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Steinway & Sons
Buying a Legend (A)
Harvard Business School Case
Atul Anand
Sophomore Undergraduate
IIT (BHU) Varanasi
1. What are Steinway & Sons?
2. What are Selmer Company?
3. Who are Dana Messina and
Kyle Kirkland?
Steinway & Sons A New York based American and
German piano manufacturers famous
for their Grand Pianos running from
over 140 years.
Selmer Company Leading manufacturer of band and
orchestral instruments in the United
States of America.
Players
Dana Messina & Kyle Kirkland
Investment Bankers from Selmer Company
who began their careers at Drexel
Burnham Lambert.
HBS’87 Stanford’88
Present Situation.
Present Situation(1/5)
Steinway & Sons have initiated a mid
priced product by the name of
Boston Pianos apart from their
traditional Grand Pianos.
Present Situation(2/5)
Selmer had highly regarded brand
names associated with them like Bach
trumpets, Ludwig snare drums and
they thought Steinway pianos will be
prove to be a good association for
their company.
Present Situation(3/5) Making Steinway pianos is capital
intensive and there always remained
$75 million in inventory at any given
moment and even an expenditure of
$200,000 required negotiations with
the banks.
Present Situation(4/5)
Birminghams decided to sell the
company and after being made
aware of that, Kyle Kirkland and
Dana Messina arranged capital
to buy the company.
Present Situation(5/5) Steinway & Sons
have been taken
over by Selmer for $101.5
million leading to the birth of
Steinway Musical Instruments Inc. on
April 18, 1995.
Objectives
Objectives(1/2)
Discuss whether Steinway should
continue its niche strategy of
being world’s pre-eminent maker
of high quality vertical and grand
pianos.
Objectives(1/2)
Decide the future of recently
introduced line of
Boston Pianos.
Objectives(1/2) Does it made sense for
Steinway to sell a
mid-priced line?
Objectives(1/2) Are there any other ways to
leverage the brand
name to further enhance
revenues?
Objectives(2/2)
Assign suitable roles to Messina
and Kirkland to play in the running
of Steinway.
It was one thing to own the company;
it was something else to run it effectively.
The making of Steinway
Grand.
Time for making (1/3)
Takes two years;
one year to dry the lumber and another for
actual manufacturing.
Parts involved (2/3)
More than 12,000
individual parts are involved in a
Steinway Grand.
Process (3/3)
Reduction of moisture content in
wood from over 50% to
about 6% by heating at a
temperature of 160F for about
an year.
Process (3/3)
Individual parts are
hand-crafted in next
six months.
Process (3/3)
Bellying followed by stringing,
tone regulating and final
rubbing and polishing
required another six months.
Company Background
Background (1/3) Established in New York City in 1853 by
Henry Engelhard
Steinway.
Background (1/3) A new and larger factory was
constructed just after
seven years.
Background (1/3) This was followed by opening of
Steinway Hall in 1866
which served as New York City’s
major concert facility.
Background (1/3)
100,000th Steinway was presented to
the White House in 1903.
300,000th Steinway was presented to
the White House in 1938.
Several other milestones were achieved.
500,000th Steinway was produced in 1988.
Tradition (2/3)
Over 90% of all classical
musical concerts featuring a piano
soloist are performed on a
Steinway concert grand.
Tradition (2/3)
All Steinway are still
assembled using
hand craft techniques.
Tradition (2/3)
No two Steinway
sounds the same.
Tradition (2/3)
Steinway’s
Concert and Artist Program has a bank of pianos for use by about
850 Steinway Artists.
Tradition (2/3) Performers develop a
long relationships
with Specific pianos due to
subtle differences
in tone and feel.
Timeline (3/3)
Steinway & Sons stepped into corporate
world in 1972 when it was sold to the
CBS Musical Instruments Division
for $21 million in CBS Stock.
Timeline (3/3) The CBS Years (1972-1985)
Investments of several millions went in first few years but the Steinway
family had never invested more than
$150,000 per year.
Timeline (3/3) The CBS Years (1972-1985)
Huge investments lead to increase in sales
volumes but also increase in critics on quality.
