Plasco is a $3 billion U.S.-based manufacturer of flexible plastic products like
ID: 424055 • Letter: P
Question
Plasco is a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. Historically, Plasco has been the category killer for most of its products and has devoted tremendous resources to new product development on an ongoing basis—this research intensity has allowed the company to release, on average, a new product every day over the past 5 years. Despite its past strength and high brand awareness, Plasco's profitability has been eroded by dramatic increases in the cost of plastic resin, the primary input into its plastic products. Moreover, the retail channel has experienced rapid consolidation resulting in a shift in the balance of power from branded manufacturers like Plasco, to strong retailers like Walmart, who in turn have been unwilling to help Plasco absorb the higher resin costs. Enhancing Walmart's power is the fact that it can always turn to alternative highvolume sources of consumer plastic products like Sterlite. Further hampering Plasco's recovery is the emergence of feisty little foreign competitors like Zig Industries, a $250 million Israeli firm that has begun to take part of Plasco's market share in plastic toolboxes. Ironically, Plasco was the first company to offer plastic toolboxes some 20 years ago. This innovation changed the market dramatically and Plasco's first mover strategy rewarded it with a rapidly growing new segment and a dominant market position. Today, Plasco's toolboxes are viewed as rather boring, while Zig's products are ingeniously designed to catch the customer's eye in the aisle (better merchandising the product) and capture their interest (and pocketbook) with many new and novel features. Zig is also able to provide this new line of toolboxes at between 10 percent to 15 percent less than Plasco.
1. Is Walmart a competitor or a customer of Plasco? Or is it both? Explain your answer. Also, is the toolbox business a slow-, standard-, or fast-cycle business? Explain your answer.
Explanation / Answer
Walmart can be considered as both a customer and competitor of Plasco. Firstly, Walmart is one of the customers of plasco because the plastic products produced by Plasco are sold by Walmart to their customers. In short, Walmart is more like one of the distributors of Plasco’s products, hence the major profits of plasco can be attributed to Walmart.
Secondly, due to an increase in the costs of plastic resin, plasco has increased their prices thus resulting in the emergence of a private label by Walmart. This resulted in the increased product awareness of Walmart private label more than the Plasco’s products, thus resulting in the overall decrease in the sales of plasco.
The toolbox business was normally considered to be a very slow cycle business before Plasco came into the existence, because of the presence of metal tool boxes. Plasco was one of the pioneers to start the plastic toolboxes and plasco came into the market, the industry cycle became very fast paced and due to the core competencies of Plasco, plasco emerged as a single player for about 20 years, with no competitors.
Plasco’s process of new product development, such as releasing a new product for every day for over 5 years converted the industry into a fast cycle industry, where the lifecycle of any new product had become less than compared to the times when there was no plasco in the market.