Overview a 50% turnover. Barco Projection Systems (BPS)

Overview

Began in 1934, Barco
N.V was a producer of radio broadcast receivers. The company quickly developed
and grew into producing broadcast monitors and professional video equipment,
which targets the industrial market instead of the consumer market. Barco is
committed to be a leader in various types of distinct, but necessary niche markets.
They only enter markets if they are convinced that they can be one of the top
manufacturers. The company is also very dedicated to its R&D and they want
to constantly finetune their products and technology so that they offer the
best quality. With global expansion on their minds combined with the above
characteristics, Barco N.V became one of the top three manufacturers worldwide
for each of its division (automated production control systems, graphic arts,
computer-aided design, and industrial production), with a 50% turnover.

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Barco Projection
Systems (BPS) was formed in the 1980s to chase the evolution of video
projection. BPS grew rapidly and was the second largest division within Barco
N.V with a turnover that represents 23% of the whole company. The division
designed, manufactured, and marketed video projectors for the industrial
market.

Case Overview

In August 1989, BPS
was taken by surprise when their supplier and competitor Sony Corporations announced
an industry-changing projector called 1270 to be introduced at the upcoming
Infocomm, which is the industry’s most important trade show. The product will
seize first place from BPS’ BG400 as the highest-performing projector in the
industry, and it will be priced 20% – 40% lower than the market price. This
threat will very likely disturb BPS’ traditional market segmentation, and force
industry prices to drop to indefensible levels. Barco’s senior vice president
Dejonghe predicts that BPS would lose as much as 75% in revenue from its
previous projected 1990 earning. To respond to this situation, the company must
decide what to do with the pricing of their current projectors. They also must
choose between three options regarding the development of new projectors:
Continue development and introduce the BD700 on time in October; use advances in the research of BD700 to develop digital
graphics projector BG700; or abandon the research
of BD700 and turn attention to upgrade BG400 into BG800. The presented is
clearly a decision case where the threat of 1270 is the problem and there are
limited solutions to choose from. I will analyze BPS’ product line, SWOT,
relationship with Sony, and the three options, to provide a clear, strategically
sound solution.

 

Product Line Analysis

Barco
differentiated its product line of projectors based on scan rates, which is the
speed at which projectors can process electronic signals. BPS had three major
product lines of projectors (video, data, graphics), which played a key role in
its technological niche market. It was separated into video projectors for TV
and VCR use, data projectors for computer images use, and graphics projectors for
advanced computer-aided design and CAD/CAM systems.

The three product
lines represented different scan rates of projectors, which were designed for
specific use:

·       Video
projectors had scan rate of 16 kHz, intended for ordinary use, such as in TVs
and VCRs.

·       Data
projectors had a scan rate of 16 to 45 kHz, intended for displaying data from
personal computer to video sources.

·       Graphics
projectors had a scan rate of 16 to above 64 kHz, intended for processing
inputs from advanced computer design systems and video and data sources.

By producing
product lines with different suited uses, BPS projectors can be more suited to
various consumer needs. BPS’ strategy to search for the best possible image,
flexibility towards inputs, and increase the user friendliness of its
projectors shows commitment to specialize and tackle the projector niche
market. They constantly make advances in their technology, which shows
commitment to the industry and their customers. It intends to reach a level
where it can dominate and keep large firms out of the market. BPS quickly
became a market leader in a variety of training, entertaining, and presentation
market, with classrooms, boardrooms, airplanes, etc. all installed with Barco
projectors.

BPS’ Strengths

BPS is a
well-developed high-quality producer in the projectors industry. Its major
strengths come from its reputation and exceptional R, which helps the
division produce high performing and specialized projectors while using the
same lens and tube. The projectors’ ability to perform various scan rates helps
BPS create differentiation. This is directly related to the strong financials
of BPS, in which”

·      
Turnover from 1988 to
1989 increase from $34.7 million to $49.6 million.

·      
Net income increased 103%
from $7.7 million to $15.6 million.

