Marketing and Managerial Foundations - Case Study Example

BEATS BY DRE Contents Contents 2 Executive Summary 2 Background 3 Introduction 4 Porter Five Forces Analysis 4 Purpose of the Porter Five Forces Analysis 5 Business Benefit of the Porter Five Forces 5 Porters Five Forces Of the Premium Headphones Market 5 Threat of New Entrants 5 Supplier Power 6 Threat of Substitution 6 Buyer Power 6 Competitive Rivalry 6 Marketing Mix used by Beats by Dre 7 Ansoff Growth Matrix 8 Purpose of the Ansoff Growth Matrix 9 Business Benefits to Beats 9 Strategies That Beats Have Adopted Over Time to both Expand and Survive 9 Conclusion 10 Reference List 10 Executive Summary Beats by Dre is a music headphone brand developed by music producer Dr. Dre and record label company chairperson Jimmy Iovine. It has revolutionized the music headphone industry. The firm, which is currently owned by Apple Inc, has positively influenced the industry and created a market niche for its products. This has contributed to its unprecedented and undoubted success. The success of the Beat by Dre speakers and headphones can be analyzed using Porter five forces analysis, Ansoff growth matrix and marketing mix strategies. These tools will provide insights on Beats by Dre entry and domination of the premium headphone market. Background Beats by Dre is a brand name for speakers and headphones produced by a company called Beats Electronics. Beats by Dre has influenced the headphone market and industry by creating successful premium headphone products. According to Dr. Dre, the brand’s focus on bass was motivated by the need to allow music listeners to listen to all the music. The popularity of Beats by Dre was driven by the firm’s marketing practices. The company focused on branding, endorsement deals and product placement. Dr. Dre and Jimmy Iovine use celebrities and other famous personalities for brand endorsement. Introduction Beats by Dre headphones were conceptualized after Dre. Dre and Iovine identified a problem with the quality of audio products offered to customers. They identified the substandard audio quality of Apple’s headphones. Initially, Beats by Dre entered into a partnership with Monster Cable to develop and manufacture headphones and speakers. In order to promote the products, Beats by Dre relied on advertisements and product promotions by musician and rappers (Steinberg, 2014, p. 1). The headphones were also strategically placed in music videos and movies. Beats by Dre also collaborated with celebrities and musicians in order to develop co-branded products. Beats by Dre is the dominant player in the headphone market for headphones priced above $100 (Meara, 2014 p. 1). In 2014, Apple, Inc acquired Beats by Dre in a deal that was valued at $3 billion. Porter Five Forces Analysis Porter five forces is a business tool that analyzes a business situation. The tool is based on five assumptions that determine the competitive advantages or powers in a business environment. The first assumption is the threat of substitution services and products, and the second assumption is the supplier’s bargaining power. The third assumption is the buyer’s bargaining power and the fourth assumption is the threat of new entrants. The last assumption is the intensity of competition in the marketplace or industry (Hill & Jones, 2010 p. 16). Analysis of the five forces is conducted by assessing each of the forces or assumptions followed by a step of brainstorming relevant factors in a situation or market. After the brainstorming exercise, the user of this business tool marks crucial factors and summarizes the scale and size of the forces. Purpose of the Porter Five Forces Analysis Porter five forces analysis provides a platform for understanding a business environment. It also helps in the identification of the forces or powers that influence a business situation. The purpose of the five forces analysis is to prompt an organization or business to build an appropriate and effective competitive advantage (Hill & Jones, 2010, p. 25). By understanding the forces that influence a market or industry, an organization can take advantage of a situation that suits its strengths while improving its situations of weaknesses. Business Benefit of the Porter Five Forces The business tool assists organizations to comprehend factors that affect the profitability of an industry. It also helps to inform business decisions (Porter, 2004, p. 28). For instance, a business entity can use the tool to decide on whether to enter a new market, or whether to increase its capacity in the industry. The business tool provides information about the future attractiveness and competitiveness of an industry. Porters Five Forces Of the Premium Headphones Market Threat of New Entrants The ability of new entrants to enter the premium headphone market is limited. Entry into this market is time and resource intensive. New entrants must conduct research and development in order to understand the needs of customers (Porter, 2004, p. 35). They must also study competitors in order to understand what they do not offer. Beats by Dre was formed in 2006 and it took 2 years before the product was launched. Entering in this market also requires a new company to have specialist knowledge, particularly in marketing and product development. Most