Anton Hartmann Qlesen

In 1983 Bang & Olufsen, a .small Danish manufacturer of stylish consumer electronics products, had to make a double-or-quits decision. Should it try to penetrate the German market further or get out altogether? If it was to stay in, how was it to gain the market share it needed?

The company's German operation, based in Hamburg, had so far been unable to make much impression on the huge German market. Over the last five years, sales had grown by less than 3 per cent and the financial results were poor. The only way to motivate the dealer base had been a series of expensive special offers: 'this week's special offer', 'buy 1 (i and pay for 8', or 'buy now and. we will offer you terms of payment of 120 days, better than anyone else in the market'.

Relationships with Bang & Olut'sen's 450 dealers were difficult. Bang & Ohifsen's turnover in the individual shops was so small that it did not matter to the dealer. Also, since turnover on the German market accounted for only 3 per cent of Bang & Olufsen's turnover in the Danish parent company, the German market was not significant to Bang & Olufsen either. Several other markets looked more attractive than Germany. The United States, Canada and Japan showed high growth and, due to the high value of the dollar, they also looked very profitable. The question often came up: 'Should Bang & Olufsen concentrate on selling in the most profitable markets and close the German subsidiary? Alternatively, should it re-establish and reposition the brand following a new marketing strategy?'

Until 1983 the company had had little experience of selling outside Denmark. The sales organization looked very professional with sales subsidiaries in the United States, Japan and every country in Europe. However, there were problems beneath the surface. Almost all subsidiaries were acquired as bankrupt agents. These agents could no longer handle the changed distribution systems. Everywhere in Europe there was a shift from specialized, selective radio and TV dealer-network to the very competitive and hard-selling mass distributors. Bang & Olufseu had traditionally used a push strategy that focused on getting retailers to stock Bang & Olufsen's products. Once displayed, the consumers would buy Bang & Olufsen's distinctively designed consumer electronics.

! Horning. l)umn;irk

The international sales organization was large but ill-defined. There was no common communication strategy, no distribution development strategy, no common approach to training and no corporate image strategy. As a result, each country developed its own strategy and they became a series of independent 'kingdoms'.

Under New Management

In early 1984 a new management team started analyzing the situation. The new managing director faced several problems, and one of the most serious problems was on Bang & Olufsen's doorstep. Germany is one of the world's largest markets for consumer electronics and, like Denmark, part of the EU. Rang & Olufscn Germany had to he healthy. But, first of all:

• An overall target market h;id to be defined. Until then each of the subsidiary 'kingdoms' had defined a target group that depended on local preferences and circumstances.

• A new -marketing strategy needed formulating. The old push orientation was failing and could not resolve Bang & Olufsen's poor position in the market.

• A. new dealer base was needed to increase the quality and profitability of the operation.

• A neu- organization had to meet the demands t'rom the new marketing strategy. A move from Hamburg to Munich would signal that Bang & Glut's en Germany was part of the most dynamic, business and growth-oriented section of the country.

The 7 CIC

The changes followed t'rom Bang & Olufsen's 7 CIC (Corporate Identity Components) that defined the corporate culture and the product strategy:

1 . Authenticity. It is the company's aim to make products that guarantee faithful reproduction of programme material.

2. Autovteuedity. The company's products must provide immediate understanding of their capabilities and manner of operation.

3. Credibility. We must constantly strive towards establishing confidence in the company, its actions, dealings and products.

4. Domesticity. The products are for use by people in the home. They must: be problem-free and easy to operate - even though technically advanced. Technology is for the benefit of people - not the reverse.

5. Essentiality. The products must be concept bearing. Design must locus on the essentials of the eoneept.

6. Individuality. Bang & Ohifsen has elected to be an alternative to the mass-producing giants of the trade.

7. Inventiveness. Product development and other tasks must be inventive. New approaches to solving practical tasks should characterize the company and its products.

The Consumer Target

So far, in the whole global Bang & OKifsen operation there was no single definition of the target group, but where such definitions did exist they used traditional demographic criteria: age, sex, income, education or geographic location. Experience had proved them to be no longer valid, if they ever had been. Bang &

Olufsen saw the 1990s consumers turning away from indiscriminate consumption. They instead chose a lifestyle and arranged their possessions to fit it with great care. The pan-European soeiocultural ACE research identifies different groups ol' these people. The research divides the European population into ten homogeneous groups. The groups are of equal size, but differ sociologically and culturally.

A diamond-shaped model represents the ten segments (see Exhibit 6.1). This diagram indicates that:

• People close to the top of the diamond are vital and open-minded. They influence society and society influences them.

• People in the bottom groups focus on a secure and stable life. They are passive and will often resist change.

• The groups on the left have strong ethical anchors in life. They feel responsible for themselves and society.

• The groups on the right arc constantly trying to bring pleasure and new experience into their lives.

SoiiRCB: ACE Research,

Bang & Olufsen has selected the northern groups A, Bl and B2 as its primary target groups. They were selected because:

Their attitudes and interests are in harmony with Bang & Olufsen's philosophy. They influence public opinion compared to other groups, they are more frequent buyers of and more likely to pay high prices for audio and video products.

EXHIBIT 6.1 PAN-EUROPEAN CONSUMER GROUPS

Self-development and vitality in interaction with society.

