Black & Decker

Background

Black and Decker (B&D) is a pioneer in portable power tools. In 1991, it is a $5 billion in sales company with 29% of these sales coming from Power Tools and Accessories. B&D is the world's larges producer of power tools and the U.S. market overall leader.

Problem Statement

B&D has a strong market share in the consumer and industrial markets, but is weak in the P-T market as it is currently experiencing decreased market share. In this segment, B&D is not generating profits and, at the same time, retailers want more advertising allowances and rebates.

Analysis

The U.S. power tools market is divided into three segments: Consumer (home use buyers), Professional-Tradesmen (P-T) (contractors who purchase their own tools), and Industrial (procuring professional buying in large quantities for industrial usage). The P-T segment is the one experiencing the largest growth potential.

B&D is one of the most powerful brands in power tolls. Its products are generally regarded to have high quality. B&D currently has 45% of the Consumer and 20% of the Industrial markets. However, in the P-T segment B&D holds only 9% of the market and is in near parity with Milwaukee Electric (10%) and trails Makita, which has captured 50% of the market.

Makita was able to grow rapidly in the P-T market as its dominance was aided by the rapid development of a new type of distribution channel, the Home Centers such as Home Depot, which Makita actively sought. B&D, however, was not able to grow quickly in the P-T market due to Tradesman's perception of its P-T Line.

The Tradesman market perceives B&D as a "Consumer" product that is not on par to handle professional tasks. This is evident in that in studies of brand perceptions in the P-T segment, six manufacturers out-rank B&D, three tie with B&D, and only one is rated with lower quality. On blind trials the quality of B&D P-T products often outranked those of the manufactures whose quality was perceived to be better, implying that B&D's problem is not of having bad products, but of having a bad reputation.

One factor contributing to the perceived higher quality of Makita and Milwaukee is that both are priced at a premium, and on average, are 5-10% more than B&D. This difference in price contributes to foster the perception by the P-T market that because the competitors' products cost more, they have higher quality.

Another factor is related to the color of the product. In the power tools industry, color is often used for product differentiation. Consumer tools in the market are Black or Charcoal Grey. B&D uses Black for Consumer and Charcoal Grey for Professional Grade tools, this lack of color differentiation makes it difficult for purchasers to determine which products are Professional and which are Consumer, which may have facilitated the use of B&D consumer grade products to professional tasks, thus generating an inordinate high rate of failure. Conversely, other manufacturers use higher color differentiation and use colors such as teal (Makita), red (Milwaukee), or green (Hitachi) to differentiate the P-T products from the black/charcoal grey consumer products.

Research on Tradesmen's brand perceptions shows that DeWalt, a B&D brand associated with "industrial yellow" has a 70% awareness rating and is ranked by 63% of those in the P-T market to be "One of the Best", which is much more than the 44% of people in this market who think the same of the B&D brand. Although the purchase interest in DeWalt is 51% compared to 58% of "DeWalt-Services and Distributed by Black and Decker."

Despite all of this, B&D strongest rival, Makita, exhibits a few weaknesses that can be exploited by B&D. Customers, in general, have been exposed to positive Makita interactions; retailers on the other hand have had a different experience. Makita, in general, did not support all of their retailers as it did not offer channel protection and was regarded by some as "arrogant and dictatorial." The "very knowledgeable" industrial segment buyers relegate Makita to second tier status, and in its home market (Japan) Makita was not the market leader.

Alternative Options

Given