Beats by Dre Marketing Analysis

Beats by Dre Premium Over-Ear Headphones for Millennial Audiophiles Marketing Audit

Executive Summary

Beats by Dre is a North American company, founded in 2008 by Dr. Dre and Jimmy Iovine, recently purchased by Apple Inc. for $3 billion in cash and stock deal (Hughes, 2014). The now called Beats Electronics had an annual sales revenue of US$1.5 billion in 2015 (Sisario, 2014), and its primary market is the premium on/over-ear headphones.

According to the NDP group, Beats Electronics’ market share on the premium headphones above US$100 has reduced from 64% in 2012 (Neate, 2013) to 61% in 2013 (BrandView, 2017), and is still decreasing, even though they are still the top of the list in this industry.

The target market for premium over-ear headphones is estimated to be 23.6 million people. They are the millennial audiophiles. A group majority of males, possible business man or managers, between 30 and 35 years old with a stable life, that enjoy good quality sound and are technologically interested. A niche group that has money to spend on a reliable product, but also values the brand name. This target market can be translated into a potential revenue increase if a new strategy arise, such as the development of a new product.  

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This report exploit the reasons behind the market opportunity in quality headphones. Internal and external environment analysis are made to understand the scenario that Beats by Dre is situated and how can the company grow on this market share. The customer for this market tends to spend money on headphones that have a good quality sound. Even though Beats by Dre provide products that are considered as high-end product, they are not good enough in the perspective of an audiophile. However, some of the customers would appreciate to have a product with a recognizable brand name.

Among the long list of competitors that Beats by Dre have, some have been in the market for a long time, such as Sony, Bose and Sennheiser, and other are new entrants, such as Bowers & Wilkins, Skullcandy and Monster. Nevertheless, for this report, only Sennheiser and Bowers & Wilkins are at the proposed target market that Beats by Dre could go by creating a high quality sound product.

This opportunity can prevent, even a little, the downward trend that Beats by Dre has been facing these previous years.

1. Introduction

Marketing has been present in many industry sectors for quite some time, acting as the key to success and/or downfall of various businesses. The range of these businesses is enormous, going from television advertisements of new cellphones to movie stars endorsements of luxury clothing. Nevertheless, there are still plenty of room for innovation and markets to explore.

In one of these untapped areas, Beats by Dre discovered a completely new market for its premium headsets. Beats by Dre have changed people’s perception when it comes to the way they listen to music. The strategy consists of Dr. Dre himself, a legendary producer and musician, endorsing audio products, the same way soccer players endorse sports shoes. As impressive as it may seem, they were the pioneers doing this, even though the diversity of audio companies in the market.

Nowadays, Beats by Dre has become a multibillion-dollar company with audio products selling all around the globe, with a good reputation. However, the company has been facing some rumors about their product’s quality and what they actually worth.

This report has the objective to analyze external and internal factors that could recover the company’s prestige and stimulate on the development of a new marketing strategy for Beats by Dre. Factors such as the environment scan and audit (SWOT, PESTEL, customer and competitor’s analysis).

2. Organizational & Product Overview

Beats by Dre is a North American company that sells premium headphones and audio devices all over the world. It was founded in 2006 by the famous rapper and music producer Andre “Dr. Dre” Young and former Interscope Geffen A&M Records chairman Jimmy Iovine.

Beats by Dre states that “People Aren’t Hearing All The Music” (Beats by Dre, 2017), so their vision is to make sure customers do.

“The company’s mission is to provide a superior end-to-end music experience – with headphones, devices and services – so fans feel the emotion and hear the music the way artists intended it to sound from the studio”. (Business Wire, 2013).

By the year of 2007, Beats by Dre teamed up with Monster Cable and finally released its first product a year later (Molina, 2017). After the release of the “Monster Beats by Dr. Dre Studio headphones” in 2008, the company notoriety has grown exponentially. Its enormous success is due to the excellent fusion between an excellent planning of disclosure and a good product. Beats by Dre bet on co-marketing deals with big names of sport and music so that brand recognition expanded into what it is today (Inc. Magazine, 2012).

