Black and Decker Case Analysis PDF

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Black and Decker Case Analysis...

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Black and Decker Case Analysis MGM B01

Company Background and Current Position

Starting as a simple machine shop created by Duncan Black and Alonzo Decker in 1910, and having received the world’s first portable power drill patent in 1917, Black & Decker became in 1990 the world’s largest producer of power tools (and accessories), electric lawns and garden tool and residential security hardware. Its big focus and investment in research and development allowed the company to come across great success. In the year of 1990, Black & Decker made $4.8 billion in sales and was ranked amongst the top 10 companies of the United States and top 20 in Europe. In that year, the power tools and accessories represented 29% of the sales of the company, the household products 15%, information systems and services 11%, and outdoor products and security hardware 9% each. The power tool business can be separated into 3 categories: The Consumer segment, the Tradesmen and the Industrial (the last two being the professional use tools). Even though the company has introduced the notion of portable power tools in the U.S. in the 1900s, and it has nurtured itself in keeping its #1 position in the market share for both the Consumer and the Profession-Industrial sectors; it has struggled in the Professional-Tradesmen segment as it holds only 9% of the market share. On the contrary, Makita Electric of Japan holds 50% of that overall market share and 80% share of cordless drills, which is this industry’s biggest seller in 1990. Joseph Galli, VP of sales and marketing for power tools at Black & Decker, is now faced with having to make a decision in order to not let B&D sink and to properly face Makita. We are faced here with the issue of branding, communicating and positioning. Should the company let go of the idea of competing with Makita in the Tradesmen segment? Should it make use of its name power by sub-branding in the Tradesmen segment? Or should it let go of the name of Black & Decker and somehow rebrand itself? SWOT Analysis Strengths Not only is being the “pioneer” of the “from the garage to the house” / “into the house” concept make B&D stand out greatly from other brands, but Black & Decker’s strength relies in its position of having amongst the most powerful brand names, as well as being renown for holding the highest quality in this industry. While dominating in the U.S, B&D also receives almost 50% of its product revenues from countries other than the U.S. The company also is the leader producer in the Consumer and Professional-Industrial segments. Moreover, the B&D franchise handling household products (including the Dustbuster and the Spacemaker) made it so the company held over 50% of the market share in the United States when it comes to cordless vacuums, irons and toaster ovens. Furthermore, from 1984 to 1987, with the purchase of the General Electric’s Houseware Division, B&D could use the name of the brand on its products, which helped it gain awareness. Weaknesses While the net revenue of the company had increased by $1.2 billion in sales in the beginning of the 1980s, that success didn’t hold throughout the decade. The revenue rates quickly stagnated and in 1985, the net revenues of the company were of $1.7 billion. During the years between 1981 and 1985, the company encountered great monetary losses. Even after having rebranded itself and gained positivity again, the cost of all that put the company in debt for $4.2 billion which totaled in 84% of the company’s capital.

Regardless of the strength that the company holds as a consumer brand, that does not mean that this strength is followed in the Professional-Tradesmen segment. Moreover, the power held by the Consumer and Professional-Industrial segments was not mirrored by the ProfessionalTradesmen segment. This poses a big problem to the company. The Professional-Tradesmen segment is the fastest growing one with a rate of 3% higher than both others. This segment of the industry only made $35 million and $3 million in the operating income of the company in 1990. Lastly, the brand is more and more perceived as a “at home” producer rather than a “on the job” producer. Opportunities The three main products found within the Professional-Tradesmen segment, making up to 80% of the market, are drills, saws and sanders. Black and Decker being the first company to ever receive a patent for portable power drills and constantly finding ways to innovate is certainly a great area of opportunity for the company. Moreover, having B&D invest so much in its research and development, as well as having such a big reputation for great quality is definitely an advantage for the future of the company. Furthermore, having the company have over 50% of its sales be external to the United States, only means a larger geographical area where the brand can grow Threats Black and Decker’s main threats rely in their competitors’ strength, and more importantly in Makita Electric of Japan’s strength, In 1990, Makita holds 50% of the Professional-Tradesmen segment, while Black and Decker, after Milwaukee, only holds 9%. Moreover, Black and Decker started losing its positive cognition. While a lot held brand awareness, not as many would qualify B&D as “one of the best”. The bad branding and position of the products were a big part in these threats STP Segmentation and Targeting There are three different categories to the power tool industry. First, the Consumer segment which is the “at home” part of the power tool industry. This segment makes up to 35% of the market at $530 million. Products from this segment can be found in mass merchant stores such as Walmart, Kmart and hardware stores for normal at home use. The targeted audience for this segment is the common day to day users who are not necessarily looking for professional tools but more for tools to keep in handy. The professional sector of the industry was divided between Industrial use and Tradesmen use. The Professional-Industrial segment makes up $550 million. This sector of the market is consecrated for commercial contractors (working on large projects such as office building or bridge building) and company assembly lines. The main provider for this segment is W.W Grainger which offers the adequate technological requirements and expertise needed. Here, the audience targeted is bigger corporations and firms who are in need of tools to provide to their employees while they are working on a project. And lastly, the Professional-Tradesmen segment. This segment is normally targeted towards residential contractors who are in need of using their own tool on their on-site jobs, such as electricians, plumbers, carpenters, framers… These products are found within stores such as Home Depot or Ace Hardware. While this sector of the industry didn’t make up to that big in the

market with 28% of the market share, it was growing at a fast rate of 9%. Moreover, while the buyer here gives importance to the quality of the product, they also give importance to the brand image. Positioning As one of Black & Decker’s weaknesses relies in the mispositioning of its products, it is an important issue to address. Because of this, it has been common for customers looking for product in the Professional-Tradesmen segment and for them to be recommended with Consumer products, which makes the customer feel like B&D’s products are not adequate for use and fail for on job sites. The products being wrongly distributed within stores, unlike Makita per example, also holds a great issue.

Decision Making Option 1 In this option, the company would simply let go of the idea of reinforcing the ProfessionalTradesmen Segment and continue on relying on the power that the Consumer segment and the Professional-Industrial segment hold. However, as the Professional-Tradesmen is growing in an exponential way, this would not be a sustainable solution for the company. The company is already losing enough reputation as it is and should not let go of the Professional-Tradesmen sector as it is an important growth opportunity. Option 3 This option would aim to give a completely new image to the Black & Decker, almost trying to make the customer forget that both brands are related. However, many problems pose with that option. While the strength of that option relies in having a fresh start, the weakness of that option is the same. B&D would lose its brand name awareness and would have to build it back from the start. While the quality of the products will be maintained the same, the customers won’t necessarily be aware of that and that new image that B&D will hold will have to work towards building its customers’ trust again. Moreover, this is the most costly option, with the least assurance for success out of the 3, hence not making it a viable option either. Option 2 Here, the option would be to rebrand Black & Decker in order to give it a new and fresh look. Rebuilding B&D’s name had already been somewhat attempted without success. However, a sub-branding strategy would be a new way to attack this issue and could provide new insight to the company. This idea could be developed more and more, and a great marketing and advertisement budget could go into it. That budget would go towards the maintenance of the research and development of products, developing innovating technologies, giving the products a fresh, new and more appealing look, as well branding it correctly in order to appeal to the customer’s eyes. This would allow new products to maintain the brand awareness that Black & Decker already has, as well as the quality standard the brand has, all while giving it a new set of eyes. Hence, if managed and directed well, this option could lead the company to great success and allow it to rebrand itself, improve its aspects that weren’t working as well, all while maintaining and continuing to improve on its positive aspects....