Background
Yamaha Corporation is a 125-year-old musical instrument maker headquartered in Japan. Yamaha Canada Music Ltd. is a wholly owned subsidiary and is responsible for promoting and selling Yamaha instruments in Canada. Yamaha is the largest instrument manufacturer in the world. It is also the prominent brand in this country. Despite this, challenges are plenty in the Canadian market.
This paper will take a first look at a particular challenge related to Long & McQuade (L&M)—the largest retail chain in this country. The following are some important characteristics of L&M: 1) it prices aggressively versus other instrument dealers; 2) it buys up other dealers at an alarming rate, recently even breaking into the Quebec market—a market that had traditionally eluded it; 3) as the largest chain, it has tremendous buying power; 4) it owns or distributes a number of popular musical instrument brands which compete directly with Yamaha.
Problem
Like any good portfolio, Yamaha’s dealer network is most fruitful when it contains some diversity. From a risk management perspective, it is dangerous to rely on just L&M for growth in the future. Furthermore, since L&M pushes its own products on the sales floor more than Yamaha’s, it is believed Yamaha’s market share erodes every time L&M expands through acquisition (its favourite mode of expansion). Yamaha is the only musical instrument manufacturer with a Canadian head office and independent distribution network. It is also the only manufacturer with a full-time Canadian sales force which visits all of its dealers on a regular basis to train, promote, consult and interact. All of this costs a lot of money. The problem is: how should Yamaha deploy its sales force to maximize long term growth? Should it invest in its relationship with Long & McQuade as its most important retail partner? Should it reduce its investment in L&M? After all, L&M’s acquisitions only serve to further erode Yamaha’s almost monopolistic position in the market. Should it instead send those resources to other
(non-L&M) dealers and help them develop so they may be viable in their own right? Should it do something in between based on some specific and hereto unknown criteria?

System Map
System Map

Perspectives
There are two perspectives. They are not necessarily mutually exclusive. The dimension of interest is profit. There is also mention of revenue, sales (unit or dollar amounts) and market share; however, all of it distills back to profit which, as part of a grand loop, is reinvested in the dealer network.
The first perspective, shown in blue on the systems map on the previous page, is that of Yamaha’s investment in the relationship with L&M. This involves sending the sales force out to L&M dealers, arranging clinics and events at various L&M locations and generally doing all they can to help them serve their customers.
The second, shown in orange, is that of investment in non-L&M dealers. These dealers vary from smaller retail chains all the way down to individual, family-run stores.
Patterns
L&M is huge and relatively autonomous. It sees Yamaha mostly as a supplier of musical instruments either to be sold, or as bait to then switch the consumer to one of its own brands. The diagram demonstrates the dichotomy between sales of a large volume of musical instruments to L&M and, on the other hand, the loss of market share as Yamaha’s brand loses preferential treatment. Investment in the relationship with L&M indirectly reinforces the momentum with which L&M expands. However, dealers that have been replaced by L&M locations are gone for good. Therefore, any choice to turn away from L&M is a decision to forego those sales completely. If L&M did not push its own brands so aggressively then loss of sales to stores acquired by L&M would be balanced by sales regained afterward. For other (non-L&M) dealers, the Yamaha brand represents a large part of their inventory. There is tremendous opportunity for business development as well as cooperative planning for mutual growth. The diagram does not reveal a “downside” of the kind seen with L&M. In combination, the two perspectives present Yamaha with the difficult-to-solve problem of how to best optimize its efforts. The big chain that Yamaha must do business with due to sheer size cannot be ignored. As it is fed, it continues to grow. The “other” dealers are needed for their loyalty and for diversity. Between the two, Yamaha has formidable but finite resources to invest.

Final Page

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