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strategic analysis of strässle a strategic analysis of the company and a possible penetration strategy for the united states presented prepared by team strässle marcus behrends knut scherpe bernd fischl julie finch christy meek

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outline 1 management summar y 1 2 company profile 2.1 2.2 2.3 2.4 2.5 2.6 products c ustomers distribution brief history of strÄssle company key data offered products product l ines value chain presence in europe 2 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 10 10 11 13 14 14 15 16 16 16 17 3 strategic analysis 3.1 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.3 3.4 3.5 3.6 3.7 3.7.1 3.7.2 3.7.3 3.8 3.8.1 3.8.2 3.8.3 m arket structure development t he r elevant m arket for strÄssle european furniture market market for office furniture market for residential seating furniture market for high -quality residential seating furniture strÄssle in the furniture market competitors in the f urniture m arket porter s f ive forces success f actors fundamental success strategies in the furniture m arket recent strategic position of strÄssle popularity of strÄssle brand supporting by competitors vision mission and product promise of strÄssle strategic r ecommendations for action focus of activities concrete recommendations for action concrete recommendation for branding

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4 further strategic options for action 4.1 4.2 4.3 strategic options for entering new m arkets strategic options i nside the r elevant m arket estimation of strategic options 18 18 19 20 22 22 22 22 23 23 25 25 25 26 26 27 28 28 28 28 28 29 29 29 29 30 31 31 32 32 33 5 analysis of int ernalization to us market 5.1 5.1.1 5.1.2 5.1.3 5.1.4 5.2 5.3 5.3.1 5.3.2 5.3.3 5.3.4 5.4 5.4.1 5.4.2 5.4.3 5.4.4 5.4.5 5.4.6 5.5 5.5.1 5.5.2 5.5.3 5.5.4 5.6 5.6.1 5.6.2 united states f urniture i ndustry overview furniture market and home s ales market development of residential furniture market market segmentation distribution channels furniture m anufacturers in the united states consumer analysis consumer behavior in the united states vs europe consumer trends common success factors market attractiveness excursion s uccessful strategy of d e s ede a benchmark american activities their customers the difference in target groups de sede s w inning strategy market attractiveness for de sede customer s f avorites possible p enetration strategy for strÄssle barriers for penetration to the us market basic recommendation market to be t argeted marketing to resellers recommended proceeding offer the appropriate products out of your product line find demographically high -income clusters

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5.7 5.7.1 5.7.2 5.7.3 5.7.4 5.8 5.8.1 5.8.2 5.8.3 5.9 options for distribution indirect distribution direct distribution by own agents in usa building up own flagship stores conclusion penetration strategy the right stores cooperation with other swiss furniture manufacturers show presence at furniture shows conclusion for internationalization 34 34 35 35 35 36 36 36 37 37 38 6 summary 7 works cited 7.1 7.2 part 1 ­3 part 4 6 40 40 41 42 42 42 43 44 45 45 45 45 47 48 50 8 appendix 8.1 8.1.1 8.1.2 8.1.3 8.1.4 8.1.5 8.2 8.2.1 8.2.2 8.2.3 8.2.4 german market distribution of income in germany market segmentation by products richest areas in germany distribution channels in germany target groups in the furniture market us m arket united states markets possible stores for first penetration similar companies with current united states presence customer segmentation

