Case most direct competitor Sony. A subsidiary
CaseType: Decision BasedBarcoProjection Systems (BPS) could decide from several different options regardinghow to deal with a competitors more superior and cost efficient product. Problem:BarcoProjection Systems (BPS) faced a serious problem when a large percentage oftheir market share was at risk of potentially being compromised. When a rivalcompany Sony, launched a product that could become an industry leader, BPS waschallenged to respond effectively without stopping the progress of their owngrowing business. SWOT analysis for Barco Projection Systems Strengths:BPSis one of the top market leaders in the “projector” industry.
They specificallytarget and manufacture superior projectors in niche markets, maintaining an exceptionalreputation for producing high quality products. Additionally, BPS stands outfrom other industry leaders by their dedication to Research and Development(R&D). In fact, BPS is so dedicated to improving their products that theyuse about 15% of their total employees and 8-10% of their annual turnover, justto perfect their R&D system.
On a similar note, the BPS projectors scanrate was an industry leader before the production of the Sony 1270.Particularly, the BG400 was 64KHz which was the highest scan rate to ever belaunched in the market. All other components of the projectors were positivelyaffected by the high scan rate, securing BPS as the leader in projectorbrightness, picture resolution and quality. The following include additional general strengthsBPS portrays:· Leading manufacturer ofprojectors.· Efficiently segmentedtheir products based on performance and price. Weakness: Themost critical weakness is that BPS is much reliant on its most directcompetitor Sony. A subsidiary of Sony, Sony Components, supplies BPS withcrucial component to complete a high quality projector; the picture tube.
Bydepending on Sony and not attempting to make innovations on the picture tubethemselves, BPS has involved themselves in a vulnerable position. Anotherweakness that diminishes the progress of BPS is that their price isconsiderably higher in comparison to some of their competitors. Although onecould argue that a premium price could be considered a strength, BPS knows first-handthat if someone were to replicate or even perfect the quality of theirprojectors at a lower price, they risk losing a large percentage of theirmarket share. Evidently, Dejonghe calculated that BPS stood to lose as much as75% of its forecasted 1990 profits after the launch of the Sony 1270. The following include additional general weaknessesBPS portrays:· Very limited amount of boxdealers.
· Very complex and not asuser friendly as competitors. Opportunities: BPShas achieved full growth as a business, however, BPS has already experiencedmost of their opportunities to expand further. That being said, Sony hasfocused all of its energy on perfecting and developing only one of theirproducts; the projector. This posed an opportunity for BPS to enter anddominate the almost untouched graphics sector. BPS has already manufacturedproducts that deal with graphics but if they invest their capital intoexpanding, it has the potential to be a great new source of revenue. BPS coulduse their relationship with Sony to its benefit.
Specifically, a collaborationwith Sony could be an opportunity for BPS to save money and reduce the cost ofparts. The following include other general opportunitiesBPS portray: · Sony has decided to targetonly specific areas across the world. This could be an opportunity for BPS asthey can invest more time and capital into the barely-touched internationalmarkets. It is possible that that BPS could be significant market leaders if the company sought to expand itsinternational presence in sales, product development, and production.· This can assist BPS in its expansion withinthe international market with respect product development, sales andproduction. (“3 Elements BPS Strategy”, 1980)· At the time, the wholeworld was slowly shifting into the technological era.
With the capital andreputation BPS holds, they have the opportunity to take this multi-nationalcompany to whole new level. Threats: Allthreats that could have a negative impact on BPS revolve around Sony. It isclear that Sony is such a powerful force as they have an abundancy of dealersall over the globe. The more Sony perfects their distribution process andexpands their resources, the bigger the threat it poses on BPS. The Sony 1270rumoured to be priced less than BPS’s BG400 can likely threaten its marketshare so significantly that they could potentially lose their title as anindustry leader in projectors. The fact that the innovation of the wholeindustry relies on the supply of Sony is a compelling threat to the solesurvival of Barco. The following are other general threats for BPS: · Economic depression:Fairly simple, if the economy fails, large companies including BPS can bedrastically impacted negatively.
