Steinway and Sons

Presenters
Team 02
MKTG 445-02

Ashley Sides
Derek Moss
Andrew Wyatt
Lindsey Brooks
Jason Bryant
Lindsey Brooks
 Table of Contents

Executive Summary
3
History 4
Industry Trends
5
Industry Competition
6
Target Market
7
Marketing Strategies
8
SWOT Analysis
10
Conclusion 11

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Executive Summary
Problem:

As a result of the declination of sales in the piano industry, Steinway and

Sons needs to find a way to uphold its historical brand reputation while gaining

market share world wide and using innovative technology; particularly in the Asian

Market

Background:

In late 1994, Steinway and Sons was yet again a company on the market to

be sold. For their own personal reasoning, the Birmingham brothers decided to sell

the piano manufacturer. On April 18, 1995 Kyle Kirkland and Dana Messina,

already controlling multiple firms, decided to make the purchase. The investment

bankers purchased the New York piano manufacturer for an incredible $100

million.

Discussion:

The piano industry has been in rapid decline over the past 2 decades and in

particular, Steinway and Sons has taken a hard financial hit. Global sales of the

industry have dropped 40% over the past 24 years and with the introduction of

major industry competitors, Steinway and Sons have continued to struggle. In

addition to the negative impact of these industry trends, Steinway and Sons

introduced a new product line to address customer demand. They produced a

more mid-priced product line; the Boston Piano. This step, “breaking tradition,”

was taken with the intent to gain market share in Asia while increasing profits.

Recommendations:

• Continue to produce the mid-priced Boston line of pianos to gain market

share

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 • Make grave attempts to take advantage of the Asian Market by attractively

meeting demands; i.e. satisfying demands for “free” in hall tuning and

delivery for pianists endorsements and establishing customer base with

customer service

• They should use quality and their reputable sophistication to market more to

the institutional market which makes up only 10% of vertical piano sales and

20% of grand piano sales

History

Steinway and Sons was established in New York City in 1853 by Henry

Engelhard Steinway, an immigrant from Germany. The business excelled because

of it technical brilliance and shortly, a year later, the company won a gold medal at

the Metropolitan Fair in Washington D.C. The following year, Steinway and Sons

introduced the cross-stringing technique in a piano with a cast iron frame, an

innovation that is now universal in all grand pianos. Due to the company’s

innovative ability and technical supremacy, orders grew rapidly and a new larger

factory was constructed in 1860. For the next 140 years, Steinway and Sons would

be recognized as the leader in the market for high quality pianos (Gourville).

Over the past 25 years, Steinway and Sons have been somewhat

tumultuous. After 120 years of being a closely held family operation, it was

decided Steinway and Sons could no longer survive in this manner. The company

was sold to the CBS Musical Instruments Division in 1972 for $21 million worth of

CBS stock. The primary reasoning for the sale was associated with finances which

hadn’t changed in the following few years; the company’s return on capital was

only about 5% (Gourville).

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 In the beginning, CBS invested several million dollars in the first few years

after purchasing the company. This may not seem like an exceptionally large

amount; however the Steinway family had never before invested more than

$150,000 per year in capital improvements. In addition, to ease the transition and

to ensure quality focus, CBS employed Henry Steinway as president of Steinway

and Sons for five (Gourville).

Looking for a reasonable return on investment, CBS wanted to increase

revenue and decrease manufacturing costs by increasing production. Their first

step was to increase dealers by almost 40%. While these changes did in fact

increase sales volume and profits, it damaged the reputation of Steinway and

Sons. Critics and buyers began to challenge the quality of Steinway and Sons’

pianos. Over the next 10 years, Henry Steinway is replaced by several CEO’s, only

to worsen the calls from critics challenging the quality of Steinway and Sons’

pianos. In November of 1984, CBS announced the sale of Steinway and Sons for

$50 million to John and Robert Birmingham (Gourville).

Although the Birmingham brothers had no experience in the musical

business, they set out to re-establish Steinway and Sons as the maker of the

highest quality pianos in the world. CEO Bruce Stevens set out to assure

everyone, customers, employees, and dealers, that the new owners were highly

committed to quality. The company now became refocused and returned to what

had made them so successful. Aside from the newfound focus on quality, the

Birmingham brothers expanded Steinway and Sons’ product line. It now included

the Boston Piano line introduced in 1992, the Steinway Limited Edition pianos

introduced 1993, and the Crown Jewel Collection of Steinway pianos introduced in

1994. Despite these positive changes by Stevens and his team, the running of

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Steinway and Sons was once again constrained by limited financial resources. The

company was again sold on April 18, 1995 to Dana Messina and Kyle Kirkland for

$100 million (Gourville).

Messina and Kirkland had already acquired the Selmer Company, a meat

processing and a paper company, and felt as though Steinway and Sons was a well

run organization which could reap the benefits of their financial expertise

(Gourville).

Industry Trends

Over the years, piano sales have increasingly dropped from as high as

223,000 units in the 1980s to nearly 100,000 in 1994 (Gourville). People have

different arguments of why piano sales dropped so dramatically over the past 20-

30 years. The first of these arguments includes the idea that the decrease in sales

is simply a trend and that it is predicted that in the future piano sales will once

again rise significantly. In addition, computer home entertainment and electronic

devices such as keyboards were being sold more than traditional pianos.

