Steinway and Sons

Case analysis
Group 4
Abhishek.E
Michelle wendy
Sunny
Tasha jose
Vishnu santhosh

Executive Summary
Problem:
As a result of the declination of sales in the piano industry Steinway
and Sons needs to !nd a way to uphold its historical brand reputation while
"ainin" #arket share world wide and usin" inno$ati$e technolo"y%
particularly in the Asian Market
Background:
&n late '((4 Steinway and Sons was yet a"ain a co#pany on the
#arket to be sold. )or their own personal reasonin" the *ir#in"ha#
brothers decided to sell the piano #anufacturer. +n April ', '((- .yle
.irkland and /ana Messina already controllin" #ultiple !r#s decided to
#ake the purchase. The in$est#ent bankers purchased the 0ew 1ork piano
#anufacturer for an incredible 2'33 #illion.
Discussion:
The piano industry has been in rapid decline o$er the past 4 decades
and in particular Steinway and Sons has taken a hard !nancial hit. Global
sales of the industry ha$e dropped 435 o$er the past 44 years and with the
introduction of #ajor industry co#petitors Steinway and Sons ha$e
continued to stru""le. &n addition to the ne"ati$e i#pact of these industry
trends Steinway and Sons introduced a new product line to address
custo#er de#and. They produced a #ore #id6priced product line% the
*oston 7iano. This step 8breakin" tradition9 was taken with the intent to
"ain #arket share in Asia while increasin" pro!ts.
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Recommendations:
Continue to produce the #id6priced *oston line of pianos to "ain
#arket share
Make "ra$e atte#pts to take ad$anta"e of the Asian Market by
attracti$ely #eetin" de#ands% i.e. satisfyin" de#ands for 8free9 in hall
tunin" and deli$ery for pianists endorse#ents and establishin"
custo#er base with custo#er ser$ice
They should use :uality and their reputable sophistication to #arket
#ore to the institutional #arket which #akes up only '35 of $ertical
piano sales and 435 of "rand piano sales
History
Steinway and Sons was established in 0ew 1ork City in ',-; by <enry
En"elhard Steinway an i##i"rant fro# Ger#any. The business e=celled
because of it technical brilliance and shortly a year later the co#pany won
a "old #edal at the Metropolitan )air in >ashin"ton /.C. The followin" year
Steinway and Sons introduced the cross6strin"in" techni:ue in a piano with a
cast iron fra#e an inno$ation that is now uni$ersal in all "rand pianos. /ue
to the co#pany?s inno$ati$e ability and technical supre#acy orders "rew
rapidly and a new lar"er factory was constructed in ',@3. )or the ne=t '43
years Steinway and Sons would be reco"niAed as the leader in the #arket
for hi"h :uality pianos BGour$illeC.
+$er the past 4- years Steinway and Sons ha$e been so#ewhat
tu#ultuous. After '43 years of bein" a closely held fa#ily operation it was
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decided Steinway and Sons could no lon"er sur$i$e in this #anner. The
co#pany was sold to the C*S Musical &nstru#ents /i$ision in '(D4 for 24'
#illion worth of C*S stock. The pri#ary reasonin" for the sale was associated
with !nances which hadn?t chan"ed in the followin" few years% the
co#pany?s return on capital was only about -5 BGour$illeC.
&n the be"innin" C*S in$ested se$eral #illion dollars in the !rst few
years after purchasin" the co#pany. This #ay not see# like an
e=ceptionally lar"e a#ount% howe$er the Steinway fa#ily had ne$er before
in$ested #ore than 2'-3333 per year in capital i#pro$e#ents. &n addition
to ease the transition and to ensure :uality focus C*S e#ployed <enry
Steinway as president of Steinway and Sons for !$e BGour$illeC.
Eookin" for a reasonable return on in$est#ent C*S wanted to increase
re$enue and decrease #anufacturin" costs by increasin" production. Their
!rst step was to increase dealers by al#ost 435. >hile these chan"es did in
fact increase sales $olu#e and pro!ts it da#a"ed the reputation of
Steinway and Sons. Critics and buyers be"an to challen"e the :uality of
Steinway and Sons? pianos. +$er the ne=t '3 years <enry Steinway is
replaced by se$eral CE+?s only to worsen the calls fro# critics challen"in"
the :uality of Steinway and Sons? pianos. &n 0o$e#ber of '(,4 C*S
announced the sale of Steinway and Sons for 2-3 #illion to Fohn and Gobert
*ir#in"ha# BGour$illeC.
