Bose Strategic Analysis

Bose Corporation is a privately-held American company that specializes in audio-equipment. It was founded in 1964 by Dr. Amar G. Bose, then professor of electrical engineering at the Massachusetts Institute of Technology. He decided to purchase a new stereo system and was disappointed to find that the speakers didn’t meet his expectations although the technical specifications were impressive; but it failed to reproduce the realism of a live performance. The quest for better sound was on.

Extensive research in the fields of speaker design and psychoacoustics (the human perception of sound) led to the first speaker system in 1968.

Its unprecedented approach to sound reproduction came much closer to the essence and emotional impact of live music, and won immediate acclaim. Since then, the list of major Bose innovations has continued growing. The company develops and manufactures audio equipment (including speakers, amplifiers, headphones, automotive sound systems for luxury cars), automotive suspension systems, and performs some general research.

Today, you can find Bose wherever quality sound is important.

From the Olympic games to the Sistine Chapel. From NASA space shuttles to the Japan National Theatre. In home and on the road, from large outdoor arenas to intimate neighborhood stores, restaurants and clubs, you can hear the realism of the most respected name in sound: Bose. Since Bose Corporation was founded the original philosophies and founding principles have not changed. Bose maintains an exceptionally strong commitment to research, for it is within the discipline of research that yesterday’s fiction becomes tomorrow’s reality.

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We strive to identify things which, when made better, improve people’s lives. But it’s more than just research. We aim for excellence in everything we do. From the way we run our business to our customer service. From the products to the owner’s manuals you’ll use to set them up. In everything we do, we truly believe that “good enough” is merely a starting point” While many of their products are designed for entertainment and home audio solutions, Bose sound is prevalent in both the aviation and automotive industries too.

They have also designed professional sound systems for many applications, including stadiums and auditoriums, houses of worship, retail businesses, department stores and restaurants. Today, Bose has operations in the United States, Europe, Canada, Australia, Asia and South America. Bose caters mainly to the premium/luxury segment of the consumer market. While critics argue over the price and quality of some Bose products, there is no doubt that Bose is growing and sometimes dominating certain segments of the high-end consumer audio market. 2. External analysis 2. 1.

PESTEL analysis Studying the PESTEL framework of an industry we can identify the forces, the environmental factors that affect most an organization. – LEGAL? On one hand there are new laws and taxes introduced by the government to prevent counterfeiting, which is increasing. “Counterfeiting in China has reached a crisis point” This common view is heard from many foreign executives and government officials. The problem appears to be getting worse each year: Not only is the quality of counterfeits improving, counterfeit goods are appearing in more overseas markets. ECONOMICAL? Demand is driven by consumer income. In the present time, the economic situation in the world leading countries is unstable. That is why the unemployment has increased considerably and the families have to decide between what is important and what is unnecessary; obviously the type of products we are referring here, are totally dispensable. -SOCIAL (ENVIRONMENTAL)? Environmental friendly features and practices, such as recycling and reducing electricity consumption, are expected to become key selling points as there is a growing awareness among consumers.

In the last few years especially this industry had to make some adaptations in production processes and use of particular materials, because of environmental regulations. This increased the competitive advantage of the largest manufacturers which had more financial strength to make the necessary changes. TECHNOLOGICAL ? The rate of product innovation is a very important factor too. There is a constant innovation of these types of products and companies must update their goods if they don’t want them to become obsolete. . 2. The industry The industry is, then, the AUDIO EQUIPMENT industry, which includes companies that develop and manufacture audio products for home entertainment, automotive and professional audio markets. This industry is controlled by large established companies which can be specialists or multi-industry. 2. 3. Strategic groups A strategic group is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies.

Such groups can usually be identified using two or perhaps three sets of characteristics as the bases of competition. We have chosen, on one hand, Specialists vs. Multi-industries and, on the other hand, Basic vs. Premium. Multi-industries correspond to those companies that are present in more than one industry. For example, Sony, Panasonic, Samsung (they produce not only audio equipment but video, photography, telecommunications…). Specialist companies are present only in one industry, like Bose or JBL, that only produce audio equipment.

