Case study steinway & sons buying a legend

Steinway & Sons

Buying A Legend

Ownership history

Established by Henry Engelhard Steinway in 1853

Bought by CBS and owned from 1972-1985

Owned by Birmingham brothers from 1985-1995

Bought by Selmer company in 1995

In April 1995 Steinway & Sons was bought

by

Dana Messina and Kyle Kirkland

for

$100 MILLION !!

For 140 years, Steinway had

reputation of building best piano in

the world but last few years were

problem

How justified was the decision for

purchasing Steinway for

$100 million ?

Steinway was the leading producer of

Vertical piano Grand piano

Favourable

conditions

In 1994 about 500 concert grand piano

were manufactured world wide with

350 Steinway pianos

bought and sold

Had a sale of $100

million in an year

There has been an increase in sale of grand and

vertical piano in traditional market

Opening of new potentially large markets Europe and America were the traditional market

The company has changed hands several

times and product quality has been a

problem. Dealers and workers were losing

faith in Steinway & Sons.

Unfavourable

conditions

The piano industry saw a down turn in

current years with global sales falling by

40 %

The main reasons being •Rise of computer as entertainment device

•Increased popularity of low budget electronic

keyboards

Despite of these unfavourable conditions

Buying Steinway showed productiveness in

the first 3 months itself

The gross profit of the two companies

combined increased from

31.6% to 33%

But only this much increase in gross profit

is not enough to justify a purchase of

$100 million!!

What decisions do they need to take to

optimize profit from Steinway and restore

its position of best producer of piano in

the market ?

The founder of Steinway advised to build

best piano possible and sell it at the lowest

price consistent with quality

Manufacturing

All Steinways were assembled by craft

method using skilled labour but without

use of assembly line technique

Volume remained small, less production,

less profit

Result

On the other hand when company was

undertaken by CBS, they took steps to

increase revenue and decrease

manufacturing cost by increasing piano

production

Profit Quality

Mass producing the Steinway original

pianos may not be beneficial because they

could be afforded by people having an

annual income excess of $100,000

Availability

to buyer

Uniqueness

and demand

Birmingham's (owners of Steinway 1985-1995)

Introduced mid-price piano

Boston piano

For purpose of revenue, Selmer company

can focus on mass production and

distribution of these pianos

And for Steinway pianos, can focus on

quality of the product and

reduction in time of production

Steinway had

Concert and artist program An artist found eligible by the company was

allowed to use concert piano for all performances

with only expense of transportation and tuning.

Marketing

Yamaha loaned pianos to music institutes

and conservatories to expose budding

artist to their brand.

One also needs to focus efforts on

distribution

The dealer

network

Personal visits with top dealers help to

build a sense of responsiveness towards

the new management team

Over extended and unfocused dealer

network often results in mismanagement

and defection of customer

Only fully committed dealers and those

whose prime product line is Steinway were

kept by Birmingham.

Many brands of piano last 40 or more

years

Used piano

market

FOR 1 new

piano

10 old piano

are

exchanged

There is an active commercial market of

used pianos

Strategies should be developed in order to

take control of these markets

There are a few piano manufacturers that

are Steinway’s potential competitor

Competition

•Yamaha

•Baldwin

•Kawai

•Faziloi

•Largest producer of piano in

the world

•Produced limited no. Of

concert grand piano with

traditional craft method

Kept close watch on Steinway in order to

duplicate or use better technology

•By 1996, sole remaining large scale

producer of piano in U.S

•Produced wide range of pianos from

inexpensive one ( manufactured in highly automated

production facility) to hand crafted concert

grand

Manufactured piano on highly automated

assembly line

•Focused on small volume-

top quality grand pianos

•Recognized as being among

the highest quality in the

industry

Purchase of Steinway & Sons done by

Messina and Kirkland

On April18, 1995

They saw Steinway as a well run company

that could benefit from their

financial expertise

Srishti Chaturvedi

Indian Institute of Technology

Kanpur

B.Tech Student