Introduction 996802731

Early in 1989 Barco Projection Systems (BPS) was winning the race, with the highest scanning rate

(the main benchmark for performance in the projector industry) on the market which made them one of the top

players in this industry. In late 1989 Sony introduced the Sony 1270, which was set to both be a superior product in

terms of performance and price. BPS had limited time, about 3 months, to develop their response and display it at

the next trade show, Infocomm. While they had several projects in the pipeline, only one, the BG800, would be able

to trump Sony’s product in terms of performance, thus allowing them to regain market leadership. However this

product is not very developed and would only have a 40% chance of making Infocomm given the time restraint, I

feel that they should take on this risk and push to have the BG800 ready for Infocomm, while simultaneously

lowering their prices to reflect the new market conditions.

The Market Place

In 1989 the projector market was similar to the arms race, with manufactures continuing to escalate their

offerings as new technological advances were emerging. Replacing destructive power of missiles is the overall

performance of the projectors, whose drivers are scanning rate, brightness, and resolution. Of these, scanning rate,

measured in kilohertz (kHz), is the industry benchmark for performance and the main differentiator between

products, aside from price.

Products generally fell into three different categories: Video, Data, and Graphic. These groupings are in

order of increasing technology and price, in order of decreasing amounts of total market share, and in order of

increasing potential growth rates1. While the Video category has a large lead in terms of total units sold into the

market place, it is both the lowest growth and lowest margin market. These facts taken together have most industry

players focusing on the development of the Data and Graphics market, which show much higher potential for

growth as well as being where emerging technologies can be applied.

1 See Appendix 1
Competition

Currently Sony occupies the highest amount of total market share, with Barco coming in second. While

Sony maintains the highest overall market share, it did not have any entrants into the Graphic category2. At the time

this made Electrohome the largest competitor in this new market, though world wide it still fell to BPS. Distribution

typically went first from the manufacturer to a distributer, and finally to a dealer. Of distributers, they could be

either owned by the manufacturer, or general; dealer owned distributers typically accounted for much more sales

than those who carried multiple brands. From the distributor the projectors went to dealers, who could be divided

into box and systems dealers. Box dealers were larger vendors who could not provide the same level of post

purchase service as a systems dealers, whose expertise allow them to offer superior post purchase service as well as

additional services such as installation. Here Barco has an advantage, as the fastest growing sectors, Data and

Graphics, are also the most technologically advance, and would require the most service; since over 90% of Barco

dealers are systems dealer, their distribution is well equipped to handle the increased demand for high-tech

projectors.

Customer

Video projectors are moving towards being a commodity, as they do not require particular expertise to

operate or maintain, with prices and technology remaining fairly stagnant; a typical applications for these include

entertainment rooms at resorts. Data projectors required the ability to connect their projectors to personal computers

on top of video sources from video projectors; their applications included video conferencing or other activities

requiring a computer. Graphic projectors offered the highest performance, and the ability to connect to some more

proprietary machines such as CAD machines; they have similar uses as the video projectors, but offer a much higher

level of performance if needed, as well as the ability for use with the latest/fastest computers.

Complication

With the introduction of the Sony 1270, BPS faces a major decision ahead. While the typical benchmark

does not show much (75kHz vs 72kHz), the new Sony projector uses their new 8 inch tube (vs. a 7 inch tube used in

BPS projectors), which will allow them to have superior clarity, brightness, and resolution. These facts, combined

2 See Appendix 2
with a potentially lower price, means that the Sony 1270 will dominate the current top of the line offering from BPS,

the BG400, in every way, as well as beginning to interfere with sales of the main Data offering from BPs, the

BD600. It furthermore harms BPS’ overall positioning within the market. They had always maintained a ‘more for

more’ value position within the market place, providing superior performance at a premium. With the introduction

of the 1270, offering a ‘more for less’ value position, this severely compromises their brand equity which could hurt

sales significantly.

