Walmart Case
Walmart Case
Case overview
Chipman- Union, founded in 1972 primarily manufactured mens and boys casual and athletic socks, which were sold to the retail/ distribution channels unbranded as private label merchandise. However, the margins it got were just 15%, quite less than 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 company. However, the major barrier to creating a branded product was the minimal scope for product differentiation in the market.
To overcome this problem, Chipman-Union decided to go with an odor-eater socks and also hired a management consultant firm, GFM to advise on the various alternatives and the marketing program. The results of consumer research showed that consumers were willing to pay more for the “odor-eating” characteristic of the socks. Thus, the market potential of odor-eating socks was found to be huge. GFM advised Chipman to enter into a licensing agreement with Combe, Inc for using its brand name Odor-Eaters for its mens sock line and also suggested various advertising and marketing promotional strategies for the product. Some of the communication strategies included primarily targeting the female heads of households, creating brand awareness through television advertising and spreading information about the product through print advertising. Promotion strategies include cash-refund offer and coupon which can help in effective marketing.
The management of Chipman- Union now has to decide whether to adopt the GFM marketing 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 various costs like licensing and advertising costs and then calculate the profitability of the venture.
Analysis of GFM Marketing Strategy:
If we analyse the GFM marketing program, we find that
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. Further as the product is an odor-eater people might want to feel the product before buying it. Hence, a pressure-sensitive band seems to be the more feasible approach.
The trade margin suggested is 45%. For branded products the margin is usually 50% and for private labels it is 40%. Hence the margin of Odor-Eater at 45% is justifiable as the product is a newly launched one and hence the lower margin might help attract more customers.
The advertising strategy is aimed at the female heads of the house as they are considered to be the major buyers of the socks for males. However, the advertising campaigns should be balanced in the sense that it does not alienate the male buyers.
Evaluation of two strategies: Mass media advertising versus sales promotional strategies
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.
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 hosiery, that may not be the case for branded hosiery. For branded hosiery, “brand awareness” is required which will be possible only through mass media advertising.
Based on the above analysis, the company should first focus on building brand awareness in the first year through mass media advertising; and later on, capitalize 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