Introduction
Beats by Dre is a North American company, founded in 2008 by Dr. Dre and Jimmy Iovine, recently
purchased by Apple Inc. for $3 billion in cash and stock deal (Hughes, 2014).
The now called Beats Electronics had an annual sales revenue of US$1.5 billion
in 2015 (Sisario, 2014), and its primary market is the premium on/over-ear headphones.
According to the NDP group,
Beats Electronics’ market share on the premium headphones above US$100 has
reduced from 64% in 2012 (Neate, 2013) to 61% in 2013 (BrandView, 2017), and is
still decreasing, even though they are still the top of the list in this
industry.
The target market for
premium over-ear headphones is estimated to be 23.6 million people. They are
the millennial audiophiles. A group majority of males, possible business man or
managers, between 30 and 35 years old with a stable life, that enjoy good
quality sound and are technologically interested. A niche group that has money
to spend on a reliable product, but also values the brand name. This target
market can be translated into a potential revenue increase if a new strategy arise,
such as the development of a new product.
This report exploit the
reasons behind the market opportunity in quality headphones. Internal and
external environment analysis are made to understand the scenario that Beats by
Dre is situated and how can the company grow on this market share. The customer
for this market tends to spend money on headphones that have a good quality
sound. Even though Beats by Dre provide products that are considered as
high-end product, they are not good enough in the perspective of an audiophile.
However, some of the customers would appreciate to have a product with a
recognizable brand name.
Among the long list of
competitors that Beats by Dre have, some have been in the market for a long
time, such as Sony, Bose and Sennheiser, and other are new entrants, such as Bowers
& Wilkins, Skullcandy and Monster. Nevertheless, for this report, only
Sennheiser and Bowers & Wilkins are at the proposed target market that
Beats by Dre could go by creating a high quality sound product.
This opportunity can
prevent, even a little, the downward trend that Beats by Dre has been facing
these previous years.
1. Introduction
Marketing has been present
in many industry sectors for quite some time, acting as the key to success and/or
downfall of various businesses. The range of these businesses is enormous, going
from television advertisements of new cellphones to movie stars endorsements of
luxury clothing. Nevertheless, there are still plenty of room for innovation
and markets to explore.
In one of these untapped
areas, Beats by Dre discovered a completely new market for its premium headsets.
Beats by Dre have changed people’s perception when it comes to the way they
listen to music. The strategy consists of Dr. Dre himself, a legendary producer
and musician, endorsing audio products, the same way soccer players endorse
sports shoes. As impressive as it may seem, they were the pioneers doing this,
even though the diversity of audio companies in the market.
Nowadays, Beats by Dre has
become a multibillion-dollar company with audio products selling all around the
globe, with a good reputation. However, the company has been facing some rumors
about their product’s quality and what they actually worth.
This report has the objective to analyze external and internal factors that could recover the company’s prestige and stimulate on the development of a new marketing strategy for Beats by Dre. Factors such as the environment scan and audit (SWOT, PESTEL, customer and competitor’s analysis).
2. Organizational & Product Overview
Beats by Dre is a North
American company that sells premium headphones and audio devices all over the
world. It was founded in 2006 by the famous rapper and music producer Andre “Dr.
Dre” Young and former Interscope Geffen A&M Records chairman Jimmy Iovine.
Beats by Dre states that
“People Aren’t Hearing All The Music” (Beats by Dre, 2017), so their vision is
to make sure customers do.
“The company’s mission is
to provide a superior end-to-end music experience – with headphones, devices
and services – so fans feel the emotion and hear the music the way artists
intended it to sound from the studio”. (Business Wire, 2013).
By the year of 2007, Beats
by Dre teamed up with Monster Cable and finally released its first product a
year later (Molina, 2017). After the release of the “Monster Beats by Dr. Dre
Studio headphones” in 2008, the company notoriety has grown exponentially. Its
enormous success is due to the excellent fusion between an excellent planning
of disclosure and a good product. Beats by Dre bet on co-marketing deals with
big names of sport and music so that brand recognition expanded into what it is
today (Inc. Magazine, 2012).
