Steinway & Sons

Presenters – Team 2
Zack Carpenter
Brad Dillard
Kristin Gillespie
Steven Mobley
Anthony Spencer
TABLE OF CONTENTS:

Executive Summary……………………………..………………3

History……………………………………………….………….4

Evolution of the Piano Industry……………………….………..7

Competition……………………………………………….…….9

SWOT Analysis………………………………………...………11

Conclusion…………………………………………….………..12

Works Cited……………………………………………..……...13

Steinway & Sons Team 2-Presenters Mktg 446-01 2

EXECUTIVE SUMMARY:

Statement of the Problem:

Steinway & Sons faced a declining piano market and increased competition from Asia piano

manufacturers.

Background:

In 1995 two investment bankers buy legendary piano manufacturers, Steinway & Sons for 100

million dollars. Steinway & Sons are the premier piano manufacturers in the world dominating

the high-end market. Shortly before the company changed hands Steinway & Sons began to

market an introductory line of pianos under the Boston brand name.

Discussion:

The new owners of Steinway & Sons will face a worldwide market that is in decline due to the

prevalence of electronic keyboards and other more modern forms of entertainment. Steinway &

Sons will also have to deal with increased competition from Japanese manufacturers, especially

Yamaha. The Boston brand pianos were manufactured under contract by a Japanese firm and in

no way reflected high standards associated with Steinway & Sons. The new ownership of

Steinway & Sons will have to decide whether to focus on the high-end piano market or continue

to try to tap other markets as they have began to do with the Boston line.

Recommendation:

• Scrap the Boston line and start another midline effort that focuses on the quality that

customers expect from Steinway & Sons

Steinway & Sons Team 2-Presenters Mktg 446-01 3

 • In order to counteract Yamaha’s entrance to the high-end market, begin a marketing

campaign focusing on institutions and private consumers reinforcing the ideas that a

Steinway & Sons grand piano is the piano of legends.

Introduction

For almost a century, the piano market was dominated by a single family owned

company. Steinway and Sons having been producing some of the finest musical equipment for

over 100 years, however, in recent years they lost their position as leader in the piano market.

After numerous owners and presidents, the company was sold in 1995 for $100 million. The

biggest surprise of this story is not the sales price, but who bought this household name

company, not a competitor, not a huge corporation, or even people in the music world, it was

bought by two investment bankers in their early 30s.

History

The Steinway and Sons Company was founded in New York City in 1853 by Henry

Engelhard Steinway, a German immigrant. Steinway, a cabinet maker in Germany, built his first

piano in his household kitchen. By the time he founded his company he had already built 482

pianos. Steinway quickly made a name for his company and thrived from their “technical

excellence.” Not only was it known as one of the best pianos around, the company developed

the cross stringing technique with a cast iron frame for the piano. A technique that is now

standard on all grand pianos. Over the next forty years, Steinway and six sons developed what

became the modern piano. Half of the patents developed by the Steinway Company were created

during theses first forty years. Not only were piano makers involved in this process but the “late

nineteenth-century inventions were based on emerging scientific research, including the

Steinway & Sons Team 2-Presenters Mktg 446-01 4

acoustical theories of the renowned physicist Hermann von Helmholtz (www.steinway.com).”

From then on, Steinway pianos won numerous awards and commendations for their excellent in

manufacturing and engineering. In 1867 they won the gold medal award at the Paris exhibition,

the “Grand Gold Medal of Honor,” it was the first American company ever to win this

prestigious award. From then on Steinway became the piano of choice, from royalty to the

world’s top pianist.

However, in 1972 the Steinway & Sons Company was sold to the CBS Musical

Instruments Division. It was hard option but it was finally decided that the company that had

been family owned for 120 years could no longer be a family owned business. Financial factors

lead to the sale, company owners were spread throughout the whole family, many who not

intimately involved in the company. They were only concerned about profits and were unwilling

to reinvest in their own company. After poor return on capital (only about 5%) it was decided

the best move for the owners would be to sell the company. CBS was willing to invest the

money needed to bring the company back to greatness. Steinway was sold to CBS for $21

million in CBS stock. And Henry Steinway was kept as president for 5 years to ease the move

from a family company to corporate owned business and to ensure the Steinway quality would

remain. However, CBS was unable to turn the company around. Profits did not increase as

much as hoped and criticism came regarding the drop in quality of the Steinway piano. CBS

decided to sell the company to two brothers from Boston, John and Robert Birmingham, in 1985

for $50 million.

