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Black & decker

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Black & decker

  1. 1. 2013
  2. 2. Contents Problem Statement ....................................................................................................................................... 1 5C’s Analysis .................................................................................................................................................. 2 Company: .................................................................................................................................................. 2 Collaborators:............................................................................................................................................ 4 Customers: ................................................................................................................................................ 4 Competitors: ............................................................................................................................................. 6 Climate (Context): ..................................................................................................................................... 9 Findings & Recommendations .................................................................................................................... 10 Action Plan .................................................................................................................................................. 11 Appendix 1: SWOT Analysis for Black & Decker .......................................................................................... 12 Appendix 2: Consumer Analysis .................................................................................................................. 13 Appendix 3: 5 Cs Analysis for Black & Decker ............................................................................................. 14 References .................................................................................................................................................. 15 Black & Decker 2
  3. 3. Problem Statement Black & Decker, a US based power tool manufacturer has managed to attain a leadership position not just in the overall power tool market but also in distinct segments such as the consumer segment for power tools and the professional-Industrial segment. However, despite a strong brand image and a reputation for quality, the company only has a 9% share of the Professional-Tradesmen segment for power tools. While this should not be a matter of concern since the company is currently enjoying a rather favorable position in terms of its revenue and operating income , the fact that the Professional-Tradesmen segment is the fastest growing segment of the power tools industry raises concerns for the management especially as direct interaction with tradesmen has resulted in direct attacks to the company’s image in terms of ‘not being preferred’ as a potential option for power tools by the Professional-Tradesmen segment. The current scenario has put the management of Black & Decker into a critical position where they need to make certain adjustments in order to attain a position of complete leadership in the power tools industry. Either they could focus totally on the Consumer and ProfessionalIndustrial Segment and forgo the growth opportunity in the Professional-Tradesmen Segment or they could opt for repositioning the brand using a new brand name. The fact that the Black & Decker brand name has not managed to have an impact on the Professional-Industrial Segment needs to be sorted out in order to gain a competitive edge in the power tools industry where currently foreign players in the form of brands like Makita Electric of Japan and local players like Milwaukee Electric of Brookfield are dominating the Professional-Tradesmen segment. Being number three in this particular segment while losing out Black & Decker 1
  4. 4. to a foreign competitor and a local competitor respectively contrasts with the company’s image of being a world leader in power tools. 5C’s Analysis The following section looks at a 5C analysis (appendix 3) for Black & Decker to highlight the company’s strengths, weaknesses, opportunities and threats later summarized in appendix 1. Company: In the following section we would be discussing Black & Decker with respect to its product line, market share, and image in the market, technical expertise, culture and goals. Product line: Being the world’s largest producer of power tools, power tools accessories, electric lawn and garden tools and residential security hardware, Black & Decker makes products for all three segments of the power tools market; the Consumer Segment, Professional-Industrial Segment and Professional-Tradesmen segment. Product categories also include household products such as hand-held vacuums, irons, mixers, food processors etc. Market Share:The Company enjoys a 45% market share in the $530 million Consumer Segment with revenues of 1990 reported at approximately $250 million. The company sells under the brand name ‘Black & Decker’ in this market segment. The Professional-Industrial segment which is a $550 million market allows Black & Decker to have a 20% market share with the company’s revenues reported to be approximately $110 million in 1990. The third segment comprising of Professional-Tradesmen is a $420 million market where black & Decker only enjoys approximately 9% of the market with revenues reported to be $35 million in 1990. Black & Decker 2
