Strategic Management: Stihl Case Analysis

Instructions

Stihl is a manufacturer of chain saws and other similar power tools. It has been shunning big retail chains like Home Depot and selling primarily through small retail shops. It has been doing well.
Recently, however, the growth and popularity of online market platforms such as the Amazon Marketplace – where manufacturers can sell directly to consumers if they choose – has created both opportunities and threats to manufacturers such as Stihl.
Suppose that you were a strategic consultant and Stihl hired you to evaluate whether it is worthwhile for Stihl to use the Amazon Marketplace to sell its power tools. Your analysis and answers will be considered by Stihl’s CEO as he develops company’s strategic planning for the next five years. Based on information in the provided documents, please answer the following three questions.

1. What are pros and cons of Stihl using the Amazon Marketplace to sell its tools?

2. Based on your analysis, what would be your recommendation to Stihl on whether to use the Amazon
Marketplace?

3. Might any changes in situation – such as increasing competition, change in product quality, or change in its customer base – lead you to reverse your recommendation or call for a different approach?

Solution

Strategic Management Case Analysis

            While firms strive to grow their business through the traditional channels, they must be wary of the changes taking place in the marketplace. Notably, in the recent past, companies are increasingly selling their merchandise online and directly to the client. Stihl, a chainsaw manufacturer, is mulling on whether to sell on Amazon or continue with the traditional route. Therefore, the firm faces a significant dilemma in decision-making regarding whether to list its products on Amazon or continue with its distribution to the small retail shops.  

Pros and Cons of Using Amazon

            Parties intending to sell through the Amazon platform must consider the pros and cons of such a strategy. The first benefit that Stihl will derive from selling online is that it will be quite easy to get started (Danziger, 2018). The company’s brand is well-recognized; hence, customers can easily identify and buy the products based on trust in their quality. The process will only involve the organization’s marketers listing the range of products it offers and then avail them at the Amazon (FBA) warehouse from where orders are fulfilled. As a result, Stihl will be able to transform from a pipeline to a platform business (Rothermeal, 2019). The company has a unique product line of chainsaws, which could see it benefit immensely from listing them on Amazon. Notably, the digital platform is suitable for companies that have unique product offerings, coupled with sufficient profit margins (Danziger, 2018). Therefore, Stihl can take advantage of the Amazon brand to grow its market presence and share. The strategy will allow the firm to control its brand and products in a way that it will increase its reach while remaining profitable. Indeed, online sales seem like a great idea for Stihl.

            Marketing and sales strategies are rapidly evolving in the manufacturing industry. Consequently, entities have to consider the fact that selling on platforms, such as Amazon is the future, and that failure to adapt could mean that they are left behind as others advance (Danziger, 2018). Digital platforms also attract a lot of traffic, which is beneficial for Stihl as it can afford more visibility for its products. While the company has its website, the amount of traffic that goes to its site might not compare with the number of people who browse through Amazon. Further, Amazon represents the future; thus, soon, all manufacturers, even Stihl’s competitors, may sign up and sell through the site (Danziger, 2018). According to Danziger (2018), Amazon may just be the approach companies need to secure a place in the future markets. Clearly, Stihl needs to consider the pros of selling on Amazon.

            While there are pros to selling on Amazon, the company must also consider the cons involved. Firstly, it is possible for some unscrupulous competitors to steal one’s listings (Danziger, 2018). Sellers of counterfeits can list their products using the item numbers of legitimate sellers, which can lead to negative reviews for the latter. According to Danziger (2018), Amazon owns the customer relationship, which is to the detriment of the seller. Consequently, the manufacturer cannot remarket their products, despite being responsible for customer care as well as feeding. Hence, the business must resolve any issue that customers raise. Additionally, there are no guarantees that Amazon may lead to successful sales. While many businesses have performed well, others have not been as lucky and have struggled to sell on the platform. The fact that Amazon can shut one’s account at any time creates a lot of uncertainty about the future of the company (Danziger, 2018). Therefore, Stihl should be wary of the potential pitfalls, while still considering the benefits of using the digital platform.

