Crank it up Featured

8:00pm EDT September 29, 2005
In the audio world, there are plenty of speakers that are cheap and play just fine.

If you stop and listen, though, you’ll start to hear major differences in quality between the cheap speakers and those from Klipsch Audio Technologies. And it’s those people who will take the time to stop, listen and appreciate the clarity that Klipsch Chairman and CEO Fred Klipsch wants as his customers.

Other companies are free to fight over being the low-cost commodity king to the “good enough” crowd; Klipsch wants to dominate in quality in every channel the company is in.

Klipsch and his wife, Judy, who bought the company from Fred’s 85-year-old second cousin in 1989, have seen Klipsch Audio post a 20 percent average annual sales growth over the last seven years, a period when audio component sales overall have been on the decline.

The secret is producing best-in-class products and adapting to meet the changes of a rapidly moving market.

“We’re not as concerned about how big we are as a company in terms of gross volume as much as we are concerned that the products we take to market are always best-of-class, high-performance products,” says Klipsch. “We don’t ever want to get to what I would call the commodity level, where we’re working on very small margins requiring very large volume for it to be profitable. We’re just always concerned that our products not only meet a solid quality standard and a solid cosmetic lifestyle standard, but always represent the product performance standard that everyone has grown to appreciate from us.”


Sound ideas
By focusing on top-quality products, Klipsch has established his brand as the one to go to for excellent sound, but he has also had to make sure the company is in the right distribution channels to utilize its quality advantage.

The distribution channels for high-end speakers have grown from the single audio specialty store 10 years ago to include regional specialty stores that focus on custom installations and big box retailers such as Best Buy.

“Ten years ago, Circuit City, Best Buy and stores like that were looked upon as mass merchants, but they have evolved the product they carry to the next level,” Klipsch says.

There are now hundreds of uses for speakers, ranging from home theater systems to docking stations for iPod digital music players. The company looks to provide a solution for customers in each of those categories, regardless of whether they get a product from Best Buy or a custom installer.

A consistent quality product across all these uses is key to maintaining the brand image.

“In all cases, what we’re driving is a single brand image, Klipsch, so that whenever a consumer or retailer gets involved with a Klipsch product, regardless of what category it is in, they have high expectations on the performance side,” Klipsch says.

High performance also equals a higher price tag, with better margins for resellers.

“We redefined the multi-media loudspeaker space for computers five or six years ago,” says Klipsch. “When all the loudspeakers for computers were selling for $69 and $79 a pair, we came out with loudspeakers at $299 and $399, added a powered subwoofer and literally, in our retailers’ space, doubled, tripled and quadrupled their average selling price for the product.

“The reason we did that is instead of being a commodity product, we developed a best-in-class, high-performance product that cost more, and the market said, ‘I really like good sound, and this sounds good.’”

Staying on top of the quality heap comes at a price. Klipsch spends about 4 percent of his annual budget on research and development that is a combination of science and art.

“The science of it is something that we have a lot of engineers that work on it ... but I want to tell you, there is an art to it,” Klipsch says. “At the end of the design cycle, we actually voice these loudspeakers, and there are some people that have just great ears — they can hear things that I can’t and maybe you can’t, but they just have great ears. There are several people in our company that are jokingly called ‘the guys with the golden ears.’ That phase makes a difference to us.

“The final human reaction to the sound coming out of that specific loudspeaker, and in both cases, whether it is the science or the art of it, there are absolute standards below which we are not going to drop.”

As Klipsch continues to roll out more products to match up with new technologies such as iPods and flat panel televisions, the pressure to shorten the Klipsch product cycles increases as the devices they connect to shorten their own development cycles. Despite the pressure, to stay on top, quality must always win out over speed.

“Our product cycle has shortened to a degree,” says Klipsch. “We introduced 11 new speakers in six months last year. At the same time, we have a high-dollar product series coming out in 2006 that has been under development for more than three years. We have the infrastructure to move quickly when the marketplace demands it or when we see an opportunity for advantage, but we also have basic quality and performance standards that we will not ignore, regardless of the pressures.

“The negative impact of a compromised product far outweighs any benefit we might derive from being fast.”


