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n March 5, 2003 the venerable pianomaker Steinway & Sons celebrated its 150th anniversary. To mark the occasion, the company introduced a limited edition grand piano model designed by Karl Lagerfeld and a recreated version of the Steinway that had been played by Polish virtuoso Ignace Jan Paderewski in 1891. In early June, a series of three concerts at Carnegie Hall, featuring artists ranging from Van Cliburn to Art Garfunkel, paid homage to what has been the instrument of choice for generations of professional musicians.
Steinway didn’t invent the piano. But it certainly perfected the 88-keyed instrument to the point where the company’s name and the word piano are almost synonymous. Working a long-term – 150 years and still going – technical and marketing strategy that emphasized quality, the New York-based company has convinced the music world that a piano should simply sound like a Steinway. The Steinway sound is to the piano what the Harley Davidson sound is to the “true” motorcycle. And today, the piano of Paderewski, Rachmaninoff, Rubinstein, and Horowitz is the piano of over 1,300 contemporary concert artists – and the standard that competitors strive to mimic.
How did this company, which has been the subject of my management consulting class’s case study for the past two years, gain such prominence? And more important, how did it maintain its competitive advantage in the face of Depression and myriad competitors? In a word, strategy. Ever since the first Steinway family members arrived in New York from Germany in the middle of the 19th century, the company has pursued a strategy of making high-end, quality products, selling them through its own sumptuous outlets and through a network of dealers, and gaining exposure by encouraging premier performing artists to use the pianos.
Coming to America
Steinway’s founder, Heinrich Engelhard Steinweg, was born in Wolfshagen, Lower Saxony in 1797. At age 15 he found himself the sole survivor of a family of twelve children. At the age of 18, he was a soldier in the Prussian army at the epic battle of Waterloo. Leaving military service at age 21 – and hence too old for a traditional apprenticeship – he served as an apprentice with a church organ builder. After making a number of organs, he took an interest in pianos. He learned how to make his first piano in Seeson, Germany, from Karl Brand, the son of the local synagogue’s cantor.
teinweg entered the piano-making business in 1839. By 1848, he had produced about 400 units and was considered to be a prosperous man. However, the famines and the failed revolution of 1848 convinced him and many Germans that life might be better in America. And in June 1849, he sent his son Charles to New York.
In New York, Charles had no trouble finding work with the piano maker Bacon & Raven. The city was the center of the U.S. piano industry, and business was booming. Receiving favorable word, Heinrich sold his house in the spring of 1850 and journeyed to America with his three daughters, five sons and wife. The oldest son, Theodor remained in Germany. Arriving in New York, Heinrich, now called Henry E. Steinway, took a job making soundboards at piano maker Leuchte for $6 per week. The wages were well below what Charles was making and even less than the $10 per week that barbers were earning. But as a non-English speaker, Henry didn’t have many choices.
n March 5, 1853, Henry and three sons – William, Charles, and Henry, Jr. – launched Steinway & Sons with a total investment of $6,000. It was a true family business. Henry was the titular head of the business, William worked as a “bellyman,” installing soundboards, Charles focused on tuning and “voicing,” and Henry Jr. on finishing. Henry’s daughters helped in the selling activities. From their shop in a rented building in Lower Manhattan’s Varick Street, they made and sold eleven pianos the first year. In 1854, they moved to larger quarters on Walker Street.
The pianos quickly gained attention. In 1854 a Steinway piano won a prize at The Metropolitan Mechanics Institute Fair in Washington. The following year, at the American Institute Exhibition in New York, Henry Jr.’s new model design was deemed to be the best piano at the exhibit.
