This report analyse business environment consists of micro and macro environment of Bang & Olufsen (B&O) a Danish company that manufacture and designs an exclusive range of luxury products, which includes music systems, loudspeakers, multimedia products and telephones with the help of technological brilliance and the magnificent design range of product. B&O products sold over 100 countries by more than 1000 dealers in which more than 70% are exclusive B1 stores (Olufsen, 2011).
Johnson (2002) highlights that strategic management goes beyond the routine, short-term,operation-specific concerns of an organization. It deals with complexity arising out of ambiguous and non-routine situations with organization wide implications. It involves understanding the strategic position of the company, its strategic choices and how they turn strategy into action.
Everyone is facing global recession; demand for luxury products in the market is in very low level. It is surprising to know a successful period with extreme growth can end up with loss.
There are many strategic frameworks which are used to evaluate strategy for both internal and external analysis. This report used two strategic frameworks; Porter’s five forces for external business environment analysis and Value Chain for internal environment analysis to evaluate B&O strategy. External environment is dynamic which keeps on changing that’s why analysis of external environment for any company is important and factor to analyse is both diverse and complicated. Porter’s five forces model for external environment helps to analyse competition within industry by potential competitors, degree of rivalry from established companies, bargaining power of suppliers and buyers and threats from substitutes. Porter’s five forces framework helps to analyse competitive forces in an industry in order to identify threats and opportunity confronting a company (Hill & Jones, 2007).
In this report, we will focus on how to make B&O position stronger in the business. This report will explain the B&O’s current market position as well as what kind of problems facing by B&O and in concern with its future success and what can be achieved in the future.
B&O announced new strategy with the appointment of new CEO, names as ‘Pole Position Strategy’, the name taken from Formula One racing. This strategy enables B&O to focus on its product range and profitability.
Major point of B&O’s Pole position strategy are as follows:
Sales Focus on product development:
Building common digital platform
One general sales organisation
More shops in growth market
New management team
Strategy Management :
To understand the strategy situation, we will use two frameworks.
Porter’s Five Forces can be used to for the industry level and Porter Value Chain framework will use for the company level.
B&O is affected by macro-economic situation. This framework will analyse, how B&O is positioned on the market as concern with its industry.
Because of the instability in the economy people and businesses save their cash and try not to spend on luxury products. Due to shortage of liquidity in the current economic situation B&O’s business is under pressure as well.
Most of the people in the world have notice the big drop of in their personal values, etc. drop in share market or drop in property value (Economist, 2008).
According to The Guardian (2011)”house prices set to fall by up to 20% over the next two years as rising unemployment and public spending cuts take their toll, experts are warning”. It is clear indication for the luxury product businesses about public spending is less likely compare to previous situation. B&O is the one of the business to be effected because of its high end product. Less buying power and high insecurity, B&O is currently having big challenge ahead.
Currency exchange rate is one more issues to face by B&O, who’s sales is having large market share in the UK. B&O is facing devaluation of the Pound to the Euro value(X-rate, 2011).
Figure 1 : Euros to 1 GBP
Source: X-rates (2011)
For planning long and short term strategy B&O take help of some economic issues. Like above exchange rate issues, B&O need to consider other macro-economic issues which are corporate tax for the respected countries and its different VAT rate.
Porter’s Five Forces:
As per global industry, this framework is the good tool to evaluate B&O’s new challenges.”Porter argues that stronger each of these forces is,themore limited is the ability of estabishied companies to raise prices and greater profit (Hill & Jones, 2010)”.
Substitutes- : Threat of Substitutes
Current recession make significant difference between all income categories. Because of the income, most of the people trying to save money for little longer period to buy luxury product. “People in all income brackets have been affected, not just adults living in poverty, said the CDC (Psychiatry news, 2011)”. Even richer people got affected by current recession, which indirectly affected on B&O sales.
Other physical Substitute is the only Computer, which can effect on audio and video products. Music on computer is the threat for B&O’s product, however it also open door for B&O to produce speakers for computers. Television can provide big screen to watch movies, which computer can’t be comfortable at this situation. People still prefer to watch their favourite program on television set rather than computer.
