Executive Summary This report analyzes Black & Decker's marketing problems and gives recommendations on marketing strategy in consideration of the possible implication and risks involved. The focus will be on Professional Tradesmen market segment under the Power Tools Division. Growing at 9% in 1990, it is the fastest growing market in the Power Tools market segment. However, B&D only managed 9% market share as the market leader is Makita Electric of Japan, having 50% of the market share followed by Milwaukee at 10%. B&D research concludes that product quality is not the issue as its products in Professional Tradesmen are highly competitive with its competitors.
The issue is perception of B&D brand, often perceived by trade's people as good only for Consumer market rather than Professional market. Moreover, B&D Professional Tradesmen products are not highly differentiated in color, black / charcoal grey, often the favorite color used by competitors in Consumer's market. B&D's also do not have big market share in all of Professional Tradesmen distribution channel especially the Home Centers. Home Centers like Home Depot and Home Club experiencing rapid development and one of the reason's of Makita's success for being the market leader.
The recommended strategy is to use a new brand name, De Walt, one of existing B&D brand line in stationary woodworking equipment. B&D research shows the trades people are aware and receptive to the brand. Another recommendation is to multi brand existing B&O product line, focusing on strong product line. The risk would be using extra resource to promote new brand as well as promoting multi brands.
It is recommended that B&D have strong color product differentiation between its Consumer products and Professional Tradesmen. B&D must also seek ways to improve its distribution channels, focusing on Home Centers and taking advantage on conflicts by retailers with Makita, the market leader to improve its sales in the distribution channels. 1. 0 Introduction The purpose of this report is to analyze Black & Decker's marketing problems and give recommendations on the marketing strategy in consideration of the possible implication and risks involved. The focus of this report will be on the tradesmen market segment under the Power Tools Division. "Tradesmen" segment are electricians, plumbers, carpenters, framers, roofers and general remodeler's working in residential constructions.
This report are derived from information that are given, therefore the limitation would be on the data made available. As such, the competitor's financial and marketing performance is not taken into consideration and whatever data available are assumed correct and current. 2. 0 Situation Analysis: 2.
1 The Power Tools Market in United States (US) In 1990, portable power tools for U. S market is $1. 5 billion, offering products for consumers, professional tradesmen and professional industrial. Consumers market accounted for $530 million or 35% of the overall market, meanwhile professional tradesmen is $420 million (28%) and the professional industrial is $550 million (37%) Segmentation of the market was as shown in Figure 2.
1. 1 Figure 2. 1. 1: US Market Segmentation for Power tools in 1990 Among the three segments, Professional Tradesmen registered the highest growth, at 9% compared to 7% growth rate for Consumers and no growth for Professional Industrial segment. US Power tools market growth by segment was shown in figure 2. 1.
2 Figure 2. 1. 2- US Power Tools Growth by Market Segment for 19902. 2 Black and Decker (B&D) In 1990, B&D sales reached $4. 8 billion with nearly 50% of product revenues are outside of United States (US). Out of the $2.
4 billion revenues in US, the Power tools and Accessories division of B&D contributes to 29% compared to the other 4 main products group. B&D sales by products group was shown in figure 2. 2. 1 Figure 2. 2. 1: B&D 1990 sales by product group&D participated in all three market segment of power tools that is the professional industrial, professional tradesmen and consumer market.
B&D brand of power tools hold 26% overall market share or $395 million of the $1. 5 billion US power tools market B&D's Consumer's market registered the highest revenue of $250 million or 45% market share in 1990. In Professional industrial, B&D has $110 million in revenue or 20% market share and the lowest is Professional Tradesmen, at 9% market share or $35 million in revenue. Comparison between B&D market share in the three segments against US overall market segment was shown in figure 2. 2. 2.
Figure 2. 2. 2: B&D Revenue by Segment Compared to U. S Market Segment for 19902. 3 Professional Tradesmen - Market Share Professional tradesmen revenues of $35 million in 1990 for B&D translated to about $3 million in operating income.
Gross margin is 35% but SG+A costs were about 25%. The market leader in Professional Tradesmen's market is Makita Electric of Japan, having 50% of the market share followed by Milwaukee at 10% and thirdly B&D with Ryobi having 9% each. The Professional Tradesmen, Power Tools market share for 1990 was shown in figure 2. 3. Figure 2. 3: Power Tools, Professional Tradesmen Market Shares for 1990 Manufactured in part by B&D and marketed by Sears 2.
4 Professional Tradesmen - Distribution Channel Two Steps recorded the highest sales percentage at 40% and in second place is Home Centers at 25% sales. Warehouse Home Centers were 15% and Membership Clubs were 10% with Farm Outlets having 5%. Home centers were growing importance in distribution of Professional Tradesmen's product. The largest single outlet of professional tradesmen tools sales in 1990 was the Home Depot at $5 million, second was Home Club at $3.
