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
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.
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.
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.
There were more than 70 manufacturers of portable electric tools, worldwide, in 1960s and 1970s. Around 20 of these were in United...