Beatsby Dre Premium Over-Ear Headphones for Millennial Audiophiles Marketing AuditExecutive SummaryBeats by Dre is a NorthAmerican company, founded in 2008 by Dr. Dre and Jimmy Iovine, recentlypurchased 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 billionin 2015 (Sisario, 2014), and its primary market is the premium on/over-earheadphones. According to the NDP group,Beats Electronics’ market share on the premium headphones above US$100 hasreduced from 64% in 2012 (Neate, 2013) to 61% in 2013 (BrandView, 2017), and isstill decreasing, even though they are still the top of the list in thisindustry.The target market forpremium over-ear headphones is estimated to be 23.6 million people. They arethe millennial audiophiles. A group majority of males, possible business man ormanagers, between 30 and 35 years old with a stable life, that enjoy goodquality sound and are technologically interested. A niche group that has moneyto spend on a reliable product, but also values the brand name. This targetmarket can be translated into a potential revenue increase if a new strategy arise,such as the development of a new product.  This report exploit thereasons behind the market opportunity in quality headphones. Internal andexternal environment analysis are made to understand the scenario that Beats byDre is situated and how can the company grow on this market share. The customerfor this market tends to spend money on headphones that have a good qualitysound. Even though Beats by Dre provide products that are considered ashigh-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 arecognizable brand name. Among the long list ofcompetitors that Beats by Dre have, some have been in the market for a longtime, such as Sony, Bose and Sennheiser, and other are new entrants, such as Bowers& Wilkins, Skullcandy and Monster. Nevertheless, for this report, onlySennheiser and Bowers & Wilkins are at the proposed target market thatBeats by Dre could go by creating a high quality sound product.This opportunity canprevent, even a little, the downward trend that Beats by Dre has been facingthese previous years.1. Introduction Marketing has been presentin many industry sectors for quite some time, acting as the key to success and/ordownfall of various businesses. The range of these businesses is enormous, goingfrom television advertisements of new cellphones to movie stars endorsements ofluxury clothing. Nevertheless, there are still plenty of room for innovationand markets to explore. In one of these untappedareas, 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 theylisten to music. The strategy consists of Dr. Dre himself, a legendary producerand musician, endorsing audio products, the same way soccer players endorsesports 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 hasbecome a multibillion-dollar company with audio products selling all around theglobe, with a good reputation. However, the company has been facing some rumorsabout 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 OverviewBeats by Dre is a NorthAmerican company that sells premium headphones and audio devices all over theworld. 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 isto make sure customers do. “The company’s mission isto provide a superior end-to-end music experience – with headphones, devicesand services – so fans feel the emotion and hear the music the way artistsintended it to sound from the studio”. (Business Wire, 2013).By the year of 2007, Beatsby Dre teamed up with Monster Cable and finally released its first product ayear later (Molina, 2017). After the release of the “Monster Beats by Dr. DreStudio headphones” in 2008, the company notoriety has grown exponentially. Itsenormous success is due to the excellent fusion between an excellent planningof disclosure and a good product. Beats by Dre bet on co-marketing deals withbig names of sport and music so that brand recognition expanded into what it istoday (Inc. Magazine, 2012).Nowadays, the company hasdifferent products and services. Developed to provide a superior audio quality,the on/over ear headphones present technological innovations, such as noiseisolation and wireless connection. Also along with its technical features, theproduct has a fashionable design, something critical for customer’s approval. Theheadphones’ price varies between US$130 and US$400 on their official website. Theproduct can also be purchase on Apple and retail stores, and through othere-commerce pages. It is a top tier item with quality materials and luxurypackaging. As mention before, Beats by Dre promotes its products mostly throughoutcelebrity endorsements. Big stars, such as LeBron James and Lady Gaga, creatinga glamourous status by utilizing a Beats by Dre headset. The company also makeadvertisements through social media, commercials and internet videos. Along the way, Beats byDre has ended its manufacture deals with Monster Cable, has acquired musicservices 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 JimmyIovine. With all these outcomes, the biggest one occurred in July 2014, whenApple Inc. purchased the company in a billionaire transaction, renaming thecompany to Beats Electronics (Weber, 2014). The company remains on top, with46%, when it comes to teens planning to purchase a Beats by Dre (StatisticBrain, 2017) and leading with 49% in terms of dollar sales of the wirelessheadphone market, when combined with Apple products. (Richter, 2017).3. Environment AuditThe 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.Table 1: SWOT AnalysisOn the internal layer ofthe business environment, Beats by Dre adopted