CASE ANALYSIS

Classic Knitwear and Guardian: A Perfect Fit?

MARKETING-II DATE OF SUBMISSION-03.11.2012

SUBMITTED BY:SECTION-C, GROUP 13: Abhijit Das- 2012PGP005 Ashwin Vijayan- 2012PGP073 Kumar Abhishek- 2012PGP178 Payal Anand- 2012FPM10 Rajat- 2012PGP292 Sumit Bapuji Gedam- 2012PGP382 Vikash Kumar- 2012PGP438

1. Product Market Fit Classic Knitwear operated in $24.5 billion category of non-fashion casual knitwear. The branded side of non-fashion knitwear market was dominated by three large manufacturers: JamesBrands ($4.5 billion), FlowerKnit ($1.25 billion) and Greenville Corporation ($0.63 billion). These big brands operated on gross margin of around 30-40%. In unbranded segment, Classic competed with little known firms like B&B Activewear which held market share of 23.6% and the Big Three were also involved in this market. Market Share JamesBrands $4.5 billion 18.37% FlowerKnit $1.25 billion 5.10% Greenville Corporation $0.63 billion 2.58% There was a customer need for protection against the rising insect-borne illness and the customers were dissatisfied with few prevention products available in the market. The category is virtually non-existent in the mass market as the present players in the insect repellant clothing only sold in niche markets. Company Sales

Product Company Fit The product offered gross margin 38~39% which would enhance the margins of Classic Knitwear from 18% which was substantially lower compared to industrial standards. Guardian brand had high level of awareness and it had patented insect-repellant clothing technology. The product had a good market potential due to its innovativeness. This advantage can be leveraged by the production efficiency of the company to achieve a sustainable competitive advantage. The company had a moderate cost advantage over other US producers due to high-volume, low SKU production runs. The addition of the new product meant addition of 16 SKUs. This new product might lead to some inefficiency in its present system.

2. Response of the trade(channel) Presently, the retailers were provided with 50% margin on branded knitwear and 40% margin on private-label knitwear. The new product would provide the trade a 45% margin. Our opinion is that displays would occupy a large amount of retailers space and also the retailer margin is on lesser side i.e. 45% Vs 50% offered by other

brands. This would not encourage the retailers to stock the product. But the provision of trade promotion and advertising allowance might induce them to stock the product. The company projected sales would be 10,000 displays within two years of product launch, of which 50% would be in discount stores, 25% in general merchandise stores, and 25% in sporting goods and apparel stores. We think that as the company has no experience in selling to these retail channels, it has to spend considerable resources to develop the channel. The company would make the Guardian shirts available to its existing wholesale clients for distribution to interested screen painter in a later period as it has currently decided to brand the product as Guardian Apparel.

Response of the Consumers Based on the consumer research, 18.5% of the thousand respondents (185 respondent) were interested in the product. Based on past market research experience, 60% of the respondents who indicated they would definitely try (38%) would do so (22.8 %) within the two-year introduction period. The company also predicted that at least 50% (11.4%) would buy an additional shirt the following year.

3. Analysis of proposed marketing program: They are launching the product in the sole brand name of Guardian Apparel, and have decided not to include the name Classic Knitwear The launch is scheduled in January 07, which might not be the perfect time to launch this product as its sales are supposed to be seasonal, it would be better to launch at the end of winter so that the sales pick up instantly The number of SKUs is 16 which include 4 designs in 4 different colors. As the product is specifically meant for outing, the number of SKUs can be reduced by using only the two most popular colors. Retail prices are comparable to other national brands which is an apt decision to provide sufficient trade margin as the pricing is not supposed to hinder the sales The market research is not extensive and should not be relied upon fully for making important decisions Initial distribution is planned through major sporting goods and apparel chains which would support the establishment of the brand in the introductory phase. The 3 No. of sales reps to focus on this sector might not be sufficient for the whole country.

4. License Agreement This agreement forced Classic to meet series of steadily rising annual net sales target over the first four years and target for 4th year must be met in each subsequent year. If it failed to meet the requirements then the license would be cancelled and void.

There are loopholes in the branding of the product. Only Guardian logo is being used on the product. It may create problems for Classic if there is any conflict between companies over agreement in future. With this agreement a short term benefit can be visualized as the determined marketing investment has been reduced to $3 million from initial expectation of $8$10 million. As the brand value of guardian will increase by its promotion they should also bear some part of marketing expense.

5. Break Even Volume of the product BREAK EVEN VOLUMES Manufacturer's Selling Price Cost Of Goods Trade Promotion (5%) Advertising allowance (10% for 20% retailers) Contribution Margin per Shirt Breakeven Sales(Shirts) for 2 years Assumptions I. II. III. Fixed Cost = $3.0 M(Advertising) + $ 510000(Salary of 3 Sales people for 2 years = 85000*3*2)+ $ 100,000(licensing cost). Trade Promotion = 5% off-invoice. Advertising allowance = 10% of the 20% of retailers. 17.87 10.82 0.8935 0.3574 5.7991 622510

6. Demand for the product Demand Estimation US Men Population (age 15 and above) 10,00,00,000

Target Market(18-35) population(Assume 60% of Total Population) Awareness among Target Audience in two years(25%) Awareness in first Year(12.5%) Awareness in Second Year(12.5%) Consumers interested in the product as per survey (185/1000) in first year

6,00,00,000 15000000 7500000 7500000 1387500

Consumers "definitely would buy" as per survey(38%) in first year Consumers that would buy based on past experience(60%) in first year Consumers that would buy in second year(Additional Shirt) Consumers that would buy based on past experience(60%) in second year Total Demand in 2 years(Estimated)

527250 316350 158175 316350 790875