Case 4: Barco Projections Systems

Clare Lee Li Ting (S8930447D)

1. Discuss Barco s product line strategy before it faced unexpected competition from Sony. Barco traditionally aimed to produce top-of-the-line products in a variety of distinct, but complementary, niche markets. It was one of the top three worldwide manufacturers in each of these product lines: automated production control systems, graphic arts, computer-aided design, and industrial projection. Specifically, BPS s product line strategy was to segment markets by scan rate and to develop various products aimed at addressing unique needs of various industrial markets. In this light, BPS adopted a focused differentiation strategy it competed on the basis of uniqueness and confined their competitive scope to a relatively narrow target market that was willing to pay premium prices. By 1989, BPS had developed three lines of projectors: video, data and graphics. BPS s highest performing projector, BG 400, was the industry s most sophisticated graphics projector until unexpected competition from Sony. BG 400 was priced as the industry s most expensive projector, retailing at US$24,000. BPS had a dealer reputation for the highest quality image and excellent reliability this confirms that technology development, firm infrastructure and outbound logistics are all examples of value-creating activities that BPS undertakes in order to earn higher margins. Recognising that it is competing in a fast-cycle market, BPS differentiates its products by continuously upgrading the scan rates of its most sophisticated projector line to match advances in computer technology. It also planned to maintain its position as a technology leader by introducing digitally controlled projectors. Another way that BPS differentiates its products is through product complexity. Management believed that the complexity of applications would work to BPS s advantage by keeping larger firms out of the market. Dealers contend that products were designed to win awards but not be end-user friendly. Competitive risks associated with BPS s focus strategy includes how a competitor like Sony which have traditionally competed on an industry-wide basis may decide that the market segment served by BPS using a focus strategy is attractive and worthy of competitive pursuit. This was exactly the case when Sony introduced the Sony 1270 in an attempt to capture BPS s traditional share of the market. Another competitive risk associated with BPS s focus strategy is that the needs of the customers within their narrow competitive segment may become more similar to those of industry-wide customers as a whole over time. This risk was likewise attacked by Sony as it attempted to use a superdata projector to redefine BPS s traditional segmentation and conquer both the data and graphics segments with one product. Another risk that BPS s focus strategy faces is that a competitor may be able to focus on an even more narrowly defined competitive segment and outfocus BPS. For example, if a competitor targets a segment of the premium market and offers that segment additional sources of differentiation at the same or a lower price.

Case 4: Barco Projections Systems

Clare Lee Li Ting (S8930447D)

2. How should Barco respond to this potential threat, wrt price and product development plans? Sony s 1270, in seeking to capture both the data and graphics market segments, increases market commonality between Sony and BPS. Sony 1270 also features Sony s new 8 tube which is to be supplied to BPS this increases resource similarity between Sony and BPS. With higher market commonality and resource similarity, the competitive rivalry between both firms is naturally increased. To maintain its position as a market leader, BPS needs to undertake competitive actions to defend its competitive advantages instead of merely using competitive responses to counter Sony s attacks. Mere competitive responses are not good in the long term. It is therefore still most important to compete based on various dimensions of product and service quality. Pricing: BPS should maintain the prices of its existing products for 3 main reasons: 1. Cutting prices is likely to lead to a price war with Sony which BPS cannot win. This is because BPS has traditionally been a high-end, niche product company whereas Sony has been a low-end, diversified mass producer. Due to economies of scale that Sony enjoys from its diversified portfolio, Sony has a greater leverage to lower prices than BPS. A price war with Sony will lead to further erosion of BPS s profits. 2. Cutting prices may cause customers to relate the markdown to inferior quality. It could also be interpreted by the market as a signal that the Sony 1270 is indeed a better deal than the BG 400. BPS has established its reputation as a premium brand and too quick a move to cut prices could lead to irreversible brand erosion. 3. Even though the Sony 1270 was a show stealer at the Siggraph trade show, it has yet to be launched and it is premature to predict its performance and market acceptance. It still remains to be seen if Sony can successfully break their market image as a mass producer of low-end products to win the acceptance of the high-end industrial segment. Product development 1. Timeliness is a dimension of service quality; keep current stakeholders (dealers, customers, employees) satisfied by continuing its development schedule as planned and introduce the BD700 on time in October for immediate production and delivery. It is important not to disappoint its advance-order customers and safeguard its reputation as a reliable premium producer. 2. Skip the introduction of BG700 and turn immediately to the development of the BG800 after BD700. While it is important to introduce BG800 to the marketplace as soon as possible, it is of greater importance to maintain high product quality. There is still no certainty as to when 1270 will actually hit the marketplace so BPS should be careful not to overstress its manufacturing process because of such unsubstantiated rumours. Even if the chances of meeting the Infocomm deadline are low, it bears mention that Sony is entering a distinctly new product segment and it should take at least 3 to 6 months before it gains solid market recognition. Instead of anxiously reacting to Sony s move, BPS should focus on technological leadership and produce a BG800 that will effectively negate all the benefits that Sony 1270 seeks to offer. BG800 should seek to be less complex to increase quality in terms of serviceability and convenience to customers. 3. BPS should seek to establish brand extension instead of just focusing on high-end products. Diversification and brand proliferation will allow BPS to increase sales volume and gain greater cost leverage to provide more competitive prices. 4. As BPS is competing in a fast cycle market, it should not only perform better competitor scanning but aim to be at least 40% ahead in terms of technology advances to absorb unexpected shocks from competitors.