Steinway & Sons: Buying a Legend

Harvard Business School Case

Steinway & Sons

♪Producer of the highest quality grand pianos in the world

♪Pre-eminent brand name in the music business

The Steinway Purchase

Purchased by The Selmer Company for $100 Million on April 18, 1995

Selmer- manufacturer of band and orchestral instruments owned by Messina and Kirkland

Kirkland- Chairman of the Board Messina- CEO

The Selmer Company

Birmingham Brothers 1985 - 1995

CBS 1972 - 1985

Henry Steinway-1853

Was the purchase worth $100 Million?

Did Messina and Kirkland get themselves

into problems?

Steinway & Sons

Horizontal Vertical

Grand Pianos Boston Piano

Situation

Situation Unit sale of Steinway grand pianos had slipped even though it had $100 Mil sales

Industry TRENDS during the purchase -Threat

Sustained downturn

☹40% drop in global sales since 1980

Increase in..➟ Electronic keyboards➟ Computers

Vertical and Grand Piano sales in the United States – 1980 to 1995

Situation - Threat

➦Yamaha- Strong competitor

➦ Emulated Steinway

➦Continued to challenge Steinway as the maker of the world’s finest concert grand piano

Industry TRENDS during the purchase- Threat

Emergence of Asian manufacturers Asian imports achieved

➲35% unit share of the vertical pianos market

➲ 80% unit share of the grand piano market

TRENDS during the purchase-OpportunityOpening of new and potentially large markets- Asian MarketsEconomic conditions were improving in the U.S. and Europe, Steinway’s two largest markets

Industry TRENDS during the purchase

Consolidation of the piano manufacturing industries

Just eight piano makers left by 1992

Situation

Boston Piano in 1992

➔ Mid-priced piano designed by Steinway and manufactured under contract by a Japanese competitor, Kawai

➔ An idea that had been previously rejected continually because Steinway wanted to sell only a top-of-the-line prestige piano

➔ Significant departure from the handcrafted pianos that made Steinway famous

Should Steinway continue its

high-end, niche strategy? Should Steinway be bolder and more aggressive in its plan?

How can Steinway enhance

its revenues?

What to do with the recently introduced mid-priced line of Boston Pianos?

What role should Messina and

Kirkland play in the running of

Steinway?

It is one thing to own the

company; it is something else

to run it effectively...

Boston Piano sales compared with Grand and Vertical pianos in 1994

Steinway grands-$26,400 to over $70,000

Steinway verticals-$11,900 to over $17,000

Boston pianos-$6,395 to over $30,000

Intentions Behind the Boston piano

➪Sell the line exclusively through Steinway dealers

➪Provide dealers with a high-margin product in the mid-market price range

➪Increase market share and cut down competition

➪Allow Steinway to capture sales that might otherwise have gone to Yamaha.

COMPETITORS

➢ Baldwin

➢ Yamaha

➢ Kawai

➢ Bösendorfer and Fazioli

STRENGTHS

★ Popular among musicians

★ Manufactured by craft method

★ Legendary sound and durability

★ Well-run and sustained company

WEAKNESS

▼Small volumes

▼Long manufacturing- 2 years

▼Changes in management

THREATS

Used Steinway-threat to the sale of a new Steinway

STRATEGY- Dealer Network

✔Good relations with dealers

➢ Independent dealers sold 85% of all Steinway and Boston pianos

✔Maintain quality among dealers

➢ Sales volumes and profits increase with dealers but product quality

will be questioned.

STRATEGY- Marketing

✔Outlet and factory locations help gain public acquaintance

✔Attract performing artists

➢ Steinway’s Concert and Artist Program

➢ Grants for exclusive use of an artist’s names for publicity purposes in return for master piano technicians provisions

STRATEGY-Product line

Expansion of product offerings

♪Limited Edition Collection

♪Crown Jewel Collection

provide variety and receive premium prices

Created by: Deepthi Meduri, BITS Pilani, Hyderabad

during an internship by Prof. Sameer Mathur, IIM Lucknow.

www.IIMInternship.com