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Industry Dynamics in the Hi-Fi Sector

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Industry dynamics in the hi-fi sector

Q1. Perform a SWOT analysis and use this to help think through the industry dynamics in the hi-fi sector. i. What are the opportunities and threats facing these specialist hi-fi firms?

* Internal diagnotic | STRENGHTS | WEAKNESSES | Marketing criteria | Product | Sound system at highest quality | | Price | Prenium prices can be a proof of quality | Premium prices are only dedicated to a small segment of customers | Promotion | | High costs of advertising | Place | Prime location: factories are in UK which has a potential appeal compared to other countries. | | Functional criteria | Functionning | One factory with access to a chain of retailers. | Few good suppliers with specialist materials.HRM has to recruit skilled staff what is difficult. | Resources | Financial | | Low turnover (million vs billion for Phillips: £20bn) and profitability (less than 2 million) | Human | Highly skilled workforce.Ability to recruit key talent. | | Technological | Patents of previous technology.High R&D | | Which is a value perceived by the customers | High brand value= High pricesCustomers are faithful to one brand. | Their reputation is not enough developped | Competencies | | Expertise :Produce sound system of the highest qualityKnowledge of high quality production and equipments | Provide an excellent customer service before and after salesExamples: * Naim: Not for profit repairs * Linn: Audition product before purchase |

* External diagnostic

| OPPORTUNITIES | THREATS | Macro-environment | Political | | | Economical | | CD sales and older technologies are declining (23%) whereas Ipod (207%) and MP3 are booming | Social | This kind of product can be classified as a esteem need* in the Maslow's hierarchy of needs. | It’s a market hit by fashion trends.Affordable technology is in demand.People focus more on quantity and fashion than quality. | Technological | | Internet : online music sales increaseInnovation: digital (Mp3, Mp4) vs. CD’s | Ecological | | | Legal | Illegal downloading of music andIntellectual property rights-patents generate opportunities for this market. | | | Micro-environment (Porter’s 5 forces) | Competitive rivalry(HIGH) | The 3 competitors for the same niche called audiophiles are Meridian, Linn and Naim. They are very similar in terms of structure, missions, capital (£10 to £35m of turnover) and they use a strategy of differentiation (high quality product). | They are (under consideration) small compared competitors of the market for audio and video products as Apple, Phillips, Sony (many billions pounds of turnover). | Supplier power(HIGH) | | A low number of suppliers, a strong brand, and differentiated products increase the switching cost and the bargaining power of suppliers. | Substitutes(LOW) | There is a lot of substitutes but it doesn’t deal with the same quality of product:-Products from Apple, Sony, Phillips-MP3 market -Docking stations as Bose (able to turn portable products into the basis for a home hi-fi system)-Online retailing of music (Apple with iTunes) | | Buyer power(LOW) | As specialists sell high quality products at high prices (from £1000 to £50 000) and they are only 3 on the audiophile market compared to their extensive retailers network, customers influence is low. | | New entrants(MODERATE) | Audio and video products is a saturated market by Apple, Phillips, Sony, Samsung, Thomson,…And the barriers for high brands as Meridian, Linn and Naim are higher because of a need of notoriety, links with good suppliers, patents, a large investment in R&D/advertising… | As factories have low capital requirements they are susceptible to new entrants especially if Apple decides to produce specialist system. |

ii. Do these firms have the right strengths to take advantage of the opportunities in the market?
These factories have to react quickly to take advantage of the opportunities in the market. They provide high quality hi-fi products to their customers and they have excellent competencies but they face to external threats as new technology (and if they do nothing they may go to the same way as Polaroid, a high competitive rivalry (Phillips, Apple, Sony…), and new entrants because of their low capital requirements. Also they don’t use fully their resources (brand image, expertise, financial) what could send them to their doom.

Q2. Identify some strategic options which the specialist hi-fi manufacturers could pursue.

Partnerships with popular music group
These companies could also develop partnerships with popular music group that believe in great sound. Indeed, the fans usually go to the concerts to listen to their favorites groups but they can’t have the same feeling in home. These manufacturers and music groups have to convince the customers that a high quality system is the solution to feel the music like a concert.
Build an audiophiles community
The music groups have to recommend these brands and these manufacturers could build an audiophile and musician community by using social networks, concerts and adverts during the concerts. Then, it will be possible to sell services such as download high quality music format or concerts tickets.

Online purchase and customization
The hi-fi manufacturers could give the opportunity to the customers to build their own hi-fi system. For £1000 pounds, it must be like an object of art. Like the car manufactures such as Mercedes, it would be interesting to choose parts such as the color, the form or the texture.
Sound system in houses and luxury hostels
The customers are now looking for an integrated system with TV, video, music and internet. The hi-fi system is not only use to listen to music. These hi-fi manufacturers have to convince architects to install sound systems in new high standing houses or luxury hotels to promote the brand.
Develop market such as China, India and Brazil
These manufacturers have been established for a number of years and have established competences to service the needs of a particular group of customers. There are rich people in developing countries that are interesting to buy high quality sound system. These manufacturers have to install productions units in these countries.

Q3. Discuss the nature of Apple’s business activities with regard to music. What business model(s) are they using and where are the opportunities for them to make money from their music activities?
The business model describes the way in which a company makes money.

Regarding Apple’s business activities we can conclude that there are several business models concerning music: * Innovation and creation. With the creation of Ipod Apple became easily the leader of the market because of the user-friendly design, music quality and storage volume. In consequence nowadays Apple accounts for 65% of the hard drive based music market share * Very good quality/price ratio. The MP3 players (Ipod) are cheaper than an “entry-level” of audiophile system and there is enormous volume data storage (approximately 10.000 songs, videos, pictures…) * Diversification. The creation of the web site ITunes allowed to user to access to a huge database of music, listen it and download it legally. They also expended their activity by offering online download of video and movies. This is why Apple is now leader on the online retailing music, streaming video and movies.

One of the opportunities to make money is the adaptation the consumer needs: download single songs for 0.79€ and not the whole album, but also download movies and videos.
The decrease of the CD sales (-23% for the last five years) is also a big opportunity for their future development.
Finally the international development of ITunes can be a significant source of money

Q4. All the formats discussed in this case are governed by internationally agreed standards e.g. VHS, MP3, DVD, CD, etc. Discuss the implications of such standards for the competitive behavior of small independent firms like Linn, Meridian or Naim.
These three businesses face difficult competitive circumstances, particularly about formats. The rapid growth of the Internet, online music stores and MP3 players are transforming the way in which music is sold and reproduced. Furthermore, MP3 and other digital compression techniques are worse than CD format.
To sum it up, players are now part of the music market, the quality level of sound is decreasing and the way to buy music is really faster. Linn, Meridian and Naim companies face to a difficult choice: staying on market which is decreasing, or adapt their business core to the new market.

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