The Stihl distribution network is composed three tiers; manufacturing, distribution centers, and independent owner/operators. The marketing and distribution strategies must be interlinked because of the incredible amount of overlap inherent in delivering the value message and product to the end user. For example, in regards to Stihl, the bulk of the marketing messages are delivered almost exclusively by independent dealers who are also representing the final point and third tier in the distribution channel. This in turn allows for greater opportunities for product differentiation as opposed to the various forms of mass merchandisers who generally are more dependent upon pricing conditions and the competitive landscape.
Stihl's objectives are clearly laid out in the case study and are best summarized by the statement that to sell Stihl products you must also be able to service them. Consequently this eliminates all of the big box and home store organizations from potential channels for Stihl's products because they do not offer service in-house. The niche that Stihl has carved out for itself in the market is based heavily on producing quality items that are made to last for many years. Furthermore the cost constraints that the mass retailers impose upon there supply chain would be inconsistent with the quality market positioning.
The low cost route associated with the mass merchants would require that Stihl drastically lower costs to compete in this market segment. Typically, products sold in the big box and home improvement stores are produced and sold so inexpensively that once the product breaks then it is usually just discarded or trashed by the consumer as opposed to seeking to find service for the item. This route stands in direct opposition to the strategy that Stihl has developed and thus any attempts to utilize this distribution strategy runs the risk of degrading the brand image.
Stihl has developed a distribution strategy that utilizes a network of over eight thousand independent dealers who own and operate their operation as well as service the products they sell. This allows Stihl to maintain the quality controls necessary to differentiate them from lower cost alternatives. The case notes that the bulk of the target market is composed of either professionals or homeowners that are seeking a higher end product. Furthermore, it is also common for the customer to become aware of quality after becoming frustrated with an inferior product and look to trade up to a quality product.
Channel Situation Analysis
The primary dilemma that Stihl faces in its channel situation and strategy results from the uncertainty that lies in the market conditions. The housing crisis that erupted in the United States at the time of the case greatly reduced the size of the target market which is composed of homeowners. Not only where there a record number of foreclosures which consequently reduced the number of homeowners, the recession also reduced the disposable income and consumer confidence of the remaining market segment. Therefore, under these economic conditions, the attractiveness of lower cost alternatives surely increased for new product purchases for many consumers.
However, at the same time it is also reasonable to suspect that service to existing products should increase. Though new product sales would undoubtedly decline in the midst of a recession, it would be reasonable to expect that more people would be interested in extending the life of the products that they already own. Therefore, the daily traffic to the network of independent dealers may have an increase in customers seeking service. This would be beneficial alternative niche for both the dealers as well as the market for replacement parts.
The economic environment also provides Stihl an opportunity for better product differentiation between its high-end line and its mid-range products; especially in the dealerships that are non-exclusive. The case notes that the survey data suggested that Stihl earned high marks in perceptions of its high-end branding; however the consumers could not make distinctions between the two product offerings. When various brands compete against each other at non-exclusive dealerships the differentiation would allow the consumer to compare the product lines more visibly by brand positioning.
In terms of the total available channels that remain unutilized by Stihl, there are only the mass merchant routes; both home centers and big box stores. Stihl, currently distributes through specialty dealers, has an online presence, and licenses to the hardware stores that provide service. The other two available channels would require a rather significant business restructuring to successfully utilize them. The major reasons involve the incredible volume that these channels represent and the associated buyers power that mass retailer retain as a result.
Alternative Plans and Plan Evaluations
There are basically three distribution and marketing strategies available to Stihl given the competitive landscape. The first option is to stick with their current strategy of the three tier distribution of independently owned specialty retailers. The next option is abandon the current strategy and begin negotiations for a contract with the mass retailers. The third option is to develop some form of hybrid strategy using all of the available channels to try to gain deeper market penetration.
The first option, the one currently in use, is to continue developing the independent dealership network. Stihl can continue adding new dealers as well as target the current ones, who have not already done so, to become exclusive Stihl dealers. With over eight thousand dealers servicing fifty states, it seems as if the market penetration for new dealerships has reached maturity. Adding new dealerships would run the risk of shrinking the local markets even further for their dealership network. This could cause the individual dealerships to compete against other dealers on price for Stihl products and reduce the margin to the dealers thus weakening the strength of the distribution network.
Another option would be to try to grow the market within the already established network by further strengthening the incentives to become exclusive dealerships or at least increase the Stihl product offerings in non-exclusive dealerships. However, the incentives program is already fairly well established with fifty five percent of them already enlisting in the exclusive dealership program. Thus it is reasonable to suspect that there is little opportunity for anything other than marginal improvements in penetration.
If Stihl decides to abandon its current strategy and begin pursuing negotiations with the mass merchandisers then an entirely new business model will be necessary. It will be very difficult to market the Stihl brand through these channels while maintaining the vitality of the dealership network that it painstakingly created. Additionally, Stihl would be at the mercy of the giant Goliath retailers who are known for exercising their enormous buyers' power. In many cases, organizations who could not meet the challenges imposed upon them by the retail giants went out of business.
There also is a potential for a hybrid strategy that utilizes all available distribution channels. The optimal way to address this would be to differentiate the brand in way that would not tie the lower quality products to be distributed through the mass merchant channels to the higher quality products that are sold through the dealer network. Either the Stihl brand could develop an entry level brand such as "Stihl Home Series" or they could abandon the Stihl logo all together and begin developing a new brand name through a subsidiary. Such a strategy could be similar to what the organization MTD does with brands such as Cub Cadet and Yard Man, among others.
The growth that Stihl has experienced has been quite remarkable. However, like with most products, there is a product lifecycle that reaches a point in which the growth curve stagnates significantly and it seems as if Stihl is at least nearing that point. There are undoubtedly changes that the organization can make to further develop its market penetration but if maintaining growth is a priority for the private company then a new strategy is inevitable. At the same time, there will be new obstacles that Stihl will face with changes in demographics as the baby boomers age and the younger generations enter into the target market mix. It will take a level of creativity in terms of new media avenues to reach the fluctuating demographics just to maintain the current marketing and distribution networks.
Since Stihl is privately owned is does have considerably more options than a publicly traded company. For example, it does not have the pressures faced with a constant short-term growth that is found in public companies. Therefore, it could ultimately decide that the revenue stream that it generates through its current strategy is sufficient even though it is running out of room to grow in the market. Even if revenues growth peaks as the organization reaches the end of its product life cycle then this would still represent a steady stream of income.
It is not recommended that Stihl engage with the mass retailers because it is simply…