PROTOGONIST

Erik Dejonghe, the iconoclast Senior Vice-President and chief operating officer of
Barco Projection systems was in a quandary regarding a befitting riposte to an
ominous product launch bulletin by a rival firm Sony.

PROBLEM/DECISION

Barco’s consternation knew no bounds when Sony announced an imminent

launch of their new product, the 1270 projector series. The latest offering by
Sony promised to be more advanced, claimed superior, unheard of performance
and significant cost reduction to the buyers. Barco, who were caught off-guard
by this pre-emptive strike by Sony, were light years away from catching up with
Sony on this front, had to effect immediate changes in the wake of a significant
market share washout and also to hold fort against their rival’s antics.

OPTIONS

In order to counter the impending repercussions of Sony’s new product launch, it

is imperative that Barco weigh their options in terms of product and price
modifications.

Pricing options:
– Induce a considerable price reduction its leading model viz-a-viz the
BG 400

– Play the wait and watch game.

Product options:

-Complete the portending production of its pipeline project, the BD 700.

Although not at par with the 1270, it would certainly pass off as a
statutatory reply to Sony’s move.

-Work on developing their proposed model, the BG 800. Arguably, the best
option available to Barco, introducing this latest addition to their product
line would effectively negate the threat posed by Sony. A breakneck scan
speed eclipsing that of Sony’s 1270 by far (90 khz compared to 1270’s 75)
and nonpareil performance would strip Sony of the benefits it seeks to
gain with its fresh offering.
CRITICAL EVALUATION

HOW SONY MANAGED TO STUMP BARCO

– Capitalized on Barco’s myopic view that technology drives products. By

focussing on the other aspects of marketing strategy like having an
extensive distribution channel and diversification of market segments,
Sony was able to grab a chunk of SOM and also generate enough revenues
which it could utilize in developing new products.
– Barco concentrated more on the premium high-end products and meted
out a banal treatment to the subsequent levels, which Sony was
enterprising enough to pounce on on and make a mark.

BARCO’S CHIEF MISGIVING

The core issue of the entire melee at Barco is essentially due to their inadequate
anticipatory skills with regards to the sensing where the market is headed and
what the competitors are up to. Despite being technology-driven, this was
already the third time that Barco engineers were caught of guard by Sony in the
tube domain (2):

· In 1985, Sony’s 1020 projector, although slower than Barco’s projectors at the
time,had a sharper focus, indicating a better quality tube.

· In 1987, Sony introduced a video projector using a new tube. Barco

eventuallyincorporated this tube into its BD600 product.

· In Feburary 1989, Sony Components contacted Barco to inform them of a new

8” tube.Barco engineers decided not to incorporate the tube into the BD700 as it
would require a redesign and sourcing of a new lens. Surprisingly for BPS, the 8”
tube now turns out to be the key component responsible for the technical
superiority of the 1270.

If Barco wants to maintain a competitive edge, they have no choice but to

continuously adopt innovative technologies. Failing to do so will result in Barco
being a follower rather then a technology leader.

BARCO’S PLAUSIBLE COURSE OF ACTION

– Effecting a price reduction

A predicament faced by Barco is how to respond to the price erosion that

can be expected by the introduction of the Sony 1270. We delineate two
opposite ends of the spectrum:

1) The 1270 is launched with a price of $20,000

The margin contribution of the BG400 is 29%, indicating that the cost to produce
is $17,040. These margins do allow for a certain, albeit limited price reduction. In
case the price of the BG400 is maintained (resulting in an estimated market
shareloss of 30%), the total profit will still be higher compared to a reduction in
price of theBG 400 to $21,000 (Refer to annexure).

2) The 1270 is launched with a price of $15,000

If the price of the BG400 is maintained, leading to an estimated market share

loss of 60%, the total profit will still be higher compared to a reduction in price of
the BG 400 to $19800 (annexure). Obviously, in case Barco sells the BG400 at a
cost ($17,040), there will be low profit.

It is evident that Barco in any case would optimise profit by maintaining current
price levels of the BG400, even taking into account that this could reduce market
share by up to 60%.

