In March 1980, Hosiery market in United States was quite competitive in terms of price and players. Chipman-Union Inc. was one of the major players in this market which produced a whole gamut of hosiery products ranging from men’s dress hosiery to socks for all types of customers like men, boys, girls, misses and athletes. Chipman-Union was established in 1972 by a merger of the Union Manufacturing Company with Charles Chipman’s Sons Company. In 1979, CU had to narrow down its product lines to increase profit margins by removing production inefficiencies. By 1980 it primarily manufactured men’s and boy’s casual and athletic socks, which were sold to the retail/ distribution channels unbranded as private label merchandise. By early 1980, CU’s market share was estimated at 10% of units and 11% of factory sales. The distribution channel of CU was also wide spread. In 1979, over 90% of its production was sold to 33 retail chains of which only 3 accounted for around 60% of the volume. 1% each was sold to food and drug stores and catalog show rooms. About 1.5% of the volume was even exported. Bryan & Hagen; President and Vice-president, Sales were responsible for the pricing decision that CU takes and although their effort had yielded a 15% gross margin in 1979, management hoped to cross 20% line cause of operational efficiencies generated from shrinkage of product lines. CU entered into private label market with various products such as ‘Just Shocks’ , ‘Rabbit’s Foot’ , ‘Show-Offs’ ,’Life Savers’ ; but despite heavy efforts none translated into a national brand. In quest of launching a national brand in private label market, it has launched its ambitious Oder-Eater Project with collaboration with Combe Inc. which produces insoles with the same brand name and has a major presence for last 5 years. It has already conducted its market research in terms of focus group as well as mall intercept interviews and the outcome is positive in terms of customer reception. It has also decided that Odor-Eaters would be available in four categories namely 24- inch athletic tube socks, 18-inch athletic tube socks, athletic crew sock and casual crew sock, and in packages of 3 pairs. The advertising strategy is also well set to gain 25% unaided awareness about the brand with an expense of around $3.5 million. It also aims to place 15,000 display units in retail outlets in two years to mark its national presence, out of which 50% would be in food stores, 25% in drug stores, and rest 25% in discount stores. And the management after incurring a cost of around 1,00,000 in consulting and marketing research fees is faced with the crucial decision to make: whether to go for ‘Odor-Eaters’ as planned or not. We explore various alternatives and analyze the case with an angle of pricing and marketing to answer the aforementioned dilemma. EXISTING SITUATION
In 1979, Chipman-Union was a medium size company which primarily manufactured unbranded socks sold as private label merchandise. The market of socks in the U.S. was characterized by severe price competition and limitation of product differentiation. There were only two companies which manufactured branded socks, and companies except those two companies had 20% gross margins or below. To get higher gross margin, CU had to venture into new business branded socks. They began to investigate the marketing program for the new product, and recognized that there were not only valuable possibilities, but also problems they would have to solve before launching the product. After Chipman-Union Management realised that the aim of 20% gross margin to warrant the required investment of management time and resources was difficult to achieve even by controlled labels or tie-in promotions, the company decided to test the feasibility of launching its deodorizing socks under the name of Odor-Eaters by seeking the help of a management consulting firm...
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