Barco Case Study Analysis 2a6760
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Case Study – Barco Projection Systems
Section C – Group 11
Barco Projection Systems Section - C Group – 11 Name Aman Srivastava Deepak Sudhakar Krishna Bajaj Prasanna Patange Richa Singh Saikiran Pollamarasetty Vivek Gupta
PGP 2011-13
Roll Number PGP2011532 PGP2011617 PGP2011696 PGP2011770 PGP2011823 PGP2011843 PGP2011944
Page 1
Case Study – Barco Projection Systems
Section C – Group 11
Porter’s Analysis of the Industry 1. Suppliers’ Bargaining Power (High) 1.1) The industry has scarcity of quality suppliers which in turn strengthens the
bargaining power of the sole quality supplier of tubes i.e. Sony (+) 1.2) The fact that a major player in the projector market is itself dependent on its competitor’s manufactured unit, indicates the high bargaining power that the buyer enjoys (+) 1.3) The market is fairly consolidated with the number of players in the market being low. Hence, the suppliers’ bargaining power may get affected (-) Overall, the suppliers’ bargaining power is high. 2. Buyers’ Bargaining Power (Medium) 2.1) Buyers have few options of projector manufactures to choose from (-) 2.2) The nature of the product is such that the switching cost is low and hence, the bargaining power of supplier is strengthened (+) 2.3) There is a possibility of price war between the competitors which would eventually help the buyers, providing them with more bargaining power (+) Overall, the buyers’ bargaining power is medium. 3.
Threat of Substitute (Low) 3.1) The industry is not threatened by any close substitute Overall, the threat of substitute in the industry is low.
4.
Threat of New Entrants (Low) 4.1) The market is highly consolidated and hence there may not be any space for new entrants (-) 4.2) Significant investment in R&D and technical expertise is required. This may amount to a barrier for entry to a new entrant (-) 4.3) However, since the switching cost is low, new players may be inclined towards entering into the market (+) Overall, the threat of new entrants in the industry is low.
Industry Rivalry (High) 5.1) The market witnesses intense competition as there is no single leader in any of the segments (-) 5.2) All players in the market are technically competent and are actively innovating with new technology to manufacture better products (-) Overall, rivalry in the industry is low. 5.
PGP 2011-13
Page 2
Case Study – Barco Projection Systems
Section C – Group 11
SWOT Analysis for Barco Projection Systems Strengths Barco, the parent company of BPS, is committed to becoming market leader in niche markets. BPS is no exception to this rule. BPS operates in the niche market of technically superior projectors and is the market leader in the graphics sector of the projector industry. Thus BPS enjoys a reputation of a well established player in its niche market. The second major strength of BPS is a strong commitment to Research and Development. 8 to 10% of Barco’s annual turnover and 15 % of its employees were dedicated to R&D. Weaknesses BPS depends too much on a division of its competitor, Sony, for an essential component (picture tube) in its projectors. There has been no product innovation in the Graphics projector segment, as BPS has not come up with a new Graphics projector for 2 years, since 1987 when it launched the BG400, which hints at complacency. BPS has failed to anticipate Sony’s ambitions and this suggests that BPS has insufficient intelligence on its competitor’s activities. Opportunities There aren’t too many opportunities for BPS at the moment. But, BPS can try to commit itself to developing a product which is as good, if not better than Sony’s and selling it at a competitive price. BPS can utilize its large R&D department to achieve this objective. Threats The most obvious threat posed to BPS as of now is Sony’s introduction of 1270 superdata projector, which might oust BPS’s BG400 from its position as the industry’s highest performing projector. It has been rumoured that Sony’s product is priced much lower (20-40%) than the market price and if this turns out to be true then BPS can expect an erosion of a significant chunk of its market share. Price Strategy for Barco Barco is facing the threat of losing a considerable market share to Sony due to the launch of 1270, a high scan rate graphics projector at a very lower price. Barco charges US$12000 for BD600 and US$24000 for BG400 as retail price. To face this new product Barco can cut its existing price by reducing its gross margin which is 59%. Sony’s 1270 shall reduce the difference between the two segments i.e. data and graphics as the new 1270 shall have features of both data and graphics projector. Thus Barco can reduce the price of the products BD600 and BG400 by a considerable amount to prevent its customer base.