A second observation is that the piano industry has become a consolidation

of many of the top piano manufacturers. Many of the industries in the United

States and Europe have been going through consolidation efforts. In the early

1900s there were several hundreds of piano makers whereas in 1992, there were

only eight (Gourville).

A third trend is that many Asian piano manufacturers arose. Four Asian

companies including Yamaha, Kawai, Young Chang and Samick accounted for 75%

of global sales in the 1990s. “Asian imports achieved a 35% unit share of the

vertical pianos market and an 80% unit share of the grand piano market by 1994,”

(Gourville)

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 The fourth trend in the industry market was the change in market size. With

countries such as South Korea, Japan, and China representing a very large portion

of the market, the United States and Western Europe were no longer the industry

leader in sales (Gourville).

A fifth and final issue that faces the piano industry is that these high-priced,

high end pianos may limit piano sales. Owning a Steinway and Sons piano may be

viewed by some musicians as a symbolic representation of high status. Only a

small percentage of people who are looking to purchase a piano can afford a

product of Steinway and Sons. In 1995, Steinway and Sons grand pianos were

priced from $26,000 to over $70,000, verticals were priced from $11,900 to over

$17,000, and Boston pianos were priced from $6,395 to over $30,000 (Gourville).

The Boston models are around half as expensive, however they continue to be out

of the price range of the average customer. The majority of the public is just not

willing to pay that kind of money on a discretionary item such as a piano. The

recession of the early 1990’s can also be linked to the decrease in piano sales in

recent history (Gourville).

Industry Competition

Steinway and Sons had only a few competitors that were considered threats

to their market share. After the industry’s consolidation of manufacturers from

hundreds of makers to a mere eight companies that were considered major

competition, their high volume manufacturing competitors included Kawia,

Yamaha, and Baldwin. Their competition in the low volume, high quality market

was Bösendorfer and Fazioli.

Baldwin Piano and Oregon Company was the only remaining competitive

large scale producer of grand and vertical pianos in the US in 1995 aside from

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Steinway and Sons. Baldwin sold many varieties of pianos ranging from factory

manufactured vertical and baby grand pianos, to expensive hand made grand

pianos. Baldwin was seen as a major competitor in 1994 selling 20,000 pianos

worldwide and generating $122 million in sales (Gourville).

Yamaha Corporation, a 100 year old company, was the largest producer of

pianos in the world. Yamaha had $1 billion in sales in 1994 with 35% world market

share and 50% Japanese market share. In 1994 Yamaha produced 175,000 pianos

using highly automated, assembly techniques (Gourville). Yamaha also produced

high concert end grand pianos using traditional craft methods with the goal of

producing the best grand piano in the world. Yamaha would often seek new

strategies to compete with Steinway and Sons in the grand piano market. Yamaha

claimed that the wood used in Yamaha pianos was from the same wood mill as

Steinway and Sons’. Yamaha also would purchase Steinway and Sons’ pianos,

disassemble them, and try to recreate a better piano that Steinway and Sons’

model. Yamaha marketed their pianos to major universities, in order to gain on

Steinway and Sons. They would often “loan” pianos to universities for students to

use and to be considered for purchase later.

Kawai was a competitor from Japan which produced 90,000 vertical pianos

and 10,000 small grand pianos a year (Gourville). Much like Yamaha, Kawia

wanted to special in a high quality concert grand piano. Kawai was not a major

competitor of Steinway and Sons since their materials used in their pianos were

considered low quality by many critics.

Bösendorfer and Fazioli were two companies that competed with Steinway

and Sons in the top-quality grand piano market. Bösendorfer from Austria

produced 400 grand pianos in 1994 to Fazioli’s 40 (Gourville). These two

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companies used the same handcrafted techniques as Steinway and Sons and were

considered top notch among customers for being made in low volumes.

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Target Market

Steinway and Sons’ two major markets to sell their pianos in were the home

or private market and the institutional market. These two markets were grounds

for selling Steinway and Sons’ vertical and grand pianos. Vertical pianos have their

strings mounted vertically while grand pianos have their string mounted

horizontally.

The home market, often called the private market made up most of Steinway

and Sons’ sales buying 90% of its vertical pianos and 80% of its grand pianos. The

home market generally was 45 years old and had over $100,000 incomes a year.

To find their market, Steinway and Sons had to figure out who the music lovers

were and who had enough money to purchase their pianos (Gourville).

The institutional market accounted for 10% vertical piano sales and 20%

grand piano sales. This market included universities, music institutes, hotels and

performance halls (Gourville). Steinway and Sons wanted to get their pianos in

these institutions so that it would lead to more sales in the home market.

