Reference no: EM133252614

Question 1: Apply the concepts and methods described in the reading assignment to identify and describe the five elements of the firm's current competitive strategy (i.e. after all of Beth's changes).

Product Focus

Geographic Market Focus

Target Customers

Value Proposition

Business Model

Question 2: List the STRATEGIC CHANGES Beth implemented.

Question 3: List the new/additional TACTICAL ACTIONS Beth implemented to help execute her revised competitive strategy.

Klassic Kinetics: Reinventing with Next Generation Leadership

Founded in 1978 by George Baker, Klassic Kinetics has successfully established a niche position in the kinetic (involving motion) toy industry. Competitive pressures, though, have made it tough for the firm in recent years and growth in revenues and profits have been disappointing. In 2017, George handed over top management to his daughter Beth who had been with the company since completing her MBA in 2010. Starting as an accounts receivable clerk, Beth rose to be the firm's controller, chief financial officer, and then chief operating officer. With nearly two years of transitioning into the top leadership position, Beth is now executing her plan to reposition Klassic for greater long-term performance in a much more competitive market.

Based on a handful of items George designed and built for his own young children, George started Klassic with a small line of wooden blocks and aluminum building sets. The brand evolved in the 1990s to emphasize a broad portfolio of plastic snap-together building sets designed to stimulate curiosity, creativity, and manual dexterity in toddlers aged 3-5. Product and packaging design is performed inhouse at their Baltimore headquarters. Manufacturing and packaging is performed through strategic alliances with two factories in Monterrey, Mexico. The core products are made of a mix of recycled plastic resins in order to keep costs, and prices, low. This supported Klassic's historic market position as an affordable option for parents and educators with solid profit margins for specialty retailers who must compete with mass merchants such as Amazon and Walmart. Bulk-packaged products ship from the Monterrey factories directly to the company's six regional distributors located across the continental United States (and one in Ontario, Canada). These distributors account for virtually all of Klassic's revenues, with a small portion coming from the firm's direct sales of slightly damaged and discontinued items which are sold through inventory liquidators (who re-sell such items to retail outlets such as Big Lots). The distributors, who handle multiple specialty product lines in the toy market, sell and supply Klassic's products to roughly 300 specialty educational and preschool toy and supply retailers throughout North America. Klassic's relationships with and service to the distributor accounts are handled by three regional sales managers. Support to the retailers is provided by the distributors.

Due to the severe competition in the toy industry, from intense price competition at the retail level and pressures from low-cost producers competing directly from Asia, Beth's plan to jump-start the firm's performance involves a great deal of change. She and her father know the risks, but they have decided the firm must change a great deal to survive and succeed.

The first move Beth made was to expand the company's product breadth by acquiring HF Games, a small but innovative French manufacturer and distributor of premium quality battery-driven experiential toys for children (toy phones, computers, science kits, etc.). Klassic now imported these products from the factory in France and slod them in the US and Canada through the existing sales force and retail accounts. Reversing that, Beth expanded the old HF warehouse in France to take on a significant portion of Klassic's product line which would now be sold throughout Europe by HF's sales and distribution network.

The design and manufacturing specifications for Klassic's core plastic products were revised to improve the quality of the materials to support positioning (and pricing) the products for a higher quality and more attractive aesthetic level than the major mass market competitive brands. Manufacturing was transitioning from the Mexican factories to agreements with state-of-the-art contract molding, assembly, and warehousing/shipping operations in Taiwan. With these material and production changes, Klassic's core products would incur an average 14% net price increase to retailers but the changes would improve retailers list retail margins by over 25%. Although near-term unit sales were expected to drop slightly with this premium quality positioning, profitability would be much higher for Klassic. Market share and unit volume were expected to increase over time as the attractive margins gained attention of the channel resellers.

To further support the profit margins for both Klassic and their retailers, Beth dissolved the firm's agreements with the regional distributors and began building an in-house, direct sales organization. She recruited two of the leading salespeople from the top distributor thus bringing the Klassic sales team to five experienced professionals. This team was now responsible for direct sales to the top 80 specialty retailers (who accounted for over 70% of 2018 Klassic brand retail sales). Furthermore, Beth charged the team with gaining distribution through mass merchant retailers with specific attention to Target, Amazon, and Michaels Stores. Mass retail accounts were to be offered a program involving a custom (store) brand and packaging design to differentiate the products sold in mass retail from the core Klassic brand sold through specialty outlets. The sales team operated under a new incentive plan focused on sales growth goals. To support the team and direct retail accounts, two additional customer service representatives were hired. To further attract and support retailers, over 60% of the advertising budget was shifted from trade journals and co-op advertising linked with the old distributors to a new consumer branding campaign of full-page placements in two of the leading parenting magazines and their associated websites.