What happened to Bang&Olufsen?

If you think about Lego and Bang&Olufsen two things will probably pop in your mind: Two high valuable brands with great products. The difference between these two companies could not be bigger. Lego a company that build coloured blocks for kids with sustainable growth on the one side, and Bang&Olufsen a manufacturer of high-end audio systems with a decreasing revenue on the other side. “If you look back 10, 20, 30 years, Bang&Olufsen had a fantastic position.“ says Tue Mantoni actual CEO of the 91 years old danish company.

Let’s have a short look at the industry. The consumer electronics industry has faced some major changes in consumer taste and behaviour. Where the industry is expecting relative small growth in traditional product segments like televisions, new categories like 3D printers, fitness devices and smartwatches, provide strong growth. Therefore, the audio product category with products such as headphones and wireless speakers had an impressive development in recent years. Gary Shapiro, president and CEO of the American Consumer Technology Association says “More than 95 million headphones totalling $1.8 billion were sold in 2014 along with 7.7 million wireless speakers worth $812 million.” Bluetooth wireless speakers create currently a 69% increase year-over-year.

Although music and connected home entertainment systems have entered our daily lives and homes, Bang&Olufsen has not profited from this big market share. The company lost more than three-quarters of its value in the last 10 years and is currently, after a rigorous restructuring process in negotiation with a Chinese investor. So what happened to the well-known Danish company in recent years?

A strong history, but the world has changed
The digital revolution in the music industry created new demands of consumers, with new product categories, sales channels and revenue models. With the introduction of the iPod in 2001 by Apple and the iTunes store in 2003, the way we consume and buy music has changed radically. Bang&Olufsen has lost in these years one key aspect to its competitors they were well known of: Innovation and technical leadership. The white plastic Apple $1 earphones became the new status symbol, and Bang&Olufsen was no more able to justify the high prices of its products.

“The digital revolution made the Bang & Olufsen product palette, which was still relying on traditional single-use products, needless.”

Experience over technical details
New competitors like Beats and Sonos successfully entered the market and positioned themselves in the premium segment of audio equipment. Beats, for example, focus on a specific music and consumer segment. They turn the perception of a traditional technical device, like headphones, into a heavy branded lifestyle product attached to a music genre. Sonos successfully created an experience that makes accessing streaming services and setup multiple speakers in one home easy for end users. Both competitors focus on design and experience rather than technical details. Until today, Bang&Olufsen is still struggling to find a profitable way to connect the strong heritage to the demands of the new digital world.

Bang&Olufsen has something, mainly Asian competitors, struggle within the market: A heritage to tell a true and unique story to its customers. Founded 1925, Bang&Olufsen is well-known for innovative engineering, sophisticated design and high-end acoustics, and became over the last 20 years a cultural icon for design with a high brand reputation. The new sub-brand Bang&Olufsen Play, launched in January 2012, is offering a new product palette which fits consumers needs and market trends by providing wireless speakers and headphones in a wider price segment.

A market with new trends
In a study published by the Gottlieb Duttweiler Institute about luxury, the authors define a shift from the phase in which things are used to define the social status, to a new stage where luxury shifts from products to immaterial goods like time or experience.

The lifecycle of an electronic product is getting shorter due to the rate of technological innovation which fights classic long-lasting products, like the ones Bang&Olufsen produces. This has changed the expectation of consumers how long lasting a product needs to be. Ann in the end what consumers want to pay for it.

“The digitalisation of music has changed how we interact with music. – Music is no more physical.”

We listen to music on multifunctional devices and there is no more need in having a centre location at home to store, collect and listen to music.

Understand user’s needs
To understand future business opportunities it is valuable to look at different consumer behaviours to understand their needs. The purpose of the survey was to get a deeper understanding if people prefer physical or online spaces to buy audio equipment such as headphones and wireless speakers, which location they like to consume music and what are the most influential attributes they pay attention to when they buy headphones.

Surprisingly 72,2% prefer to buy audio equipment in physical stores rather than through an online channel. This fact shows an opportunity for Bang&Olufsen against its direct competitors which rely heavily on online channels and retailers. When asked which place people enjoy music the most, 27.8% responded with “home”. Most participants, in fact, 44.4%, responded that they have the best music enjoyment at traditional concerts or festivals. This fact can be interpreted that people still want to engage with music live and enjoy music in a group with their peers. The last question asked the participants about the key drivers when buying headphones. Most important is the sound quality followed by price and design. Least important was the sustainability aspect of the product and the exclusiveness of the manufacturing brand.

A future opportunity
Some of the gained insights are not surprising where others show a key differentiation and possible market growth for Bang&Olufsen. The unique, over 90 years old company’s story is no more a key driver for consumers. Sonos founded in 2002 and Beats six years later, attract consumers by telling a brand story that reflects consumers needs instead of telling a story about heritage. Something we currently also see in the automotive industry with Tesla. A high polished website, and modified sub-brand like B&O Play, will not bring long-lasting revenue to the company. The probability that competitors will do the same soon is obvious.

The future key differentiator for Bang&Olufsen has to be the experience and meaning they provide and create for their consumers. The shift of luxury, from product to experiences, shows that people are no more interested in technical details and pay more attention to the experience they have when buying and using the product. Therefore, the challenging innovations will not be in technical details, furthermore in creating an innovative experience that connects to the users needs and create a meaning for them.

“But to ultimately be different, a company must first think differently.” — Gary Hamel, 1996

Music is no more physical, but people want to have physical and tactile experiences when they listen to music and buy headphones. The physical presence Bang&Olufsen has with its stores is a unique plus, compared to competitors. It is not about creating great looking, high polished stores. It is about using the physical space as a platform where Bang&Olufsen creates experiences that connect people with music they like, and products that are able to replicate those experiences.

If Bang&Olufsen will be able to transform from a manufacturer company to a platform provider that celebrate high audio music and is able to create unique experiences, competitors will not be able to replicate this new self-understanding and meaning of the company.

This article is not related to Bang&Olufsen. It simply reflect the authors personal view.