Since the 1960s, LKK Technologies Inc. has established a reputation for producing prestige audio products and aims to set the standard for performance, reliability and service. The company’s first product, namely the LKK Record Player, is a high quality vinyl record player built into a wooden cabinet made of the finest quality jarrah.

In the late 1980s, LKK started producing CD players, which was in demand at that time. In order to maintain a strong commitment to keeping with its brand image, LKK ensured that the new product also met the highest standards of quality in the audio industry. MP3 players emerged in the early 2000s, which resulted in another new line of products. It was followed in more recent years by the LKK USB Turntable, which can be plugged into a computer to convert music from vinyl records into digital format so that it can be played on portable music players. The USB Turntable was introduced as a result of the Vinyl Revival.

Sebastian Burwood, the company’s Chief Financial Officer, had become concerned about the performance of some of the products in recent years. As shown in the following product line sales report (See Table 1 below), even though total sales were still growing at an acceptable rate of approximately 10%, the sales mix was changing significantly. The concern was particularly strong for the Record Player because of the sharp decline in sales and the high costs of producing that line. Due to the high level of craftsmanship required for the Record Player, it has always had higher than average costs for labour and materials. Furthermore, attracting and retaining the highly skilled workers necessary for this product line was becoming more and more difficult. In 2015, the workers in the LKK Record Player line were older, more experienced and very loyal employees who were paid well because of their skill and seniority. These workers displayed the highest level of craftsmanship in the company and, some would argue, in the entire industry. However, not many of the newer employees seemed eager to learn the skills required for the manufacture of this product line.

Moreover, the company’s ability to meet customer demands was constrained by the limited manufacturing capacity. A sharper than expected increase in sales for the USB Turntable had resulted in delays in production and a backlog of orders. At the same time, plant managers had been scrambling to find the plant capacity to meet the demand. Some plant supervisors had suggested shutting down the Record Player line to increase capacity for the production of the USB Turntable line. However, eliminating the Record Player line would make obsolete about $287,000 worth of raw materials inventory that can only be used in the manufacture of the Record Player.

Kelly Walters, the firm’s sales manager, reported that sales of the Record Player were more and more difficult to find and that demand for the new styles was increasing as portability was now a criterion for music enjoyment. She also noted that there were significant sales differences based on the areas. The USB Turntable was popular in South Australia and West Australia, and the CD players and MP3 players were popular nationally. The Record Player tended to have strong support only in the Northeast states. In some sales districts in these states, Record Players represent a relatively high proportion of total sales.

Mitchell Barrett, the firm’s CEO, is aware of these concerns and has decided to set up a task force to consider the firm’s production options and strategy with regards to these problems.

  

Table 1: Product Line Sales Report

Record Player CD Player MP3 Player USB Turntable

2016 20% 33% 45% 2%

2017 16% 40% 40% 4%

2018 14% 40% 40% 6%

2019 9% 40% 40% 11%

Required:

• How would you describe LKK’s competitive strategy? Briefly explain.

• Develop a SWOT analysis for LKK Technologies Inc. The analysis should include two items in each category: Strengths, Weaknesses, Opportunities, and Threats.

• On the basis of your answer to requirements (1) and (2), what recommendation would you make to the task force?