Desire at pleasure for mean nsity.

values.

Self-development and vitality in interaction with society.

Survival, stability, status quo. Passivity or resistance to change.

Characteristically the groups are curious, open-minded and have a strong desire to learn new things. They are always changing.

The targeted groups A, Bl and B2 account for 30 per cent of Europe's total population, but only some 17 per cent in West Germany (as it then was). In contrast A, Bl and R2s make up 35 per cent of France's population and 37 per cent in Italy. This suggests that German consumers, on average, are more conservative than the French and Italians. For Germans, adjustment to change is the responsibility of institutions rather than individuals.

.A New Promotions Strategy

The limitations of the push strategy used by Bang & Olui'sen Germany showed in the low consumer awareness (10 per eent) and preference (2 per cent) for Bang & Olui'sen products by Germans in 1984. Comparable figures in Denmark were 98 per cent awareness and 48 per cent preference. The situation had to improve and could only improve. A switch from a push to a pull strategy was needed to redress the balance between consumer demand and the availability of the products. The advertising strategy was built upon four ideas:

1. Quality of advertising medium has great influence on the attention and the effect of the advertising message.

2. Activation of the main targetgroup by the careful choice of media (exclusive special magazines concerning living, design, lifestyle and so on) creates multiple purchase incentives without cannibalizing the Bang & Olufsen main target group.

3. Target group analysis and purchase motives. Main income and education levels decide the interest in the product and bear on the purchase decision.

4. Increase in awareness of Bang & Olufsen. Through advertising in higb-profile generat-intsrest magcustnes, the company would achieve a clear increase in the Bang & Olufsen awareness to an above-average level.

Marketing expenses increased from 3 to 10 per eent to support the new promotional effort - a change partly funded by cutting dealer margin from 38 to 33 per cent. We approach our main target group directly,' said Bernd D. Ehrengart, President of Bang & Olufsen Germany.

A New Dealer Base

In 1984 the dealer base was 450 individual dealers, each with a different agreement with Bang & Olufsen. Their rewards were based on their historical relationship with Bang & Olufsen's sales subsidiary rather than on the turnover and profits they generated. Their individuality was also expressed in the marketing strategy, the service performance and the price policy they offered. The sales strategy focused on transactions rather than on customer relations, a difference then unrecognized by Bang & Olufsen and the dealers.

A new strategy came under the banner: 'Mit dem Partner im Handel' (relationship marketing). The aim was to have a dealer network whose sales processes matched the quality of Bang & Olufsen's products. Dealers should project a 'perception of high quality" and 'heighten loyalty towards Bang & Ohifsen'. Each geographical sales area would have a 'long-term potential coverage plan', and each area's plan would be tracked by the national sales office, which aimed to increase quality and loyalty within the distribution network. Dedicated Bang & Olufsen displays would increase the average turnover per dealer and the share of Bang & Olufsen turnover per dealer. Each dealer would have a partnership agreement with Bang & Olufsen covering: presentation, minimum range of products, exterior identification, service/installation provision, promotional activity policies, training and minimum turnover.

Bang & Olufsen's message to its chosen dealers was:

Bang & Olufsen makes you an up-market store.

Bang & Olufsen offers unique high technology on a full range of exclusive products.

Bang & Olufeen caters for customers who want qualified guidance.

Bang & Olufsen conducts its marketing in co-operation with its specialized dealers.

A New Organization

In 1984 Bang & Olufsen Germany had 25 staff. Those worked mainly on the internal administration of stock keeping, servicing", book keeping and recording orders. The average sales per employee were Dkr452,000. The new marketing strategy required the staff to he more externally oriented, with a focus on communication, technical and sales training, distribution development, service and working" in the field implementing the new marketing strategy. More staff were needed, but increased sales per employee would more than cover their cost.

QUESTIONS

1. Distinguish between the old push and the new pull policies followed by-Bang & Olufsen. Why do you think the push strategy was not working? Is it likely that the pull strategy will increase sales significantly without making Bang & Olufsen's products more attractive to German consumers?

2. How is the new pull strategy being funded? In what way is the new strategy attractive or not attractive to distributors?

3. What compensates the retailers for having a lower margin and investing more in Bang & Olufsen's stock and display area?

4. How does the target market influence Bang & Olufsen's promotional strategy? Since there are so few of the target customers in Germany, would it pay Bang & Olufsen to target other groups in that market?

5. Would you 'double or quit' the German market? Why was Bang" & Olufsen more attracted to the United States and other markets than to Germany, and was it right in being so?

6. What is the rationale behind Bang & Olufsen's new marketing and distribution strategy for Europe? Does it seem likely that the European market segments into ten equally sized groups that are similar across all European countries? Do you think Bang & Olufsen's strategy will work in Germany?

'To open a shop is easy; to keep it open is an an.'

CONFUCIUS (PHILOSOPHER)

Salehoo Secrets and Tips

Salehoo Secrets and Tips

As with any web site, SaleHoo has a number of features that will help you in buying products from around the world. Once you have an account on SaleHoo, which only costs a one-time fee, you can establish up to twenty named searches for products. After that, any time those items become available, you’ll be alerted.

Get My Free Ebook


Post a comment