a Blue Ocean strategy (Pitta, D.,2012; Pitta, E., 2012), creating and uncontested market space and capturing anew demand for its premium products. Now, the organisation has more than 700employees (Welch, 2014) and its structure relies on a traditional hierarchicalmanagement (Meyer,2017). Beats’ suppliers are the same as Apple, Inc. suppliers,due to the acquisition, which consists mostly in Asian electronic parts (AppleInc., 2017a). Apple’s supplier list is extensive; however, Beats’ premiumtechnology image is important for its customers, so the bargaining power of thesuppliers 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 powerover its customers. However, Beats still represents status and a uniqueproduct, resulting in customer’s power reduction over them. It is a strongcompetition, but Beats succeeded on conquering the customer’s loyalty and stilldominate the market (“An analysis of Beats by Dre”, n.d.).Many factors can influencethe company at the external layer of the business environment. Considering thepolitical analysis, Beats provides an international product with most of itsmarkets outside the United States, therefore the company must maintain goodpolitical relations among countries. These trade relations allow the company’sexpansion. The increase in tax is another political element example. In Brazil,the import tax rate is elevated, 34% (Wikipedia, 2017), making the productexpensive, therefore reducing the number of consumers and affecting the demandpatterns of the company.Economic factors can alterthe product consumption, for example in the eventuality of financial crisis. Ininstance, the financial crisis of 2009 reduced dramatically technologicalproductivity (Adler & Duval, 2017). Beats by Dre is a luxury item, so intime of shortage, people can choose a less expensive product. Beats is mainly a socialbrand, associated with the world’s biggest figures. Therefore, it is criticalthat the company maintain a social responsibility with its customers, such asthe brand Product Red (McGlaun, 2010), an initiative aimed for fightingtuberculosis, AIDS and malaria ((RED), 2017). Another example of socialcommitment was when Dr. Dre faced criticism of violence against women in hisfilm Straight Outta Compton; he made a public announcement apologizing for theones he have hurt 25 years ago (Daily Mail, 2015).The cultural change thatsociety has witnessed in relation to headphones is intrinsic. Back in the days,people used to listen to music on their portable cassette player withuncomfortable headphones, poor quality sound and cable connected. Nowadays, theheadsets are ingrained into the society. People use them everywhere, withmobile devices streaming the music. This digital evolution and cultural shift ledto the creation of wireless headphones, with better comfort and quality sound.In addition, Beats’ visionary strategy have led the premium headsets categoryto a 95% revenue growth (Popper, 2014), The commitment that thecreator and the company have with the high-tech product is one of the reasonsto attract audiophiles, sound engineers and musicians. The acquisition made byApple Inc. just reassured their commitment to technological advancements andinnovations.Apple Inc. also ensuresthat its subsidiary is legally compliant with the health and safety of itsforeigner’s suppliers and with the environment (Apple Inc., 2017b). The manylawsuits, such as from Monster and from Bose, that the founders have beenfacing since 2014 can influence at the company’s image. The supposedly creationof the design and corporate identity by Steven Lamar is one of them (The Guardian,2016).4. Analyses4.1. Target Market AnalysisThe headset types thatexist in the market are quite diverse. They can be divided into fourcategories. Circumaural (over-ear), supra-aural (on-ear), earbud and in-ear (Hertsens,2014). Moreover, these headphones have different features and variations, suchas gaming, wireless, noise cancelation and others. Beats by Dre has threeleading sales products. The headphones, the earphones and the speakers. Thisreport will focus on the premium (over US$100.00) over-ear headphones targetmarket. Graph 1: Target Market Analysis?Even though with only 16%of the market share, while the earbud & in-ear corresponds to 64% (StatisticBrain, 2017), the on and over-ear headphones is Beats’ favorite inadvertisements, due to the fast logo’s recognition and fashion status. Theover-ear headphones are commonly used among music producers, and could notdifferent with the creator of the brand, Dr. Dre, which released his firstproduct having this specific layout.Out of the 16% of over-earheadphones, approximately 38% of the market is for the premium category (FutureMarket Insights, 2015), totalizing 6% of the market share. For this specific 6% targetmarket, sound quality is the top purchase influencer, with 73%, and brand isthe second purchase influencer, with 44% (The NDP Group, 2012). Calculating thepercentage average between quality sound and brand, the total of both purchaseinfluencers is 38%, resulting in 2% target market for premium over-earheadphones with good quality sound and renowned brand.This is a small targetmarket percentage, likewise the particular product customer, also called ‘themillennial audiophiles’.4.2. Customer AnalysisThe co-founder, JimmyIovine (n.d.), mentioned that Beats headphones target age groups of Tweens andGeneration Y (Millennials). These groups varies between 18 and 35. However,according to the AudioCircle poll, the majority (84.3%) of audiophiles ageranges 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 amale from 30 to 35 years old.The customer want qualitysound and a brand name. They are technological savvy and want the latest.  