This shows that
the company is showing success and growth in their sales. In terms of product
sales:

·      
Video projectors make up
20% of BPS’ gross margin

·      
Data projectors make up
51% of BPS’ gross margin

·      
Graphics projectors make
up 29% of BPS’ gross margin

 This means that the BPS is most profitable in
the data product line. However, graphics projectors have the biggest market
share for BPS (55%). In terms of expected growth, data projectors have a high
growth of 12.3%, and graphics projectors 25%. BPS also has the ambition to grow
globally, which is shown by 3 international acquisitions. Finally, the company
has exceptional service with 80% system dealers. This proves that the company
stands a significant ground in the projectors market worldwide.

BPS’ Weaknesses

·       A
major weakness of BPS is its dependency on a single supplier, which is Sony. It
depends on Sony to supply its tubes.

·       Complication
of the projectors for users. The projectors are complicated to install, and
provides inconvenience for users.

·       R&D
staffs are tied up with the development of BD700, making options for the
development of other projects very difficult.

BPS’ Opportunities

A major
opportunity for BPS would be to remove the dependency of Sony as a sole
supplier. Barco can start exploring various alternative options of suppliers
for both of their tubes and lenses. This could also be an opportunity to push
BPS to advance their technology in their projectors. For example, BPS could
speed up the production and introduction of the BG800. BPS could also turn its
attention to develop a projector of similar class as 1270 for the graphics
market. Since 1270 is only targeting the data projectors market. In addition,
BPS could focus more on services and after-sales services, to compete with the
technologically advanced, and lower priced Sony 1270.

BPS’ Threats

The introduction
of Sony’s 1270 proves to be a serious threat to BPS’ market position in the
projector industry. It is predicted that it would lower 75% of BPS’ predicted
revenue in 1990. BPS thought that Sony would “respect our vision of the
marketplace”. This meant that they thought Sony would not try to overtake and
phase out the market share position of BPS. They thought that Sony would
respect the company’s vision the be a market leader and not try to disturb its
position. However, the introduction of 1270 proved them wrong and could
potentially do serious damage the sales and ultimately the market position of
BPS. Sony would get rid of its low-end mass producer image, and transform into high
quality and fair priced producer. This could throw Barco off its “quality
leader” image in the industry.

Relationship with Sony

Barco established
a rivalry and partner relationship with Sony. When Dejonghe said that Sony
would “respect our vision of the marketplace”, he believed that Sony would not
try to overtake BPS’ market position, and disturb the whole industry. He
thought that Sony would respect the fact the BPS is the projectors market
leader and would not try to overtake their position. In addition, BPS did not
think that Sony had the technology to produce a product that would surpass BPS,
and therefore, did not regard Sony as a market leader. A company will accept
the “vision” of another company when it acknowledges the other company’s
position and respect it enough to not try to overtake its position. However,
Sony is not a market follower, but an obvious market challenger that is trying
to take charge of the market. The company aims to transform their image from a
mass producer of cheap projectors to high quality fair priced producers. Therefore,
it is reasonable for Sony to not accept BPS’ vision.

It is BPS’ fault
for the surprise attack of Sony. Barco was too innocent in a competitive
business world. The company has a weak market intelligence and marketing plan
that fails to react to strategically emergency situations such as the
introduction of 1270. In addition, BPS’ tubes were solely supplied by Sony, and
they should have known that Sony has the technology to produce advanced
technology. Especially after knowing about the 8″ tubes. The company should
have done better in developing a plan beforehand that deals with predicting and
reacting to potential competitor threats instead of trusting Sony (who is a
competitor) to “respect their vision of the marketplace.” Instead of being
proactive in looking for constant threats and improving to deal with the
threats, they were reactive and faced consequences.

 Evaluation of Option 1: Continue development and
introduce the BD700 on time

The BD700 is new data
projector that has a higher scanning frequency and generator. This projector
would be preferred over current data projectors and is expected to be introduced
by October. The product’s projected sales are supposed to increase 25% compared
to BD600. German distributors have already placed orders for the product. By
introducing BD700 on time (before Infocomm), it would give the company a time
frame edge of capturing market share before the release of Sony’s 1270. Since
new products tend to excite consumers, the early introduction of BD700 would
potentially be sought after. However, the BD700 does not contain major
improvements and 1270 will be significantly better (price and product), which
might phase out BD700 and its previous development efforts and expenses.

