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Sun 4 Mar 2007 12:00 AM

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More Bang for your megabucks

Bang & Olufsen's cutting-edge design has kept it hi-fi above the rest.

There might not seem TO BE too much similarity between Lego, the colourful building bricks for children, and Bang & Olufsen (B&O), the luxury audiovisual kit for borderline-obsessive adults, other than the fact both are world-famous Danish brands.

Torben Ballegaard Sørensen, who quit his job as Lego’s business development chief in 2001 to become B&O’s chief executive, thinks otherwise, however. “With both, the more bricks you have, the more fun you have,” he beams, surrounded by the entire range of home entertainment goodies, including a pair of speakers that cost around US$26,300. “Each product we introduce to our collection adds additional value and functions to what is already there. Our mission is to always try to connect as well as enhance existing technologies.”

Consider the company’s cheapest item, Sørensen suggests — a keyring. With this humble item you can turn on the radio, TV, DVD or lights the moment you step into your home, or switch everything off as you leave at by pressing one button. Naturally, the miniature polished stainless steel remote control is as cute as any bauble you would want to carry around with you. Or consider the Beo4 remote that can control television, radio, internet radio, music systems, files on computers and all stored music, as well as content on hard disc recorders and media centres.

This remote is so powerful it doesn’t even have to be pointed at the source. It is cast in zinc, so it doesn’t get sweaty in the hand. It also weighs as much as a Hummer, but, of course, that is kind of the point — to emphasise the quality. If a gadget-phobic journalist can get excited by a remote, imagine just how excited the two million wealthy obsessive consumers on B&O’s worldwide database must get about the gear itself. The new sculptural BeoLab 5 speakers, for instance, that ‘listen’ and analyse ‘the sound of the room’ and tailor their performance accordingly.

From ‘The Farm’, its futuristic glass-and-concrete headquarters, in Struer, rural Denmark, B&O creates state-of-the-art televisions, home cinema systems, audio systems, loud speakers and telephones which are sold in 80 countries, including Saudi Arabia, Kuwait, Qatar, Oman and the UAE. Since its inception 80 years ago, the company has cultivated a worldwide reputation for turning out products of high quality and artistic design. According to a citation at New York’s Museum of Modern Art, B&O has ‘delivered the largest and most consistent design portfolio among the world’s industrial companies’. Next door to the store inside B&O’s headquarters is a museum, where ancient, and yet oddly futuristic-looking TVs and radios are lined up, charting the company’s — and in many instances, the home entertainment industry’s — evolution.

To create instantly recognisable and technologically advanced products — such as a six-CD player that displays its loaded CDs in a straight line, or the loudspeaker that looks like an organ pipe balanced on a spike — the company has evolved unique design and development processes.

Designers are given free reign to create products that would challenge engineers to find a way to manufacture them. More astonishingly, B&O has never employed in-house designers. “It is better if designers have no idea about our industrial or cost limitations or what sound can come out of which form.

That is for the engineers and specialists,” muses Sørensen. “That way they can be freer with their creations. For most people design is just styling. For us everything starts with design but then everything is determined by technology. “We’re trying to humanise technology. Designers have to be free to look at how people live and furnish their homes, and then come up with proposals that could be good for B&O. It’s up to our engineers to make it work.”

Indeed, towards the end of the 1960s, when competition from Asian manufacturers forced many European manufacturers to close, B&O only survived by aligning itself with architects and designers, and focusing on the ideology behind its products while emphasising quality. This strategy, accelerated in the mid-1990s, has paid dividends. The group’s turnover for the six months to 30 November 2006 was US$363m, up 8% against the same period in the previous year. Pre-tax profit was US$41.8m against US$32.5m, an increase of 29%. More than 20 new stores have opened in the last year. The aim is to open 50 a year until 2010 with the Middle East, Russia and Asia as priorities. There are already 11 stores in China and another 11 in Russia, while a new company was recently launched in Dubai — with two B&O stores — to co-ordinate regional expansion.

Sørensen says B&O is on course to grow into a US$1bn turnover company by 2010. More impressively perhaps, 25% to 30% of revenues come from 300,000 existing customers. The company traces the dialogue with customers in its database through an advanced CRM system. “We know what they want before they do,” smiles Sørensen.

His customers, he says, are mainly in their 30’s and 40’s, work in business or the arts, are internationally-minded and have a passion for perfection. “These people want products that allow them to feel good at home, have a striking look, are easy to use, manufactured to the highest degree, and that last around 15 to 20 years instead of two years. The business is totally polarised; more and more commodities are disposable but our customers want to have artefacts that express value, uncompromising quality and aesthetics pure and simple.”

