The document outlines a strategic analysis performed by QDI for a rapidly growing client facing declining sales and brand value due to lower margins from sales through Home Depot. QDI developed models highlighting alternative brand and channel strategies that could enhance operating profits by up to $30 million and reverse brand deterioration. The client is advised to consider brand repositioning, channel partnerships, and investment in brand power as various pathways toward maximizing profitability and addressing market dynamics.

1. COPYRIGHT 2015 QDI STRATEGIES, INC.
QDI: Brand and Channel Strategy
Leverage
Project Example

2. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand & Channel Strategy Options
• One of QDI’s clients had grown very rapidly by selling several of their
brands through Home Depot. However, this also resulted in lower
margins, declining sales in the specialty channels, and a sense that the
value of their lead brand had declined.
• The client and QDI put together a team to look at their brand position
and alternative channel and brand strategies.
• This presentation highlights the models QDI developed to drive the
channel and brand strategy discussions. The presentation shows
examples of alternative strategies with operating profits that exceed the
base line strategy by as much as $30 Million. It also shows it is possible
to reverse the brand deterioration that was happening to all of their
brands.
Methodology to Support Brand & Channel Strategy
Decisions for Profit Maximization

3. COPYRIGHT 2015 QDI STRATEGIES, INC.
Session Objectives
• Broadly understand the QDI research and modeling
• Understand branding implications of channel strategy decisions
• Link the QDI market behavior and brand preference models to the
McKinsey research
• Move to select a brand strategy for ClientBrand A
– Determine the trade-offs you are willing to make to build a
brand
– Determine the optimum brand strategy.
Our research has determined the need for a different brand / channel
strategy for ClientBrand A, as well as options for Client –
however, we still need to test to determine the best strategy.
Methodology:
Project
Objective

4. COPYRIGHT 2015 QDI STRATEGIES, INC.
QDI Research and Modeling
• Market research
– Quantitative brand preference and shopping behavior research
• 400 contractors & 400 DIY
– Qualitative research
• Approximately 75 each of interviews
– Contractors / Cabinet shops / DIY consumers / Industrial distributors /
Channels
– Analog interview to understand how other manufacturers are dealing with market
power, particularly partnering
• Market modeling
– Switching behavior
– Channel value
– Market performance projections, based on alternative strategies
Methodology:
Project
Approach

5. COPYRIGHT 2015 QDI STRATEGIES, INC.
Market Dynamics
• Channel Structure
– Home Depot will grow to about 1/3 of the total market in 2003
• Home Depot is gaining presence and is expected to grow its share by 25% over
next 3 years, from 28.2% – 34.1%
– Lowe’s and Sears are the only other significant companies in the market,
each with about 10% of the market
• Lowe’s is gaining presence and is expected to grow its share by 21.6% over next
3 years, from 10.4% - 12.7%
• Sears is holding its own at about 10%
– The industrial channel is the fourth major player with thousands of
companies that, together, account for about 20% of the market
– Sears is a much more significant player in the professional and
Sophisticated DIY segments than previously believed
Methodology:
Understand
Market
Behavior

6. COPYRIGHT 2015 QDI STRATEGIES, INC.
Market Dynamics
• ClientBrand A brand dynamics
– A “project buyer” market exists that is different than the “cradle-to-grave”
model that ClientBrand A’s Strategy is based on
– Asian sourcing and aggressive purchasing by Home Depot have pushed the
market pricing down to levels where traditional professional tools (table
saws) are now available at DIY prices ($99)
– Both have significant, negative impact on traditional “cradle-to-grave”
branding strategy
• Client dynamics
– Linking ClientBrand B, ClientBrand A and ClientBrand C has weakened the
channel power of each organization
– Many in the market believe ClientBrand A has lost focus in the combination
– Channel and brand decisions have continued to be made independently
within Client
Methodology:
Understand
Market
Behavior

7. COPYRIGHT 2015 QDI STRATEGIES, INC.
Client Decisions
• Client needs to make some brand and channel decisions
• The combination of channel power, brand power and channel conflict establish
Client’s channel strategy alternatives
– ClientBrand B is a powerful brand that most channels must stock
– ClientBrand A is losing power, and only holds an enviable position within the high-
end, professional market
– ClientBrand C has no brand power, as it has (historically) been a quasi-private label
• The three brands together have a weak power position, with less than 32% of
revenue from product lines with high-brand power positions
• The result is that Client is forced to operate from a position of weakness
– Client is being forced to “pick a partner” for the ClientBrand A DIY and ClientBrand C
product lines in situations that involve high levels of channel conflict and high-power
channels
Methodology:
Decision
Model

