Ben Sterling – MGMT642

Case Quiz -­‐ Skil

The portable power tools industry is set up with two wide customer bases, consumer level products and industrial level products. Originally there was a huge divide between the consumer and industrial markets, with separate products, separate distribution channels, and separate price points. With increasing quality, the lines were becoming more blurred, and more consumers were buying industrial level products, and vice versa. Consumers and Professionals alike were buying and saw a need for these power tools, and were more often able to get any option at any distribution house. The range of distribution houses was also vast, with as many as fifteen different channels of sales for the products. Mass merchandisers, discounters, hardware stores and home centers are the main suppliers of the consumer market, while specialty supply store, tool rental shops and lumberyards.

Competitively speaking, Skil is in an okay position by marketshare, but not a great position for sales dollars. Competition is fierce between Skil, Sears, and Black and Decker, as well as Japanese competition from Hitachi and Makita, who were rapidly expanding into the United States market. When looking at market share, Skil ranks in at 5th place, with 7.1% of the overall market share worldwide, with Black and Decker leading the race at 31.1%. In the US, Skil was placed third, after Black and Decker and sears. Three important issues that could make the Skil organization more efficient and effective surround: 1. Effective market penetration, with special attention to the Home Center channel, which is right now emerging. 2. Using efficient strategies to decrease manufacturing costs, and increase materials able to be automated. 3. Marketing effectiveness compared to competition. First of all, when looking at the effective market penetration, you have to look at current sales. Viewing exhibit 5, you can see that Skil tools aren’t really being taken advantage of by the Mass Merchandiser channels, or by a lot of the specialty stores. A majority of the sales are coming through the consumer Hardware and Home Center market, while Black and Decker seems to be hitting all channels. Specifically mentioned in this case are the Home Center channels, which according to the case, are a new emerging force when it comes to sales of tools like Skil’s product line. Skil’s sales numbers also represent this, having a high number of sales coming from the Hardware and Home Center markets. This represents 40% of overall for Skil, which if competitors were able to capitalize on, would mean a lot less sales for the company. Another note of mention is how Singer/Sears are using private labels in Mass Merchandisers. Craftsman is the brand for the sears store, and has become a commonplace tool brand everyone associates with value and quality. With the Home Center distribution channel being so new, no one manufacturer has been able to make an imprint on the home centers like Craftsman/Sears have done with their brand in Sears stores.

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Ben Sterling – MGMT642

Case Quiz -­‐ Skil

Manufacturing costs are a power hitter for these tools as well. Oftentimes the gross profit is only 30% of where the sales started out before costs were taken out. Motor and Housing manufacturing costs are expected to drop by 3 and 5 percent respectively with automation, which while having a steep startup cost, could make some of their more profitable and wider reaching lines more easily manufactured. One snag on this for Skil is that they operate in such a way where they’re really specialized by region, and currently feature 11 motor frame sizes, 130 total models in the United States, 150 European models, and 75 separate models for the rest of the world. Being able to cut down on some of these models would help automate systems, cutting costs largely overall. Skil is currently not marketing to the best of their ability. They don’t market nearly as much as competition, and while they oftentimes could use a smaller marketing bottom line, they could be setting themselves up for failure by not considering that the competition is getting their money’s worth out of their marketing campaigns. By not matching marketing efforts, consumers are more likely to remember the names of businesses who do actively market. There is obviously success in some of the marketing campaigns by others, which could sell more product overall. Solutions for the issue of market penetration involve getting closer with the emerging Home Center channel. Being able to be a store brand for a large home center would allow for a huge competitive advantage if and when the home center channels truly take on. It is a risk as of right now, because the home centers just started, but being as one of the biggest strengths for Skil is its home center and hardware store market, it seems like the next logical step to try to find a private label contract with the home center stores, or become featured products. For decreased manufacturing costs, cutting the amounts of product models seems like the only logical choice. Having 11 motor frame sizes, while giving your customers the most possible choices, could end up costing the company more than the benefit to the customers with this customization. By halving the model sizes, and motor frame sizes, the chances of automation become much higher, which could potentially save 8% on manufacturing costs, which is very significant to the bigger picture. Finally in marketing, matching some of the efforts that competition is playing with is the most effective way to ensure success. Also to be considered is back on point 1 for the Home Center distributors, having combined marketing campaigns, where as a featured or private label brand, they would be able to share marketing expenses and ad time, to increase the sales for both companies. When implementing these two approaches together, the effectiveness would certainly add money back to the Skil bottom line, making for a complete turnaround to their current performance, and creating a new power player in the power tool market.

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