Growing into a Large Business
In the 19th century, piano-making was generally a small-scale business. In 1863, some 400 workers made 1623 pianos. But most manufacturers couldn’t match Steinway’s quality and sold into the lower end of the market. By pursuing the high-end, Steinway quickly evolved into a significant business. In 1860, just seven years after the company’s founding, the Steinway family enjoyed an elaborate dinner to celebrate the opening of a new factory on Manhattan’s Park Avenue – just across from where the current Waldorf Astoria Hotel now stands. The new factory employed about 350 workers and was the largest piano factory in the world. Four years later, the Steinways opened a showroom on 14th Street in Manhattan. In 1865, sales topped $1 million.
Almost from the start, Steinway pioneered in piano technology. Between 1857 and 1900, it was awarded 58 patents for innovations in piano design. In 1859, Steinway introduced the first overstrung grand and by the 1870s, their basic design for grands – which used a cast iron frame, heavier strings and a single sound board – became the industry standard. The new design produced a much more intense sound, far better suited for the larger concert halls that were replacing smaller venues used for chamber music. The new design was referred to as the Steinway System, or as the American System.
In part to avoid union conflicts, the company in the 1870s purchased 400 acres of farmland in the Astoria section of Queens, just across the East River from Manhattan. And within three years, the site housed a functioning factory along with company-sponsored housing and transportation for employees. The company expanded internationally, too. In 1875, a showroom in London was added, and in 1880, Steinway built a factory in Hamburg, Germany to serve the European market.
Marketing a Sound
Marketing was also part of the strategy. Since at least the time of Beethoven, concert artists had endorsed pianos. Early on, William Steinway, the marketing genius of the firm, who would become president of the company in 1876, recognized the need for endorsements. According to author Cyril Ehrlich, he categorized his targets into three interconnected groups: “the aristocracy and haute bougeoisie, eminent musicians and habitués of artist salons, and not least, the new emporia of international commerce, the great exhibitors.” In the 1860s and 1870s, William managed to gain the patronage of the Baronese de Rothschild, the Empress of Russia, the Sultan of Turkey, and Queen Victoria. In 1872, Steinway sponsored a 215-city concert tour in the U.S. by the Russian virtuoso Anton Rubinstein. And by 1876, William could claim that 94 eminent artists were using – or preferred to perform on – Steinways. The list included such names as Richard Wagner, Louis-Hector Berlioz, and Anton Rubinstein. Of course, endorsements weren’t always exclusive. Franz Liszt, the pianist and composer, endorsed Steinway – and at least six other piano manufacturers.
Starting in 1855, Steinway was the only piano maker to advertise daily in The New York Times and in the 1870s and 1880s was one of only a handful of manufacturers advertising regularly in national publications. But the efforts shifted into another gear in 1900, when Steinway started to work with N.W. Ayer & Sons, one of the first full-service advertising agency in the U.S.
yer noted that since Steinway’s in-house program was only geared toward those already interested in music, the company was neglecting millions of other potential customers who could develop a taste for it. Steinway agreed to hire Ayer, so long as the agency’s work would not damage the company’s well-guarded image. Ayer’s efforts worked well and the partnership lasted until 1969, the longest in the ad business. The company also received free advertising, as when Irving Berlin penned the line “I know a fine way to treat a Steinway” for his 1915 hit “I Love a Piano.”
Leadership and Ownership Transitions
When William Steinway died on November 30, 1896, the reins of the company fell to his nephew Charles H. Steinway. Charles led the company through a difficult financial period in the late 1890s by finding new markets and adding to the firm’s production capacity. Charles ran the company until his death in 1919, and then his brother Fred became chief executive. Fred, who had lived in Germany until 1878, was somewhat more formal than his cousins. Under his leadership, Steinway in 1925 moved its New York showroom from 14th Street to the now famous Steinway Hall on West 57th Street. In 1927, after Fred’s death, Theodore E. Steinway took over. Theodore was somewhat reluctant to take control, as he was somewhat shy and had a bit of a stammer as a boy. But he ran the company until 1955, when his son Henry Z. Steinway took over.
