steinway & sons

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.