Beats vs. Bose

Changes in the premium headphones market

2018.07

Beats vs. Bose: Changes in the premium headphones market
Beats vs. Bose
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I. The rapid growth of the premium headphone market following the increase in digital content and corporate competition

The premium headphone market continues to grow alongside the surge in smartphone users, music/video streaming services, and corporate marketing.

  • Since the release of the first iPhone, smartphones have revolutionized the way digital content is produced and consumed, and now become a daily necessity for much of the world’s population. Smartphones freed customers from having to buy separate devices to consume content, raising the demand and supply of both digital content and smartphones.
  • Advancements in communication technology made cheaper and faster data transmission possible, which laid the foundation for the popularization of streaming content. Various businesses such as Amazon, Spotify, and Netflix then released music/video streaming services, rapidly increasing the demand for digital content.
  • Following this increase in digital content consumption, the demand for headphones that provide a better audio experience has also increased. The global headphone market was estimated to be worth $6 billion in 2017, more than double the figure in 2010.
  • Headphones are sold at a wide variety of price points, from cheap products in the $5 range to expensive products exceeding thousands of dollars; competition between brands is very fierce at each price point. The average price is $30, while products over $100 are often categorized as high-end or premium headphones.

In its own unique way, Beats challenged the premium headphone market that Bose, through its outstanding technology, had once completely dominated.


[Bose]

  • Founded in 1964 by MIT engineer Amar Bose, Bose focused on making sound equipment of unprecedented quality through continuous technological development. In 2000, Bose released the first of its QuietComfort Series headphones based on a noise-cancelling technology developed after 20 years of research.
  • Bose dominated the premium headphone market early on, putting forth its long history in stereo speakers and excellent product quality as selling points. Its marketing strategy centered around explaining new functions and technologies—a method apt for an engineering-centric pioneer in the technological industry.

[Beats by Dr. Dre]

  • Six-time Grammy-winning rapper and producer Dr. Dre was dissatisfied with the low-quality Apple earphones that so downgraded the quality of music that he’d poured his efforts into in the studio.
  • In 2006, Dr. Dre co-founded Beats with Jimmy Iovine, the co-founder of Interscope Records, to develop studio-quality headphones. At the start of their business, Beats collaborated with Monster, a company with well-regarded wire cable technology, to release earphones and headphones with flat, tangle-free cables, achieving great success. Subsequently, Beats entered the market with a completely contradictory approach to its competitors: trendy designs and a marketing strategy featuring singers and athletes.


II. Beats’ market domination through strong branding and innovative marketing

Bose succeeded in developing premium headphones that are technologically superior to its competitors’, but failed in expanding the total market pie.

  • Long before Beats was founded, Bose introduced premium headphones with noise-cancelling features into the market and established itself as a company with superior technology and tradition. As an engineering-centric company with a longstanding history, Bose focused on improving the technical benefits of the product such as sound quality and noise-cancelling technology; meanwhile, Beats focuses on building a strong brand through collaborations with famous singers and impressive ads.
  • Because its ads remain technical and information-driven, Bose is not able to expand the customer base for premium headphones beyond experts and enthusiasts or people who need the noise-cancelling feature for frequent flights.
  • Despite previously dominating the market with its excellent technology, Bose is now far behind the latecomer Beats by 22% of market shares.

Though Beats entered the market later, it led with an aggressive marketing strategy, quickly pioneering and conquering the market.

  • Beats focused on increasing brand awareness through collaborations with famous singers like Lady Gaga and Justin Bieber. Through partnerships with not only hip hop artists like Snoop Dogg and Nelly but also the hottest artists of the time such as Miley Cyrus and Nicki Minaj, Beats built a brand image of “premium headphones used by singers.”
  • In 2013, Beats started a campaign featuring athletes, exceeding the music market. By constantly showing Kevin Garnett, Cesc Fàbregas, and other famous athletes preparing for their games while wearing Beats headphones, the company changed premium headphones, previously the exclusive possession of a small number of experts and enthusiasts, into a fashion item and popular device. Beats’ marketing strategy to use singers and athletes was a completely new approach to the headphone business.
  • Beats has over 600,000 subscribers on its YouTube channel (vs. Bose’s 100,000), and customers rave over Beats’ products and ads. Over 30 of its videos have exceeded 1 million views (vs. Bose’s three videos), and its ad “The Game Before The Game” produced in 2014 boasts 33 million views.
  • Beats, which has conquered the premium headphone market, was acquired by Apple in 2014 for $3 billion. In 2016, it started the “Be Heard” campaign in which 23 sports stars appeared. This promotion, featuring LeBron James, Serena Williams, Tom Brady, Conor McGregor, and other top players in each of their sports categories, was a huge success, achieving an overwhelming 70% market share.
  • Seeing that customers’ most important standard for picking a product is “brand,” Beats focuses its capacities on making the most attractive brand. Additionally, Beats produces its ads to feel more like entertainment instead of just means to sell products.