5 million compared to the largest of the Two Steps, Ace and Servi Star at $2 million each. Home Depot is the largest of the rapidly growing collection of home improvement chain stores. With 145 stores and $3. 8 billion sales in 1990, its pricing is 30% less than traditional hardware store and superior customer service.
Makita's rise to marketplace dominance was aided by the rapid development of this type of distribution. Figure 2. 4. 1: Professional Tradesmen - Sales by Channel Type for 1990 The market leader, Makita held substantial sales market shares in all channel type meanwhile B&D only have 20% in Warehouse Home Centers and less than 10% in the other types with none in Membership Clubs. Figure 2. 4.
2: Professional Tradesmen - Makita / B&D Market Share by Channel Type for 1990 In Professional - Tradesmen tools, the three main product type are Drills product with 30% market share, Saws product having 35% market share and Sanders product having less than 15% market share. Figure 2. 4. 3 - 1990 Professional - Tradesmen tools Market Share by Product Type Within the product type, in product for Drills, 16% is for cordless drivers drill and 13% is for corded drill. In product for Saw, 14% is for Circular saw, Miter Saw is 11%, Reciprocating Saw is less than 10% and Jig and Chop less than 5% each. In product for Sanders, Finishing Sanders is less than 10% and Belt Sanders is less than 5%Figure 2.
4. 4 - 1990 Professional - Tradesmen Tools Market Share by Product Type and Product Line In product for Drills, Makita is the market leader having 80% market share in cordless drivers and 50% in corded. B&D comes in second with less than 10% in cordless drivers and 25% in corded followed by Milwaukee less than 5% in cordless and 20% in corded. Figure 2. 4. 5 - 1990 Market Shares of Professional - Tradesmen Tools for Drills (30%) In product for Saws, again Makita is the overall market leader, having 55% in circular saw, 45% in miter saw, 30% in reciprocating saw, 25% in jig saw and 50% in chop saw.
Milwaukee is equally strong in reciprocating saw, having 30% market share (at par with market leader) followed by 15% in circular saw, 15% in jig saw, less than 5% in chop saw and none in miter saw. B&D market share consider average, quite close in reciprocating saw at 25% market share, second in chop saw (20%) and miter saw (15%) but less than 10% in circular saw and jig saw. Skil is having 20% market share in circular saw. Figure 2.
4. 6 - 1990 Market Shares of Professional - Tradesmen Tools for Saws (35%) In Sanders product, Makita is very strong in finishing sanders, having 60% market share with Milwaukee having less than 5% and B&D having less than 10%. However, in belt sanders, Ryobi is the market leader, having 45% of market share followed by Makita 20% and none for Milwaukee and B&Figure 2. 4.
7 - 1990 Market Shares of Professional - Tradesmen Tools for Sanders (>15%) Product development had been a B&D focus since 1985 and B&D tools were highly regarded in the demanding Professional Industrial segment. Figure 13 shown below is a summary of the results for all 14 major Professional Tradesmen products. Most of B&D products in this segment pass the quality test, indicating that B&D's product quality was very strongly competitive in the large majority of product categories. Figure 2. 4. 8- Black & Decker Product Assessment Rank Portfolio 1990 Size Weak / Competitive Leadership ($millions) Undeveloped 1 Cordless Drills 67 2 Circular Saws 58 3 Corded Drills 56 4 Miter Saws 44 5 Finishing Sanders 36 6 Angle Grinders 23 7 Reciprocating Saws 21 8 Routers/Trimmers 19 9 Scruguns 16 10 Belt Sanders 16 11 Jig Saws 12 12 Hammers/Drills 11 13 Chop Saws 11 14 Impact Wrenches 7 S.
W. O. T Analysis on B&D Strength Weaknesses Opportunities Threat No 1 share position in Consumer and Industrial segments Independent survey of 6, 000 brands, B&D is no. 7 in U. S and No. 19 in Europe, top ten in U.
S Household products: Cordless vacuums, irons and toaster ovens, each having 50% market share in U. S B&D product quality was very strongly competitive in majority of product categories Buyers agree B&D easy to get service Brand perception for Tradesmen segment buyers is second lowest B&D tools was not highly differentiated in color, Competing brands were more highly differentiated in color Survey indicates B&D tradesmen awareness among trades people is the highest (98%) Long term debt is $4. 2 billion about 84% of total capital Retailers not uniformly positive on Makita, regarded as arrogant and dictatorial Makita offers no channel protection, selling the same product throughout a range of outlet including the discounted Membership club Milwaukee 10% and Makita 5% premium above Black & Decker Makita held 80% share in cordless drill and 50% share overall in tradesmen segment Makita was 50% cheaper than Japan market Makita position with trades people was strong Milwaukee is having 10% of tradesmen market share Makita channel distribution via membership club is 85% Tradesmen perception Makita provided good baseline option on all categories 3. 0 Identifying Key Issues from S. W. O.
