1. How would you characterize the situation facing Advanced Materials with respect to Nundies in January 2008?
Nundies means no undies which are disposable thin panty that made for woman who like invisible panty lines and wish to wear thin liner instead of wearing traditional under wear. Nundies sell its product through different channels but mainly through women’s specialty shops which counted 242 in 2007. It also distributes its products online at its official website as well as many other store websites. The main purpose of Nundies is to offer women who dislike underwear a convenient and comfortable product. The biggest advantage for Nundies is that there are only substitute products available in the market, the product it offers has no direct competitors.
Now the primary problem Nundies facing is that Nundies’s expectations are failed due to the low store repurchase rate. Apart from the initial purchase, only approximately 6% stores placed additional orders for extra units and only 10% of reorders are included in the total units sold. In addition, although the online activity is considered to be positive, it is not used frequently enough in terms of reorder. The amount of panties included in a single package is another problem and will be discussed in the next question.
Other problems includes the sales person in stores do not promote Nundies enough. They think Nundies can sell themselves because they are already displaying on the shelves. So sales person do not talk about the product or recommend Nundies to their customers. Actually, customers with interest to Nundies seem to be embarrassed by showing their interest in stores. Therefore the passive attitude of sales person has a direct impact on the sales of Nundies’ products. Moreover, Nundies’s products displays together with other merchandise in shops means its products merge in with other goods, customer would possibly miss Nundies’s products and this result in a big loss in sales. As a result, if store personnel do not suggest or promote Nundies’s products and Nundies are not properly displayed in stores, Nundies will face a decrease in sales as well as affect the reordering from other companies. This will impact Nundies’s profits and sales.
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Advanced Materials Inc is a manufacturing company with large industrial customer base. It changed its strategy to focus on promoting its own product and transforming the capabilities of its product development to be customer based. The main target markets are medical and consumer market. Core capability of AMI is to produce single use medical grade products. Therefore the launch of Nundies was very innovative for AMI.
2. How would you describe the introductory program for Nundies, including the market target, value proposition, and each marketing mix element? Advanced Materials Inc.’s new product Nundies is very different from the past products manufactured by Advanced Material Inc. It represents the company’s transition to consumer and proprietary medical products from foam fabricator manufacturing business. The manufacturing costs to produce a single liner include material and labor cost which is estimated to be $0.6 per unit. Three colors, buff, black and assorted would be produced in a package. And 5 count plastic pillow packages would be created to package the liners and each cost $0.45 to produce. Nundies provide retail stores 5-count package with the wholesale price of $7 and selling price to customers is $15.
Furthermore, for each 5-count packages sold, Nundies offers 12% commission on the wholesale price to its agents. This agent’s responsibility is to increase Nundies’s distribution coverage amoung specialty stores for Nundies as well as women’s boutique stores. According to the marketing research of Nundies, 30.9 percent, which is the largest percentage in women’s underwear sales goes to women’s boutique and specialty shops. Department stores rank the second with the number of 30.7% and followed by 29.1% from mass merchandise and warehouse club stores. Internet retailers and other retail outlets account for the smallest percentage which is 9.1%. Based on the survey research from 1042 women aged 18-49 years old, 84% of women have interest in eliminating panty lines products. Among them, 58% women tried to eliminate panty lines by wearing no-seam panties.
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Only 22% women wear no panties at all as a solution for eliminating the panty lines. This means the majority customers prefer to wear something than nothing. 81% of women are interested in not underwear product that has the function to provide comfort and hygiene benefits. 35% of women would wear this kind of product 3-5 times per week which ranked the highest followed by the group of people who prefer only to wear 1-2 times per week with the percentage of 29%. Among the people who would wear 3-5 times per week, age 30-35 ranked the highest which account for 39.8% while 41.7% of people age 18-24 show that they would use this kind of product only 1-2 times per week.
About the distribution channels, 64% respondent said that they prefer to purchase no panty line product from mass-merchandise stores such as Target and Walmart, followed by midlevel department stores 49% and online purchase 41%. Women’s boutique ranked the last, only 28% customers would shop this product in there. However, 53.1% of customers would seek out this product online/internet if they knew it was for sale which ranked the highest among other channels. Therefore, online selling have bigger potential and should not be neglected.
