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



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

Situation Analysis- 5C’s Framework



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

 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

Situation Analysis- 5C’s Framework

 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

Situation Analysis- 5C’s Framework

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

Ha rdw ar e St or es 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

• 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

Opportunities Threats

• 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

Sales & Distribution Management Term V

Channel SWOT Analysis

Mas s Mer ch an t Strengths Weakness

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

Sears

• Vast experience in maintenance & replacement parts

Opportunities Threats 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

• Focus on specific & customized product (exhibit 1)

• Focus on quality & brands • High technical know how

• Easy to monitor quality & other parameters

Opportunities Threats

• 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)

Sales & Distribution Management Term V

Channel SWOT Analysis

On line R et ailer s Strengths Weakness

• No need visit physical store • Peer feedback

Opportunities Threats

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

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 ne fit s P itf al ls 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

Sales & Distribution Management Term V

 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)

Sales & Distribution Management Term V

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?