importantly, the protection of technologies is important in order to avoid infringements. The protection of technologies presents barriers of entry due to the difficulty in acquiring a patent. Supplier Power Supplier power in this market is low. The number of suppliers that can meet the standards of the premium market is low (Porter, 2004, p. 47). The main suppliers are Sony, Apply Inc and Monster Cable. Sony and Apple, Inc manufacture their own headphones while supplying parts to other companies. Monster Cable focuses on partnerships for the development of premium headphones. It is easy for a headphone manufacturer to change suppliers because of the low supplier power. Threat of Substitution Substitute products in the premium market do not offer high quality audio experiences. The cost of substituting is high because customers will loss the prestige and class that is associated with a premium headphone brand (Porter, 2004, p. 48). Customers will also loss the ability to order customized premium headphones. Buyer Power The power of buyers is high because of the large number of customers (Porter, 2004, p. 55). Customers range from celebrities in the entertainment industry to sports people and government officials. Companies also receive orders from private entities and non-governmental organizations. The bargaining powers of buyers are seen in their ability to change brands or purchase a high quality product whenever it is launched. Competitive Rivalry This industry is characterized by intensive competition. Companies that offer premium headphones include Sony, Philip, Apple, Monster, Bose, Pioneer and JVC. These companies offer products that differ in terms of quality and price. They engage in competition through intensive marketing, product placements and endorsements. Quality differences are seen in product design, particularly in variations in audio. Customer loyalty is high as customers show their allegiance to their preferred brands (Porter, 2004, p. 69). The cost of leaving the market is high because of the investments made in research and development, product design and marketing activities. Marketing Mix used by Beats by Dre Beats by Dre is the most successful premium headphone brand in the market. The firm was able to make a unique product that satisfied the needs of customers. The successes of the brand can be attributed to the execution of three marketing mix strategies; product, promotion and place (Bowman & Gatignon, 2010, p. 21). In the case of product, Beats by Dre successfully made a unique product that solved the problem of poor audio quality (Meara, 2014, p. 1). In addition, the firm was able to personalize its products. Personalizing the product and aligning it with the music producer and record label chairperson created a notion that the product was tailored for audio purposes (Minor, 2014 p. 1). In addition, Beat by Dre gives customers the ability to customize their orders. According to Dr. Dre, Beats by Dre headphones are designed to enable customers listen to all music. In contrast to its competitors, Beats by Dre headphones produce large amounts of bass. They are optimized towards pop music and hip-hop. Beats by Dre also optimized on the place element of the mix marketing strategy. The headphones are sold through major retailers in the U.S. They are also available through the internet. The numbers of its potential customers who use the internet motivated its focus on internet retail (Lamb & McDaniel 2009, p. 121). Using internet retail also exposed Beats by Dre to its target customers, youths. Beats by Dre headphones are distributed throughout the world to the firm’s official distributors and retailers. This ensures that customers get their orders without any inconveniency. The focus of Beats by Dre was the promotional elements of the mix marketing strategy. Beats by Dre headphones are marketed through advertisements that are innovative and captivating to the audiences (Briggs 2014, p. 1). The brand uses music videos to advertise its products. Beats by Dre makes promotional videos that features celebrities in the music industry. The videos target youths and the mass market. They tend to purchase products that feature celebrities, particularly pop music celebrities. In addition to the use of pop music, Beats by Dre also uses sports personalities in promotional videos that target sports people and fans (Steinberg 2014, p. 1). During the London Olympics and Brazil World Cup, Beats by Dre used prominent sports personalities taking part in these sports for promotional purposes (Gensler 2014 p. 1). Before the Olympic Games started, Beats by Dre invited athletes and musicians to a pre-games event. During the event, athletes and musicians were given sets of gifts that included the Beats by Dre headphones. Athletes wore headphones throughout the sporting event. Beats by Dre strategically promoted the headphones by giving out a few sets of the headphones in return for global media exposure. Ansoff Growth Matrix The Ansoff Growth Matrix is an important tool that helps businesses to strategically map their product growth. The growth matrix is a marketing planning tool that helps in the determination of market and product growth. Product or market growth is determined by focusing on the nature of the product or market (Hackley, 2013, p. 