Steinway's Skimming Pricing Strategy
Discuss about the Competitive Strategy for Options and Games.
The company is known for its handcrafted concert grand pianos in the world. The pianos are used by most esteemed musicians in the world. Approximately half of the sales are generated from orchestral and band instruments. One of its Subsidiary named Selmer is considered as the number one manufacturer of the band instruments in US which include Bach trumpets, saxophones and Ludewig drums. The company has offered three product lines of pianos sold in three expensive ranges namely the elite Steinway, new lower priced Essex and mid priced Boston through its 10 company owned showrooms and 200 independent dealers in the world. The musical instruments are sold to wide range of customers such as amateur, students professionals and educational institutions (Steinway and Sons, 2017).
The net sales in the year 2013 is $76.8 million as compared to $78 million in the year 2012. The net income of the company is $2.7 million and earnings per diluted share at $0.21 for the year 2013 in comparison to net income of $0.6 million and earning per diluted share of $0.05 in the year 2012. Besides thisthere is an increase of 4 timews in the earning per share and the gross profit for the company has increased by 85% in the year 2013. In addition to this, there is also an increase in the production capabilities of the company in the year 2013. The sales of piano are influenced by different business environment factors such as demographic trends, economic conditions and interest of customers in music and art (Steinway Musical Instruments Inc, 2013).
A slight change in the sales of piano has a significant impact on the operating results of the company. The company has emphasize on providing high quality products to itd customers and has not compromise with the prices of piano. The company has adopted skimming pricing strategy in order to attract more number of customers by providing innovative and high quality pianos to its customers. The purchase of Steinway piano indicates high cultural taste and a sign of high achievement. Majority of the classical music concerts make a use of Steinway concert grand piano for decades. The high market share at classical music concerts has not resulted in the overall high market share for Steinway and Sons (Steinway, 2017).
The buyers of Steinway and Sons are considered as belonging to high class and status in the society as it targets music lovers or the people who have a great interest in music and art. Although 95% of the concerts are performed on Steinway piano, but it grabbed less than 10% of the market share in the world. Yamaha is the direct competitor of Steinway. The company has adopted a strategy to provide high quality piano products to its customers due to which Steinway and piano is used synonymously by its customers (Noonan, 2013).
Strong Distribution Network of Steinway
The company emphasized on selling high quality products through its own outlets and network of independent dealers in other countries. The company has encountered competition from low cost producer in Japan in 1970s although it has strong reputation and brand image in the market, the business was not profitable. The company has build strong relations with different overseas manufacturers for the purpose of designing of the pianos to be sold to entry level students. In addition to this, the company has also linked their manufacturing strategy with a sourcing strategy in Asia (Leonard, 2007).
In addition to this, the company has also established its own quality assurance committee for the purpose of evaluation of the instruments provided by suppliers from other countries. The strong relationships with music educators have helped in increasing the sales of the band and orchestra products of the company through word of mouth publicity which helps in enhancing the distribution strategy of the company. The company is considered as the leader in the manufacturing of the musical instruments by capitalizing on strong brand names, strong distribution networks and quality products (Wurtzler, 2008).
The company has also make a shift from batch processing to single piece production in order to enhance the quality of the product and provide customized products to its customers in order to gain high level of customer satisfaction. It is found out that increase in the competition in the market has provided various choices to customers due to which, the company has introduced two product ranges in order to penetrate in the market of Asia as customers are not willing to pay high prices for the grand piano offered by the company (Owsinski, 2013). The mission of the company is to make connections with different cultures existed in different countries by the way of providing high quality music, visual and performing arts, craftsmanship and film and television. The company focuses on bringing differentiation in its products by keeping high quality in order to meet the needs of niche market (Slack and Parent, 2006).
There is also a growth of the market in Asia for which the company needs to provide high quality products at low or reasonable prices in order to capture the Asian market. The company has established the standard quality of the pianos and other musical instruments by the way of adoption of the production control system for the purpose of reducing the cost of the product. The company provides new features in its products in terms of sound quality in order to meet the customized needs of the customers. The company should also extend its product portfolio by bringing new products in the musical instrument category in order to fulfill the demands of untapped customers (Bennett, 2013).
Importance of High Quality Products
This has resulted in an increase in the sales and profitability of the company and thereby improves its image among the customers. The company has incorporated new technologies and materials to bring innovation in the musical instruments offered by the company such as piano, and band and orchestra instruments. Innovation in the product helps in improving the features of the product such as stability, durability, touch and tone. The company promotes its products by the way of concerts and promotion of musical education in different educational institutes (Yusuf, et al. 2008).
There is a downturn in the musical instrument industry due to which there is a decline of 40% in the sales of piano across the globe. The main reason behind the decline in the sales is increased demand of low budget electronic keyboard and increased concern of people towards considering computer as an entertainment device. It is essential for the company to manufacture best piano in terms of quality and sold it at low price to the customers in order to create value for them (Kinahan, 2016).