Alternatives

To counteract this launch BPS has to consider two factors: pricing and product development. In terms of

product development they have three possible options given the constraint of time. The first, the BD700, is an

upgrade over the BD600 and will have superior performance over any current offers in the Data segment. It will

feature 64kHz scanning rate, which is at the lower end for Graphic projectors, and is set to be priced at $16,000

which, before the introduction of the 1270, would offer superior performance at the same price as competitors

products. Out of all the alternatives it is closest to completion.3

The second option is to postpone the development of the BD700 and pursue the BG700, which would use a

similar frame to the BD700 but have enhanced capabilities, bringing into the range of Graphic projector

performance. Since it will also use the 7 inch tube it will also be inferior to the 1270 in terms of performance.

The third option is to attempt to develop the BG800 which will incorporate the 8 inch tube and offer

superior performance in comparison to the 1270. However this would require shelving the BD700 for now to

achieve completion of the BG800. Furthermore, since the development of the BG800 is still in its infancy, there is a

large chance, 60%, that the product displayed at Infocomm would be incomplete or of less than optimal quality.

BPS must also look into pricing changes to its current line of products, the BG400 and BD600. European

dealers are calling for an immediate reduction of prices in order to combat a possible large loss of market share to

the 1270, while American dealerships feel that this move would greatly weaken brand equity.

Recommendation

3 See Appendix 3
 I recommend that BPS take on the risk and pursue the BG800. This decision is favourable for many

reasons. If successful it would restore BPS to a position of market leader in terms of technology, and allow it to

successfully continue to use the ‘more for more’ selling point it has been using in the past. BPS should also aim to

use the best technology available to them, and this is the only option where the 8 inch tube is used. While it is a

risky venture, a delayed reaction in reaffirming positioning in the market place could lead to long term damages in

sales, as buyers will tend to replace projectors only every 5 years. Furthermore we found that prior to this decision

they had projected to grow their sales of Graphics projectors at 25% a year, which is far lower than the 40% growth

rate prescribed by the industry. This was a mistake in focus by BPS management early on, in developing the BD700

instead of the BG800, as they should at least attempt to maintain their leading market share in the fastest growing

market. Given that a product such as the BG800 could help to cement their hold on the Graphics market, it is a

reasonable choice to make.

With regards pricing of their current product line, I believe that these decisions can be used to mitigate

some of the harm caused by the launch of the 1270. Using kHz as a measure, in the past pricing has been very highly

correlated to the max kHz of the product4. With the introduction of the 1270 at lower prices, this line will ‘twist’

downwards, such that kHz will be valued less. This represents a shifting of segments down in pricing. Depending on

what Sony charges for the 1270, the prices of the BD600 and BG400 should shift down accordingly. As to the

pricing issue of America vs Europe, I believe that since American prices are already 15% lower than in Europe, a

substantial lowering of price such as required in Europe would not be needed in America. Rather, they could lower

their prices marginally or not at all and still maintain the market leader position. Pricing the BG400 slightly above

what the BD700 would have been provides a viable option to those who pre-ordered the BD700; it offers more

features though less ease of use at a marginally higher price.

Long Term Considerations

After completion of the BG800, BPS should continue to aim to be at the front of each of the respective

divisions with a firm ‘more for more’ strategy. Furthermore they should aim to find another supplier for the tubes, as

at any point if Sony wanted more control over the market they could immediately raise the prices of tubes, which

represents 15% of total unit cost.

4 See Appendix 4
APPENDICES

Appendix 1 – Projected Growth.

This shows the overall projected growth of the projectors market. It can be seen that the Graphics and Data segment

continues to grow while the Video segment remains stagnant.

This shows the same data as the earlier graph, but keeping the level constant and showing the percentage increase of

Data and Graphics.

Appendix 2 – Market Share

These show the relative strength of each producer in the high growth segments.

Below is the overall market position. Note that Sony, while strong in Data, are non

existant in Graphic until the release of the 1270.