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1 management summary strässle is a small company based in switzerland design production and sales are all coordinated at this location the core competence of the company is producing and selling high quality leather seating furniture with a dedicated modern-classic design target groups are residential customers with a high income and a sophisticated taste after being a well-known brand and price leader in the past it has been outperformed by other companies especially de sede strässle is currently only well-known to experts and specialists like interior designers some of their products still have an outstanding position king chair in terms of design and prestige although all products are still on a high quality level image and brand are crucial for the customers the biggest weaknesses of strässle are identified in the missing or unclear branding of the company following conclusions are made for future strategy for strässle in the home market define a clear and specific product promise which is valid for your whole product range to reach your customers emotionally increase your marketing budget to strengthen your brand and to thereby gain price leadership focus your marketing and distribution efforts on the products where your core competencies and your image is outstanding no additional resources should be wasted on other areas the first priority is to clean the house in the current market within europe and to be able to compete with the competitors in the market segment further strategic options are analyzed to see whether there are other windows of opportunities which offer high possible profits and imply only small risks and require low resources internationalization specifically to the usa is seen as an attractive option for the company this could be done effectively with a low cost penetration method by hiring their own part-time agent in us or selling directly to us resellers focus on attractive stores in attractive spots where your target customers are clustered possible cooperation with other swiss furniture companies to lower costs and to build up a branding umbrella with furniture made in switzerland by following the instructions given in this analysis strässle could gain back much of its past branding and become a well-known price leader again whose products everyone would know but not everyone could afford strässle s goal should be to become the rolex of the furniture market may 2005 page 1

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2 company profile preliminary note since we did not have cooperation from strässle most of the analysis had to be done with a lack of necessary information and missing insider knowledge in the industry sometimes a subjective assumption had to substitute hard facts nevertheless deep insights have been gained and concrete recommendations for strässle have been given 2.1 products customers distribution strässle s focus is on high-quality leather seating furniture especially leather chairs which are designed by artists and have a mostly classic-modern design since quality is outstanding and product volumes are low prices are on the high edge of the market as a result of this their primary customers are private households with a very high income and sophisticated taste for classical modern design 2.2 brief history of strässle the company was founded in 1886 by gottlieb strässle with the entrance of his son the company focused on high-quality furniture since then strässle retained a unique market position until the late 1970 s in europe for highquality leather chairs for the residential market it was the leading brand for these products and was famous for its sophisticated classical modern design and its quality many of their design models became famous and are considered furniture that made history the king chair seen in the illustration above is an example of this the company had a unique market position until the 1970 s since then other established competitors specifically de sede have outperformed strässle and has overtaken strässle in terms of image popularity marketing and distribution power 6,500 2,500 the result is that strässle still is a brand but mostly for experts concentrating on its core competencies in leather chairs widening its product range with beds and partly producing products for other companies white label so standing in between may 2005 page 2

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2.3 company key data strässle ag is a 100 privately owned company which was founded originally in the 19th century it is based and produces its high-end furniture products in switzerland with 30 employees 15 of which are in production it generates revenues of around 8 mio euro in 2004 turnover per employee is above 250.000 eur which is well above the average in germany of 130.000 eur 1 although strässle still earns money no growth can be seen in their core business 2.4 offered products product lines six product lines are offered to the customer for example on the internet which comprise up to eight different models these various product lines are clustered differently primarily they are classified by the type of furniture product secondly they are labeled by the artists who designed them e.g ballendatr moreover a generally named classics line adds to this offering and last but not least new products complete their portfolio to summarize many products with many designs are offered in a manifold structured way to the customer some examples can be seen in the illustration below product examples of strässle product examples may 2005 page 3

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2.5 value chain strässle covers most parts of the value chain by itself designs are bought exclusively from famous designers from all over the world especially located in or near switzerland production occurs completely in-house in switzerland distribution to the retail stores is almost completely controlled value chain of strässle design production distribution stores end customer famous own own designers manufacturing distribution to classic design in switzerland stores all over europe valuechain of strässle is highly vertically integrated do not own retail stores only the interface to the end customer is not controlled by strässle summarized strässle is a small company completing most function internally 2.6 presence in europe the company has resellers in different countries in europe the key focus of its presence is central europe especially switzerland germany and france in most stores only one or a few products out of their product line are presented there are not any stores exclusively owned by strässle nor are any stores which have focused solely on the products of this company2 distribution is done by own personnel resellers are only specialty stores 1 2 see branchentrends polstermöbel 2003 and die möbelindustrie braucht anschub interview with the ceo of strässle may 2005 page 4