8. COPYRIGHT 2015 QDI STRATEGIES, INC.
Client’s Brands Have Less Than a 32%
Power Position
42%
18%
7%
4%
28%
0%
20%
40%
60%
80%
100%
% of Sales
Client Brand Power Positions
ClientBrand B
ClientBrand A Industrial
ClientBrand B - Low Share
ClientBrand A DIY
ClientBrand C
Potential Repositioning
of ClientBrand A &
ClientBrand B as High-
Power Brands
High Power
Low Power
Brand power is a function of consumer preference
• The degree of preference for the brand by customers who prefer it
• The percentage of customers who prefer that brand versus other brands
Methodology:
Decision
Model

9. COPYRIGHT 2015 QDI STRATEGIES, INC.
Client’s Options
• Client has three types of choices:
1. Accept its power positions and partner with the strongest channel
2. Invest in building brand power (listed from lowest to highest cost)
a) Reposition the ClientBrand A brand to be a brand for only the professionals;
use the ClientBrand B brand for the Sophisticated DIY segments, and use the old
ClientBrand A positioning as a price brand for the high-end of the DIY segment
o This will result in slightly more than >43% of Client sales coming from high power
positions
b) Build the power of the ClientBrand A brand so that it is a “requested” brand by
Professional and Sophisticated DIY customers
o This will result in more than >42% of sales from high power positions
c) Build power of brand for the equipment lines, probably using the ClientBrand B brand
o This could result in substantial brand power; however, it would require a significant
investment in building brand power
3. Separate the product categories so that channels cannot use their power to
leverage Client’s lines
• Client could also use combinations of these strategies
Methodology:
Decision
Model

10. COPYRIGHT 2015 QDI STRATEGIES, INC.
Each Strategy Has a Different Impact on
Client’s Brand Power
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Base 2000 Base 2003 Strategy B +
ClientBrand
C Chnls +
Small Sears
Strategy A-4
+ Sears +
ClientBrand
C Chnls
44% 44% 42% 39%
24% 21%
17% 18%
32% 35%
42% 43%
% of Sales from each
Brand Power Position
Alternative Strategies
Market Power Strategy Results
High Power - ClientBrand B's 1s +
50% of ClientBrand B's 2s and 3s +
Industrial Line
Medium Power - ClientBrand A's 1s -
(ClientBrand A 1 Industrial) and
ClientBrand C to Channels O/T HD -
L - S (in Base Strategies - 60% of
ClientBrand A's 1s Move to High
Power in Strategy B and A-4)
Low Power - All Other Products
Methodology:
Decision
Model

11. COPYRIGHT 2015 QDI STRATEGIES, INC.
Client Trade-Offs
• Each strategy option has a different impact on business performance,
based on the following measures:
– Brand power – as measured by the customer’s preference for a brand (and,
conversely, a channel’s cost - or difficulty - in dropping a brand)
• Brand power also results in higher manufacturer margins, as evidenced by the
margins or ClientBrand B “1” products (40%), versus ClientBrand A “1” products
(31%)
– Channel power – the ability of a manufacturer to select his own channels
and to implement channel strategies that are consistent with his overall
marketing strategy (based on the percentage of a manufacturer’s total sales
that are both high-brand power - and within the specific channel)
– Operating performance
• Contribution margins (after all marketing and G&A expenses)
• Total operating profit dollars
• Sales growth / share growth
• Client needs to determine the relative importance of each of these outcomes
Methodology:
Decision
Model

12. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand Strategy Issues to Consider
• Strategic positioning vs. competition
– Don’t copy Brand 5 / Brand 1
– Don’t lose position to Brand 6
• Channel reactions
– Home Depot will not let you build a brand at
their expense
– Lowe’s will have to be sold on any
ClientBrand A strategy
• Consumer / contractor reactions
– Unknown value of ClientBrand A brand
franchise, relative to ClientBrand B and
Brand 1, when they are offered in place of
ClientBrand A
• Business performance impact
– Different strategies have different outcomes
in QDI models
ClientBrand B Space
ClientBrand A
Space
XYZ by ClientBrand
A
ClientBrand A Pro?
ClientBrand B?
Both?
Or ClientBrand A
ClientBrand A Pro?
ClientBrand B?
Both?
Or ClientBrand A?
Methodology:
Decision
Model

