PROTOGONIST

Erik Dejonghe, the iconoclast Senior Vice-President and chief operating officer of Barco Projection systems was in a quandary regarding a befitting riposte to an ominous product launch bulletin by a rival firm Sony.

PROBLEM/DECISION

Barco’s consternation knew no bounds when Sony announced an imminent launch of their new product, the 1270 projector series. The latest offering by Sony promised to be more advanced, claimed superior, unheard of performance and significant cost reduction to the buyers. Barco, who were caught off-guard by this pre-emptive strike by Sony, were light years away from catching up with Sony on this front, had to effect immediate changes in the wake of a significant market share washout and also to hold fort against their rival’s antics.

OPTIONS

In order to counter the impending repercussions of Sony’s new product launch, it is imperative that Barco weigh their options in terms of product and price modifications.

Pricing options: - Induce a considerable price reduction its leading model viz-a-viz the BG 400

- Play the wait and watch game.

Product options:

-Complete the portending production of its pipeline project, the BD 700. Although not at par with the 1270, it would certainly pass off as a statutatory reply to Sony’s move.

-Work on developing their proposed model, the BG 800. Arguably, the best option available to Barco, introducing this latest addition to their product line would effectively negate the threat posed by Sony. A breakneck scan speed eclipsing that of Sony’s 1270 by far (90 khz compared to 1270’s 75) and nonpareil performance would strip Sony of the benefits it seeks to gain with its fresh offering.

CRITICAL EVALUATION

HOW SONY MANAGED TO STUMP BARCO

- Capitalized on Barco’s myopic view that technology drives products. By focussing on the other aspects of marketing strategy like having an extensive distribution channel and diversification of market segments, Sony was able to grab a chunk of SOM and also generate enough revenues which it could utilize in developing new products.

- Barco concentrated more on the premium high-end products and meted out a banal treatment to the subsequent levels, which Sony was enterprising enough to pounce on on and make a mark.

BARCO’S CHIEF MISGIVING

The core issue of the entire melee at Barco is essentially due to their inadequate anticipatory skills with regards to the sensing where the market is headed and what the competitors are up to. Despite being technology-driven, this was already the third time that Barco engineers were caught of guard by Sony in the tube domain (2):

· In 1985, Sony’s 1020 projector, although slower than Barco’s projectors at the time,had a sharper focus, indicating a better quality tube.

· In 1987, Sony introduced a video projector using a new tube. Barco eventuallyincorporated this tube into its BD600 product.

· In Feburary 1989, Sony Components contacted Barco to inform them of a new 8” tube.Barco engineers decided not to incorporate the tube into the BD700 as it would require a redesign and sourcing of a new lens. Surprisingly for BPS, the 8” tube now turns out to be the key component responsible for the technical superiority of the 1270.

If Barco wants to maintain a competitive edge, they have no choice but to continuously adopt innovative technologies. Failing to do so will result in Barco being a follower rather then a technology leader.

BARCO’S PLAUSIBLE COURSE OF ACTION

- Effecting a price reduction

A predicament faced by Barco is how to respond to the price erosion that can be expected by the introduction of the Sony 1270. We delineate two opposite ends of the spectrum:

1) The 1270 is launched with a price of $20,000

The margin contribution of the BG400 is 29%, indicating that the cost to produce is $17,040. These margins do allow for a certain, albeit limited price reduction. In case the price of the BG400 is maintained (resulting in an estimated market shareloss of 30%), the total profit will still be higher compared to a reduction in price of theBG 400 to $21,000 (Refer to annexure).

2) The 1270 is launched with a price of $15,000

If the price of the BG400 is maintained, leading to an estimated market share loss of 60%, the total profit will still be higher compared to a reduction in price of the BG 400 to $19800 (annexure). Obviously, in case Barco sells the BG400 at a cost ($17,040), there will be low profit.

It is evident that Barco in any case would optimise profit by maintaining current price levels of the BG400, even taking into account that this could reduce market share by up to 60%.