So it seems that B&O could face strong challenges from competing luxury product to consumers. It is easy for cheaper competitors in the same market have strong chance to capture all category segments.
Buyers – : Bargaining Power of Buyers
There are different types of buyers. We can divide them as follows:
Luxury car dealers
Private customers are using B1 and shop-in-shop facility for buying B&O product. Most of them buy one of each product, so they carry very less bargaining power. Even after discount on multiple products, profit is comparatively small.
Private consumer can choose any competitors shop to buy products, but when they decided for luxury products then there are limitation, which can be benefit to B&O sales.
Business category seems to have better bargaining power because company can buy several products at same time or have long contract of orders.
Car dealers are the good example for long term contract with B&O products.
Luxury hotels can buy several products for their hotels and number of rooms. Because of the unique brand of B&O products, which gives higher bargaining power in compare to hotel give to their customer.
Real estate is the least bargain power sector for B&O, because of the low house prices and dealer looking for the deals per project. It effect on less long term contract.
It can say that no one can be a threat to B&O. private consumers bargaining power is less compare to business consumers, which is much higher.
New Entrants – : Threat of New Entrants.
New entry of competitors as well as existing suppliers of same product can be the threat. Technology and product development is the one barrier from many barriers which is new competitors will face. Need large number of resources and investment. If they were in luxury business and having good brand name
Existing suppliers, who is already, have all resources for audio and video products and product is the brand behind and affordable products face the threat. “Workstyle and lifestyle trends will powerfully shape your company’s future workforce needs (Haverd Business school press, 2006)”
Figure 2 :Porter’s Five Forces
Source: The marketer (2010)
Supplier – : Bargaining Power of Supplier
Company like giant Philips is one of those supplies for B&O. Both are in same business like competitors. Philips is much bigger than B&O, it has high supplier power. For B&O changing its supplier is little difficult because of the quality components B&O require is not any supplier can provide, so it is clear that B&O is under high supplier risk.
It can understand that B&O faces high supplier bargaining power and if it will be continue B&O comes with increased ricks
Intensity of Rivalry – : Industry Competitors
It is very important to understand in which market B&O is competing. B&O is strong in its both audio and video business as well as in the high-quality goods segment. The audio and video products are used by number of suppliers. Philips, LG, Samsung and Sony is the major in international market. All of them develop range of products in different qualities and quantity. So they can target many different segment of consumers from low prise to high prie product as well as different quality products These companies seeking and targeting number of different segment.
Apart from all above mentioned companies, B&O has keep themselves different among all of them by offering high level of quality standard and exclusive design products. B&O keeps prices very high compare to the audio and video market.
Germen based Loewe and American based Bose is the other two competitors for the same product and capturing some share in luxury high quality business.
Loewe is established on 1923 in Berlin by Loewe brothers (Loewe 2011), it is recognised by its high quality and exclusive design of its products. Loewe use the premium brand strategy, which is most important factor for company’s international growth. In 2010, Loewe introduced mediacenter, which can provide nonstop entertainment at one place throughout the home.
This all strategies used by Loewe is possibly lead to capturing customers from B&O. Loewe is the B&O’s main competitor as it competes on all its product ranges.
Compare to Loewe, B&O is stand still because its advantages in audio quality.
Other B&O’s major competitor is Bose, who won awards for its advanced (Bose 2011) sound system .Bose was founded in 1964. It’s main focus on providing high quality sound system. Bose have a plus point its best sound system rather than its design compare to B&O’s design. Eventually people will more interest in best sound and not so focused on the design of the product.
Bose is supplying sound system to cars dealers like B&O does. Bose have contract with the luxury car dealers (Bose, 2011) such as Porsche, Ferrari and more.
Porter’s Value Chain:
This is a tool of analysing the company’s internal environment and resource facility. It is a concept created by Michael Porter. It will specify all activities that produce and test company’s capability and economic performance.
