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Gibson Guitars- Part II- How to save an iconic American brand in 10 steps...Why Chapter 11 is good for Gibson.

June 29, 2018

Part II

 

When a pilot loses control of an airplane, it can easily enter a ‘death spiral’ where every revolution increases the odds for disaster. Businesses can enter a similar spin; desperate for income, they can squeeze dealers, suppliers and customers and ultimately drive away business.

 

In Part I we predicted Gibson’s Chapter 11 filing (May 1, 2018) and believe it’s a good thing for a couple of reasons:

  • Chapter 11 provides the time and protection to avoid spiraling.

  • Perhaps more important, it’s a great time for Gibson to focus on the best practices and change management necessary for long-term stabilization and growth.

 

Considering that the purpose of this series is to review the Business Transformation best practices that Gibson might adopt to optimize brand and profits, let’s revisit three interrelated questions at the heart of Gibson’s opportunities:

 

1. Will Gibson disinvest ancillary brands to refocus on high ROI guitar markets?

As covered in Part 1, it seems clear that Gibson overreached. Converting assets into capital that supports Gibson’s core-strength (guitar markets) is an obvious next step. But choosing the right markets requires a lot of discipline, discussed in more detail below.

 

2. Does Gibson recognize that Yamaha, Fender, Ibanez, PRS and Taylor are the kings of process and is Gibson ready to learn the basics?

Musicians love to focus on the tone gurus and luthiers who design the greatest of guitars. At the high end of the market, shops at Suhr or Lowden’s level are small enough to work directly with key customers to balance high margin products.

However, margins are slim in mass production markets and strong processes, tight specifications and meaningful Key Performance Indicators are necessary to deliver competitive value at a profit.

 

There’s a lot of history around mass production processes. One of the reasons that Fender has successfully competed in diverse markets (including pro-audio, recording and instruments) is the leadership and process knowledge they acquired from Yamaha in the post CBS phase.

 

If Gibson takes advantage of the ‘slowed motion’ and financial flexibility that comes with Chapter 11, they have a once in a lifetime opportunity to develop a new business model where customer needs drive product, messaging and business development.

 

Keep in mind that these opportunities are ultimately more important than Gibson’s legal and finance issues; it's all about the focused product marketing necessary to compete in global markets.

 

3. Closely related, Gibson's quality has to match competitive price and value points.

Gibson has lived a long, long time off of the brand, however, competition has significantly encroached all markets and brand will no longer be enough. Musicians who demo a $3,000 Gibson must easily compare total value to PRS, Taylor and other competitive products and Gibson needs to win that showdown more often than not.

 

On the flip side, a large number of everyday players (mixed with a few celebrities) must publicly declare Gibson the winner and explain their reasoning.

 

Assuming that Gibson decides to remain in mass production markets, brand will continue to open doors. However, Gibson needs a stronger story to grow entry level customers into life-time Gibson customers.

 

One of the best hooks could be extremely high competitive value at the bottom end- If entry level musicians choose $300 Epiphones over comparable Ibanez, Godin or Fender models, Gibson has a chance to increase market share. And if they build on that brand loyalty, they could create a clear path to the top where margin is considerably higher.

 

It will take a lot of work, however if Gibson gets the value proposition correct, they have the chance to differentiate across multiple markets, moving beyond ‘where was it made and what is it made of?’ and clearly answering ‘why this guitar is better’. We’ll dig into brand and messaging details in the next installment.

 

So now that we’ve revisited the big picture, let’s build on best practices outlined in the previous article (Restructuring Debt, Competitive Review and Balancing the Portfolio) and introduce the next logical step.

 

Fourth Priority- Customer-Centric, Process-Driven Product Development

 

As mentioned before, small specialty manufactures often use ‘scattergun development’ processes, where one-off products are developed and ‘thrown over the fence’ to customers with the understanding that the best products will ‘stick’ and become profitable. High end customers are happy to pay a premium for the innovation, quality and status that is common in this market and many enjoy close relationships with the builders.

 

At the same time, off target, unaligned thinking is rapidly recognized. It’s easy for small groups of highly invested customers to respond if they find their ‘emperor unclothed’ and they have the experience to vote with the pocketbook and shift brands if the organization does not respond. 

 

At the opposite end of the spectrum, large scale, global markets are totally different beasts. Competitive pressure is extremely high, margins are low and mass production portfolios (including entry level, mid and upper mid lines) must be optimized across every step of the product life cycle.

 

The easiest way got Gibson to insure appropriate ROI across markets is to build product roadmaps that focus development, marketing, sales and support on user needs for specific segments.
 

In early rounds, the strongest needs are matched with easily produced feature/functionality and price and quality requirements are projected. Requirements are prioritized and short and long-term roadmaps are created to drive development, messaging and business development. Tightly focused offerings are rolled out to highly defined segments, results are analyzed, new requirements are created and the cycle starts again.

