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MKT 500: Marketing Management
Case: Barco Projection Systems
A. Executive Summary
As a leader in the industrial projection systems industry, Barco Projections Systems
(BPS)—a subsidiary of Belgium-based Barco N.V—was used to creating the rules in which the
rest of the industry abided by. It set the standards. It led the industry with its cutting edge
technology. It enjoyed a reputation of the highest degree. Well until mighty Sony Electronics
decided to enter the market, causing little ripples here and there, until unleashing a tidal wave
that affected the entire industry.
How Sony laid the groundwork for its industry transformation from passive industry
player/helper bee to a dominant game changer speaks as much to Sony’s strategic marketing
planning and vision, as it does to the poor foresight, overconfidence and sheer stupidity
exhibited by Barco.
Over the course of this case study write-up, I will accomplish the following:
1. Give a brief history of Barco Projection Systems and the industry in which it operates, in
addition to reviewing Barco’s go-to-market strategy
2. Identify how Sony Electronics’ new 1270 projection may be a potential industry
paradigm shift
3. Offer my recommendations which will include the following: (a) holding prices steady
on its BG400 and BD600 projections until competitor and market analysis can be
conducted and (b) push forward with development and introduction of its new BG700
digital projector, followed immediately by the development of its next generation
projection—the BG800.
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We turn now to the first item on the agenda—a brief background of the case in order to
lay a foundation for my critical analysis that will subsequently follow.
B. Background & Barco’s Strategy
As a subsidiary of Barco N.V., Barco Projection Systems (BPS) accounted for 23% of its
parent’s company gross revenue at $35 million. In aggregate (in 1989) the entire company
consisted of 2,400 employees, with only 350 of those working for the BPS division. In short, it
was a relatively small company, globally speaking. Still—it was a dominant industry player.
BPS’s product line consisted of three types of projectors: video, data and graphics. “All
based on the same design, BPS’ projectors comprised three major components—tubes, lenses
and electronics”. All of its products used a 7” tube—a fact that will become vitally important
further down in this write-up.
Its product lines were differentiated and the market segmented according to scan rate
(“which measured the speed at which a projector was able to read and process incoming
electronic signals”). It is especially important to note that in order to produce the crispest
picture, the projectors scan rate needed to match its source’s scan rate. Logically, as source
technology improved, BPS was able to also increase its scan rate to match these new advances.
Projector Type
Video Projector
Scan Rate
16 kHz
Data Projectors
16 – 45 kHz
Graphics
Projectors
16 – 64+ kHz
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Key Points
Compatible with standard video sources
BPS’ low-market / entry-level offering
Price: $5,000 – $7,000
Annual Growth: 0.8%
Percentage of BPS’ Sales: 63%
Compatible with video sources + personal computers
BPS’ mid-market offering
Price: $8,000 – $15,000
Annual Growth: 12.3%
Percentage of BPS’ Sales: 33%
Compatible with video sources + personal computers
+ CAD / CAM systems
BPS’ most powerful (and expensive offering)
Price: $20,000 – $24,000
Annual Growth: 40.2%
Percentage of BPS’ Sales: 4%
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A further (major) point of differentiation for BPS is that it leads the industry in each of
the product evaluation criteria: lumens, image quality and resolution—and was able to
command a price premium over competitors as a result.
The case study lays out Barco’s strategy in a straightforward way. In the 1980’s its
strategy was three-pronged: (1) “Barco committed itself to becoming the leader in a variety of
distinct, but complementary, niche markets,” (2) Barco had a “strong commitment to research
and development,” and (3) it “sought to expand its international presence in sales, product
development, and production”.
While this strategy is commendable at first glance, it doesn’t seem very “strategic” to me,
as much as it is merely three goal statements.
Case in point: (1) The video projector segment represents 63% of BPS’ sales—yet the
market space is mature one with only 0.8% projected growth. What more, Sony owns 50% of
this market. Still, Barco is still a top-3 player in the segment. Furthermore, the segment is the
least expensive of its three product offerings. The BCG growth-share matrix would call this
product offering a cash cow (relatively high market share, low market growth rate).
Strategically, BPS should divest R & D dollars from this product into higher growth products,
in order to potentially capture market share there (as well as potentially turning another product
into a star or cash).