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3 strategic analysis to analyze strategic options it is first important to look at the current strategic position of this company in it s the relevant market the next step is to identify the success drivers and how to use the restricted knowledge and resources of the company to move them into a successful position with this goal in mind the following procedure has been used the relevant market was defined first this is the market in which strässle with its core competences and product features is searching for customers this market was estimated in terms of sale volumes next step was to judge the competition in this specific market segment the key success factors were determined finally based on this analysis the strengths and weaknesses of strässle have been identified and strategic recommendations are given 3.1 market structure development the furniture market in europe and especially in germany and in switzerland is very fragmented for example in germany nearly 10,000 companies have revenues under 10 mio eur which is less than half of the revenues of the 14 biggest companies market structure of furniture industry in germany 1997 3 the fragmentation is causing problems for the small companies since they don t have the critical capital for building up a brand which is strategically the most important factor in this market 3 see unger der möbelhandel ­ eine branche die der krieg vergaß may 2005 page 5

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3.2 the relevant market for strässle the furniture market has been evaluated for the year 2003 and is based on data given from the statistical institutions and branch specific associations for germany and europe data refer to the furniture manufacturing business not to the furniture trade since some data for europe has not been available partly for financial reasons studies are too expensive or not available at all we had to estimate some of the figures for relevant sub-segments the market has to be segmented in several dimensions this is because the geographical quality and product scope of every company is restricted to that effect many customers are excluded from the offer a company makes either by the fact that the product offer is not made to them or they don t have any interest in strässle s products 3.2.1 european furniture market the market of strässle in the broadest sense is the worldwide furniture market but looking closer on the activities of the company it is only the european market they are dealing with the whole furniture market in europe was about 56 mrd eur about $73 billion in 2003 4 in this market germany plays the strongest role with overall turnovers of about 19 mrd eur 5 together with france and great britain it is responsible for about 70 of all sales in europe share of sales 4 5 data source statistisches bundesamt source statistics of uea brüssel for the year 2002 may 2005 page 6

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3.2.2 market for office furniture these volumes must be divided into residential and commercial markets the commercial market a ccounts for about 15 of the overall market 6 11 are directly related to this segment and a further 4 can be estimated to be integrated into the other categories since specialized seating and other furniture is not classified as office furniture here but in reality part of the products are dedicated to this segment overall volume for the european office furniture is therefore near to 11 billion eur 3.2.3 market for residential seating furniture strässle is concentrating mainly on the market for sofas and chairs which can be classified as seating furniture which has a volume of about 20 mrd eur this share is deducted from german data again see illustration above this market is quite interesting because it has the largest product share in the overall market and development of this market segment wasn t really bad in the past years market development of this segment red arrow is not bad in comparison to other product segments of the furniture market but also not compromising in comparison to the average development of the overall production in germany 7 overall market shows a growth of the big companies and a sharp decline of the small ones 300 companies in germany had to close in the last 4 years.8 seating furniture revenues in germany 6 this figure is the sum of the share of dedicated office furniture of 11 see in the illustration and an estimated 4 for specialized lamps and other furniture not classified in the illustration above 7 see branchentrends polstermöbel 8 see markenbildung ­ erfolgsstrategie für die möbelindustrie may 2005 page 7

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3.2.4 market for high-quality residential seating furniture types of upholstered seating furniture wished for the next buy again this market has to be segmented further to identify the current market potential for the current product lines there is no statistical classification for this segment but a validated 60 of the people prefer leather or other premium materials see illustration 9 from them an estimated 15 is able and willing to pay a reasonably high price for a premium quality according to this overall market potential for strässle in europe is about 3 billion eur 3.2.5 strässle in the furniture market according to the above findings strässle s position in the furniture and in the relevant market can be sketched10 because of the focus on high-quality and high-priced furniture the relevant current market potential for strässle is about 4 mrd eur round about $5.2 billion this relevant market is illustrated by the yellow square in the following illustration 9 10 live life survey 2004 own illustration may 2005 page 8