Sound evolution
Having the best quality is only half the battle. Making sure you have identified the right markets and utilized the best cosmetic design for the product is the other half.

Remember the old stereo speakers that looked like wooden crates that you could barely lift? Those would hardly sell in today’s market, where small and sleek rules. Technology has pushed high-end audio to computers, handheld digital music players and televisions.

Klipsch’s challenge is to stay on top of trends in technology to make sure his products are available to a wide variety of audio possibilities and in styles that match what consumers want.

“It’s just a more complex marketplace, (and) lifestyle is a big driver in all of this,” says Klipsch. “You see the traditional box speakers that people use for their stereo systems, and then those speaker systems evolve to include center channels, rear channels and powered subwoofers for home theater. And then (the consumer) decided they like distributed sound, so they put speakers in the ceiling and in the walls that don’t show up, so as you walk through the house, you can have music throughout the house.

“Go outside, and on the patio (you can) be entertaining, and you want the same music coming through on speakers outside. ... All of that drives different requirements for sound.

“Innovation is actually the lifeblood of the company. If we were still manufacturing large wood box speakers the size of the ones we bought in 1989, I suspect we wouldn’t be in business today.”

Klipsch breaks innovation into two categories, performance and lifestyle. Performance is the quality of the speakers and the sound they generate.

“The second part of innovation that’s critical is the lifestyle — the environment in which these loudspeakers find themselves. We have a new line of product that matches up to plasma TVs so it’s very narrow and not very deep, can be put on the wall next to the plasma screen and look like part of that plasma screen operation. I talked about distributed sound systems and outdoor sound with speakers that are in the wall or in the ceiling and not visible at all, but the sound is still high-performance, best-in-class sound.

“So innovation to us is first on the performance level and second upon the packaging cosmetics lifestyle side of what we do, and those two issues are critical.”

Klipsch has a team of professional industrial designers on staff, and the company consults with experts in color and style in other industries as well to stay on top of design trends and make sure the speakers have a unique look. Demographic information is collected through warranty cards and industry groups to identify key market segments and the types and styles of products they are interested in.

The company also collects unfiltered feedback from the retail and custom installation marketplace to hear what customers want and don’t want. Everyone is involved in innovation.

“We solicit feedback from all employees,” says Klipsch. “You never know where the next great idea is coming from. We do have a solid product development department that is charged with keeping ahead of trends, watching the competition and determining the direction of our products. We have a series of steps a product concept must pass through before we begin production.

“First is a business case. Where will it be sold, what will the profit be and how many pieces can go through the channel? But gut also plays a role. We have a very seasoned team, and they have learned through the years what will work.”

The popularity of iPods is a good example. Klipsch created a docking station for the iPod that provides great audio.

“With the headset, you can get some great sound,” says Klipsch. “But when you finally get home or get to your office, to be able to take that iPod and dock it in a station that’s connected to a couple of great loudspeakers and have even better sound, that’s the kind of innovation we’re looking at. And last year, I think there were 15 million iPods sold, and you know, ideally we’d like everybody to have a Klipsch iFi system to dock it in.”

Evolving to meet new consumer demands is vital to Klipsch’s success.

“We all are listening to music in so many different ways today, and every time you figure out a way to listen to music, we’re going to figure out a way to get you a pair of loudspeakers to make it sound better,” Klipsch says.

And to stay on top of the audio world, the reputation for quality has to continue. Without it, Klipsch speakers risk falling into the commodity category, something Fred Klipsch knows he has to avoid.

The beauty of a product may lie in the eye of the beholder, but it’s the ear that ultimately sells a Klipsch speaker and creates customer loyalty.

“There is a moment of truth at the demonstration point — a qualitative moment of truth,” says Klipsch. “Klipsch has a fanatical following of consumers, people who actually travel to our factory and headquarters every summer on their own dime to meet the people behind the products. This type of dedication and community atmosphere continues because Klipsch overdelivers on its promise of best-of-class products.”

HOW TO REACH: Klipsch Audio Technologies, (317) 860-8100

Kelly Kagamas Tomkies contributed to this story.