Stihl Gets Wall Street Journal Mention

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In an article about how dealer-oriented manufacturers are working through the economic downturn, Stihl Inc. was one of two companies highlighted in a recent on-line edition of the Wall Street Journal. This was one of the items noted in a recent edition of the Outdoor Power Equipment Institute’s daily “SmartBrief” on-line newsletter:

How to Make Dealerships Strong—and Happy

By M. ERIC JOHNSON and ROBERT J. BATT

Manufacturers and their dealerships all too often become victims of their own success.

The manufacturers add new outlets to fuel growth, which can lead to too many dealers competing for the same customers. The weak dealers see their sales and profits drop, and the strong see growth stall. In rocky times, this is bad news for everyone.

The way out of this downward spiral is not, as many manufacturers believe, to cut costs, offer sales incentives or add even more dealers. Such steps may boost results in the short term, but quickly lead to erosion of dealer profits and long-term sales.

The answer is to strengthen manufacturer-dealer relationships.

Companies can pull out of downturns, strengthen their competitive advantage and position themselves for growth with three simple steps that we have identified through three years of interviews and field research:

Companies as diverse as piano and power-tool makers have succeeded using such strategies. Here’s a look at how they did it.

Strengthen the Best

In 1985, Steinway & Sons was in a crisis. Sales were slowing and its 150 dealers were complaining about low profit margins, slow-moving inventory and the costs of supplying concert grand pianos for Steinway performers. Bruce Stevens, the newly hired president and chief executive, spent six months visiting dealers and listening. The result was a new dealer-relationship plan in which weaker dealers were cut off, while those that remained were offered expanded, exclusive territories and profit opportunities in exchange for their stepped-up commitment to display and promote Steinway products.

Dealers initially were reluctant to invest in upgrading showrooms, increasing inventory and adding salespeople. But as they saw Steinway making good on its promises of expanded territories, they signed on.

Steinway, a unit of Steinway Musical Instruments Inc., Waltham, Mass., today has 63 dealerships in the U.S. Sales and margins for both Steinway and the dealers have increased.

“It takes trained people, good displays, a lot of inventory and strong programs to present Steinway pianos to consumers in a way that is consistent with our image and heritage,” says Mr. Stevens, who retired at the end of 2007. “And that requires profitable retailers. Take away the profit and we don’t get the representation in the field we need.”

Consolidation is not the only way to show dealers that they matter. Stihl Inc., a producer of chain saws and other gasoline-powered tools, makes its dealers feel needed by spurning major home-improvement chains and selling exclusively through its network of 8,000 independent tool and hardware stores. The company, which requires its dealers to go through sales and service training, believes that motivated and well-trained dealers are important to help customers understand the performance benefits of Stihl products — and to justify the premium price. Some of its products sell at a $50 to $100 premium. Stihl, the U.S. unit of Germany’s Andreas Stihl AG Co. KG, has enjoyed double-digit growth for 15 consecutive years…

Source: The Wall Street Journal: Read The Full Article Here

—Dr. Johnson is a professor at Dartmouth College’s Tuck School of Business in Hanover, N.H., and director of Tuck’s Center for Digital Strategies. Mr. Batt is a Ph.D. student at the Wharton School, University of Pennsylvania, in Philadelphia. They can be reached at [email protected]