Zhuoyun Li
Professor Raj Murthy
Black and Decker Corporation (A)-­‐Power Tools Division Case Study 2 March 2014
Black and Decker, a US based corporation has reached the #7 brand in the US and the #19 in Europe. By creating the power tools business in the early 1990’s and by being the world’s largest producer, the company has been recognized as offering high quality, differentiated products and excellent service in the power tool market. Moreover, a strong brand image has made B&G achieve the number one position in the Consumer segment and leadership position in the Professional-­‐Industrial segment. Despite that Black and Decker has large market share in two of the three segments of the $1.5 billion power tools market, it only has a 9% share in the Professional-­‐Tradesmen segment, which was the fastest growing segment of the power tools industry. Black and Decker has to start an action plan to take away shares from Makita and Milwaukee, the main players who occupy 50% and 10% in Professional-­‐Tradesmen segment. I would describe the problem that Black and Decker has, as described in the case, as a b) Perception problem. Results in the case showed a great discrepancy between brand awareness and perceptions. The B&G name in the Professional-­‐Tradesmen segment had poor quality perception and lack of proud ownership of the tools, because the tools were perceived to be designed for home usage. On the contrary to quality perception, B&G’s product quality was strongly competitive thanks to laboratory tests and extensive field tests. This contradiction stems from the brand being highly associated with the Consumer market and the low segment differentiation through the use of color and packaging for the products. The lack of dominance in the retail distribution channels such as the emerging Home Centers exacerbated B&G’s disadvantaged position. Table 1 SWOT SWOTS External Opportunities External Threats § O1. Professional Tradesmen § T1. Makita provided a good segment was rapidly baseline option in the growing at 9% major categories and other § O2. Some densely competitors to have populated developing specific product strengths countries have more needs § T2. Competing brands use for home constructions highly differentiated solid § O3. Easy servicing quality colors for the Professional ranked higher than Tradesmen segment competitor Makita § T3. Makita grasps every § O4. Makita did not please retail channel especially some retailers and membership clubs and the distributers that offered no fast growing home centers channel protection and no such as Home Depot special treatment for § T4. Milwaukee achieves the outlets smallest difference § O5. Milwaukee and Makita charge a premium while B&G has already provided sufficient services Internal Strengths § S1. Very strong brand image in the global market and high awareness at 98% § S2. High market share in the power tools market: #1 in the Consumer segment and a leader in the Industrial segment § S3. Large high-­‐quality product portfolios under innovative culture and intense experiments with relatively lower price § S4. Have good service perception even by those who prefer other brands SO Strategies § S3, S4/O3. A greater discount and longer return policy to support their extensive lab test results for the competitive-­‐
leadership quality products § S1/O2. Expand into developing countries that require industrial and self-­‐
employers § S1, S3/O5. Use the pricing strategy in the international market backed by their less pricy and practical products Internal Weakness § W1. Brand name and image are associated with household products which unintentionally influenced proud ownership of tradesmen § W2. The inability to differentiate Consumer and Professional tools has negatively affected perception of quality and durability § W3. Low market share in distribution channels: below 10% in the Two-­‐
Step and Home Centers which are most frequently patronized by WO Strategies § W3/O4. Offers some sort of incentives and special treatments to preferred retailers § W1/O3. Targeted the opinion leaders and successful tradespeople in this market § W3/O3. Promote in the media tradespeople primarily rely on and demonstrate in television channels and retailers especially Home Centers to prove the quality of the tools between brand awareness and brand acceptance at 15% tend to gain loyalty of customers § T5. Power tools market is affected by economic environment ST Strategies § S3/T1. Reinforce the quality of the tools depending on the market share especially those that not satisfied by competitors § S3/T1. Reduce manufacturing costs by shifting production from the US and England to lower-­‐cost locations such as Mexico and China to make the selling price more competitive § S4/T3. Focusing on Home Depot, the largest retailer, offer them discounted rates and excellent customer service WT Strategies § W1/T2. Separate the Consumer segment and the Professional segment by using the DeWalt name for professional products and the B&D brand for household tools § W2/T2. Use a differentiated color and packaging for their Professional power tool line § W3/T3, T4. Research each type of channel and treat them differently according to market share tradespeople Figure 1 Perceptual Map P. High Quality Milwaukee Makita Bosch Hitachi Porter Cable Low Awareness High Awareness Black & Decker Ryobi Skil P. Low Quality Table 2 Segmentation of Customer Nonprofessional User Professional Users Consumer Segment Industrial Segment Tradesmen Segment Customer Individuals buy for home Commercial contractors Professional Tradespeople use working on large projects, “heavy to-­‐it-­‐yourselfers” Companies Behavior § Easily persuaded and § Influenced by the § Easily influenced by influenced by technical advice and fellow