PGP 2011-13
Page 3
Case Study – Barco Projection Systems
Section C – Group 11
If Barco develops its BD700 on time then it can at least pose a reply to Sony’s new 1270. Though BD700 won’t beat 1270 but still considering the current orders Barco can expect revenue of $4.3 million by being priced at $16000. If Barco goes for BG800 then due to the offering of a very high scan rate of 90 kHz it can expect high revenue in spite of maintaining high prices. This shall prevent Barco from falling in an unsustainable price cut war with Sony due to its superior features. The product BG700 if developed can be priced comparable to Sony’s 1270 as the difference is only in the standard tube, 7” in this case. Thus for some time, this product can be expected to work as a substitute for 1270. With certain technical changes the 8” square tube can also be incorporated. Product Development Pans Sony’s surprise plan to launch 1270 as a technically superior projector at a low-price has threatened both to collapse the traditional market segmentation and drop prices to unbeatable levels. So BPS was forced to revisit their product development strategies. Barco at present has 3 product development options in hand: 1. Continue with their current plan of completing and launching the BD700 in October, where 180 man-months have already been utilized. It is expected to be ready in 27 manmonths. The sales of BD700 in 1990 were expected to increase 25% in incremental sales. By September BPS’s distributer and several others had already had orders for the BD700, priced at $16,000 so it is important to complete this production both for Engineers’ and customers’ morale. But if BPS follows this route it will be unable to beat 1207’s performance at the Infocomm show. From Exhibit 5 we can see that if 1270 is priced at the higher end (20,000 $) the price per scan rate indicates that the BD700 will be a viable product. In case the price of the 1270 is at the lower end (16,000 $ or less) the BD700 would be priced higher but with inferior performance. So in long term scenario this option is unviable because Barco will be completely dependent on Sony’s pricing strategy. Due to economics of scale Sony’s leverage to charge lower prices is greater than Barco’s. Barco will lose its brand image and it will have to adapt to the new market segmentation forced by Sony. 2. The second option which is available for BPS is launching a digital graphics projector, BG700, with the advances made from the development of BD700. Developing BG700 was estimated to take two to three months by utilizing BD700’s chassis, tubes, lenses and addition of higher scanning frequency to match that of Sony’s 1270. But the development of BG700 will delay the introduction of BD700 to December and moreover, the output quality of BG700 will still be inferior to 1270. 3. As BPS has a higher market share in graphics, its third option was to work immediately towards the development of BG800 which was to be done by digitally upgrading BG400. BG800 with a scanning frequency of 90kHz and the Sony 8” tube will increase the PGP 2011-13
Page 4
Case Study – Barco Projection Systems
Section C – Group 11
performance of graphics projector which is the only product in BPS’s inventory that can match and compete with the superiority of Sony’s 1270. The only concern with this alternative is the time that would be required to complete this product. There is only a 40% chance of making the product in time for Infocomm. The Road Ahead for Barco It is in Barco’s interest to carefully analyze the distribution strategy used by Sony. Sony uses an extensive distribution network consisting of 50% box dealers, through which it also plans to sell its 1270 projector. In effect it means that Sony’s 1270 is a relatively -friendly product that doesn’t require extensive know how and installation by trained service people. This helps in bringing down the end cost of the projector. Barco should focus on developing friendly projectors and develop its base of box dealers, so as to increase sales and reduce the end price. We also know that Electrohome prices its products just below that of Barco. If a Sony style distribution strategy is adopted coupled with a -friendly product, it may help Barco to capture some market share from Electrohome and somewhat reduce the negative effect that the 1270 may potentially cause, until a comparable product can be built. Another aspect that Barco must consider is that Sony has been the leader of the lower end of the market and Barco will never be able to compete with Sony on price. Reduction in prices of current models will only lead to a price war not only with Sony but also with Electrohome. Such a scenario will disturb the status quo and can prove to be fatal for Barco, especially with the impending launch of the 1270. Considering that the 1270 is superior and expected to be cheaper than both Barco’s current portfolio and also its product under development (BD700), it makes no sense for Barco to continue to invest in developing products (BD700 or BG700) that still remain inferior to the 1270. Barco has no option but to develop a product that is either superior or at least equivalent to the 1270. There seems to be a problem with the supply of lenses for the 8” tube. Such a problem has to be resolved. If no alternate supplier can be found, it is better for Barco to pay a to Fujinon to procure the lenses. Any delay in launching BG800 can seriously damage the brand name and reputation of Barco that it has so painfully established over the years. The company must focus entirely on developing the BD800 to prevent Sony from