case study on Steinway and sons: buying a legend

1. Steinway & Sons
Buying A Legend

2. 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

3. In April 1995 Steinway & Sons was bought
by
Dana Messina and Kyle Kirkland
for
$100 MILLION !!

4. For 140 years, Steinway had
reputation of building best piano in
the world but last few years were
problem

5. How justified was the decision for
purchasing Steinway for
$100 million ?

6. Steinway was the leading producer of
Vertical pianoGrand piano
Favourable
conditions

7. In 1994 about 500 concert grand piano
were manufactured world wide with
350 Steinway pianos
bought and sold

8. Had a sale of $100
million in an year

9. There has been an increase in sale of grand and
vertical piano in traditional market

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

11. 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

12. The piano industry saw a down turn in
current years with global sales falling by
40 %

13. The main reasons being
•Rise of computer as entertainment device
•Increased popularity of low budget electronic
keyboards

14. 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%

15. But only this much increase in gross profit
is not enough to justify a purchase of
$100 million!!

16. What decisions do they need to take to
optimize profit from Steinway and restore
its position of best producer of piano in
the market ?

17. The founder of Steinway advised to build
best piano possible and sell it at the lowest
price consistent with quality
Manufacturing

18. 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

19. 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

20. 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

21. Birmingham's (owners of Steinway 1985-1995)
Introduced mid-price piano
Boston piano

22. 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

23. 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

24. Yamaha loaned pianos to music institutes
and conservatories to expose budding
artist to their brand.

25. One also needs to focus efforts on
distribution
The dealer
network

26. Personal visits with top dealers help to
build a sense of responsiveness towards
the new management team

27. 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.

28. Many brands of piano last 40 or more
years
Used piano
market
FOR 1 new
piano
10 old piano
are
exchanged

29. There is an active commercial market of
used pianos
Strategies should be developed in order to
take control of these markets

30. There are a few piano manufacturers that
are Steinway’s potential competitor
Competition
•Yamaha
•Baldwin
•Kawai
•Faziloi

31. •Largest producer of piano in
the world
•Produced limited no. Of
concert grand piano with
traditional craft method

32. Kept close watch on Steinway in order to
duplicate or use better technology

33. •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

34. Manufactured piano on highly automated
assembly line

35. •Focused on small volume-
top quality grand pianos
•Recognized as being among
the highest quality in the
industry

36. Purchase of Steinway & Sons done by
Messina and Kirkland
On April18, 1995

37. They saw Steinway as a well run company
that could benefit from their
financial expertise

38. Srishti Chaturvedi
Indian Institute of Technology
Kanpur
B.Tech Student