peers through advertising especially expertise of distributors the decision process if the brand has a § Companies, compared due to a closer strong brand image with individual buyers, community § Looking for household are looking for brand § Looking for high-­‐quality products with low that is economical and and durable tools that replacement has a good reputation are suitable to frequency undertake heavy works § Have a tendency to try § Personally relate to new products product design that show their professionally personal image Channel Merchants: Wal-­‐Mart, Large scale contractors: Two Steps and Home Kmart, hardware stores W.W. Grainger Table 2 BCG Matrix STARS Consumer Power Tools Professional Industrial Power Tools Accessories Household Products Security Hardware Outdoor Products CASH COW Centers: Home Depot, Ace Hardware QUESTION MARKS Professional Tradesmen Power Tools DOGS To drop the Black and Decker Name from the Professional-­‐Tradesmen Segment is the most strategic course of action for Black and Decker. Since the Professional-­‐Tradesmen segment is fast growing at 9%, compared to a 7% growth rate for the Consumer and a stagnant Professional-­‐Industrial market, the company could not solely enjoy the favorable position in the other two segments. It can be seen from Table 1, the brand image associated with the Consumer segment has causes confusion of professional products with consumer products in the Professional-­‐Tradesman segment, despite having excellent quality products and service. To stop this long time confusion, separating the Consumer segment and the Professional segment by using another familiar brand name for the Professional segment that is free from negative associations is viable. DeWalt indicates a high purchase interest of 51% and greater positive brand image among tradespeople. Backed by Black and Decker’s well-­‐aware service, launching the Professional-­‐Tradesman tools under the DeWalt brand name is a steady option in the long run. Sub-­‐branding may not be able to solve the problem of removing that perception attached to household products. In terms of that B&G has no profitability in 9% share of the market, therefore, Option 1 is too risky and unpredictable. Figure 2 Linear path of strategy implementation, Recommendations 4PS Product -­‐ Step 1&2 Price -­‐ Step 3 Place -­‐ Step 4 Promotion -­‐ Step 5 § Product Differentiating segment through a distinctive color for the Professional-­‐Tradesman power tools under the DeWalt brand name is the first step of the implementation. This can be visually recognized when displaying in the market, allowing no bias attached to Black and Decker name. In terms of the choice of color, it should be distinctive among competitors. Since main competitors have occupied three colors (Red, Blue, Green) within the seven colors, there are limited choices for DeWalt to pick. Pink and purple are not suitable to display a masculine image, in this case, orange and yellow can be considered as they symbolize energy and safety respectively. Reinforcing the quality of the tools depending on the market share especially those not satisfied by competitors is the second step. Although Makita has large share for all categories in the Professional-­‐Tradesmen power tools segment, and that Skil and Ryobi held higher share in Circular Saws and Belt Sanders, the market share in corded drills, Miter Saws, Reciprocating Saws, Jig Saws and Chop Saws have potential spaces for DeWalt to grow. The promotion should mainly focus on these five categories. In addition, among these five categories, Miter Saws, Reciprocating Saws and Jig Saws are less competitive in terms of quality shown in Figure 5 of the case. It indicates that an intense improvement for these three types of saws is vital. § Price To make the selling price more competitive by shifting factories from the US and England to lower-­‐cost locations and to provide a greater discount and longer return policy for customers is the third step. Some developing countries such as Mexico and China have lower salary requirement and more human resources. Relocated production can reduce manufacturing costs and therefore reduce the price of the product and relieve the burden of debt in the long term. Since B&G’s products are less pricy compared with competitors, using the pricing strategy in the international market can be an alternative. § Place Making a difference among channels by focusing on the growing home distribution centers, such as Home Depot, and offer specific incentives for preferred channels is the fourth step. Some special treatments that can be given to Home Centers such as offering discounted rates and after sale service, can be an attack on Makita that has no channel protection. This move would increase the loyalty of retailers and build a sustainable relationship circle in the market. § Promotion Targeting the opinion leaders and successful tradespeople in this market and promoting in the media tradespeople primarily rely on and demonstrating in television channels and retailers to prove the quality of the tools is the fifth step. Tradespeople are easily influenced by fellow peers in the decision making process through their reviews and discussions, so identifying opinion influencers in this segment is necessary. Although Dewalt owns a considerable level of buying interests, its brand awareness is relatively lower in the market, rating at 70%. A series promotional campaign, targeting media that tradespeople frequently access and demonstrating new products in retail stores by advertisers, has to be undertaken to gain the publicity of the new brand. Endorsements on the packaging show DeWalt is backed by Black & Decker could gain credibility taking advantage of the high awareness and excellent service of B&G.