A Phenomenal Product for Beats Electronics - Term Paper Example

HOW BEATS BY DRE CHANGED THE AUDIO WORLD By: Seminar 31st October Words used: Contents Executive Summary Introduction The Beats by Dr. Dre headphones have experienced one of the highest market appreciations in recent years. The headphones, produced by Beats Electronics, have undergone a sharp rise in sales that has attracted the attention of many analysts. In fact, the company changed the headphones into a billion-dollar business in just six years, under the stewardship of Dr. Dre and Jimmy Iovine (Martin, 2011). This report makes one more analysis of the success story of the headphones in an informed way guided by business models. In this analysis, the success of the business in selling the headphones is examined using various academic tools, including Porters Five Forces Model, marketing matrix approach and the SWOT analysis. Background Dr. Dre’s headphones have been a phenomenal product for Beats Electronics. This underlines why a lot of literature has focused on the product’s viability across multiple markets, including the hard to crack Chinese market (Biddle, 2013). The product was borne out of a partnership between Dr. Dre, a hip hop icon, and Jimmy Iovine, a rich cosmetics dealer who bought into the idea of producing high-end electronic gadgets. Findings Porters Five Forces Analysis This is a decision making tool used by firms to evaluate the major players and decision makers in an industry. It enables new entrants into an industry and existing firms to do a SWOT (strength, weakness, opportunity and threats) analysis of its position. It also helps the management to project the hardships it may face or probable benefits it may enjoy if it decides to reposition itself in the same industry. This way, the firm is able to use its competitive advantage optimally (Kelce, 2011). The tool is based on five determinants to a firm’s competitive advantage. The suppliers. This especially holds when a firm relies on a small number of suppliers to provide a factor of production. It makes the pressure of demand on the factor of production from a specific supplier higher. Consequently, the supplier becomes the primary price determiner of the factor. This hinders the firm’s ability to influence its own costs of production. The clients. A firm’s ability to control the price of its products depends on the type of consumer whose demands are to be satisfied. A firm that serves a large number of small consumers is in a position to determine the price of its products in the market, in contrast to another whose products are consumed by a small number of large consumers. When the number of consumers is small but their consumption is large, it shifts the ability of the firm to determine prices of its products to its consumers. Level of competition in an industry. When a firm enjoys a competitive advantage like technological advancement, monopoly over a factor of production, better skilled human resource or enjoy lower overhead costs, it is able to outdo competition since it can produce better quality products. Equally, it can enjoy larger profit margins from lower operational prices. This enhances the firm’s chances of surviving competition. Barriers of entry. When an industry has fewer barriers of entry like low capital costs, ease to access and few legal requirements, it makes it easier for new firms to enter the industry and displace the existing firms. But when an industry has barriers of entry like intense capital investment requirements, monopoly due to control of factors of production and a lot of legal requirements, new entrants tend to shy away enabling the existing firms to have more control of the industry. Ease of substitution. When a firm’s products have close substitutes, control of a firm enjoys over its consumer base is reduced since the consumers can easily substitute the product if demand is not met as compared to a firm whose products do not have close substitutes. A firm whose product has no close substitutes has more control over its consumers. Porter’s Five Forces on the Premium Head Phones Market The suppliers. Most headphones are made of plastic, aluminium, rubber, copper, magnate and electrical wiring. These inputs of production are easily accessible and no supplier enjoys monopoly in the market. This enables producers of headphones like SONY, JVC and LG to be able to control the prices at which they get their inputs and cut costs of production giving them control over the market. The clients. The premium headphones market is characterized by many small scale consumers. This shows that the number of consumers is large but their consumption is small. Consequently, firms making headphones get more control over the market because they are able to determine the retail prices of their products. Level of competition. The premium headphones market has a number of firms in the industry. In order for any firm to enjoy control in the market, it has to focus on its strengths and opportunities. It can do this by producing better products or better pricing strategies to survive competition. Barriers of entry. The headphones market does not have a lot of legal barriers to entry. The only challenge it may present to new firms is that it is capital intensive, since it requires a lot of advertising