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CASE 33
SNAP–ON TOOLS: A VICTIM OF ITS OWN SUCCESS
I. CASE ABSTRACT
In the past ninety–three years, Snap-on Tools had firmly established
itself as an innovative premium tool manufacturer serving the automotive
industry. In recent years, Snap-on Tools started to expand its product lines
to engineering industries including aerospace, aviation, oil, and GAS. It
also began to give technical education to build the skilled labor base in the
US–it’s largest market that constituted 65 percent of all revenue. Snap-on
feared that its overdependence on the US market could make its business and
operations vulnerable to country–specific trends as well as increase the
Decision Date: 2014 FY Sales: $3 billion
FY Net Income: $359 million
II. CASE SUBJECTS AND ISSUES
Franchising First–Mover Advantage
Strategy Formulation Competitive Advantage
III. STEPS COVERED IN STRATEGIC DECISION–MAKING PROCESS
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SNAP–ON TOOLS: A VICTIM OF ITS OWN SUCCESS
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IV. CASE OBJECTIVES
1. To discuss Snap–on Tools franchising model.
2. To discuss Snap–on Tools’ business level strategy.
V. SUGGESTED CLASSROOM APPROACHES TO THE CASE
1. This is an excellent case for instructor–led discussion.
2. This is an excellent case for an exam or written case analysis.
VI. DISCUSSION QUESTIONS
1. How did Snap–on Tools plan to enhance its franchise network?
2. Why did Snap–on Tools wait to enter emerging markets?
VII. CASE AUTHOR’S TEACHING NOTE—Not Available
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SNAP–ON TOOLS: A VICTIM OF ITS OWN SUCCESS
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VIII. STUDENT STRATEGIC AUDIT
I. Current Situation
A. Performance
• History
o Joseph Johnson and William Seidemann invented the
idea of interchangeable sockets and wrench handles,
which formed the Snap–on Wrench Company (1920).
o To sell their products, the founders turned to
Stanton Palmer, who helped them market the product
• Economic Performance
o As of 2013, Snap–on was worth $2.9 billion.
o Net earnings attributable to Snap-on Inc.
• Rankings and Accolades
o S&P 500
B. Strategic Posture
1. Mission
a. To manufacture and distribute premium hand and
power tools, and serve the global vehicle services
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2. Objectives
a. To derive profit.
b. Enhance its franchise network.
3. Strategies
a. Management: proactive and aggressive
b. Multiple business firms. It is made up of four SPU’s:
i. Snap–on Tools group
c. Direct Marketing and customer interaction:
i. To enhance its franchise network, Snap–On hosts
the “Snap–On Masters of Metal Tour.” Each event
d. Growth through innovation and increased product
offerings.
i. To expand its presence in the garage, Snap–On
provided owners and managers of vehicle services
better and more efficient performance solutions.
e. Product differentiation—innovative and high quality.
f. Increase international market share in emerging markets
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i. In 2012, it opened its fourth manufacturing
facility in Kunshan, China, where it manufactured
4. Policies
a. Nonnegotiable product and workplace safety.
b. Uncompromising quality.
II. Corporate Governance
A. Board of Directors
1. Nine members (one internal and eight external)
2. N/A
3. Publicly traded.
B. Top Management
a. CEO and Chairman: Nicholas T. Pinchuk.
b. Thirty–two executives; different positions for each
SPU as well as different sales regions.
i. Diverse work experience.
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iii. Able to analyze situations from different
perspectives.
c. There is an ethical dilemma when the role of the CEO
and the role of the chairman of the corporate board are
merged into one person.
i. It allows little transparency into the CEO’s actions
III. External Environment: Opportunities and Threats (SWOT)
A. Societal Environment
a. Economic
i. Repair industries developing in emerging markets (O).
• Snap–on expands to the rapidly growing
ii. Worldwide economic recession (T).
iii. A manufacturing renaissance in the U.S is predicted
(O).
iv. Uncertain economic recovery in Europe (T).
• 21 percent of sales in Europe market (O/T).
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b. Technological
i. Many different technologies can be used to augment
product (O).
