Black & Decker Corporation Abstract: Presents Black & Decker's performance in the 1990's against a Japanese competitor and others in the power tools market Black & Decker is anxious to regain its market share leadership in particular segments of the market Issues the case deals with: 1: 2: Risk a. In 'failure' Strategy choices a. Do nothing (this is a choice) or 'ght' and win c: Vacate / leave the market / segment Segmentation of the tool market: Consumer 7 Home use 0 $530 mmtotal market in 1990 0 Growth rate 7 7% / y; o Purchased through Wal-Mart, Kmart, local hard ware stores Tradesman 7 Residential contractors Purchased their own tools Makita had 50% share aer 10 years in the market $420 mmtotal market in 1990 Growth rate 7 9% / a Purchased through Home Depot, Ace M Industrial 7 Commercial contractors Tools purchased by professional buyer for the company $550 mmtotal market in 1990 Growth rate 7 0% / y; Purchased through WW Grainger, et al (focused distribution) 00000 0000 Competition: With only 10 years in the market and Maldta MA of the Tradesman segment Blaek & Decker is facing a decision to give up a market (Tradesman) due to lack of market share or to 'ght'; therefore, a project opportunityll Decision: 1: Create Project team 2 Give the project a name 7 'Operation Sudden Impact' 1 'ght' 7 create new products to compete in the market and regain market share lost in the Tradesman segment 4r Not to focus on 'take what you can get' or harvesting 5 Focus on growth Issues for a project team: 1' Senior management support 2 Resources 7 people; design capabilities; research 7 marketing and technical 3r Commitmentto creating a new product line 4' Understanding of the competitive 'arena' 7 current and future Tools deployed by the project team: 1: Quality Function Deployment (QFD) method to understand customer needs 2' Competitor Analysis methodology 3. Strategic choice decision process 4' Project Management Methods Goals of Black and Decker: (thus, the project team) - create a serious market share challenge to Makita by 1996 and achieving the following near-term performance: (in the segment) 0 Revenues 'om $35mmto $90 mm in 2 years 0 Share from8%to20%in2years 0 Operating income om negative to +12% in 2 years Risks: 1: Failure 7 lose the segment altogether a. Closure of plants hr layoffs ct Careers destroyed 2r Expend limited resources and have very little impact on the market 2 3. Createanewoffering7withanwname7dotheyunderstandthecustomerneeds properly and do they then translate them (the needs) into an appropriate and successful offering? Methods: 1. 2. 3. Understand the competition/ market (research) Understand the needs of the customer in the segment (research) Aer the research to analyze the material and to create a differentiated and competitive product(s) / offering a 0n price and technology b. 0n service Research and Analysis: (results) _. ResultedinmgwforBdiD andMakita Resulted in using a new methodology of 'behavioral' segmentation of the mist-timers needs 7 this was a newer 7 more 'nuanced' version than previously done in the eld (by any company) Competitive Analysis 7 assisted in developing SWOT for Makita and assisted in determining the 'offer' The strategic choice methodology utilized was from Treacy and W 1995 7 be operational excellent (low cost) or a pmduct leader or the best total solution 7 B & D chose the best total solution Black 5; Decker Strengths Black & Decker Weaknesses Created the portable power tool business 9% market share in the new professional tradesmen segment #1 market share inthe consumer and professional 7 industrial segments No dening color brand for tools in the Tradesmen segment (used Charcoal Grey 7 same as Industrial segment) World's largest producer of power tools, power SG&A costs in tradesmen segment at 25% tool accessories B&D's name enjoyed substantial equity in the No strong support from warehouse channel US and E which is the fastest owin channel Brand strength ranking # 7 inthe US and # 19 in Perceived poor quality due to the Eumpe tradesmen segment using consumer tools for industrial amalications B&D branded power tools had an overall market Perception that all B&D tools were made share of 30% inthe US. for at home use and not for professionals "Inuencers" in the industrial segment viewed Perception that the quality ofthe tools in MD as offering high quality, differentiated the tradesmen segment were less than products and excellent service average #1 in the consumer market with nearly 50% 44% of tradespeople stated that B&D share brand were 'one of the best' (Makita was 67%) Gross margins in tradesmen segment at 35% Tools highly regarded in the industrial segment B&D's product quality was in a leadership position in 8 of 14 categories and in a competitive position in 4 of 14 categories 98% brand awareness among tradespeople _(target segment) Black 8; Decker Opportunities Growing market - $1.5 billion market in 1990 Black & Decker Threats The channel that supplier the Tradesmen segment wanted advertising allowances and rebate money Research study 7 B&D's professional tools to be the highest quality in the industry The prot in this segment was near 0 B&D had acquired Kwikset locks and Price Pster faucets 50% of product revenues ti'om outside of the US B&D acquired GE's housewares division Long term dept was at $4.2 billion, or about 84% of total capital in 1989 Makita is not supported by its retail Channel for industrial customers (such as channel partners Grainger) species a competitive product Makita receives a higher margin that B&D Fastest growing segment is the tradesmen segment at 9% per year Makita offers no channel protection 4 Makita utilized discount oriented Membership clubs as a channel Color of the product is regarded as a significant product differentiator Makita Strengths Makita Weaknesses 80% share in cordless drills (the largest product Poor