III. Changes in customers’ decision-making process

Following technological advances and the rapid growth of social network services, there have been changes in customers’ decision-making process.

  • In the past, limited sources of product information meant that brands built on massive TV/radio ads played an absolute role in customers’ decision-making process.
  • However, the development of the Internet and the increase in information sharing have begun to crack the absolute role and status of brand power. According to a series of research, there is a growing tendency for customers to rely on other customers’ reviews when purchasing expensive products such as premium headphones.
  • On the other hand, because there are many cases where people feel overwhelmed by the excessive amount of information or just otherwise have difficulty making a decision, others raise the counterpoint that brands will play an even bigger role in the decision-making process.

Professional and customer reviews on various websites and tech blogs are important to potential buyers.

  • According to a Google study in 2011, consumers check with 15 different sources (including ads, Internet searches, and product testing) before buying an electronic product. Consumers actively use information gained through various media in addition to traditional methods like friends’ recommendations and store visits.
  • Before making a purchase, customers actively use detailed product reviews left on blogs or YouTube by customers and professionals. Reviewers usually include a purchasing link provided by the distributing business or the manufacturer on each review, and receive 5-7% commission off products sold through this link. Because of this, there are cases where the authenticity of certain reviews come (1)under suspicion.
  • Ordinary customers, by leaving product reviews and relevant ratings on the websites of both manufacturers and distributors like Amazon and Best Buy, can (2)weigh in on other customers’ decision-making process.

IV. Brand power vs. Information-rich environment

Despite negative reviews about product quality and price policy, Beats is conquering the premium headphones market with its strong brand.

  • Marques Brownlee, a representative tech YouTuber with over 45 million subscribers, reviewed Beats headphones as “the quintessential overrated electronics product,” criticizing the quality and durability of Beats products as near failures despite their impressive design, packaging, and marketing.
  • Customers are leaving negative reviews about the products on Amazon, Best Buy, and other distribution company websites—as well as Apple, the producer of Beats. Beats headphones are receiving a low average rating of 3.5 out of 5 from its customers.
  • Despite the negative reviews about product quality, Beats maintains its leading status in the premium market by actively using the financial resources that it secured through its unique brand image built through trendy design and collaboration with singers and athletes, as well as Apple’s acquisition.

Bose is enthusiastically embracing new marketing strategies and trends, producing ads based on emotions and stories as well as sharing various product-related information.

  • Bose, learning the importance of brands through Beats’ success, signed a brand ambassador contract (with golfer Rory McIlroy) for the first time in the history of the company in 2013. Additionally, when Bose was chosen as the NFL’s official headphone/headset supplier in 2014, all coaches and staff wore Bose products during the games. Later, Bose also ran TV ads titled “Nothing Comes Between You And Your Music,” boosting brand awareness through its contracts with NFL players.
  • Bose then steered its marketing strategy toward emotionally and visually conveying Bose products’ superior technology and musical experience. This was a drastic change that was hard to imagine for a formerly engineering-centric company.
  • Matching the new trend where detailed product reviews directly affect customers’ decision making, Bose now displays detailed ratings and reviews for each item on its website. In contrast, the Beats website allows visitors to check simple ratings, but does not provide detailed reviews.
  • Bose hopes that this increase in product reviews and change in purchasing trends will make customers choosing between Beats and Bose return to Bose.


V. Implications

There are two lessons we can learn from Beats and Bose.

Lesson #1: Beats’ marketing strategy—branding premium headphones as a fashion item and a way of self-expression beyond a mere music-listening device—changed the premium headphone market from a niche market to a mass market.

  • Through aggressive marketing using singers and athletes, Beats built a unique brand around premium headphones that are used both professionally and as an attractive fashion item. By playing up this brand image, the company succeeded in creating new demand for premium headphones.
  • Instead of directly competing with Bose (which has both technology and tradition in its favor) in the market where demand is limited, Beats expanded the total market pie through innovative products and concept. In the way of Nike’s collaboration with Michael Jordan, Beats is the first business to achieve big success through collaboration with singers and athletes in the headphone market.
  • Customer dissatisfaction regarding product function and quality, however, is something Beats needs to address for the sake of its future growth.

Lesson #2: The wide availability of product information is slowly weakening the influence of brand power on consumers’ decision-making process.

  • The current information-rich environment is curtailing customers’ dependence on brands in making purchasing decisions. Instead of taking corporate advertising (3)at face value, customers are now more likely to confirm the true value of brands for themselves through the process of comparing and contrasting it with various information obtained online. Accordingly, some experts say we are living in the “(4)Twilight of the Brands.”
  • However, the overwhelming market share of Beats (which headphones have deficient functions and quality compared to Bose headphones) suggests that brands elaborately built and maintained like Beats continue to hold influence.


Discuss “Beats vs. Bose” with your Ringle tutor, and also receive feedback on your English usage.

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