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furniture market in europe 56 mrd residential market kitchen commercial market market for commercial furniture volume 11 mrd product line lamps residential furniture lockers boards beds sofas chairs low quality low price volume 45 mrd residential seating furniture volume 20 mrd high-quality seating furniture volume 4 mrd s high quality high price high quality high price low quality low price strässle`s turnover volume 8 mio the revenues of the company were 8 mio eur round about $10.4 mio which represents a market share of round about 0.3 in the relevant market 3.3 competitors in the furniture market strässle has many competitors in its market niche of high-quality seating furniture most of them and are welllarger branded have revenues some of them such as de sede used to be smaller but recently has outperformed strässle in terms of image popularity marketing and distribution power so the questions arise why has this happened what are the success factors and strategies in the furniture market especially in the high-quality market niche how can a company use its instruments effectively with its restricted resources to improve their strategic situation in the market may 2005 page 9

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3.4 porter s five forces substitutions cheaper chairs competitors a few medium-sized companies which are stronger branded especially desede a well-known well branded established company potential new competitors high barriers since branding plays an important role in this market segment much time long sale cycle and resources needed to establish in market low medium high low medium high low medium high intensity of competition power of suppliers no dependency on one supplier no specialized value-chain but also no buying power since volumes are too low dependent on prices of raw materials as leather strässle operates in a stable but highly competitive niche market there are no threads by substitutes or technology developments low volumes no key accounts since price is not decisive branding design quality are key success factors power of customers quite low because there are no key accounts also stores buy only low volumes of units regarding to restricted space low selling frequency low medium high low medium high low medium high 3.5 success factors six substantial factors for success in the market can be identified in the market for high-quality furniture image branding quality design distribution power popularity production knowhow price does not have a strong impact on the customer in this market segment the other factors are more important clear positioning convincing message which charge up the target group emotionally sophisticated logo prestige e g rolex mercedes direct support from internet perfect quality of material perfect manufacturing long lasting stable core product line modularity quality image distribution intensity scope modern classic design well known designers and artists functional and multi-purpose flagship intensive reseller contact top catalogs and detailed product description low direct presence to the customers maximization of distribution area niche market design success factors popularity focus on specific products and target group very important for care of the brand ­ decisive buying factor find the right media to hit the target group indirect support from internet production knowledge effectiveness intensive reseller contact top catalogues and detailed product description not all of the success factors play an equally important role and some of them are independent of each other may 2005 page 10

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the most crucial driver of success in the furniture market especially in the high-quality furniture market is branding and image it is the reason why customers are willing to pay high prices in these high-price segments customers buy a prestigious object that in the best case has the image that everyone knows it but only a few can afford it features of a strong furniture brand are 11 clear label furniture labels need a clear marking by a long ranging logo and slogan clear positioning the brand has to be clearly positioned in terms of price style quality etc clear product promise it has to be clear to the customer what special features a brand has and why it s better than the competitors communication support sufficient marketing budget is necessary to build up a brand as well as to care for it constant quality strong brands have to have the same quality in a long range large geographical scope the products should be promoted and presented in as many areas as possible advantages of a strong brand for the customer are obvious orientation brands help the customer to select a product out of the big variety of offers certainty products with certainty make it easier for the customer to buy because they believe in the product promise which is made to them product line longevity since customers often buy high-quality furniture piece by piece and different products of a product line often fit together they have to be sure that they can buy the complementary goods years later prestige effects last but not least branding as a prestige object plays the most important role advantages for the manufacturer are big as well strong position against the resellers since customers wish to see products of this special brand in their store resellers are willing to make concessions to the manufacturer brand loyality driven by a long lasting preference for the brand customers will buy again marketing multiplicator effects content customers will be multiplicators for the brand thus increasing popularity of the brand positive word-of-mouth pricing tolerance customers are not sensitive in regards to the price 3.6 fundamental success strategies in the furniture market experts 12 within the specialized furniture market found that the lack of branding combined with decreased popularity is the biggest weakness of most companies for these 11 12 see also markenbildung ­ erfolgsstrategie für den möbelhandel see markenbildung ­ erfolgsstrategie für den möbelhandel may 2005 page 11

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