The Danish newspaper "Politiken" Thusday brought this analysis on B&O which I've translated. Hope you'll find it enlightening.
- Claus
The icon Bang & Olufsen has designed itself away from its customers
Bang and Olufsen is in trouble. This has been the case for some years now, and B&O’s latest financial statements reveals that the last 12 months has been no exception. It has since 2008 led to an extraordinary capital injection and two unplanned director replacements, so now CEO Tue Mantoni – with a history of motorcycle manufacturer Triumph – got to find a recipe for growth.
Surely, the turnover has increased by 4 percent over the past year compared to previous year and is now again marginally higher than for 15 years ago (!) - the financial year 1995/96. But improvement is due solely to B&O’s success in selling expensive car sound systems for brands like Audi, BMW, Aston Martin and Mercedes. This activity has increased by 69 percent the past year. Congratulations
with this part.
But the core activity consisting of complex TV and Audio systems actually fell by 4 percent over the past year. It shows that B & O's sale is challenged both in a long and short perspective. And to refer to the economic crisis is an explanation that doesn’t hold in practice: German Loewe – B&O's perhaps the nearest competitor – sells well. So do PPR and LVMH (the companies behind luxury brands as Gucci and Louis Vuitton) which have long recreated the sale after the crisis.
Tue Mantonis challenge is more structural. He admits indeed that the challenges are greater than he thought when he became general manager five months ago. But he also believes that the potential is larger than he originally estimated. He summarizes the situation in six challenges and three strengths.
The threats include:
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An initial unstable technological situation. It is unclear in what direction giants as Apple and Sony leads the technology.
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B & O has an obscure product portfolio. Think of the mobile phone Serene, which from the beginning could almost less than nothing.
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B & O has a hard time to get new customers - especially younger ones. B & O's expression is very much "45+" and far from the youthful enthusiasm for iPad simplicity.
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Company market orientation is weak – while internal bureaucracy is significant.
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Sales efforts are weak in the individual stores, majority of who are named B1 only sell B & O equipment. At the same time see the stores look like they have done in last 15 years.
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And finally, the B & O had too little focus in emerging economies – especially China. There is too many B1 shops in mature markets and only 24 in China. In comparison Mercedes has 300 Chinese dealers and will increase to 500.
As if that's not enough for a director depression you can add a slow product launch. Fifteen years old big sellers as BeoSound 9000 and 3200 are still on the shelves - but not much longer according to Mantoni. In addition to all this, the products are expensive. A TV costs DKK 30,000+/EUR 5.000+ and that’s a lot of money. Especially when the technology evolved changes every three years or so. Tue Mantoni is also fully aware that prices are under pressure.
The strengths that must lift the B&O's sale of five years to DKK 8-10 billion/EUR 1,1-1,3 billion are:
More specifically, Mantoni will make the average B&O salesman as good as the top third; he will focus far more on growth markets; he will launch better products recognizing that the B & O's edge over competitors has shrunk – and then he will launch a new product group with lower complexity and an expression that speaks to new – especially younger – customers.
Here we are probably at the core of B&O’s problems: Design and functionality.
Other manufacturers such as Loewe, Samsung and Sony make nice looking screens, so B & O is not as unique as previously when many homes were filled with badly designed TVs etc.
At the same time B&O has for several years developed a special expression there is more peculiar than really wonderful. In an otherwise minimalist IT time, B&O developed both male height column-shaped speakers and sculpted cone-shaped speakers with reminisces of ‘70s box speakers added some aluminium.
And an oversized iPad docking station, which must have been an early prototype that the bureaucracy in Struer just forgot to discard.
Even the most enthusiastic Radio and TV nerd will have difficulties in persuading the spouse to acquire these expensive "monsters" when there are more elegant alternatives.
And while Apple and several mobile manufacturers has simplified the use of electronic hardware, so that anybody can master them in the blink of an eye, B&O stuck in a remote advanced that it requires a medium long technical training only to utilized a few of the functions.
Tue Mantonis challenges are very clear. No matter how strong B&O's brand is or has been, the company's development department must now prove its worth. New simple products launched in large numbers and in a style that speaks to more customers than now, is what’s needed if the small niche manufacturer within five years shall reach a turnover of up to DKK 10 billion/EUR 1,3 billion as planned.
(Source: Politiken 18.08.2011. Text: Business editor Tage Otkjær. Translation: Claus Hensing)