(2) Data projectors represent 33% of BPS’ revenue stream. It is the #2 player in the
segment at 23%--but not what I would consider dominant. Sony owns 49% of the segment.
Growth projects for the segment stand at 12.3%. This is a tough call strategically, as this
offering straddles the line between cash cow and dog (relatively low market share and relatively
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low growth). Owing to the fact that it is the #2 player in the segment, I begrudgingly call this
product offering a cash cow—but just barely. Strategically, the same logic applies as before.
(3) Its graphic offering is a different animal however. In fact—it’s a star. It has a high
market growth rate, projected at 40.2% and BPS owns an impressive 55% market share. On the
flip side however, this offering only accounts for 4% of its revenue stream. Strategically, BPS
needs to figure out how to leverage (and grow) its offering in this product segment, in order to
increase market share, revenue and market prestige—which could have a positive domino effect
on the rest of its line. I will discuss this further in my recommendations.
C. Sony Electronics
One has to admire Sony Electronics for its marketing prowess. It played its hand
brilliantly. It initially entered the arena as a supposed underdog—a novice if you will—and
bided its time.
Initially, it was viewed as a low-cost (on average 15% cheaper), lower-
performance provider (in this industry). Recognizing that Barco had effectively set the rules
(vision) of the industry, it played along at first—gaining trust, gaining partners, increasing its
presence with distributors/retailers. It seemed content to focus on the data and video projector
segments—in fact, it didn’t even have a product offering in the graphics segment.
A new product offering from Sony—the 1020 video projector—hinted at the game Sony
was playing. While slower than Barco’s competing segment offering—it had a sharper focus,
“indicating a better quality tube”. As the company that had come to be known for its superior
products, Barco wanted—no, needed—that tube. It struck a deal with Sony to supply the tube.
But it cost more than money to acquire—Barco (foolishly) shared a “certain amount of technical
and developmental information”—which effectively gave Sony inside information into its chief
competitor’s operations and technical awareness, in addition to giving it information &
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knowledge that it may or may not have possessed on its own. Furthermore, it positioned BPS in
a precarious position of having to depend on Sony for a chief component of BPS’ market
offering. All Sony needed to do was stop supplying the part—and BPS would essentially be
screwed for months as it would not be able to fulfill order. Sony could also potentially jack up
the tube’s price—which would result in BPS being priced out of the market. BPS for its part
“trusted” Sony to basically play nice and not screw it over.
Sony understood strategic vision. Business is business—the goal is to win.
A major result of this partnership is that Sony understood exactly where Barco was in its
development processes and could probably make a very educated guess at what products were
in BPS’ pipeline. I suspect that when Sony offered to supply its new 8” square tube to BPS—it
wasn’t doing it out the goodness of its metaphorical heart—it was gauging its rival. Once it
realized that BPS wasn’t able to use the tube and technologically advanced enough to
implement it in the short-medium run, Sony struck!
In a surprise announcement, Sony introduced its super data projector (possibly a new
market segment—at the high end of the market)—the 1270X. It was superior to BPS’s top
high-end product in all performance metrics and operated at a scan rate (75 kHz) that BPS could
not utilize, as it did not have the technology to do so, or the development for such an
undertaking. Perhaps even more startling was the fact that the rumor was that it would offer
this new projector at the $15,000 – $20,000 price point. Effectively, if the rumor were true, it
would have the top high-end product on the market—at a price point below the now sub-par
graphics projectors currently being offered. And as a result—would destroy every current
business model, competitor forecasts and yes, destroy BPS’ vision of the market.
Well-played Sony!
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D. Recommendations
In this section, I will make my summary conclusions, and owing to the length of this
paper thus far, will keep my comments brief.
BPS is in a precarious position. It has already proven that it had previously taken a
strategic holiday and failed to predict with any sort of accuracy what Sony was up to. It had
unfortunately taken a myopic view of the marketplace and had become complacent and secure
in its market leadership.
Further missteps with either the pricing option or the product
development option could—and probably would—lead to significant market share loss, loss of
reputation and loss of capital and revenue stream.
However, I posit that now is the moment for BPS to take true decisive strategic action.
Recall that the case study takes place in September—and Sony does not plan to roll out its new
offering until two months later in November—a two month window of opportunity. This is
important.
Pricing Option—Essentially BPS can choose between two options: (1) Maintain prices
on its current offerings or (2) lower prices in anticipation of Sony’s new product offering.