· Consumer demands: Theneeds and wants of consumers can change in a matter of minutes. BPS reliessolely on the consumer, and if their products become irrelevant to the dailyconsumer, it can be a serious threat to the success of Barco. Porters 5 Forces Suppliers Bargaining Power:· Very high bargaining powerfor suppliers: If a supplier can innovate the industry by selling products noone else has, they immediately have the power to dictate prices. · This industry inparticular survives on a scarcity of particular components to manufacture ahigh quality projector. Sony Components, for example, are the sole qualitysupplier for tubes. Their competitors like Electrohome and NEC are also forcedto purchase parts from them. · The market itself consistswith a small number of large players.
This directly correlates with why thesupplier bargaining power is at a high. Buyers Bargaining Power:· Low-medium bargainingpower for buyers: In terms of where to buy components from, buyers are verylimited. · The fact that buyersthemselves depend significantly on suppliers in order to keep up with demand,puts them in a very difficult position.
Threat-of-Substitute: · Low threat of substitute:The market in this particular industry is very unsaturated. Specifically, sinceprices are so high for each product, the products are not very well defused(distributed) within the market. · The only companies thatcan replicate the product are the ones already well indulged into the industry,and they can only cause little harm to the other industry leaders.
Threat of New entrants:· The threat of a newentrants is very low: Due to high startup costs and high economies-of-scale, itis very difficult for new companies to enter this industry.· Highly consolidated market:For the most part, there is not enough space for new competitors, unless theyhave the capital to enter. · Companies within thisindustry have already perfected their R systems, for a new company toeffectively compete with them, they would require years of rebuilding. Industry Rivalry: · The industry rivalry is extremely high: With each marketleader attempting to use their resources to create a product that canoutperform its competitor, the industry rivalry is very high. · It is assumed that each market player is actively attemptingto innovate and eventually manufacture a better product using new technology. Product Line Strategy & PriceBPS’sproduct line strategy is very simple and has been outlined and enforced sincethe early stages of their business. They attempted to segment the entireindustry of graphics and projectors based on their products scan rate and price.They began this journey in 1981, when they revolutionized the projectorindustry by being the first to display a motion picture on a plane.
In additionto segmenting the market, they slowly began to target a specific niche ofconsumers. By increasing the technology and complexity of their products, theyisolated themselves from their competition, and created an appeal to “tech-savvy”consumers. Once they realized they had gained a significant amount of marketshare, they began to investigate an application for their products. BPS couldinitially downgrade their technology and target a more broad and largerdemographic. However, this could prove to generate consequences for BPS as theywould have shifted from a blue to a red ocean market.
On the other hand, BPScould potentially upgrade their technology and develop a higher performancevideo projector. By doing this, they can sell each individual product for ahigher price. However, this does not necessarily mean BPS would generate morerevenue. By narrowing down their market further, their target demographic wouldbe very small in comparison to their competitors. Overall, their best solutionwas to continue to do what they have been doing. However, they must focus oncontinuing to enter untouched markets.
By applying their application forprojectors into new markets, BPS has generated a new stream of revenue, hastargeted more consumers and still maintained their niche market strategy.Specifically, in 1983 their ratio of division of sales were 80%-20% in favourof TV’s over projectors. Dejonghe stated that he would reverse that ratio becausethe complexity of projectors will assist BPS in outperforming competitors. BPStook action on this statement by releasing the Barco Delta 1 (BD1), the firstever computer compatible projector, sold for $13,500 and capable of a 18KHzscan rate. With the success of the BD1, in 1984 BPS released the BV2 which wassold for $9,875 and the BD2 $14,750. BPS’s strategy was to have a minimum of onetype of projector to fit each of the different consumer needs. In 1989, Barcoreleased the BG400, the most powerful projector interns of scanning, brightnessand picture resolution. It produced an industry leading 72KHz and was sold at$25,000.