In the other axis, we have a crescent scale from basic (Samsung, Sony…) to premium (Bang & Olufsen), which reflects a higher price because of a better quality, design… For example, we have competing in the same market Sony and Bose, but not in the same strategic group because Sony produces not only audio equipment, but telephones, TV’s, computers… and in a basic level; Nevertheless Bose, produces only audio equipment in a premium level. So they don’t belong to the same strategic group. 2. 4. Porter’s Five Forces

In this part, we are going study the Porter’s Five Forces that can help set an agenda for action on the various that they identify. First, we are going to deal with the extent of competitive rivalry. Indeed, this force is very significant, even the most important because the more competitive rivalry there is, the worse it is for incumbents within the industry. Competitive rival are organisations with similar products and services aimed at the same customer group. It is a highly concentrated industry because the 50 largest companies have almost 90 percent of overall revenue. Due to slow growth (Europe is forecast to slow to about 1. % in 2010), extreme competition in mature markets leads companies to reduce their prices to keep or increase their market share, even in the premium segment. So, intense competition threatens to erode Bose’s margins and reduce its market share. We are in an industry with high fixed costs because it requires high investments in capital equipment and initial research. That is the reason why this industry tends to be highly rival. As a conclusion concerning the extent of competitive rivalry, we can say that this force is very high because success in this industry depends on brand strength, rapid new product, scale economies, and so on.

Secondly, we are going to study the threat of new entrants. This point is pretty significant because, how easy to enter the industry depends on the extent and height of barriers to entry. Barriers are the factors that need to be overcome by new entrants if they compete successfully. Many companies have already a strong position and are established on a large scale, and they have also economies of scale. So, it will be very expensive for new entrants and until they reach a similar volume they will have higher unit costs. Moreover, this scale effect is accentuated by the high investment requirement.

In fact, huge capital investment is required because we are in an industry where technology plays a significant role. Plus, knowledge permits companies already established to reduce costs and improve research and development. In fact barriers to entry also come from experience curve effects that give company already established a cost advantage thanks to the fact that they learnt how to do things more efficiently than an inexperienced new entrant could possibly do. However, the only threat comes from large established companies in the consumers electronics sector that might enter new segments.

In fact, increasing competition between companies such as Sony or Samsung, which are present in the mass market consumer electronics, represents a threat for Bose. So, for these reasons, we can say that threat of new entrants is not a very big issue because large scale is necessary and therefore large capital investments are required. Thirdly, it cannot be denied that customers are essential for the survival of any business, that’s why we are going to see the power of buyers and there can be made a distinction between two kind of buyers: the retailers on one hand and the end user on the other.

We are going to begin with the retailers. In fact, they are those who sell most of Bose products, that is to say they are the direct contact point to the end user. Subsequently, a good relationship is required to make sure that retailers make more efforts to sell company’s products instead of competitors’. We are in a case where buyers (retailers) can easily switch between one supplier or another. They have negotiating position and can squeeze suppliers who are desperate for their business. So companies in this industry have to face a situation where buyers have low switching costs.

Then, it is necessary to study the power of end user. We are in an industry where our end users are high end users: they ask for high quality products and services. Even though end users are willing to pay the high price, it is important to precise that demand is still driven by consumer income. So, the power of buyers become more and more important due to the fact that the retailers are operating on an international level looking for the lowest price. The fourth Porter’s force concerned the power of suppliers, that is to say we are interested in those who supply the organisation with what it needs to produce the product.

In this industry, only suppliers of raw materials such as plastic, metals suppliers have some bargaining power because most companies are vertically integrated. As supplier and consumer electronics manufacturers greatly differ, there is no threat of a forward integration from the suppliers. Indeed, suppliers have decreased power where they are not able to cut out buyers who are acting as intermediaries. Therefore, this force is not a very significant one. Finally, we are going to study the threat of substitutes.

