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Assignment Questions:

÷ What rationale could Messina and Kirkland have for buying this company? What
opportunities (if any) exist within this industry? Within the company?

÷ What value (if any) do Messina and Kirkland bring to Steinway & Sons? What
negatives (if any) do they bring?

÷ What do you think of Steinway¶s 1992 decision to launch the Boston line of pianos?
What impact might this new line of pianos have on the company? Having just
purchased the company in 1995, what should Messina and Kirkland do with the
Boston piano line?

÷ Moving forward, what is Steinway & Sons single biggest strength? How can it be
best leveraged? What is Steinway & Sons single biggest weakness? How can it be
minimized or eliminated?

÷ If you were advising Messina and Kirkland, what near -term and long-term actions
would you recommend?


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
è






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



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.


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





÷ Continue to produce the mid-priced Boston line of pianos to gain market share
÷ Make grave attempts to take advantage of the Asian Market by attractively meeting
demands; i.e. satisfying demands for ´freeµ 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


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).
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 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).




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,µ (Gourville)

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).



 


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 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 ´loanµ 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 companies used the same handcrafted techniques
as Steinway and Sons and were considered top notch among customers for being made in low
volumes.





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.







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 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.

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 ´bankµ 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.


 !"


#
÷ 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





÷ The durability and quality of their products limits th e 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
!

÷ 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
÷ Using innovative technology, Steinway and Sons could potentially increase markets
by appealing to lower and middle class purchasers with low to mid-priced products
#


÷ 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


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.