In order to emphasize the product’s display concept as well as investigate user impressions, another focus group research was conducted. Participants are women who have over $25000 annual household incomes and aged 21-60. Nundies’s display and packaging are favored by these participants. The locations they expect are “cotemporary concepts” location in shops as well as lingerie stores. Participants express the idea that demonstration is helpful to attract customers. Therefore knowledgeable sales persons are necessary to increase product sales. The products are expected to be found and purchased in department stores by all participants. Although online purchasing is seen as positive, it is infrequently for reorders.
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These research studies have revealed that Nundies have a good market potential because large amount of women are interested in this kind of no panty-line and convenient product. Nundies meet their expectations by offering protections while allowing them to be free at the same time. So Nundies is a single-use, disposable panty that sticks to the inseam of women’s leggings, athletic wear, shorts and jeans. When women decide they don’t want to wear underwear, Nundies helps provide a protection as well as being convenient at the same time.
The target market for Nundies was 36.7 million aged 15-60 women who has a household incomes over $25000 annually. And the selling price was set to $15 which was considered to be high by participants. Although it was not a main problem for the target market, participants still found 10 liners in a $15 package would be more reasonable. However, Nundies set its price to $15 was based on competition from alternatives, manufacturing cost, retail margins and profit goals of the company. Moreover, Nundies were more popular among higher end specialty stores and upscale department shops. Customers in these higher end channels show better interest in Nundies. There for Nundies keep this selling price to gain higher margin.
Nundies’s launch has limited media advertising support and no consumer-oriented advertising was involved in the promotion. Nundies was introduced by print advertisement through retail trade magazines. Also, these retail trade buyer magazines such as Southern Vanity, Women’s Wear Daily and Fashion put complimentary feature articles to help Nundies gain awareness. Additionally, for major celebrity events like Grammys, and 2007 academy awards, Nundies promoted its product by placing its sample package in the gift bags to give away to celebrities. It also took the advantage of New York and Las Vegas’s Lingerie Trad Show to exhibit its products. This brought Nundies great opportunity as these showrooms were visited by buyers for women’s boutique and specialty stores, they decided which accessory lines to carry.
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3. Looking again at Nundies target market, value proposition, and each marketing mix element, how has each contributed to Nundies performance to date?
By the end of 2007, there were 232 women’s boutique and specialty stores selling Nundies as well as 10 upscale department stores across 40 states. Nundies had shipped 11383 units of products to these channels, among them, 1777 units were accounted for reorders from 15 stores. 285 units were distributed for online purchase. To see from exhibit 6, it is clearly to see Nundies had the highest sales record with 4506 units ordered in the second quarter which includes April, May and June. The third quarter July, August and September ranked the second with 3552 units ordered. This record may because of the warmer weather. Women tend to wear dresses, shorts and skirts in summer season so they would choose light product that do not show any panty lines and provide them protection at the same time. Nundies’ orders declined dramatically after summer season with only 1656 units ordered in October November and December. The poor sales performance may because of the following reasons.
First, Nundies’s target market is represented by15-60 year old women which accounts for 23% of total population. It is important to notice that the concentrate of this population is among the age 25 to 52 which accounts for 80.83% of this population. So Nundies should especially emphasize on this target group to be more efficient.
Secondly, Nundies currently offers only 5 panties per package. Nundies have the opportunity to increase the panties amount in single unit. Because with the current selling price to customer set to $15 per unit, customer found that it would be more attractive if this price is for 10 per package.
Thirdly, with the distribution channel Nundies currently place its product, it is missing out the mass-merchandise stores such as Target and Walmart and midlevel department stores like JCPenney. Although women’s underwear are mainly sold through women’s boutique and specialty shops, it is not the best option for Nundies. From the survey result, the majority of participants (64%) expect to purchase Nundies in mass-merchandise stores. The second channel customers expect was midlevel department stores, 49%. However, Nundies’s products were mainly distributed to women’s boutique and specialty stores as well as upscale department stores and online which less customers would expect to purchase from. Nundies is missing out 59.8% of two large markets that would attract the most potential customers.
