Times are definitely changing at The Music Group, parent company of Behringer, Bugera and more. We’ll give you an exclusive look into the company’s game plan, as well as take the first look at products the company will launch at the NAMM show. You’ll be the first to know that, as well. Providing all of the information for us will be Costa Lakoumentas, who as of Jan. 1 was named the company’s senior vice president of marketing. He will provide breaking news in a few places and will offer an honest look at the business.
One part of the greater master plan is new warehousing in China. “Uli Behringer has created a company that started from nothing to one that’s incredibly large,” said Lakoumentas. “I don’t think many people know how large this company has become in 21 years. In terms of unit sales, we are one of the leaders in the pro audio and MI businesses. The reason is we’ve always focused on delivering great value. But the corollary to that is we’ve always removed costs from our own operations. Uli has always been driven to remove costs from the infrastructure. In China, we have our own factory, we have our own processes and we have great quality control. We buy parts in massive quantities.
“Our goal with our new warehouse is to become even more efficient,” he added. “We had four separate warehouses that we were putting our finished product into. That’s aside from parts warehouses.”
To make things easier for the company, the four warehouses have been consolidated into one. Joked Lakoumentas: “That’s not really exciting news in itself, unless you are really into the logistics business. But what is really exciting is that it is a component of our global strategy that we’ve launched within the past year. We decided to exit the areas of business where we don’t add value. Some of the areas where we don’t add value are in logistics, warehousing and what we call the ‘last mile’ to the dealer. That’s one place where we’ve been inefficient relative to the efficiency of the rest of our business. Our goal is to remove ourselves from areas where we don’t add value. Logistics, fulfillment and distribution represent one area that we have identified as a place we will change. We are in the business of making professional audio gear and MI products for musicians, contractors and more. We’re not in the business of finding the best way to get that product from our factory to the hands of the user. So, we’ve partnered with others to continue to drive the cost of our products down, not by cutting corners but, rather, by turning to the partners that are most efficient at taking care of any component of the business.
“We’re pretty darn good when it comes to R&D and product development,” he said. “That’s where we don’t need to lean on our partners. We have 200 different products in development at any given moment of time. We launch approximately 100 products per year. We’re very good at product launches. We’re really good at in-house testing. We have our own UL lab in house. We don’t have to send products out for emissions to see if we can pass FCC guidelines. If we didn’t have that capability, we would need to wait three weeks turnaround time for a lab to test it. So, the consolidation of the warehouse is only one small component of our overall drive.”
The Game Plan
Launching about 100 products per year is an impressive number. Consolidating four warehouses into one should certainly streamline operations. But what is The Music Group’s game plan for the next five and 10 years? What does the company want to accomplish?
“You always have to have metrics to judge how well you’re doing,” Lakoumentas said. “We have standards for ourselves that we have established in many areas. So even as you talk about how many products we launched, that’s not the only thing we look at. We look at what our total development was start to finish for the project. What was our accuracy? But to zoom out and take a look at our global strategy moving forward, it is first and foremost to rationalize the businesses we are in. This exit from direct distribution is part of the strategy. We’re almost at the point of the transition where we can fully hand it off to distribution and fulfillment partners. That’s a critical component.”
Without focusing on distribution, The Music Group can place more emphasis on developing more products more quickly. “We want to make sure those products are higher in intellectual property content,” Lakoumentas said. “That means more technology and more unique designs. We launched a new line of installation products at InfoComm. We filed for 19 new patents. We’re pushing the envelope with many new technologies. We see ourselves as a maturing company. Will we expand into other vertical markets? Of course. At the same time that we’ve ramped up our product offerings in MI, we’ve also launched products into the installation space. Our goal is to launch products that are truly meaningful. Ones where we truly add value into a consumer electronics channel.”
Although The Music Group might consider itself mature in some ways, the company likes to act and behave as a startup business. “We like to look forward and say, ‘Where can we go from here? Where can we take this incredible back office machine that has R&D, manufacturing and many other facets working flawlessly? Where can we expand our market reach? Where should we expand it? Where does it make sense for us to go?’”