Due to these factors, most consumers areconcentrated on urban areas. They like to express their individuality on socialmedia. In regards to the monetary condition, money is definitely not a primary concern,representing only 10% of purchase influence (The NDP Group, 2012). Most havestablished a solid career. It could be established that they are successfulprofessionally, owning personal car and property. A businessperson at an earlystage or a young manager is a decent representation of this niche group.According to the UnitedStates Census Bureau (2017) and The World Bank Group (2017) data, the world’s malepopulation between 30 and 35 years old living in urban areas (54.3%) is 184 millionpeople. The Beats by Dre is target to users with upper-middle income and highincome, standard for businessperson, which totalizes 16% of the population accordingto Pew Research Center (2015). After including on the calculations the 80% ofsocial media users (York, 2017), such as Facebook, the relative size of thissegment is 23.6 million people. A precise estimation, when compared to thenumber of shipments worldwide (340 million), Beats by Dre market share (46%)and the over-ear market share (16%) resulting in 25 million units (StatisticBrain, 2017). Despite the small marketpercentage, it remains a significant portion. Apple Inc. subsidiary has potentialfor growth in many markets and opportunities for development. Beats Music isone of these plans. The service intents to beat Spotify, providing music toevery iPhone and Ipad (Dredge, 2014). Beats can extend its partnerships withother car brands on the BeatsAudio service. Create personally customized products,such as a simple color and style customization or even a complex custom-moldedin-ear headphone.Millennial audiophilecustomers are loyal to the brand commitment for innovation. If BeatsElectronics increased research and testing cost on the development product,many customers that values quality sound, would rather choose Beats productsinstead of the competitors.4.3. Competitor AnalysisThe new entrants for thepremium headset industry has increased the competition among brands andweakened the superiority of standard recognized brands such as Sony, Bose andSennheiser. These main new players are Bowers & Wilkins, Monster andSkullcandy. 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 toremain innovative and come up with ways to differentiate its products in orderto stay attractive to the customers, since competitors are presenting newfeatures for their headphones, such as the ThinkEar, a personal audio systemcontrolled by your brainwaves (NESTE, 2017). The cost competition will be anissue too, since companies are trending to adopt same pricing strategies forproducts with similar specifications. Even though price is more considerablefor other products with same specs, the customer’s loyalty to bigger brandssometimes block these alternative competitors when they try to get into themarket.Due to Beats by Dre andother public known brands control of the market and international demand, newentrants still find it difficult to enter the business. Beats also facessubstitute threats that uses different market strategies and partnerships,which increases their share of these elite market. Two of these possiblesubstitutes are Soul by Ludacris and Sync by 50 Cent. With customers willing tospend money on products with a better quality sound and improvedspecifications, Beats by Dre requires innovation on their product offerings’list.The following table showsthe brand, product, price and features that are alternative competitors forBeatsPro headphone, and BeatsPro itself. Table 1: Alternative Competitors AnalysisNote. Retrieved from Headphone Reviews by PCMag Australia, 2017, Retrieved Oct., 2017 from https://www.pcmag.com/reviews/headphones It is clear that Beats topover-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, thecompany end up losing part of the market for more expensive, but betterproducts, such as the HD650 and the P9.5. Conclusion and Recommendations for preliminary marketing strategyBeats by Dre product is ahigh-tech product, commonly known for its fashionable status, however it has aperceivable price too elevated with a bad quality sound, when compared tosimilar products with same price. It is all about margin cost. Even though thecompany spends a reasonable amount of money on research, manufacture andtesting, most of the budget goes to packaging and advertisements. Because of these, Beats byDre is losing market share to alternative competitors. In order to change thescenario, Beats by Dre must evaluate a new strategic approach to recover theirprestigious reputation for high-end product with good quality sound.If the company closed thegap between the perceived value and the sound quality, the millennialaudiophile target market will certainly increase. The company is known forbeing strong technologically. Along sides with Apple Inc., they can come upwith a fresh new product that involves lots of research, reducing the rumor ofcost manufacture and providing a product that satisfy the most assiduousaudiophile. Even though the product price would be higher than the BeatsPro,the customer review would improve, closing the gap between the price and thequality of the product, and capture consumers that value brand name and qualitysound.ReferencesHughes, N. (2014). Apple officially closes on $3B purchase of Beats headphones & streaming service. 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