classic knitwear and guardian a perfect fit and Case Introduction
Classic Knitwear was a company that began operations in 1995 and had its headquarters in Miami. In 2005, the company had a revenue stream of $550 million and operated as a manufacturer and distributor of casual knit apparel without its own brand name. The company could only do business in the markets of the United States.
Their gross margin was restricted to 18% despite the fact that they had a state-of-the-art facility in the Dominion Republic that allowed for low production costs thanks to economies of scale resulting from high production volumes and low production runs per SKU. They wanted to increase their profit margins, so they came up with the idea of selling insect-repelling knitwear that had been treated with chemicals.
They worked together with Guardian, a manufacturer of insect repellents, to launch the new product under Guardian’s brand name. This allowed them to take advantage of their patented technology as well as the market resonance of Guardian’s name. Their product had good prospects because there were no major competitors in the market offering a similar product, and research indicated that consumers have a growing need for insect-repelling products.
They still needed to work on determining the point at which their product would become profitable, taking into account the costs and investments that were necessary to bring it to market. In addition, choices had to be made about the extent to which the product could contribute to Classic’s long-term strategy for differentiating its products from competitors.
The original Case can be found here
Question 1: Does introducing New Products beneficial for Classic Knitwear?
The marketing team at Classic Knitwear began investigating a number of enticing strategies for expanding their product line in order to keep the company’s overall gross margins from falling below 20% and to stop the drop in the company’s stock price. These goals were simultaneously intended to stop the decline in the value of the company’s stock. Launching knitwear that was chemically treated to ward off insects was a lucrative business venture.
The growing national awareness of insect-borne illnesses, in addition to the product’s convenience of not requiring users to apply or carry traditional liquid repellents, was seen by the company as an opportunity that could be profitable.
The product offered protection that was nearly three times more long-lasting than that was provided by the competitors operating in this market segment. The introduction of this product presented an opportunity for a gross margin that was significantly higher than the targets established by Classic Knitwear. Due to Classic’s low production costs and Guardian’s cutting-edge technology, the company was able to achieve a sustainable advantage in the market competition.
Taking advantage of the goodwill of Guardians not only resulted in lower expenses on marketing for the purpose of creating product awareness but also allowed for relatively risk-free access to new distributors like LL Bean. As a result of this, and in accordance with the reasons stated above, the introduction of a new product line appears to be fairly appropriate.
Question 2: What is the understanding of Product Market Fit?
Classic Knitwear was a significant player in the manufacturing industry of non-fashion casual knitwear. James Brands, Flower Knit, and Greenville Corporation were three of their most significant rivals in the industry. Classic focused on B&B Activewear in addition to these other competitors because B&B Activewear was the dominant company in the market and held a market share of 23.6%.
As a result, in order to raise the Gross Margin of their Classic Knitwear products, they began searching for potential product innovations, which ultimately led them to the Guardian Project. In February of 2006, the marketing department at Miller came across knitwear that had been chemically treated to ward off insects. Because the team had found compelling evidence of growing awareness of insect-borne illnesses such as Lyme disease and West Nile virus, this particular decision turned out to be beneficial.
Knitwear with insect-repellent properties was sold in niche markets to customers such as avid fishermen and hunters, but it was not available to the general public. They decided to work together with Guardian as a result of this particular observation. A patent for an insect-repellent technology developed by Guardian had just recently been granted. Additionally, Guardian had a positive brand image in various markets, which would be of assistance to Classic in developing a solid market base. Additionally, Classic Knitwear would utilize the machine in the production of its new product line.
Because it offered customers an easy-to-use health aid that protected them from insect-borne diseases, this choice represented an excellent example of a decision that was well-suited to the needs of the target market for the corresponding product. Additionally, it would help Classic knitwear achieve its business goal.
Question 3: What is the depth and consistency of the New Product Launched by Classic Knitwear?