Nowadays, the company has
different products and services. Developed to provide a superior audio quality,
the on/over ear headphones present technological innovations, such as noise
isolation and wireless connection. Also along with its technical features, the
product has a fashionable design, something critical for customer’s approval. The
headphones’ price varies between US$130 and US$400 on their official website. The
product can also be purchase on Apple and retail stores, and through other
e-commerce pages. It is a top tier item with quality materials and luxury
packaging. As mention before, Beats by Dre promotes its products mostly throughout
celebrity endorsements. Big stars, such as LeBron James and Lady Gaga, creating
a glamourous status by utilizing a Beats by Dre headset. The company also make
advertisements through social media, commercials and internet videos.
Along the way, Beats by
Dre has ended its manufacture deals with Monster Cable, has acquired music
services from MOG and signed deals with HP and Chrysler. The company was 50,1%
bought by HTC in 2011 and in 2012 was partially rebought by Dr. Dre and Jimmy
Iovine. With all these outcomes, the biggest one occurred in July 2014, when
Apple Inc. purchased the company in a billionaire transaction, renaming the
company to Beats Electronics (Weber, 2014). The company remains on top, with
46%, when it comes to teens planning to purchase a Beats by Dre (Statistic
Brain, 2017) and leading with 49% in terms of dollar sales of the wireless
headphone market, when combined with Apple products. (Richter, 2017).
3. Environment Audit
The reputation that the Beats by Dre organisation built is mainly due to the notorious fame of Dr. Dre. In addition, the company has other considerable strengths and an amazing product. With a stylish design and fashion status, the headphone can be bought almost everywhere. They have a great sound and the luxury unboxing experience is unique. However, these premium headphones are a little bit expensive. The perceived value of them are quite high and rumors of the manufacturing cost diminish their prestigious reputation. Not only have that, but the technical graphs from the device represented bad quality sound when compared to products with similar price. (Itman, 2015). With Apple’s acquisition of the company, Beats by Dre can pursue many opportunities with personal computers and mobiles. Invest on research for new products with better quality. They can come up with new designs and/or personally customized products. Despite the tremendous success, Beats by Dre still faces threats. New entrants have already joined the premium headphones industry and old competitors are updating and renewing their products. Not to mention counterfeits and imitations.
Table 1: SWOT Analysis
On the internal layer of
the business environment, Beats by Dre adopted a Blue Ocean strategy (Pitta, D.,
2012; Pitta, E., 2012), creating and uncontested market space and capturing a
new demand for its premium products. Now, the organisation has more than 700
employees (Welch, 2014) and its structure relies on a traditional hierarchical
management (Meyer,2017). Beats’ suppliers are the same as Apple, Inc. suppliers,
due to the acquisition, which consists mostly in Asian electronic parts (Apple
Inc., 2017a). Apple’s supplier list is extensive; however, Beats’ premium
technology image is important for its customers, so the bargaining power of the
suppliers is moderate. With the industry’s competitors of the premium headset,
such as Sony, Bose and Skullcandy, and the flood of new products in the market,
it could be hypothesized that Beats by Dre would have a low bargaining power
over its customers. However, Beats still represents status and a unique
product, resulting in customer’s power reduction over them. It is a strong
competition, but Beats succeeded on conquering the customer’s loyalty and still
dominate the market (“An analysis of Beats by Dre”, n.d.).
Many factors can influence
the company at the external layer of the business environment. Considering the
political analysis, Beats provides an international product with most of its
markets outside the United States, therefore the company must maintain good
political relations among countries. These trade relations allow the company’s
expansion. The increase in tax is another political element example. In Brazil,
the import tax rate is elevated, 34% (Wikipedia, 2017), making the product
expensive, therefore reducing the number of consumers and affecting the demand
patterns of the company.
Economic factors can alter
the product consumption, for example in the eventuality of financial crisis. In
instance, the financial crisis of 2009 reduced dramatically technological
productivity (Adler & Duval, 2017). Beats by Dre is a luxury item, so in
time of shortage, people can choose a less expensive product.