In fact, substitutes are products or services that offer a similar benefit to an industry’s products, but by a different process. In our case, we think about other products that integrate extended functionalities and therefore represent a threat. With an increase in the number of counterfeit products being manufactured in China, Bose could faces serious threats in most of its market segments. That is the reason why we could say: counterfeit products are a threat. However, they represent a threat a less extent for premium products due to the significant difference in quality.

Indeed, by buying premium products, customers demand high quality product even though price is high. So, threat of substitutes is not very large. To conclude with the Porter’s Five Forces, here is the graph we have drawn: Extent of  competitive  rivalry 5  4  3  2  1  0 Threat of  substitutes Threat of  new entrants Power of  supliers Power of  buyers Even though the power of suppliers and the threat of substitutes are low, the intense competition and the bargaining power of buyers make this industry not attractive for new entrants.

The industry is rather attractive for large established companies as they can consolidate good profits by launching innovative products and entering fast growing markets. 2. 5. Key success factors From the potential providers’ viewpoint it is necessary to understand which features are of particular importance to a group of customers. That is the reason why we are going to study the critical success factors (CSF). In fact these CSF are those products features that are particularly valued by a group of customers and, therefore, where the organisation must excel to outperform competition.

We found interesting to choose four CSF: brand awareness, research and development, rate of product innovation and design. We are going to begin with the brand awareness that is the most significant key success factor because we are in an industry in which a brand is linked to a quality. Consumers become more and more demanding, especially in terms of quality because we are in the premium segment: people are willing to pay a higher price for higher quality. Subsequently, Bose always has to improve our brand image, our reputation.

People must totally trust the brand; it has to keep a real confident relationship with them. The second point concerns research and development. In fact, firms in this high technology industry have always to keep one thing in mind: to be up to date. So, it is a very important component because so as to survive and carry on its activity, a company need to be the first finding the new technology, to have the first the patent, and so on… The most important thing in research and development is the patents, they permits Bose to protect its research and development or to take financial advantage of it.

The element that follows now is pretty linked to the previous one. As company has to be in line with the latest technology, they have to be in line regarding the innovation too because consumer demands convenient products. Therefore, the third key success factor is the rate of product innovation and design. The last CSF is about entering fast growing markets such as Asia, more particularly China. Indeed, as Europe and America are already mature markets, entering these markets permits to increase the turnover. 3. Internal diagnosis 3. 1. Key resources and competences

Bose has the technology leadership: over the years, the company has acquired strong technical expertise in acoustics and speaker technology, which has enabled it to significantly reduce the size and improve the sound quality of standard speaker systems. In fact, Bose has acquired ground breaking technology that has permitted them to improve the sound and quality of their speaker systems. Thanks to these technological improvements, they have also been able to significantly reduce the size and weight of their products in order to make them more convenient and accessible for customers.

We are going to present through its history all the most important technologies they have created: The technology in Direct/Reflecting: the main aim was to re-create the listening experience of a live concert in people’s home. In fact, most of the sound at a live performance is reflected off walls, ceiling and floor but most standard speakers radiate sound directly into the room. This idea has lead to the discovery of the U. S. patented technology used in Direct/Reflecting® speakers.

Thanks to this technology, has born a legendary speaker in 1968: the 901®Direct/Reflecting® speaker that reflects 89% of the sound off walls, as during a live concert, for natural and lifelike sound. And in 1975, there was the creation of one of the world’s best-seller speaker: the 301®Direct/Reflecting® speaker. Indeed, this speaker had a versatile design, an attractive price and integrated Bose technology. ? In 1986, the technology in Acoustimass® allows a room-filling sound without a room full of equipment. In 1989, Bose revolutionizes flying for pilots with the first Acoustic Noise Cancelling® headset. It significantly reduces airplane noise, enabling a convenient, practical product for noise reduction. ? In 1995, the Jewel Cube® speaker permitted to get a high acoustic performance with a very small size. In fact, it competed with speakers that are many times bigger than this one. Trough all these products, we can see that Bose has really a leadership and succeeded in its innovation they created. In fact, they received many awards for its innovation, for the quality of its product.