relationship with its main category within the Tradesmen segment) channel partners - regarded as "arrogant and dictatorial' 50% overall segment share in the tradesmen Used Membership Clubs as a channel segment Tradesmen segment was growing at 9% per year No channel protection for its current channel partners Focused on the Tradesmen segment to be # 1 in all products in that segment Focused on growing with the big box home improvement chain stores who are the fastest growing channel in the tradesmen segment Makita perceived to be of the highest quality in the tradesmen segment Received a higher market than most of its' competitors for its' products (5% over B&D) 67% of tradespeople in a survey stated that Makita was 'one of the best' (B&D was 44%) Makita Opportunities Makita Threat Growth in the US in the Tradesmen segment was at Very high market share 9% per year and Makita's market share was 50% 5The behavioral research results after review with the customer: (QFD method) Pritorize & Customer's Create a Needs Define the solution opportunity Power to run all day Became a design issue Quick recharging Became a design issue Shape of handle - Ergonomic design Distinctive to peers Color Yellow was chosen Started with tools in the High quality 'leadership' position & demanded high quality Ease of use Shape of handles was created Utilized European First impression design team Decided to focus on Home center channel this channel Mass Merchant channel Decided to not sell to this channel Only started with tools Torque to do the job in which they measured themselves as the leader Separate desk at all Service to get tools back B&D service centers in service quickly with guaranteed service Best guarantee in the Low cost to service business Accessories Started with over 300 Channel strategy was Availability of critical as was Accessories inventory levelsCompetitor Analysis Framework: rategy: ow is the Inn competing? hiectives: hat are competitor's current oals? 5 performance meeting these ovals? ow are its' goals likely to change? to the design of the product - this became the basis for design and innovation all tied to the customer's needs and desires! 8. Ye110w was the best color choice 'The Plan' (after research and analysis): The plan included the following: (as a result of the project) 1991 7B&D down to 8% share in Tradesmen segment7 negative operating prot Chose DeWalt name for Brand name of new product line Manu 33 power tool items and 323 accessories for the launch (to expand) Made inventory for 5 months 7 inventory investment of $20mm Decided to sell into retail channels such as Home centers Decided to retain the branding (color) of its other 2 segments $3.5mm l" \"promotional budget Created 75 person team to sell DeWalt exclusively redictians: What strategy changes will he competitor initiate? How will the competitor s nd to our strata ici atives? sum ptians: hat assumptions does the ompetitor hold about the industry nd itself? esources and capabilities: hat are the competitor's key tren hs and weaknesses? Create a 'wolfpack' van eet to market DeWalt products exclusively (this was 'new to the world') Only association with B&D was to be the service facilities 7 B&D would service DeWalt products Grant, R. (2002) Contemporary Strategy Analysis. Fourth Edition. Malden: Blackwell Publishing: Pg. 115. The research determined the following: Note the detail level of the plan and the process. In short B&D utilized a simple Project Management approach 1. Identify and Assess the opportunities; 2. select alternative; 3. devdop alternative; 4. execute; 5. Operate and evaluate Project Management Process Flow Chart: 1. B & D had an excellent reputation with the DeWalt product line of professional tools 2. B & D had a lot of products in the leadership or competitive category 3. Makita had a weakness in servicing the products 4. B & D did not sell to the membership clubs or the big box tool warehouses 5. Determined that Makita would be complacent as a competitor 7 and not react! 6. B & D bad design expertise intheir European facility7 {unknown to the project team) - they won an award for design of the Portable Drill in Europe; used their European expertise (and a European design center) to design the new tool line for a smaller size, lighter, and ergonomically more comfortable; the new line was better for the professional to utilize all daylighter and more comfortable without giving up power! 7. B & D utilized a Japanese technique called QFD Quality Function Deployment a competitive analysis that yielded a customer focused matrix of product attributes that aided in the development process - they ranked the customer priorities related 9 10 Black & Decker Project Management Phases: Identify & Select Develop Execute Operate & Assess Alternatives Alternatives Evaluate Opportunities Identify all opportunities Develop Assess for sales, Execute Select best Record profitability marketing per the opportunity results fit, etc. & operating plan plan Evaluate results Adapt and adjust the plan 11The results: From 1991 to 1994 share grew from 8% to 40% The tradesmen market grew from $420m in 1990 to $630m in 1994 Makita's market share went from 50% in 1991 to 30% in 1994 in this segment Sales grew from $25mm in 1990 to $275+mm in 1994 in this segment DeWalt continued to expand their line from 33 to 70 items DeWalt had the best service in the segment for their products The dedicated sales force of DeWalt increased by 10% Makita stated that it would \"continue to trudge down our happy trail\" Makita created a brochure \"disparaging the DeWalt line as 'Yellow Decker'\" Makita continued \"its pursuit of the lower price point channels, such as mass merchants\" The VP of Sales was promoted in 1993 to become the President of Power Tools, North American (B&D) The B & D case was a very successful project that solved a major problem for an organization