Beats is mainly a social
brand, associated with the world’s biggest figures. Therefore, it is critical
that the company maintain a social responsibility with its customers, such as
the brand Product Red (McGlaun, 2010), an initiative aimed for fighting
tuberculosis, AIDS and malaria ((RED), 2017). Another example of social
commitment was when Dr. Dre faced criticism of violence against women in his
film Straight Outta Compton; he made a public announcement apologizing for the
ones he have hurt 25 years ago (Daily Mail, 2015).
The cultural change that
society has witnessed in relation to headphones is intrinsic. Back in the days,
people used to listen to music on their portable cassette player with
uncomfortable headphones, poor quality sound and cable connected. Nowadays, the
headsets are ingrained into the society. People use them everywhere, with
mobile devices streaming the music. This digital evolution and cultural shift led
to the creation of wireless headphones, with better comfort and quality sound.
In addition, Beats’ visionary strategy have led the premium headsets category
to a 95% revenue growth (Popper, 2014),
The commitment that the
creator and the company have with the high-tech product is one of the reasons
to attract audiophiles, sound engineers and musicians. The acquisition made by
Apple Inc. just reassured their commitment to technological advancements and
innovations.
Apple Inc. also ensures
that its subsidiary is legally compliant with the health and safety of its
foreigner’s suppliers and with the environment (Apple Inc., 2017b). The many
lawsuits, such as from Monster and from Bose, that the founders have been
facing since 2014 can influence at the company’s image. The supposedly creation
of the design and corporate identity by Steven Lamar is one of them (The Guardian,
2016).
4. Analyses
4.1. Target Market Analysis
The headset types that
exist in the market are quite diverse. They can be divided into four
categories. Circumaural (over-ear), supra-aural (on-ear), earbud and in-ear (Hertsens,
2014). Moreover, these headphones have different features and variations, such
as gaming, wireless, noise cancelation and others.
Beats by Dre has three
leading sales products. The headphones, the earphones and the speakers. This
report will focus on the premium (over US$100.00) over-ear headphones target
market.
Graph 1: Target Market Analysis
Even though with only 16%
of the market share, while the earbud & in-ear corresponds to 64% (Statistic
Brain, 2017), the on and over-ear headphones is Beats’ favorite in
advertisements, due to the fast logo’s recognition and fashion status. The
over-ear headphones are commonly used among music producers, and could not
different with the creator of the brand, Dr. Dre, which released his first
product having this specific layout.
Out of the 16% of over-ear
headphones, approximately 38% of the market is for the premium category (Future
Market Insights, 2015), totalizing 6% of the market share.
For this specific 6% target
market, sound quality is the top purchase influencer, with 73%, and brand is
the second purchase influencer, with 44% (The NDP Group, 2012). Calculating the
percentage average between quality sound and brand, the total of both purchase
influencers is 38%, resulting in 2% target market for premium over-ear
headphones with good quality sound and renowned brand.
This is a small target
market percentage, likewise the particular product customer, also called ‘the
millennial audiophiles’.
4.2. Customer Analysis
The co-founder, Jimmy
Iovine (n.d.), mentioned that Beats headphones target age groups of Tweens and
Generation Y (Millennials). These groups varies between 18 and 35. However,
according to the AudioCircle poll, the majority (84.3%) of audiophiles age
ranges from 30 to 60. (AudioCircle, 2008), and according to Haring (2006) report,
it is a male culture dominance. Therefore, the customer for this product is a
male from 30 to 35 years old.
The customer want quality
sound and a brand name. They are technological savvy and want the latest. Due to these factors, most consumers are
concentrated on urban areas. They like to express their individuality on social
media. In regards to the monetary condition, money is definitely not a primary concern,
representing only 10% of purchase influence (The NDP Group, 2012). Most have
stablished a solid career. It could be established that they are successful
professionally, owning personal car and property. A businessperson at an early
stage or a young manager is a decent representation of this niche group.