gaining a foothold in the graphics market. In the long term, Barco must learn a few lessons from this incident. It needs to be more market driven rather than simply developing a slightly better product than its competitors. It cannot afford to take its competitors for granted no matter how well a business relationship it enjoys with them. It must also focus on t development of tubes and lenses with its suppliers to avoid incompatibility between various components. A single supplier source for components must also be avoided. Lastly, Barco must improve its marketing intelligence in order to accurately keep a tab on its competitor’s current and future plans, and avoid a situation that threatens to completely destroy its business. Diversification into other industrial electronics and into untapped markets like Asia will also help Barco to withstand future shocks like the current one. PGP 2011-13
Page 5
Section C – Group 11
Barco Projection Systems Section - C Group – 11 Name Aman Srivastava Deepak Sudhakar Krishna Bajaj Prasanna Patange Richa Singh Saikiran Pollamarasetty Vivek Gupta
PGP 2011-13
Roll Number PGP2011532 PGP2011617 PGP2011696 PGP2011770 PGP2011823 PGP2011843 PGP2011944
Page 1
Case Study – Barco Projection Systems
Section C – Group 11
Porter’s Analysis of the Industry 1. Suppliers’ Bargaining Power (High) 1.1) The industry has scarcity of quality suppliers which in turn strengthens the
bargaining power of the sole quality supplier of tubes i.e. Sony (+) 1.2) The fact that a major player in the projector market is itself dependent on its competitor’s manufactured unit, indicates the high bargaining power that the buyer enjoys (+) 1.3) The market is fairly consolidated with the number of players in the market being low. Hence, the suppliers’ bargaining power may get affected (-) Overall, the suppliers’ bargaining power is high. 2. Buyers’ Bargaining Power (Medium) 2.1) Buyers have few options of projector manufactures to choose from (-) 2.2) The nature of the product is such that the switching cost is low and hence, the bargaining power of supplier is strengthened (+) 2.3) There is a possibility of price war between the competitors which would eventually help the buyers, providing them with more bargaining power (+) Overall, the buyers’ bargaining power is medium. 3.
Threat of Substitute (Low) 3.1) The industry is not threatened by any close substitute Overall, the threat of substitute in the industry is low.
4.
Threat of New Entrants (Low) 4.1) The market is highly consolidated and hence there may not be any space for new entrants (-) 4.2) Significant investment in R&D and technical expertise is required. This may amount to a barrier for entry to a new entrant (-) 4.3) However, since the switching cost is low, new players may be inclined towards entering into the market (+) Overall, the threat of new entrants in the industry is low.
Industry Rivalry (High) 5.1) The market witnesses intense competition as there is no single leader in any of the segments (-) 5.2) All players in the market are technically competent and are actively innovating with new technology to manufacture better products (-) Overall, rivalry in the industry is low. 5.
PGP 2011-13
Page 2
Case Study – Barco Projection Systems
Section C – Group 11
SWOT Analysis for Barco Projection Systems Strengths Barco, the parent company of BPS, is committed to becoming market leader in niche markets. BPS is no exception to this rule. BPS operates in the niche market of technically superior projectors and is the market leader in the graphics sector of the projector industry. Thus BPS enjoys a reputation of a well established player in its niche market. The second major strength of BPS is a strong commitment to Research and Development. 8 to 10% of Barco’s annual turnover and 15 % of its employees were dedicated to R&D. Weaknesses BPS depends too much on a division of its competitor, Sony, for an essential component (picture tube) in its projectors. There has been no product innovation in the Graphics projector segment, as BPS has not come up with a new Graphics projector for 2 years, since 1987 when it launched the BG400, which hints at complacency. BPS has failed to anticipate Sony’s ambitions and this suggests that BPS has insufficient intelligence on its competitor’s activities. Opportunities There aren’t too many opportunities for BPS at the moment. But, BPS can try to commit itself to developing a product which is as good, if not better than Sony’s and selling it at a competitive price. BPS can utilize its large R&D department to achieve this objective. Threats The most obvious threat posed to BPS as of now is Sony’s introduction of 1270 superdata projector, which might oust BPS’s BG400 from its position as the industry’s highest performing projector. It has been rumoured that Sony’s product is priced much lower (20-40%) than the market price and if this turns out to be true then BPS can expect an erosion of a significant chunk of its market share. Price Strategy for Barco Barco is facing the threat of losing a considerable market share to Sony due to the launch of 1270, a high scan rate graphics projector at a very lower price. Barco charges US$12000 for BD600 and US$24000 for BG400 as retail price. To face this new product Barco can cut its existing price by reducing its gross margin which is 59%. Sony’s 1270 shall reduce the difference between the two segments i.e. data and graphics as the new 1270 shall have features of both data and graphics projector. Thus Barco can reduce the price of the products BD600 and BG400 by a considerable amount to prevent its customer base.
