Case Study: Black & Decker
Academic Discipline: Business Administration
Course Name: Organizational Design and Analysis
Assignment Subject: Case Study: Black & Decker
Academic Level: Master’s
Referencing Style: APA
Word Count: 3,706
Executive Summary
Black and Decker (B&D) was founded by Alonso Decker and Duncan Black and gained their first patent for the first portable power drill in the world with a trigger switch and pistol grip. After 73 years, they were known as the world’s leading producer of power tools, accessories, electric garden and lawn tools, and residential security hardware. However, when Makita came on the scene in the 1990’s, B&D lost a large share of the tradesman market to them. The tradesman used the tools every day, and the Black & Decker line of tools didn’t hold up, as well as, the Makita tools and this lead to a bad reputation. Low sales figures in this market led the company to have to make a tough decision. They could decide to drop out of the tradesman sector, rebrand their tradesman tools in the hopes that they will be given a new chance and gain a large share of the market back, or decide to sell the line under a new name.
The power tool market in the US is around $1.5 billion and the industry includes tools from the electric screwdriver to miter saws (Dolan, 2001, p. 3). The use of the products is an indicator that creates the various segments and although the tradesman industry is the smaller than the consumer industry and the industrial industry, they are the most important. Losing sales or pulling out of the tradesman industry may lead to a decrease in sales in other market segments.
Black & Decker operates in an industry with some strong competitors. Their main competitor in the industrial market is Milwaukee Electric, Bosch, Porter Cable, and Makita. They are seen in this industry as having high-quality products and excellent service. Their main competitors in the consumer market are Skil, Wen, and Craftsman. They have high brand recognition and control nearly half of the overall industry. In the tradesman segment, Makita holds over half of the market share, where B&D holds around 9 % (Dolan, 2001, p. 4). Figure 2 showcases the market share for the tradesman industry by vendor. The tradesman primarily discuss the quality of their tools on the job site and their suggestion for tools is Makita.
B&D differentiated their product lines by colour, but there is no indication that this has worked to distinguish quality to the professional sector. Studies have determined that the new line that was designed for professional use is of the same quality as the other brands on the market. It was determined that the products were not inferior, which indicates that the perception of the brand and not the quality is likely harming sales. B&D has a strong rapport in other segments and hopes to transfer this level of commitment into the tradesman sector.
The best option is to sub-brand the line and differentiate it more completely by changing the colour to industrial yellow and giving the line a new name. The tools will be marketed to the tradesman segment directly. There will be promotions given and give-away events to get more tradesman using the brand, and to ultimately spread word of mouth. Videos will be created that show the on-site and laboratory testing that showcase the new line as being equal in quality to brands, like Makita. This will help the company bring back their support and better their overall brand recognition.
Table of Contents
Executive Summary
1. Introduction
2. Issue Statement
3. Situational Analysis
3.1. Market Analysis
3.2. External Market
3.3. Internal Market
4. Analysis, Alternatives, and Decision Criteria
References
Introduction
Alonso Decker and Duncan Black started a machine shop in 1910 and gained a patent in 1917 for the first portable power drill in the world with a trigger switch and pistol grip (Dolan, 2001, p. 1). Seventy-three years later, Black & Decker (B&D) is the largest producer in the world of power tools, accessories for power tools, residential security hardware, and electric garden and lawn tools (Dolan, 2001, p. 1). Their headquarters are in Towson, Maryland, and the sales in 1990 were $4.8 billion, with 60% of their product revenues coming from outside of the United States (Dolan, 2001, p. 2). Although, the company has come a long way since their first patent and machine shop in the 1910’s, the company faced some hardships as other companies, like Makita Electric of Japan that came into the market. In January of 1991, there were statements made about the company like “if I give Makita 10 feet of floor space and B&D 10 feet of floor space, Makita outsells you 8 to 1,” (Dolan, 2001, p. 1). This was especially true in the tradesman line of tools. B&D operates in three lines, tradesman, consumer, and industrial sectors. The main difference in segments is that the tradesman purchases the tools to use themselves on the jobsite everyday, and the consumer market uses the tools sparingly as needed. Additionally, the industrial market purchases are purchased by companies for the use by employees. This makes the tradesman sector of the business one of the most important segments. If the company can have solid sales in this market, from the professionals that use the tools every day and purchase the tools for their own use, they are more than likely to gain the larger market share in the industry. Since the last two research studies show only a 9% market share in the Tradesman sector, there are some issues in this market that need to be adjusted. This report aims to express this key issue in more detail and work to identify the options available to address it. It will also provide recommendations as to what is the best option for the company going forward, in relation to the tradesman sector of business. It will provide an analysis of the situation, the overall market, internal market, the external market, and identify an action and implementation plan going forward.