Appendix 3 – Comparison of Alternatives

Alternativ Pros Cons In relation to Overall

es Sony 1270 Strategic
value

BD700 -Requires least -Does not -Inferior in - A strong

amount of establish overall performance player in the
subsequent work market Data
leadership, only - Use 7 inch tube segment
- Already have pre segment instead of 8 inch
orders – this leadership tube -Does not add
indicates demand greatly to
-Uses 7 inch brand equity
- Will be a tube
segment leader
with Graphic
levels of
performance.

BG700 -Another entry - Not a - Inferior in -A

into the growing significant performance compromise
Graphics market increase in between the
performance - Use 7 inch tube BD700 and
over the BD700, instead of 8 inch BG800, it
while delaying tube. neither adds
production to brand
times. value or is a
segment
leader.

BG800 -Would establish -Risky venture; Superior in -Would add to

segment and only a 40% performance brand equity
market leadership chance of as it
in terms of making it to maintains
performance and Infocomm technological
technology superiority
Appendix 4 – Pricing

Here we see representative market options with their price plotted against their Scanning rate. We see a very strong

correlation between the Scanning Rate and the price, shown by the R2, which measures overall fit, being very high at

97.7%. We will use this line to model consumer preferences in pricing the projectors, and use it as the ‘ideal’ value

line, with those above it being over priced, and those below representing relatively high value. Notice that the Barco

offerings tend to lie very close to the line, going in line with their ‘more for more’ strategy while still pricing it at a

point where consumers still receive value.

Here we see that line shifting depending on the price which Sony sets the 1270 (represented by the boxes) at. The

lower the set price, the more the line moves to compensate for it. If we extend our assumption, that this line is a

model of consumer preferences and represents the ideal value line, than in Europe the price of the BG400 and

BD600 should each drop from 10-15% depending on the price of the 1270. While these prices still do not represent

as strong a value proposition as Sony’s 1270 (notice how far below any of the lines they are), they will at least

maintain a similar level of value for the customer, as well as retaining BPS’ overall brand equity. These amounts

would then also fall in line with American prices, meaning that both sets of distributers can remain happy.

Appendix 5 – Projected Financials

All figures in millions of USD

Situation Base (no introduction of Sony 1270)

Video Graphic
Sales Data Sales Sales
1989 Levels 11.408 26.784 11.408
1.4% 12.3%
Projected Growth growth growth 25% growth
 Projected 1990 11.567712 30.078432 14.26

Situation Sony 1270 Priced at 20000

Video Graphic
Sales Data Sales Sales
1989 Levels 11.408 26.784 11.408
1.4%
Projected Growth growth 10% loss 30% loss
Projected 1990 11.567712 24.1056 7.9856

Situation Sony 1270 Priced at 15000

Video Graphic
Sales Data Sales Sales
1989 Levels 11.408 26.784 11.408
1.4%
Projected Growth growth 25% loss 60% loss
Projected 1990 11.567712 20.088 4.5632

Sony 1270
Sony 1270 Price Priced at
Situation Base at 20000 15000
Turnover 55.906144 43.658912 36.218912
Direct production costs 27.04421387 21.11969935 17.52065036
Total production
overhead 0.689571515 0.538508649 0.446740344
Marketing and R&D 0.062680124 0.048948932 0.040607449
Depreciation and
charges 0.008342321 0.006514788 0.00540459
Income before taxes 28.10133617 21.94524028 18.20550925

These were calculated using Exhibit 1. from the case, as well as data drawn from the case. For the base case the

growth figures were taken from Table C of the case, as well as the breakdown of total revenue, from Exhibit 1, and

breakdown of revenues, from Table C. Turnover is calculated by adding up all the individual segment revenues from

the matching situations in the preceding tables. Costs are taken as an average ratio of the last 2 years and applied to

Turnover. While this is not realistic as it assumes all costs are variable, it provides some measure of predictive

metrics to be applied. Projected growths are taken from the case in the case of the Graphic sales. Data sales

projected growth are estimated based on the amount of loss from the Graphic Sales.