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Describe how Fender is transforming into a digital company.

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Application of Chapter Content 1. Using the steps in Figure 5.1, describe how Fender is transforming into a digital company. 2. Define one specific strategic, tactical, and operational plan that Fender can utilize for its transformation. 3. Develop a simple strategic goal, operational goal, and action plan for Fender Play: The goals need to be SMART. Then utilize a means-end chain to illustrate the relationship among the three. 4. Assume 8% of Fender's current customers are women. Would it be wise for the company to set a strategic goal of increasing this number to 40% in the next 12 months? Why or why not? Explain your response using Figure 5.4. 5. Based on CEO Mooney's standard for success in making sure beginners stick with their guitars, develop a planning/control cycle to make sure Fender is headed in the right direction. Fender Rebrands to Stay in Tune with the Times Fender Musical Instruments Corporation produces some of the most recognized electric and bass guitars in the world. The organization was one of the first to mass produce guitars and has an illustrious history dating back to the late 1940s. Fender's guitars revolutionized popular music by allowing smaller groups of musicians to play together. Today, these small groups include megastar customers like Eric Clapton, Sheryl Crow, and U2. With stars of this caliber using Fender guitars on stage, you might imagine business is booming. Sadly, it is not. Fortune reports that Fender "spent the better part of the past decade struggling with debt and a lack of growth, and in 2012 abandoned an IPO, citing unfavorable market conditions.: 62 Andy Mooney was hired as CEO in 2015 to turn around the company. Let's consider his plan. A NEW PLAN FOR AN UNRELIABLE CONSUMER Fender began its transformation by coming to terms with the high quit-rate of beginning guitar players. According to Mooney, "Almost everyone who picks up a guitar, about 90 percent, abandons it within the first year.* 0There are two main contributors to this dire statistic-the method of learning the instrument and the cost associated with doing so. Fender's plan focused on how amateur players preferred to learn. Ethan Kaplan, Fender's general manager of digital, noted that "The way that I learned piano when I was a kid is no longer the way most people learn. They sit at a computer. They sit on an iPhone. They do things in little bites versus sitting through hour long lessons." 04 Mooney and Kaplan's assessment of Fender's current reality provided crucial insight into the cost of lessons. According to Fortune, "... new players spend four times as much on lessons as they do on the instrument. 65 The company's plan to overcome these challenges was based on experimenting with different apps. The plan strives to ensure that beginning guitar players can easily use digitized materials to quickly learn how to play guitar at a reasonable cost. Fender's first app was Fender Play. This subscription-based app can be used on a mobile device as a way to assist a "do-it-yourself society learn how to quickly play the guitar. The app uses bite-sized, multi-angle video lessons focused on helping new players learn popular songs. A professional guitarist provides step-by-step lessons in the videos, and players can track their progress in the app. nners quickly learn how to play a familiar song from bands such as the Rolling Stones, Foo Fighters, Tim McGraw, and Coldplay They will be less likely to quit once they achieve this milestone and more likely to buy more Fender guitars in the future. Players will also be spending much less than they would have with private lessons, since the subscription costs only $20 a month. The software may not be for everybody, though. As Business Insider reports, "No program of instruction will be perfect, and Fender Play isn't going to work for everyone. And for those who don't like it, there are many free options on the web, and you can always hire a real, live teacher!*Obviously, Fender cannot rely on a one-product-fits-all plan. The company has developed additional apps to speed up the learning process. For example, Fender developed Fender Tune to teach players how to tune a guitar without having any level of proficiency. "When the kid plugs (the guitar] in for the first time, it doesn't sound like a screaming cat when it comes out of an amp," according to Mooney. Fender is also looking to release a practice-room app that can assist someone in playing any song in its music library. This provides an opportunity for amateur players to practice and develop their skills. Another app lets an amp emulate the sounds of famous guitarists. The company's newest amp model will be able to connect to this app wirelessly, through Bluetooth, so players can alter and share sound effects. IMPACT ON THE BOTTOM LINE Although Fender has built guitars for Eric Clapton, Stevie Ray Vaughn, and Jimi Hendrix, its growth plan is based on the needs of amateur musicians. According to Kaplan, "We never really concentrated on those 45% of players who buy a guitar for the first time every year." Even a slight improvement in that 90% abandonment statistic would be significant for the company. If Fender can get a 10% increase in the number of beginners who stick with their guitar, it could double the size of its instrument business. Fender also plans on tapping into an important evolution process with its digital products. If it can get players hooked on cheap starter guitars, then have them upgrade to fancier guitars as they become more committed to playing, it may be able to turn players into collectors. The company would be able to realize more revenue by following the lifecycle of its customers. Fender's sales strategy goes beyond digital. The company does almost all its business through traditional retailers, with online sales from its website making up less than 2% of North American sales. However, the National Retail Federation says that online sales hit a record S108.2 billion during the 2017 holiday season (a 14.7% increase from the year before). These statistics suggest that Fender's strategy of using traditional retailers may be outdated. Mooney doesn't seem to be worried. "Players need to touch, feel and Page 185 play a guitar before they buy one," he says. Fender, he says, prefers to use the Internet as a learning tool, rather than a sales mechanism.73 Some factors seem to be out of the company's control. As Bloomberg reports, "Detractors have predicted the death of the electric guitar for years, pointing to the rise of rap and electronic music on pop charts." Fender doesn't seem overly concerned about this either. More women are playing guitar these days," says Mooney, a trend he credits to singer Taylor Swift. The company is also quick to point to rising guitar sales over the past decade. "The pendulum swings back and forth," Mooney says. Can Fender's new digital strategy swing the pendulum in its direction? Application of Chapter Content 1. Using the steps in Figure 5.1, describe how Fender is transforming into a digital company. 