These two brothers were not obvious buyers; neither had any experience in the music

business or even could play the piano. The new ownership was not well received, employee

morale dropped and dealers do not want to do business with company with two new owners who

Steinway & Sons Team 2-Presenters Mktg 446-01 5

had no idea what they were doing. However, the brothers did bring a new manager in, Bruce

Stevens, who actually went to the dealers to hear there concerns and figure out how to repair

their broken reputation. He published how they manufactured their pianos, so the dealers could

see for themselves the immense care and quality that went into a Steinway. He developed a

“Partnership Program” with their remaining dealers to increase their support, starting things sales

training programs, technical support, and promotional events in stores. They created Steinway

Showrooms in the store to increase sales not only for themselves but for the retailers. However,

a huge blow to their reputation came when Andre Watts choose a Yamaha grand piano for his

25th anniversary with the New York Philharmonic, even though he was a Steinway artist. It was

reported that he was tired of the poor quality of piano, poor service from Steinway dealers, and

overall lack of attention to his request. A number of prominent artist began moving too Yamaha

as their sponsor, moves that hurt Steinway sales.

Even Stevens’ positive changes could not bring financial success back the Steinway

Company. The Birmingham brothers decided to sell the company for what they stated as

“personal problems” in late 1994. Two investment bankers became interested in buying the

company; they issued a bid of $75 million to the Birmingham brothers and made it to the second

round of bids, and finally won the bidding war with a final bid of $100 million. This was not the

highest bid offered but the brothers had a good reputation after purchasing the Selmer Company

a few years prior they were viewed as the best buyer. So then the only question was could these

two young investment bankers get this once great company back in tune?

Steinway & Sons Team 2-Presenters Mktg 446-01 6

Evolution of the Piano Industry:

As told in the case, the piano industry initially contained two types of pianos. The first

type, the grand piano, had horizontally mounted strings. The second type, the vertical piano, had

vertically mounted strings. The grand piano was a larger, more expensive piano than the vertical

piano. The grand piano generally also produced a “louder and more resonant tone” (Gourville

152). Worldwide sales in 1994 were approximately 540,000 vertical and 60,000 grand pianos.

The piano industry had two main markets. The first market was the home (private) market and

made up around 90% of vertical piano sales and 80% of grand piano sales. The second market

was the institutional market which included sales to “universities, music institutes, hotels, and

performance halls” (Gourville 154). This market accounted for the rest of the sales of each type

of piano. The concert grand piano was the main product that satisfied the demand in the

institutional market. The concert grand piano, as stated in the case, “measured 9 feet in length,

costing over $50,000 and [was] reserved almost exclusively for performing artists of the highest

caliber.” In 1994, out of fewer than 500 concert grand pianos that were manufactured

worldwide, Steinway was at the head of the production accounting for 350 concert grand pianos

that were sold.

In the piano industry, there were four distinct trends. Gourville noted that the first trend

involved a sustained downturn in the piano industry. Since 1980, there was a 40% decrease in

sales worldwide. Also, in the United States, the amount of pianos that were sold in 1980, which

was 233,000 pianos, dropped to less than 100,000 pianos in 1994. Many people feel that this

decline was caused due to the growing popularity of another product, the electronic keyboard.

Keyboards had grown increasingly sophisticated and were very low-priced. By the mid-1980s,

the case study shows that many more keyboards were being sold than conventional pianos. The

Steinway & Sons Team 2-Presenters Mktg 446-01 7

second trend that Gourville points out was the consolidation of the piano manufacturing

industries in the United States and in Europe. By 1992, the number of piano manufacturers in

the United States had dropped from several hundred at the turn of the century down to only eight

piano manufacturers. The third major trend was the emergence of several Asian manufacturers

who, by the 1990s combined for 75% of global sales (Gourville 154). These companies will be

looked at further in the competition section. The fourth trend that Gourville tells us about was

the opening of new and potentially large markets. Traditionally, the United States and Western

Europe were the main markets in the piano industry. By the 1990s, newer markets were opening

up in countries such as “Japan, South Korea, and China” (Gourville 155). South Korea topped

sales in 1994 with 142,500 total vertical and grand pianos. Japan came in behind them with sales

for vertical and grand pianos totaling 90,300 and China accounted for 80,000 in sales of vertical

pianos (Gourville 155). These new markets accounted for much of the top units sold in 1994.

