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Steinway & Sons Case Study

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Tyler Grandgeorge MGMT 430

Fung

1 March 2016

Steinway & Sons

Executive Summary:

Steinway & Sons is one of the world’s premier piano producers. Steinway has solidified its position with decades of highly focused development, always placing quality above quantity. Unfortunately, competitors in the market have been narrowing the gap in quality and have utilized

Steinway’s weakness in upright pianos to begin threatening the company’s ability to compete. Highly automated, and lower cost, companies in Japan have begun to offer products that could lure first time buyers away from Steinway. As many purchasers tend to stick to one brand of piano, this could weaken the appeal of Steinways to later. To combat this, Steinway has developed plans to reintroduce a new upright piano: the Model K.

Industry Dynamics:

The piano industry has always been competitive, and is largely divided into two main categories: upright pianos – which are generally cheaper but produce lower quality sound; and grands – which are much more expensive, but offer the highest quality. While the nature of the product hasn’t much changed over the last century, the process has become increasingly modernized and automated. Some manufacturers have developed automated systems to produce pianos, but at the cost of the individualized attention needed to ensure top quality.

Opportunities and Threats:

Yamaha’s recent attempts to enter into the quality portion of the industry have raised the specter that a company may be able to compete with Steinway on both the cost and quality components. More so, the quality difference is beginning to narrow to the point that some beginners are willing to accept the slightly lower quality to achieve a lower price point. This threatens to weaken Steinway’s greatest advantage: its name. Particularly as most pianists stick with the same brand they learned on.

 

Piano Sales by Category (1980)

(UR = Upright piano)

[pic 1]

[pic 2] UR - Short Scale

[pic 3] UR - Spinet

[pic 4] UR - Console

[pic 5] UR - Studio

[pic 6] Player

[pic 7] Grand

As for opportunities, Steinway offers very few

pianos in the upright category, but the category represents the vast majority of the piano market (see Graph 1). As upright pianos are often easier to afford and use, many new musicians use upright

pianos to start off with. By catching new entrants into the market, Steinway can have greater access to later purchases. Given the size of the uprights market, there is certainly enough demand to absorb a new quality product.

Situation Analysis:

From the perspective of Porter’s Five Forces:

Buyers: Most buyers have limited power, few individuals ever buy more than one piano. Additionally, Steinway usually has a rather long wait list for orders.

Suppliers: Most of Steinway’s production is done in-house. Only the wood, and a few highly specialized parts are purchased from outside. Neither supplier has many alternatives to sell, creating a rather balanced power arrangement.


New Entrants: While Yamaha and other foreign companies have begun to produce better pianos, it is impossible for new companies to directly compete with Steinway on quality, in part due to the company’s strong brand.

Substitutes: While pianos themselves could be substituted for any other musical instrument on an absolute scale, the only real substitutes for piano players are keyboards – smaller, often electric – instruments that provide a much cheaper, and lower quality, product.

Competitors: Yamaha and a number of other large manufacturers produce more, cheaper, lower quality pianos. It is difficult for competitors to directly compete due to the importance of brand names and images to the industry. However, Yamaha has tried to copy some of brooks techniques and seems to be trying to reproduce the quality.

Solution Criteria:

Steinway’s decision on whether to introduce the Model K must be evaluated under a few specific criteria. Most important, is the long term impact on Steinway’s market position. Steinway’s success has always come from the strong perception of the quality of their pianos, if that perception fails Steinway wouldn’t be able to recover. Additionally, Steinway must evaluate the impact the Model K would have on other models Steinway offers. If Steinway has great numbers from the Model K, but ends up losing more from its other models the move isn’t worth it. The other major criteria is how well can Steinway compete with other companies in the same market as the Model K, if there is not strong avenue to compete, there is no point in expending the resources.

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