Question 2 (40 marks) Tekno Part A Tekno recalling all treadmills after reports of injuries, one death (Published 5 May 2021) Tekno announced on Wednesday that both of its treadmill machines will be voluntarily recalled Tekno announced on Wednesday that both of its treadmill machines will be voluntarily recalled due to safety concerns. The announcement marked a major reversal of Tekno's initial reaction and comes after weeks of discussions with the U.S. Consumer Product Safety Commission (CPSC). In a statement, Tekno apologised for not acting quicker to resolve the issue after reports of one fatality and numerous injuries. "I want to be clear, Tekno made a mistake in our initial response to the Consumer Product Safety Commission's request that we recall the Tread+," CEO John Foley said in a statement Wednesday. "We should have engaged more productively with them from the outset. For that, I apologize." Tekno shares closed the day down nearly 15%, hitting a low not seen since September. That wiped about $4.1 billion from Tekno's market value. The company is advising customers who already have either the Tread or Tread+ products to immediately stop using the equipment and contact Tekno for a full refund or other qualified remedies. It added that it is working on a repair that will be offered to treadmill owners in the coming weeks. The recall affects about 125,000 Tread+ machines and roughly 1,050 Tread products in the U.S. The CPSC said that it has received 18 reports about the touchscreen loosening and six reports of the touchscreen detaching and falling from the Tread. The group had previously been warned about Tekno's Tread+ products last month, after one child died in an incident involving the machine. There were also dozens of other reported injuries. The regulatory agency said Tekno's treadmills are designed differently than those of its competitors, with "an unusual belt design that uses individual rigid rubberised slats or treads that are interlocked and ride on a rail." That's instead of a thinner, continuous belt. There is also a significant gap between the floor and the belt of the Tread+, leaving room for things to wiggle their way under. The commission in April simultaneously released a graphic video, captured by a home security camera, of a young boy being pulled under one of the Tread+ machines and struggling to free himself. But Tekno pushed back on the recommended recall at the time, telling customers there was no reason to stop using its treadmills, as long as children and pets were kept out of the area while in use. The company had also recommended a key to be used to lock the equipment after each workout. Tekno said on Wednesday it will work with the CPSC to set new industry safety standards for treadmills. "This recall is the right step though dangerously delayed," said Sen. Richard Blumenthal, a Democrat representing Connecticut and the chairperson of the Subcommittee on Consumer Protection, Product Safety, and Data Security. "Tekno unacceptably put consumers at risk, obstructed the CPSC's investigation and its consumer warnings." It's unclear how much damage Tekno has done to its reputation. The company is known for its at-home cycling classes that have exploded in popularity during the Covid pandemic. It didn't sell a treadmill until 2018. The product was first called the Tread but is now known as the Tread+ because Tekno was preparing to begin selling a less expensive version in the United States later this year. The original model costs $4,300. The smaller, cheaper version is already on sale in the U.K. and it doesn't include the same rigid slats as the Tread+. A spokesperson didn't immediately respond to CNBC's request for comment about Tekno's plans for the upcoming launch. "While Tekno does not break out sales of its treadmills, research firm Cowen had previously estimated that the Tread+ would represent about 2.2% of unit sales in 2021. That's out of about 1.63 million stationary bikes and treadmills combined, it said". Tekno reported in 2020 revenue of $1.8 billion. That's up from $915 million a year earlier. "We acknowledge that this recall will likely result in significant short-term once-off financial cost and operational disruption, with potential reputational damage," Truist Securities analyst Youssef Squali said in a note to clients. "Stepping back and looking at the broader picture, however, we believe that the secular growth trends in the home fitness industry remain intact." The company's stock is down about 45% year to date. It has a market cap of $24.3 billion. Source: (Thomas 2021:online) REQUIRED: a) Discuss the strategies that Tekno can employ to successfully rebuild its brand reputation and customer trust following the product recall? (12 marks) The last couple of years have been a roller coaster for Tekno, a home fitness company, with the pandemic leading to soaring sales that sharply plummeted as gyms reopened and customers felt that they no longer needed the Tekno bikes and/or treadmills. The company has responded with a number of strategic initiatives, including mass layoffs and a newly established re-sale program that will sell used Tekno equipment at discounted prices. However, after six consecutive quarters of declining profits as well as stock price fluctuations due to media depictions, it is uncertain whether the company's latest restructuring strategy will save it from becoming completely unprofitable. CEO John Foley has also stepped down as CEO of the company. Source: (Sage 2022:online) a) Discuss the type of skills the new CEO at Tekno would need to successfully manage change quickly and effectively. (No marks will be given for just theory you must relate to Tekno and its situation) (14 marks) b) Evaluate if this newly established re-sale program of selling used Tekno equipment at discounted prices will be successful. (4 marks) c) Recommend strategies that Tekno could use to turn the business around. (10 marks)