  5. 5. Amongst its product groups, the company enjoys a significant market share of approximatley 29% in Power Tools and Accessories’ while other product categories have market shares between 15% to 9%. Image: The Company has a strong image in the global market as evident by the fact that its name is ranked number 7 in the US and 19 in Europe. With nearly 50% of the revenues coming from outside the US market, it can easily be said that Black & Decker’s brand name is recognized not solely in the US market although it enjoys a position amongst the top ten brands there. Although the company has a well-established image globally, it’s perceived as a high quality brand for the upper end of the market. However, market segments looking for a rough and tough product in the power tools category do not opt for Black & Decker despite the brand’s strong image and high quality indicating that there is a certain misconception about Black & Decker’s products being too fragile to handle heavy-duty jobs. On the whole, Black & Decker’s professional tools are considered to be the highest in quality in the power tools industry. Technology and experience: The Company is highly experienced in the production of power tools especially as it has been experimenting with this technology over the last 73 years considering the fact that the first machine shop by the founder s of Black & Decker started in 1910. Being pioneers and industry leaders over seven decades has made Black & Decker the world’s largest producer of power tool accessories, electric lawn and garden tools as well as residential security hardware. Culture and goals: As far as the company’s goals are concerned, it is aiming for leadership in all three segments of power tools. With leadership in both the Consumer and Industrial segments, the country’s low market share in the form of a 9% share of the Tradesmen Black & Decker 3
  6. 6. segment is a point of concern which has led to the aim of looking for a course of action which can establish Black & Decker as a powerful brand in all three segments. The current challenge is to look for strategies that can take away market leadership from Makita, the current leader in the Professional Tradesmen segment. The company’s culture is orientated towards innovation with an emphasis on high quality as evident by the fact that product development has been the company’s focus since 1985. With 29 new household products introduced in 1990, this innovative culture is taken quite religiously with an emphasis on media advertising for promoting the company’s new products especially in the household product line. Collaborators: In terms of collaborators we would be discussing the company’s distributors and retailers. We have already explored the three types of markets that Black & Decker is supplying to. Each of these markets is supplied through a different set of distribution channels which collaborate with companies like Black &Decker in terms of making their products available to the respective customers. The consumer market is reached through retail chains such as Wal-Mart which act as collaborators for selling the firm’s consumer power tools and household products.The Professional-Industrial segment makes use of industrial supply companies like W.W.Grainger for selling power tools to large scale contractors.The Professional-tradesmen segment buys directly from retailers like Home Depot and Ace Hardware. Customers: In this section we would be discussing the key consumers of the power tool industry with an emphasis on Black & Decker’s current customers. Secondly we would be analyzing the Black & Decker 4
  7. 7. consumer behavior in each of these segments through a simple framework to assess the vulnerabilities and opportunities that Black & Decker can be exposed to. Nonprofessional User:Currently we are looking at two kinds of users for Black & Decker’s products, the professional and nonprofessional users. The nonprofessional user is the ‘Consumer Segment’ which we have already discussed in the section on the company’s ‘market share’. This nonprofessional user makes up 45% of the market and has immense brand loyalty for Black & Decker’s products. Consumer Behavior & Cognition in the Consumer Segment The consumer segment of Black and Decker’s products is mostly looking for household products and is easily influenced by media advertising especially as the brand is popular and had a strong brand image. Plus their innovative approach keeps the consumer nonprofessional segment looking for newer products. The fact that Black & Decker’s new Power Pro Dustbuster has gained immense popularity in the household segment shows how this particular market can easily be persuaded to buy the company’s products. The consumer segment for power tools in particular is a $530 million market in the US and is looking for a product that they may use at home with a frequency being as low as once a year. This segment buys its products from stores like Wal-Mark and K-Mark so getting through to them through advertising is important in order to convince them about the product that they would eventually be picking from a store. Professional User: The professional user is further divided into the ProfessionalIndustrial segment and the Professional-Tradesmen segment. Black & Decker 5