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Fourthly, Nundies launch has limited media advertising support and it lacks of consumer-oriented media advertising. Many people don’t know this product exist or have no idea what is used for. So in order to increase sales, Nundies’s primary task is to increase brand awareness by raising media advertisements via commercial or print media.
Other factors that affect Nundies performance include the impact of sales personnel. Sales staffs are unclear about how to merchandise Nundies. They think Nundies would sell itself by displaying it in stores. However, many Nundies displays seem to merge in with the rest of other merchandise items. Moreover, many customers feel embarrassing to show interest in Nundies apart from those customers who are already panty free. Therefore an informative brochure or advertisement is needed for departments and retail stores so sales personnel could mention and suggest Nundies to customers clearly. In addition, Nundies display should be suggested and checked by Nundies agents to ensure Nundies occupies a favorable position and does not get lost with other items.
4. Mr Mortensen asked his team to revisit the market and sales potential for Nundies. How large is the market for a product like Nundies and Nundies sales given its current marketing program?
36.7 million of women aged 15-60 is seen as Nundies target market. Among them, Nundies’s focus is largely emphasized on 25-54 year old customers with the targeted segment to be 29669 which account for 80% of the total target market. Most of them have annual income over $25000. According to the survey, more than 36% of women are interested in Nundies product’s idea (plus 41% maybe).
They accounted for 13.2 million (plus 15 million) of the target market. 28% of women said they would seek this product in stores (plus 49% maybe) and they accounted for 3.7 million (plus 6.5 million) of the market. About 1.07 million target customers would use Nundies 1-2 times a week, 1.3 million would use 3-5 times a week and only 0.7 million would use it 6 or more a week. Users for special occasions purpose ranked the last with only 0.63 million. As a result, Nundies’s total yearly usage reached 365million or 73 million units.
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5. What are the pros and cons of the proposals identified for Nundies
Proposal one: Continue development of the women’s boutique and specialty store channel. Based on the performance in 2007, sales revenue was $34150, variable cost was $13887, and therefore margin was $20263. Net income equals margin minus fixed expenses which was $14400. So Advanced Materials’s net income achieved $5863 in 2007. As a result if AMI continues its development in women’s boutique and specialty channels, it will result in profit and would possibly be enough for the firm to cover all the fixed expenses. Another scenario for the company is break even. The sales of Nundies have to achieve at least 1618 packages or 8090 units with the total sales revenue of $24283.
Pros for this proposal includes it only cost $14400. It is inexpensive and saves costs. Also it allows AMI to gain more profit on the basis of last year’s performance. Considering the worst case, AMI could still achieve break-even if it sells 8090 packages. This is not a big task so AMI should have no pressure to achieve this goal. Another advantage is that the exhibition and display in these channels would help increase the sales opportunity because Nundies maintain its awareness to customers. This also increases the brand recognition.
Cons for this proposal includes as AMI’s agent’s ability and responsibility only restrict to find stores that are willing to sell Nundies and collect orders. They are not responsible for any process involved in merchandising Nundies at stores. So many variable factors in retail stores have the potential to affect Nundies sales.
Proposal two: Pursue the upscale department store channel. There are two types of buying practice in upscale department which are centralized buying and decentralized buying. In centralized buying, retail sales consultant contact the department store account directly and provide the account information about target market, market size and sales displays. There are 300 stores in the chain of top five upscale centralized buying department stores and 350 in the chain of top five upscale decentralized buying department stores. The commission for AMI’s agents on wholesale price would be 12%.
The cost is much higher compared to women’s boutique and specialty store channel which cost $20000 to $30000 for the sale presentations and retail consultant fees. Other costs such as warehouse, catalogue and pay line cost around $35000 to $55000. Based on 2007’s performance, 242 department stores sold 11383 units. Therefore for the 300 centralized buying department stores, an estimated number of 2800 packages can be sold, while for the 350 decentralized buying department stores, an estimated number of 16500 units can be sold.
Pros for this proposal are with the number of department stores, Nundies could be more exposed to the target market. Ads and displays would be presented to customers more clearly.
Cons includes this channel requires higher costs so the cost of goods sold per unit increased as well. Lower profit is another disadvantage for this channel.