Like many other manufacturers, Steinway struggled during the Great Depression and World War II, during which production was suspended – with the exception of about 3,000 olive drab pianos for the military. Normal piano production would resume in 1946. And in 1953, to celebrate its centennial, a special concert was given at New York’s Carnegie Hall which featured ten pianists playing Chopin’s Polonaise in A Major.
In the early 1970s, much as it had a century before, Steinway encountered competition from low-cost producers – this time based in Japan. While Steinway’s fine image and reputation was unquestioned, the business wasn’t particularly profitable amid the challenging economic climate. The cousins who held stock in the company fell into two categories. Those involved in the business derived a great deal of psychic income from running the business, but the others were mainly interested in the return on their investment and pressured Henry Z. Steinway, the then-president, to act. So in 1972, more than a century of family control came to an end when Henry sold the company to CBS. CBS pumped some badly needed funds into the operation but eventually recognized that the business didn’t fit its corporate strategy.
In 1985, CBS sold the company to John and Robert Birmingham, Boston-based investors. The Birminghams brought in Bruce Stevens as president. Under Stevens, a veteran businessman, Steinway returned to its former stature, stressing quality and focusing on the high-end market. Ten years later, the Birminghams sold Steinway to two investors, Kyle Kirkland and Dana Messina, who today control 84 percent of the voting stock. Kirkland and Messina then merged the company with Selmer, a manufacturer of musical instruments. The stock is listed on the New York Stock Exchange under the symbol LVB, honoring Ludwig von Beethoven.
The new ownership retained Stevens as president. And with a series of successes in marketing, Stevens has maintained the strategy of differentiation and aggressively protecting Steinway’s high-end market share.
Elements of Strategy
Steinway today uses a multipronged strategy, whose elements include unparalleled quality, a strong focus on the market’s high end, a comprehensive restoration program, an art case and limited edition program, the All Steinway School Program, a strong dealer network, a concert and artists program, and a highly skilled work force. While each individual element potentially can be copied, together they constitute a formidable defense against potential challengers. In many cases the individual elements work to reinforce each other.
Quality was and remains the keystone of the Steinway strategy. The company’s mission, as stated by its founder was to “Build the best piano possible.” Essentially, it is the same today, as Steinway brings the modern techniques of quality management to old world craftsmanship. Every piano that goes through the tuning and “voicing” department is worked on by a highly skilled technician for as long as a day before it can be called a Steinway. The company uses Statistical Process Control analysis in those departments whose parts have exceptionally close tolerance limits, and conducts quarterly analysis and evaluations of all scrap, yield, and rework data. And with the direct role played by top management, the overall program at Steinway is a true total quality management (TQM) program.
Focus On the High-End of the Market
Yamaha enjoys a far greater share of the overall piano market than Steinway and even makes concert grands that sell for as much as a Steinway. (Small Steinway grand pianos range from $36,000 to $54,000 while a full-sized concert grand piano retails for $93,000.) Yet Steinway enjoys 98 percent of the concert grand market. And while Steinway has only about 2.5 percent of all keyboard retailers in the U.S., these retailers represent approximately 23 percent of the total industry sales dollars and about 35 percent of the profits. Steinway sells 85 percent of its pianos through it 170 dealers, 70 of which are in the U.S., with the remaining sales coming from company-owned retail locations, including Steinway Hall.
Steinway sought to protect its high-end image as it introduced its lower-end Boston and Essex lines, introduced in 1992 and 2001, respectively. The Boston piano is a mid-priced instrument made by Kawai in Japan to Steinway specifications. The Essex is a lower-priced piano made for Steinway by Young Chang in Korea. Both were introduced to broaden the Steinway dealers’ lines and act as an entry level product for future Steinway sales. This marketing concept of using two lower-priced lines was mimicked by Ford Motor Co.’s premier Jaguar division – after benchmarking Steinway – with its “X” and “S” types. To date, it appears that the Boston line has gained acceptance without damaging the Steinway image. The jury is still out on the Essex line.