Althou"h the *ir#in"ha# brothers had no e=perience in the #usical
business they set out to re6establish Steinway and Sons as the #aker of the
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hi"hest :uality pianos in the world. CE+ *ruce Ste$ens set out to assure
e$eryone custo#ers e#ployees and dealers that the new owners were
hi"hly co##itted to :uality. The co#pany now beca#e refocused and
returned to what had #ade the# so successful. Aside fro# the newfound
focus on :uality the *ir#in"ha# brothers e=panded Steinway and Sons?
product line. &t now included the *oston 7iano line introduced in '((4 the
Steinway Ei#ited Edition pianos introduced '((; and the Crown Fewel
Collection of Steinway pianos introduced in '((4. /espite these positi$e
chan"es by Ste$ens and his tea# the runnin" of Steinway and Sons was
once a"ain constrained by li#ited !nancial resources. The co#pany was
a"ain sold on April ', '((- to /ana Messina and .yle .irkland for 2'33
#illion BGour$illeC.
Messina and .irkland had already ac:uired the Sel#er Co#pany a
#eat processin" and a paper co#pany and felt as thou"h Steinway and
Sons was a well run or"aniAation which could reap the bene!ts of their
!nancial e=pertise BGour$illeC.
Industry Trends
+$er the years piano sales ha$e increasin"ly dropped fro# as hi"h as
44;333 units in the '(,3s to nearly '33333 in '((4 BGour$illeC. 7eople
ha$e diHerent ar"u#ents of why piano sales dropped so dra#atically o$er
the past 436;3 years. The !rst of these ar"u#ents includes the idea that the
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decrease in sales is si#ply a trend and that it is predicted that in the future
piano sales will once a"ain rise si"ni!cantly. &n addition co#puter ho#e
entertain#ent and electronic de$ices such as keyboards were bein" sold
#ore than traditional pianos.
A second obser$ation is that the piano industry has beco#e a
consolidation of #any of the top piano #anufacturers. Many of the
industries in the Inited States and Europe ha$e been "oin" throu"h
consolidation eHorts. &n the early '(33s there were se$eral hundreds of
piano #akers whereas in '((4 there were only ei"ht BGour$illeC.
A third trend is that #any Asian piano #anufacturers arose. )our
Asian co#panies includin" 1a#aha .awai 1oun" Chan" and Sa#ick
accounted for D-5 of "lobal sales in the '((3s. 8Asian i#ports achie$ed a
;-5 unit share of the $ertical pianos #arket and an ,35 unit share of the
"rand piano #arket by '((49 BGour$illeC
The fourth trend in the industry #arket was the chan"e in #arket siAe.
>ith countries such as South .orea Fapan and China representin" a $ery
lar"e portion of the #arket the Inited States and >estern Europe were no
lon"er the industry leader in sales BGour$illeC.
A !fth and !nal issue that faces the piano industry is that these hi"h6
priced hi"h end pianos #ay li#it piano sales. +wnin" a Steinway and Sons
piano #ay be $iewed by so#e #usicians as a sy#bolic representation of
hi"h status. +nly a s#all percenta"e of people who are lookin" to purchase
a piano can aHord a product of Steinway and Sons. &n '((- Steinway and
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Sons "rand pianos were priced fro# 24@333 to o$er 2D3333 $erticals were
priced fro# 2''(33 to o$er 2'D333 and *oston pianos were priced fro#
2@;(- to o$er 2;3333 BGour$illeC. The *oston #odels are around half as
e=pensi$e howe$er they continue to be out of the price ran"e of the
a$era"e custo#er. The #ajority of the public is just not willin" to pay that
kind of #oney on a discretionary ite# such as a piano. The recession of the
early '((3?s can also be linked to the decrease in piano sales in recent
history BGour$illeC.
Industry om!etition
Steinway and Sons had only a few co#petitors that were considered
threats to their #arket share. After the industry?s consolidation of
#anufacturers fro# hundreds of #akers to a #ere ei"ht co#panies that
were considered #ajor co#petition their hi"h $olu#e #anufacturin"
co#petitors included .awia 1a#aha and *aldwin. Their co#petition in the
low $olu#e hi"h :uality #arket was *Jsendorfer and )aAioli.
*aldwin 7iano and +re"on Co#pany was the only re#ainin"
co#petiti$e lar"e scale producer of "rand and $ertical pianos in the IS in
'((- aside fro# Steinway and Sons. *aldwin sold #any $arieties of pianos
ran"in" fro# factory #anufactured $ertical and baby "rand pianos to
e=pensi$e hand #ade "rand pianos. *aldwin was seen as a #ajor
co#petitor in '((4 sellin" 43333 pianos worldwide and "eneratin" 2'44
#illion in sales BGour$illeC.