According to the United
States Census Bureau (2017) and The World Bank Group (2017) data, the world’s male
population between 30 and 35 years old living in urban areas (54.3%) is 184 million
people. The Beats by Dre is target to users with upper-middle income and high
income, standard for businessperson, which totalizes 16% of the population according
to Pew Research Center (2015). After including on the calculations the 80% of
social media users (York, 2017), such as Facebook, the relative size of this
segment is 23.6 million people. A precise estimation, when compared to the
number of shipments worldwide (340 million), Beats by Dre market share (46%)
and the over-ear market share (16%) resulting in 25 million units (Statistic
Brain, 2017).
Despite the small market
percentage, it remains a significant portion. Apple Inc. subsidiary has potential
for growth in many markets and opportunities for development. Beats Music is
one of these plans. The service intents to beat Spotify, providing music to
every iPhone and Ipad (Dredge, 2014). Beats can extend its partnerships with
other car brands on the BeatsAudio service. Create personally customized products,
such as a simple color and style customization or even a complex custom-molded
in-ear headphone.
Millennial audiophile
customers are loyal to the brand commitment for innovation. If Beats
Electronics increased research and testing cost on the development product,
many customers that values quality sound, would rather choose Beats products
instead of the competitors.
4.3. Competitor Analysis
The new entrants for the
premium headset industry has increased the competition among brands and
weakened the superiority of standard recognized brands such as Sony, Bose and
Sennheiser. These main new players are Bowers & Wilkins, Monster and
Skullcandy. Nevertheless, Beats by Dre still holds 46% of the market share
(Richter, 2017), but its portion has been decreasing over time.
The company also needs to
remain innovative and come up with ways to differentiate its products in order
to stay attractive to the customers, since competitors are presenting new
features for their headphones, such as the ThinkEar, a personal audio system
controlled by your brainwaves (NESTE, 2017). The cost competition will be an
issue too, since companies are trending to adopt same pricing strategies for
products with similar specifications. Even though price is more considerable
for other products with same specs, the customer’s loyalty to bigger brands
sometimes block these alternative competitors when they try to get into the
market.
Due to Beats by Dre and
other public known brands control of the market and international demand, new
entrants still find it difficult to enter the business. Beats also faces
substitute threats that uses different market strategies and partnerships,
which increases their share of these elite market. Two of these possible
substitutes are Soul by Ludacris and Sync by 50 Cent. With customers willing to
spend money on products with a better quality sound and improved
specifications, Beats by Dre requires innovation on their product offerings’
list.
The following table shows
the brand, product, price and features that are alternative competitors for
BeatsPro headphone, and BeatsPro itself.
Table 1: Alternative Competitors Analysis
Note. Retrieved from Headphone Reviews by PCMag Australia, 2017, Retrieved Oct., 2017 from https://www.pcmag.com/reviews/headphones
It is clear that Beats top
over-ear headphone is competing only with products at the price range of $200-$400,
and since millennial audiophiles don’t have price as the main concern, the
company end up losing part of the market for more expensive, but better
products, such as the HD650 and the P9.
5. Conclusion and Recommendations for preliminary marketing strategy
Beats by Dre product is a
high-tech product, commonly known for its fashionable status, however it has a
perceivable price too elevated with a bad quality sound, when compared to
similar products with same price. It is all about margin cost. Even though the
company spends a reasonable amount of money on research, manufacture and
testing, most of the budget goes to packaging and advertisements.
Because of these, Beats by
Dre is losing market share to alternative competitors. In order to change the
scenario, Beats by Dre must evaluate a new strategic approach to recover their
prestigious reputation for high-end product with good quality sound.
If the company closed the
gap between the perceived value and the sound quality, the millennial
audiophile target market will certainly increase.
The company is known for
being strong technologically. Along sides with Apple Inc., they can come up
with a fresh new product that involves lots of research, reducing the rumor of
cost manufacture and providing a product that satisfy the most assiduous
audiophile. Even though the product price would be higher than the BeatsPro,
the customer review would improve, closing the gap between the price and the
quality of the product, and capture consumers that value brand name and quality
sound.
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