13. COPYRIGHT 2015 QDI STRATEGIES, INC.
Level-Set Questions
• Has the research convinced you:
– That you need a ClientBrand A brand strategy?
– That there is a significant risk of switching ClientBrand A customers to
ClientBrand B – they may have been loyal to ClientBrand A, and the switch
may make them available to Brand 1, possibly giving Brand 1 1/3 – 1/2 of
our ClientBrand A business?
– That you should aggressively expand ClientBrand C sales - outside of Home
Depot, Lowe’s and Sears?
– That you should give the ClientBrand B brand of equipment, exclusively, to
Home Depot?
– That a Sears strategy is possible, consistent with ClientBrand A strategies
and consistent with building your channel power?
Methodology:
Decision
Model

14. COPYRIGHT 2015 QDI STRATEGIES, INC.
Models We have Build
• Projection of Sales & Profit by Product line & Channel
– Three year analysis
– Examine profit impact of alternatives
• by product line & channel over time
– Examine Profit Contribution by Channel (marketing Cost)
• Projection of market shares within a channel based on
consumer preference
– Measures share/sales impact of alternative channel strategies
• By product lines within the channel
– Will use the model for scenario planning
• Projection of EVA channel
– Can be adjusted for different channel strategies
Methodology:
Decision
Model

15. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand Positions
Brand 1 is the most powerful,
professional brand, with the
most mentions and one of the
highest preference scores.
ClientBrand B, Brand 2 &
Brand 3 are distant, second-
place brands.
Brand 4 is the most powerful,
Sophisticated DIY brand, with
Brand 1 in second place.
Number of
Mentions
Average
Score
Number of
Mentions
Average
Score
Number of
Mentions
Average
Score
ClientBrand A 27 9 28 8.3 11 8.2
ClientBrand B 66 9.3 28 9.1 10 8.4
ClientBrand C 1 7 1 4 1 10
Brand 1 131 9.1 65 8.9 26 8.8
Brand 2 52 9.1 22 8.5 11 9.1
Brand 3 56 9.1 18 9.1 7 8.4
Brand 4 75 8.3 175 8.9 79 8.6
Brand 5 27 7.4 51 8.6 44 8.6
Brand 6 1 5 1 7 1 1
Brand 7 34 8.9 5 8 1 9
Brand 8 10 9.2 1 10 1 8
Brand 9 14 9.1 1 9
Brand 10 10 8.1 3 7.7 4 9
Brand 11 23 9.5 1 7
Brand 12 1 10
Brand 13 5 8.2 1 10
Brand 14 19 8.5 4 9.5 3 9
Brand 15 19 8.5 3 8
Brand 16 5 9.4 4 8 10 8.6
Brand 17 5 9.6 2 8.5 1 8
Brand 18 1 10
Brand 19 2 8 7 9.3 2 8.5
Brand 20 2 9 1 9
Brand 21 5 7.4 16 8.8 15 7.9
Generic 1 10 2 9.8
Professional Sophisticated DIY DIY
Methodology:
Brand
Research
Findings

16. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand Perceptions
Brand
Positive
Comments
Negative
Comments
Brand 1 34
87%
5
13%
ClientBrand A 16
64%
9
36%
ClientBrand B 25
93%
2
7%
Methodology:
Brand
Research
Findings

17. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand Perception by Channel
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Prof
ClientBrand
B
Prof
ClientBrand
A
Soph
ClientBrand
B
Soph
ClientBrand
A
DIY
ClientBrand
B
DIY
ClientBrand
A
Score of their #1 Preferred Brand
Home Depot
Lowe's
Methodology:
Brand
Research
Findings
Brand A
scored
significantly
lower
overall and
lowest in
Home
Depot

18. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand 1 Threat
• Brand 1’s offerings cover the most of the ClientBrand B &
ClientBrand A range
– Brand 1 is leveraging high-share to take the position of broad,
tool-line supplier
• Brand 1’s addition of pneumatic nailers (as reported by
ClientBrand B) would make Brand 1’s offering a direct competitor
to all of Client’s offering, except for the ClientBrand C equipment
line
• QDI believes Brand 1 is a direct threat to Client’s position
– Client may be the most vulnerable of Brand 1’s full line
competitors and, consequently, targeted by Brand 1
Methodology:
Brand
Research
Findings

19. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand Power Findings
• ClientBrand B and ClientBrand A both have strong brand franchises with
professionals, however, ClientBrand B’s is stronger
• A significant percentage of professional ClientBrand A owners also own ClientBrand B
tools
– It may be possible to switch these ClientBrand A customers to products under the
ClientBrand B brand
– However, a single brand strategy for the core portion of the market is similar to
Brand 1’s -- it will be difficult for Client to out-spend or out-maneuver Brand 1,
competing head-to-head
• In any brand strategy:
– You must improve the ClientBrand A image – suggest a ClientBrand A Pro line
– You must consider your strategy in light of
• The channels’ reactions
• Competitive position
Methodology:
Brand
Research
Findings

20. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand Strategy Values
Potentially, high presence
As long as channels will allow supplier to
work with competitor (at a product or
company level)
No marginal staying power
No price premium
Channel-Differentiated Brand
Channel differentiator, due to
different name on products,
sold in different channels
Presence within a channel
Possibly, presence across multiple
channels
If there are no alternatives
If alternatives, you get one channel
Higher % margins
If no other credible brand alternatives
Quality Position Brand
Quality positioning, due to a
credible brand
High-value position to the
brand owner
Low-value position to the
manufacturer
High-channel presence
High-channel staying power
Higher % and $ margins
End-User Brand
Unique / significantly-
differentiated product positions
High
Brand
Power
Low
Brand
Power
Methodology:
Brand
Research
Findings

21. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand wins – exerts
pressure on
channel
Brand wins tug-of-
war with channel
Sell to all channels
as an OEM supplier
Pick a partner
Channel Conflict and Brand Power
Impact on Channel Strategy
ClientBrand B 1s
Home Depot
Lowe’s, Sears
ClientBrand A
ClientBrand C
Home Depot
Lowe’s, Sears
ClientBrand C
(historically)
Mass Merchants
Hardware / AG
ClientBrand B 1s
Mass Merchants
Hardware / AG
ClientBrands A & C must either pick a partner in these
channels or create greater brand power.
Degree of Channel ConflictL H
Brand
Power
L
H
Methodology:
Brand
Research
Findings

22. COPYRIGHT 2015 QDI STRATEGIES, INC.
Brand and Channel Strategy
Alternatives
Methodology:
Strategy
Option
Models

23. COPYRIGHT 2015 QDI STRATEGIES, INC.
Use STAFDA
to build brands
and counteract
Depot
Use Sears and Lowe’s as a
Sophisticated
Strategy
Strategy Implications
Lever
ClientBrand B
for Contractors
Go Low-End with ClientBrand A
Go High-End With ClientBrand A - Plus
Lever Dept. Channel Position
Methodology:
Strategy
Option
Models

24. COPYRIGHT 2015 QDI STRATEGIES, INC.
Strategy A: Tiered Brand Positions
Option I -- Split ClientBrand A
ClientBrand
A Pro
ClientBrand BClientBrand B
1 2 3 4 5 6 7 8
Stationary
Shop tools
Professional
Sophisticated
Project
DIY
ClientBrand A
Colored areas show where 50% of the sales and profits come from
Tool Segments
Methodology:
Strategy
Option
Models

25. COPYRIGHT 2015 QDI STRATEGIES, INC.
ClientBrand
A
Strategy B – ClientBrand A & Lowe’s Strategy
ClientBrand B for Depot, New ClientBrand A Image with Lowe's
STAFDA Home Depot Lowe’s Sears
Stationary
Shop tools
Professional
Sophisticated
Project
DIY
Colored areas show where 50% of the sales and profits come from
ClientBrand A
ClientBrand B
ClientBrand B is the Contractor / Pro brand. We favor ClientBrand
B in Home Depot, giving them ClientBrand B equipment. We’ll
build a new, woodworking image with Lowe's and Sears. To
preserve the brand image, we remove the $99 ClientBrand A
products from Home Depot.
Methodology:
Strategy
Option
Models

26. COPYRIGHT 2015 QDI STRATEGIES, INC.
Get To Know Us
• Exploratory Meeting
- No-cost discussion of the issues you are facing and our perspective
• Customized research
- Have us design a study for you
• Strategy project
- Have us design a project to address your strategic issues
Contact Information
QDI Strategies, Inc.
1580 S. Milwaukee Avenue, Suite 620
Libertyville, IL 60606
847-566-2020
www.qdistrategies.com
Steve Bassill
President
sbassill@qdistrategies.com