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1a#aha Corporation a '33 year old co#pany was the lar"est
producer of pianos in the world. 1a#aha had 2' billion in sales in '((4 with
;-5 world #arket share and -35 Fapanese #arket share. &n '((4 1a#aha
produced 'D-333 pianos usin" hi"hly auto#ated asse#bly techni:ues
BGour$illeC. 1a#aha also produced hi"h concert end "rand pianos usin"
traditional craft #ethods with the "oal of producin" the best "rand piano in
the world. 1a#aha would often seek new strate"ies to co#pete with
Steinway and Sons in the "rand piano #arket. 1a#aha clai#ed that the
wood used in 1a#aha pianos was fro# the sa#e wood #ill as Steinway and
Sons?. 1a#aha also would purchase Steinway and Sons? pianos disasse#ble
the# and try to recreate a better piano that Steinway and Sons? #odel.
1a#aha #arketed their pianos to #ajor uni$ersities in order to "ain on
Steinway and Sons. They would often 8loan9 pianos to uni$ersities for
students to use and to be considered for purchase later.
.awai was a co#petitor fro# Fapan which produced (3333 $ertical
pianos and '3333 s#all "rand pianos a year BGour$illeC. Much like 1a#aha
.awia wanted to special in a hi"h :uality concert "rand piano. .awai was
not a #ajor co#petitor of Steinway and Sons since their #aterials used in
their pianos were considered low :uality by #any critics.
*Jsendorfer and )aAioli were two co#panies that co#peted with
Steinway and Sons in the top6:uality "rand piano #arket. *Jsendorfer fro#
Austria produced 433 "rand pianos in '((4 to )aAioli?s 43 BGour$illeC. These
two co#panies used the sa#e handcrafted techni:ues as Steinway and Sons
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and were considered top notch a#on" custo#ers for bein" #ade in low
$olu#es.
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Target "arket
Steinway and Sons? two #ajor #arkets to sell their pianos in were the
ho#e or pri$ate #arket and the institutional #arket. These two #arkets
were "rounds for sellin" Steinway and Sons? $ertical and "rand pianos.
Vertical pianos ha$e their strin"s #ounted $ertically while "rand pianos ha$e
their strin" #ounted horiAontally.
The ho#e #arket often called the pri$ate #arket #ade up #ost of
Steinway and Sons? sales buyin" (35 of its $ertical pianos and ,35 of its
"rand pianos. The ho#e #arket "enerally was 4- years old and had o$er
2'33333 inco#es a year. To !nd their #arket Steinway and Sons had to
!"ure out who the #usic lo$ers were and who had enou"h #oney to
purchase their pianos BGour$illeC.
The institutional #arket accounted for '35 $ertical piano sales and
435 "rand piano sales. This #arket included uni$ersities #usic institutes
hotels and perfor#ance halls BGour$illeC. Steinway and Sons wanted to "et
their pianos in these institutions so that it would lead to #ore sales in the
ho#e #arket.
"arketing Strategies
Steinway and Sons ha$e shown a decline in recent years on the sale of
Grand 7ianos. So#e of the reasons that for the decline is price new
technolo"y new #arkets and the fact that people that ha$e pianos ha$e
had the# for a while and will not need to refurbish a piano that often. The
!rst :uestion that needs to be asked does Steinway want to continue is
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strate"y as the world pre#ier "rand piano or does it want to take #ore
a""ressi$e #arketin" strate"y and "i$e up that title for a better pro!t
#ar"ins and #arket share. Steinway needs to take ad$anta"e of the
diHerent #arketin" strate"ies and use the Asian #arket to their ad$anta"e.
They also need to look at price and technolo"y to enhance their pro!ts in the
piano industry.
Steinway decided to reli$e the fact that people are not spendin" the
#oney on D3333 dollar "rand pianos they decided to introduce a new #ore
aHordable piano called the *oston 7iano. The *oston piano which is
produced by .awai in Fapan enables Steinway to sell a #id priced piano with
throu"h the Steinway na#e. Since the introduction of the *oston piano in
'((4 the sales increased fro# 4.D #illion in '((4 to '@.D #illion in '((4
BGour$illeC. This piano "ains so#e of the #arket share that has not been
tapped by Steinway before because of the cost of their pianos. Steinway
also introduced a Ei#ited Edition piano which sold out to dealers within hours
of bein" #ade a$ailable. Steinway needs to continue to look at diHerent
ways and new #arketin" strate"ies to counter the price issue it has with the
Steinway "rand bein" hi"hly e=pensi$e.
Another #arketin" aspect that Steinway needs to focus on is how to
tap into the Asian #arket which is the fastest "rowin" #arket. Steinway can
capture this #arket by introducin" the *oston piano to ri$al that of the
1a#aha and .awai that are produced in Fapan. The #ore aHordable *oston
7iano will enable Asian people to purchase a Steinway without "oin" broke.
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*y e=pandin" o$erseas Steinway would #ake up for so#e of the lost
re$enue in the Inited States #arket.