in order to penetrate the market. This makes the venture relatively expensive. This requirement gives the already established players control over the market and their positioning. Ease of substitution. Headphones do not have an exact substitute gadget in the market, which makes external attack on the market relatively unviable. The largest form of substitution is mainly based on brand names, but not closely related products. Marketing Mix Used by Beats by Dre The success of a product a company launches in a market usually depends on the marketing mix it decides to employ. The marketing mix answers questions of what when how and where to produce. It leads to the formation of the 4P’s of the marketing mix, namely; product, price, promotion and place (Bohan, Hin and Fuan, 2013). Price. When a firm sets the prices of its products, it should ensure that the potential consumers of the product get value for their money. Products of low quality should not be priced higher than their value. Otherwise, the consumers will feel they are being exploited, which discourages repeat purchases. One of the most sold accessories of Beats by Dre is the “studio”. In spite of its size, it has been modified to weigh less; it is more appealing, durable, and comfortable. It has better sound amplifiers and special effects. It also has a longer battery life when charged. This piece of headset has been able to sell because despite the fact that it has a slightly high retail price, consumers feel they get value of their money (Leopold, 2014). Promotion. A firm should have a promotion mix that does not only create awareness but stimulates demand that can be converted into sales. A good promotion mix embraces advertising, sales promotion, personal selling, and public relations in a proportion that is optimum for success of the firm’s marketing mix (Bohan, Hin and Fuan, 2013; Vrontis and Thrassou, 2006). Product placement: Dr Dre mainly used product placement to promote his line of headphones. This was done by endorsing the headphones in music videos, and celebrities appearing in talk shows and magazine covers wearing the headphones (Helm, 2014). Branding: Beats by Dre achieved numerous successes due to the fact that Dr Dre embraced them and became the brand ambassador. Dr Dre, being a well known producer had the best social personality that suited the brand. The beats also enjoyed endorsement from athletes and other celebrities (Biddle, 2013). Product. In order for a firm’s marketing mix to be successful, it has to ensure that there is adequate demand for its products and that the product is capable of satisfying its consumers’ needs. Beats by Dre come in a variety of products, mainly headphones, earphones, accessories and wireless speakers known as “beat pill”. Beats by Dre produces a wide range of products that are able to meet a wide range of consumers’ needs. They range from earphones to speakers that can be used in vehicle stereos (Martin, 2011). Place. The success of a marketing mix depends on the ability of the consumers to get the product when they want it and at a place that is accessible and convenient to them. Beats by Dre success is partly driven by the merger between Beats Electronics and Monster, an audio cable manufacturing company with a lot of experience and a vast distribution network. Monster, which was an already established brand enjoying high consumer ratings and loyalty provided Beats with a ready supply chain for the products (Leopold, 2014). Ansoff Growth Matrix, its Purpose and Business Benefits This is a decision making tool that enables marketers to determine the steps they can take to grow their product range and market share. The matrix proposes that a business attempts to expand, whether it’s trying to penetrate a new market or increase its market share in an existing market using a new or existing commodity. This leads to 4 possible scenarios (Bohan, Hin and Fuad, 2013). References Biddle, S. 2013. Beat by Dre: The exclusive inside story of how Monster lost the world. [Online]. http://gizmodo.com/5981823/beat-by-dre-the-inside-story-of-how-monster-lost-the-world. (Accessed 30th October 2014). Bohan, A. M., Hin, C. W. and Fuad, N. 2013. An analysis on the competitiveness of halal food industry in Malaysia: An approach of SWOT and ICT strategy. Malaysia Journal of Society and Space. 9(1): 1-11. Helm, B. 2014. How Dr. Dre’s headphones company became a billion-dollar business. [Online]. http://www.inc.com/audacious-companies/burt-helm/beats.html. (Accessed 31st October 2014). Kelce, G. A. 2011. The rise of Korean automobile industry: Analysis and suggestions. International Journal of Multidisciplinary Research. 1(6): 428-439. Leopold, T. Jan. 12, 2014. How Beats headphones changed the audio world. Cable News Network. [Online]. http://edition.cnn.com/2014/01/13/tech/beats-headphones-audio-market. (Accessed 31st October 2014). Martin, A. J. Nov. 19, 2011. Headphones with swagger (and lots of bass). The New York Times. [Online]. http://www.nytimes.com/2011/11/20/business/beats-headphones-expand-dr-dres-business-world.html?pagewanted=all&_r=0. (Accessed 31st October 2014). Vrontis, D. and Thrassou, A. 2006. Situation analysis and strategic planning: An empirical case study in the UK beverage industry. Innovative Marketing. 2(2): 134-151. Read More