• Inventors register ideas through Snap–on
c. Political–Legal
i. Patent protection (O/T)
• 600 patents in the U.S and 1500 globally (O).
v. Domain names (O/T)
d. Sociocultural
i. Manufacturing tools are required by many different
industries including aviation and aerospace,
agriculture, government and military, and
1. These forces are different in other regions of the world.
For example, the repair market is emerging in China, but the
Europe market is suffering a shrink.
B. Task Environment (Industry)
a. Threat of new entrants (Low).
i. Strong and established distribution channels (U.S and
worldwide).
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iv. Allegiance to its products by users (U.S and
worldwide).
v. Relations with key partners and industry players (U.S
and worldwide).
b. Bargaining power of buyers (High).
i. Customers can accept Snap–on’s high price point as
they perceive that it is worth the price (U.S and
worldwide)
ii. Their premium products are differentiated from other
products from the same industry (U.S and worldwide).
c. Threat of substitute products or services (Low).
i. Patent and other intellectual property protections
businesses (US).
• Suffering from price competition.
• Rivalry in the areas of product quality and
performance, product line breadth and depth,
f. Relative power of unions, governments, special
interest groups, etc. (N/A).
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SNAP–ON TOOLS: A VICTIM OF ITS OWN SUCCESS
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1.
i. Determined to train skilled labors (O).
• Foresee the shortage of skilled labor.
• Successfully partnered with technical institutions
ii. The well–developed patent law gives the company big chances
to grow (O).
iii. Customer loyalty (O).
iv. Competitors are playing price competition (current and
future) (T).
C. Summary of External Factors
See EFAS Table below.
External
Strategic
Factors
Weight
Rating
Weighted
Score
Comments
Opportunities
CASE 33
SNAP–ON TOOLS: A VICTIM OF ITS OWN SUCCESS
aggressive
enough in its
expansion.
Patent
Protection
The company
is applying a
lot of
patents to
Customers
Willing to
Pay High
Price For
Good Quality
Products
0.05
5
0.25
Snap–on is
good at
targeting
such
customers.
Products
to respond
Manufacturing
Renaissance
Predicted
0.15
4
0.6
The company
is training
its employees
for future
use.
Threats
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SNAP–ON TOOLS: A VICTIM OF ITS OWN SUCCESS
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quickly.
knows clearly
each
industry.
No Technology
in use
0.1
1
0.1
Snap–on does
not use much
technology in
terms of
their
marketing nor
management.
any statement
uncertainties
Open 4th
Manufacturer
in China
0.05
3
0.15
Snap–on did
not act fast
enough to
respond to
demand for
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SNAP–ON TOOLS: A VICTIM OF ITS OWN SUCCESS
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tools and
basic repair
equipment in
emerging
markets.
Weighted
Score
IV. Internal Environment: Strengths and Weaknesses (SWOT)
A. Corporate Resources:
1. Marketing
B. Snap–on’s marketing objectives:
1. Maintain premium brand and high–quality image.
C. Snap–on’s marketing strategies:
1. Strong business to consumer marketing: corner stone of Snap-on’s
marketing strategy (S).
D. Snap–on’s marketing policies:
1. Marketing campaigns to reach its customer through several channels
such as franchises, company-direct, distributors, and the Internet to
maintain its premium image and brand awareness.
D. Snap–on’s marketing programs:
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1. Expanded the market through the company published Snap-on Holiday
Gift Guide: The Toy Catalog for Techs in 2013 (S).
2. Financing programs to create business opportunities for entrepreneurial
people to run their own trade with Snap–on’s logo (S).
5. Supporting Skills USA, a national nonprofit dedicated to fostering a
partnership of students, teachers, and industry to ensure a skilled
workforce for America and investing in educational programs, grant, and
I. The above objectives, strategies are clearly stated and the policies
and programs undertaken by Snap–on imply that the company’s objectives and
II. Although the corporation’s current marketing objectives,
strategies, policies, and programs are consistent with that of corporations,
E. Snap–on’s performance in domestic and international markets:
1. Good brand awareness among people involved in the auto industry
through market positioning and marketing mix (S)
2. General public is largely unaware of the brand as the company is
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b) Rebound of the American and European economies has resulted in
c) Rapid development of repair industries in emerging markets has
seen Snap–on tools push its brand recognition to expand its
manufacturing capabilities.
