SNAP.

ON TOOLS CORPORATION

Differential Advantage through Channel Strategy

lntroduction

The employee's name wasJoeJohnson, and he had

25. Joe was promoted because of his manufacturing knowledge as well as his marketing skills. After
a few months, Joe recognized a flaw in the product. He
asked, "\rVhy buy a handle in order to use the socket?" His
idea was that instead of buying a socket and handle
for each size, buy only one handle and many different
sizes of sockets that would all fit on the same handle (see
Exhibit 3). This idea would significantly reduce the cost
of wrenches and would require less storage space. Joe
presented his idea to the management of American
Grinder and it was immediately refused. 'We sell tools,

just turned
Snap-on Tools is the world's Iargest manufacturer and
distributor of tools and related service items for professional mechanics. Its principal products are hand tools,
including wrenches, screwdrivers, hammers, and similar
products, as well as pneumatic impact wrenches and chisels, power-assisted drills, tool cabinets, and electronic automotive diagnostic equipment. In all, 12,000 different
products are manufactured by Snap-on. These products

are used primarily for automotive service and maintenance, but they are also used in manufacturing and other
repair and maintenance activities.

The products are sold through 5,000 independent

dealers throughout the world. The dealer group accounted for 81 percent of 1989 sales. Each dealer operout of a walk-in display van or similar vehicle that carries an extensive inventory of products and parts directly
to customers. Total 1989 sales for Snap-on were almost
$891 million. Exhibit 1 provides additional sales data for
the companv.
ates

Company History
The history of Snap-on Tools begins in 1919. The nation
was recovering lrom World War I and many tactories
were attempting to shift from military to cMlian production. One of these factories, American Grinder Manufacturing Company based in Milwaukee, had just promoted
an employee to manager of the socket division. This division was in the business of making one-piece wrenches
(see Exhibit 2),
572

not toys," said management,

Undaunted,Joe quitAmerican Grinder, found a partner, hired two salesmen, and began producing the new
wrenches himself. Using the slogan, "Five do the work of
fifty," he was able to sell 500 C.O.D. orders in the remainder of thatyear alone. In 1920, Snap-on Wrench Company
was legally

incorporated.

The company grew tremendously during the next

fewyears and by 1929 Snap-on had spread to 26 branches
and employed more than 300 salesmen. In 1930, Snap-on
Wrench Company merged with Blue Point Tools to form
a new tool-making giant, In 1931, Snap-on took its first
corporate step on international territory by establishing
a Canadian subsidiary. The sales orders were increasing
faster than the plants could fill tJrem, and profits were increasing every year. But then 'the Great l)epression swept
over the nation,

During the depression, Snap-on salesmen introduced two new sales strategies that kept them (and the
company) from sinking. The first idea, still rather novel at
that time, was referred to as time payrnent selling-that is,
extending credit and accepting monthly payments. The

Company

History

573

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second ideawas so successful that Snap_on Tools adopted

it and turned it into a competirive advantage. The idea

was to "pre-sell" tools to customers for future use. The
salesmen would put an order

in but would not ship the

tools or charge customers until the economic situation
improved. These pre-sale orders were a big hit and were
eventually referred to as "dream lists.,'
The depression had eased by 7gZZ, so Snap_on Tools

opened its second manufacturing plant in lllinois.

By 1939, the company had fully recovered from the de_
pression and declared its first dividend payrnents to
stockholders.

The next major event that affected the history of

Snap-on Tools was World War IL During this period, gov_
ernment demand was very high. Tanks, jeeps, boats, air_
craft, aud othel war.equipment had to be repaired. Snap_
on Tools signed a contract making it a major supplier of
industrial tools to the government during the war, But although the manufacturing plants ran at full capacity, the
many civilian customers could not get their orders filled
at all. Management's answer to this problem was to re_
lease any excess stock to the salesmen. Because the excess
tools were shipped to the individual salesmen rather than
to customers, it soon became common to see Snap_on

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574

Case

Snap-on Tools Corporation

salesmen with cars loaded with tools and mechanical accessories. In effect, their cars and trucks became both

mini-warehouses and display floors for the Snap-on tools

they were selling, Although this did not completely solve
the demand problem, it soon became the normal way of
selling Snap-on tools for several reasons: (1) it reduced

the inventory carrying costs of the company; (2) it met

some of the civilian demand; (3) it was a strong sign of
goodwill toward civilian customers; and, most important,
(4) it added to the earnings of the Snap-on salesmen. In

fact, this new distribution strategy became so effective

that the logical next step was to let each salesman operate as an individual business with Snap-on franchising
rights and an assigned territory.
After World War II, with an innovative and strong independent dealer distribution system in place, the key
emphasis at Snap-on was on marketing, The company de-