Evaluation of Option 2: Use advances in
the research of BD700 to develop digital graphics projector BG700

BPS could use the
progress from BD700 and develop BG700, which is a graphics projector. By
focusing on a completely different product line, BPS would not have to compete
head to head with Sony’s 1270. BPS could capture sales from the graphics
product line to compensate for the loss of the data product line. However, the
delay of BD700 would mean that the orders from the German distributors would
not be fulfilled. The change of path would also affect the morale of the
R&D team. In addition, without the 8″ tube, the product would still be
inferior to Sony’s 1270.

Evaluation of Option 3:  Abandon the research of BD700 and turn attention to
upgrade BG400 into BG800

Using Sony 1270’s
8″ tube, the BG400 could be upgraded to BG800, which would surpass 1270.
However, this is not a logical idea because there are too many risks involved.
New lenses would have to be sourced from Fujinon, without guaranteeing that
they would supply. There is only a 40% chance of introducing the product before
Infocomm date. It would require 80 person months to complete the upgrade,
putting all emphasis on the product and halting other projects. This would
damage employee morale, and have to require employees to work overtime with no
vacation breaks. In addition, orders for the BD700 would have to be canceled
which would damage the relationship between Barco and the distributors.

Recommendation

After
analyzing the three options, I believe that the first option of continuing the
development of BD700 is the soundest. This is because introducing the BD700
before the Infocomm date and the introduction of 1270 allows BPS to capture
market share for the data projectors segment. Consumers are generally excited
about new products, and the new BD700 would most likely be popular in the
beginning. Since the performance and price of any projector won’t match 1270’s,
it would be smart to “steal” sales from Sony first, by introducing a new
product. By capturing as many sales as possible, it would also damage 1270’s
market share because the projectors are a relatively expensive product that
would not be purchased too often. Once consumers buy the new BD700, the chances
of them disposing the BD700 and buying 1270 would be a slim one, even if it is
better and cheaper. In addition, this option would satisfy the distributors who
have ordered the BD700, and protect the morale of the employees. To gain a further
advantage of the situation, BPS should try to improve after-sales service
having a longer warranty, so the gap between the BD700 and 1270 could be
closer. By releasing the BD700 on time, Barco fulfills the present sales
objective. However, it should immediately turn its attention towards the BG800.
Having superior technology against 1270 is the long-term solution to capture
customer value and gain market position. In addition, the graphics segment has
the highest potential growth in the projectors industry. Therefore, by
releasing the BD700 on time, Barco can fulfill its short-term goals and focus
on being a niche specialist in the long-term, more profitable, graphics segment.

Pricing
Solution

The company had to
decide on the pricing options of it current projectors BG400 and BD600. Many
distributors from around the world are calling to have prices lowered to
compete with the potential low price of 1270. However:

·       Lowering
prices might cause a price-war, which BPS would not be able to sustain.

·       Barco
has a reputation for providing high-quality products, and that reflects in
their prices. If BPS lowers the price to match 1270’s, consumers might think
that the quality of BPS is not as good, and the differentiation of BPS would
disappear.

·       Low
price of 1270 is only a rumour but not a confirmed fact.

Therefore, there
is no need to panic and lower prices. However, on top of keeping prices the
same, Barco should be ready to provide additional and improved after-sales
services in case the low price of 1270 is true. By providing exceptional
after-sales services, Barco could further differentiate itself in the high-end
category and capitalize on the weakness of Sony’s poor service.

 

 

Conclusion

·       Customers
value the products of Barco, so keeping prices the same would be the best
option for Barco right now

·       First
option of continuing the development of BD700 is the soundest because it allows
the early disbursement of BD700 to capture market share, and allow BPS to focus
on BG800 right afterward.

·       Barco
should look for alternative suppliers and perhaps supply their own tubes and
lenses

·       Barco
should focus on improving market intelligence, and obtain competitor
information, so they can develop a strategy for competitive threats.

·       Continue
innovation and targeting the graphics projector segment, will allow BPS to grow
and surpass Sony

·       BPS
should add additional after-sales services to further differentiate and capture
customer value