Skil Corporation Analysis
Skil Corporation was established in Chicago in the early 1920s. Initially, the company produced only circular saws but it gradually diversified into other power tools. It had a long record of introducing new commodities. Some of its firsts included consumer electric hedge trimmer, portable electric saw, and an early cordless drill. In 1979, due to its financial mediocre and low performance, Skil was eventually acquired by Emerson Company. Emerson Company had a strategy of manufacturing low priced and high quality products. Therefore, the firm started on a plan of acquisitions to satisfy its aggressive ambitions of increasing sales (Porter & Ong 1988). Many of Skil's sales were to home centers and hardware stores, which supplied both consumers and professionals. They also sold to Mill supply and Contractor supply. Skil was a leading manufacturer of portable power instruments supplying both consumer and professional markets.
Company's strongest bestseller of other products was circular saw. The firm was among the top performing companies and held one of the biggest market shares of power tools in the United States. Skil also manufactured other power instruments. These included rotor hammers and middle priced. Skil produced a number of various models for diverse countries, depending on the need of consumers in the market. Due to rising competitive pressure, its fiscal results had not been healthy, though reported prosperity had improved in previous years. The company traded through all distribution channels but was widely known in hardware stores. It also had strong reputation for producing circular saws in outworker supply channels. Skil rarely advertised and depended more on product publicity. Therefore, the firm traded tools on a wide-reaching basis with its greatest global strength being in Europe (Porter & Ong 1988).
Emerson Company has a mission of improving the market share of Skil Company, given that the industry is flooded and has competitors like Black and Decker, Hitachi, and Sears. This case will be analyzed at a later stage by first looking at the portable tools industry and Skil’s competitive positioning. Next, strategic options accessible to Skil will be discussed. At this point, five Porter forces will be used to analyze buyers, new entrants, rivalry, and so on (Porter 1998).
Emerson Electric Company obtained Skil Corporation in 1979 as part of its expansion strategy. Now it faces a demanding situation of increasing its share in a market where competition is big and market is dominated by companies such as Hitachi, Black & Decker, and Sears. In 1979, electric power tools constituted the bulk of portable power tool industry. The leading company was Black & Decker. 75% of business sales come from power instruments. In general, the industry grew by 2-3 % per annum. In 1979, Skil had nearly 12% of market share as compared to Black & Decker, which had 45%. Therefore, from a perspective of growth, the industry looked profitable. Furthermore, the consumer segment was demanding high quality low cost goods and was sensitive to brand name. This appeared to favor leaders of the industry (Porter & Ong 1988).
Today, Skil Power Tool Corporation offers a series of power tools produced and engineered exclusively for provisional consumers. It helps put up as well as modernize homes across the world as it provides cost effective and powerful tools for everyone starting from professionals and ending with regular consumers (Kotler & Keller 2012). Additionally, the company provides tool tips as well as advice on how to venture using their website to guide those home fanatics. The firm makes it possible for consumers to handle their tools in a safe way by supplying lists of manuals and components for owners. Thus it unquestionably makes buying of parts less difficult. The company also makes it possible to contact the support team and consult with one of their personnel in case consumers have problems with products (Porter & Ong 1988).
One of Skil's greatest strengths is that it produces a strong product, the circular saw, which enjoys a considerable market share. Company's rivals are not as good in producing this instrument. Skil is also doing well with its mid-priced rotor hammers and drills, therefore, it attracts more customers. On top of that, Skil has tools that are more professional in its product line. They are more durable as compared to those of its rivals. Lastly, Skil produces goods to suit local needs of its customers (Kotler & Keller 2012).
One of the weaknesses is that Skil's operating costs are high due to its wasteful setup of operational, which radically drives down its income. Skil has several single-function plants and facilities with varying manufacture capacities. Another weakness is that Skil rarely advertises its products, therefore, reducing the effectiveness of its marketing strategies. For these reasons, the company does not have important skills necessary to ensure sustainable development in the market (Porter & Ong 1988).
Skil is facing stiff competition from its rival companies, This is significantly worsened by the fact that the firm rarely advertises its products. Consequently, its rivals are given a higher competitive advantage, therefore, their products, as those of Black & Decker, tend to be more popular than those of Skil. Moreover, Skil does not have any substantial competitive advantage with some of its products, such as corded and cordless drills, where Black & Decker has the biggest market share (Kotler & Keller 2012).
Over the years, the usual gap between professional consumers and provisional customers has decreased significantly. Both sets of consumers are demanding high-quality hardwearing products at low prices. There are more than 20 firms in the United States producing power tools, which are much alike. Therefore, there is a strong focus on low operating costs and product differentiation. This is one of the areas that Skil should focus on as it is an excellent opportunity for growth, both in the short and long run (Kotler & Keller 2012).
Further, Black & Decker is well known for its drills, while Skil is famous for circular saws. There appears to be an excellent opportunity for Skil to promote and improve both its drills and circular saws in order to compete effectively with Black & Decker. What is more, the firm might consider coming up with new models of circular saws and drills. Since both tools are often used in similar projects, Skil might consider trading them in discount combo packages that contain both products in a carrying case. This can be appealing to both professionals and consumers. In addition, since Black & Decker is leading in the portable electric power tool market, there appears to be an opportunity for Skil to copy successful product promotion strategies of Black & Decker. The company should also invest in advertisement of its products both online and offline (Porter & Ong 1988).
