Tuesday, October 13, 2009

The Recession-Proof Martin Guitar: Innovation & C. F. Martin’s 1 Series model

Recession + Embracing Low-End Market = Increased Profits?

Legendary guitar manufacturer, C. F. Martin & Company recently introduced the “1 Series,” a new guitar line that costs less than $1,000 – more than 50% cheaper than its classic all-wood guitars. In response to the economic slump, the company is reorienting its focus to the struggling consumer with its new line of affordable-yet-quality guitars. Customers have reacted very positively to their innovative strategy. Given that luxury guitars are usually early victims of reduced spending in economic downturns, the company was forced to think creatively about its price and product. Through market research, the company found that products priced $1,000 or less are not significantly affected during economic slumps. With a price slightly below $1,000, the company made luxury affordable and sold its first production supply of 8,000 guitars in less than two months following the April release.

So far, the company’s new guitar line has successfully connected with today’s increasingly value-conscious customers. Given that Martin is not the first premier guitar company to introduce a cheap model (Taylor Guitars also did this), Martin is a K-strategist. As Martin executives acknowledged, the tone quality and musical action of their traditional, high-end guitars is not comparable to that of the 1 Series. The 1 series is not a disruptive product innovation- there will always be the need for high-end, luxury guitars with superior tone and playing capabilities and there will always be a need for affordable, basic guitars. The innovation lies in Martin’s ability to tap into a new customer base and expand their market.

Similar to Tide’s Basic line, I think Martin’s 1 Series concept is an interesting BUT very risky idea. The innovation process involves careful consideration of both short-term and long-term goals and visions. With their 1 Series, I think Martin may have not carefully considered their long-term goals and how this new line may dilute their brand value. If their long-term goal is to offer both top-quality, expensive guitars AND cheap, basic guitars, then the 1 Series makes sense for them. However, if the company is merely using the 1 Series to boost profits and improve their bottom-line during the recession, I think their strategy will ultimately damage them in the long run.

Given that C.F. Martin’s core company values include an “unparalleled reputation” and “exceptional quality,” I think the 1 Series is misaligned with the company’s overall mission. The main risk with Martin’s “back to basics” approach is that these cheaper, lower-quality guitars may ultimately weaken the Martin brand. Because their guitars have long been viewed as premier, high-quality instruments, the basic 1 Series may taint and devalue Martin’s sustainable brand value.

Questions for you:

Do you see any risks involved with Martin’s 1 Series? Could this more affordable guitar line decrease the brand’s value and credibility in the long-term? In other words, does a company have to protect its brand name in order to maintain long-term profitability?

Are certain companies more equipped than others when it comes to introducing cheaper, basic product lines? Is P&G’s Tide in a better position to offer their cheap Tide Basic line than C.F. Martin?

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  1. Martin's 1 Series reminds me of the fashion design house Vera Wang. Vera Wang is a premium brand that has expanded to a variety of product lines at different price levels: a premium line, Vera Wang, mid-range line, Lavender Label, and discount line, Simply Vera sold at Kohl's. She has had this wide range of lines for the last couple of years, prior to the current economic recession. Until recently all lines have been successful and it is now her mid-range, Lavender Label, line that is experiencing difficulty. The Simply Vera by Vera Wang line has not decreased her profitability thus far and based on such examples I do not believe that the 1 Series will diminish C.F. Martin and Company's brand value either.

  2. I wonder if they plan on continuing to sell this low-cost guitar after the economy starts to improve? I think this can be a good thing for C.F. Martin and Company, as it allows people who would not normally be able to afford a luxury guitar a chance to purchase one. By lowering prices, they have reached out to a new market. I think this is something other music industry companies are going to watch and see how successful it is and inevitably follow the trend of making lower cost products.

  3. While the economy may inhibit some from the more expensive pruchase on the flip side there are those that find themselves in need of some green and there will be some bargains to be found.

    I don't think a $109999 D100 is one of them though.


    That's a few hours overtime even for a banker.

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