Steinway and Sons is known for their i#peccable brand i#a"e and
traditional :uality and durability. /ue to their i##aculate products the
concept of repeat buyers is $irtually non6e=istent. As a result the used piano
industry has Kourished. )or e$ery new Steinway and Sons piano that is sold
about !$e used Steinway and Sons? pianos are also traded. These used
products hold their $alue e=tre#ely well and #ost are sold for about D-5 of
their purchased price.
Steinway needs to focus on de$elopin" new technolo"ies and #i"ht
want to e=pand into electronic keyboards which are now beco#in" popular
with the youn"er "enerations. *y creatin" a keyboard with the Steinway
na#e that could "ain #arket shares in the "rowin" #usic industry of
electronics. They could also reach youn"er people earlier and be"in to #ake
the# aware of the Steinway na#e.
Steinway and Sons? Concert and Artist pro"ra# has beco#e an e$er
successful #arketin" strate"y. The pro"ra# allows for a 8bank9 of o$er ;;3
pianos in which "ifted artists #ay choose fro# for their perfor#ances. The
perfor#ers ha$e their preferences re"ardin" tones and sounds which are
satis!ed by #aster technicians. &n e=chan"e for their perfor#ance Steinway
and Sons is "ranted e=clusi$e use of the artists? na#es for their own
publicity purposes. >ith the use of artists? na#es Steinway and Sons is able
to better appeal to the industry.
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&n addition to the new product lines the utiliAation of artists new and
used pianos technolo"y and inno$ation and the Asian #arket share
Steinway and Sons? also takes ad$anta"e of the use of independent dealers.
Appro=i#ately '333 independent dealers are responsible for sellin" o$er
(-5 of new pianos. The dealers carry Steinway or 1a#aha as their pri#ary
brand alon" with entry le$el brands with lower retail #ar"ins. These
independent dealers are eHecti$e and eLcient for the sale of Steinway and
Sons? pianos.
Steinway #ust focus on #any diHerent #arketin" strate"ies and need
to be"in to increase the sales of their pianos without losin" the hi"h :uality
that the Steinway and sons piano brin"s. )ocuses need to be shift if they
want to continue their "reat #usic tradition.
S#$T %nalysis
Strengt&s
Steinway and Sons ha$e an established brand reputation of :uality and
durability
There are #inute diHerences between the sound of each crafted piano
which allows for diHerentiation and custo#iAation of the product
The Steinway Concert and Artist pro"ra# has around ,-3 artists who#
choose the Steinway and Sons piano
#eaknesses
The durability and :uality of their products li#its the concept of repeat
buyers and brand loyalty
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The a$era"e custo#er is o$er 4- years old and earns in e=cess of
2'33333Myear
>ith the introduction of the *oston piano line Steinway and Sons?
i#a"e took a step away fro# tradition
Growin" technolo"y and inno$ation has taken toll on traditional pianos%
they ha$e been replaced by keyboards and other co#puter technolo"y
$!!ortunities
Establish a lar"er custo#er base in Asia to increase #arket share
Steinway and Sons could increase their industrial #arket by oHerin"
discounts to uni$ersities or concert halls andMor bein" #ore custo#er
ser$ice oriented
Isin" inno$ati$e technolo"y Steinway and Sons could potentially
increase #arkets by appealin" to lower and #iddle class purchasers
with low to #id6priced products
T&reats
>ith the e=pansion of Asian #anufacturers "lobal #arket share is no
lon"er bein" controlled by A#erican #anufacturers
There are le$els of ine=perience of the current youn"er ownersMCE+s
onclusion
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As a result of their decline in sales due to the rapid chan"e of the piano
industry technolo"y e=pansion of new #arkets and forei"n co#petitors
Steinway and Sons will need to #ake so#e drastic chan"es to utiliAe these
industry trends. &n order to e=pand #arket share and "ain pro!ts Steinway
and Sons need to take steps towards usin" technolo"y to enhance their
products while #aintainin" their traditional brand reputation. >hile
continuin" with their hi"h6end products as well as introducin" a #id6priced
line Steinway and Sons will be able to reach #ore of the #arkets de#and.
Concentrations should also be #ade towards reachin" new custo#ers all
o$er the world. Their products re#ain of hi"h :uality and durability which
allows for less co#pany loyalty. Establishin" a custo#er base is $ital for
their success. &n order to restore their historical success while i#ple#entin"
chan"es and preparin" for "rowth Steinway and Sons will ha$e to use this
declination of the piano industry to their ad$anta"e.
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Geferences
Gour$ille and Eassiter. 8Steinway N SonsO *uyin" a
Ee"end BAC.9 Marketin" Mana"e#entO Case Analysis
by Tea#sO p" '4D6'@@.
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