The group, however, is facing challenges from all sides. There might well be more high-spenders being created in more territories but the speed at which B&O should expand its range of products in a thorny issue. The group is now spending 10% to 12% of its profits on research and development; five years ago it was 6%. It would like to introduce three to five new products a year but it cannot dilute its allure. In the US, for example, around 1000 customers account for 80% of revenues. These, presumably, are the hedge fund managers spending US$250,000 for a complete B&O system (including TV, audio, and curtains and lighting); the rest of the 10,000 customers there might buy one phone or a digital radio.

“The word ‘luxury’ is overused nowadays,” says Sørensen. “We talk about ‘exclusivity’ to express certain values. We want to avoid the trap of over-diluting the brand, even when we are tempted. It has to make sense, in that it can be integrated with everything else we make.

“We could make glasses, for example, but they would have to do something else as well. When we started making phones [the iconic banana-shaped BeoCom 2, made from a single piece of aluminium], we had to reinvent or change it, to make it more human”. He claims that while the technology gives “unrivalled authentic voice reproduction and superb sound quality”, the phone provides exceptional balance in your hand and natural sound in your ear. A phonebook is created automatically as calls are made and received.

A bigger concern is just how the company can translate its design superiority from physical objects into the virtual space — the realm, currently epitomised by Apple’s iTunes and iPods, where great design means great software and network-based interaction with other products and services. Sørensen laments that B&O actually invented the navigation wheel of the iPod in 1995, but for some reason did not patent it.

Meanwhile although BeoPlayer software actually included an iTunes predecessor that allowed customers to store and manage their music collections on a PC, there was much untapped potential.

The CEO is acutely aware of both evolving product markets and the perils of tinkering with success, and acknowledges that deciding the right amount of change is difficult: “It’s like insulin in the human body; too little and you die, too much and you die.”

Insulin is a good example. B&O also makes non-branded products for the medical technology industry, such as tablet dispensers or insulin pens, as part of a discreet diversification programme. It also makes car stereo systems, developed with Audi and BMW, and has targeted the hotel industry and the luxury yacht business. Around 200 top hotels around the world consider B&O audio equipment in guestrooms to be a selling point. The company has also developed, produced and sold digital amplifier units to companies in other industries. Only around 40% of the company’s revenues came from TV sales; 25% from audio product sales.

Strategically, B&O has just entered the mobile market, collaborating with South Korean electronics giant Samsung on a product called ‘Serene’. The phone, which naturally looks absolutely nothing like what we expect a mobile phone to look like, costs around US$1200. Sørensen says that 60% of Serene sales are to new customers “taking their first step into our world”. Inevitably, design was a big factor. “The screen, for example, is down past the mouth, so women won’t get it all smeared with makeup”. Men, on the other hand, may adore the mechanics; at the touch of a finger, the phone opens up in the palm of your hand.

“We decide what choices are relevant to the user, to make it uncomplicated. This phone does not replace your BlackBerry, but is the phone you want when you want to look sharp and go out at night. It’s like wearing a good watch and a functional watch.”

The consumer group B&O principally targets is “sophisticated adults”, says Sørensen. “You can’t download games or songs, but you can do the things we think you need to do. You can take a picture and you can send it in a multimedia message, but you’re likely to use an expensive camera on vacation.”

While the Serene mobile phone has an elaborate software interface, future software integration between B&O products will involve the creation of entire “back office” systems in cyberspace. The future for B&O dealers will see them transform into “service portals” as the public begins to organise their content in different ways. As Sørensen sees it, the convergence of digital audio and video products combined with the convergence of audiovideo and IT technologies means that people will never need to carry something as “archaic” as an iPod around with them. With some variant of a remote control, B&O customers will be able to access their own music choices in the car, while their movie and TV programme choices will be delivered to a hotel anywhere in the world.

This envisaged seamless transition, which does not have a definite timescale, excites Sørensen as much as his products because B&O has “always been in the home, the feel of home”, he adds. “We have never seen ourselves as being technology or gadget providers; we want to make things that become part of people’s lives and are up to our values of simplification, convenience, and quality.”

Home comfort is an area that is increasingly bringing Sørensen to Dubai — epicentre of the region’s boom in luxury residences. As well as the beefed-up retail side, and more tie-ups with high-end hotel chains, Dubai has presented B&O with a whole new opportunity. The company has been holding separate talks with local property giants Emaar and Nakheel with the view to have some of the emirate’s upcoming top-end residences fitted out with state-of-the-art home cinemas and other indulgent entertainment systems as part of their design process.

“What has been happening,” explains Sørensen, “is that as more and more noticeable luxury features are being added to new properties, they all start to look interchangeable. It is exactly what happened in [the Spanish resort of] Marbella in the 1980s — everything ended up looking the same.

“The cleverer developers in Dubai know that the sort of people buying some of these penthouses will end up buying these entertainment systems anyway, so it can be a great marketing tool to have everything already wired in, and installed before floors and walls are put in place”.

It seems the comparison with Lego might be spot on, after all.

"We could make glasses, but they’d have to do something else as well... when we started making phones, we had to reinvent it, to make it more human."

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