68). Ansoff growth matrix provides four marketing strategies, product development, market penetration, diversification and market development (Richter, 2012 p. 39). The selection of any of these strategies is based on a business’s core activities. Purpose of the Ansoff Growth Matrix The purpose of the growth matrix is to assist businesses frame their market entry strategies. Additionally, the matrix was developed with an aim of classifying products and markets based on whether they are new or exist. The matrix also helps businesses to mitigate their market entry and product positioning risks. Businesses can use the matrix to identify the most appropriate option for developing or supporting business activities (Groucutt, Forsyth & Leadley, 2004, p. 51). These options are assessed in terms of benefits, costs, opportunities and risks. Business Benefits to Beats One of the business benefits of the matrix to Beats by Dre is its ability to help the brand grow while reducing costs. This is achieved through economies of scale. The matrix has the ability to guide Beats by Dre to optimize the efficiencies that arise from the use of new technologies. It also guides during the recruitment of professionals who will help during decision-making (Baker, 2008, p. 15). Beats by Dre can also use the matrix to evaluate its growth opportunities. Strategies That Beats Have Adopted Over Time to both Expand and Survive Beats by Dre use the market penetration strategy to survive in the premium headphone market. In this case, the brand uses promotional materials to retain its market share. Beats by Dre continuously produces promotional videos that features sports and entertainment celebrities. In addition, the firm is continuously seeking product endorsement from celebrities (Meara, 2014 p. 1). The use of internet retailing has also helped in expanding the distribution of the headphones. Beats by Dre also uses diversification, which is the marketing of new products to markets that did not exist. In this case, Beats by Dre is involved in the marketing of innovative products such as the Beat Pill wireless speakers (Meara, 2014, p. 1). Product development is used by Beats by Dre to market new products in existing markets. The original Beats by Dre, released in 2006, have undergone product modifications in order to suit the needs of existing markets. These products have been modified in terms of performance, quality, outlook and presentation. Conclusion Beats by Dre is the leading premium headphone brand in the market. Beats Electronics is a firm that produces the headphones. It optimizes its strengths in order to benefit from the industry and market. Beats by Dre was created in order to improve customer experiences. Apple Inc. was offering substandard audio in headphones. In order to enter the market and gain a market share, Beats by Dre focused on the promotion, place and product elements of the mix marketing strategy. In addition, the firm uses Ansoff Growth matrix strategies to enhance progress. Reference List Baker, M. J 2008, Marketing: Managerial Foundations, South Melbourne, Macmillan Education Australia. Bowman, D., & Gatignon, H 2010, Market Response And Marketing Mix Models: Trends And Research Opportunities, Boston, Now. Briggs, B 2014, World Cup Ambush: Guerrilla Marketing Taps Soccer Fever, NBC News. [Online] Available at http://www.nbcnews.com/storyline/world-cup/world-cup-ambush guerrilla- marketing-taps-soccer-fever-n140026 [31st October 2014] Gensler, A 2014, Beats Headphones Banned At World Cup. Billboard [Online] Available at http://www.billboard.com/biz/articles/news/branding/6128501/beats-headphones-banned-at- world-cup-which-may-be-exactly-what [31st October 2014] Groucutt, J., Forsyth, P., & Leadley, P 2004., Marketing: Essential Principles, New Realities. London [U.A.], Kogan Page. Hackley, C. E 2013, Marketing In Context: Setting The Scene [Online] Available at http://public.eblib.com/choice/publicfullrecord.aspx?p=1514267. [31st October 2014] Hill, C. W. L., & Jones, G. R 2010, Strategic Management Theory: An Integrated Approach. Boston, Ma, Houghton Mifflin. Lamb, C. W., Hair, J. F., & Mcdaniel, C. D 2009, Marketing. Mason, Ohio, Southwestern Cengage Learning. Meara, P 2014, Dr. Dre And Jimmy Iovine Create Music Industry College At USC. Cheri Media Group [Online] Available at http://www.hiphopdx.com/index/news/id.31181/title.dr-dre-and- jimmy-iovine-create-music-industry-college-at-usc [31st October 2014] Minor, J 2014, A Conversation with Robert Brunner, the Iconic Designer behind Beats by Dre. Tech. Paste Magazine [Online] Available at http://www.pastemagazine.com/articles/2014/10/designer-of-beats-by-dre-robert-brunner- reflects-o.html [31st October 2014] Porter, M 2004, Competitive Strategy: Techniques For Analyzing Industries And Competitors. New York, NY [U.A.], Free Press. Richter, T 2012, International marketing mix management: theoretical framework, contingency factors and empirical findings from world-markets. Berlin, Logos. Steinberg, D 2014, Alex Ovechkin Joins LeBron James and Serena Williams in New Beats by Dre Commercial. Washington Post [Online] Available at http://www.washingtonpost.com/blogs/dc-sports-bog/wp/2014/10/30/alex-ovechkin-joins- lebron-james-and-serena-williams-in-new-beats-by-dre-commercial/ [31st October 2014] Read More