Barco projection systems planned on releasing the BD700 at the end ofOctober 1989 but Sony released the 1270; a more powerful and superiorprojector, rumoured to be sold at a more reasonable price than BPS’s. Product Development and Price (Cont…):Sonysurprised the world and BPS when they launched the 1270. With higherperformance and cost efficient prices, Sony threatened to collapse thetraditional market segmentation and lower prices to unbeatable levels. If notacted on effectively, this launch could potentially lose BPS’s majority marketshare and an estimated 75% of profits in the next year. Due to this, BPS nowmust revisit the basics and develop new pricing and product strategies. BPScurrently has only three options: 1.
BPS could continueoperating as planned and introduce the BD700 in that year (1989). Immediateproduction of BPS’s first ever digital model was expected to increase salesfrom the current year to the next period by 25%. The BD700 incorporated animproved generator and scanning rate of 64KHz. It would price at $16,000,making it the highest value projector BPS has ever produced. This seems like aviable option as 180 man-months have already been utilized in the production ofthe BD700. To instill customer satisfaction and maintain a high moral amongworkers, it is vital to complete this operation. On the contrary, the company’sreputation could be hurt as they would be unable to outperform the 1270 by thetime of the trade show. BPS would be forced to live in a market dictated bySony’s prices.
Due to economics of scale, Sony’s leverage to charge lowerprices is greater than BPS’s. BPS will lose its brand image and it will have toadapt to the new market segmentation forced by Sony. 2. If BPS is willing to go inanother direction, they could use the advances already made in the developmentof BD700 as a base to enhance and create the innovative digital graphicsprojector, BG700. The final goal of the BG700 would be to incorporate as manyparts from the BD700, with the exception of matching the high scanningfrequency associated with the 1270. Dejonghe estimated that his engineers couldhave this high performance graphics version ready for shipment within two tothree months. Unfortunately, this would postpone the process of a new BPSprojector until late December. This would affect customer relations with allconsumers, particularly with those who pre-ordered the product.
This would hurtthe company’s reputation and the BG700 would technically still be inferior tothe 1270 interns of size, picture resolution and light output. 3. The third and final optionBPS had was to look to the future development of the BG800. A digitalizedupgrade to the BG400, built and designed to withstand the 1270’s performance.It would take a lot of time, effort and capital to equip the BG800 with atleast a 90KHz scan rate. In order to reach these performance requirements, BPSwould need to purchase and use the Sony 8″ tube. This particular tube requiresa special lens that only one company “Fujion” produces.
Dejonghe was unsure ifFujion would supply both Sony and BPS as it would cause a conflict ofinterests. If in fact BPS managed to surpass these barriers, it is estimatedthat the BG800 would require at least 80 person-months. In order to meet thedeadline of the “Infocomm” trade show, BPS would need to place a hold on allother orders from October 1st onwards. This again, would limit thesource of revenue for BPS and ruin relationships with consumers. Additionally,workers of BPS have been working overtime on the BD700 since mid-summer so bystopping production, it would surly lower their moral. Effective Course of Action Theprice for the Sony 1270 is to be rumoured to be “cost efficient”. Based on thereaction of BPS plus past prices of their projectors, it is fair to assume thatthe 1270 is released at $20,000.
This will allow us to dissect any margin roomBPS has interms of price: Contributionmargin is basically the products price less all associated variable costs. Youare left with a value of incremental profit earned per each unit sold. Forexample, Table C tells us the BG400 has a marginal contribution of 29%. Thisindicates that the cost to manufacture the product is $17,040. The BG400 wassold at around $24000, in order to remain competitive, BPS should lower itsprice to roughly $18,500.
This will attract consumers while maintaining astrong profit margin. (8%)