PGP 2011-13
Page 3
Case Study – Barco Projection Systems
Section C – Group 11
If Barco develops its BD700 on time then it can at least pose a reply to Sony’s new 1270. Though BD700 won’t beat 1270 but still considering the current orders Barco can expect revenue of $4.3 million by being priced at $16000. If Barco goes for BG800 then due to the offering of a very high scan rate of 90 kHz it can expect high revenue in spite of maintaining high prices. This shall prevent Barco from falling in an unsustainable price cut war with Sony due to its superior features. The product BG700 if developed can be priced comparable to Sony’s 1270 as the difference is only in the standard tube, 7” in this case. Thus for some time, this product can be expected to work as a substitute for 1270. With certain technical changes the 8” square tube can also be incorporated. Product Development Pans Sony’s surprise plan to launch 1270 as a technically superior projector at a low-price has threatened both to collapse the traditional market segmentation and drop prices to unbeatable levels. So BPS was forced to revisit their product development strategies. Barco at present has 3 product development options in hand: 1. Continue with their current plan of completing and launching the BD700 in October, where 180 man-months have already been utilized. It is expected to be ready in 27 manmonths. The sales of BD700 in 1990 were expected to increase 25% in incremental sales. By September BPS’s distributer and several others had already had orders for the BD700, priced at $16,000 so it is important to complete this production both for Engineers’ and customers’ morale. But if BPS follows this route it will be unable to beat 1207’s performance at the Infocomm show. From Exhibit 5 we can see that if 1270 is priced at the higher end (20,000 $) the price per scan rate indicates that the BD700 will be a viable product. In case the price of the 1270 is at the lower end (16,000 $ or less) the BD700 would be priced higher but with inferior performance. So in long term scenario this option is unviable because Barco will be completely dependent on Sony’s pricing strategy. Due to economics of scale Sony’s leverage to charge lower prices is greater than Barco’s. Barco will lose its brand image and it will have to adapt to the new market segmentation forced by Sony. 2. The second option which is available for BPS is launching a digital graphics projector, BG700, with the advances made from the development of BD700. Developing BG700 was estimated to take two to three months by utilizing BD700’s chassis, tubes, lenses and addition of higher scanning frequency to match that of Sony’s 1270. But the development of BG700 will delay the introduction of BD700 to December and moreover, the output quality of BG700 will still be inferior to 1270. 3. As BPS has a higher market share in graphics, its third option was to work immediately towards the development of BG800 which was to be done by digitally upgrading BG400. BG800 with a scanning frequency of 90kHz and the Sony 8” tube will increase the PGP 2011-13
Page 4
Case Study – Barco Projection Systems
Section C – Group 11
performance of graphics projector which is the only product in BPS’s inventory that can match and compete with the superiority of Sony’s 1270. The only concern with this alternative is the time that would be required to complete this product. There is only a 40% chance of making the product in time for Infocomm. The Road Ahead for Barco It is in Barco’s interest to carefully analyze the distribution strategy used by Sony. Sony uses an extensive distribution network consisting of 50% box dealers, through which it also plans to sell its 1270 projector. In effect it means that Sony’s 1270 is a relatively -friendly product that doesn’t require extensive know how and installation by trained service people. This helps in bringing down the end cost of the projector. Barco should focus on developing friendly projectors and develop its base of box dealers, so as to increase sales and reduce the end price. We also know that Electrohome prices its products just below that of Barco. If a Sony style distribution strategy is adopted coupled with a -friendly product, it may help Barco to capture some market share from Electrohome and somewhat reduce the negative effect that the 1270 may potentially cause, until a comparable product can be built. Another aspect that Barco must consider is that Sony has been the leader of the lower end of the market and Barco will never be able to compete with Sony on price. Reduction in prices of current models will only lead to a price war not only with Sony but also with Electrohome. Such a scenario will disturb the status quo and can prove to be fatal for Barco, especially with the impending launch of the 1270. Considering that the 1270 is superior and expected to be cheaper than both Barco’s current portfolio and also its product under development (BD700), it makes no sense for Barco to continue to invest in developing products (BD700 or BG700) that still remain inferior to the 1270. Barco has no option but to develop a product that is either superior or at least equivalent to the 1270. There seems to be a problem with the supply of lenses for the 8” tube. Such a problem has to be resolved. If no alternate supplier can be found, it is better for Barco to pay a to Fujinon to procure the lenses. Any delay in launching BG800 can seriously damage the brand name and reputation of Barco that it has so painfully established over the years. The company must focus entirely on developing the BD800 to prevent Sony from gaining a foothold in the graphics market. In the long term, Barco must learn a few lessons from this incident. It needs to be more market driven rather than simply developing a slightly better product than its competitors. It cannot afford to take its competitors for granted no matter how well a business relationship it enjoys with them. It must also focus on t development of tubes and lenses with its suppliers to avoid incompatibility between various components. A single supplier source for components must also be avoided. Lastly, Barco must improve its marketing intelligence in order to accurately keep a tab on its competitor’s current and future plans, and avoid a situation that threatens to completely destroy its business. Diversification into other industrial electronics and into untapped markets like Asia will also help Barco to withstand future shocks like the current one. PGP 2011-13
Page 5
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