Steinway & Sons: Buying

a legendHarvard Business Review Case

Main Players

Main PlayersKyle Kirkland

Chairman of the Board

Dana Messina

Chief Executive Officer

The Current

Situation

SituationSteinway is the pre-eminent brand name in the music business and the producer of the highest quality grand pianos in the world.

Steinway grand pianos had reduced from 3,576 in 1990 to 2,698 in 1994.

A Boston Line of Pianos were recently introduced to sell a mid prices line of vertical and grand pianos manufactured under contract by a Japanese competitor.

SituationEconomic Conditions were improving in the U.S and Europe, Steinway’s two largest markets

Steinway still had to still take full advantage of a growing Asian Market.

Unit sales of steinway piano

Asian Markets have a large number of sales

Questions

DecisionThe main decision is how to move forward with the company ?

Should it focus only on the high-end, niche strategy of high quality vertical and grand pianos ?

What should it do with it’s Boston Pianos?

How can Steinway use its brand name to further enhance revenue ?

Decision CriteriaSales of Grand and Vertical Pianos

Steinway’s Main Markets (U.S. and Europe)

Piano Sales all over the world, the industrial trends

Competition

The Distribution Network

The Used Steinway Piano Market

The Steinway Tradition

Possible DecisionsThe Boston Piano sales are almost equal to the sale of Grand Pianos all over the world and hence they could also down market stretch to earn sales in the entry level market as well

Evidence:

In 1994, Steinway and Sons had a sales of 100 million, derived from the sale of 2,698 Steinway grand pianos, 600 Steinway vertical pianos, and 2,300 Boston pianos. The new line is generating a large number of sales

Possible DecisionsExpand the production line so that old Steinways are bought, restored to their original make and quality and sold as a special edition at for many environmentalists or scrap them for parts to use again.

Evidence:

For one estimate, for every new piano sold in the U.S., 10 used pianos also changed hands. Also, 50,000 used pianos were sold by second hand dealers that specialized in used pianos.

Possible DecisionsTarget the Asian Market with their products especially Vertical Pianos.

Evidence:

The Worldwide Market for Vertical and Grand Pianos in 1994 shows that South Korea, China and Japan had a large sales in Vertical Pianos. Japan was also behind the U.S in the sales of Grand Pianos

Possible DecisionsIncrease the no. of dealers present all over the world to improve the sales numbers which in turn would result in a large profit

Evidence:

Under the CBS ownership, with the introduction of more dealers, the sales volume and profits increased relative to the early 1970s.

Possible DecisionsReduce the line extension to include only the grand and vertical pianos

Evidence:

The Steinway & Sons has always wanted to stay in the exclusive niche, selling only high level pianos.

Hypothesis

Best Possible OptionDown Stretching seems to be the most logical option since many companies have achieved a good percentage in the piano market with their entry level pianos because of market demand and the industrial trends. This can be done along with increasing the number of upright piano being sold. The buying of pianos is also a viable option since old Steinways also pose a major difficulty to new Steinways.

Proof

WHY?Many companies have used their sales of the entry-level pianos to gain leverage in the target market. Yamaha has a 35% share of the world market, most of which were vertical pianos and small grand pianos. Kawai is considered as a major competitor in the piano industry even though it is not known for its concert grands because of its vertical and small grand pianos.

WHY?The Asian market is more inclined towards Vertical and Small Grands rather than High Level Grand Pianos. One of the reasons that Yamaha was able to get 35 % of the global piano market share and 50 % of the Japan piano market.

Statically – Vertical Piano sales high in Asia

WHY?The typical buyer of a Steinway piano was over 45 years old, had an annual income in excess of $100,000, and had a serious interest in music. The Boston piano was 5 to 10 years younger was was slightly less affluent. With an entry level piano , they might be able to target those even younger and less affluent while also promoting Keyboard playing among the youth.

WHY?With brands of piano lasting 40 or more years, over 40 million pianos were believed to exist around the world. A Steinway was known to last 70 to 80 years without a restoration. Hence , with every new Steinway piano sold, about five other Steinways also changed hands.

Alternatives

Single Line of ProductsA single line of products will keep the tradition of the Steinway & Sons in line since it was to be for the exclusive niche, selling only a top-of-the-line prestigio piano. This might help raise its brand equity and in turn its profits.

Used PianosSteinway is known for its quality. Its Brand mantra is to build the best quality piano possible and sell it at the lowest price consistent with quality. Their attention to detail contributed to its legendary sound and durability of Steinways. This cannot be assured with a already used piano.

DealersThe increase in the number of dealers even with the supposed program might result in a bad name of Steinway similar to what Andre Watt caused because the increase in the number of dealers might result in improper functioning of the Partnership program.

DisclaimerCreated by Pratheek Denny, NIT Trichy during a marketing internship by Prof. Sameer Mathur.