Analysis 3. 1 Brand Perception Tradesmen viewed B&D products as for use at home rather than on the job. The tradesmen, often in reference group, perceived that B&D tools are only good for consumer market and not good for them to use to earn a living. A survey on brand perceptions of Professional Tradesmen Segment buyers (refer table 1 for details) shown B&D products are in the lower segment.
Table 1 - Brand perceptions of Professional Tradesmen Segment buyers Highest Lowest Makita Bosch Black & Decker Wen Milwaukee Hitachi Ryobi Porter Cable Skil Panasonic Craftsman (Sears) 3. 2 There are no significant product differentiations for B&D power tools products. B&D power tools were not highly differentiated in color. Consumer tool manufactures had mostly followed B&D's lead of making consumer tools black or charcoal grey. B&D's policy of using black as the consumer grade and charcoal grey for its Professional-Industrial and Professional-Tradesmen often gives the perception that B&D Professional products are within the Consumer category. 3.
3 B&D do not have strong distribution channel in the Professional Tradesmen. Apart from 20% market share in Warehouse Home Centers, B&D market share in other distribution channel is less than 10% (refer figure 2. 4. 2 for details) However, most buyers in this segment bought most frequently in independent stores like Two Step. Also, Home Centers is growing importance as the sales in 1990 were higher than the largest Two Steps stores.
The market leader, Makita has high market share in these channels (55% in Two Steps and 45% in Home Centers) compared to B&D only having less than 10% market share in both channels. 4. 0 Strategies Formulation Registering the highest growth of 9% in 1990 for the Professional Tradesmen market segment (figure 2. 1. 2) indicates that it is a lucrative market.
Referring to Ans off matrix on existing products and existing markets combination, B&D strategy is market penetration, seeking growth with existing products in their current market segment, aiming to increase its market share. However, the analysis shows that this is not possible due to B&D's bad brand perception and weaker distribution channel." The objective of strategy is a sustainable competitive advantage, which may come from any part of the organization's operations. The market is the judge of this advantage. Brand strategy is the process whereby the offer is positioned in the customer's mind to produce a perception of advantage" (pg. 96, Arnold D, 1992) 4. 1 Brand Strategy As Philip Kotler (1996) has said:" Brands are extremely important.
In fact the art of marketing is partly the act of branding because without brands you are in a commodity market and price is essentially the key determinant " Sadly, B&D brand is not appealing in the target market, Professional Tradesmen segment. Trades people do not favor B&D products, often perceived as consumer products rather than for Professional Tradesmen usage. It is a perception issue as B&D's research (refer figure 2. 4. 8) concludes that their product quality was very strongly competitive in the large majority of product categories. As such, B&D products are able to compete effectively against their competitor's products.
In order to gain market share from competitors, we propose two brand strategies: 4. 1. 1 Introduction of a new brand name&D has a stable brand, "De Walt" from a line of stationary woodworking equipment. De Walt name had never been used on a portable power tool but it received 70% awareness rating, and research on "One of the Best" agreement shows that tradesmen are 63% agreement compared to B&D's 44%.
It is proposed that B&D uses De Walt brand as the new brand to enter the Professional Tradesmen segment to gain market share. One consideration here is cost as introducing new brand can be a very expensive affair. 4. 1. 2 Multi brands B&D products Another strategy for consideration is to introduce new brand names in the same product category. B&D's move to replaced saw blades to "Piranha" by B&D and introduction of Sawcat and Super Sawcat have seen some success.
B&D should continue to multi brands its product in order to maintain market share. B&D should not totally drop the Black & Decker name from the Professional Tradesmen segment as it already has 10% market share at 35% gross profit margin. It also doesn't make sense that B&D who are strong in Power tools in US do not provide power tools for Professional Tradesmen. However, one of the risk factor in multi brands is that each might obtain only a small market share and none can be particularly profitable. The company can "exhaust" its resources over several brands instead of building a few brands to a higher profitable level. In multi brands, it is advised that B&D concentrate on its relatively strong product lines only.
Michael Porter has proposed three generic strategies that provide a good starting point for strategic thinking: overall cost leadership, differentiation and focus. In consideration for B&D marketing strategy, we look into differentiation and focus strategy. 4. 2 Differentiation Kotler (1997) says that differentiation is the act of designing a set of meaningful differences to distinguish the company's offering from competitors' offering.
