Nundies Memorandum

DATE: January, 2008 TO: Will Mortensen, President FROM: 001-80-4799 RE: New sales and marketing initiatives for Nundies in 2008 Situation Analysis Nundies is single-use, disposable panty that sticks to the inseam of women’s pants, leggings, athletic wear, shorts, and jeans. After Nundies were first introduced in the market, it was sold at 232 women’s boutique and specialty shops and 10 Neiman Marcus department stores in 40 states, online at www.nundies.com, and on numerous store web sites. By December 2007, Advanced Materials, Inc. (AMI) had shipped 11,383 units of Nundies to stores and sold 285 units through online. Major concern that AMI had to deal with it was reorder rate did not meet company’s expectation. Only about 6% of stores previously purchased Nundies ordered additional products. It is necessary to reposition the distribution channels and implement new initiatives to boost unit sales and reorder rate (Chernev 41). The strength and opportunities of Nundies in this market is that demand of new type of underwear is high enough to accomplish company’s expectation (Appendix C). The target market of Nundies was women ages of 15 and 60 in households with annual income of $25,000 or more. This group was accounted to be size of 36.7 million people. In this case the two most important factors are launch costs are limited to $800,000 and AMI has manufacturing capacity of 100,000 liners annually without any investment. As costs and budgets are limited, it is important for Nundies to consider choosing right strategy out of different alternatives listed in below. Analysis of Alternatives Option 1: Continued development of the women’s boutique and specialty store channel • Pros o Cost is low ($14,400) • Cons o Have to order minimum order of 36 packages for $252 o Have to pay 12% commission on wholesale price to manufacturer’s agent organization o Have to rely on Manufacturer’s agent to recruit stores at trade shows. Option 2: Pursue the upscale department store channel • Pros o Creates luxurious image o It will allow products to be exposed more to our target segments. • Cons o There are two different buying practices (centralized and decentralized). o Cost of goods sold get much higher per unit. Option 3: Pursue midlevel department store accounts • Pros o Largest market segment (JC Penney 1000 stores, Kohl’s 930 stores, and Macy’s 863 stores). o Cost of goods sold get much lower per unit. • Cons o Different brand name, package graphics, and package required with lower cost ($8 to $10). o More liner required (7 liners) o Profit margin decreases. Option 4: Combination of channel • Pros o Advertised in various channel and advertised to various targets. o Profitable if products are produced and delivered in right quantity. • Cons o Costs twice much as focusing on one channel (presentations and extra fees). Recommendation Based on factors of options listed, it is most profitable for Nundies to continue the development of the women’s boutique and specialty store channel (Appendix A). It is because this channel offers the lowest entrance cost and the highest profit margins. Since Nundies have limited production capacity and budget, it is most competitive to target women ages between 25-60. According to the survey result, boutique and specialty shops accounts 30% which is the largest percentage of sales in out of all distribution channel. Also the merit of distributing in boutique channel is that no addition development is needed. Along with distribution, Nundies should pay attention to marketing effort. Supporting retailers with product information to make salesperson more knowledgeable about product is necessary. Offering samples to retailers will be an excellent to appeal to customers. Work Cited • Chernev, Alexander. Strategic Marketing Management. Cerebellum Press, 2012. Print. Appendix A Cost of Goods sold Wholesale Price Upfront costs Sales cost BE point Profit at full capacity Boutique and specialty store $3.45 $7.00 $0 12% commission + $14,400 5,313 $39,800 Upscale store $3.45 $7.00 $250,000 $0 70,422 -$265,143 Midscale store $3.26 $4.65 $285,000 $0 205,036 -$179,000 Breakeven for alternatives Appendix B Income Statement Sales $77,686 Sales online $4,275 Cost of goods sold ($38,288) Commission rate (12% wholesale sales) ($9,322) Expense for trade shows ($14,400) Net income $19,951 Appendix C SWOT Analysis Strength • 84% of target market is interested to use Nundies 1~2 times a week • Innovative product Weakness • Brand awareness is low • Low availability Opportunities • Adding more liners in the package • Potential customer Threats • Expensiveness • High advertising costs MK 4900 Nundies Case Analysis Poop Sheet Sales of Nundies aren’t going as well as had been expected. Will Mortensen, the President of Advanced Materials, Inc. needs you to help him figure out the problem and what to do about it.. Specifically, he needs you to cover the following issues. 1. Evaluate the initial marketing strategy for Nundies including.. a. Target segment b. Value Proposition c. The elements of the marketing mix. d. What are the major issues/problems that you see in the strategy that need to be addressed? 2. Estimate the market size and sales potential for a product like Nundies. a. Note: Market Size and Sales Potential are two separate items. b. Note: Think “ Chain Ratio Analysis” 3. What are the pros and cons of the proposals identified for Nundies? 4. What are the likely sales and profit impacts of those proposals? 5. Which action(s) do you recommend and why? Some areas you should think about for your analysis: please don’t treat the items below as a question and answer essay. o Target Market (See Chernev, C.4) o Who are the customers? o What do they want to buy? o How do they want to buy? o When do they want to buy? o Where do they want to buy? o Product (See Chernev, C5) o How well does Nundies and AMI strategy address the product characteristics that facilitate adoption of new products, e.g. relative advantage, compatibility, simplicity, immediate benefit, felt need. If you have been keeping up with the background reading and the case analyses we have been doing, most of this should be review for you. This is a comprehensive case. Get very familiar with it. Think it through. Revise, review, proof-read, double check your numbers. You will not have time to evaluate every combination of distribution strategy, product pricing and promotion. So, first, decide on what you see as the right target segment, and the right channel/distribution strategy for Nundies. Then, design the other elements of the marketing mix accordingly. In your recommendation for channel/distribution strategy, be sure you justify why it is the better way to go than the other possible strategies, but don’t spend all your time delineating every single pro and con of each alternative. Make your case and move on. Assignment Protocols 1. Use a memo format addressed to Mr. Mortensen. As you develop your analysis, remember you are writing to him. Avoid rehashing case facts, company and brand history. Use of case facts, etc., should be to support any argument or an inference about marketplace and brand conditions. 2. Use only your Panther ID to identify your paper. 3. Number all pages. 4. Attach the Rubric to the front of the paper you turn in.. 5. Upload a copy to (dropbox) without the rubric. 6. 1.5 or 2.0 line spacing. 7. 4 page document limit. 8. Use a separate Appendix where you can put tables, etc. 9. Use headings and sub-headings to organize your document and guide the reader. 10. Staple the document in the upper left hand corner. 11. Use proper form when citing the text or other material. 12. Hard copies of all papers are due by 4:30 on Monday, November 16th 13. Papers turned in after 5:00 PM will lose 10 points. 14. No papers will be accepted after 12:00 Noon on November 16th without a valid medical excuse or proof of death in the immediate family.