- LINGER AND SIT TIGHT

Although a potential blockbuster, the Sony 1270 is yet to be launched and it is too early to predict how it performs, how the consumers react it and the acceptance it garners from the market. Avoiding a knee-jerk reaction and deferring the decisions would enable Barco to have a clearer picture and mould their strategies accordingly.

However, a gospel truth Barco should realize is that it can never compete with Sony on the price wars front. Barco has always been a high-end, premium product company and Sony a low-end, diversified one. A reduction in price will prompt Sony to reduce their prices further, erding the profits further.Due to economies of scale, Sony leverage to lower prices is greater than that of Barco.

- Introducing the product in the pipeline, the BD 700

Barco can either proceed with the launch of BD 700 or can even strive to develop an advance version of the BD700, the BG700, hoping that it will be launched on time to compete with Sony’s 1270. Moreover there were robust profitability forecasts of $ 4.3 million and orders had already started puring in for which commitments too been promised.

However, even if Barco mangges to achieve this feat, it will not yield the desirable results since it cannot out perform Sony 1270 in terms of the performance.

- Proceed to developing the advanced model the BG 800 .

Implementing this measure would entail a considerable allocation of resources and corporate assets. This would yield several benefits to the company. Besides taking out the threat of market annihilation, an effective launch would cement the company’s reputation of being ingenuous when it comes to technology. A sound establishment of the new product will also provide a leeway for Barco to diversy on the market segmentation front, by diverting the other leading products to the non-premium segment of the projectors market.

However, estimates reveal a bleak chance of this option being actually evinced. The General Manager of BPS, Frans Claerbout himself accorded the development of this product a probability of 40%. The company would be stretched at all fronts if this product has to see the light of the day in the given time limit. Moreover, proceeding with this product would entail postponing the production of BD 700, for which orders had been taken and production process had been initiated. A deferment would not augur well for the company in terms of customer dissatisfaction and marred reputation.

PROPOSITIONS

1. Relentlessly pursuit the development and timely launch of the advanced model BG 800. This particular model was conceived as a future option, an avenue which Barco would explore eventually in the course of time. However it now has an incentive to prepone their plans and concentrate their efforts and resources into realizing a simultaneous launch of this product with Sony’s 1270.

2. Shift the company focus from being product-oriented to market-oriented. Even a niche player like Barco has to make product development decisions based on market information

3. A key factor for Sony’s remarkable success is their focus on low end products, as opposed to Barco’s high end objectives. The latter should pay attention to this market and concentrate on diversification and launch brand proliferation. They can make a brand to focus on volume and low price

4. Explore emerging markets like Asia. This region has witnessed a tremendous growth of 18%, which should spur barco to extend their scope in these lucrative markets as well.

5. Apart from adhering to their catering products for niche market , it is imperative that Barco continue to devote commitment to research and development to retain top quality products and their market leadership. They should undertake a continuous & systematic scouting for new technological developments with the aim of incorporating such innovation in Barco’s end products. Barco should not rely on outside source for raw materials but instead develop most of it in-house. In lieu of this requirement an immediate measure to reckon with is that they find more providers of tubes, not just Sony.

6. Yet another key factor for Sony’s stupendous success is their elaborate distribution system. Sony dispersed their products through an adroit network of captive commercial distributors aided by 1500 dealers as opposed to 45 distributors and 400 dealers of Barco. In U.S alone, Sony had 500 dealers compared to BPS’ 100. Morever Sony’s proclivity towards box dealers and their extensive coverage abetted low street prices for its projectors and also higher sales volumes. This should be a cue for Barco to rev up their distribution channel as well which at present is inadequate.

7. Yet another critical factor which Barco would require to sustain their ascendancy in the projectors market is to perform efficient environment and competitor scanning to stay ahead in the race. This would certainly ensure that Barco is not caught off guard again by competitor’s strategies.

8. A major drawback of Barco projectors are their complexities and specifications. It would be handy for Barco to make their products more user-friendly.

Continuous & systematic scouting for new technological developments with the aimof incorporating such innovation in Barco’s end products.