*<insert cover page and executive summary> 5Cs Analysis:

Customer Needs - Barco Projection Systems catered to the need of large audience viewing by offering mainly three categories of products - video, data and graphics projectors initially to consumer markets and later to industrial markets. These projectors could be connected to TVs, VCRs and computers. Company Skills - Barco N.V. is one of the top three worldwide manufactures with a focus on expensive high quality products in a niche market. It focuses on graphic projectors, which has the maximum growth and revenue in the projector market. Based on Barcos performance as a product leader it had the ability to charge higher prices than the competition. Barco designed and manufactured sophisticated projectors for industrial applications. The projectors had a reputation among dealers for the best quality final image and excellent reliability once installation was completed. But the major differentiating factor was the much higher scan rates compared to those of the products of its competitors. However, most of Barcos products were high end ones and involved unnecessary intricacies. Competition - The major competitors of Barco in the industrial data and graphics segments were Sony, Electrohome and NEC whereas in the video and low-scanning data segments, several other firms operate like Panasonic, Mitsubishi and GE. The projector market was expected to grow at 8.5% a year. Sony was the market leader in video and data projectors. The products were inferior in quality as compare to those of Barco but were priced at a much lower rate (15%). Sony leveraged its extensive dealer coverage. In the recently concluded Siggraph trade show, Sony introduced the model 1270 which was a lethal combination of higher performance coupled with low price. When compared to Barcos existing & proposed

projector, it threatens Barco's market share and its traditional market segmentation. It is estimated that it could erode approx. 75% of Barcos forecasted profits for 1990. Electrohome catered only to data and graphics projectors and was the largest competitor of Barco in the graphics segment. It had comparable distribution strengths but was priced at a lower rate. NEC operated only in the data and video projectors segments and predominantly in the Far East. However, it could not perform to its potential due to its inefficient distribution network. Collaborators - Barco had a two-step distribution system, which was composed of 45 distributors and about 400 dealers globally. The ratio of fully owned distributors was about 11%, but they made up 61% of Barco's total unit sales and 59% of its margin. The reason that a few fully owned distributors were in charge of more than half of unit sales, revenues, and margins was partially attributed to the "complexity" of the projectors. To market its projectors well, Barco needed to have system dealers that had the know-how of integrate and install equipment packages. Because of high margin, the existing dealers liked to sell Barco's projects but the intentional product complexity prohibited the expansion of distribution channel. All of Barcos projectors had 3 major components tubes, lenses and electronics. Initially, Barco sourced its tubes from Clintons in the US but later shifted to Sonys in-house supplier, Sony Components, due to superior quality, although they compete with the Sony projectors. Context - One of the major factors for projectors was the scan rate which increase with the sophistication of the application. The projector had to match the scan rate of the source to produce a clear image. Consequently, the scan rates had to be continually upgraded to keep up with the advances in the computer technology. The consumer buying trend was once every five years.

Projectors - Market Place Vision

Most of Barcos projections were based on the assumption that other market players would respect their vision of the marketplace. However, in this case Sony seems to have not shared the same vision as Barco that of coexisting without eating into each others growth opportunities. In a market place a competitor generally accepts anothers vision of the market in case the two players have a synergizing and strategic linkage. Here, Barco had a complete dependency on Sony Components for supplies of the tubes that went into their projectors but at the same time Barco brought Sonys costs down and provided sales for the industrial segment of Sony Projector Components. Barco believed that all the players in the marketplace must follow the same development path, similar to theirs. There is another case when the competitors follow a single firm if its the market leader with the greatest amount of innovation. Here, the competitors assume that the market leader has checked the pulse of the consumers and hence tend to share the same vision. If the main player in the market is a firm is large with economies of scale, it has the capability to drive out its competition by lowering the prices beyond the costs of the competitors. This is also another case when the competitors accept the vision of the market leader. A competitor may reject another firms vision of the market place if it believes that its vision is better and has aspirations to be the market leader. There can be substantial evidence from market surveys and research that show a market situation much different from what the other firm believes in.