Nowadays, the company has different products and services. Developed to provide a superior audio quality, the on/over ear headphones present technological innovations, such as noise isolation and wireless connection. Also along with its technical features, the product has a fashionable design, something critical for customer’s approval. The headphones’ price varies between US$130 and US$400 on their official website. The product can also be purchase on Apple and retail stores, and through other e-commerce pages. It is a top tier item with quality materials and luxury packaging. As mention before, Beats by Dre promotes its products mostly throughout celebrity endorsements. Big stars, such as LeBron James and Lady Gaga, creating a glamourous status by utilizing a Beats by Dre headset. The company also make advertisements through social media, commercials and internet videos.

Along the way, Beats by Dre has ended its manufacture deals with Monster Cable, has acquired music services from MOG and signed deals with HP and Chrysler. The company was 50,1% bought by HTC in 2011 and in 2012 was partially rebought by Dr. Dre and Jimmy Iovine. With all these outcomes, the biggest one occurred in July 2014, when Apple Inc. purchased the company in a billionaire transaction, renaming the company to Beats Electronics (Weber, 2014). The company remains on top, with 46%, when it comes to teens planning to purchase a Beats by Dre (Statistic Brain, 2017) and leading with 49% in terms of dollar sales of the wireless headphone market, when combined with Apple products. (Richter, 2017).

3. Environment Audit

The reputation that the Beats by Dre organisation built is mainly due to the notorious fame of Dr. Dre. In addition, the company has other considerable strengths and an amazing product.  With a stylish design and fashion status, the headphone can be bought almost everywhere. They have a great sound and the luxury unboxing experience is unique. However, these premium headphones are a little bit expensive. The perceived value of them are quite high and rumors of the manufacturing cost diminish their prestigious reputation. Not only have that, but the technical graphs from the device represented bad quality sound when compared to products with similar price. (Itman, 2015). With Apple’s acquisition of the company, Beats by Dre can pursue many opportunities with personal computers and mobiles. Invest on research for new products with better quality. They can come up with new designs and/or personally customized products. Despite the tremendous success, Beats by Dre still faces threats. New entrants have already joined the premium headphones industry and old competitors are updating and renewing their products. Not to mention counterfeits and imitations.

On the internal layer of the business environment, Beats by Dre adopted a Blue Ocean strategy (Pitta, D., 2012; Pitta, E., 2012), creating and uncontested market space and capturing a new demand for its premium products. Now, the organisation has more than 700 employees (Welch, 2014) and its structure relies on a traditional hierarchical management (Meyer,2017). Beats’ suppliers are the same as Apple, Inc. suppliers, due to the acquisition, which consists mostly in Asian electronic parts (Apple Inc., 2017a). Apple’s supplier list is extensive; however, Beats’ premium technology image is important for its customers, so the bargaining power of the suppliers is moderate. With the industry’s competitors of the premium headset, such as Sony, Bose and Skullcandy, and the flood of new products in the market, it could be hypothesized that Beats by Dre would have a low bargaining power over its customers. However, Beats still represents status and a unique product, resulting in customer’s power reduction over them. It is a strong competition, but Beats succeeded on conquering the customer’s loyalty and still dominate the market (“An analysis of Beats by Dre”, n.d.).

Many factors can influence the company at the external layer of the business environment. Considering the political analysis, Beats provides an international product with most of its markets outside the United States, therefore the company must maintain good political relations among countries. These trade relations allow the company’s expansion. The increase in tax is another political element example. In Brazil, the import tax rate is elevated, 34% (Wikipedia, 2017), making the product expensive, therefore reducing the number of consumers and affecting the demand patterns of the company.

