Case Presentation

Barco Projection Systems

Robert D. Rogers (Group of 1)

2/12/08

“And so it begins…”
 Case Background

 A division of Barco N. V.
 Barco N. V. began in 1934 in the “electronic” industry
 1948 developed television receiver and the consumer market was responsible for the
bulk of the company’s revenue.
 1955 to 1975 was a period of rapid growth with expansion into broadcast monitors
and video equipment.
 Inflection point occurred in late 1970’s and the company redefined itself as a player
in industrial markets.
 Barco Projection Systems Strategy
 High-end products in niche markets
 BPS is relies on technical leverage in product development
 R & D is a major strength, requiring 8-10% of revenue and 15% of employee capital
 Market expansion is accomplished first through channels of distribution with a
network of 45 distributors and 400 dealers worldwide; in key markets the distributors
are “company operations;” in 1989 growth was enhanced through $110M in
acquisitions.
 There was a belief on the part of management that the R&D expenditures and the
complexity of the technology afforded Barco some market protection.
 Case Background

 BPS Product Development

 Projection system based on 3-gun projection technology
 BPS is a leader in application of its technology
 Product mix is based on equivalent technology in tubes, lenses and electronics in three
markets defined by combinations of product performance in brightness, image quality
and resolution.
 Electronics comprise 50% of component cost and is used to differentiate BPS products
based on scan rate; variations in scan rate define the three market segments, video, data
and graphics.
 By 1983, the growth of the projector product paralleled the changes in the computer
market; from 1983 to 1989 the product line showed good growth in high-end
applications.
 By 1989 the product line was being expanded into digitally controlled projectors (BD700)
to match the growth in computer processing speed; this new line was to be available in
October 1989.
 Product development was a function of engineering solutions and not based on a market-
driven plan
 Product differentiation was based on image quality, input flexibility and “user-
friendliness.”
 Market Structure
 Three markets defined by product characteristics
 BPS and Sony were market leaders
 Market growth was directly related to performance
 Product Market
Structure
Industry Sales/ BPS Share/
Application Scan Rate Growth Growth BPS Margin

Video < 16 KHz 19,250/.8% 8%/1.4% 20%

Data To 45KHz 10,139/12.3% 22%/12.3% 51%

Graphics > 45KHz 960/40.2% 55%/25.0% 29%

 Case Background

 Competitive Structure
BPS Sony
Market Segmentation Strategy Niche Mass Markets
Distribution System Selective Intensive
Distribution distribution
100 dealers in 500 dealers in
US market US market
Product Reputation High end Low end but
reliable

 Competitive Posture
 BPS believes Sony will follow the same product development path.
 “Competitors will respect BPS’s vision of the marketplace
 In 1986, Sony Componets became the sole supplier of 8” tubes for BPS projectors.
 How did Sony Successfully Execute a Bypass
Strategy

 BPS Product Development Myopia

 A belief that technology drives products
 A belief that all players had to follow the same developmental path
Technological Breakthrough – 1270 scans at 75 KHz
BPS Product Development Process
 A move away from development strategy in play from 1982-1987
 Resources committed to backfilling prevented rapid reallocation
 Why did Sony Successfully Execute a Bypass
Strategy

Sony saw a market opportunity based on BPS’s premium at the

high end
Sony had a relative advantage
 economies of scale
 Market mix – especially distribution
 Product reputation
 BPS MARKET SEGMENTATION
BY PERFORMANCE AND PRICE

PRICE

$24k
Performance
Price
Premium
$12k

$10k
Sony
1270

16KHz 45KHz 72KHz

PERFORMANCE
 How Should BPS Respond?

Critical Factors Impacting the Decision

Internal Factors
 Marketing orientation
 Resource allocation
External Factors
 Technology
 Competitive structure
Decision Options
Pricing Response Options
 Immediate Price Cut
 Wait and see
Product Response Options
 Do nothing
 Platform up
 To the Wall
 Price Response Options

Immediate Price Cut

 Without knowing what Sony Price will be, it is probably premature

to consider a price cut on the BD600, let alone consider a strategic
price reduction on the BD700
 The price cut would have to be substantial for the product line
 Involve the channel of distribution
 Preempt Sony introduction; proactive versus reactive

Wait and See

 Sony pricing structure is unknown; hard to make a decision

 A cut now may result in a lower-price for the 1270 from Sony
 BPS can’t win a price reduction game
 Pricing reduction is inconsistent with BPS reputation for technology
leadership
 Product Response Options

Stay the Course

 Continue BD700 upgrade to digital environment

 BD700 project is well-underway (180 of over 200 man-months)
 Delivering “on-time” is a message consistent with BPS reputation for market
leadership
 Sony has not SOLD any 1270s; hard to judge market response

Platform Up

 Shift BD700 development emphasis to matching KHz performance of 1270

 Best case scenario does not guarantee completion by Infocomm date

To The Wall

 Shift corporate assets to target 90 KHz by Infocomm

 BD700 development put on hold
 BPS management believes it has the capability to meet the challenge
 Would preserve BPS reputation for technology leadership
 Management estimates .4 probability to make Infocomm deadline
 BPS Response

Pricing

 Implement an immediate price reduction of 25% to 33% for BG400

 Add 60 day time limits
 Cut price of BD600 to $10K
 Involve the channel of distribution

Product

 Shift to develop BG800 to introduce at Infocomm

Key learnings

 Move to Market orientation from production orientation

 Even a niche player has to make product development decisions based on market
information
 Develop an environmental scanning function
 NEVER JUDGE A COMPETITOR BASED ON INTENTIONS, RATHER ON CAPABILITY