Question

Black & Decker, Inc. – A Case Study

Black & Decker operates globally and is divided into four operating regions: North America, South America, Europe and Asia. Black & Decker is in the power tool business supplying these products to large retailers around the world and is one of the top suppliers in its industry. It holds different supplier positions in each of its

regions but is strongest in North America and Europe.

Black & Decker measures its customers on revenue, its key accounts for each region and countries represent around 65% of their total business. In Quarter 4 2018, Black & Decker conducted a detailed profitability study and implemented a model to

measure key account profitability each month.

The key account in this case study is Home Depot, number three by revenue in the North American region and number two in Canada. This Key Account (Home Depot) is significantly more profitable than the average because it requires very little management and requires few high cost support services. The relationship is long term and very positive. The business has been stable for the past five years. Black & Decker manages its key accounts by region and by country – therefore there is both a regional major key account representative in North America and a Canadian key

account manager for Home Depot who manages this client across Canada.

In Canada where Home Depot is the second largest customer, a new General Manager was appointed in March 2017. Black & Decker’s Canadian key account manager received a letter in early September 2017 signed by the new General Manager saying that he was giving advance notice to all suppliers that he would require them to cut prices by “a significant amount” by the end of the first Quarter.

The amount of the price cut demanded was not specified.

Key Account Management - BCIT MKTG 3332 1

The Canadian key account manager has enjoyed a very good relationship with the primary Senior Buyer of Home Depot (confirmed as part of the Key Account planning assessment in Q4 of 2018). The other contacts in Home Depot are the product selection managers in the local stores who are visited as required. The North American major key account manager at Black & Decker is new in his position and is not involved in establishing a pricing model per country, they are agreed to within

each country.

Current Situation

Having received the letter, the Canadian key account manager called the Senior Buyer. He was not able to get much more information other than the Senior Buyer confirming that the new General Manager was making very aggressive demands throughout the company and there was concern that internal cuts and redundancies

would be made.

The Key Account Manager and Senior Buyer for Home Depot have agreed to meet at the end of October to review the situation. The Senior Buyer thinks he may have

more information by this time.

Question

What should the Key Account Manager do before the meeting with the Senior Buyer?

Answer 1

Answer:

There are few information from the Case Study that we should first focus on, this will help in further analysis:

• 2 Firms: Home Depot and Black & Decker
• 3 Main Players: Key Account Manager and Senior Buyer and new General Manager

Brief Summary: Now note that Home Depot is a key account for Black & Decker and is one of the accounts that represent 65% of their total business. Home Depot is number three by revenue in North America and number two in Canada. Now the key account manager of Black & Decker in Canada has been notified by the new General Manager in Home Depot Canada that the suppliers need to cut price. The Key account manager shares a good bond with the Senior Buyer of Home Depot and has been informed by him that the new General Manager is an aggressive player.

Implication of price cuts: The consequence followed by cutting prices, will definitely lower profitability of Black & Decker since lower prices will lower revenue. Considering that Home Depot Canada's revenue contributions is number two for Black & Decker, this will definitely hurt the companies sales revenue.

What should be done: Before meeting with the Senior Buyer, the key account manager can evaluate its payoffs and conclude to see what is its optimal strategy given the new General Manager's policy. It can compare its revenue at current prices with its expected revenue at lower prices. Although the General Manager has not announced new prices, the key account manager can check for the price elasticity of demand of its products to see how consumers respond with price cuts. If the results show that consumers are price inelastic, that is a fall in price will not change quantity demanded, then revenue will fall. However if consumers are price elastic, then consumers will be highly responsive to changes in price, and revenue will rise. If the key account manager comes to the conclusion that the fall in price will have a negative effect on Black & Decker's revenue then it knows it will have to negotiate a deal to prevent the new General Manager to not cut prices, however if its sees that elasticity is relatively high, then it can in fact benefit Black & Decker to move forward with price cuts.