Recommendations

            Stihl needs to make the right decision regarding its products’ listing on Amazon. The management has to weigh the pros and cons, as well as the circumstances of the businesses. Stihl has built a business model based on retailers such as Speed’s- Mom-and-Pop hardware shop (Stock, 2014). The model has so far proven successful, and the company might feel that changes regarding sales are not necessary. Therefore, Stihl might be cautious about listing its products on Amazon. As earlier stated, there are cons associated with the decision, which could hurt Stihl and its prospects of growing its sales (Danziger, 2018). Thus, Stihl should desist from selling its products on Amazon since it could be detrimental to company. The fact that it has decided against selling on Amazon and big box stores and still remained successful indicates that it is a strong individual brand in the market. However, the company must remain cognizant of the fact that the market continues to evolve, and that demands a high degree of vigilance. Stihl has to keep monitoring market shifts and adapt appropriately. Therefore, the recommendation is not to list on Amazon at the moment, but the company should closely monitor the situation and adjust accordingly.

Possible Future Changes

            Having reviewed Stihl’s current situation, the recommendation is to continue selling through its traditional model- through small retailers. However, the company might need to make some changes in the future due to factors, such as increased competition, change in customer base, or product quality. Thus, the company would need to make appropriate adaptations. One reality that Stihl must consider is that many industries continue to spin when it comes to marketing and sales (Amazon Marketplace-Pulse, 2019). The situation is dictated by Amazon’s dominance of the marketplace and its wide reach. Therefore, consumers can easily switch to ordering online, through Amazon, as opposed to the traditional model, where they need to physically visit the retailer. Such a shift could necessitate a move to online selling through digital platforms for a wider reach. Stihl already sells online through its website, even though customers have to collect the products physically from stores (Stock, 2014). Therefore, the platform offers useful insights that the firm can use when deciding whether to sell more online, either through Amazon or its own website.

            Another aspect that could prompt Stihl’s decision to sell online is increased competition. Amazon already stocks a lot of products from Chinese manufacturers. Thus, rival companies can easily stock and sell their products on the platform, which could ‘eat’ into Stihl’s market share. Stihl has to keep monitoring the competition in relation to its market share and brand positioning. Increased competition could force the company to have to sell on Amazon in order to add to its competitive edge. Furthermore, Stihl needs to consider changes in product quality since it can intensify competition. Stihl also has to be wary of changes, such as Amazon’s decision to have a pop-up window on its app that displays its cheaper branded products. These diverse aspects could increase the competition and drive Stihl into listing its products on Amazon.

            Undoubtedly, Stihl faces a significant decision on whether to list its products on Amazon. The firm has to weigh the pros and cons involved with the choice. The recommendation is to hold off on selling through Amazon at the moment given that it currently has a stable business selling through physical stores. The strategy is also unique as it gives clients the slowly dwindling ‘human touch,’ which is also a sales strategy. However, the company must keep evaluating its position as various factors change over time, especially in this age of technology.

References

Danziger, P. N. (2018, April 27). Thinking of selling on Amazon marketplace? Here are the pros and cons. Forbes. Retrieved April 1, 2020 from https://www.forbes.com/sites/pamdanziger/2018/04/27/pros-and-cons-of-amazon-marketplace-for-small-and-mid-sized-businesses/#515853566867

Greene, J. (2019, March 15). Amazon tests pop-up feature touting its lower-priced products. The Wall Street Journal. Retrieved April 1, 2020 from https://www.wsj.com/articles/amazon-tests-pop-up-feature-touting-its-lower-priced-products-11552655614

Marketplace-Pulse (2019, December 18). Marketplaces year in review 2018. Retrieved April 1, 2020 from https://www.marketplacepulse.com/articles/marketplaces-year-in-review-2018

Rothermeal, F. T. (2019). Business strategy: Innovation, entreneurship, and platforms. Strategic Management, 4th Edition. McGraw-Hill Education 249-253.

Stock, K. (2014, April 25). Stihl chain saws thrive outside the big box. Bloomberg. Retrieved April 1, 2020 from https://www.bloomberg.com/news/articles/2014-04-24/stihl-chain-saws-thrive-outside-the-big-box