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PEECKER MKTG |
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After a careful and systematic Market Analysis and on interviewing insiders with many years' experience in the industry, the Peecker Sound Marketing Department can conclude that in Italy, the Professional Audio segment - consisting of Installed & Club Sound for fixed installations in dancing venues, disco clubs, music pubs, lounge bars, and so on, Concert & Touring Sound for concerts, tours, live tours and events on any scale, and of equipment/devices for the Electro-musical sector - is now at the end of its development phase and is about to enter its phase of maturity (see chart).
After a careful and systematic Market Analysis and on interviewing insiders with many years' experience in the industry, the Peecker Sound Marketing Department can conclude that in Italy, the Professional Audio segment - consisting of Installed & Club Sound for fixed installations in dancing venues, disco clubs, music pubs, lounge bars, and so on, Concert & Touring Sound for concerts, tours, live tours and events on any scale, and of equipment/devices for the Electro-musical sector - is now at the end of its development phase and is about to enter its phase of maturity (see chart).
This thesis is corroborated by several indicators, the most important of which include:
a) a general decrease in the overall revenues of the industry (the combined sales of the companies dealing in this sector have been steadily falling since the late nineties*)
b) a drastic reduction in the number of venues with musical entertainment
c) a loss of profitability by incumbent enterprises since the late nineties*.
 Fig. 1 Analysis of the Life Cycle of the Professional Audio segment
(*data supplied by CERVED)
This section analyses the Professional Audio sector (i.e. the combined Installed Sound, Touring Sound and Electro-musical segments) in Italy, using the information and considerations of the Peecker Sound Marketing Department.
 Fig. 2 Summary chart of Michael Porter's Five Competitive Forces Model
I) Intensity of COMPETITION
| INDICATORS | NOTES |
1. CONCENTRATION RATIO: low, highly fragmented demand (for the 5 major manufacturers in Italy - C5*)
2. DEMAND GROWTH RATE: stable, estimated to be on the decline
(after the major boom of the 80s and the sharp downturn of the 90s)
3. PRODUCT DIFFERENTIATION: high
4. DIVERSITY OF COMPETITORS: high
5. EXIT BARRIERS: insignificant
(strong possibility of plant and equipment conversion: general purpose machines)
6. STRATEGIC PRIORITIES ATTRIBUTED to the BUSINESS: high
(but those attributed to the various segments → BARRIERS to MOBILITY: insignificant)
| In this case, the C5* concentration ratio refers to the combined market share held by the five largest Italian companies producing audio systems and not to the more commonly used combined market share held by the five largest firms in the sector. No precise information is available as to the market shares held by distributors of imported brands.
There is a high level of diversity between competitors with regard to both strategies (all Italian professional audio system manufacturers concentrate most of their resources/skills on two/three segments at most) and products (stand-alone designs).
Barriers to mobility are insignificant: over the years companies have changed their core business segments while staying in the audio sector. | | -> MEDIUM-LOW Intensity |
II) BARRIERS to ENTRY
| INDICATORS | NOTES |
1. MINIMUM INVESTMENT IN PLANT AND EQUIPMENT: modest
(~ € 3-4 million for a plant with an annual production capacity of 3,000 sound systems)
2. ECONOMIES OF SCALE: non-existent
(batch sizes: medium-small)
3. ACCESS to DISTRIBUTION CHANNELS: easy and direct
(direct sales or through retailers easily available on the market)
4. SUNK COSTS and SWITCHING COSTS: insignificant
(employment severance indemnities, mortgages, etc.)
| The audio sector can be defined as being almost open to challenge since barriers to entry are truly low if we exclude costs related to the acquisition/creation of resources for the internal R&D and Design departments of the incumbent companies in the sector.