Sony as a serious threat to BPS

Sonys latest product the 1270 is a credible threat and should be taken seriously. Barco has usually been the fastest innovator in the market and is driven by technology. They market

their newest innovation to the market and charge a good premium price and the prices eventually come down gradually with time as the competitors catch up. Sony on the other hand follows a market penetration strategy as they see an opportunity based on BPSs premium at the high end. They released the model 1270 with a much better scan rate and priced it lower than the highest selling product of BPS. They also have added advantages in terms of their distribution channels and network of 500 dealers, a good product reputation, economies of scale and ease of use of the product. Sony aims to re-conquer the data and graphics markets wishing to break their market image as a mass producer of low-end products. Thus Sony threatens BPS on three main fronts: 1. Product Competition: Loss in revenue of up to 75% of the forecasted profits for 1990 and consequently a decrease in market share. 2. Market Segmentation: Sony has tried to break the segmentation between data and graphics market. 3. Brand: BPS is known to be a technology leader and innovator. Sony has made an attempt to attack BPSs technology leader image head-on.

Barcos strategy so far has it worked in a high technology business?

Although, pricing strategy may work in short run, Continuous innovation is definitely a necessity in high technology industry wherein only innovative products or solutions can enable a company to stay ahead of its competition. However, in such high-tech industry, one also needs to collaborate with other firms that can complement the skills/expertise of the company and add value in its product development cycle. Having said that, BPS had to partner SONY for better quality tubes (the only supplier in the market for such quality tubes) even though SONY was a direct competitor in the same business segment. This led to a severing of relationship with the old supplier of tubes and increased the dependency of BPS

on SONY for its supplies and subsequent projector development. This relationship was indeed a strange one where both the competitors had the same supplier and one had the power to increase prices at any time to eject the competitor from the consumer market. There is also the option for BPS to diversify its suppliers list by assisting or partnering in R&D efforts with other vendors to develop superior tubes that could reduce its cost of development and even help it stay ahead of SONY in terms of technology. This would have also helped BPS in developing long-term relationships with its suppliers/vendors thereby improving their image in market and overall cost vulnerability in long term. However, such things sometimes just happen in a high technology business and need to be foreseen much earlier in order to have some control over the market.

Future Pricing Strategy

CRITERIA(Weight) Increase in market share(3) Negative impact on brand image(3) Reduction in pressure from Distributors(2) CONSTRAINTS Impact from uncertainty about Sonys strategy(3) Inability to win a price war(3) Total Option 1-Lower Prices High(2) High(1) High(2) Option 2- Keep Price unchanged Low(1) Low(2) Low(1)

Lowest(1) Low(1) 1.36

Low(2) High(2) 1.64

Hence, the recommendation is that Barco should not lower its price (keep prices unchanged). The reason is that there is no concrete news about Sonys strategy regarding 1270. And even if Barco reduces its price to counter Sonys move then it would spark a price war which Barco is not well-equipped to handle. Product Development Strategy

Option 1-Continue CRITERIA(Weight) as planned(introduce BD700) Increase in long term sales(3) Performance wrt Sony 1270(3) CONSTRAINTS Man hours required(3) Difficulty in obtaining parts(2) Fulfilment of advance orders(1) Total Low(3) No(0) High(3) 1.5 Low(1) Low(1)

Option 2Introduce BG700 Medium(2) Medium(2)

Option 3Develop BG800 High(3) High(3)

Medium(2) No(0) Medium(2) 1.67

High(1) Yes(-1) Low(1) 1.67

We see that we get similar ratings for developing BG700 and BG800. Our recommendation would be to pursue option 3 if an arrangement can be made for easy procurement of raw materials for BG800. If that is not possible, then for short term continue with option 2. However, option 3 is always the long term strategy, even while pursuing option 2 efforts should be made to shift to option 3 as quickly as possible.