The company is using the craft method for the purpose of desuigning of the piano in place of assembly line technique which resulted in low volume and low profits for the company. In the next five years, there would be a change in the tastes and preferences of the customers due to introduction of new information technology in the industry. It is required by the company to adopt new technology and aligned it with the strategies adopted by the company to increase the sales and demand of the pianos sold by it (Cofnas, 2016).
Nowadays, companies bring innovation in the musical instruments by the way of bringing digital pianos with CD recorders and real wooden keys at affordable prices. In addition to this, the companies in the industry also make a use of different materials such as slow close fall boards, hard finish music desks, aluminum action rails and carbon fiber with ABS composite in piano actions. This results in increasing the demand for piano products in the market as these are available at low prices with high quality as compared to the pianos marketed by Steinway and Sons. In order to remain competitive in the market, it is necessary for the company to bring innovative features in its products in order to attract more number of customers and gain an increase in its sales and profits (Back, et al. 2005).
The Need for Innovation for Capturing Untapped Markets
In addition to this, the company might also diversify its product range from the development of pianos to development of computer music software as there is a change occur in the technology and preferences of the customers. Nowadays, the computer music software helps in making music compositions and helps in promotion of music through lectures and concerts. Nowadays, companies are using different promotional techniques for the purpose of spreading awareness about the musical instruments offered by them in order to gain competitive advantage such as organizing different learning programs so as to assist childhood development and opening of music schools and learning centers (Fox, 2016).
This helped in attracting potential customers towards the products offered by the company. Nowadays, there is a huge demand of live music performances as the introduction of information technology has resulted in the threat to the music industry by providing pirated music recordings. This has reduced the revenue of the musicians. Nowadays, musicians earned revenue from their live performances in different music concerts. This would lead in increased demand for musical instruments such as piano and other band and orchestra instruments (Roignant and Trigeorgis, 2011).
Emergence of digital and online technologies has a significant impact on the music and performances given by musicians. Live performances by musicians is being in demand in the industry by customers as it has helped in providing various visual effects that are considered as the means of entertainment by the customers. It is required by the organization to bring changes in the musical instruments in a new form or made modifications in the existing products in order to remain competitive in the market. Technology has played an important role in bringing changes in the features of musical instruments in terms of quality of sound produced by them (Wise, 2010).
It is necessary for the company to keep a track record of the changes taking place in the preferences of customers in order to provide them the musical instrument as per their needs and demands in order to attain high level of customer satisfaction. Nowadays, only one instrument is sufficient for providing orchestra performances in the concerts as that musical instrument has the feature of providing different sounds needed to make the musical performance enjoyable for the customers. Besides this, nowadays, musicians prefer small musical instruments that can be easily carried by them at the concert and can freely give the live performance to customers so that they can enjoy the musical concert (Glenner, 2016).
Changes in the Market of Steinway in Next Five Years
There are several options that can be adopted by the company in order to sustain in the market and achieve competitive advantage. The company might launch a new version of piano that is digitalized and make different sounds as per the needs of the customers. It is required by the company to adopt cost leadership strategy in which the company can provide high quality pianos and other musical instruments at low cost or reasonable prices which helps in increasing its customer base and market share in the country (Wade, 2014).
Besides this, the company might enter into the Asian countries as there is an increase in the growth of the music industry which provides huge opportunities for the company to sell its products. In addition to this, the company might enter in the Asian market by collaborating with different marketing organizations and suppliers in order to promote the products in the market. This helps in creating a positive brand image of the products and company in the minds of customers (Frith, 2004).
The company might also sponsor different events for the purpose of increasing the awareness of the products offered by the company among students through different health campaigns and other events. The company can embrace new technology in manufacturing of the musical instruments for the purpose of providing new features in the product such as digital piano. Provision of digital piano to customers helps them to create new sound effects in their live performances and helps in improving the performance of different musical performances. It is requisite for the company to adopt automated and assembly line processes for the manufacturing of the musical instruments. This helps in increasing the overall productivity of the company (Jones and Wills, 2009).
The company might diversify its products and offer products and services related to semi conductor, audio sound and music. In addition to this, it can also provide different golf products for the purpose of reducing the competition rivalry present in the market. There is a need for the company to make investments in research and development for the purpose of generating in-house technology such as sensory technology, digital signal processing technology for the purpose of creating value for customers by providing innovative musical instruments. In addition to this, the company should include the features of adjusting the volume and sound in the instruments so that customers can generate the sound effects appropriate for their situations. This aids in increasing the customer base of the company (Blick, 2011).