There are no particular audio system configurations requiring high conversion costs to the customer. | | -> INSIGNIFICANT barriers (excepting R&D costs) |
III) SUPPLIER BARGAINING POWER
| INDICATORS | NOTES |
1. SUPPLIER LEVEL OF CONCENTRATION: high
(suppliers are few in number, since they are mostly suppliers of components, electrical materials and semi-finished goods such as customized grilles, chassis, support brackets, etc., requested upon customer specifications)
2. PRESSURE EXERTED by MANUFACTURING COMPANIES: low, due to low level of competition
3. THREAT of FORWARD INTEGRATION by SUPPLIERS: insignificant
(if anything, the opposite happens: the major brand leaders on the global market have long been insourcing or taking over suppliers of strategic components, such as loudspeakers, drivers and tweeter units, which strongly affect final product costs - up to 50-60%)
| The suppliers with the strongest bargaining power are manufactures of electro-acoustic components such as loudspeakers and tweeters, which are few in number (no more than 4-5 worldwide).
Moreover, the end customer very often accepts the price differential of a speaker with specific components (e.g. made in the U.S.A.) compared to another, less "well-known" one.
The critical nature of such components is exacerbated by the fact that there are no substitute products available. Moreover, although client companies generally order them in large quantities, they are frequently insufficient to produce the necessary bargaining power to balance this situation.
| | -> STRONG bargaining power |
IV) CUSTOMER BARGAINING POWER
| INDICATORS | NOTES |
1. DIFFERENTIATION: high
(few price wars excepting price bracket of plastic speakers)
2. CUSTOMER LOYALTY: insignificant
(after-sales support can often be provided by unqualified personnel such as electricians, technicians, etc.)
3. THREAT of BACKWARD INTEGRATION: non-existent
4. DISTRIBUTION CHANNELS: direct
(large retailers do not sell professional products)
| The sensitivity of the end customer/user to retail prices is low due to the causal ambiguity resulting from the complexity of the supply and the specific use for which products are required.
On the other side of the coin, cases of financial insolvency are becoming increasingly common due to the lack of long-term entrepreneurial spirit shown by the management of commercial concerns. | | -> Sensibilità al prezzo: BASSA |
V) SUBSTITUTE PRODUCTS
| INDICATORS | NOTES |
None
|
The current state of the art provides no known alternatives to sound reproduction equipment based on compression and rarefaction of the air by means of a diaphragm-driven electro-acoustic transducers. Technological innovation will thus always be incremental and never disruptive of the know-how of existing firms.
| | -> NON-EXISTENT |
Conclusions according to the Porter model
The Professional Audio segment continues to be quite attractive, albeit not as attractive as it was fifteen years ago. It is nevertheless still full of opportunities and faces no significant threats, particularly given the evolution of demand which is thought to be on the way to recovery, especially as a result of recent trends towards fixed installation systems in medium-small sized venues such as pubs, dine & dance clubs, HO.RE.CA. establishments and wine bars. These particular types of installations point to the development of an extremely variegated customer base often ill-equipped to assess the real value or the real sound quality of the products offered by suppliers.
Hence, one of the critical factors of success for incumbent firms has been to identify the requirements of large groups of customers/end users, and to publicize - through advertising campaigns on specialist magazines and sector-specific trade shows - the fact that, as well-established companies in the sector, they have the necessary design and product development tools to create customized product configurations (the well-known "series").
Moreover, investing in product differentiation and technological innovation in the field of Professional Audio can potentially yield ample returns since, imprinted in this sector's DNA, there are several characteristics that can secure a long-term competitive advantage.
These characteristics consist of:
A) imperfect information about the results of different competitors
(only two are listed companies);
B) complexity of know-how related to production and installation
(importance of economies of learning);
C) multidimensional nature of customer's selection criteria
(the boundaries between the various segments are unclear);
D) small size of the market
(limited number of new installations per year).
Using the statistical analysis of the Porter model, we can conclude that the Professional Audio segment is definitely a mature sector; as stated earlier, however, it remains a fairly attractive one. The strongest evidence for this is the fact that, in recent years, the newcomers to the industry have been large companies which have invested substantial resources in the introduction of major brands in this sector.
The limitations of this model, however, demand further analysis to ascertain whether, in practice, the segment can indeed secure a capital return that exceeds the cost of the money invested. |
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