SDM Case Analysis Stihl Incorporated

Thursday, February 23, 2012

Case Analysis: Stihl Incorporated

Group 5

ROHIT NATH | GAURAV PATANGE | MANGESH PATIL MAHTAAB KAJLA | SACHIN KUMAR

Product line Primary focus in outdoor power equipment and handheld outdoor tools

Included both lightweight, simplified consumer versions as well as heavier, powerful versions for logging companies, landscapers etc.

Image in the market Manufacturer of High quality, innovative products

Superior customer service through highly trained maintenance technicians, sales staff, support services and committed management

Technology and experience Uses the latest technology including laser guided measurement, metal

cutting and quality control

More than 50 years of manufacturing experience

Culture Cooperative and desirable working for both employees and distributors

Sales & Distribution Management Term V

Situation Analysis- 5C’s Framework

Company

Distributors Two-step distribution channel- 1st step was the large wholesale

distributors and 2nd step was the independent retail dealers

12 geographically separate wholesale distributors. 6 of them centrally owned by Stihl

8000 independent retailers of which 55% represented Stihl exclusively

Number of exclusive Stihl retailers were increasing gradually due to added benefits provided by the company

Extremely healthy relationship with the distributors



Collaborators

Two major buyer categories Commercial enterprises e.g. Landscapers, institutional groundskeepers,

loggers, farmers and construction companies

Consumers e.g. homeowners

Three main consumer segments The Baby Boomers- 78 million in size, born in 1946-1964, spent highly in

early years but are about to spend less and aging

Generation X- 55 million in size, born in 1965-1984, presently in their peak tool buying years and hence primary marketing targets

Generation Y- almost 79 million in size, born in 1985-2003, gradually entering the home buying phase, spend almost 5 times as much as baby boomers had in comparable ages

Historically bought mainly by males. However, in recent times women’s influence over purchasing decision as well as use of the product is increasingly rapidly



Customers

Biggest rivals are Echo and Husqvarna Echo was one of the most progressive innovators in outdoor power equipment Echo had a solid dealer network in USA and Husqvarna was the world’s largest manufacturers of outdoor handhelds overall.

Produced products adapted to all manner of use in commercial as well as consumer business

In USA, Husqvarna sold its entire line through huge network of authorized dealers and selected products through Lowe’s, Amazon and Sear’s Craftsmen private label

Other rivals include Black & Decker, Briggs & Stratton, Club Cadet, Homelite, Honda, Makita, McCulloch, Poulan, Remington, Ryobi, Toro, Troy-Bilt, Weed Eater and Weed Whacker

Black & Decker produced only electrics whereas Remington specialized in light weight battery powered equipment

Briggs and Stratton made small engines for lawn mowers and other equipment. Adopted a multi-channel approach and were keen to sell to home centers

Honda was a minor contributor to handheld outdoor power equipment but are not to be taken for granted because of their technical prowess

Techtronic owned brands like Homelite, AEG, Dirt Devil, Hoover, Ryobi etc. Homelite supplied to home depot since mid- 1990’s. It had its manufacturing plant in China and had competence in making superior fast line changeovers



Competitors

Economy is in recession

Demography is changing rapidly with gradually decreasing Generation X who are primary marketing targets

The upcoming Generation Y with their unique demands and spending habits are forcing companies to adopt new distribution channels eg. Internet delivery

Consistently increase in demand among female consumers

Competitors are gradually shifting to a multi-channel strategy to reach out to more customers



Climate


Problem Identification

Should Stihl Inc. continue with the existing channel strategy or redesign it to stay relevant and appeal to tomorrow's consumers


Channel SWOT Analysis H

ard

war

e S

tore

s

Strengths Weakness

• Convenient Location • Broad range of product for a mid

size store • Customer Service

• Inability to provide after sales service

• Less space, less inventory – high chances of stock-outs

Opportunities Threats

• Channel Substitutes – e.g. Mass Merchants, Home Centres

• Greater bargaining power for procurement function due to cooperatives

• Providing High profitability to store owners; hence better bargaining power


Channel SWOT Analysis H

om

e Im

pro

vem

en

t C

en

ters

Strengths Weakness

• Wide and deep range of products • One stop shop experience • Supply chain efficiencies • Centralized Information • Low prices • Rationalized category management