 

 

 

Customer-centric offering development framework

 

Segment specific roadmaps increase sustainability and profitability in many ways:
 

1. Roadmaps provide the framework to support a single view of the customer which helps all stakeholders ‘read off of the same page’. This insures that product, marketing and networks are all working together with the same goals for the same segments.

  • In Gibson’s case, dealers get in depth previews of products that they help design, they know competitive differentiation from the start and they are the first responders if something isn’t working.

  • Marketing receives needs-specific positioning that drives differentiated, benefit-specific stories for selected audiences. That makes it easy to test key words and channels, to cross-sell and further refine segments.

  • And the resulting feedback is extremely specific, giving product managers a consistent, ‘standard candle’ to prioritize next steps. When segments are well defined and KPIs are regularly collected, data-driven decision making is relatively easy – Product managers can rapidly identify products that under perform as well as segments that are under served... 

 

2. Roadmaps insure that every product has a purpose and that profitability is understood. Customer lifetime values can be projected, growth paths planned and razor thin margins (or losses) on beginner instruments may be well justified if they lead to high end sales over time.

 

Once roadmaps are established, it becomes much easier to understand who needs what and Gibson should be asking themselves a lot of questions:

  • ‘Can we provide high quality, customer-driven products necessary for sustained profitability in the boutique market?’

  • ‘Do we have the processes necessary to compete within razor-thin margin, mass production markets?’

  • ‘Or, do we have the big picture view, market knowledge and patience necessary to sustain such radically different markets at the same time?’

Once Gibson gets a handle on best opportunities, many logical segments should fall into place.

 

Considering the feedback around Gibson’s chapter 11 filing, it seems clear that the ‘I loved Gibson in my youth’ segment is a big one that got away. Search Google and you will find long threads explaining why Gibson lovers moved on to other brands; most blame high costs and low quality for the brand shift.

 

Here’s a rather specific quote that demonstrates how Gibson (as well as Fender) have lost ground to high value manufacturers like PRS:

 

“I left Fender and Gibson long ago… (and moved to a)… PRS is in the 3K range but still a bargain for the quality and tone…From where I sit it’s the modern experience of having walked into a guitar store in 1959 and walked out with the coveted LP burst”.

 

The first cycle for a ‘Gibson’s Wayward Children’ roadmap might look something like this:
 

1. Research spending, demographics and ancillary interests for this segment – Let’s imagine:

  • 45- 65 year old males

  • $1200-1500 price points   

  • Clearly messaged on Facebook, musician’s focus groups and boating and car sites.

 

2. Work closely with dealers, professional musicians and user groups to identify features and quality requirements that exceed competitive products.

 

3. Thin out Gibson’s extremely complex portfolio and design a few ‘classic feature’ models, where apples-to-apples comparisons are easy.

 

4. Describe that small group of designs with simple, clear messages:

  • ‘Here's an SG (Les Paul or Explorer) that’s better than the one you wanted way back when.”

  • “It’s simple, high quality and affordable.”

  • List the quantifiable, differentiated features that establish competitive value.

 

5. Eat some crow, make it clear that Gibson lost this segment and is willing to do the work to get them back. 

As with the reformed alcoholic actor, this could be a very empathetic message that becomes a foundational element of the new Gibson story- essentially “You receive extra value from Gibson, because we have learned and we really want to make you happy.”

 

Of course, this message is a one shot deal; if the ‘I loved Gibson in my youth’ segment feels like they’ve been fooled again, they already know how to move on to other brands.

 

6. As Gibson develops better customer data, they should identify cross-sell and up-sell opportunities to grow the business:

  • Perhaps children and grandchildren of ‘Gibson’s Wayward Children’ will respond to the ‘We’re back and better’ message at entry level, and over time, Gibson can provide a clear path to higher quality/price point offerings.

  • Or after the value of current purchases become clear, a subsection of the ‘Wayward Children’ segment might become strong prospects for high margin boutique instruments.

 

7. And perhaps most important, the data collected along the way will help Gibson understand which markets are good long-term opportunities and which are more trouble than they are ultimately worth.

 

To sum it up, Gibson needs customer-centric offering development processes to reduce costs, increase synergy and help build long-term, high lifetime-value-customers.
 

We didn't get to see as many beautiful instruments this time, but we dug into the core of Gibson's opportunity. (Take a look at our blogs if you want to see guitars and learn more.)

 

Next time, we'll have fun with rebranding, growing markets, protecting dealers + employees, changing attitude and building leadership and all of this is easier when the customer is actually front and center.

 

And let’s talk about acting as informed consumers who can help Gibson focus, because we can!

 

So what do you think? What’s your perspective on Gibson and the guitars market? Looking forward to your input because we learn from you!

 

Michael Stierhoff is the Chief Customer Officer at Lighthouse Marketing and Business Solutions; helping Lighthouse customers grow their business by better understanding their customer’s needs.

 

Perhaps more important for this article, Michael is the Chief Cook and Bottle Washer for the GuitarYouDreamAbout.com where we help guitarists “Find Their Perfect Sound’.

 

 

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