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Discussing Strategic issues

Let's look at two of Able Corporation's two major competitors: Smith & White Corporation (S&W), a very large and aggressive domestic manufacturer, and Makatume, a Japanese powerhouse.

Smith & White markets a full line of moderate quality professional and consumer tools. It also markets such products as lawn and garden, hobby tools, and kitchen appliances, all under the same brand name as its power tools. It is a multi-national conglomerate that has dominant shares in all the markets in which it operates. Its strength lies in a unified strategy across all its product lines, power tool and non-power tool, of building and maintaining brand equity through massive amounts of national media advertising. The leverage gained through strong brand equity compels retailers, particularly the Big Boxes, to stock many of the S&W's products because of high end-user demand.

This demand-pull marketing strategy also has the synergistic effects of obtaining relatively higher prices, advanced placement, co-op advertising, high profile self space, and cross promotion.

S&W does have some significant weaknesses. These include high costs due to old manufacturing plants located in high labor cost urban areas, market confusion between its professional and consumer tools, and negative feelings on the part of its distributors stemming from a perceived abuse of their dominant market position. It also doesn't have much of a presence in the fast growing cordless segment.

In addition, a major hidden weakness is S&W's huge size, which makes it unwieldy in reacting to market phenomena during periods of rapid change.

Makatume markets only professional tools, which are highly regarded by tradesmen for their quality, robustness, and durability. It controls over 50% of the Japanese market and has leveraged that position to become the second biggest player in the U.S. market. For the past several years their sales in the U.S. have been aided by favorable exchange rates, although many economists now forecast a reversal of this advantage over the next two years. Makatume has an extremely strong cost position due to its relatively new manufacturing plants in Japan.

Makatume's greatest product strength is in the fast growing cordless segment. It controls a dominant 70% market share of the professional cordless market. Makatume's early entry into this segment, is both a blessing and a curse. By entering the market early, Makatume has been able to obtain its dominant market share, but it is now locked in to lower voltages due to wide acceptance of its interchangeable battery system. As the technology of battery efficiency progresses, Makatume is faced with a dilemma: Does it introduce its own higher voltages, thus legitimizing that market for others to enter, or does it wait until it has to respond to being outflanked by its competitors when and if they introduce their higher voltages?

The rest of the market is made up of several domestic and foreign niche competitors, none of which has greater than a 5% share of the total market. A phenomenon to watch, however, is the growing strength of Far East imports from China, which are beginning to make their impact on consumer tools because of their low price and good value. The yuan is the relevant currency affecting Chinese imports.

We can often better see ourselves when reflected through the perspectives of others. In this exercise you are to take the vantage point of the industry leaders, S&W and Makatume. This has the advantage of helping to anticipate competitive positioning that may effect the successful execution of Able's strategy. Based on the narrative above, please answer the following questions from the perspective of being their Director of Strategic Planning and Analysis. (For real world situations always keep in mind that the status and plans of competitors can almost never be known except through an analysis of their actions, and even then almost never with certainty. Dealing with imperfect information is one of the essential aspects of the economic problem.)

1. How would you address each company's weakness?
2. If you were Makatume, what would you do about higher voltages?

Solution Preview

S&W weaknesses and how you would deal with them:
1. High cost: can be reduced by relocating and technology up gradation, this is possible because its price realization is high.
2. Market confusion between its professional and consumer tools can be reduced by using different brand names for its two tools, this apart different packaging can be used and differently located shelves should be used in stores.
3. Making quality improvements and communicating these to the distributors can avoid the negative feelings on the part of its distributors. Further, bad feeling can be reduced if S&W does a good advertising campaign and positions its tools as premium.
4. Growing cordless segment should be tapped by making cordless tools in its new updated plants.
5. Appointing product managers for each of its product groups so that market responsiveness is increased should eliminate the disadvantage of huge size.

Makatume's ...