Skil served both consumer and professional markets. The company had a wide range of products including all major types of tools in various shapes and versions at all prices. In the US more than 130 models used 11 motor frame sizes. Additionally, Skil had 150 different European models and produced roughly 75 models for the rest of the world. Further, their products' design changed in different nations in accordance with local needs. For instance, Skil had 7 different circular saws in United States, 2 European editions, 2 Canadian versions, and 2 for other export markets. In total, there were 35 models using 12 different motors internationally (Porter & Ong 1988).
The 150-person sales force of Skil was broadly specialized by the channel. Marketing techniques included self-contained displays that displayed promotional tools to customers. Mostly, the company relied on product publicity, but on occasional basis, they sponsored sales promotions and consumer media advertising campaigns in newspapers, magazines, and on television (Porter & Ong 1988).
Skil sold its goods on international market due to the favorable market position, especially in the European region. Corporation’s global operations were split among three regions: Europe, United States, and others. Each was independent and had plants that manufactured the entire product line for that area. A network of state-managers was in charge of sales and service in every nation (Porter & Ong 1988).
Since the introduction of Michael Porter’s Five Forces model in 1979, it has become the actual framework for company analysis. The five forces determine competitiveness of a market drawing from its attractiveness. The analyst applies conclusions deduced from the analysis to establish company’s risk in the market. The five forces include bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, threat of new entrants, and competition from existing companies (Porter 1998). The following is a Porter analysis of Skil Company in relation to its portable electric power tools.
Supplier Bargaining Power: Low Pressure
Manufacturers are not much dependent on suppliers because essential tools are produced domestically. Moreover, pricing of suppliers to manufactures depends solely on quantity. In addition, manufacturer’s plants are autonomous, which leads to reduction in domestic production, thus allowing to eliminate suppliers (Porter 1998).
Buyer Bargaining Power: High
Consumer segment, which is growing more quickly than professional buyers segment, tends to be price sensitive. As consumers’ tools became more advanced, professional buyers started purchasing the tools. This led to high bargaining power because there was no product differentiation (Porter 1998).
Threat of Substitute Products or Services: High
With improvement in battery technology in late 1970s, the cordless tool became a substitute for the corded one. Due to this, consumer tools became more advanced becoming an alternative to industrial tools. This led to higher market share for end user tools and decline in professional products. Mechanization became a substitute for conventional machining (Porter 1998).
Threat of New Entrant: Low
Out of 70 manufacturers, the leading 5 were holding 67 percent of market share, thus there was a huge barrier for new entrants. Automation trends led to heavy investments, which was another barrier for new entrants (Porter 1998).
Rivalry among Existing Competitors: High
There was several competing industries, and this coupled with the slow growth rate of the Skil Company made competition even more stiff (Porter 1998).
The main competing force for Skil was rivalry among present competitors. Skil and Black & Decker were two rival companies. These companies were the earliest in the industry to use high-strength synthetic in their tools, which resulted in substantial reduction in cost. In the United States during 1979, mass merchants such as J.C. Penney and Montgomery Ward, were the main sellers of Skil and Black & Decker portable electric power tools. Local centers were a progressively growing channel for consumer and professional power tools, and both consumers and professionals shopped there. Local centers were rising competition for mass merchants with sales of $83 million in 1979 and growing at 13 percent annually. In terms of global market share of electric power tool, Black & Decker, Bosche, Makita, Hitachi, and Skil scored the highest in terms of market share. Black & Decker controlled approximately 20 percent more of the market share than any of 4 competitors below it. In the United States, Black & Decker had about 40 percent of total dollar sales, Sears had approximately 18 percent, and Skil had just about 15 percent (Porter & Ong 1988).
Black & Decker was popularly known for its professional grinder and consumer drills. Therefore, both consumers and professionals found Black & Decker attractive for its competitive pricing. The corporation advertised extensively by means of print and prime time television with an approximated value of $47.3 million worldwide advertising budget in 1978, which was higher by 20 percent from the preceding year. Around two-thirds of Black & Decker’s sales came from consumer products (Kotler & Keller 2012).
Conclusion and Recommendation
Skil was the manufacturer of the circular saw, which was its most popular product. The firm also did well with its mid-priced rotor hammers and drills. Further, Skil had tools that were more professional in its product line as compared to those produced by Black & Decker. Skil rarely advertised its products and relied mostly on product publicity. Since Skil does not seem to advertise its products, there is a chance for Skil to capture some of the clients of Black & Decker or other manufacturer if it can communicate value of its products successfully through increased advertising in network television and spot television (Kotler & Keller 2012). Having the capacity to make it known for consumers that the company came up with the circular saw could be an incredible selling drive since Skil could use a slogan that goes like “the original and finest”. Skil's circular saw is famous by name, thus it is misguidedly used as the name for the circular saws of other manufacturers. Skil should think about capitalizing on the fact that only ‘Skil can manufacture an original circular Skil saw’. This style of promotion cannot be duplicated.
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