Case facts

 Classic Knitwear operated only in unbranded category

 Business comes from wholesalers (screen printing) and retail channels (private label
sector)
 16.5% market share in wholesale category. 1% in private label sector
 State of the art off shore facility in Dominican Republic gives them moderate cost
advantage over competitors due to low SKU count and economy of scale.
 Threat of other big players adopting similar strategy.
 47.7% and 42.8% sale to Mixed retailers like Walmart and Clothing Specialist Retailers
like GAP respectively.
 Average manufacturer’s gross margins in Private Label Sector are 10-20% while it is 30-
40% in Branded Sector.
 Special seasons (Christmas, Back to school etc) constitute 50% of annual retail knitwear
sales.
 Current gross margin of Classic is 18%. They are targeting 20% by 2006.

The guardian project strategy

 Licensing partnership with Guardian to produce insect repellant clothing.
 Guardian credibility – Market leaders in insect repellents
 EPA registered (Category IV)
 New patented technology to give protection for 70 washes (3 times longer than available
brands).
 Guardian has 50% unaided awareness among 18-35 year old males.
 Among these, 95% have good impression of brand.
 Marketing cost of Classic will be reduced to $ 3 million.
 CFO skeptical about investing in unproven technology
Marketing strategy
 Cardboard Display Units (Outdoor activity themes)
 12 dozen shirts across 16 SKUs / display unit
 4 styles: Short Sleeve, Long Sleeve, Polo & Fleece
 4 colors/ style
 Complimentary display unit for stores which place minimum orders of 12 dozen shirts
across all 4 categories + 24 dozen shirts as back up.
 Cost per display will be $ 100 if Classic gets a min order of 10,000 displays
 Shirts with Guardian Logo to tap their market recognition. No Classic Knitwear branding.
 Pricing at par with same quality national brands.
 45% trade margin.
 Unconditional 1 year money back guarantee.
 Target to set up 10,000 units within 2 yrs of launch to achieve $ 100/unit cost.
 Product distribution through major sporting goods and apparel chains(25%), general
merchandise chains(25%) and discount chains(50%)
 Eventual entry into existing wholesale client market by distributing to interested screen
printers
 3 additional sales representatives to be hired to meet increasing sales demand. Total
annual salary cost of $ 255000.
 Advertising campaigns to target men aged 15+ (100 million base)
Q. Consumers and the trade response to the Guardian marketing program?
Ans. 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.
Q Problems in the guardian 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’ and hence would not get any brand
recognition

 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.

 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.

BREAK EVEN ANALYSIS

BREAK EVEN VOLUMES

Manufacturer's Selling Price 17.87
Cost Of Goods 10.82
Trade Promotion (5%) 0.8935

Trade Promotion (5%) (10% for 20% retailers) 0.3574

Contribution Margin per Shirt 5.7991
Breakeven Sales(Shirts) for 2 years 622510

Assumptions
I. Fixed Cost = $3.0 Million (Advertising) + $510000(Salary of 3 Sales people for 2 years =
85000x3x2) + $100,000(licensing cost)= 3610000
II. Trade Promotion = 5% off-invoice. (0.05x17.87=0.8935)
III. Advertising allowance = 10% of the 20% of retailers. (0.2x0.1x17.87=0.3574)
IV. Contribution= Manufacturer's Selling Price- Cost Of Goods- Trade Promotion - Trade
Promotion (5%)=17.87-10.82-0.8935-0.3574=5.7991
V. Breakeven = fixed cost/contribution =3610000/5.7991=622510 units
 Demand analysis

Demand Estimation
US Men Population (age 15 and above)

10,00,00,000
Target Market(18-35) population(Assume 60% of Total
Population) 6,00,00,000
Awareness among Target Audience in two years (25%) 15000000
Awareness in first Year (12.5%) 7500000
Awareness in Second Year (12.5%) 7500000
Consumers interested in the product as per survey (185/1000) in
first year 1387500
Consumers "definitely would buy" as per survey(38%) in first
year 527250
Consumers that would buy based on past experience(60%) in first
year 316350

Consumers that would buy in second year(Additional Shirt) 158175

Consumers that would buy based on past experience(60%) in
second year 316350
Total Demand in 2 years(Estimated) 790875

Conclusions
As the demand is more than the break-even units classic by some amendments in the licensing
agreement can go ahead with the deal