Besides the digital piano, the company might also offer acoustic piano with different features inbuilt in it such as soundboard, strings, actions, hammer and a controller that helps in controlling the volume and output in a well manner. Along with this, a feature that can be included in guitar is involvement of a device in the guitar that vibrates along with the digital sound source. This facilitates in fulfilling the needs of the customers related to provision of sound effects by different musical instruments. The company should adopt the Acoustic Resonance Enhancement technology which aids in aging the wood material used in different musical instruments for the purpose of providing better quality of sound produced by the instruments as per the requirements of the customers (Ramanujam and Tacke, 2016).
In order to enter into a new market, the company can adopt many strategies such as mergers and Acquisitions, jloint venture for the purpose of sustain in the market. These strategic options facilitates in gaining knowledge regarding the changes occurred in different factors of business environment which in turn help the company to formulate new strategies to remain competitive in the market (Radjou, Prabhu and Ahuja, 2012). It is requisite for the company to differentiate its products from other players in the market by including new features which might help in fulfilling the unmet needs of the customers for which they are ready to pay premium prices. In addition to this, it is also required by the company to adopt such processes and procedures in manufacturing of the musical instruments that can help in reducing the overall cost of the product so that it can be transferred to customers. This helped in increasing the demand for the products offered by the company in the market which results in increasing the sales and profits of the company (Nelson, 2015).
It is also required by the company to receive feedback from the customers regarding the products and services they have purchased from the company in order to keep a track record of the changes taking place in the preferences of the customers and provide them high quality customized products. This helps in achieving high level of customer satisfaction. It is also requisite for the company to establish a communication platform where customers can interact with the company’s professionals for the purpose of handling of the objections of customers in a proper manner for the purpose of retaining the customers. The company should make efforts to reduce its costs as there is an increase in the competition from various firms at the global level (Stevens, Loudon and Wrenn, 2006).
The private sector is making cuts in capital expenditure made on the musical instruments. Besides this, there is a huge demand of low cost musical instruments as there is an increased demand of music and musical instruments in the developing economies such as China. The main reason behind it is that there is an increase in the middle income population in Asia. Nowadays, companies are using social media for the purpose of promoting its products. Thids is why it is essential for the company to make investments in advertising and promotion through the use of social media or sponsoring of different events which results in attracting more and more customers towards the company (Ferrell and Hartline, 2013).
It is required by the organization to expand its business operations in developing economies as sales in developed economies will decline in the future. There is an increased demand of digital piano in the emerging economies due to which the company should make agreements with domestic players of emerging economies in order to grab a large market share in the countries. In addition to achieve a large market share in the piano business there is a need of reviewing of the volume of the operations and different functions for the purpose of bring structural reforms in the piano division by the company (Gillin and Schwartzman, 2010). Besides this, the parts which are used to manufacture piano should be sourced from local vendors in different countries which leads to decline in overall costs bear by the company. The company is required to provide high quality pianos at affordable prices in different countries in which it plans to expand its business such as China in order to achieve success in the market (Whiteley, 2016).
It can be concluded that Steinway and Sons is the company that offers piano and other band and orchestra instruments to its customers that ranges from high class musicians to entry level students. Nowadays, changes have been occurred in different business environmental factors due to which it is required by the business to make appropriate changes in its process, procedures and policies in order to attract large number of customers. The company did not reduce the prices of piano and still manufacture the traditional pianos due to which it has low sales and profits. It is essential for the company to reduce its overall cost of the products by implementing different new technologies (Manning, 2013).
This can be achieved by making investments in research and development department for the purpose of providing low cost musical instruments to its customers. Along with this, the company can also introduce various variants of piano in the market such as digital piano for the purpose of providing new features to the customers so that more number of customers are attracted towards the product. The company should also build strong relations with its suppliers and customers by getting feedback on the products offered by the company which in turn helps in making required changes in the products in order to remain competitive in the market (Strange and Strange, 2001).
The strategic position of the company is not so strong as it has not made investment in research and development and do not make the changes in the processes and procedures due to which the customers switched to its competitors such as Yamaha, Kimball and so on. It is necessary for the company to reduce its cost of producing musical instruments in order to capture the untapped market. The company should enter into Asian market as there is a steady growth for musical instruments in the developing economies but it is required by the company to provide high quality products to its customers at low prices as there is an existence of middle income population in these countries (Peng, 2008).
The company might enter into the market by the way of joint ventures and mergers and acquisitions with small local players in the market. It can also be concluded that the company is required to adopt new technology which helps in enhancing the overall productivity of the company. There is a need for the company to procure the parts of the instruments from the local vendors of the country which helps in reducing the overall cost of the product and benefits can be transferred to the customers for the purpose of gaining high level of customer satisfaction. Thus it can be concluded that the company has to adopt new technologies and make structural reforms in the piano division for the purpose of gaining increased sales and profits. The current strategy of providing pianos at increased or high prices is not appropriate as there is an increased competition from its key competitors which offers the products at low cost. In order to remain competitive in the market, there is a requirement of bringing innovation in the product for the purpose of attracting more number of customers (Dean, 2009).
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