French and German distributors are calling for a price reduction out of fear of market share loss.
The US distributors, in contrast, wish to maintain prices, as it does not believe it should engage
in a price war with Sony or that its current price points could ever be regained if they were
lowered at this time. Instead, they want further dollars spent on R & D in order to come with a
competitive product offering. Bernard Dursin (VP & general manager of BPS International)
wishes to reduces the company’s prices, while Frans Claerbout (VP of Barco N.V.) wished to
delay such a decision until it could be determined whether or not the rumor regarding Sony’s
substantially lower prices could be substantiated, so as not to lose profit and revenue in those
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two months. Strategically, I am inclined to concur with Claerbout—BPS should maintain its
price points at the current time.
Why? (1) BPS is highly differentiated in that it offers what Sony does not—servicing at
its distributors/retailers (which are contractually obligated to have BPS employees on staff, as
well as to have their representatives continually trained by BPS on its products offerings and the
market). Sony does not offer this value-add. BPS also fully installs its offerings and sets them
up. Essentially, it presents a solution offering (core offering + complementary offerings) which
is both one of its three “strategies” as well as a point of differentiation in the market.
(2) It has no way of knowing whether or not the Sony pricing rumor is true. In fact, the
fact that the industry was so surprised by the product announcement alone, leads me to believe
that it has no inside knowledge of Sony’s pricing. Furthermore, the rumor was probably started
by Sony in the hope that competitors would lower its prices, which would only further continue
competitors slide down market—allowing Sony to not only capture the high-end, but also the
mid-market in the process. Sony has proved that it has a steady hand—now is not the time for
action without knowledge.
Product Development Option—BPS believes they have 3 options. (1) It could continue
as planned and release its first digital projector (the BD700) in 1 month (October). While
generating more income (projected at 25% more sales over the current BD600), it will not beat
the performance of Sony’s new offering. In effect, it would not meet its first strategic point of
being the leader. (2) Utilize accumulated knowledge while developing the BD700 to instead
bring a digital graphics projector (the BG700) to market. This would match Sony’s scanning
frequency performance with its new offering—but it would not be able to introduce the BD700
until December (1 month after Sony’s new offering), causing pre-ordered units to be delayed—
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and potentially angering customers. In all other performance metrics, it would still be subpar to
Sony’s new offering. (3) Pool all of its resources into developing its next generation digital
upgrade of its BG400 offering—which would beat Sony in all measurable metrics.
The
downside? It would still need Sony’s 8” tube—potentially furthering its dependence on the
competitor and just delaying the current situation it finds itself in (Sony leaching its knowledge
and knowing exactly what BPS is up to—and developing products to beat them.) Also, it would
not be able to work on any other developments (choices 1 and 2) and it would not be ready for
80 person-months.
My recommendation is to say no to all three options. Instead, they need to think
strategically. Recall, that BPS currently has two cash cows and a star. It’s cash cows in
aggregate represent 96% of its revenue stream. It would be foolish to forsake that for a
“chance” that choice #3 will pan out. It should instead choose “option #4”—a hybrid of #2 and
#3. First, since it enjoys a very strong reputation with its customers (distributors/retailers), it
should effectively communicate that it will be a month late on delivering pre-orders from option
#2. True, it will be a month after Sony comes to market with its new offering, but BPS has
already sold these. It is unlikely that every order will be cancelled in order to switch to Sony’s
new offering. Effectively cancelling the entire run would to solely focus on choice #3 would
anger consumers who would feel strung along—and then they would defect to Sony.
The moment choice #2 is fulfilled and orders have been delivered, BPS should do a 180
and divert all of its attention into carrying out choice #3 and developing its own marketchanging product.
However, it should also learn to play the game smart. They should contract out for the 8”
square tube and learn how to make it themselves and/or modify it to even greater heights. Learn
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from its chief competitor and then beat them at its own game. If it is decided that it does not
have the resources to produce the tube itself, recreate it and then subcontract out the work so
that it can focus on what it does best—making projectors (not tubes).
And whatever it does—it needs to stop feeding Sony its knowledge bank. It may seem
that it is only playing fair and helping a strategic partner—but in reality, they are feeding their
chief competitor its entire proprietary go-to-market strategy and R & D insight.