2. Define one specific strategic, tactical, and operational plan that Fender can utilize for its transformation. 3. Develop a simple strategic goal, operational goal, and action plan for Fender Play: The goals need to be SMART. Then utilize a means-end chain to illustrate the relationship among the three. 4. Assume 8% of Fender's current customers are women. Would it be wise for the company to set a strategic goal of increasing this number to 40% in the next 12 months? Why or why not? Explain your response using Figure 5.4. 5. Based on CEO Mooney's standard for success in making sure beginners stick with their guitars, develop a planning/control cycle to make sure Fender is headed in the right direction. Fender Rebrands to Stay in Tune with the Times Fender Musical Instruments Corporation produces some of the most recognized electric and bass guitars in the world. The organization was one of the first to mass produce guitars and has an illustrious history dating back to the late 1940s. Fender's guitars revolutionized popular music by allowing smaller groups of musicians to play together. Today, these small groups include megastar customers like Eric Clapton, Sheryl Crow, and U2. With stars of this caliber using Fender guitars on stage, you might imagine business is booming. Sadly, it is not. Fortune reports that Fender "spent the better part of the past decade struggling with debt and a lack of growth, and in 2012 abandoned an IPO, citing unfavorable market conditions.: 62 Andy Mooney was hired as CEO in 2015 to turn around the company. Let's consider his plan. A NEW PLAN FOR AN UNRELIABLE CONSUMER Fender began its transformation by coming to terms with the high quit-rate of beginning guitar players. According to Mooney, "Almost everyone who picks up a guitar, about 90 percent, abandons it within the first year.* 0There are two main contributors to this dire statistic-the method of learning the instrument and the cost associated with doing so. Fender's plan focused on how amateur players preferred to learn. Ethan Kaplan, Fender's general manager of digital, noted that "The way that I learned piano when I was a kid is no longer the way most people learn. They sit at a computer. They sit on an iPhone. They do things in little bites versus sitting through hour long lessons." 04 Mooney and Kaplan's assessment of Fender's current reality provided crucial insight into the cost of lessons. According to Fortune, "... new players spend four times as much on lessons as they do on the instrument. 65 The company's plan to overcome these challenges was based on experimenting with different apps. The plan strives to ensure that beginning guitar players can easily use digitized materials to quickly learn how to play guitar at a reasonable cost. Fender's first app was Fender Play. This subscription-based app can be used on a mobile device as a way to assist a "do-it-yourself society learn how to quickly play the guitar. The app uses bite-sized, multi-angle video lessons focused on helping new players learn popular songs. A professional guitarist provides step-by-step lessons in the videos, and players can track their progress in the app. nners quickly learn how to play a familiar song from bands such as the Rolling Stones, Foo Fighters, Tim McGraw, and Coldplay They will be less likely to quit once they achieve this milestone and more likely to buy more Fender guitars in the future. Players will also be spending much less than they would have with private lessons, since the subscription costs only $20 a month. The software may not be for everybody, though. As Business Insider reports, "No program of instruction will be perfect, and Fender Play isn't going to work for everyone. And for those who don't like it, there are many free options on the web, and you can always hire a real, live teacher!*Obviously, Fender cannot rely on a one-product-fits-all plan. The company has developed additional apps to speed up the learning process. For example, Fender developed Fender Tune to teach players how to tune a guitar without having any level of proficiency. "When the kid plugs (the guitar] in for the first time, it doesn't sound like a screaming cat when it comes out of an amp," according to Mooney. Fender is also looking to release a practice-room app that can assist someone in playing any song in its music library. This provides an opportunity for amateur players to practice and develop their skills. Another app lets an amp emulate the sounds of famous guitarists. The company's newest amp model will be able to connect to this app wirelessly, through Bluetooth, so players can alter and share sound effects. IMPACT ON THE BOTTOM LINE Although Fender has built guitars for Eric Clapton, Stevie Ray Vaughn, and Jimi Hendrix, its growth plan is based on the needs of amateur musicians. According to Kaplan, "We never really concentrated on those 45% of players who buy a guitar for the first time every year." Even a slight improvement in that 90% abandonment statistic would be significant for the company. If Fender can get a 10% increase in the number of beginners who stick with their guitar, it could double the size of its instrument business. Fender also plans on tapping into an important evolution process with its digital products. If it can get players hooked on cheap starter guitars, then have them upgrade to fancier guitars as they become more committed to playing, it may be able to turn players into collectors. The company would be able to realize more revenue by following the lifecycle of its customers. Fender's sales strategy goes beyond digital. The company does almost all its business through traditional retailers, with online sales from its website making up less than 2% of North American sales. However, the National Retail Federation says that online sales hit a record S108.2 billion during the 2017 holiday season (a 14.7% increase from the year before). These statistics suggest that Fender's strategy of using traditional retailers may be outdated. Mooney doesn't seem to be worried. "Players need to touch, feel and Page 185 play a guitar before they buy one," he says. Fender, he says, prefers to use the Internet as a learning tool, rather than a sales mechanism.73 Some factors seem to be out of the company's control. As Bloomberg reports, "Detractors have predicted the death of the electric guitar for years, pointing to the rise of rap and electronic music on pop charts." Fender doesn't seem overly concerned about this either. More women are playing guitar these days," says Mooney, a trend he credits to singer Taylor Swift. The company is also quick to point to rising guitar sales over the past decade. "The pendulum swings back and forth," Mooney says. Can Fender's new digital strategy swing the pendulum in its direction

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