Product depth is the term used to describe the various iterations of each individual product that is included in a line. In this particular instance, it is a piece of insect-repellent clothing that was provided by Guardian.
The market is divided into the categories of males aged 15 and older and younger than 15.
The item can be purchased in one of four different shirt styles: heavyweight fleece, polo-style sport shirt, short-sleeved and long-sleeved t-shirts, and short-sleeved t-shirts.
The name of the company, “Guardian,” was printed in the same green and black colors that were used to promote the product. It would be rated as a category IV product by the Environmental Protection Agency.
When we talk about product consistency, we’re talking about how closely related the products are to one another in terms of their final use, production channels, distribution channels, and so on.
Due to the fact that Classic Knitwear made the most money off of selling T-shirts, the Classic and the Guardian made the decision to focus on selling more T-shirts than any other type of shirt. They also offered the same profit margin, which was 45%, to the various retailers. It is also made available to wholesalers for screen printers who are interested in purchasing it.
Question 4: Do the Break Even Analysis for the New Products?
Breakeven The amount of the product that must be produced and sold in order to recoup the expenses incurred in its manufacture is referred to as the “volume” of the product. It is also possible to compute it under a variety of sales prices in order to determine the optimal quantity of production that is needed.
One of the most important ideas to grasp is called the contribution margin, and it is calculated by subtracting the selling price from the variable cost per unit.
|Particulars||Year 1||Year 2|
|Manufacturer Selling Price||17.87||17.87|
|Cost of goods sold||10.82||10.82|
|Trade Promotion (5%)||.8935||.8935|
|Profit Per Unit||5.7991||4.9056|
Advertisement Allowance: 17.87*10%*20%
Trade Promotion Allowance: 17.87*5%
Classic Knitwear: Fixed Cost
|Particulars||Year 1||Year 2|
|Total Fixed Cost||14,55,000||13,55,000|
Classic Knitwear: Calculations for BreakEven
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
Taking into account the cost structure of the company, the target level of production for the first year must be at least 250900 units, and for the second year, it must be at least 276215 units, in order for the return on all costs to be zero.
Question 5: Narrate a Few Problems with the existing marketing techniques of Classic Knitwear and its association with Guardian.
The following is a list of some of the issues that we see with the marketing program that is being proposed for the Guardian:
• The company plans to release the product under the brand name “Guardian” alone, which may lead to complications for Classic Knitwear. This is due to the fact that whenever there is a dispute between the two companies, it may have a negative impact on the branding of the product.
• They are putting all of their eggs in the basket of the market research that they have already conducted in order to construct vital strategies and make crucial choices. However, the market research that they have already conducted is not as comprehensive as it ought to be because they have only conducted quantitative research in the form of a consumer survey.
• The launch date of January will not be the ideal time for the launch because it will feature clothing related to outdoor activities, and the clothing will be based on the seasons. Therefore, it would be preferable to launch after winter, when the number of people participating in outdoor activities is at its highest.
• Because the Guardian shirts will only feature imagery that is related to outdoor activities, it will not be a good idea to launch 16 different SKUs, which would consist of four different styles, each of which would have four different color options. This would not be an effective marketing strategy, as it would serve no purpose to launch such a large number of SKUs. Instead, they can concentrate on just two key colors that were selected for each design based on the findings of the market research. This will assist the company in saving some money, which they will be able to put toward other aspects of their business, such as advertising.
• They were setting the retail prices for Guardian shirts according to the survey that was done with consumers who stated that they would probably or definitely buy, which was on the higher side and matched those with the established brand. The survey was done with consumers who stated that they would probably or definitely buy. Customers may instead choose clothing from more well-known brands that fall within the same price range if the company maintains this pricing structure, which could have a negative impact on sales and prevent the company from meeting its goals.
Samrat is a Delhi-based MBA from the Indian Institute of Management. He is a Strategy, AI, and Marketing Enthusiast and passionately writes about core and emerging topics in Management studies. Reach out to his LinkedIn for a discussion or follow his Quora Page