  8. 8. Consumer Behavior & Cognition in the Professional-Industrial Segment: The Professional-Industrial segment includes commercial contractors working on large projects and can be influenced by the technical advice and expertise of distributors like W.W Grainger who have a wide network of regional offices. These distributors can influence the contractor’s tools requirements and preferred brands for use and since companies are responsible for purchasing the tools rather than individual users, the brand’s popularity can have an impact in this case too. Similarly since the specific distributors selling these brands stock the products in bulk, they may be highly influential in selling the product while at the same time they can be influenced by the manufacturer in terms of being considered preferred distribution channels. Consumer Behavior & Cognition in the Professional-Tradesmen Segment: The Professional-Tradesmen segment which includes tradespeople who have to use the products to make a living and are looking for tools that are reliable and have been used by other tradespeople. For this segment it is very important to follow the status quo and so they would not opt for anything that other tradespeople would consider inappropriate for the job. These groups are not brand conscious and are not looking for innovation. This is the fastest growing segment of the market and the image of the product is more important to them compared to the brand name. (Refer to appendix 2 for a summary of this consumer behavior and cognition) Competitors: The company’s largest competitor is Makita Electric of Japan which entered the US market a decade ago. The company is a major competitor in the Tradesmen segment and enjoys leadership in this category of power tools. Matika has a 50% market share in the Professional Tradesmen segment with an 80% share particularly in cordless drills. Although Black& Decker has been the pioneer of portable power tools, its leadership is limited to the Consumer and Professional-Industrial segments while Black & Decker 6
  9. 9. Makita has established a name in the Professional-Tradesmen segment. Talking specifically about the Professional-tradesmen segment, Makita is a very strong competitor considering the fact that other brands individually have not managed to capture more than 10% of the market. For instance, Milwaukee has a 10% market share in this segment whereas Ryobi is at parity with Black & Decker at 9%. Brands like Skil, Craftsman, Porter-cable and Bosch have market shares between 3 to 5 percent suggesting that this end of the market has a lot of competition for Black & Decker and the company has very low chances of attaining leadership with its current strategies. Even in the Professional-industrial segment Black & Decker has to face direct competition from Milwaukee Electric of Brookfield. This competitor is a privately held firm and competes with Black & Decker only in the high end of the Professional-Industrial market segment. At a lower end, competition in the Professional-Industrial segment is greater in the form of companies like Bosch, Porter cable and Makita. As far as the Consumer Segment is concerned, Black & Decker faces competition from companies like Skil, Craftsman, Wen and several private label products with all of these brands making up 50% of the market share of the Consumer segment. Since our main point of concern is the Professional-Tradesmen segment, we can look at the breakdown of the segment in terms of competition to get further clarity about the kind of competition that Black & Decker currently faces. Although Makita has an 80% share of the cordless drills product category in the Professional-Tradesmen power tools segment, the market share in corded drills does not have that much disparity since Black & Decker has approximately 25% of the Professional-Tradesmen market in this product category. In most categories of ‘saws’ Black & Decker 7
  10. 10. in the Professional-Tradesmen segment, Black & Decker comes second to Makita indicating that the company has scope in terms of establishing its name in this market segment too. A breakdown of this segments specifically shows that Black & Decker is losing out to Makita specifically in the ‘cordless drills’ product category in the Professional-Tradesmen segment which make up only 16% of this market segment. Competitor’s Strengths: If we look further at the strengths and weaknesses of the competitors, we can see that Makita offers a price advantage for its products in the US market as some of its products are being sold at half of their actual price in Japan. Surprisingly, in its home market Matika comes second to Hitachi in market share suggesting that one of the reasons for the success of Makita’s products in the US market could be the fact that they are imported products from Japan and are being sold at a cheaper price compared to their original price in the Japanese