Issue Statement
Two research studies were conducted and it was found that tradesman didn’t depend on the Black & Decker brand tools. There were some negative opinions regarding the line and they felt that they lacked dependability, wouldn’t stand up to everyday use, and were designed for occasional household use. Because these tools were key to their business, they needed to be able to trust that they would last and be able to withstand everyday use. In the later part of 1990, Makita began to gain a large share of the tradesman market segment for power tools. They gained a share of around 80% in the cordless drill market and held around half of the overall power tool market (Dolan, 2001, p. 1). B&D’s cordless drill market was their largest tool market in the United States and Makita held a large share of the market. They held the largest share of the market before Makita went into business and began to pull their customers away from them. A negative stigma for Black & Decker products that failed to compare to the Makita line in the Tradesman industry began to eat away at their share of the market. When B&D realised that their products were not appealing to the tradesman market, they created a new line of tools that were more durable. They decided to make the tools gray to differentiate them in the stores. However, there wasn’t any indication that the colour differentiation identified with the tradesman and the higher quality and more durable line goods designed for the tradesman didn’t make an enormous impact in the industry.
B&D needs to regain a larger share of the tradesman market and strengthen the overall opinion of their brand. They need to renew the consumer’s faith in their products and express their quality in the commercial industries. There were three options to consider when it comes to dealing with this issue. The first option is to drop out of the tradesman market altogether. Since, the sales in the market segment account for only 9% of their total revenue, this may be a viable option. The company has had to invest in the creation of this upgraded line of tools that isn’t really making a dent in the market share. By dropping out of the tradesman industry, they would be able to allocate the funding to concentrate on the other segments. The second option is to utilize sub-branding to ensure the products are differentiated in the mind of the consumer and tradesman markets. This would create an entirely new line that is designed specifically for the tradesman. It would entail remarketing the gray tools that were created and making the distinction easier to distinguish. The third option is to sell the products under a different name. They could sell the tradesman line under a different name and begin to gain a larger share of the market.
If B&D decides to drop out of the industry, they would be losing 9% of their revenue, which would amount to around $432 million dollars a year. Additionally, it will continue the negative stigma surrounding the brand’s quality. The tradesman sector is a trusted business sector. Since the tradesman use the products daily, their opinion is important when it comes to the product’s dependability and durability. B&D will need to choose the best course of action to restore the tradesman’s faith in their brand and ensure that they do not continue to lose their hold in the market. The leading choice would be to sub-brand the industrial line of products and make them yellow. This is a colour that is known in the industry for strength and would stand out more alongside the black consumer line. The products would utilize a sub-brand name that distinguishes them as a new line specifically designed for the tradesman. The hope is that the company’s long-standing success and high market share will get more tradesman to use the product and this will work to rebuild the tradesman’s confidence in the brand. There is a lot of pushback regarding the option to sell the products under a different brand name altogether, because it would take more marketing, advertising, and promoting, to compete in the market, and they would not be repairing the company’s reputation. It is important to fully understand the situation and the market, before making this decision. The following analyses are designed to give more background information on the situation, the overall market, and the internal and external markets.
Situational Analysis
Several areas will be analysed to provide a better idea of where the company stands in the industry, and the industry itself. It will help to identify which of the options is the best one for B&D to take regarding the tradesman industry. The focus is to find the best option that will regain a larger share of the tradesman market and rebuild trust in the brand.
