Whirlpool to Re-focus on End Consumer and Product Quality

Case Type: improve profitability; operations strategy
Consulting Firm: Siemens Management Consulting (SMC) 2nd round full time job interview.
Industry Coverage: consumer electronics; household goods.

Case Interview Question #00691: Our client is Whirlpool Corporation (NYSE: WHR), an American multinational manufacturer and marketer of home appliances headquartered in Benton Charter Township, Michigan, United States. The company is listed in Fortune 500 and has annual revenue of approximately $20 billion, more than 70,000 employees, and more than 70 manufacturing and technology research centers around the world.

The client Whirlpool is seeking to realign its business strategy in order to maximize profit potential. The firm has traditionally focused on internal processes to drive profits, but recent industry trends and competitive shifts are forcing key executives to reevaluate the company’s competitive strategy. The client has asked you to make recommendations to that end. What would you tell the CEO of Whirlpool?

Additional Information: (Provide the following information to candidates if requested)

1. Company

a. The company Whirlpool Corporation sells a broad range of consumer appliances (ovens, refrigerators, air conditioners, vacuum cleaners, etc.) and accessories through two major outlets: major retail outlets such as Best Buy, Wal-Mart, Target, Home Depot, IKEA, etc, and online. The breakdown is 80% of sales through major retail outlets and 20% online.

Key Insight: $16 billion of the client’s sales are through brick-and-mortar retailers which gives those retailers an enormous amount of bargaining power (High Customer Power if using Porters’ Five Forces).

b. The firm has traditionally used cost-efficiencies to drive profitability, and as a result has not focused on organic growth initiatives (revenue enhancements). Therefore many functional areas have become siloed and myopic, attempting to maximize functional profits rather than company profits.

The interviewee should ask about the major functional areas, and which are the profit centers.

Cost Centers:

• Marketing
• Research and development (R&D)
• Manufacturing
• Call centers

Profit Centers:

• Product Sales
• Warranty and Service Contract Sales
• Appliance Parts (for repairs, upgrades, etc.)

c. The client has seen decreasing product sales, in large part due to consumer dissatisfaction with product and service quality. Executives believe that the blind pursuit of functional profits has driven focus away from delivering highly-valued consumer products and service offerings to the end-consumer.

Key Insight:

The client has maximized profitability from the cost-side, and now needs to search for ways to grow revenues — siloed functional areas means integrated initiatives have not been utilized and that profit-pursuit at the functional level may actually destroy downstream value, preventing optimal profit realization for the company as a whole.

2. Competition

The three major players in the industry, including the client, account for approximately 80% of all sales (the interviewee should inquire about the competitive shifts mentioned in the opening of the case).

The #1 and #3 players have recently merged and will now account for a combined 50% of all sales. Our client Whirlpool is the #2 player.

Key Insight:

The interviewee should recognize that the client’s market share is therefore 30% (and that the industry as a whole is therefore about $66 billion – because 30% of the total market equals $20 billion).

The merger of the two major competitors will give that new company significant bargaining power with the major retailer outlets in comparison to the client. It is therefore likely that the client’s retail outlet sales will continue to decline. (High Competitive Rivalry if Using Porter’s Five Forces)

3. Consumers

The client Whirlpool draws a distinction between the following two groups:

• Customers are the major retailers who purchase the client’s products for resale.
• Consumers are individuals that purchase products through retailers or online.

Key Insight:

The end consumer is not the direct profit-maker for the client — as a result, the client has traditionally not focused on the needs of the end consumers and have seen significant drops in consumer satisfaction with regard to the entire product experience (from researching the purchase, to the buying process, to warranty management to repair service).

Possible Answer:

The main crux of this case is how to deal with increased competitive rivalry in a commodities business that is in large part at the whim of the powerful retailing outlets that purchase their products for resale to the end-consumer.

1. The client Whirlpool should re-focus resources to increase selling through the online space to mitigate the increased competitive and customer power. However, have the interviewee think through the risks associated with such a strategy.

Potential Risks:

Retailers may pull the brand from their shelves if the client places too much emphasis on direct-to-consumer sales by sidestepping the retail channel. Can the client afford to lose the retail play completely given a current 80% sales level?

Many end-consumers may not be comfortable purchasing online or would prefer to comparison shop in-store before deciding on a major purchase. Is there a natural ceiling to potential online sales?

What additional costs will the client need to incur to increase direct sales? Does it have the internal capabilities necessary for such a play? (shipping, logistics, technology, human resources, etc.)

2. The client Whirlpool needs to focus on realigning internal processes, metrics and goals to maximize company profit rather than functional profit. This will require a renewed focus on the end-consumer and on product quality. In essence, the current competitive and customer situation dictates that the model of pushing product through retailers may not work for the client, as the newly merged competitor will be able to offer better deals to retailers and take over floor space. By focusing on the end-user the client can own the “pull” for its products, and product demand will force the retailers to work cooperatively with the client and stave off competitive threats.