Q&A With Jens Peter Zinck, Managing Director, Bang & Olufsen AutomotiveWhy did Bang & Olufsen expand into the automotive market?
Like all companies, Bang & Olufsen drives for growth. Our state-of-the-art technology, numerous patents and very skilled staff – I call them the ‘chefs of sound’ – mean we have some great competitive advantages in acoustic technology. These advantages, for instance, allowed us to redefine loudspeaker design in the ‘90s. We integrated amplifiers into the loudspeaker, changed the shape and design of loudspeakers, and were able to improve sound quality, increase prices and yet not lose sales volume. We managed to get customers to pay more for their loudspeakers as they got more out of them.
Loudspeaker technology is very relevant in the automotive sector, where space is limited and weight is important. We looked at the in-car entertainment market and felt that it wasn’t truly being exploited. Customers can pay a lot of money for their car and add expensive extras such as leather seats and alloy wheels but there wasn’t really an option for an exceptionally good audio system. So we had unexploited potential, existing technologies and a very well respected brand. These seemed ideal foundations on which to establish a new segment, create something new and set a new price point.Was it difficult to convince the automotive industry?
Yes. When we knocked on doors in the early days all we heard was, ‘we sell audio systems for 800 euros but you want to offer one for 6000 euros – we don’t believe people will pay that much’.
Audi however recognised that this was a business opportunity and also that there was a good brand match between Bang & Olufsen and Audi. Audi agreed to a deal in 2003. All along we were convinced that our system would be a success. We were confident that when we got someone into the car and gave them the whole acoustic experience, we would then achieve the real ‘wow’ factor.What were your initial sales aspirations?
After our early discussions with the car industry and our own initial market analysis, it looked like we might sell a few hundred systems a year. In fact, we sold 4000 systems in the first year. This goes to prove that you cannot always identify a new market by research alone. Sometimes you need to believe that a product is great, you create a niche for it, make sure the product really lives up to your beliefs and customers will buy it.How is the Bang & Olufsen system different from existing in-car entertainment?
First and most important, it gives a far superior sound performance. This has been verified by many independent assessments, including a glowing endorsement from British conductor Daniel Harding. The improved sound on the Advanced Sound System is created by a number of our technologies, especially the use of ICEpower, which is our amplifier technology. This gives a lot of power without taking off too much bass, and we need a lot of power because we use speakers in closed cabinets, which is not typical in the automotive industry. The other major reason for the improved sound experience is the acoustic lens, another Bang & Olufsen technology. When you turn on the Advanced Sound System two small speakers elegantly rise from the dashboard. These have been carefully developed to make sure whether you sit in the left or right, front or rear of the car, you hear the same sound.
The Bang & Olufsen system also offers a little extra something. Most systems in the automotive market are hidden behind the doors so you can listen but it offers nothing visual. We have added something for the eyes, as well as the ears. There’s a little bit of magic to surprise people, like in the theatre when the curtains are drawn back to set the scene and get the audience in the mood to be entertained.How did you manage to achieve this visual entertainment?
The acoustic lens and 14 speakers have been very carefully designed not only to make sure the sound is perfect but to complement the interior of the car and are all branded with the Bang & Olufsen logo. The sound is in a class of its own but everyday you are also reminded that you have the Bang & Olufsen system in your car. You can see it from the inside and the outside and of course there is an element of kudos and pride in owning such a high-quality piece of technology.It is expensive compared with other in-car entertainment systems, of course. How can you convince people that it is worthwhile?
You can’t appreciate the system with just words. A demonstration is crucial. We have found that as soon as customers get into the car and see the small acoustic lens speakers rise up from the dash and hear this totally natural sound, where you can really pinpoint each vocalist and instrument, then most people start smiling and see that it is an experience that they want to pay for.
The Bang & Olufsen system is available on the Audi A8, R8, S8, Q7, A4 and A5 models. Each system is of course specially designed for these models. What are the plans for expansion with other car makers?
Our target all along was to work with three to five luxury car makers in Europe. We already had a dialogue with Audi owing to our common use of aluminium. I think that’s one of the reasons that it turned out to be Audi who became our first partner, as the brands really complement each other.
The success of the Bang & Olufsen system in Audis means our equipment is now in demand from other makers. When we do launch a system with another manufacturer it will be different from the Audi system. Every system we make will be immediately recognisable as Bang & Olufsen but will also be unique to each car brand and a design that fits with that particular car model. We are talking to other companies now but I can’t say any more at the moment. Our goal is still to be partners with three to five premium car brands, probably in Europe.Does Bang & Olufsen’s success with Audi prove that premium car buyers really care about sound quality?
Yes. Our system has been a great success. The system is currently installed in around 20 per cent of all Audi A8s sold, far beyond Audi’s and our expectations. Buyers are clearly prepared to pay for an excellent in-car entertainment system. When you’re spending 80,000 euros or so on a car, then another 6000 euros on a state-of-the-art sound system is justifiable. It makes the car perfect.
We have been the trailblazers but we won’t be alone for long. The system we launched on the Audi A8 established a new type of product with a new price point. There is clearly an interesting business case here and that makes me feel sure we will not have this sector to ourselves for long. Established companies in the sector will make counter attacks and we will see newcomers to the segment. So we cannot stand still. We have to make sure we stay ahead of the competition and continue with our innovations and keep our lead. But I do think we will see the sound industry for cars becoming more important, the overall value of the business will increase and people will be willing to pay more for their sound systems.The automotive business is a ruthless one. Many automotive suppliers struggle, their profit margins are tiny. Are you concerned about any future vulnerability?
If we were only a manufacturer of relatively generic loudspeakers I would not be so happy. To have healthy margins in this industry you have to offer something unique, and protect it with branding and patents. I also think that in our relationship with Audi we are becoming a partner rather than just a supplier. I believe if you can move up the value chain and break free of the role of generic supplier and become someone more valuable, you can have more confidence and support each other’s growth.Can you share any future developments with us?
We have a vision that in the future a car with a Bang & Olufsen system should be linked to the sound system in the home, so there would be seamless integration between home and car. We want to bring the whole home experience to the car and that would include video.
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