Steinway & Sons Team 2-Presenters Mktg 446-01 8

Competition

There are only a couple companies that can compete with Steinway & Sons in the piano

industry. These companies include: Yamaha, Kawai, Baldwin, Bosendorfer, and Fazioli.

Yamaha is a Japanese manufacturer. They not only produce piano’s they also produce

boats, motorcycles, and est. Yamaha had $1 billion dollars in piano sales which is 35% share of

the world’s piano market; this makes them the largest producer of pianos in the world. In the

past they have tend to put their focus on the vertical pianos along with some smaller grand

pianos. They had never really been known for their quality but instead for their mass production,

but in 1967 they came out with their piano called the Yamaha Conservatory CF Concert Grand.

Their sole purpose of creating this piano was to try to compete with Steinway’s well known

grand pianos. They marketed it as the “world’s finest concert grand piano”. They used

benchmarking to try to compete with Steinway. They purchased Steinway pianos in order to

allow their engineers to take apart and reassemble their pianos to try to copy their renowned

quality. They also used better materials in the production process of the CF Concert Grand.

Yamaha stated that they used the same materials that were found in the Steinway. Another

strategy they used to try to compete with Steinway was to start an artist program like the one that

Steinway incorporates. They offered their pianos to some well know artists to use in

performances around the world. Yamaha are making leaps and bounds in catching up to

Steinway in the high-end piano market.

Another Japanese company that offers us competition is Kawai. They produce about half

as many pianos as Yamaha but still offer Steinway competition. They are known for producing

good quality vertical and small grand pianos. Kawai attempted to do the same thing Yamaha did

Steinway & Sons Team 2-Presenters Mktg 446-01 9

and enter the concert grand piano market, but people criticized the quality of their product. They

said it had a good base but lacked depth.

Baldwin Piano and Organ Company is the only large scale producer of vertical and grand

pianos in the United States. They were founded in 1862 and are also the only company that

produces of high quality grand pianos in America. Baldwin is a full-line producer of pianos and

sold 20,000 in 1994.

The last two competitors are Italian based companies that put a focus on high quality

grand pianos. Instead of mass producing like the Asian competitors Bosendorfer and Fazioli,

much like Steinway, make their pianos handcrafted and high quality. Together they sold less

than 500 hundred grand pianos in 1994. This focus has worked extremely well for Bosendorfer

and Fazioli they are known as the highest quality pianos on the market.

Steinway & Sons Team 2-Presenters Mktg 446-01 10

SWOT Analysis

Strengths

• The brand name has been recognizable with music for 100 years

• Different model pianos for different kinds of people and places

• Highest quality in the piano market

• Stores in North and South America, Europe, Asia and Africa

Weaknesses

• Saturated market

• Major Competitor is their own used pianos

• Other strong music names moving in on declining market share

Opportunities

• Use name to push other music products

• Lower prices and cut in on competitors

• Have new famous composers represent Steinway

Threats

• Japanese made pianos

• Technology, rise of the electric piano

• Decline in demand

Steinway & Sons Team 2-Presenters Mktg 446-01 11

Conclusion

In conclusion Steinway & Sons is the best known name in high-end pianos.

Steinway & Sons just need to take another look at their marketing campaign. They

need to take advantage of the fact that fine artists such as Duke Ellington, Vladimir

Horowitz, Cole Porter, Arthur Rubinstein and many more use their products. When you

connect a superior product with a well known name the product is going to sell.

As for the Boston line Steinway & Son should eliminate the product all together.

They need to get their team together and start from scratch to develop the highest quality

product with their most limited resources. If they do not cut any corners and really

develop the product to last they can begin a medium budgeted piano line.

Steinway & Sons Team 2-Presenters Mktg 446-01 12

 WORKS CITED:

Gourville, John T. Lassiter, Joseph B. “Steinway & Sons: Buying a Legend (A).” Reprint in
Melvin R. Mattson: Marketing Management Case Analysis by Teams. Boston: McGraw
Hill, 2005. 147-166.

Steinway & Sons Team 2-Presenters Mktg 446-01 13