Online Extra: Bang & Olufsen Makes the Call

B&O President Kim Gravesen talks about the company's decision to enter the cell-phone market with a $1,200 head-turner named Serene

The cellular-phone market is undergoing a period of rapid change. The Gang of Five—Nokia (NOK ), Motorola (MOT ), Samsung, Sony Ericsson, and LG—increasingly are packing more features into even low-end phones. The rise of so-called smart phones may have some consumers wondering if, a year or two from now, they'll be able to find a traditional cell phone whose job simply is to make and receive calls.

One such smart-phone is turning heads. It's high-end consumer-electronics company Bang & Olufsen's Serene. The company's first entry into the cell-phone market, this $1,200 device stands out in a crowd for its simple and elegant design, but will it win hearts? BusinessWeek Technology Correspondent Cliff Edwards on Nov. 20 asked Bang & Olufsen President Kim Gravesen how the device addresses both the future of the cell phone and the past. Edited excepts of their conversation follow:

You're coming into market where a lot of other players, such as Siemens (SI ) and BenQ (BENQCF ), have given up trying. How will you succeed?

We're not a me-too product. Our philosophy is that if we can't make it better for the user by design and some of the technology choices we make, we stay away from it. All the markets we are in are pretty crowded, and I'd say we do pretty well.

But what makes this phone so special? A lot of people are likely to have sticker shock at the $1,200 price point.

You have to be careful when you talk about price here. First, we don't sell it [at a discount] with a contract, like you get with Cingular or T-Mobile. When you think about it, the [Motorola] Razr, when that first came out, was about $1,000, so our price isn't outrageous. Second, it's not a mass-market product. We do cater to a certain clientele that appreciates design and quality and doesn't worry so much about price.

What's the Bang & Olufsen demographic?

We're typically looking at a male professional between the ages of 35 and 45. That would be the core. They're in the high-income bracket, starting at $175,000 for the household and above. They travel a lot internationally, drive lots of fast cars. We recently have launched products at lower-entry price points to attract younger customers, around digital music. The Serene is an obvious example of trying to fit all demographics.

What makes this phone so special?

We spent a lot of time on design. For instance, we take the screen and put it down past the mouth, so if you're a lady, you won't get the screen on your phone all smeared with makeup. Men may like the mechanics we put it in. At the touch of a finger, it opens up in the palm of your hand.

We decide what choices are relevant to the user, to make it uncomplicated. Does this phone replace your PDA phone, BlackBerry, or something similar? By no means, but this is the phone you want when you want to look sharp and go out at night. It's like wearing the good watch and the functional watch.

Does the lack of high-end features hurt the prospects for even more sales, though? The camera isn't even 1 megapixel.

We decided with our customer group in mind to design a phone for adults. You can't download games or songs, but you can do the things we think you need to do. You can take a picture and you can send it in a multimedia message, but you're likely to carry your Nikon or whatever on vacation.

You can Web browse if you want, and most of all, you can make good-sounding phone calls. We think there's a time for everything. You can synchronize with your Outlook if you can't live without it. I wouldn't go through the hassle of wiring long e-mails on these devices, but you could at least receive them.

This phone was a collaboration between Samsung Electronics and Bang & Olufsen. Who did what?

We were responsible for the design part of it. Samsung did the insides, you can say. We start with a concept, and then we go back to the engineers and say: Now make this design concept possible. Most others develop a technology and then they go to an industrial designer and say: O.K., put some wrapping around it. This way, all of our products have some element of surprise, like the fact that when it's cradled, it opens automatically when you receive an SMS.

Phones often require a lot of customer hand-holding. Are you worried that you'll need to spend more time on customer service?

For us, it's not the quick win here and now. Once customers have bought into the brand and level of service we provide, they tend to stay with us from cradle to grave. We have a hands-on approach and a nationwide customer installation team with our other products. We can't guarantee what the carriers will do, but we'll go out of the way to make sure our clients stay happy. All our products are backed by a three-year guarantee.

You've been slowly opening more stores. Is the market for high-end retail coming back?

We're obviously a niche product and will continue to be so. We certainly believe there's a market there. Compared to a lot of other mass-market concepts, we do see fluctuations in the economies driving our business.

At the end of the day, the affluent clients will still be affluent. You see surprising players entering the market, like Home Depot (HD ) offering plasma TVs. For our clientele, that would mean they would have to rent a truck and drive it home themselves. They're looking for convenience, service, one-stop shopping, and high-quality products. We're one of the only ones that can provide that.

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