market. Although Black & Decker’s products are less pricey compared to Makita’s the company may be enjoying an advantage due to its pricing strategy in the international market. One particular advantage that competitive brands have over Black & Decker is their attention to ‘color differentiation’. Where all of Black & Decker’s power tools are being sold in shades of either black or grey, regardless of the segments they are targeting, competing brands have been very particular about keeping the colors of Professional grade tools highly distinctive. For instance, Matika and Milwaukee have assigned ‘teal’ and ‘red’ as colors for their professional tools respectively whereas Black & Decker’s professional grade tools are sold in ‘charcoal grey’. Although this may not be a reason for not opting for Black & Decker tools in the Professional-Tradesmen segment, the fact that ‘black and charcoal gray’ are the colors that have been typically assigned to consumer grades tools of brands like Craftsman, Skil, Wen, Black Black & Decker 8
  11. 11. &Decker as well as for tools for private labels may be creating a misconception in the minds of the tradespeople in terms of the durability and usage of Black & Decker power tools. Makita’s and Milwaukee’s vulnerabilities:There are certain weaknesses that should be noted specifically for Makita. Although the brand ishighly popular amongst tradespeople, retailers feel that the company shows a lot of rigidity in dictating terms. The same products are offered through all channels which offer no channel protection to any specific distribution channel. This indicates that distribution through the retailer channel could actually be used to its advantage by Black & Decker if its offers come sort of incentives to retailers for selling to the Professional-Tradesmen segment. If we compare the results of the ‘image study’ we can see that even the ones who prefer ‘Matika’ as the preferred brand rate Black & Decker higher in terms of ease of getting service whereas those who prefer ‘Milwaukee’ rate Black & Decker comparative to Milwaukee in terms of ease of getting service. This suggests that Black & Decker is rated high in terms of service even by those who prefer other brands suggesting that this may be a weak area for competing brands and Black & Decker could gain a competitive edge here. Climate (Context): Black & Decker is currently enjoying a favorable position in terms of being a company headquartered in the US market where it enjoys a favorable position in the form of a high quality recognized brand. With a ranking of 19 amongst 6000 brands in Europe, the company has a substantial name in the European market too. With 50% of the revenue coming from outside the US, Black & Decker has managed to have risk aversion during times of economic downturns. With a $1.5 billion power tools market in the US, Black & Decker does not really have to worry about being affected by economic downturns in the international market. The US market Black & Decker 9
  12. 12. provides a politically sound avenue for growth whoever foreign competition has managed to affect the company’s current position in its home market. Findings & Recommendations Having discussed the 5Cs for Black & Decker brings us to the point where we can critically look at the three options identified for targeting the Professional-Tradesmen segment. Option 1 talks about ‘harvesting’ the Professional-Tradesmen channels where Black & Decker would be looking at its own profitability while forgoing the market share. This option could mean charging higher prices for the products which are already being sold in this segment and expecting ‘brand loyalty’ to retain the customers who would be willing to pay for the products. However, given the credibility of competitive brands, this may backfire in terms of generating lower profitability due to loss of customers due to availability of options. Option 2 talks about sub-branding whereas Option 3 talks about introducing ‘DeWalt’ as an alternative brand with a specific level of endorsement introduced by Black & Decker. The fact is that the Professional-Tradesmen segment is well aware of the quality and credibility of Black & Decker but is still not opting for it because of the perception attached to it in terms of being associated to fragile household products. Therefore sub-branding may not be able to solve the problem of removing that perception. Option 3 seems like the best alternative especially as it still endorses the product and would be able to position the power tools with a completely new image in the market. Black & Decker 10
