A focus on emerging markets for luxury goods
Bang & Olufsen takes sound seriously. The Danish company has recently unveiled its latest creation the BeoLab 14 surround sound system. Laura Hamilton spoke exclusively with CEO Tue Mantoni in London, about the new product and the future of luxury goods in emerging markets.
Bang & Olufsen has a highly distinctive style. Why is design so important to technology?
Acoustic performance is not enough. People are investing more and more into furniture, into art and they do not want to be spoiling that interior with big black speakers. Therefore, we like to create the products for that market which are high performance and beautiful at the same time.
BeoLab 14 is a very aesthetic but very different surround sound system. What we really wanted to create was an alternative to the black speakers and black subwoofer, that is so common in the market. The subwoofer has all of the amplifiers hidden inside it, and we have created it so it takes up the minimum floor space possible, but it is a beautiful sculpture that you do not need to hide away. The smaller speakers fit in with the interior, but still stand out at the same time. We really wanted to create something from a craftsmanship angle, something that was flowing; the speakers were inspired by spinning plates at the circus. Technically speaking, we created it in a way that I believe no other company has done. We used aluminium in our design instead of wood. The speakers are made from a single, seamless piece of the metal to which we applied 170 tonnes of pressure to get a smooth circular raw wheel for the speaker. This was done to minimise waste, so it is one dynamic form and gives the engineer as much space as possible. The aluminium also has an anodised edge so it absorbs the colours in the room, making the speakers appear smaller than they actually are.
What makes BeoLab 14 different from other surround sound systems in the market?
When we went out and looked at the market, we saw that there were two ways of creating a product. Either it is design led or the acoustic performance drives the piece. We found a lot of products in the market that had really amazing sounds, created for the audiophile who wants fantastic sound but cares less about how it looks, someone who is happy to hide the subwoofer under their sofa and have plain black speakers. We also found products that were beautiful, but they were more focused on looks than they were on substance. So what we did was create a product that brought the two together. What we are trying to give you is the experience of the material, whether it is a film, or a sports event or a concert, in the way that the artist intended it to be.
“Products that are probably a bit too expensive for European tastes are very popular in the Gulf.”
It is not a coincidence that the products were one or the other. In these companies, the designer works on the look and the engineers work on the sound and there is not a lot of communication; usually what happens is one wins and the other loses. The philosophy in Bang & Olufsen is that we believe in breaking that conflict between designer and engineer so they can work together over time to create the best compromise between design and the acoustic performance to come up with solutions together.
Who is the target audience?
It is a 4.1 system, meaning that there are four speakers and one subwoofer. Most Bang & Olufsen TVs come with strong speakers built in, but you can connect this to a third party TV, too, although for that, you will need a 5.1 system, an extra speaker, to ensure that the sound is perfect. It was a very conscious decision for us to think about third party TVs – it is pure maths, it is pure business. We are very niche and sell about 30,000 TVs a year. We sold more TVs in the last year than we have done previously, but it is a very small business. So if we were only targeting 30,000 customers a year, then that would not be very profitable. 200 million TVs are sold a year worldwide. We do not believe that everyone in the market is looking for a surround sound system like this, but even if we target five percent or even one percent, it is significantly bigger than if we target only those who buy Bang & Olufsen TVs. So, it was a very conscious decision to make it open for potentially everyone who has a TV.
We have also thought about how you can place the surround sound system around your house. We have created stand options and we have even created a way of hanging them from the ceiling, or the walls, so they will fit in with everyone’s decor and indeed,
Could you talk about your presence in the Middle East and what your plans are for expansion in the market?
We have most of the countries in the Middle East covered through what we call master dealers, they are not our own companies, but people who represent us. I think we have had until now, a good presence, but I think there is potential to do a lot more. In the future we will probably work more with the master dealers, getting closer to them, building the brand. You can work with master dealers in two different ways, either at arm’s length or by getting very close to them and supporting them more and I believe the latter is
Emerging markets have some of the largest concentrations of large net worth individuals. Could you talk about how you plan to make the most of these markets?
One of the markets that we have had the most focus in the last few years is China, simply because of the sheer size and the wealth. We are a small company and so we can only focus on so many things at the same time, so we decided to look at China and that is really paying off for us, China is a big part of what we do and we see strong growth there. We think that other emerging markets could follow in a similar fashion.
The company recently singed a deal with a luxury importer in China. What sort of growth potential do you see there?
Right now, about five percent of our global sales come from China. I could see that in the next three to five years our global sales growing closer to 20 percent. This is because our emphasis on China really only started about one and a half years ago and we were operating it at arm’s length, but now, we have set up an office in Shanghai, we have a partnership with a local player in China and we have taken over about 30 stores ourselves. With that focus and emphasis, we think it is going to grow exponentially.
India is a very interesting market, since it still has very high duties on luxury goods. Has this dampened growth in the market?
India is a small market for Bang & Olufsen, it is a market where we have a very niche positioning with the ultra high net worth individuals and the import duties are definitely making it more difficult for us. So up until now, our focus has been more on China and less on India. There is room for us to be in five of the major cities, but first we have to nurture our expansion in China before we think of focusing on India.
How are you planning to attract new customers to the brand in relatively new markets like the Middle East?
I think we should do the same as we have in other markets. Firstly, create great products. Secondly, create shops that appeal to the kind of audience that we want to attract. We have just launched a new store concept that we recently piloted in Copenhagen. It is a very luxury-focused, interactive system, where you can try out all the products, play with them in a different way than you have ever been able to before and it demonstrates the best of what Bang & Olufsen can do. I think by rolling that out to places like the Middle East, we can build more on the strength of the product we have.
What are some of the challenges that you face in building customer loyalty in new markets?
I think our biggest issue is awareness. We have a tendency to attract loyalty; once people try out our products, they end up buying them. We try to get as many people to come into our shops and have an experience with our Bang & Olufsen products. As we say, “when they try them, they will buy them.” We have noticed, from experience, once we get people hooked, they will stay with us because we take care of them. If there are ever any issues with the products, we have a good service operation. We also have VIP sessions where customers can see new products before they are launched.
The drop in sales in European markets has shown your products not be to recession proof, yet you are pushing for expansion in the United States (US). Is luxury retail growing there?
We have had a very focused and very narrow niche position in the US, which is one of the world’s biggest luxury markets. What we will do now is to expand that further. We will expand it with more shops, by introducing our sister brand BeoPlay, which has been very popular in the US so far – it focuses on products like headphones and wireless speakers. I think there is a lot more we can do in the US.
Are there any particular products that are more popular in one region than another? What, for example, is more popular in the Middle East?
In the Middle East, we have been very successful with our large 85-inch and 103-inch TVs and also the BeoLab 5 speakers. Products that are probably a bit too expensive for European tastes are very popular in the Gulf.
How do you think Beolab 14 will perform in the Middle East, where the predominant style is very ostentatious?
I think there will still be people who want to build a full cinema room, with five speakers and the big 103-inch TV, but for the living room set-up, where you want great sound and the speakers to be discrete and fit in with the interior, I think it will do well for us.