Black and Decker
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Black and Decker
Problem Statement: In January of 1991, the senior management of Black & Decker – the worlds largest producer of power tools headquartered in Towson, Maryland, had to decide the most efficient way to grow B&Ds business in the Professional-Tradesmen Segment in which they only managed to capture 9% market share. Superior growth opportunities seemed to be emerging in this segment which was growing at 9% growth rate.
Power Tools Market: The Power Tools market in the U.S was a $1.5 billion market with three segments: Professional-Industrial Tools, Professional-Tradesmen Tools and Consumer Tools. In the Consumer Tools segment the targeted consumers were people who bought tools for their own home use. This segment represented the second largest segment in the power tools market with a growth rate of only 7%(exhibit 1). The largest of the three segments was the Professional-Industrial segment which targeted commercial contractors, however this segment has been showing no growth. Opportunity exists in the Professional-Tradesmen segment which has been growing at 9% growth rate. Therefore, B& D can increase its power tools business by taking advantage of this opportunity in the market. The threats of this segment comes from the competitors, especially Makita with its 50% market share.
Company: Black & Decker is a global marketer and manufacturer of quality power tools, hardware, and building products used in and around the home and for commercial applications. The objective of the company is to at least double its Professional-Tradesmen segment share from the existing 10% to 20% within three years by taking some shares away form its biggest competitor, Makita. Another objective of B&D is to increase its operating income from 10% to at least 12%.(exhibit 2)
Strengths: B&D has experienced modest growth in revenue in the past 10 years(Exhibit) and managed to create customer loyalty to its products( mainly in the Consumer Tools segment). The company has done a good job branding its name and creating brand equity and has a relatively strong market share in a variety of its core products. It also has good product quality.
Weaknesses: The company has raised its long-term debt. B&D also failed to create an appropriate marketing strategy to target its customers in the Professional-Tradesmen Tools segment and therefore was not able to achieve the desired brand perception by these customers.
Opportunities: The Professional-Tradesmen Tools segment has shown increasing growth with a 9% growth rate, which means that by developing an effective marketing plan by B&D to target the customers in this segment, the company could increase its market share.
Threats: Increasing competition. Also, Makita dominates the Professional-Tradesman Tools segment with its products and distribution types.
Competition: B&Ds biggest competitor is Makita, a Japanese company that has been dominating the professional power tools segment for tradesmen since it entered the industry with 50% market share(exhibit 32). Makitas advantage that allows it to be the leader in the industry is in the distribution of its products through the Membership Clubs. The second biggest competitor of B&D is Milwaukee, a U.S based company, with 10% market share. Both, Makita and Milwaukee priced their products at premiums over B&D. Other smaller competitors in this segment are Ryobi, Skil, Craftsman, Porter-Cable and Bosch.
Consumers: As mentioned before, the power tools industry has three types of customers: 1. customers who buy power tools for home use. They buy their tools at hardware stores and mass merchants like Wal-Mart; 2. commercial contractors who buy professional power tools to be used by its employees on big project sites; 3. tradesmen such as electricians, carpenters etc. who were expected to bring their own tools at work. They purchase their tools at home centers as well as hardware stores.
Recommendations: The three options that have been suggested are the following:
1. Harvest Professional-Tradesmen Channels: The advantages of this option would be that by concentrating only on the profitability of this segment B&D could focus more on the other two segments, where it has bigger market share. However, focusing only on profitability at the expense of market share would be a short-term solution, because in the long run with declining market share B&D would be forced to exit this segment of the industry.
2. Get behind Black&Decker with sub-branding: The advantage of this strategy is that B&D have used this strategy before resulting in a huge success(e.g Piranha blade). However, i dont think that by sub-branding the consumers in the tradesmen segment would be convinced that the product is better. It seems that they associate the B&D name with products designed for home use and they dont consider B&D a manufacturer of high quality professional tools. They also dont consider it to be “cool” to show up at work with a tool that has the B&D name on it. Also,