Market Analysis
The United States power tool market is around $1.5 billion dollars (Dolan, 2001, p. 3). These products range from electric screwdrivers in the consumer market and miter saws that are used on construction sites. The main difference in the two markets is how the tools are used. The consumer market contains users that may use the tools to fix things around the house and use them occasionally, instead of daily as their tools of the trade, like in the tradesman market. Tradesman utilize the tools consistently and their dependability, strength, and versatility is more important. Tradesman can’t afford to replace their tools every month because they are not strong enough to handle everyday use. They need tools that have been designed and tested to be used everyday. In 1990, the distribution of sales in the professional industry for industrial tools was around $550 million. Another $420 million was made from residential contractors for use in a work setting. Consumers purchased another $530 million for home use (Dolan, 2001, p. 3). Figure 1 shows the Sales Distribution in Millions for Industrial tools in 1990.
Users in the consumer sector make up a third of sales (Dolan, 2001, p. 3). These tools were purchased at retailers, such as K-Mart and Wal-Mart and utilized for household use (Dolan, 2001, p. 3). The other two-thirds were purchased for work on the job. Tradesman or residential contractors usually purchased their tools from stores, like Home Depot or Ace Hardware (Dolan, 2001, p. 3). Industrial tools were purchased for commercial contractors and sold at stores, such as, W.W. Grainger (Dolan, 2001, p. 3). They were purchased for the company, but utilized by individuals within the company and very rarely used by the purchaser themselves (Dolan, 2001, p. 3).
Tools purchased by tradesman needed to be durable and last longer because they were an integral part of their business. These include farmers, remodelers, roofers, carpenters, plumbers, and construction workers. Although this is the smallest segment of the three, it is one of the most important segments when it comes to building reputation in the industry and is one of the fastest growing sectors (Dolan, 2001, p. 4). This influential segment is an important one because even residential users want products that are going to last. The sales in other sectors are affected by the tradesman industry. Therefore, if B&D was to pull out of the tradesman market, it is likely to affect the sales in other markets. Consumers and company purchasers may see the failure in the tradesman industry as an indicator of the product’s quality.
External Market
Black & Decker operates in an industry with some strong competitors. Their main competitor in the industrial market is Milwaukee Electric, Bosch, Porter Cable, and Makita. They are seen in this industry as having high-quality products and excellent service. Their main competitors in the consumer market are Skil, Wen, and Craftsman. They have high brand recognition and control nearly half of the overall industry. In the tradesman segment, Makita holds over half of the market share, where B&D holds around 9% (Dolan, 2001, p. 4). Figure 2 showcases the market share for the tradesman industry by vendor.
Studies show that the typical tradesman invested nearly $3,000 in their tools of the trade and usually spent around $1,000 each year on replacement tools for their company (Dolan, 2001, p. 6). These studies also identified that their tools’ overall performance was a frequently discussed topic on job sites (Dolan, 2001, p. 6). Therefore, if the company was to introduce a brand that held up well in the tradesman sector, word of mouth would be a strong way for the company to build awareness for their brand. This can help them to decide how best to market the brand in the future. The consensus in this segment was that Makita products were the ideal products for power tools.
Makita
Makita joined the power tool industry and specialized in the professional tradesman market segment in 1978 (Dolan, 2001, p. 5). In 1990, their revenues were around $35 million in this segment, in comparison to around $3 million in sales by B&D (Dolan, 2001, p. 5). Gary DiCamillo, the president of the power tools segment for the US, realised that the company’s gross margins of nearly 35% (Dolan, 2001, p. 5). After DiCamillo spoke with a guy outside of a local Home Depot, he found that the woodworker preferred Skil saws or the Makita brand, and suggested that he stay away from the B&D brand. This offered an idea of how the tradesman felt about the B&D brand in comparison to the competitors.
Makita held a strong position in the tradesman sector and was trusted. The brand was known to offer quality products that could withstand use daily. However, they were almost completely unknown in the consumer industry. Their products were sold through several channels and did not have protectivity as to where they sold their products.
