MBA 644 2019 Individual Assignment 1

Thursday, 2019-10-03
Gautam Saseedharan
ID: 40122811
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In a Bind: Peak Sealing Technologies’ Product Line

Extension Dilemma (HBP 9-914-533)

A) Highlighted SWOT Analysis

Identifying and analysing the market and firm level factors which might be relevant to the
problem and decision at hand.

Strength

 Highest quality products in the market

 Industry leader in quality, performance and technological innovation
 Significant sales and profit growth in the past 5 years despite premium pricing
 Best trained and most knowledgeable sales force in the industry
 Strong corporate distribution network and loyalty

Weakness

 No economy grade product offering to compete with competitors

 Reduced focus of the sales force team on the K2 tapes after sales team realignment
 20% reduction in Distributors’ satisfaction level with sales force efforts within 3 years
 Difficulty in attracting cost conscious customers
 Lack of brand loyalty among customers

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Opportunities

 Market is open and receptive to low-price products

 Low investment and sales force needed to enter the economic market segment
 Competitors’ are technologically behind in the low-price product category as well
 End user market segments are expected to grow steadily
 Estimates for PST’s economic grade product were similar to that of closest competitor

Threats

 New competition in the economy market segment

 Cannibalization of PST’s premium products
 Loss of loyal customers who are brand conscious
 Lower barrier of entry for competitors who could imitate PST’s products
 Few K2-tape distributors have started stocking new competitor’s low-price product

B) Problem Statement
Should Peak Sealing Technologies respond to the threat posed by new down market products to
its high quality superior K2 tapes line of products by launching a lower quality economic product
while inevitably lowering its brand positioning or by continuing to stay course with advanced
technologically superior and high quality products without diluting its brand image and quality
standards which has served them well in the past.

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 C) What percent of the Total Annual Dollar Margin delivered by K-2 line of tapes
is being threatened by the prospective introduction of Ecoslim and Ecoplus
Wide?
The total annual dollar margin of K-2 line of tapes reduces by 6.6% with the prospective
introduction of Ecoslim and Ecoplus Wide. Please see below exhibits for the data used to arrive
at this conclusion.

Exhibit 1: Calculation of Annual Profits for Tensile products – Ecoslim and Ecoplus Wide
Selling Suggested
Tensile Manufacturer Price to Resale $ Margin Units
Products Variable Cost Distributor price for Tensile Annual Sales Sold

Ecoslim $ 80.8 $ 118.0 $ 159.9 $ 37.3 $ 675,000.0 5,719

Ecoplus
$ 108.0 $ 134.4 $ 213.0 $ 26.5 $ 2,000,000.0 14,877
Wide

Total $ 2,675,000.0 20,596

How to read Exhibit 1-

 Manufacturer variable cost for Ecoslim and Ecoplus Wide is assumed to be similar to the
preliminary estimates of PST’s products against Ecoslim and Ecoplus Wide
 Selling Price to distributor, Suggested resale and Annual sales based on resale are sourced from
the case document

 Formulas -
o Dollar margin for Manufacturer = Selling Price to Distributor – Manufacturer Variable
Cost
o Units Sold = Annual Sales / Selling Price to Distributor

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 Exhibit 2: Calculation of Annual Profits for K2-tape line of products
PST K2- Selling Suggested
tape line Manufacturer Price to Resale $ Margin Units
Products Variable Cost Distributor price for PST Sold Annual Sales Annual Profits
RD - 48 $ 76.7 $ 162.3 $ 200.6 $ 85.6 114,288 $ 18,550,085.3 $ 9,781,919.9

RDS - 72 $ 135.5 $ 243.9 $ 303.7 $ 108.4 63,822 $ 15,562,994.7 $ 6,915,751.9

GP - 48 $ 51.4 $ 76.9 $ 95.9 $ 25.4 12,929 $ 993,852.2 $ 329,043.1

LD - 48 $ 59.7 $ 112.9 $ 142.2 $ 53.1 78,177 $ 8,823,838.0 $ 4,153,544.0

HD - 48 $ 121.2 $ 210.1 $ 261.9 $ 88.9 6,872 $ 1,443,669.8 $ 611,058.2

RD - 72 $ 114.4 $ 191.8 $ 239.7 $ 77.4 53,850 $ 10,327,891.5 $4,169,067.0

HD -72 $ 142.2 $ 243.9 $ 303.7 $ 101.6 6,016 $ 1,467,001.6 $ 611,285.8

HDS -72 $ 165.9 $ 293.3 $ 367.7 $ 127.4 34,136 $ 10,011,747.4 $ 4,349,950.5

SD - 72 $ 264.2 $ 525.8 $ 655.0 $ 261.5 3,265 $ 1,716,573.8 $ 853,895.5

Total 373,355 $ 68,897,654.3 $ 31,775,505.8

How to read Exhibit 2-

 Manufacturer variable cost, Selling Price to distributor, Suggested resale price, Dollar margin for
PST and Units sold are sourced from the case document
 Formulas -
o Annual Sales = Units Sold * Selling Price to Distributor
o Annual Profits for Manufacturer = Units Sold * Dollar margin for Manufacturer

Methodology and Calculations:

 Given that Ecoslim and Ecoplus Wide are expected to challenge RD-48 and RDS-72, the annual
units sold for RD-48 and RDS-72 will decrease by the annual number of units sold by Ecoslim and
Ecoplus Wide (see table below)
Impact on Units Adjusted Annual
Products (RD48 – Ecoslim & RDS72 – Ecoplus) Adjusted Sales Profits
RD - 48 114288-5719 = 108569 $ 17,621,774.4 $ 9,292,389.1
RDS - 72 63822-14877 = 48945 $ 11,935,354.1 $ 5,303,731.7
GP - 48 12929 $ 993,852.2 $ 329,043.1
LD - 48 78177 $ 8,823,838.0 $ 4,153,544.0
HD - 48 6872 $ 1,443,669.8 $ 611,058.2
RD - 72 53850 $ 10,327,891.5 $ 4,169,067.0
HD -72 6016 $ 1,467,001.6 $ 611,285.8
HDS -72 34136 $ 10,011,747.4 $ 4,349,950.5
SD - 72 3265 $ 1,716,573.8 $ 853,895.5
Total 359740 $ 64,341,702.8 $ 29,673,964.8

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  Introduction of competitor products will impact the sales and subsequent profits derived from
RD-48 and RDS-72

Adjusted Annual Profits

Annual Profits (After competitor
(Before competitor introduction) Reduction in Profits
introduction) for PST
$ 31,775,505.8 $ 29,673,964.8 $ 2,101,541.1

 K-2 tapes line’s Annual Dollar Margin affected by introduction of Ecoslim and Ecowide Plus is
calculated as:

𝑅𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑃𝑟𝑜𝑓𝑖𝑡𝑠 𝑓𝑜𝑟 𝑃𝑆𝑇

= *100
𝐴𝑛𝑛𝑢𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝑐𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑜𝑟 𝑖𝑛𝑡𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛

$2,101,541.1
= *100
$31,775,505.8

= 6.6%

Endnotes
Case and data sourced from “In a Bind: Peak Sealing Technologies’ Product Line Extension Dilemma”, Harvard Business
School Brief Cases (HBP 9-914-533)

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