Colt Responds to Beretta’s Entry to U.S. Market

Case Type: business competition, competitive response; increase sales.
Consulting Firm: IBM Global Business Services (GBS) first round job interview.
Industry Coverage: aerospace & defense.

Case Interview Question #00553: Our client Colt’s Manufacturing Company (CMC, formerly Colt’s Patent Firearms Manufacturing Company) is a United States firearms manufacturer headquartered in Hartford, Connecticut. Colt is best known for the engineering, production, and marketing of firearms over the later half of the 19th and the 20th century. Colt’s earliest designs played a major role in the popularization of the revolver and the shift away from earlier single-shot pistols. The most famous Colt products include the Walker Colt, Single Action Army or Peacemaker, and the Colt Python.

Colt has been the national market leader of firearm manufacturing and sales for more than 150 years. Recently, however, they have seen a sharp decrease in sales. What are the reasons of their sales drop and what can we do to proliferate sales?

Additional Information: (to be given to candidate if asked)

• Colt’s market share in year 2011 was 45%; in 2009 was 55%.
• The firearms industry in the U.S. has grown by 3% annually in the last two years.
• The most popular “Colt M1911″ pistol constitutes 70% of Colt’s sales. Remaining sales are from specialty firearms suppliers.
• Costs of production, distribution and marketing have not changed over the last two years.
• Prices increased only with the rate of inflation.
• Brescia, Italy based Italian firearms manufacturer Beretta entered the U.S. market in 2007 and has since been growing rapidly. They outsource their production and thus offer a cheaper alternative: the “Beretta M9″.
• Besides a few small local companies, no new company has entered the U.S. firearms industry.

Possible Answer:

The decrease in the client’s sales are due to the new market entrant “Beretta”. This case presents a typical problem of competitive reactions to a new market entrant and increasing sales. A good framework early should help pinpoint the problem quickly. Then, a clear framework for driving sales, along with creative solutions, wrap up the case well.

1. Realizing Issue

The decrease of the sales are due to the recent competitor “Beretta” entering the U.S. market.

2. Frame Solutions

We should find the competitive response to revamp our sales. For example, divide growth strategies into four categories: sell existing products / launch new products to existing / new customers. Then brainstorm within this 2 by 2 matrix.

3. Brainstorm and Present Solutions

• If Beretta is producing firearms cheaper, Colt can focus on their competitive advantage: quality manufacturing and a premium market position: Market our quality, safety and superior security.
• Colt is a U.S. tradition and many of the target firearm users are patriotic: Market our history.
• Create a cheaper firearm product line to compete with the Beretta M9 (new brand name).
• Expand product lines outside firearms.
• Expand to new geographic markets.
• Evaluate and compare various solutions.