The impact on consumer perceptions was clear.
Timeline (3/3)
In November 1984, Steinway was
again taken private for $49 million borrowed from several commercial banks.
Timeline (3/3) The Birmingham Years (1985-1995)
After the non deserving purchase,
Birminghams appointed Bruce
Stevens as the CEO and
President of Steinway & Sons.
Timeline (3/3)
Inventory was cleaned
after the pianos were re-tuned and
re-voiced.
Timeline (3/3)
Bruce went out to meet the dealers
personally to build a sense of
responsiveness from
management team.
Timeline (3/3)
Dealer network was reduced
to give the feel that the quality of
pianos was increasing.
Timeline (3/3)
Andre Watts used a Yamaha
piano for his performance to commemorate
the 25th anniversary of his debut
with the New York Philharmonic
in early 1988
Timeline (3/3)
These all critics and downturn forced Steinway to
launch new product lines.
Timeline (3/3)
Boston pianos were
introduced as a mid-priced
product of Steinway to increase
their market share in 1992.
Timeline (3/3)
Steinway Limited Editions
was sold out within hours of
purchase in both
1993 and 1995.
Timeline (3/3)
The Crown Jewel Collection was another line which captured the
market and 1995 it has 30% of
Steinway unit sales.
The purchase by Messina and Kirkland
Reason (1/3)
Birminghams can’t run the
company in Summers because
of Seasonal downturn in
demand.
Bid (2/3)
64 groups bid for Steinway
with first round closing at $75m
and 10 groups.
Bid (2/3)
10 groups were reduced to 4
and further to only Selmer with
bid increasing from $75m to
$90m and then to $100m.
Purchase (3/3)
Messina and Kirkland
bought Steinway for
$101.5m.
The Piano
Industry
Classes (1/3) Pianos comes in two types
Grand and Vertical
Strings mounted
Horizontally
Strings mounted
Vertically
540,000 60,000
Sales in 1994
Trends (2/3)
A little less than 500 concert grand
pianos were sold in 1994 with
Steinway leading at 350.
Trends (2/3)
1. People are switching from pianos to
electronic substitutes as those are available at
cheaper prices.
Trends (2/3)
2. There is a reduction of
piano makers in the market by
several folds.
Trends (2/3)
3. Emergence of Asian
manufacturers and they have captured
about 35% unit share of Verticals
and 80% unit share of Grands.
Trends (2/3) 4. Opening of new and potentially
large market in countries such as
Japan, South
Korea and China.
Competition (3/3) New piano manufacturers although a
handful of them were real threat.
Baldwin, Yamaha, Kawai,
Bösendorfer and Fazioli.
Competition (3/3)
The Used Piano Market
40 million pianos exists around the
world and each new piano sold in
US is followed by 10 used pianos exchanging hands.
Future Planning
Strategy (1/2)
Company’s aim is to increase
the number of Steinway pianos
in the market.
Strategy (1/2)
Market reach of Steinway Grands have
enhanced since Stevens introduced
Boston pianos and will definitely can
capture the market in coming years.
Strategy (1/2)
Steinway needs to make it’s
brand name flexible and easily
available to the market.
Strategy (1/2)
The line of Boston pianos can prove to
be worthy for enhancing the
revenue of the company.
Strategy (1/2)
High-end product is sold only to the
elite class of population and
because of the used piano market,
selling only high-end pianos can
subsequently take the company away
from market.
Strategy (1/2)
Revenue and brand name of
Boston pianos will contribute
positively to Steinway pianos.
Strategy (2/2)
Two roles are generally served by
the main buyers:
President and CEO
Strategy (2/2)
Face of the company is the CEO
and Kyle Kirkland having
acquainted with pianos will
serve that role better than anybody.
Strategy (2/2)
Dana Messina can serve as the
President of the
Steinway Musical Instruments Inc.
Conclusion
Conclusions (1/2)
Boston Pianos will continue along
with the traditional crafting of the
Steinway Pianos.
Conclusions (2/2)
Roles in Steinway Musical Instruments Inc.
Dana Messina : President.
Kyle Kirkland : CEO/Vice-President.