Mkt 210 Sp 21 Quiz 2 Hard Knocks Locks Incfor Ten Years Aida S ✓ Solved

MKT 210 SP 21 – QUIZ #2 – Hard Knocks Locks, Inc. For ten years, Aida Santos had grown her business, Hard Knocks Locks, based in Boston, Massachusetts. An urban cycling enthusiast since her years as an engineering student in college, Aida knew that securing one’s bike against theft was a multiple-times-per-day activity for many cyclists all over the world. Unsatisfied with the choices available to her (after having had two bikes stolen!) she partnered with her friends Harry, An, Bobbie and Morgan to design and build a nearly un-breakable bicycle lock. Aida and her partners started Hard Knocks Locks with their own money.

After a few years in business, Hard Knocks received a major M investment from a local venture capital firm in exchange for 51% of the firm’s equity. That investment meant that the venture capital firm had a lot of control over Hard Knocks’ decision-making, but it allowed the company to grow to where it was now – million in sales last year, with a very positive reputation, and product in independent cycling shops all over the United States, and now even in some stores in Canada, the UK and Italy. And, even with all that growth – now up to 80 employees between headquarters and factory – Aida loved that Hard Knocks had become more and more like a big family, with high loyalty and low employee turnover.

The Hard Knocks SuperLock, a “u-shape†style lock, uses an incredibly strong steel alloy (a mix of high-carbon steel, tungsten and titanium) and a proprietary, patented locking mechanism of Aida’s own design. Promoting the lock on social media & YouTube, using videos showing various power tools having tremendous difficulty trying to cut through or break the lock, has been hugely successful. Further, Hard Knocks guarantees the locks against breakage for ten years; the company’s “We’ll Buy You A New Bike!†promise is well-known in the cycling community. Aida has never once had to buy a customer a new bike as a result of lock breakage. The brand has a very strong reputation among bike commuters, bike messengers, urban delivery riders, and cycling enthusiasts.

Aida is very proud of the brand equity that her team has earned. The SuperLock has always been made in the USA, using only US-sourced materials, at the Hard Knocks factory in Boston. The ability to say that SuperLocks are entirely “Made In The USA†has been a big part of their promotional and positioning strategy. The SuperLock has an MSRP of 0. Typically, Hard Knocks sells the locks to the retailers in their marketing channels for about per unit.

The materials and labor costs for each lock amount to , and when packaging and shipping are factored in, the break-even point for a shelf-ready lock delivered to a retailer is . Sales were projected to grow about 4% this year. Not bad, but not as strong as the investors were hoping, and she’d been hearing about it from them. The investors had hinted at forcing “some management changes†if growth did not improve. Still, Aida was optimistic for the current year.

A Major Growth Opportunity For the last several weeks, Aida had been in talks with SuperBigMart, a huge national chain of big box stores, to get Hard Knocks Locks on to their shelves. This would be a major opportunity – it would mean increasing their sales from approximately 225,000 locks per year to about 400,000. This could be huge. At their current pricing, this deal could almost double the firm’s revenues, and likely profits too, in one shot. That would be a heck of a lot better than the 4% her marketing team had been projecting.

Earlier this week, Aida had told Louis Graham, the representative of the venture capital firm who held 51% of Hard Knocks equity, about the opportunity at SuperBigMart. He was very enthusiastic about the opportunity, as this could mean a huge reward for the investors. “A contract for 175,000 units? Nationwide exposure in the nation’s largest retailer? That would be amazing, Aida!

The long-term growth prospects are tremendous!†Aida could hear Louis typing on his computer. “Have you ever heard of MegaBits, the power drill company?†he asked. “They made a deal with SuperBigMart in 2016. The drills sold like hotcakes. Then in 2017, SuperBigMart quadrupled their order.

That could be us, Aida! You have the best bike lock on the market. They’re going to fly off the shelves.†Aida had to admit that it was a very exciting prospect. “You have to do this, Aida,†Louis said breathlessly into the phone, “the team here is 100% in favor of you doing this. Make it happen!†However, Aida’s next conversation, with Suzanne DeTomaso, SuperBigMart’s Director of Purchasing for Sporting Goods, had left her feeling worried and anxious.

“These locks are fantastic,†Suzanne had said. “We’re really excited about having them in our stores. But, as you know, our customers may not be as enthusiastic about your product at your current MSRP of 0. I mean... a hundred dollars... for a bike lock? That is an absurdly high price for our main customer segments, it’s far outside their comfort level for that kind of product.†Aida had said, “Well, of course, for the type of volume you’re talking about, we could lower our unit selling price to you from the usual per unit to, say, per unit, a drop of 12.5%.

Would that work?†“Goodness, no!†Suzanne said with a laugh. “We’d want to sell this product to the customer for about , and even at that price, it’d be well above the usual price for locks in our stores.†Well of course, thought Aida, that’s because the locks you sell are cheap garbage. “Realistically,†Suzanne continued, “we’d need the unit price you charge to be around per lock delivered, shelf-ready. That’s our final offer. So, if you can do that, we’ll get started.

And if they sell like we think we’re going to, the sky is the limit – you know we like to scale up aggressively!†Aida brought this news to her team. An Nguyen, Hard Knocks’ Director of Marketing, was horrified. “? That’s what it costs us just to make the lock, forget getting it packaged and shipped!†he said. “We can’t do that, Aida... we’d go broke.

Our minimum break-even price for a shipped, packaged, shelf-ready lock is .†Aida told the team that the investors were quite insistent about getting a deal with SuperBigMart. And she herself was excited about seeing Hard Knocks Locks becoming a household name. “There has to be a way. Put your thinking caps on and come back with some options. We need to move fast.†Potential Solutions A few days later, Aida held a meeting of her team to discuss four possible options.

The team didn’t look happy. “Option 1,†said An Nguyen, “is to just take a loss on the units we send to SuperBigMart. We’d lose about per unit sold, altogether. Our overall gross profit margin, the profits before any operating expenses, would drop from 37% to 13%. That would have a pretty harsh effect on our bottom line.

Instead of almost