Technology leadership has enabled the company to build a strong brand image in the marketplace and Bose is seen as a market leader in the high-end audio system market. In fact, this technology leadership has also helped it to establish them as a frontrunner in the audio systems and also allows Bose to be considered as a prestigious brand. Bose has succeeded in keeping in mind their first mission to achieve Better Sound Through Research and people are aware of that. So, thanks to this first mission they never forgot, Bose got this strong brand image.

Though, they have to keep that good image or even to improve it… That is the reason why, Bose has been recognized several times as having one of the strongest brand power, and most people are aware of the Bose audio brand and associate the name with extreme sound and quality. Moreover, to add to their brand image, Bose has also recognized in dealing with some of the most widely acclaimed automobile manufacturers in the world. More than having the technology leadership and the strong brand image, the company is present in diverse market segments.

Bose’s products include automotive systems for vehicle manufacturers, professional audio products for musicians, noise reduction for military applications, automobile suspension systems, and products for homebuilding and remodelling. Bose also take advantage of it to create synergies between its different activities by transferring technology and using its brand image of “quality”, its strong brand image. In fact, Bose has been recognized and it still continues that Bose has ? a strong market position in the home theatre department. Their new line of Acoustic Wave for home has been recognized as one of the best in the world.

Having the advantage of leading this segment is a major strength for Bose and also enables it to use this image for creating other products in other segments. His wide international presence permits Bose to strengthen the brand image, increase economies of scale, and reduce the business risk. Indeed, the company developed set up its activities in major market such as the US, Europe, Canada, Australia, South America and Asia. This wide international also increases sources of revenues and decrease its risks by having business across various geography. 3. . Financial highlights BOSE FRANCE REVENUE 2000 2001 2002 2003 2004 2005 2006 2007 2008 14 819 518 16 437 506 16 218 829 20 205 410 18 698 239 20 413 005 27 226 556 36 553 946 39 765 680 PROFIT 43 779 454 836 -130 370 100 998 25 193 594 833 408 606 869 787 1 157 091 PROFIT MARGIN (Profit/Revenue) 0,30% 2,77% -0,80% 0,50% 0,13% 2,91% 1,50% 2,38% 2,91% Bose’s revenue and profit have steadily increased overall since 2000. However, as we can see, there is a significant gap between the company’s revenues and profits, which results in low profit margins.

Low profit margins are unusual for companies producing high value added products because these products sold at a higher price are supposed to yield high margins. In Bose case, low margins can be explained by the massive investments the company makes in research and development. Even though revenues increased and cover initial costs, it is not sufficient to yield high profit margins. Bose has to either reduce costs or increase sells. According to the profit margin, we can assume that Bose is facing some problems in increasing its sales volume. 4. Conclusion: SWOT analysis STRENGTHS

WEAKNESSES ? ? ? Technology leadership Strong brand image Diverse market segments ? ? Lack of financial resources Limited distribution channels OPPORTUNITIES THREATS ? ? ? Growing Asian markets Growing digital media Economic slowdown in mature markets ? Intense competition ? Counterfeit products Strengths:
• Technology leadership: Bose is the technology leader in acoustic science. Over the years, the company acquired strong technical expertise in acoustics and speaker technology, which has enabled it to significantly reduce the size and improve the sound quality of standard speaker systems.

Moreover, it has introduced some innovative products which has established it as a clear leader.
• Strong brand image: This technology leadership has permitted the company building a strong brand image in the market.
• Diverse customer segments: The company offers a wide range of products to different costumers: vehicle manufacturers, musicians, pilots, universities and research organizations… This fact reduces considerably the business risk. Bose also develop its business in the major markets: EEUU, Europe, Canada, South America, Australia and Asia.