Narrowing down the focus, we asked Lakoumentas to take us through The Music Group’s thoughts about the U.S. segment of its business. He’ll also take us through the relationship the company has with its dealers and provide details about the distributor agreement it has made with Shoreview Distribution and Starin Marketing.
“We’re very bullish about the U.S. market,” he said. “I realize we’re living in a climate that isn’t positive from an economic standpoint. I saw the unemployment figures creep up to 9.8 percent and I knew it was bad news. It’s important to recognize some of this is due to structural changes in the economy. Not all of the jobs that have been lost are recoverable.”
But there is good news, Lakoumentas said. “This country is built on taking on challenges and defeating them. We think the American economy will adapt in the next two years. People will find ways to create value and add wealth. Whatever economic difficulties this country is experiencing make our products and our brand appropriate for the times. During the global economic meltdown, our sales grew. Our sales grew because some customers still needed to purchase our products. Not everything is a discretionary purchase. People weren’t just saying, ‘I’d like to buy a mixer for my home studio.’ They were saying, ‘I need this product for my gig.’ ‘I need this to record.’ ‘My church needs a new mixer.’”
He continued, “There is a flight to value. Some people decide to go ‘off brand’ to save some money. Then there are people who buy value-based products where there is truly a brand and someone to stand behind it. We believe we positioned ourselves uniquely for that role. In the last two years in the U.S. market, our sales have increased consistently because our dealers recognize their customers are looking for value. We’ve removed the obstacles. We’ve removed the question of, ‘If it’s this inexpensive, is it good?’ Our warranty is second to none. Our loyal dealers have stood behind us and told our story. So we’ve enjoyed incredible success.”
When deciding to use a distributor in all markets, including the United States, The Music Group had one major question it had to ask of itself here: How can the company continue to engage the dealers who have been so wonderful and loyal? After all, The Music Group is no longer making sales transactions directly with you.
It’s a difficult question with which to grapple, but The Music Group has come up with a solution. We are breaking this news first. “Here’s a huge scoop,” Lakoumentas said. “We have completely restructured our business. We’ve gone from a sales organization to a customer support and market development model.”
So how is that different from the company’s prior model? “When you look at our company from an external viewpoint, the lines between sales and marketing will not only be blurred but, indeed, completely eliminated. Nobody will be considered a salesperson from Behringer, for example. So even though we have distributors, we are now taking a front-seat role in educating. We will reach out to them by going to the stores and presenting dealers with point-of-sale assistance, support, training and advertising. In fact, we’re launching our most ambitious advertising plan ever. We’re bringing to our dealers a completely new level of support. We will create market ‘pull.’ Our success is the value we bring to retailers. When a retailer buys our product, they are essentially turning our product into cash much more quickly than with almost every brand category by category. It could be mixers, active speakers or more; we have many of the hottest-selling products in the marketplace. They sell through three, four, five or even up to 10 times faster than some of the other ‘major’ brands.”
Lakoumentas said public data backs up those assertions and is something of which The Music Group is very proud. But the company has to continue to drive traffic to the stores. “We’re upping our commitment on our Web site. We’re launching a ‘Buy Now’ program whereby stocking dealers will be able to benefit from the 20,000 unique hits we get per day to our Web site. We want to convert those into actual product sales. The best way to do it is to drive the traffic to our dealers. And I’m not just talking about online dealers. We want to be able to drive the traffic to brick-and-mortar dealers. We recognize that, at the end of the day, there’s a market for everyone. There are customers who need to be served face to face. Others are more comfortable buying online.”
The Music Group has many reasons why it selected Shore-view Distribution and Starin Marketing to handle the logistical aspects from which it has moved away. “These are two of the finest and best-run businesses we’ve seen in this industry,” Lakoumentas said. “We’ve made mutual investments in our relationships and strategies. We’re having tremendous success with these partners. One of those strategies is what we call low-impedance business. We need to make sure they can easily get the product, get it on time, get it at the right price and turn it into cash and profit.”
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