Case overview Chipman- Union, founded in 1972 primarily manufactured men s and boy s casual and athle ic socks,

which were sold to the retail/ distribution channels unbranded as priv ate label merchandise. However, the margins it got were just 15%, quite less tha n the desired margins. There were only two companies which manufactured branded socks and except those companies, all others had margins of 20% or below. These factors made it lucrative for Chipman-Union to create a national branded sock. A nationally branded sock would ensure higher margins and profitability for the c ompany. However, the major barrier to creating a branded product was the minima l scope for product differentiation in the market. To overcome this problem, Chipman-Union decided to go with an odor-eater socks a nd also hired a management consultant firm, GFM to advise on the various alterna tives and the marketing program. The results of consumer research showed that co nsumers were willing to pay more for the odor-eating characteristic of the socks. Thu , the market potential of odor-eating socks was found to be huge. GFM advised Ch ipman to enter into a licensing agreement with Combe, Inc for using its brand n ame Odor-Eaters for its men s sock line and also suggested various advertising and m arketing promotional strategies for the product. Some of the communication str ategies included primarily targeting the female heads of households, creating br and awareness through television advertising and spreading information about the product through print advertising. Promotion strategies include cash-refund off er and coupon which can help in effective marketing. The management of Chipman- Union now has to decide whether to adopt the GFM m arketing program, launch the new product and aim to place 15000 display units in retail outlets within two years. In its decision making, it has to consider var ious costs like licensing and advertising costs and then calculate the profitabi lity of the venture. Analysis of GFM Marketing Strategy: If we analyse the GFM marketing program, we find that 1. It is recommended that pressure-sensitive bands instead of plastic bags be used:- This seems to be a feasible recommendation as it has been shown in the focus group study that the plastic bags give an inferior look to the product. F urther as the product is an odor-eater people might want to feel the product bef ore buying it. Hence, a pressure-sensitive band seems to be the more feasible ap proach. 2. The trade margin suggested is 45%. For branded products the margin is us ually 50% and for private labels it is 40%. Hence the margin of Odor-Eater at 4 5% is justifiable as the product is a newly launched one and hence the lower mar gin might help attract more customers. 3. The advertising strategy is aimed at the female heads of the house as th ey are considered to be the major buyers of the socks for males. However, the ad vertising campaigns should be balanced in the sense that it does not alienate th e male buyers. Evaluation of two strategies: Mass media advertising versus sales promotional st rategies 1) Mass media advertising: Pros: It will help in accelerating brand awareness process and help in building company image. This will enable them to maintain the market share more easily. Cons: Brand awareness without sales increase would be of no use to the company. 2) Sales promotional strategies: Pros: It would be effective to increase sales, and to maintain and control sales agents and distribution channels. Cons: Although promotional strategies had an effect on sales of unbranded hosier y, that may not be the case for branded hosiery. For branded hosiery, brand awarene ss is required which will be possible only through mass media advertising. Based on the above analysis, the company should first focus on building brand a wareness in the first year through mass media advertising; and later on, capital ize on sales through sales promotional strategies.

Quantitative Analysis Total Display Units 15,000 Pair of Socks/Display Unit (24 + 12)*12 = 432 Inventory Turnover Ratio 2.54 Estimated Sales of Socks/ Display Unit 432*2.54 = 1097.28 Total units sold considering cases of 3 pairs of socks in one unit/ Display Unit 1097.28/3 = 365.76 Gross Margin (given) $1.3 / unit Net Profit in sales for 2 years* 365.76 * 15000 * 1.3 * 2 = $14,264,640 * For ease of calculation, we are considering that all 15000 display units will be deployed in the early part of the first year Cost of Licensing Agreement: Cost incurred in 1st year = $60,000 Manufacturer s Selling price = $3.3 Total sales for 1 year = 365.76*15000*3.3 = $18,105,120 Licensing fee for 2nd year = 0.05 * $18,105,120 = $905,256 Hence, total licensing fees = $(60,000 + 905,256) = $965,256 Costs Incurred: Licensing costs $965,256 Cost of setting up display units $100 * 15000 = $1,500,000 Salary expenses for 3 salespersons $70,000*3*2 = $420,000 Marketing expenses incurred (including advertising, discounts, off-invoice allow ance, redemption costs etc.) $3,500,000 Total Costs to be incurred = $6,385,256 Note:- The cost incurred as consulting and marketing research fees ($100,000) is a sunk cost and thus, should not play a role in our decision making process. Therefore, total profits = $14,264,640 - $6,385,256 = $7,879,384 Total sales for 2 years = $18,105,120 * 2 = $36,210,240 Profit Margin = ($7,879,384/$36,210,240)*100 = 21.76% Conclusion On the basis of the quantitative analysis, we conclude that it would be highly b eneficial for Chipman Union Inc to launch the product in the market as it is giv ing them a profit margin of greater than 20%. Additional recommendations for Chipman- Union On the promotion side, further plan of action can be: 1) The supplementary marketing scheme of refund could be replaced by a sche me in which the buyer is given a discount for the next purchase. This would enti ce the buyer to buy the Odor-Eater socks on his subsequent consumptions also. 2) Finally, the off-invoice allowance as an entry strategy is recommended a s it helps to gain a foothold in the food and drugstores. Once the presence of t he brand is established in these stores then the off-invoice allowances could be gradually reduced. 3) Further, the packaging option of 3 socks in a package could be replaced by either a package of 3 or a single pair of sock at a premium rate. This might be helpful to target customers who might be sceptical about the product. On the product side, further plan of action can be: 1) To concentrate upon this category for some time and then over a period o f time consider expansion to new areas through joint ventures, forming strategic alliance. The Expansion should be such that brand name and quality should not b e compromised. And use of media (Print Media, local cable networks) & advertisem ents to spread the awareness among masses about the product. 2) Profit margins being sufficient, Invest in further R&D and technological improvements for launching better products in the market. Note: The possibility of Odor-Eaters In soles sales getting affected adversely d ue to Odor-Eater sock sales should be seriously explored and research should be undertaken to gauge this risk. As mentioned in the Licensing Agreement, Combe ca n terminate the agreement if such a situation arises. This will lead to huge los ses for the company.