veloped and planned effective advertising campaigns,

coupled with a strong commitment to providing customers with the tools and equipment they asked for. This
marketing focus continued into the 1950s with Snap-on
diversifring into new markets primarily through acquis!
tions, both national and international.
The 1960s were a period of increased technology
and innovations in the automobile market. Cars were becoming more complex, stimulating a need for electronic
diagnostic and tune-up equipment. Snap-on satisfied this

need by matching manufacturing with marketingdeveloping a myriad of new and innovative products and
marketing them aggressively through its dealers. As market share and profits grew, Snap-on was one of the first
U.S. companies to own its own mainframe computer for
order processing and inventory management, With this
strong grounding in manufacturing, marketing, and distribution, Snap-on was well prepared for the 1970s, and
the next ten years would show the biggest growth in the
history of Snap-on. Between 1969 and 1973 sales doubled; between 7973 and 1979 sales doubled again to $373

million.
In the early 1980s a recession led to a significant decrease in demand for new tools and, hence, sales growth
slowed during the first few years of the decade. Then in
the mid-l980s sales picked up so that, by 1989, salcs had
more than doubled over the 1980 level.

Ghannel Strategy and Structure

The Snap-on Tools channel structure stresses a very
strong and well-supported effort on the part of its
independent mobile dealers to provide an extraordinary

standard of customer service that is unique in the industry. The dealers bring a wide assortment of products directly to the mechanics in their places of business, when-

ever needed, and provide product information and

servicing. In effect, the entire range ofresources ofSnapon Tools Corporation is brought right to customers'
doors through the mobile van dealer.
Snap-on's 5,000 independent dealers are supportecl
by 75 company-owned sales branch/warehouses that arc
supplied by six manufacturing plants, all located in thc
United States. Exhibit 4 provides an overview of thc
channel structure for Snap-on Tools.

The independent dealers replenish their inventories, usuallyweekly, from the branch inventories. Because

dealers' territories are generally close to a branch, the

combined inventories ensure that the vast majority of
customer product needs can be filled by their dealers
quickly, if not immediately.
The most direct and important connection betwee n
the independent dealers and Snap-on Tools is the fielcl
manager. The field manager is an employee and former
successful dealer who works closely with a small dealer

group. Field managers undergo extensive training in

product knowledge, sales techniques, inventory management, tool displays, and overall dealer business operations. They in turn transfer the benefis of this training to
individual dealers by demonstrating and helping dealers
to sell new tools and more sophisticated diagnostic
equipment. Field managers also provide a critical communications channel to Snap-on Tools regarding shifts in
customer demand, reaction to new products, and the eI:
fectiveness of company's marketing programs.
In addition to the marketing and service support for

the individual dealer provided by the field

managers,

Snap-on provides a variety of other types of support for

its dealers. For example, dealers are able to offer clrsn
tomers fast and reliable repair service for air tools, tune-

up equipment, and other items through one of six

re-

gional centers. To mechanics, who depend on tools and

equipment for their livelihood, prompt repair service is
of immeasurable'"'alue.
Mechanics have similarly grown to rely on the fast replacement of parts and other needed items not normally
carried by dealers. A national parts distribution center,
operating out of Kenosha, Wisconsin, provides such a
service. Parts are routinely shipped within 24 hours of receipt of the order. Because most dealers provide loaners
for the short time that a customer waits for a repaired
tool or needed part, the customer is still equipped with
tools and equipment to perform any automotive repair,
These services demonstrate to the customer that his

DiscussionQuestions b7b

Notes: (1) 6 manufacturing plants, all located in the United

Stares
(2) 75 company-owned sales/wrehouses located in the
United States and abroad
(3) 5,000 dealers located in the United States md abroad

dealer has a thorough understanding of the demanding

nature of an auto mechanic,s business and a commrt_

ment to satisf' those demands.

Several other elernents play a key role in the Snap_
on Tools channel straregy. First, Snap-on assigns territo_
ries to each ofits dealers. They are expected to cultivate
the assigned territory extensively but not venture outside

ofthe territory in search ofadditional business. Second,

the company operates on an exclusive dealing arrange_

ment with its dealers, They are required to sell only Snap_
on products and no other competitive or even comple_
mentary products. Third, Snap-on expects dealers to
carry a full assortment of Snap_on products in their mo_
bile vans so that customers are provided with high levels
of selection and choice in tools and equipment. Finally,
Snap-on supplies much of the inventory to its dealers on
a consignment basis whereby the clcalers do not have
to
pay for an item until ir is sold. Snap-on believes that

this

strategy plays a vital role in sustaining its dealer network

it reduces dealers' capital requirements and the
cost of dealer start-up, while improving dealer cash flow.
These benefits are especially important during ad.verse
economic conditions. Snap-on also feels that its consign_
because

ment strategy helps the company to recruit the most

highly qualified and motivated dealers.

Discussion Questions
1.

What do you see as the most valuable benefits that

Snap-on Tools offers to its customers? On what are
they based? Discuss.

2,

Discuss the rationale underlying the main features

of the Sn+p-on
srrareg-y.

Tocrls

channel structure and

4t+