Thursday, February 23, 2012

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

Situation Analysis- 5C’s 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- 5C’s 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

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Situation Analysis- 5C’s 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 women’s influence over purchasing decision as well as use of the product is increasingly rapidly
Sales & Distribution Management Term V

Situation Analysis- 5C’s 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 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
Sales & Distribution Management Term V

Situation Analysis- 5C’s 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

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Problem Identification

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

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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

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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

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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

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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

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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

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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, Lowe’s 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

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Questions?

Thank You

Sales & Distribution Management

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