Internal Market
When B&D realized that their overall perception of their tools in the tradesman industry had gone down, they created a line of products that were more durable and designed them in a different colour to differentiate them in the market. They understood that the tradesman would identify the difference in the colour of the products when making a buying decision, because many other vendors utilized this technique to indicate differences in the tool’s grade. B&D conducted two studies to ensure that the quality of the new line was not what was keeping them unsuccessful in the tradesman market (Dolan, 2001, p. 6). These studies consisted of both on-site testing and laboratory testing and they indicated that the quality of their new line of tradesman brand tools was concurrent with the other brands (Dolan, 2001, p. 6). The new line was not inferior to the other products on the market (Dolan, 2001, p. 6). This showed that it was not the quality of the products that was the issue and this indicates that it is the perception of the product’s quality that is likely the main issue. The research showed that the brand was highly competitive in the market (Dolan, 2001, p. 6).
B&D has a strong following in the consumer market and the industrial market (Dolan, 2001, p. 7). They have a strong reputation and are one of the most trusted brands in the consumer market (Dolan, 2001, p. 7). However, there isn’t a large indication of the difference between the consumer grade products and the tradesman or professional grade products, besides the price, the slight colour difference, and where these products are sold. Since, the colour is the only difference that did not exist before the new line was developed, this is not a strong enough indicator to tell the professionals that the product line has been upgraded and designed to withstand everyday use. It will be essential for B&D to translate to the tradesman that the new line of products has been tested to withstand everyday use and are comparable to other brands in the industry, such as Makita. They need to regain their reputation and take back a larger share of the market.
Analysis, Alternatives, and Decision Criteria
The company has three options when it comes to dealing with their current issue in the tradesman segment of the market. The first option is to concentrate on the other segments and improve these segments and not worry about the tradesman segment. This may also include dropping out of the industry altogether. The second option to resolve the issue is to use sub-branding for the professional tradesman industry, that will differentiate the higher-quality tools from the others in the market. This may mean that they change the colour of the products and/or create a special brand name for them. The third option would be to sell the products under a different name altogether that is not associated with the B&D line. This will not help the image of the brand, but will not work to improve on the perceived quality of the brand. It will not improve on the company’s position in the industry. Additionally, the new brand will likely not transfer well to the tradesman industry quickly, because the tradesman wants to ensure they are purchasing quality tools. The industry does not react well to new companies and entry into the industry is hard. This is a barrier that the company would face with a new name brand product line.
B&D may decide to put their concentration on other segments of the industry. However, this will not satisfy the overall goal of gaining a larger share of the market. They have capitalized in the other markets and the only segment where they can make a difference is in the tradesman segment. By concentrating on the other segment or dropping out of this segment, they would not be improving their market share, but doing the opposite. They would lose a share of the market and their action could affect the overall perception of quality. Gains in the market in the other industry segments would likely be minimal. They hold a significant share in the other markets. If B&D is able to capitalize on the tradesman segment and build their brand’s perception of quality, this could likely translate to more sales in the other segments as well.
The ideal option will be to sub-brand the line with a new colour scheme and brand name that is specifically marketed for the tradesman. The industrial colour is yellow, so this will be the likely choice for colours. It will also stand out. There will be heavy marketing that will show the durability and strength of the new line that is specifically designed for the tradesman. The brand will only be sold at stores like Home Depot and not in retail facilities, such as, Wal-Mart. This will differentiate the brand more completely from the commercial grade line. This will help to build the brand recognition for quality. The direct branding for the tradesman will help to show that the line is different from the consumer brand. Additionally, the other segments may buy into the brand because they want tools that are more durable and built to last. This can gain a larger share of the market as well. The idea will change the way that the product is perceived in the industry. Figure 3 shows the current perception regarding B&D tools, in comparison to the Milwaukee brand tools and Makita brand tools.
The study showed that consumers believe that Milwaukee and Makita brand tools are more rugged, durable, and high-quality than their B&D tools. There is also a higher percentage of participants that are proud of their Milwaukee and Makita tools, than those that are proud of their B&D tools. By increasing the perceptions around durability and quality, the pride factor will likely increase and this can lead to more sales in the industry. The plan to market the line directly to the tradesman market is one that will prove to be successful and will aim to increase the company’s share of the tradesman market.
References:
Dolan, R.J. (2001). The Black & Decker Corporation (A): Power Tools Division. Harvard Business School. Case 9-595-57.