The number of differentiation opportunities varies but what is sure is that B&D need to be able to identify various ways it can differentiate its products than its competitors in order to have a competitive advantage. Figure 4. 2. 1 shows the variables differentiation in product differentiation B&D can consider. Figure 4. 2.
1 - Differentiation Variables Products Services Personnel Channel ImageFeaturesPerformanceConformanceDurabilityReliabilityRepair abilityStyleDesign Ordering easeDeliveryInstallationCustomer training Customer consulting Maintenance and repair CompetenceCourtesyCreditabilityReliabilityResponsivenessCommunication CoverageExpertisePerformance Symbol Written and audiovisual mediaAtmosphereEvents (Source: Pg. 283, Kotler P, 1997, Marketing Management) By introducing a new brand name, B&D can build up its differentiation strategy and ensure it did not repeat the past mistakes. One example would be the color differentiation. In our opinion, B&D need to significantly differentiate the color for its products in the Professional Tradesmen segment. The real challenge is to "break away" trades people perception that B&D's products are made for Consumers only as black or grey power tools are mostly associated with Consumer's color as shown in Figure 4.
2. 2. Figure 4. 2. 2 - Color Differentiation: Professional End Users Professional Grade Consumer Grade Makita - Teal o Milwaukee - Redo Bosh-Dark Blue Hitachi-Green Black & Decker - Charcoal Grey Black / Charcoal Gray Black & Decker Craftsman Skil Went Private Label Products Mr. Joseph Galli's suggestion on using bold "industrial yellow" can be considered as one of the option for introducing De Walt's as the new brand.
However, B&D still need another color for its current products in the professional Tradesmen to clearly differentiate them from the Consumer market. 4. 3 Focus Strategy In multi branding B&D products, it has to focus on relatively strong products within the B&D product line. There are many strong quality products within the B&D products line that B&D can consider to multi brand it. Example: B&D markets share in the Professional Tradesmen segment for cordless Drill is less than 10% (refer figure 2.
4. 5) whereby during the product assessment (figure 2. 4. 8) for Cordless Drill, it is noted that the quality is at par with market leaders.
However, concentration could be either on cost leadership or differentiation within the target segment. 4. 3 Improve Distribution Channel B&D need to improve its distribution channels sales in order to gain market share. Using Micheal Potter's focus strategy, B&D concentration would be on Home Center's distribution channel, relatively the Home Depots and Home Clubs. There is a conflict between the retailers and the market leader, Makita who they regard as arrogant and dictatorial.
Makita also offers no channel protection, selling the same product throughout a range of outlet including the discounted Membership club. B&D should capitalize on this conflict and formulate differentiation strategy on incentives to retailers / distributors in order to improve its distribution sales. B&D can offer channel protection on sales in Home Centers against other distribution channels that's Makita refused to do so. B&D must listen to retailers and be friendly to win over the retailer's heart. B&D also can formulate higher commission sharing with the retailers as incentives for them to sell B&D products. 4.
4 Pricing Strategy Milwaukee and Makita priced their products at premiums over B&D, averaging 10% and 5%, respectively. Despite it, trades people continue to prefer their products over B&D, indicating Professional Tradesmen products are not price sensitive. One of the possible reasons is that the trade's people are willing to pay premium pricing if they agree the products are good quality. B&D therefore can introduce De Walt's brand at premium pricing following the market leader.
In a way it is more of psychological pricing strategy, premium pricing indicating better quality and Professional Tradesmen products are ego-sensitive products. 5. 0 Recommendations 5. 1 It is recommended that B&D launch a new brand name "De Walt" into the Professional Tradesmen segment to capture competitor's market share. De Walt can be priced at premium pricing to indicate high quality at par with market leader. 5.
2 The existing products line in B&D is multi branded to maintain existing market share but the focus would be only on the strong products. 5. 3 A new striking color is to be introduced (probably industrial yellow) in the B&D's Professional Tradesmen products to significantly separate them from the Consumer products. 5. 4 Improve the distribution channels with concentration on the Home Center and ensuring good service and better profit margin to the retailers. 6.
0 Conclusion Black & Decker's marketing problem in the Professional Tradesmen market is basically about brand's perception. Trades people often within their reference group do not want to be associated with B&D products because they perceived B&D's products are really for Consumers use and they need products of professional grade because they use their tools to earn a living. It may not be true in reality but a brand resides in the mind of consumers and it is difficult to shake off the perception in the trades people. In order to manage the perception, B&D can introduce De Walt, a new brand name within B&D line of brands.
B&D also can multi brands in some of its existing strong quality products line with the intention to clearly separate it from the B&D brand.