Steinway long has had a premier restoration program to revitalize older Steinways. It provides Steinway owners with a means of refurbishing their pianos by skilled craftspeople and keeps employees busy. Under its Heirloom Program, Steinway actively buys up used Steinways, restores them and offers them for sale. This reduces the number of Steinways available for others to rebuild. In addition, Steinway does not sell its custom-built critical elements like soundboards or cast iron plates to rebuilders.
o maintain its cachet, Steinway produces and sells a select line of art case and limited edition pianos, which can cost as much as $675,000. A design by glass artist Dale Chihuly that featured a painted translucent glass top decorated with the Olympic flame was unveiled for the 2002 Winter Games in Salt Lake City. In December, 2001 Steinway introduced the first of its Legendary Collection, which offers one-of-a-kind recreations of historic Steinway art case pianos. Since 1998, Steinway has made only 29 art case pianos, of which 22 have been sold for an estimated $3.5 million.
To ensure that major artists play only on Steinways, the company works to develop All Steinway Schools among the prestigious music conservatories. The rosters includes 34 schools, including Juilliard, Oberlin, and the Yale School of Music. Unlike other piano makers, who offer their instruments free of charge, Steinway requires that the schools buy them. Oberlin, the oldest All Steinway School, has been buying Steinways for 125 years.
The connection between high-level performance and Steinways is reinforced through the Steinway Concert and Artists Program. The more than 1,300 artists that have been included in the program must not only meet certain performance standards but also own a Steinway and only perform on a Steinway. To support the program, Steinway operates a Concert and Artist Piano Bank with about 360 pianos. The program benefits the company, which gets free advertising at concerts, and the artists, who can depend on having a well maintained piano wherever they perform. When they’re sold, these “used” pianos – which would ordinarily depreciate – frequently command prices close to the cost of a new piano, because they are well-maintained and have been used, and, occasionally, autographed by artists. This program is one of the only pure product endorsements programs, as no artist is paid to play on or endorse a Steinway piano.
Highly Skilled Work Force
The Steinway work force is both highly skilled and dedicated. Because it is located in the Astoria section of Queens – one of the most diversely populated patches of American soil – the current workforce represents 35 different countries of origin.
Steinway employees take extreme pride in their work, and it is not unusual for some of the workers, especially those in tuning and “voicing,” to place their signatures in a spot where it can not be seen by the purchaser. Those in the Restoration Department at times find signatures of their relatives and in many cases add their own when their work is completed. The Astoria plant has enjoyed unusually good labor relations. The current U.S. union contract calls for Steinway to manufacture their pianos in the U.S. only within the five boroughs of New York City, thus providing job protection.
Since the advent of radio in the 1920s, piano demand has suffered. While radio may not have hurt Steinway sales as much as it did other piano producers, the Great Depression, the phonograph, World War II, television, CD players, DVD, electric pianos, and synthesizers certainly did. In recent decades, the piano business had become a stagnant industry.
The text book solution for dealing with such a market is to build on the characteristics of the market, exploit the growth segments, emphasize quality, and continue to improve your product. Steinway’s niched, differentiation strategy follows many of these elements and it is therefore no accident that it has developed staying power. Today, Steinway is to pianos what Rolex is to watches and Mont Blanc to quality writing instruments.
As is the case with many high-end products, Steinway generally suffers when the economy is poor. Last year, Steinway’s sales were down 11 percent. Steinway’s staying power, however, should see it through, as it has in past economic downturns. In spite of the fact that Yamaha has significant financial backing and sells to a broader market, it is unlikely that the diversified company would invest large sums in a business that does not have the returns of their other businesses.
erhaps the most important lesson that Steinway teaches us is that success can be achieved even in a stagnant industry when a firm seeks out a strong niche, continually monitors its position, and finds new ways to differentiate itself. Strategy is a living, full-time job. Even when you’re 150 years old.
David Liebeskind is an adjunct professor of management at NYU Stern.