Environmental Analysis for a Corporation Marketing Power Tools

Using the library, Internet, and other resources to research the topic: environmental analysis.

Answer the following:

-How would the corporation use the environmental analysis?

-Conduct an environmental analysis for the power tools market in which the corporation competes.

Scenario:

A corporation that markets power tools has just hired you for the newly created position of Director of Strategic Planning and Analysis. The company offers a full range of power tools of professional and consumer quality and serves both consumer and industrial channels. With the exception of circular saws, the corporation's market share is no greater than 3% in any of its product lines. The market share of circular saws is a dominant 40%, with very strong brand equity and loyalty among both professionals and consumers. The quality of the tools, except for circular saws, is considered low to moderate among end-users.

It is now the general consensus of the corporation's senior management team that in order for the corporation to survive, they must do whatever they can to capture greater share in the two growing segments of the power tools market, consumer channels and cordless products. The corporation has had some success in the cordless business segment, and has gained a reputation as a cordless innovator with a couple of its products. Any beachheads that have been established, however, have evaporated as competitors have essentially copied the product and used their superior marketing power to displace the corporation at the retailers. The corporation has moved on to introduce the next innovative product. This strategy of first in, abandon, and move on has been highly debated within the senior management team, with a desire of some to transfer resources from research and development to the marketing and sales departments.

The corporation has little information on its market share, the size of market, the dynamics that drive the market, or its relative product cost positions. No competitive analysis has been performed in years. The internal information that is available to run the business is inconsistent from one functional department to another. The monthly meetings of the senior management team have been reduced to arguments over the attainment of company metrics, with each department pointing to its own set of reports to support its positions. The friction among the senior management team is having its effect on the rest of the employees of the corporation. Many of the employees fear losing their jobs due to the acquisition. As a result of years of declining sales and layoffs, a culture of pessimism and failure exists. The new owners fear that many employees in key positions will leave the company taking away their industry expertise.

The corporation's power tools consist of such products as circular saws, drills, routers, reciprocating saws, planes, and hammer drills. Approximately 80% of all power tools sold are corded, while the remaining 20% are cordless. All things being equal, a cordless tool is comparable in price to a similarly featured corded tool. The cordless segment is by far the faster growing of the two at a compound annual rate of 10% versus 3% for corded.

The power tools market in which the corporation operates is divided into professional and consumer products, consumer and industrial channels, and consumer and professional end users. A professional tool is defined by high reliability, high durability, and enhanced features. They are built to withstand the rigors of daily use by such tradesmen as carpenters, electricians, woodworkers, and plumbers in the performance of their jobs. Professional tools cost more to manufacture, but are sold at high enough prices to realize higher margins than comparable consumer tools. A consumer tool is defined as lower reliability, lower durability and less features, and is primarily used by do-it-yourself individuals for occasional jobs around the home.

The U.S. power tool market in which the corporation operates is divided into professional and consumer products, consumer and industrial channels, and consumer and professional end-users. A professional tool is defined by high reliability, high durability, and enhanced features. They are built to withstand the rigors of daily use by such tradesmen as carpenters, electricians, wood-workers, and plumbers in the performance of their jobs. Professional tools cost more to manufacture, but are sold at high enough prices to realize higher margins than comparable consumer tools. A consumer tool is defined as lower reliability, lower durability and less features, and is primarily used by do-it-yourself individuals (DIY'ers) for occasional jobs around the home.

Professional tools are sold in consumer and industrial channels, whereas consumer tools are sold exclusively in consumer channels. The industrial channel has been declining at a rate of approximately 5% per year, for the past five years. The decline has now stabilized and the forecast is for flat growth over the next five years. It currently represents 45% of the total market of all tools sold in the U.S. market. The industrial channel is characterized by distributors that provide a range of greater services and thus higher prices and its customers consist solely of professional tradesmen. There is much fragmentation in this channel, with no distributor greater than 5% of the total channel.

Consumer channels have been experiencing a tremendous 20% per year growth over the past five years, and are expected to grow at a 5% rate over the next five years. The growth has been caused by the emergence of the "Big Box" retailers who dominate the market and exert extreme price pressure on all their suppliers, including those providing portable electric power tools. Because of their lower prices relative to the industrial channels, professional end users have increasingly been shopping in the consumer channels. Currently, 60% of all professional end users buy their professional tools in consumer channels, and this number is expected to increase over the next five years.