Chipman-Union Inc. Odor Eaters Socks

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Introduction
Chipman-Union was a medium sized company which mainly manufactured unbranded casual and athletic socks which were sold to the trade. It was established in 1972. By early 1980 CU’s two mills were producing 67 styles which were almost all cushioned socks manufactured for the men’s and boys’ casual/athletic market in anklet, midcalf and kneel-high lengths. CU carried a 10% share of the boys’ / men’s’ casual/athletic socks (approximately 3,700,000). The margins for CU were less than 20%. To get higher gross margin, CU had to venture into new business – branded socks. . It was very difficult for CU's brand to compete with competitors' established brands without unique product characteristics. For this purpose, deodorizing socks
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Decision to be taken
To evaluate and decide whether to adopt GFM marketing program, launch a new product and place 15,000 display units in retail outlets within 2 years.
Estimated sales for two years = No. of display units * capacity * inventory turnover * 2 = 15000 * 24*12 * 2.54 = 10972800 pairs
No. of packages of 3 pairs = 10972800/3 = 3657600
Total Sales = Average selling price * No of packages = 3.3 * 3657600 = $12070080
Average margin per package = $ 1.3
Total margins in two years = 1.3 * 3657600 = $ 4754880
Launch costs Involved
Consulting Fees $100000
Display unit Cost 15000 units*$100 = $1500000
Salespersons’ 2 year’s salary 70000*3*2 = $ 420000
Broker commission 5% * 12070080 = $ 603504
Licensing Fees $60000
Advertising $1000000
Consumer Promotion
- Cash Refund
- Coupon Discount
$75000
$136500
Trade Promotion
- Invoice Allowance
- Advertising Allowance
15000*24*(12/3)*3.3*20% = $950400
0.5*15000*24*(12/3)*3.3*5% = $118800

Total cost before adding the promotional expenditures = $3758504
Total cost with Coupon Discount Consumer Promotion and Advertising Allowance as Trade Promotion = 3758504 + 136500 + 118800 = $4013804
Therefore at the end of two years Chipman-Union Inc. will be able to recover all the costs involved in launching the new

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