Problem Statement

In what ways can Peak Sealing Technologies overcome the recent threat posed to its
product line by new entrants in the economy grade segment of the sealing tape market

Background
Peak Sealing Technologies is one of the leading firms in the adhesive industry who was
recognized as a leader in quality, performance and technological innovation. Its K2-Tape
product line was known for its patented adhesive technology and high quality materials,
providing the best sealing solutions to its customers. The product characteristics included
more durability, holding force and higher heat/cold resistance for more challenging sealing
applications. Even though it was relatively costlier than other alternatives in the market, its
value proposition focussed on the lowest overall cost to the end user through superior
performance. End-users were mainly in packing, retail and manufacturing businesses, with
speciality customers in military supply and hazardous materials.
There were many competitive tape products in the market. Two of its competitors were:
Ipack: Manufactured low quality BOPP backed product. End user pricing was often 25-35%
below K2-Tape
Tensile: Manufactured economy BOPP film backed carton sealing tape. They entered the
Boston metropolitan market with great success

Issues
Even though PST’s K2-Tape offered the most advanced adhesive technology, it still had to
compete against inferior, economy grade products such as those of “Ipack”. The Ipack tapes
lacked K2-Tape’s strength and consistent performance, but its prices were 25-35% below
K2-Tape. Another new entrant called “Tensile” also posed potential threat to K2-Tape line
after its great success in Boston metropolitan market. There were also signs of other small
regional firms coming up with similar economy tape operations.
Another issue was that, since the acquisition of a packaging systems firm in 2009, PST
realigned its sales force, shifting its initial focus from K2-Tape products to all their current
products. Due to this, some distributors complained that PST sales team were too busy with
other products and did not spend much time servicing existing K2-Tape customers and
developing new business.

Analysing the position of PST through Porter’s 5 forces model:

Bargaining Power of Suppliers: It is generally low, since the supply materials are fairly
simple and easily available.

Bargaining Power of Buyers: Moderate. Sealing tape market does not have a loyal
customer base. There are many different options available. However, PST is known for its
advance technology and high quality products and some customers value this the most
because sealing tapes are an important component in packaging and manufacturing sectors.

Threat of New Entrants: High. Barriers to entry in very low. Technology to create packing
tape is fairly simple

Threat of Substitutes: High. Even though the quality of PST’s products is superior, there are
many other options in the market for customers who don’t require the best of quality

Competitive Rivalry: High. Even though PST is a reputed company, factors such as low prices
allow rivals to break into the market easily

Management Dilemma
Because of the above issues, PST had to decide whether to stay the course with advanced
technology, high quality products or enter the economy grade segment.

Alternatives
1. Design a new product in the economy grade segment:
This new product would utilize a simpler, non-patented formulation with BOPP
backing and would be a direct alternative to the available economy grade products
like those of Ipack and Tensile. The production wouldn’t require any major capital
investment and can be set up with minimal start-up expenses. But for a company
known as a technology leader in high quality premium grade products, there is a
chance of dilution of brand equity. Also, PST would have to put in a lot of time and
effort to position it as a good quality economy product. There is also a chance of
cannibalization of its own product line since many customers who would buy from
PST for general purpose uses because of the brand value would move to its cheaper
alternative in the same line.

2. Stay course with advanced technology, high quality products:

The quality of products of closest competitors in the economy segment - Ipack and
Tensile were not at all up to PST’s standards. Initial test results proved that Ipack was
vastly inferior while Tensile proved to be halfway decent for uncomplicated, regular
duty applications. Both the products were expected to deteriorate significantly for
anything beyond undemanding regular duty applications. Hence, K2-Tapes seem to
be sitting quite well above both the products and there may not be any implications
for not introducing a new product in the economy segment for PST.

3. Reduce the prices of existing product range:

As can be seen from Table C in the case, the margin for PST is quite high for all its
products. Hence, they could cut some margins from the products such as RD-48 and
RDS-72, which are closest to the competitors’ products in terms of specs, in order to
make them more economical

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Recommendations
PST should not move into the economy grade segment and continue in its course with
advanced technology and high quality products because they are known as a premium
brand and moving into the economy segment would dilute the brand equity drastically.
Moreover, its closest competitors in the economy segment are not even close to PST’s
quality standards. So, the ideal solution would be to reduce the margins of products like RD-
48 and RDS-72 a little bit and educate the customers about the ill effects of poor quality
sealing solutions through the distributors.

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