Bang & Olufsen

Bang & Olufsen How the tiny family-owned company Bang and Olufsen survives and prospers in spite of all the multi-nationals can do. Consumer electronics is dominated by multi-nationals who believe growth and acquisitions are the keys to survival in this price-point conscious industry. So how come in a remote country town in the north west of Denmark, an organisation with a mere 3000 employees is prospering and charging premium prices? B&0 is still in the hands of the families who started it back in 1925.

Young Peter Bang and Svend Olufsen were both keen experimenters from boyhood with electricity and their first radios were built in the attic of the Olufsen house. Right from the start the company followed a philosophy of innovation. The company has always striven to set higher standards of performance than its competitors and, as a consequence found itself moving inevitably towards the upper-end of the market. Along the way styling became an important element of the B&O philosophy. A number of their products are in the permanent design collection of the Museum of Modern Art in New York.

The company uses freelance designers who are answerable to the product strategy department who are responsible for marketing planning and the technical feasibility of ideas. It took more than style, however, to give Bang & Olufsen its unique positioning in the marketplace. A long time ago it was realised that the key to survival lay in offering products which were not only different but had qualities which could not be found elsewhere. Back in 1938 they produced a radio with a preset programming function for 16 stations. In 1943 a B&O gramophone had an option for rogramming a 3 minute pause between tracks – time to allow you to bow to your new dancing partner! The first B&O TV receiver appeared in 1952. In 1951 they produced the world’s first stereo cartridge. They invented the HX professional recording system which increases the headroom available for recording high frequency signals on all tape types. This system is now found in most good quality tape decks. In 1982 they introduced the Beolink system which gives round the house sound and round the house remote-control. For all their small size Bang and Olufsen produce practically everything themselves. They even ake much of their own production equipment. Such are their capabilities that they supply injection moulding equipment to other manufacturers and have developed such diverse products as an insulin pen and extension units for telephone switching exchanges. Their entry into the telephone receiver business grew out of a contract to develop a new standard telephone for Danish Telecom. Since then they have sold over 200, 000 units of their elegant and distinctive handsets. The company regularly gets suggestions for new product categories. These are considered but unless there is scope for a distinctively B&0 concept, it will not proceed.

Car audio is an example. Because the car stereo has to fit into a set size hole in a console, there is little or no scope to produce a distinctively different product that would fit into the B family of products. Today, B operate in more than 20 countries around the world. Their biggest single export market in terms of combined TV, video and hi-fi sales is the United Kingdom. As mentioned earlier, this equipment does not fit into an existing selling or price-point structure and would face an uphill struggle in the bazaar atmosphere of the typical electrical retailer.

This led to the decision to carry out the entire marketing, distribution, and selling (retailing) operations in- house. The calm and luxurious atmosphere of a Bang and Olufsen showroom is highly conducive to the appreciation not only of the performance of the product but the elegant styling too. The arrangement leaves no place for opposition or competitors for, as B&0 will gladly tell you, there aren’t any. At the same time, haggling over such mundane matters as discounts seems very much out of place in such surroundings. It’s a far cry from the rest of the industry where the sales staff can usually tell you very little but the price.

The showroom decor is simple and subdued to highlight the discreet styling of the equipment. The staff are very much part of this presentation. Fast talking and pressure to buy have no place here. When people are spending the kind of money a B&O system costs (the 1owest priced sound system is listed at $8,000 and you can go over $30,000 with the greatest of ease) they want time to relax and consider their choice very carefully indeed. The staff are there as consultants and advisors. In fact, of course they are very effective sales people who really know their products and ow to present them. There are several six B&O showroom in Australia, all in major capital cities. Sales of audio and video products run 50/50 and in both categories the best sellers are the top models in the range. So who buys this expensive equipment? It is probably easier to say who does not. The true hi-fi buff who loves electronics and fiddling dials & buttons tends to treat B&O with the same disdain that a sports-car buff has for an automatic Mercedes family car. Your typical B&O owner is more interested in music and entertainment than electronics. While he r she appreciates the unique styling, sheer quality and performance of the equipment, it is the ability to deliver at the touch of a button or even a glass plate which probably counts for more. B&0 have recognised that the hi-fi industry has made its products so complex and intimidating to the average person that he only become frustrated and confused by all the conflicting advice he receives. Visiting the hi-fi specialist can be an unnerving experience which ends up giving the prospective buyer an inferiority complex. B&0’s approach is to put all the complexity to one side. Technology is used to simplify. So, lthough B equipment has possibly the most sophisticated control systems of anyone in the industry, it is, paradoxically, probably the simplest of all to operate. Once you have a B unit in your home you become a prospect for upgrades and extensions. B were the first to bring round-the-house sound and later video which can be controlled from anywhere in the house. Called the Beolink, it first came out in l982 and it is only 10 years later that any other such systems are beginning to appear. Any B model can be extended to give quality hi-fi or video to any room in the house. It is not B po1icy to bring out new models each year.

Rather they introduce them to meet market requirements and then upgrade them when and as required. Very often existing equipment can be brought up to the latest specifications. It is also policy that all parts are fully available for 8 years after a model goes out of production. B still regularly gets calls to service equipment over 20 years old. All parts are airfreighted from Denmark. B are too small to develop original products like the CD or even the VCR. Their role is to take such products and enhance them, make them easier to use, and package them very uniquely and attractively.

A considerable proportion of B systems are sold with an older model taken as a trade-in. The quality of the products is such that they have a ready second-hand market and owner loyalty is the highest in the industry. An organisation pf just 3000 people in a very high cost country taking on the established giants of the electronics world sounds like an extreme case of wishful thinking. Band and Olufsen will tell that they think differently. They do. And it works. Do you know of any other business which has no direct competitors? Q: Identify, Understand Analyse competition and suggest appropriate competitive positioning strategies.