1. Discuss Barco’s product line strategy before it faced unexpected competition from Sony.
Barco’s product line strategy involved differentiating their products based on scan rate, which measure the speed at which the projector was able to read and process incoming electronic signals. The projectors were differentiated into the following 3 categories: video projectors, data projectors, and graphics projectors.
Video projectors were designed for the compatibility with standard video sources, and were scanned at 16kHz. Data projectors were used for displaying input from personal computers as well as video sources, and were scanned at 16kHz to 45kHz. Graphics projectors could accept input ...view middle of the document...
2. How should Barco respond to this potential threat, with respect to price and product development plans?
For pricing options, there was only one option that Barco could enter into, that was to include a considerable price reduction on the BG400, which is one of its most sellable products. However, as mentioned, Barco, as best as they could, did not want to enter into a price war with Sony as they believed that they would be on the losing end.
Looking more closely at the price competition that could occur, as predicted, if the BG400’s price remained unchanged and the 1270 was priced at $20,000, the BG400 could lose 30% of its market share, or $3.85 million. Looking at the margin contribution of 29% for BG400, it would mean that BG400 would cost $17,040 to be produced. Based on the calculations, it would seem that it would not be feasible for Barco to drop its price to meet that of the 1270 as including the fall in market share, Barco would still make more profits if it were to keep its price at $24,000 and not drop it to $20,000.
Another prediction was that 1270 was priced at $15,000 and that would threaten to capture 60% of BG400’s market share. In this case, it would not make any sense for Barco to drop its price significantly as the price that the 1270 is selling is even lower than the cost price of Barco’s BG400 at $17,040. If Barco would like to match the price of the 1270, it would mean making losses for the company, which is not desirable.
Hence, for the pricing option, it is evident that Barco should keep its price of BG400 at $24,000. Furthermore, Barco has always been competing on the high end market unlike Sony, which has been competing on the low end market. Hence, in the event of a price war, Sony would most likely win as they would be able to reduce their selling price a lot more than Barco in the event that Barco reduces its selling price.
For product options, there are many more options possible. Barco could continue the production of the BD700, which has been in the works for 180-person months. Although...