched with a price of $15,000
If the price of the BG400 is maintained, leading to an estimated market share
loss of 60%, the total profit will still be higher compared to a reduction in price of
the BG 400 to $19800 (annexure). Obviously, in case Barco sells the BG400 at a
cost ($17,040), there will be low profit.
It is evident that Barco in any case would optimise profit by maintaining current
price levels of the BG400, even taking into account that this could reduce market
share by up to 60%.
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However, a gospel truth Barco should realize is that it can never compete with
Sony on the price wars front. Barco has always been a high-end, premium
product company and Sony a low-end, diversified one. A reduction in price will
prompt Sony to reduce their prices further, erding the profits further.Due to
economies of scale, Sony leverage to lower prices is greater than that of Barco.
Barco can either proceed with the launch of BD 700 or can even strive to develop
an advance version of the BD700, the BG700, hoping that it will be launched on
time to compete with Sonys 1270. Moreover there were robust profitability
forecasts of $ 4.3 million and orders had already started puring in for which
commitments too been promised.
However, even if Barco mangges to achieve this feat, it will not yield the
desirable results since it cannot out perform Sony 1270 in terms of the
performance.
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