Economic factors can alter the product consumption, for example in the eventuality of financial crisis. In instance, the financial crisis of 2009 reduced dramatically technological productivity (Adler & Duval, 2017). Beats by Dre is a luxury item, so in time of shortage, people can choose a less expensive product.

Beats is mainly a social brand, associated with the world’s biggest figures. Therefore, it is critical that the company maintain a social responsibility with its customers, such as the brand Product Red (McGlaun, 2010), an initiative aimed for fighting tuberculosis, AIDS and malaria ((RED), 2017). Another example of social commitment was when Dr. Dre faced criticism of violence against women in his film Straight Outta Compton; he made a public announcement apologizing for the ones he have hurt 25 years ago (Daily Mail, 2015).

The cultural change that society has witnessed in relation to headphones is intrinsic. Back in the days, people used to listen to music on their portable cassette player with uncomfortable headphones, poor quality sound and cable connected. Nowadays, the headsets are ingrained into the society. People use them everywhere, with mobile devices streaming the music. This digital evolution and cultural shift led to the creation of wireless headphones, with better comfort and quality sound. In addition, Beats’ visionary strategy have led the premium headsets category to a 95% revenue growth (Popper, 2014),

The commitment that the creator and the company have with the high-tech product is one of the reasons to attract audiophiles, sound engineers and musicians. The acquisition made by Apple Inc. just reassured their commitment to technological advancements and innovations.

Apple Inc. also ensures that its subsidiary is legally compliant with the health and safety of its foreigner’s suppliers and with the environment (Apple Inc., 2017b). The many lawsuits, such as from Monster and from Bose, that the founders have been facing since 2014 can influence at the company’s image. The supposedly creation of the design and corporate identity by Steven Lamar is one of them (The Guardian, 2016).

4. Analyses

4.1. Target Market Analysis

The headset types that exist in the market are quite diverse. They can be divided into four categories. Circumaural (over-ear), supra-aural (on-ear), earbud and in-ear (Hertsens, 2014). Moreover, these headphones have different features and variations, such as gaming, wireless, noise cancelation and others.

Beats by Dre has three leading sales products. The headphones, the earphones and the speakers. This report will focus on the premium (over US$100.00) over-ear headphones target market.

Even though with only 16% of the market share, while the earbud & in-ear corresponds to 64% (Statistic Brain, 2017), the on and over-ear headphones is Beats’ favorite in advertisements, due to the fast logo’s recognition and fashion status. The over-ear headphones are commonly used among music producers, and could not different with the creator of the brand, Dr. Dre, which released his first product having this specific layout.

Out of the 16% of over-ear headphones, approximately 38% of the market is for the premium category (Future Market Insights, 2015), totalizing 6% of the market share.

For this specific 6% target market, sound quality is the top purchase influencer, with 73%, and brand is the second purchase influencer, with 44% (The NDP Group, 2012). Calculating the percentage average between quality sound and brand, the total of both purchase influencers is 38%, resulting in 2% target market for premium over-ear headphones with good quality sound and renowned brand.

This is a small target market percentage, likewise the particular product customer, also called ‘the millennial audiophiles’.

4.2. Customer Analysis

The co-founder, Jimmy Iovine (n.d.), mentioned that Beats headphones target age groups of Tweens and Generation Y (Millennials). These groups varies between 18 and 35. However, according to the AudioCircle poll, the majority (84.3%) of audiophiles age ranges from 30 to 60. (AudioCircle, 2008), and according to Haring (2006) report, it is a male culture dominance. Therefore, the customer for this product is a male from 30 to 35 years old.

The customer want quality sound and a brand name. They are technological savvy and want the latest.  Due to these factors, most consumers are concentrated on urban areas. They like to express their individuality on social media. In regards to the monetary condition, money is definitely not a primary concern, representing only 10% of purchase influence (The NDP Group, 2012). Most have stablished a solid career. It could be established that they are successful professionally, owning personal car and property. A businessperson at an early stage or a young manager is a decent representation of this niche group.