Current products in product life cycle:
aerospace, aviation, and energy segment needs (S).
I. Trends:
a) Snap–on is still reliant on a strong B to C marketing through
traditional marketing strategies using its franchisees as a key
marketing tool (S/W).
b) Relying mostly on its brand awareness and B to C marketing,
tools in the emerging markets (W).
c) Snap–on’s conservative marketing strategies have hindered in
generating exposure to the general public (W).
II. Impact on past performance:
a) Snap–on through its B to C marketing of innovative premium
quality products has built a strong market base that deters
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c) Snap–on has actively pursued and relied on patent protection,
trade secret protection, and copyrights to position it markets
(S/W).
d) By successfully maintaining its brand image, the company has
been able to dictate premium pricing in its industries. (S)
Impact on future performance:
e) General public is largely unaware of Snap–on owing to Snap–
III. Analysis supports the corporation’s past and pending strategic
decisions.
IV. Direct marketing has provided the company with a competitive
1. Finance
a) Corporations’ current financial objectives are (as stated in 2013 Form 10–
K):
1. Enable global financial services operations to continue to serve a
significant role in providing financing options for Snap–on’s
franchisees (S).
b) Corporations’ current financial strategies are (as stated in 2013 Form 10–
K):
1. Continue to invest in emerging market growth initiatives, including
in China, India, Eastern Europe, and Latin America (S).
CASE 33
SNAP–ON TOOLS: A VICTIM OF ITS OWN SUCCESS
2. Increasing market share by expanding its business with existing
customers and by reaching new customers in critical industries and
c). Corporations’ current financial policies are (as stated in 2013 Form 10–
K):
1. Policies to improve franchisee productivity, profitability,
d). Corporations’ current financial programs are (as stated in 2013 Form 10–
K) (S):
1. RCI programs to focus on productivity advancements and leveraging of
resources.
2. Reduce structural and operating costs through RCI and restructuring
initiatives.
II. N/A
a) Snap–on has been able to grow revenues from $2.9 billion USD to $3.1
billion USD. Most impressively, the company has been able to reduce the
Profitability ratios:
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Profitability
Ratios
2013–
12
2012
–12
Comments
Tax Rate %
31.68
32.2
N/A
Net Margin %
11.9%
10.6
%
N/A
Asset Turnover
(Average)
0.70
0.72
There hasn’t been
much shift in the
asset turnover for
Snap–on.
$4,336.00 million,
compared to
$4,088.00 a year
before.
Return on Equity
16.4%
16.8
In (FY 2013) ROE
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%
%
deteriorated to
16.4 %, despite a
growth in net
income.
Growth Percentages:
2013–12
Revenue % Year over
Year
4.0%
Operating Income % Year
13.52%
14.40%
Financial health ratios:
Liquidity/Financial
Health
2013
–12
2012–
12
Comments
Current Ratio
2.30
2.37
Due to increase in
borrowings, capital
ratio, or the
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ratio fell to 1.25.
Debt/Equity
0.42
0.49
Equity to 0.42.
Despite an increase
in new borrowings
of 4.6%, Snap–on
I. After the economic downturn, the company began to utilize its cash
reserves to finance its operation, as there was an upswing in the economy
of the United States as well as Europe’s, Snap–on has started increasing
IV. Yes, the company is increasingly investing in aerospace and energy
domains and as such it needs to finance its research and development wing
to cater to its corner stone objective—“Innovation.” However, we are yet
to see an increase in expenses in the advertising.
c) Similar corporations’ financial performance cannot be inferred from the
3. Research and Development (R&D)
a)
I. Snap–on thrives on innovation and premium quality products.
1) Ultra–durable products of Snap–on have a strong brand awareness
among the people involved in auto industry (S).