Barco Case Harvard

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To: Eric Dejonghe From: AGSM Team 2 RE: Product & Pricing Response to Impending introduction of Sony 1270 Dear Mr. Dejonghe, Sony’s Sony’s 1270 clearly clea rly has the potential to significantly damage Barco’s profitability and market share. Our response must be a concerted product, price, and sales effort combined with a longer term strategy to reassert our advantage in the industry. industry. Our team proposes four immediate responses, and two longer term considerations for Barco that reflect the changing dynamics of the industry and our need to adapt accordingly. Immediate Responses 1) Maintain plan to roll out BD 700, and subsequently begin BG 800 development 2) Price BD 700 at $14,000 (instead of $16,000) 3) Maintain pricing on BG 400 while also signaling to the market that the BG 800 will be

released by Q2, 1990. Additionally, Additionally, provide current customers a 20% discount if they exchange their old projector for a BG 400. 4) Support channel partners (and especially systems dealers) with enhanced price protection

and buyback guarantees for the next quarter. Product, Pric Pr icin ing g & Promo Pro moti tion on : Our first two recommendations are predicated on the risk and

 potential reward of the three available product development options while recognizing the need to react to Sony’s attempt to redefine the hitherto three tiered product/price segmentation model by launching a top tier model at a t a price point that challenges the security of the second product tier. We decided against immediately developing the BG 800 because a) doing so could damage our  customer and channel relationships in the data market, b) We believe that the superiority and overall quality of the BG 800 will be crucial if we are to maintain our reputation as the leader in the

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graphics segment, and thus we cannot can not afford the potential quality pitfalls of a rushed release, and c) the likelihood that we would miss the important Infocomm d eadline anyway. Similarly, we surmised that developing the BG 700 would not be advantageous as it would still be inferior to the Sony 1270 and would force us to delay preorder deliveries. Conversely, introducing the BD 700 as scheduled sched uled would not only affirm Barco’s commitment to our customers and partners, but also help us to defend the profitable Data segment. While we intend to avoid a  price war with Sony, we must protect the Data segment by maintaining a significant enough price differential from the 1270, and hence we propose that we reduce our margin to 35% in the Data segment releasing the BD 700 for $14,000. $ 14,000. This price should be sufficient to dissuade our current Data customers from upgrading to the 1270 even if it is released at a sub $20,000 price point. A price war would be disastrous for Barco. Hence, we do not recommend an immediate reduction for the BG 400. Instead, we should leverage non price differentiators to prevent Sony from stealing a disproportionate share of this segment. In order to preempt the release of the 1270, we should announce our plans to introduce a significantly superior product by the 2nd quarter of  1990. While some erosion is unavoidable, we believe that since projectors are a durable good, many  performance oriented customers could be convinced convince d to wait for a superior product. For those unwilling or unable to wait, we propose p ropose rewarding current Barco customer’s loyalty by offering a 20% discount if they trade in their older projectors, thus offering a final price of $19,200. Place: We believe our channel partners are an important differentiator because our extensive

network of systems dealers offers more personalized service. The firm should maintain our  relationship with these partners during this difficult time by providing buyback guarantee’s and limited price protection on the BG 400 until the introduction of the BG 800. The extent of the  protection will need to be determined based on a projected inventory inven tory and sales analysis. While this may impact our short term margins, the commitment to our channel partners will help mitigate the

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impact of the 1270 in the high end graphics segment, because our higher service levels will help  protect the category from commoditization. Long Term Changes 1) Phase out reliance on Sony 2) Capitalize on untapped customer needs other than image quality in order to more effectively

segment the market and offer a differentiated product. In the longer term, Barco must find an alternative method of procuring components. compone nts. Sony’s stated intent with the 1270 renders the current arrangement untenable. Not only does Sony have the ability to hamper Barco’s production, the timing of the 1270 reflects their ability to anticipate and  preempt product launches. Barco should partner with or acquire a current supplier and invest in the R&D necessary to develop the components. compone nts. Backward integration will also allow Barco the flexibility to develop differentiated products for new or evolving segments. Finally, Finally, we must recognize that the days of a stable duopoly duopo ly in the projector market are over. In order to succeed, we must increase its customer orientation. For example, instead of ignoring calls for a more user friendly interface, we should leverage this information to further differentiate out  product line. We must also be more proactive with customer research in order to determine other   potential points of differentiation.