Skil Corporation

Introduction:

Emerson Electric Company produced a broad range of consumer and industrial products such as electric motors, controls, drives etc. It had a strategy of producing low cost and high quality products. It had embarked on a program of acquisitions to meets its aggressive goals of growing sales 15% annually. It had acquired only financially successful companies. But in 1979, it acquired Skil Corporation, a financially mediocre performing company for $58 million.

Skil was a leading manufacturer of portable power tools serving the professional and consumer markets, the circular saw being the strongest and best seller amongst those tools, which it also invented, and was amongst the top three in power tools market share holdings in U.S. Other power tools that Skil manufactured included mid-priced drills and roto hammers. Skil manufactured multiple different models for different countries, depending upon the local needs of the market. Under increasing competitive pressure, Skil’s financial results had not been stellar, although reported profitability had improved in recent years. It sold through all distribution channels but was well established in hardware stores and had a strong position in circular saws in contractor supply channels. Its sales force serviced all distributors except the mass merchandisers. Skil seldom advertised and relied more on product publicity. It sold tools on a worldwide basis, with its greatest international strength in Europe.

Emerson has a task at hand to improve the market share of Skil Corporation given that the industry is saturated and has competitors like Black and Decker and Sears. We analyze this case by first looking into the portable tools industry and Skil’s competitive positioning followed by the strategic options available to Skil.

Industry Analysis of Portable Power Tool Industry:

The power tool industry consisted of Stationary tools and Portable tools powered by electricity, gasoline or air. The principal products were saws, drills, sanders. Power tools could be broadly divided into following two categories:

a) Professional tools

b) Consumer tools

Professional tools were designed for heavy duty use and had higher horse power, longer useful life, superior quality and precision as compared to consumer tools. However, the traditional distinction between the two was blurring as consumer tools were becoming more sophisticated. Product improvement was taking place through the use of battery power and lighter materials (aluminium, plastic etc.) through the 1970’s.

Buyers

Professional buyers included a highly diverse group consisting of metalworkers, contractors, carpenters, electricians, farmers etc. who were concerned about performance, quality, durability and service. Sales to this segment were growing steadily at 8%. Consumers were mainly hobbyists, who were price conscious and were susceptible to brand advertising. This segment had grown rapidly by the early 1970s.

Channels

There were 15 separate distribution channels in the power tools industry, which could broadly be divided under two heads.

a) Industrial channels: These included contractor supply, mill supply, tool specialists, plumbing and electrical supply outlets, lumber/building materials supply outlets, automotive distributors, and tool and equipment rental outlets. Among these, mill supply stores were the most important channel for portable electric power tool sales to factories.

b) Consumer channels: These included mass merchandisers, hardware stores and home centres, catalog showrooms and buying clubs

Most companies maintained sales force to provide training to the outlet’s sales teams. Tools were sold to each channel using different price lists with different discount structures. Competitors that targeted consumers engaged in heavy media advertising.

Competition

There were more than 70 manufacturers of portable electric tools, worldwide, in 1960s and 1970s. Around 20 of these were in United States and the remaining in Europe and Japan. Of all the players, only Black & Decker and Skil exported or manufactured abroad.

• Black & Decker Manufacturing Company was the market leader with 31.1% share. It had a broad product line of 280 models. It targeted both professional and consumer markets and had extremely strong position in consumer channels. Leadership position was attained in many categories by focusing on large regionally dominant distributors. It had a strong brand reputation. It was the most vertically integrated manufacturer in the United States.

• Sears Roebuck & Company/Singer Comapany: It positioned itself as general line retailer and carried a broad mix of lines directed at middle class customers. Their excellent reputation for service was a major advantage in selling tools.

• Rockwell International Corporation: They held just over 6% of the market share and sold tools primarily through industrial channels.

• Milwaukee Tools: It had a strong brand image in professional market and had established a strong position in contractor supply in high priced drills and reciprocating saws.

• Makita Electric Works Ltd.: It concentrated on tools for professional market especially woodworking. It pioneered the introduction of lower-priced materials on professional tools. It combined high quality with aggressive pricing.

There were other players such as Robert Bosch Gmbh, Hitachi etc. Skil Corporation was at fifth position with 7.1% of the world market share.

Product Differentiation and Skil’s relative position

The major difference between the products made for professional and the consumer market is the quality and precision in working of the tools. Professional markets need more superior and better quality products,