Marketing Strategies

Steinway and Sons have shown a decline in recent years on the sale of

Grand Pianos. Some of the reasons that for the decline is price, new technology,

new markets, and the fact that people that have pianos have had them for a while

and will not need to refurbish a piano that often. The first question that needs to

be asked does Steinway want to continue is strategy as the world premier grand

piano or does it want to take more aggressive marketing strategy and give up that

title for a better profit margins and market share. Steinway needs to take

advantage of the different marketing strategies and use the Asian market to their

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advantage. They also need to look at price and technology to enhance their profits

in the piano industry.

Steinway decided to relive the fact that people are not spending the money

on 70,000 dollar grand pianos they decided to introduce a new more affordable

piano called the Boston Piano. The Boston piano which is produced by Kawai in

Japan enables Steinway to sell a mid priced piano with through the Steinway name.

Since the introduction of the Boston piano in 1992 the sales increased from 2.7

million in 1992 to 16.7 million in 1994 (Gourville). This piano gains some of the

market share that has not been tapped by Steinway before because of the cost of

their pianos. Steinway also introduced a Limited Edition piano which sold out to

dealers within hours of being made available. Steinway needs to continue to look

at different ways and new marketing strategies to counter the price issue it has

with the Steinway grand being highly expensive.

Another marketing aspect that Steinway needs to focus on is how to tap into

the Asian market which is the fastest growing market. Steinway can capture this

market by introducing the Boston piano to rival that of the Yamaha and Kawai that

are produced in Japan. The more affordable Boston Piano will enable Asian people

to purchase a Steinway without going broke. By expanding overseas Steinway

would make up for some of the lost revenue in the United States market.

Steinway and Sons is known for their impeccable brand image and traditional

quality and durability. Due to their immaculate products, the concept of repeat

buyers is virtually non-existent. As a result, the used piano industry has flourished.

For every new Steinway and Sons piano that is sold, about five used Steinway and

Sons’ pianos are also traded. These used products hold their value extremely well

and most are sold for about 75% of their purchased price.

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 Steinway needs to focus on developing new technologies and might want to

expand into electronic keyboards which are now becoming popular with the

younger generations. By creating a keyboard with the Steinway name that could

gain market shares in the growing music industry of electronics. They could also

reach younger people earlier and begin to make them aware of the Steinway

name.

Steinway and Sons’ Concert and Artist program has become an ever

successful marketing strategy. The program allows for a “bank” of over 330

pianos in which gifted artists may choose from for their performances. The

performers have their preferences regarding tones and sounds which are satisfied

by master technicians. In exchange for their performance, Steinway and Sons is

granted exclusive use of the artists’ names for their own publicity purposes. With

the use of artists’ names, Steinway and Sons is able to better appeal to the

industry.

In addition to the new product lines, the utilization of artists, new and used

pianos, technology and innovation, and the Asian market share, Steinway and

Sons’ also takes advantage of the use of independent dealers. Approximately

1000 independent dealers are responsible for selling over 95% of new pianos. The

dealers carry Steinway, or Yamaha, as their primary brand along with entry level

brands with lower retail margins. These independent dealers are effective and

efficient for the sale of Steinway and Sons’ pianos.

Steinway must focus on many different marketing strategies and need to

begin to increase the sales of their pianos without losing the high quality that the

Steinway and sons piano brings. Focuses need to be shift if they want to continue

their great music tradition.

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SWOT Analysis

Strengths

• Steinway and Sons have an established brand reputation of quality and

durability

• There are minute differences between the sound of each crafted piano which

allows for differentiation and customization of the product

• The Steinway Concert and Artist program has around 850 artists whom

choose the Steinway and Sons piano

Weaknesses

• The durability and quality of their products limits the concept of repeat

buyers and brand loyalty

• The average customer is over 45 years old and earns in excess of

$100,000/year

• With the introduction of the Boston piano line, Steinway and Sons’ image

took a step away from tradition

• Growing technology and innovation has taken toll on traditional pianos; they

have been replaced by keyboards and other computer technology

Opportunities

• Establish a larger customer base in Asia to increase market share

• Steinway and Sons could increase their industrial market by offering

discounts to universities or concert halls and/or being more customer service

oriented

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 • Using innovative technology, Steinway and Sons could potentially increase

markets by appealing to lower and middle class purchasers with low to mid-

priced products

Threats

• With the expansion of Asian manufacturers, global market share is no longer

being controlled by American manufacturers

• There are levels of inexperience of the current younger owners/CEOs

Conclusion

As a result of their decline in sales due to the rapid change of the piano

industry, technology, expansion of new markets and foreign competitors, Steinway

and Sons will need to make some drastic changes to utilize these industry trends.

In order to expand market share and gain profits, Steinway and Sons need to take

steps towards using technology to enhance their products while maintaining their

traditional brand reputation. While continuing with their high-end products as well

as introducing a mid-priced line, Steinway and Sons will be able to reach more of

the markets demand. Concentrations should also be made towards reaching new

customers all over the world. Their products remain of high quality and durability

which allows for less company loyalty. Establishing a customer base is vital for

their success. In order to restore their historical success while implementing

changes and preparing for growth, Steinway and Sons will have to use this

declination of the piano industry to their advantage.

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 References
• Gourville and Lassiter. “Steinway & Sons: Buying a
Legend (A).” Marketing Management: Case Analysis by
Teams: pg 147-166.

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