CASE ANALYSIS

Classic Knitwear and Guardian:

A Perfect Fit?

MARKETING-II
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.

Company Sales 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.

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 4​th 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 17.87
Cost Of Goods 10.82
Trade Promotion (5%) 0.8935
Advertising allowance 0.3574
(10% for 20% retailers)
Contribution Margin per Shirt 5.7991
Breakeven Sales(Shirts) for 2 years 622510

Assumptions
I. Fixed Cost = $3.0 M(Advertising) + $ 510000(Salary of 3 Sales people for 2 years =
85000*3*2)+ $ 100,000(licensing cost).
II. Trade Promotion​ = 5% off-invoice.
III. Advertising allowance​ = 10% of the 20% of retailers.

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 6,00,00,000

Population)
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 1387500
first year
Consumers "definitely would buy" as per survey(38%) in first year 527250
Consumers that would buy based on past experience(60%) in first 316350
year
Consumers that would buy in second year(Additional Shirt) 158175

Consumers that would buy based on past experience(60%) in 316350

second year
Total Demand in 2 years(Estimated) 790875