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Barco Projection Systems

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Current Situation

Sony's announced 1270 model offers comparable performance and aggressive pricing that will result in eroding 70% of Barco's revenue, and represents Sony's first entry into graphics projector market.

Recommendations:

1. To respond to the immediate concerns of dealers and distributors threatened by the pending launch of Sony 1270, we recommend providing a $2000 rebate to repeat customers with communication limited to channel partners. This price reduction will enable closure of any sales in progress and prevent any deferred purchase decision. It protects price sensitive markets and maintains market share until Sony 1270 pricing is officially announced. Customer/dealer feedback will be solicited via channels. For impact on financials with a $2,000 price drop, see Exhibit 1.

2. If Sony launches the 1270 at a $20,000 price point, we will formally announce a price reduction of the BG400 to $22,000, maintaining our superior-product position with industry leading specifications and start the process to target segment and solicit distributor feedback. We anticipate that Sony will not further lower their price and will be content their 10% price advantage and avoid any further discounting.

3. If Sony launches the 1270 at $15,000, it is economically impossible for us to match with comparable pricing. (See Exhibit 2). To protect our revenues, we need to maintain our premium niche position as we cannot participate in the price sensitive segment with a large competitor. This requires a shift in our marketing approach from a product focus to reinforcing our position as a niche provider for the highest quality, technology specification sensitive, early adopter and brand loyalist. Our current marketing approach has very little marketing investment and needs to be adjusted as we shift to target segments in the niche markets where we can compete effectively.

Product development:

We recommend maintaining the BD700 scheduled launch with a price of $12000 and incorporating a position of the BD700 as a higher end quality product in the digital market. For committed BD700 pre-launch, sales we will provide price protection.

BG800 development will commence upon completion of BD700 for a projected April 1990 launch in the graphics market. To build awareness, the BG800 launch will be announced at InfoComm. at a $22,000 price point based on a Sony launch of the 1270 at $20,000. If Sony has captured more market share in the graphics market, our price could be re-evaluated.

For our video products, we can target premium homeowners who value a superior product. This leverages the Barco brand equity with the homemarket user who may have experience with Barco products in professional, institutional or business environments. For our graphic projector products, we will target high-end business users.

In the short term, we must maintain our Sony supplier relationship. However, we recommend searching for an alternative supplier that may enter market to take advantage of projector market growth and it may be strategically prudent to acquire a tube manufacture to protect our technical and quality position plus lower costs.

If price pressure intensifies, we should consider removing the distributor level on graphic products and deal with dealers directly. This allows us to be closer to the market segments and we can communicate with dealers on business in progress and collect customer feedback.

Appendix

Barco Porjector Systems (BPS)

Income Statement (in million USD) 1988 1989 Projected Growth 1990 30% loss in sales of BG400 - 1990 60% loss in sales of BG400 - 1990

Sales (Turnover)

Video $8.0 $11.4 $11.6 $11.6 $11.6

Data $18.7 $26.8 $30.1 $30.1 $30.1

Data - BD600 $12.6 $17.9 $20.2 $20.2 $20.2

Data - Other $2.0 $2.8 $2.4 $2.4 $2.4

Graphics $8.0 $11.4 $14.3 $10.8 $7.4

Graphics -BG400 $6.4 $9.1 $11.4 $8.0 $4.6

Graphics - Other $1.6 $2.3 $2.9 $2.9 $2.9

Accessories $4.2 $6.0 $7.5 $7.5 $7.5

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