Thursday, February 23, 2012

Case Analysis:
Stihl Incorporated Group 5
ROHIT NATH | GAURAV PATANGE | MANGESH PATIL MAHTAAB KAJLA | SACHIN KUMAR

Situation Analysis- 5Cs Framework

Company

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- 5Cs Framework

Collaborators

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

Sales & Distribution Management

Term V

Situation Analysis- 5Cs Framework

Customers

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 womens influence over purchasing decision as well as use of the product is increasingly rapidly
Sales & Distribution Management Term V

Situation Analysis- 5Cs Framework

Competitors
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 worlds 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 Lowes, Amazon and Sears 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- 1990s. It had its manufacturing plant in China and had competence in making superior fast line changeovers
Sales & Distribution Management Term V

Situation Analysis- 5Cs Framework

Climate 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

Sales & Distribution Management

Term V

Problem Identification

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

Sales & Distribution Management

Term V

Channel SWOT Analysis

Strengths Convenient Location Broad range of product for a mid size store Customer Service Weakness Inability to provide after sales service Less space, less inventory high chances of stock-outs

Hardware Stores

Opportunities Greater bargaining power for procurement function due to cooperatives Providing High profitability to store owners; hence better bargaining power

Threats Channel Substitutes e.g. Mass Merchants, Home Centres

Sales & Distribution Management

Term V

Channel SWOT Analysis

Strengths Wide and deep range of products One stop shop experience Supply chain efficiencies Centralized Information Low prices Rationalized category management Weakness Frustrating shopping experience due to oversize understaffed stores Poor staff assistance Nonexistence of after sales technical support

Home Improvement Centers

Opportunities Channel appealing to Gen Y (Exhibit 8) Recession led financial distress of distributor can give manufacturer better bargaining power

Threats Over focus on price cutting leading to substandard products Easily affected by recession

Sales & Distribution Management

Term V

Channel SWOT Analysis

Strengths Thousands of stores, huge retail space, broad range of SKUs EDLP Sears Vast experience in maintenance & replacement parts Weakness Wal-Mart Poor staff assistance Nonexistence of after sales technical support

Mass Merchant

Opportunities 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

Threats Wal-Mart Undercutting sales margin Brand erosion due to price competition with low quality products Sears 1st preference to Craftsman

Sales & Distribution Management

Term V

Channel SWOT Analysis

Strengths Focus on specific & customized product (exhibit 1) Focus on quality & brands High technical know how Easy to monitor quality & other parameters Weakness Declining bargaining power Less appeal to Gen Y (Exhibit 8)

Independent Specialty Dealers

Opportunities Opportunity to consolidate to compete with big stores Forward integration

Threats Threat from mass merchants& other big retailers Change in consumer shopping patterns

Sales & Distribution Management

Term V

Channel SWOT Analysis

Strengths No need visit physical store Peer feedback Weakness Unreliable source of information from less qualified peers Redundant search patterns on websites Low contact service

Online Retailers

Opportunities Channel appealing to Gen Y (Exhibit 8)

Threats Increase in online shopping might make existing store network redundant

Sales & Distribution Management

Term V

Effectiveness of Existing Channel Strategy

Benefits

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

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
Sales & Distribution Management Term V

Pitfalls

Forces of Change
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
Sales & Distribution Management Term V

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

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

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, Lowes modify why not ad campaign suitably (exhibit 5)
Sales & Distribution Management Term V

Multi-channel Strategy

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

Consolidate Affiliated Distributor

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

Remaining of 8000 Dealers

Online Retailers

Home Improvement Centres

Sales & Distribution Management

Term V

Questions?

Thank You

Sales & Distribution Management

Term V