The extended international presence increases sources of revenues which help in reducing its business risks across various geographies. Weaknesses:
• Lack of financial resources: This is considered as a disadvantage if we compare Bose with public companies, such as Sony. Public companies can get funds from different sources, while privet companies don’t. This type of companies must be funded themselves, which put the company at a competitive disadvantage.
• Limited distribution channels: Its products are sold through retailers, via 60 Bose outlets in the United

States, and directly to consumers through the company web site (since 1999), direct mail, and newspaper and magazine advertisements. Opportunities:
• Growing Asian markets: Expanding Asian markets present an opportunity to considerably improve revenue growth of the company. In recent years, the economies of Asian countries, particularly India and China, have improved significantly; that is why a there is now a large middle class with higher disposable incomes. In India, Bose has already increased its presence from two outlets in 2000 to 22 in December 2008.

The Chinese market is also one of the fastest growing markets in the world. By improving brand awareness in China, the company could increase its revenue growth.
• Growing digital media: Due to convergence between telecommunications, media and IT the market is changing from stand-alone content and services (i. e. telephone, television, newspapers, radio) to multimedia applications and multimodal services (content delivered to various devices). Bose can take advantage of this growing demand for digital media by creating converging products, so its profitability will increase.

Economic slowdown in mature markets: US and Europe are the most important markets for Bose. Economic downturn in these two continents has caused a reduction in the costumer spending. Intense competition: Bose is facing an increasing competition in its markets segments. The company’s primary competitors in the premium audio systems market include specialists such as Bang & Olufsen, JBL and Cambridge SoundWorks. Competition is an obvious threat for the market share of a company. Counterfeit products: The electronics manufacturing industry is fighting to compete with black market.

Moreover, experts believe that counterfeiting will get worse. On the global level all counterfeit goods are expected to double to 18% of total world trade by 2010. Further, the experts also believe that counterfeiting will get worse as China’s share of global electronics production rises from 15% in 2008 to 35% by 2010. With an increase in the number of counterfeit products being manufactured in China, the company faces serious threats in most of its market segments. These products, although of poorer quality in most cases, are considerably cheaper and may affect the income of the company in the long term.

Threats:
• •
• 5. Generic strategy 5. 1. Bose strategic segments A strategic segment is an activity of the organization with enough autonomy and for which there is a distinct external market that is different from another strategic segment. Determining strategic segments is important as business-level strategies are likely to change from one strategic segment to another. Different parts of an organisation might be regarded as the same strategic segment if they are targeting the same customer base, using the same strategic capabilities and facing similar competitors.

We can identify three main strategic segments in which Bose is operating due to a changing customer base: – Premium home audio systems: home theater systems, speakers, headphones, etc. – Automotive audio systems: only available in vehicles that offer Bose sound to ensure proper integration and appropriate in-cabin acoustic adaptation. – Professional audio systems: products for musicians, noise reduction products, products for military use (Bose has contracts with the US military), etc. From now on, we will focus on the premium home audio segment because it is the most important in terms of positioning and revenue.

Bose is well-known for its high end home audio products and especially for its home theatre systems. Over the years, the company acquired a strong technical expertise in acoustics and speaker technology, which has enabled it to significantly reduce the size and improve the sound quality of standard speaker systems. Technology leadership has enabled the company to build a strong brand and become a market leader in high end audio systems market. 5. 2. Treacy and Wiersema approach Once the different strategic segments are identified, it is necessary to decide which type of generic strategy to adapt for each segment.

A generic strategy is concerned with the basis on which a business unit might achieve competitive advantage in its market. Competitive advantage is achieved by providing customers with what they want, more efficiently than competitors. Therefore, the generic strategy has to be in line with the key success factors of the market in which the business unit is operating. The key success factors are product features that are particularly valued by a group of customers and, where the company must excel to outperform competitors.

Customers have different requirement in terms of value for money. Some are primarily concerned with price while others are more concerned with quality. Bose targets primarily high-income consumers that are less price sensitive and mainly concerned with product and service quality. There are different types of generic strategies as well as different approaches to represent them. The approach adopted here is the Treacy and Wiersema approach because it fits best to explain the competitive strategy of Bose.

