Case: Steinway & Sons

Richard Brown

BA569 Advanced Strategic Management

January 27, 2016

Case: Steinway & Sons

The article recounts the long history and tradition of Steinway & Sons, the leading manufacturer of high quality pianos in the United States.  The time is 1981 and Steinway executives are faced with a decision of whether to re-introduce the company’s Model K; a 50 inch, vertical, upright piano the company had discontinued manufacturing in the 1960s into the marketplace in order to oppose competitive threats posed by Japanese manufacturers.  Leading Japanese manufacturers Yamaha and Kawai have been successful in making considerable inroads into the American market, having exported 21,700 units to the United States in 1980.  Key competitors in the U.S. were Baldwin Piano and Organ and Kimball International, but neither of the companies focused solely on piano production.  Domestic sales of pianos in the U.S. in 1980 totaled 199,636, of which 93% (185,705) were vertical uprights. Although Steinway & Sons accounted for less than 2% of overall piano sales in the U.S., they held the leading position in grand piano sales, accounting for 25% of this type in the market.  Steinway’s position in the vertical market was far less established making this undertaking a formidable challenge.

Key Issues Considered

Production Capacity: All of the Steinway pianos are crafted using very little automation and current equipment used dates to the 1920s.  This is time consuming and production capacity is limited, especially when compared to the Japanese manufacturers who use assembly line techniques whenever possible.  Also, the Steinway technique required a highly skilled labor force and its artisans were aging.  Steinway tried to address this by hiring younger workers and instituting apprenticeship programs, but found this to only result in employees with highly marketable skills who left the company for other firms or start businesses of their own.

Strategic Pricing:  Japanese vertical pianos are priced from $2,155 to $4,485 while Steinway verticals start at $4,340 for the 40 inch model and a proposed price of $7,000 - $7,770 for the new 52 inch K model.  This discrepancy in pricing could severely impact sales.  Also, introduction of the Model K could take away, or cannibalize sales from the existing smaller verticals produced by Steinway and decreasing revenue of those lines.

Porter’s Five Forces Analysis

Competitive Rivalry (Medium): Competition exists from both foreign and domestic companies, but Steinway has developed long standing reputation for quality and technical excellence.

• Domestic competition: Baldwin and Kimball
• Foreign competition: Yamaha and Kawai

Supplier Power (High): Steinway relies on high quality wood products imported from Brazil (rosewood) and Africa (mahogany), as well as Sitka spruce from Alaska.

• High quality and specification in manufacturing materials
• Action components (keyboard and linkages) Pratt & Read sole domestic provider

Buyer Power (Low-Medium): The buying market is limited and negotiating power is low.  Steinway has created a niche market through its demand for quality specification excellence.

• Professional musicians
• Opera and Concert halls
• Music schools and Universities

Threat of Substitutes (Medium): Although there is no threat to grand pianos, competition does exist for vertical uprights.

• Organs
• Electric pianos

Threat of New Entrants (Low): Manufacturing pianos is a very precise art requiring high skill level and craftsmanship abilities. A huge amount of capital would be required.  A company with no piano making history would have almost no chance of making any impact.