Figure 3 : Porter’s Value Chain
Source : Mba Knowledge base (2011)
The above figure is explain value chain for the company. Primary activities and secondary activities are two main process in value chain.
While using of value chain process you can analyse the B&O’s strength and weaknesses.
Figure 4: Primary Activities
Marketing – Sales
B&O needed high quality technical component for his production. So company has made strategic relationship with its suppliers, who manufacture high quality technology components. This is a competitive advantage in terms of innovative technology. Suppliers can be reliable and competent, which help B&O to saves its time and money on its own components development and B&O can utilise that time on focusing its main business.
Storage is one of the inbound logistics in value chain, this link keep less value to B&O. It is looked to be a link which should be as small and less value as possible because this link won’t add value to its final product.
“Competitive advantage introduces the concept of the the value chain, a general framework for thinking strategically about activities involved in any business and assessing their relative cost and role in differentiation (Porter, 1998)”.
Product design of the B&O is the most important factor for the value creation, B&O product and brand are mostly depend on its product design. Such design product is not just creative also high standard and innovative. Design is the outside appeal of the product and the technology is the internal brilliance.
ICEpower (ICEpower, 2011) is the major daughter company of B&O as it is a motivation for the new technology used for B&O products. ICEpower is invented by B&O, so company get first new technology befor its competitors reach. Full control to ICEpower’s development add high value for B&O.
The main issue for value chainis that the R&D division has lately know the market is wrong so developing is not got satisfactory peoduct line.The next R&D is the mostly important for B&O in terms of companies growth and brand value. It is conclude new goal for the product line progress, still to be seen the new strategy will be effective and get B&O in successful market.
After receving purchase order,production will sart,such a logistic strategy may not add value to product. It does make the production more cost effective.
B&O can move its labour work to the different location where wages is low and have a skill.Production in the current location is add low value to B&O value chain.because its very costly compare to other easy options.
All outbound distribution of B&O products is coming from outside the region. B&O pays high amount of money for shipping. Outside of Europe cost is very high because of its longer distance. This high cost won’t give value to the value chain. B&O need to create the production facility which produce cost efficient solution.Some sort of modification or assembling facility in the individual area can save some of the cost on shipping.Effective inventery management easier so it can have a positive effect on the value chain.
Fully trained sales staff in B1 as well as in shop-in-shop, B&O products manage from other product because of trained sales personnel have brief knowledge about products. Cheap shop sales personnel don’t give much information about product due to they never been trained by company. This is a extra service which B&O is providing its customer when they come to the shop.
B&O has made a status in all over the world by reaching its customers demand. In a result these shop grow and increase sales for B&O products and increase the value of the B&O brand.
That is sure such worldwide sales support the growth in sales give a big boost and providing recognition in the market to B&O as a company.
Compare to the cheaper competitors the service provided by B&O are the most important factor in business. After new product launch each sales staff get training to understand the product and give guidance how it is suitable for the customers. Personally installation by trained staff make sure every customer get most of the outcome from the product. This service provided for both the, private and business consumers. B&O provided provision of 12 years of service after products have been taken out of production. This help customer can believe on B&O and its brand as well as add extra value for B&O. B&O provide facility for producing spare parts for non-market item and the direct cost of producing these parts.
All flat screen television become more familiar product and its price is falling rapidly day by day in the market. B&O will be facing big challenge from its competitors. Component prices is cheaper and B&O will have to improve its product rather than reducing its cost. B&O faces hard competition on all his products, but B&O is the one who supply whole package for home entertainment.
So B&O need to use its strength and remain competitive with the technology and need to believe on its own design range of products.
The strategic risks are depending on the industry. B&O is dependent on large sub supplier, who is big in the same technology market.
Like B&O, whole world is affected by global economic recession; loosing wealth for the all category customer is a negative impact on B&O’s sales in the coming year if spending reduced. B&O facing increasing currency risk as well. B&O facing hard competition from its rivals in all price ranges.
To help of value chain B&O to be overall running well in the market. B&O having a positive side, which is its well-functioning value chain supporting its position on high end luxury with the help of its unique design, different technology and its well trained staff.
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