Classic Knitwear PDF

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INSTITUTE OF MANAGEMENT TECHNOLOGY HYDERABAD

CASE STUDY ON

“Classic Knitwear and Guardian- A perfect fit”

Submitted by 1. 2. 3. 4. 5. 6. 7.

PRANSHU AGARWAL AYUSH YADAV SHUCHI TIWARI KSHITIJ DESHMUKH VIPAL VORA SHALINI SHAW KHUSHBOO BARDIA

Submitted to - Dr. Rambalak Yadav Date – 2nd October 2018

18A3HP627 18A2HP437 18A1HP079 18A3HP612 18A3HP615 18A2HP438 18A1HP053

EXECUTIVE SUMMARY Classic Knitwear was a company headquartered in Miami established in 1995. It was a manufacturer and distributor of unbranded casual knit apparel with a revenue stream of $550 million as of 2005. The company was limited to operating in the US markets. They enjoyed low production costs through their state-of-the-art facility in the Dominion Republic paired with economies of scale from high volumes and low SKU production runs but their gross margin was limited to 18%. In order to push their margins, they came up with the prospect of chemically treated insect repelling knitwear. They collaborated with Guardian (manufacturer of insect repellents) to use their patented technology and brand resonance in the market to launch the new product under Guardian’s brand name. With no major competitors with such a product and research indicating a growing need of insect repelling products by the consumers, their product had good prospects. They still had to work on finding the break-even point for their product given the costs and investment required to bring it to the market. Also, decisions had to be made regarding the product’s ability to contribute to the long-term product differentiation strategy of Classic.

QUESTIONS Q1. Do you think introducing a new product line is suitable for classic knitwear? Justify you decision by evaluating the product company fit? Ans: In order to push the overall gross margins incessantly by over 20% and prevent the decline of company's stock, the marketing team at Classic began exploring a number of compelling plans for expanding their line of products. A lucrative proposition was launching knitwear treated chemically to ward off insects. The growing national awareness of insect borne illness as well the convenience offered by the product of not having to apply or carry traditional liquid repellents was seen as a bankable opportunity by the company. The product offered protection which was nearly three times more lasting than what was offered by the competitors in this line. Launching this product offered a gross margin which was significantly higher than the targets set by Classic. The dual advantage of low production costs that Classic had and the Avant Garde technology that Guardian offered, a sustainable competitive advantage could be achieved. Leveraging Guardians goodwill not only meant lower expenses on marketing for creating products awareness but also access to new distributors like LL Bean without much peril.

Thus, in accordance with the reasons stated above, introducing a new product line seems fairly suitable.

Q2. Evaluate the product market fit. Ans: Since, Classic was a large manufacturer of non-fashion casual knitwear. They had 3 major competitors which were James Brands, Flower knit & Greenville Corporation. Other than these competitors Classic also focused on B&B Activewear, as this firm was the market leader with a 23.6% market share. Therefore, to increase the Gross Margin of Classic Knitwear they started looking for proposed product innovation which led them to the Guardian Project. In February 2006, Miller’s marketing team came across chemically treated knitwear to repel insects. This particular decision was beneficial because the team had come across compelling evidence of growing awareness of insect borne illnesses such as Lyme disease and the West Nile virus. Knitwear insect repellent clothing were sold in the small niche markets to the fishermen and avid hunters but was not sold to the masses. This particular observation led them to collaborate with Guardian. Guardian had recently received a patent for insect repellent technology. Guardian also had a good brand image in the markets which would help Classic to create a good market base. Classic would also use the machine to manufacture their new product line. This decision was a perfect product market fit as the value proposition was perfect for the consumers as it was providing a convenient health aid to the customers from the insect borne diseases. It would also cater to Classic’s business goal.

Q3. Identify the product depth and consistency in case of new product line launched by Classic Knitwear-Guardian. Ans: Product depth refers to different variants that are being offered of each product in the line. In the given case, it is an insect-repellant clothing product given by Guardian. The market is segmented in the male category of age 15 and above.

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The product is classified into four shirt typesShort- sleeve tee Long-sleeve tee Polo-style sport shirt Heavyweight fleece.

To promote the product, Guardian’s name in the same green and black colors were used. It would be labeled with same EPA category IV product rating. Product consistency refers to how the products are closely related to each other in terms of its end use, production channels, distribution channels etc. Here, the Classic and Guardian decided to sell more T-shirts than any other shirt style because Classic Knitwear had highest revenues for T-shirts. They also gave the same profit margin to the retailers i.e. 45%. It is also distributed to the wholesalers for interested screen printers.

Q4. What sales volume is required to break even on Classic’s 2-year launch period? Ans: Breakeven Volume of the product, which is the amount of the product one needs to produce and sell to cover the cost of production. It can also be computed under a range of sales prices to determine the optimum level of production required. A key concept here is the contribution margin, which is, selling price less the variable cost per unit. Given below is the data used for the computation of the same. Contribution per unit Particulars Manufacturer Selling Price Cost of goods sold Advertising allowance Trade Promotion (5%) Royalty Profit Per Unit

Year 1 17.87 10.82 .3574 .8935 5.7991

Year 2 17.87 10.82 .3574 .8935 .8935 4.9056

Advertisement Allowance: 17.87*10%*20% Trade Promotion Allowance: 17.87*5% Royalty: 17.87*5% Fixed Cost Particulars Retail Display Salary (85000*2*3) Advertisement Licensing Fee Total Fixed Cost

Year 1 5,00,000 2,55,000 6,00,000 1,00,000 14,55,000

Year 2 5,00,000 2,55,000 6,00,000 13,55,000

Formulae for Break- Even Point: = Fixed Cost / Contribution per unit Year 1- 14,55,000/5.7991 =250900 Units Year 2 - 13,55,000/4.9056 =276215 Units Keeping under consideration the company’s cost structure, in the first year the company has to reach the level of production till 250900 units and 276215 units in the second year, where the return all over cost will be zero.

Q5. What problems do you see in proposed Guardian marketing program? Ans: Some of the problems here we can see with the proposed Guardian marketing program are as follows: 

The company is going to launch the product only with the brand name of “Guardian” which may create problems for Classic as whenever there will be conflict between these two companies, it may backfire the branding of the product.

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They are fully relying on the market research they had done to build important strategies and take significant decisions, whereas market research which they had done is not as extensive as it should be because they had only done the quantitative research of the consumer survey.

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The date of the launch i.e. in January will not be a perfect time for the launch since it is featuring outdoor activity related clothing which will be based on certain seasons. So, it would be better to launch after the winter when the outdoor activities are at its peak.

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As the Guardian shirts will only feature the outdoor activity related imagery, so launching 16 SKUs i.e. 4 styles and each style with 4 colors will not be a good marketing strategy, as it will be of no use to launch these many SKU’s. Instead they can focus on two important colors for each style which was decided by the marketing research. This will help the company to save some amount which they can spend on other factors such as advertising.

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They were setting the retail prices for Guardian shirts according to the survey done with the consumers who stated that they would probably or definitely buy, which was on the higher side and matched those with the established brand. This pricing may backfire them as they the sales might not reach to the point they are expecting for as the customers might go for the established brands clothing under the same price range....