According to the United States Census Bureau (2017) and The World Bank Group (2017) data, the world’s male population between 30 and 35 years old living in urban areas (54.3%) is 184 million people. The Beats by Dre is target to users with upper-middle income and high income, standard for businessperson, which totalizes 16% of the population according to Pew Research Center (2015). After including on the calculations the 80% of social media users (York, 2017), such as Facebook, the relative size of this segment is 23.6 million people. A precise estimation, when compared to the number of shipments worldwide (340 million), Beats by Dre market share (46%) and the over-ear market share (16%) resulting in 25 million units (Statistic Brain, 2017).

Despite the small market percentage, it remains a significant portion. Apple Inc. subsidiary has potential for growth in many markets and opportunities for development. Beats Music is one of these plans. The service intents to beat Spotify, providing music to every iPhone and Ipad (Dredge, 2014). Beats can extend its partnerships with other car brands on the BeatsAudio service. Create personally customized products, such as a simple color and style customization or even a complex custom-molded in-ear headphone.

Millennial audiophile customers are loyal to the brand commitment for innovation. If Beats Electronics increased research and testing cost on the development product, many customers that values quality sound, would rather choose Beats products instead of the competitors.

4.3. Competitor Analysis

The new entrants for the premium headset industry has increased the competition among brands and weakened the superiority of standard recognized brands such as Sony, Bose and Sennheiser. These main new players are Bowers & Wilkins, Monster and Skullcandy. Nevertheless, Beats by Dre still holds 46% of the market share (Richter, 2017), but its portion has been decreasing over time.

The company also needs to remain innovative and come up with ways to differentiate its products in order to stay attractive to the customers, since competitors are presenting new features for their headphones, such as the ThinkEar, a personal audio system controlled by your brainwaves (NESTE, 2017). The cost competition will be an issue too, since companies are trending to adopt same pricing strategies for products with similar specifications. Even though price is more considerable for other products with same specs, the customer’s loyalty to bigger brands sometimes block these alternative competitors when they try to get into the market.

Due to Beats by Dre and other public known brands control of the market and international demand, new entrants still find it difficult to enter the business. Beats also faces substitute threats that uses different market strategies and partnerships, which increases their share of these elite market. Two of these possible substitutes are Soul by Ludacris and Sync by 50 Cent. With customers willing to spend money on products with a better quality sound and improved specifications, Beats by Dre requires innovation on their product offerings’ list.

The following table shows the brand, product, price and features that are alternative competitors for BeatsPro headphone, and BeatsPro itself.

Table 1: Alternative Competitors Analysis

It is clear that Beats top over-ear headphone is competing only with products at the price range of $200-$400, and since millennial audiophiles don’t have price as the main concern, the company end up losing part of the market for more expensive, but better products, such as the HD650 and the P9.

5. Conclusion and Recommendations for preliminary marketing strategy

Beats by Dre product is a high-tech product, commonly known for its fashionable status, however it has a perceivable price too elevated with a bad quality sound, when compared to similar products with same price. It is all about margin cost. Even though the company spends a reasonable amount of money on research, manufacture and testing, most of the budget goes to packaging and advertisements.

Because of these, Beats by Dre is losing market share to alternative competitors. In order to change the scenario, Beats by Dre must evaluate a new strategic approach to recover their prestigious reputation for high-end product with good quality sound.

If the company closed the gap between the perceived value and the sound quality, the millennial audiophile target market will certainly increase.

The company is known for being strong technologically. Along sides with Apple Inc., they can come up with a fresh new product that involves lots of research, reducing the rumor of cost manufacture and providing a product that satisfy the most assiduous audiophile. Even though the product price would be higher than the BeatsPro, the customer review would improve, closing the gap between the price and the quality of the product, and capture consumers that value brand name and quality sound.

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