MULTI-PURPOSE TOOLS: THE FINAL PRESENTATION

BY:ASTHA SAITH(A046) SHREY AGARWAL(D002) ARNAB MALLICK(D036) GAURAV SINGH(D058) AMIT KARIWALA(E021) TULIKA SINGHAL(E053) RAVI THAKUR(A061) SAURABH DHOLE(D023) VARUN VERMA(B062) SAMRIDDHI GOEL(E014)

GROUP

EXECUTIVE SUMMARY
The problem at hand was of a Multipurpose Hand tools which was losing revenues in the wake of increasing competition from new players which are offering the products at a lower price. Furthermore it was rooted to a single distribution channel which was proving to be a jinx to its growth. So what needed to be analyzed was the reasons for the decline, which could be attributed to product changes, ad-hoc price point and distribution. When analyzed further

FLOW OF THE PRESENTATION

CONTEXT

INVESTIGATION
PROBLEM STATEMENT APPROACH & METHODOLOGY KEY FINDING & RECOMMENDATION THE WAY AHEAD APPENDIX

In the wake of increasing competition and the fate of Multi- purpose hand tools Company hangs in a balance given the various growth drivers the industry has to offer

THE CONTEXT
Held the Monopoly in the Multipurpose hand tool segment for a decade Priced its product at $50 to gain competitive advantage and maximize profits Market Scenario changed in the past 2 yrs. With the introduction of cheaper competitive products priced at $30. The current Value Chain is skewed towards a single distribution channel i.e. Hardware retailers whereas the competitors have started explaining the Discount retailers like Walmart, Lowe, Target etc. This resulted in DECLINING REVENUES & FALLING MARKET SHARE

INDUSTRY GROWTH DRIVERS

Growing Exports market triggering market demand Opportunity to enter growing markets via Trade fairs & exhibitions Increase in Govt. funding and policy reforms to the related industries which are its direct end users.

When the problem was INVESTIGATED, various factors were found

which could have stunted growth for the company.
Cost of Material Price Functionalities

Industry Analysis and Reports/ SME views

Channel Supply chain Dynamics Price Sensitivity

Interviews with CFO and Business Heads Workshop with the Procurement Team to understand the complete endend cycle. Survey among hand tool users for understanding usage pattern

Revenues

Rationalization Product Quality and Design Services

Volume

Brand value

Taking the investigation forward, it was time to define a clear

PROBLEM STATEMENT
Inability of the company to adapt to the changing hand tool market environment triggered by the influx of new players It is affecting the firms Supply chain, Manufacturing, Logistics, Sales and Distribution The Firms Profitability and Revenue are getting impacted

We would be proposing solution(s) that would help the Company arrest the decline in revenues and register growth in its multipurpose hand tool product line.

Defining the problem was only the beginning, a thorough APPROACH

& METHODOLOGY had to be defined

Situation
Market Leader for several years Product priced at $50 Sales Volume at 100 mn units/year

to tackle the problem

Complication
Competition has emerged in last 2 years Competing product priced at 30$

Questions
How to we increase the revenues of the product line

Answers

GOVERNING THOUGHT

Declining Revenues

KEY LINES

Product

Price

Distribution

SUPPORT LINES

Lack of product Innovation

Limited replacement demand

Changing Consumer Behavior

Single Price for all consumers

Constant price over years

Single Distribution Channel

Newer Channels have greater reach

MARKET ANALYSIS
Professionals use a greater variety of tools, most of which are also more expensive than those used by consumers. As per Power & Hand Tools industry forecasts to 2011 & 2016, Power tools to outpace their more durable hand tool counterparts. Cordless power tools to grow faster than corded

% of Overall Hand-tool Demand

Professiona l Users Consumer Market Growth Projections

Consumers

Professional Users

Post the analysis, the KEY

FINDINGS were brought out which could

pave the way ahead

Monopolistic

No pressure on prices

No incentive to reduce costs

Competitive Intense pressure on prices and thus costs

So, it was high time the ground rules were set and to plug the

loopholes RECOMMENDATIONS
Have two segments one for home consumers and the other for professionals. This will help boost revenues as findings suggest Consumer segment will drive growth in the future

Segment Markets

Check for Inefficiencies Alternative Channels

Automated Tools

The company must check for inefficiencies in their value chain They might either be giving disproportionately high margins for one particular element OR using a cost ineffective element

The company must see if it can find other channels to reach the end consumer and thus reduce channel margins Different product through different channels, professional through normal retail route while consumers through discount stores

As trend shifts towards more automated products, the company should consider shifting to producing automated tools

One option to look at was SEGMENTING THE CUSTOMERS

Result of Cluster Analysis of a sample of Customers
Quality

Households
DIY Customers

Professionals
Carpenters Plumbers

1.20

Professionals
1.00

0.80

Craftsmen
Toolmakers

Price

0.60

0.40

0.20

Households
0.00 0.00 0.20 0.40 0.60 0.80 1.00 1.20

The other was to optimize the DISTRIBUTION CHANNEL

Outsourced manufacturing Dealer owned Distributors

20%
Hand-Tool Company Merchandise groups Independent Wholesalers $ 35 $ 35 Discount StoresWall-mart/Sears 10% Hardware Stores

In-house manufacturing

$ 40 $ 42

$ 50

Around 16% price cuts can be achieved by reducing the length of the channel

THE WAY AHEAD

APPENDIX I: Sensitivity Analysis

Price
$72.00 $60.00 $50.00 $40.00 $32.00

Demand
81 90 100 110 121

Revenue
$5,832.00 $5,400.00 $5,000.00 $4,400.00 $3,872.00

APPENDIX II: Assumptions

The case is set in the year 2006-07
They have the capacity to add similar product to their product line Product revenues are declining There exists a market for premium/professional customers There would not be any product cannibalization Current cost of production 30$ (industry average of gross margin is 35%) Market is not segmented
Generally speaking, hand tools products are applied in the following market segments: Households (DIY) Professionals (e.g. carpenters, plumbers, craftsmen, toolmakers etc).

There is a price within which the elasticity is linear, beyond which it becomes non-linear ( 30 60) We are giving a high quality product currently not valued by the customer - marketing efforts