Question

Bang & Olufsen The Danish company Bang & Olufsen manufactures upscale electronic products. Using its core competencies in product design and manufacturing, the firm produces an array of what have been labeled as “fantastic-looking" luxury items. Among its offerings are $1,800 to $5,000 television sets. Striving deliberately for high style and quality, the firm's top-of-the-line products are targeted to audiophiles and video buffs that are willing to pay premium prices. In describing the company's product design, Ole Bek, director of Bang & Olufsen international distribution center, noted that he learns much more by window shopping at Luis Vuitton in Paris than by looking at consumer electronics outlets. To highlight more clearly and consistently the uniqueness of its products and to better serve the specialised interests and needs of its target customers, the firm decided recently to launch a string of impeccably (perfectly) designed stores that sell only its own products, Simultaneously, Bang & Olufsen discontinued the practice of distributing its products through what it considered to be "downscale" shops. The practice of concentrating on its own dedicated shops as the primary means of product distribution is consistent with actions taken by other companies that serve upscale customer needs. Luis Vuitton, for example, sells its bags only in its own boutiques. Cartier International Inc. and Guicci Group have pulled their products from the shelves of hundreds of stores in the United States. Moreover, selling products through its own retailing outlets allows Bang & Olufsen to move even further upscale. How does the Bang & Olufsen move to distribute its own products affect its value capture part of its strategy? Explain. What is the rationale behind that move from a corporate strategy point of view?

Answer 1

The move to distribute will benefit Bang & Olufsen in two ways. The brand will become exclusive as it will be sold only in their own stores. This will eliminate all the middlemen and thus increase the income. However, it will become important to attract the 'high end' customers. Therefore, the company will have to spend more on advertising. This might affect the value capture part. It is important to see if the advertisement is effective so that the investment in advertisement increases our profits. In our case, since we know that the video buffs and audiophiles will be willing to pay high prices, the move will help in making the products more exclusive. Also, the products will not be sold in the 'downscale' stores so this will help in increasing the brand value. The revenue which was otherwise lost to middlemen can be used to make the shops more magnificent and radiant.

From the corporate point of view, this move will be welcomed as it is in line with the motive of the company. The steps taken in order to make the products range more unique and exclusive are adequate if implemented properly and rigorous advertisement is done so that we don't loose customers in the transition. We also need to see if advertisement helps in creating additional revenues.