Treacy and Wiersema identify three bases for strategy: operational excellence, customer intimacy, and product leadership. Bose develops and manufactures innovative and high value-added products, justifying a price premium. According to the Treacy and Wiersema approach, Bose is following a product leadership strategy. This strategy implies a continuous development of innovative premium products and is based on a quick commercialization of new ideas. Research and development as well as organizational flexibility are therefore of primary importance.

Bose’s competitive strategy has several features: – Strong commitment to research: Bose invests massively in research and development to offer high quality products and keep its technology leadership. Technology leadership is essential because customers are ready to pay a price premium only if they perceive enough benefits. – Focus on innovation and design: Technology leadership enables Bose to launch innovative products and be a market leader. This “first mover” advantage permits Bose to enter new – – markets and keep high profit margins.

Design plays also an important role as customers are concerned not only with the quality of the product but also with its shape: the product has to be pleasant to look at. Premium products: Technology leadership and innovative products allows Bose to sell its products at a higher price and ensure the company with high margins. Flexible organization: Since innovation is a key success factor, imagination is essential and people within the company should be given some freedom so that ideas can be turned into projects. The company is managed as a portfolio of developing products.

Since Bose is a privately-held company, it has an another advantage over competitors in the sense the company can make long term investments even in risky projects because it does not have to answer shareholders expectations such as short-term profits. Reward success: Rewarding success is important as it keeps people motivated and encourages experiences. It is also important because it helps attracting talented people that are essential for company’s success. 6. Problems Bose is facing The United States and Europe are two key markets for Bose. These are mature markets with highincome consumers which can afford buying Bose products.

The economic slowdown in these markets since 2006 has caused reduction in consumer spending and has a negative impact on the company performance. In recent years, Bose is facing an increasing competition in the premium home audio segment not only from specialists such as Bang & Olufsen and JBL, but also from mass market consumer electronics companies such as Sony and Panasonic. As consumers feel their purchasing power is decreasing, they become more price sensitive and tend to buy up-market products from mass market companies much cheaper than premium products from specialists such as Bose.

This trend can also be explained by less perceived difference in quality by customers between up-market products and premium products. Intense competition threatens to reduce the company’s margin as Bose may be forced to decrease prices to keep its sales volume. The consumer electronics sector is struggling to compete with counterfeit goods. Companies manufacturing premium products are harshly hit by counterfeiting as people are usually looking for “high branded” products when buying counterfeits. Experts forecast counterfeiting to get worse over time, mostly due to the increase in China’s share of global electronics production.

In fact, China’s authorities are not doing much to fight counterfeiting because counterfeit products account for about 8% of China’s GDP. 7. Recommendations Sustaining differentiation-based advantage If a company seeks to build competitive advantage it must have capabilities valued by its customers. It might be achieved by having unique resources, that is, resources competitors cannot easily imitate or obtain. Bose is following a product leadership strategy and has two main unique resources: its technology (patented products) and its powerful brand of high quality products.

A market study in 2006 reported that Bose’s brand name was among the three most trusted brand names in the consumer electronics sector in the United States. Due to increasing competition, there is a need for sustaining the competitive advantage. In fact, there is little point in launching innovative products for Bose if competitors can imitate or copy them rapidly. There are several ways for Bose to sustain its differentiation-based advantage: – Ensure the imperfect mobility of capabilities that sustain differentiation: Intangible assets such as brand, image or reputation are difficult for competitors to imitate and therefore are essential to the company. These are the assets that discern the company from competitors and customers refer to when buying products. Marketing plays a key role here as promoting the unique quality of Bose products is essential to differentiate them from those of competitors and preserve the image of the company. Create difficulties of imitation: Bose can reinforce internal linkages between its resources such as technology and powerful brand by emphasizing the quality of its products due to its unique expertise in acoustics and speaker technology.

Even if competitors manage to imitate the technology used in Bose products or copy their design, consumers will still prefer Bose products due to its long-established brand associated with high quality products. Bose technology leadership linked to innovative and well-designed products as well as close relationships with retailers would ensure Bose a sustainable competitive advantage build on multiple bases of differentiation and difficult to imitate for competitors.

Developing efficient distribution channels In a rapidly changing environment, owning just unique res