Classic Knitwear Marketing
Essay by nikitasewak18 • April 17, 2018 • Research Paper • 1,430 Words (6 Pages) • 765 Views
Name – Nikita Sewak
UCLA ID - 403976830
Classic knitwear despite its efficient manufacturing process earns a gross margin of 18% on its OEM products as compared to 30-40% earned by branded products. The willingness to pay is higher for branded products that Classic is looking to capture by launching its innovative branded insect repellent clothing in partnership with Guardian. These products are currently non-existent in the market with no major competitors as they are sold only in niche markets and the demand exists, as customers want protection against insect-borne diseases such as Lyme disease and West Nile virus. Classic’s executives and CEO’s vision to achieve consistent 20% gross margin made the branded insect repellant clothing a feasible marketing strategy aligning with their goals.
This new line of product would help Classic target more customers as its current market is mostly in the wholesale region selling under OEM. Guardian is a known brand with credibility and this partnership would help Classic capture more of the target audience and create a brand name for itself. The patented innovative technology of Guardian had a competitive advantage over others as it could last for 70 washings compared to 25 washings offered by other apparel companies. After findings from Classic’s research they concluded that marketing spend would be reduced from 8-10million to 3million dollars. Classic also wanted to use a push strategy and hire 3 new salesmen who had the experience in sporting and apparel goods to expose the products into the market efficiently. Based on the expenses the table below shows the marketing expenses of Classic taking 100,000 display units as the basic demand. This helps us figure out the breakeven sales volume as 1080343 units as seen in Exhibit 2.
Profit Margin | |||
Retail Price | 32.49 | ||
Manufacturer Selling Price | 17.87 | ||
COGS | 10.82 | ||
Gross Profit | 7.05 | ||
Gross Margin | 39% | ||
Royalty to Guardian | 1.6245 | ||
Trade Promotion | 0.8935 | ||
Advertising Allowance | 0.3574 | ||
Profit $ | 4.1746 | ||
Profit % | 23% | ||
Exhibit 1 | |||
Marketing Expenses | |||
Year 1 & 2 | Year 1 | Year 2 | |
Retail displays | 1,000,000 | 500,000 | 500,000 |
Advertising Plan | 3,000,000 | 1,500,000 | 1,500,000 |
Sales force 3*85000*2 | 510,000 | 255,000 | 255,000 |
Total Cost | 4,510,000 | 2,255,000 | 2,255,000 |
Breakeven Analysis | |||
Number of Shirts | 1,080,343.03 | ||
Exhibit 2
The prevailing insect repellent apparel is present in niche markets and used mainly by fisherman and campers. Guardian’s brand has a perceived trust associated with its flagship insect repellant products. In order to decide whether the demand for the product exists and whether Classic will be able to even sell the breakeven volume, Classic needs to forecast the demand. Amongst the 4 segments of target audience the most appropriate segment for Classic will be the Serious Campers. This segment captures 30% of the male outdoor enthusiasts of 15 and above and value apparel that holds up to many washes – the main differentiating factor of Guardian’s innovative durable technology. Guardian was also keen on exploring the outdoor enthusiast market and this was a mutually beneficial agreement. Day trippers – 40% of the male outdoor enthusiasts is a potential segment as well as they value the convenience of not carrying and applying bug spray. However, the licensing agreement with Guardian states that the sale of the apparel should not cannibalize the sale of its existing insect repellent sprays that would lead to termination of the agreement and day trippers are price sensitive that means that they will go for cheaper products. The Serious Outdoorsmen already have other options and are only a minor part of the market. They seek the best product and since switching cost is nil, the brand loyalty will be low amongst this group. Happy campers, 25% of the market’s main focus is on odorless and the market is proliferated with odorless sprays and therefore this will be a very competitive target segment.
This gives us an estimate of the forecasted demand. Based on the Consumer.com research, 60% of people who are interested in the product buy it. This gives us the demand of the apparel amongst out target market as 3.42million from Exhibit 3.
Demand Projections | |||
Population of men aged 15 and above | 400,000,000 | ||
Target market is Serious Campers | 120,000,000 | ||
Awareness through advertising | 15,000,000 | ||
40% people definitely buy | 5,700,000 | ||
60% of people who actually buy | 3,420,000 | ||
Demand exceeds the breakeven | |||
Exhibit 3 |
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Since the demand exceeds the breakeven sales volume, Classic should go ahead with the plan and leverage the relationship with Guardian to earn higher margins of 23% (Exhibit 1). This number does not include the count for people who probably would buy the shirt that would make the demand even more than the break even sales. Classic’s main goal was to have gross margins exceeding 20% and they wanted expedient growth. This venture of the insect repellent clothing will help Classic obtain the margin rates comfortably.
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