Faced with this difficulty, B&O had several strategic options. It could adopt a low-cost model to compete with the rest of the mass electronics companies; it could try to build a product pyramid so that it could compete at the mass market level at the same time as seeking to differentiate its top-end products; or it could make a major change in its business design by redefining its customers.
It chose the third route. But, as Adrian Slywotzky, David Morrison and their colleagues at Mercer Management Consulting point out in their book Profit Patterns, this led to much greater changes for the company than might have been expected.
The customer group selected as the new Bang & Olufsen target - what the Mercer team call "the luxury-seeking segment" - was similar to the old group in that engineering and product sophistication were still important. But the key element was elegance. "Instead of emphasising technical quality and engineering brilliance, the company promoted its products as status symbols," write Slywotzky and co. "That move was perfectly aligned with what was important to its redefined customer base. Brand-conscious customers would be willing to pay more for luxury goods."
The redefinition paid off. The company went on to command a significant premium on its audio and video equipment, telephones, speakers and mini- stereos. Capturing an important part of a new market in this way has had a significant impact on shareholder value, with the company's ratio of stock market value to sales climbing from 0.2 in 1989 to 1.5 in 1997. Most consumer electronic companies record figures of about 0.5.
But this is just one example of a phenomenon that Slywotzky has been observing for some time. Rather like mathematicians, the Mercer team encourages investors, entrepreneurs and managers of existing businesses to use patterns to see order beneath the chaos. Not only does this help explain what is going on, but it can assist in anticipating the likely direction of changes.
Accordingly, Dell Computer really got going when founder Michael Dell recognised that a rapidly growing segment of buyers wanted the latest machines at the lowest prices and designed what was then a revolutionary model. It sold directly to customers, outsourced all the components while insisting on just-in-time delivery and built to order - in the process creating for itself a commanding position in the fast-developing personal computer market.
Or take General Electric. It saw the need for solutions and so - despite being a heavy manufacturer - moved away from selling traditional products to also offering services such as financing, insurance, consulting and management. One division, GE Capital, has grown into a major driver of the business.
But there is no hard-and-fast answer. For Microsoft, the patterns were "de-integration" of the value chain, emergence of a "de facto standard" and "cornerstoning" (moving from operating systems to applications, and on to browsers and content). On the other hand, for Coca Cola, the pattern was "re-integration". The company saw that, because the economics of the business were changing, it had to intervene in areas traditionally left to others, such as bottling and distribution.
The Mercer team does not pretend that understanding patterns is a guarantee of success in an increasingly volatile market. Instead, it sees them as providing a repertoire of moves and countermoves that will be "invaluable allies" as the marketplace continues to change.
"When change and complexity increase, patterns occur more frequently. Pattern recognition becomes more important. It moves from `nice to know' to `need to know'," they say.
`Profit Patterns' by Adrian Slywotzky, David Morrison, Ted Moser, Kevin Mundt and James Quella is published by John Wiley (pounds 17.99)Reuse content