  13. 13. Action Plan The following action plan has been suggested which should work in terms of repositioning Black & Decker’s products in the market as tools for the Professional-Tradesmen Segment. Since the idea is to drop the Black & Decker brand name from the ProfessionalIndustrial Segment, the product line would no longer be using the company’s brand name as a logo anymore. The fact that we still need some sort of endorsement for enhancing credibility would need the use of an endorsement like ‘ DeWalt–Serviced and Distributed by Black & Decker ‘ especially as this specific endorsement has resulted in the greatest potential purchase intent of approximately 58% according to the research done on the ‘DeWalt’ brand. We had discussed earlier how retailers are not too eager to keep Makita even though the product is popular amongst tradespeople. Black & Decker can attain a competitive edge in this area by distributing their Professional-Tradesmen power tools through selected distribution channels while giving additional incentives in the form of after sales services to preferredretailers. Not only would this increase the incentive to sell the products, these retailers would be eager to stock power tools serviced and distributed by Black & Decker under the DeWalt brand. The fact that a new brand would be endorsed by Black & Decker would require some basic changes to the strategy in terms of the product’s appearance. Since Black & Decker is not launching the brand under its own name, changing the color and opting for‘yellow’ as the new color for the power tools should work well in terms of establishing a new brand image in the market. Since the company does not want to get stuck with a ‘yellow’ colored product under its brand name if the product is not successful, there should not be a major issue of this strategy is pursued since the brand name would be ‘DeWalk’ rather than ‘Black & Decker’. Black & Decker 11
  14. 14. Appendix 1: SWOT Analysis for Black & Decker Strengths Weaknesses  Pioneers of portable power tools business in the US   No. 1 market share in consumer and professionalindustrial segment Only 9% market share of the professional tradesmen segment  Trade asking for advertising allowances and rebate  Name amongst powerful brands in the world  Professional tools recognized as having high quality  Zero profitability in Tradesmen products  World’s largest producer of power tools , power  High long term debt of $4.2 billion tool accessories , electric lawn and garden tools and  No particular strength highlighted for B&D power on B&D’s Tradesmen products residential security hardware in 1990  Sales of $4.8 billion in 1990  tools in the Professional-Tradesmen segment  Revenue stream not concentrated in the US as 50% Professional tools not well differentiated like competitors of the product revenue comes from outside the US  Associated with General Electric’s brand name  New brands like Kwikset ® and Price Pfuster ®  in the portfolio  Growing revenue and operating income  B&D franchise strong in cordless vacuums, irons, toaster oven- each with over 50% market share in the US  Amongst top ten brands in the US  Participation in all three segments of power tools  Power tools holding 30% of the US market  Highest brand awareness amongst Power Tool suppliers in terms of Tradespeople Opportunities Threats  Fast growth rate of professional-tradesmen segment   More than 50% sales growth coming from outside the US  Opportunity in ‘membership club’ distribution power tools segment  Sales potential in Europe  Black & Decker Makita of Japan with leadership in professional 80% share of cordless drills and 50% in overall professional tradesmen segment held by Makita  Tradesmen perceiving Skil, Milwaukee and Makita 12
  15. 15.  Retailers negative perception of Matika  Color regarded as a significant as better options in power tools product differentiator Appendix 2: Consumer Analysis Customer Type Characteristics   Nonprofessional: Consumer Segment  Consumer Behavior Buys products for ‘home  use’  Low frequency of usage   Brand Loyal Influenced by media advertising Buys from Wal-Mark and K-Mark Looking for newer products  Professional User: ProfessionalIndustrial Segment   commercial contractors  Usage in large construction projects  Influenced by the technical advice and expertise of distributor Brand’s popularity is important  Professional User:   ProfessionalTradesmen  Segment Individual tradespeople  Use power tools to make a  living  Fastest growing segment  Follows the status quo Not brand conscious Not looking for innovation. Product image more important than brand quality Black & Decker 13
  16. 16. Appendix 3:5 Cs Analysis for Black & Decker Context/Climate Company Customer   Product line: power tools, power tools accessories, electric lawn and garden tools and residential security hardware, household products  Market Share: 45% in Consumer Segment  20% in ProfessionalIndustrial  9% in professionalTradesmen  Image: High quality brand  Technology and experience: 73 years in power tools  Culture and goals: Innovative/ ProductDevelopment Consumer Segment Professional-Industrial Professional-Tradesmen Collaborators    Consumer Segment : Retails chains (Wal-Mart) Professional-Industrial segment: Industrial supply companies (W.W.Grainger) Professional-Tradesmen Segment: Retailers (Home Depot and Ace Hardware)   Stable Political environment Risk aversion through geographical diversity Local & International growth Competitors  Professional Tradesmen segment: Makita Electric  Professional-Industrial Segment: Milwaukee Electric of Brookfield.  Lower end-ProfessionalIndustrial Segment: Bosch, Porter cable and Makita.  Consumer Segment: Skil, Craftsman, Wen and Private Labels . Black & Decker 14
  17. 17. References - Capone’s Marketing Framework - Strategic Marketing ManagementClass note week1 winter 2013, Prof. Foster Black & Decker 15

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