– LINGER AND SIT TIGHT

Although a potential blockbuster, the Sony 1270 is yet to be launched and

it is too early to predict how it performs, how the consumers react it and
the acceptance it garners from the market. Avoiding a knee-jerk reaction
and deferring the decisions would enable Barco to have a clearer picture
and mould their strategies accordingly.

However, a gospel truth Barco should realize is that it can never compete with
Sony on the price wars front. Barco has always been a high-end, premium
product company and Sony a low-end, diversified one. A reduction in price will
prompt Sony to reduce their prices further, erding the profits further.Due to
economies of scale, Sony leverage to lower prices is greater than that of Barco.

– Introducing the product in the pipeline, the BD 700

Barco can either proceed with the launch of BD 700 or can even strive to develop
an advance version of the BD700, the BG700, hoping that it will be launched on
time to compete with Sony’s 1270. Moreover there were robust profitability
forecasts of $ 4.3 million and orders had already started puring in for which
commitments too been promised.

However, even if Barco mangges to achieve this feat, it will not yield the
desirable results since it cannot out perform Sony 1270 in terms of the
performance.

– Proceed to developing the advanced model the BG 800.

Implementing this measure would entail a considerable allocation of

resources and corporate assets. This would yield several benefits to the
company. Besides taking out the threat of market annihilation, an
effective launch would cement the company’s reputation of being
ingenuous when it comes to technology. A sound establishment of the new
product will also provide a leeway for Barco to diversy on the market
segmentation front, by diverting the other leading products to the non-
premium segment of the projectors market.

However, estimates reveal a bleak chance of this option being actually

evinced. The General Manager of BPS, Frans Claerbout himself accorded
the development of this product a probability of 40%. The company would
be stretched at all fronts if this product has to see the light of the day in
the given time limit. Moreover, proceeding with this product would entail
postponing the production of BD 700, for which orders had been taken and
production process had been initiated. A deferment would not augur well
for the company in terms of customer dissatisfaction and marred
reputation.

PROPOSITIONS

1. Relentlessly pursuit the development and timely launch of the

advanced model BG 800. This particular model was conceived as a
future option, an avenue which Barco would explore eventually in the
course of time. However it now has an incentive to prepone their plans
and concentrate their efforts and resources into realizing a
simultaneous launch of this product with Sony’s 1270.
2. Shift the company focus from being product-oriented to market-
oriented. Even a niche player like Barco has to make product
development decisions based on market information

3. A key factor for Sony’s remarkable success is their focus on low end
products, as opposed to Barco’s high end objectives. The latter should
pay attention to this market and concentrate on diversification and
launch brand proliferation. They can make a brand to focus on volume
and low price

4. Explore emerging markets like Asia. This region has witnessed a

tremendous growth of 18%, which should spur barco to extend their
scope in these lucrative markets as well.

5. Apart from adhering to their catering products for niche market , it is

imperative that Barco continue to devote commitment to research and
development to retain top quality products and their market
leadership. They should undertake a continuous & systematic scouting
for new technological developments with the aim of incorporating such
innovation in Barco’s end products. Barco should not rely on outside
source for raw materials but instead develop most of it in-house. In lieu
of this requirement an immediate measure to reckon with is that they
find more providers of tubes, not just Sony.
6. Yet another key factor for Sony’s stupendous success is their elaborate
distribution system. Sony dispersed their products through an adroit
network of captive commercial distributors aided by 1500 dealers as
opposed to 45 distributors and 400 dealers of Barco. In U.S alone, Sony
had 500 dealers compared to BPS’ 100. Morever Sony’s proclivity
towards box dealers and their extensive coverage abetted low street
prices for its projectors and also higher sales volumes. This should be a
cue for Barco to rev up their distribution channel as well which at
present is inadequate.

7. Yet another critical factor which Barco would require to sustain their
ascendancy in the projectors market is to perform efficient
environment and competitor scanning to stay ahead in the race. This
would certainly ensure that Barco is not caught off guard again by
competitor’s strategies.
8. A major drawback of Barco projectors are their complexities and
specifications. It would be handy for Barco to make their products more
user-friendly.

Continuous & systematic scouting for new technological developments

with the aim
of incorporating such innovation in Barco’s end products.