• Frustrating shopping experience due to oversize understaffed stores

• Poor staff assistance • Nonexistence of after sales

technical support


• Over focus on price cutting leading to substandard products

• Easily affected by recession

• Channel appealing to Gen Y (Exhibit 8) • Recession led financial distress of

distributor can give manufacturer better bargaining power


Channel SWOT Analysis M

ass

Me

rch

ant

Strengths Weakness

• Thousands of stores, huge retail space, broad range of SKUs

• EDLP Sears • Vast experience in maintenance &

replacement parts


Wal-Mart • Undercutting sales margin • Brand erosion due to price

competition with low quality products

Sears • 1st preference to Craftsman

• Channel appealing to Gen Y (Exhibit 8) • Better opportunity to stabilize sales

as distributor is less prone to be affected by recession as it stocked general merchandise as well

Wal-Mart • Poor staff assistance • Nonexistence of after sales

technical support


Channel SWOT Analysis In

de

pe

nd

en

t Sp

eci

alty

De

ale

rs

Strengths Weakness

• Focus on specific & customized product (exhibit 1)

• Focus on quality & brands • High technical know how • Easy to monitor quality & other

parameters


• Threat from mass merchants& other big retailers

• Change in consumer shopping patterns

• Opportunity to consolidate to compete with big stores

• Forward integration

• Declining bargaining power • Less appeal to Gen Y (Exhibit 8)


Channel SWOT Analysis O

nlin

e R

etai

lers

Strengths Weakness

• No need visit physical store • Peer feedback


Increase in online shopping might make existing store network redundant

• Channel appealing to Gen Y (Exhibit 8)

• Unreliable source of information from less qualified peers

• Redundant search patterns on websites

• Low contact service


Effectiveness of Existing Channel Strategy

Exclusivity of brand

High customer service satisfaction

Easy control on product quality

High on relationship variables thus giving high performance (exhibit 2 & 3)

Changing customer shopping habits

Threat of backward integration by home centers

Inability of dedicated 8000 retailers to computerize

Declining purchasing power of new potential consumers

Be

nef

its

Pitfalls

Conclusion: Existing channel strategy seems to be inefficient for the future and Stihl can face serious challenge in next 3 to 5 years as Gen Y starts playing greater role

Proliferation of customer needs

Gen X (age group 35-54) customers are getting more inclined towards DIY (exhibit 8a)

Gen Y (age group 18-34) customers are undertaking more DIY projects than average population (exhibit 8b)

Gen Y enjoy all projects and more willing to take professional help than Gen X (exhibit 8c, 8e, 8g)

Shift in balance of channel power

Gen X prefer to purchase from departmental stores or hardware stores which are service focused while Gen Y prefer large home investment stores and mass merchandise (exhibit 8f)

Gen Y more rely on peer feedback and unbiased online information than Gen X who prefer staff help (exhibit 8d)

Many big stores owned their private brands and try to undercut others maintaining credible threat of backward integration

Changing strategic priorities

Forward integration and consolidation of 8000 dedicated independent stores is of mutual benefit to survive the demographic changes


Forces of Change

Maintain status quo for Gen X At peak purchasing period and current marketing strategies

with Gen X are working quite effectively

Position can be strengthened further through promotional activities


Go-To-Market Strategy for Gen X and Gen Y

Hybrid channel structure of Gen Y Detail information about products, exclusive dealers on

company website, social media websites Online promotion through user blogs and search engines Forward integration of some of the exclusive dealers to gain

size to compete with big players and at the same time maintaining exclusive brand image

Negotiate and establish long term strategic linkage with new management of financially distressed Home Depot, Lowe’s modify “why not” ad campaign suitably (exhibit 5)


Multi-channel Strategy

STIHL

Remaining of 8000 Dealers

Online Retailers Home Improvement

Centres

Consolidate Affiliated Distributor

Full-service/customized specialty products Mostly attractive to Gen X (Cash cow market)

Low cost/wide range of standard products Mostly attractive to Gen Y (future star market)


Questions?

Thank You

Documents

SDM Case Analysis Stihl Incorporated