Proposal three: pursue midlevel department store accounts. Midlevel department store accounts include stores such as JCPenney with 1000 stores and Kohl’s with approximately 930 stores and they all use centralized buying strategy. Midlevel department stores are treated as house accounts as well and retail sales consultants are involved. This proposal requires Nundies with different package materials and graphics. Also 2 extra liners are included in every package with the selling price to be $8-$10. However the percentage for retail margin remains unchanged as for current department store accounts.
Pros are the market size is huge. There are over 1793 stores with centralized buying which is a big market for Nundies. Also the cost of goods sold is lower per unit.
Cons includes this proposal requires to change brand name and packaging. Nundies’s awareness and recognition among customers was a problem all the time. If it changes brand name and packaging, it would confuse customers. In addition, this proposal requires a increase in the amount of panties but the MSRP do not increase enough. Also the expense is between $25000 to $35000 which is relatively high, means the profit margin is lower. Another con is increase in fees. Nundies need to pay a estimated cost of $35000 to $55000 for department store chains.
Proposal four: a combination of channels
Pro for this channel is that products can be produced and delivered documented and in the right quantity. The combination of channel consist both 300 upscale centralized stores and 1793 midscale centralized stores which means this helps increase advertising and the distribution expansion would reach more customers.
Cons: However the higher fees and costs are the major problem. It would cost AMI vast amount of money.
Proposal five: fashion magazine advertising
Pros: The extent of audience for fashion magazine is very wide. 56% of 13 year old above women prefer to purchase product that is recommended by fashion magazines. And the target market for fashion magazines are the same target market for Nundies. So Nundies could take this opportunity to promote its product more efficiently.
Cons: The cost is too high to place advertisement on fashion magazines. It costs $115000 and $200000 for Cosmo Girl and Cosmopolitan respectively. So Nundies margin would be very low.
Proposal six: metropolitan-area advertising
Pros: the cost is lower than advertising on magazine. The advertising period is longer. It targets people at large which would attract more potential buyers instead of end users. Also the advertisement is near stores where Nundies are available. It could boost sales in those areas.
Cons: it does not focus on its target customers would possibly lead to advertising inefficiency. Also less people seek fashion inspiration from newspapers so newspaper may not be a good media for Nundies.
Proposal seven: search engine marketing
Pros: when people search relative word to intimate apparel, Nundies will show with a link to its website. This brings Nundies more opportunities as people all around the world would get to know Nundies instead of only where Nundies sells.
Cons: reorder rate is less online. And the cost per month is too high. With the selling price and cost of goods sold of Nundies, if the market demand is low, the margin will be lower.
6. What are the likely sales and profit impact of these proposals?
For women’s boutique and specialty stores, cost of goods sold per unit is $3.45, with wholesale price of $7. The continual sales cost is $14400 plus 12% commission. And for the worst scenario, the break-even point is 5313 packages which are 26565 liners produced. Therefore the profit at full capacity equals $39800. The second is upscale department stores, cost of goods sold and wholesale price remains the same as boutique costs which are $3.45 and $7 respectively.
Upscale department stores have additional upfront costs which are $195000- $305000. It does not include continual sales cost. For the break-even case, 70422 packages or 352110 liners are produced. Therefore the profit is negative, $179000. Third is midscale department store. The cost of goods sold is lower, $3.26 with lower wholesales price which is $4.65. The upfront costs are $225000-$340000 and no continual sales cost as well. The break-even scenario requires 205036 packages or 1435252 liners to produce. As a result, the profit comes to negative $265143.
7. What is you recommended course of action? Why?
As a conclusion to the above analysis, boutique stores are the most profitable distribution channels for AMI. Because the entry cost into this channel is the cheapest. The margins are higher than other proposals. Also, production limits are more compatible in this channel. Furthermore, it is the only feasible proposal that do not require huge expansion. As 13 times the packages sales are required to break-even for upscale department stores and 54 times the Nundies sales are required to break- even for midrange department stores. With limited capital amount, these two proposal seem to be less feasible.
For the success of Nundies, AMI could give away free samples to fashion bloggers or youtubers and let them promote the product instead. This would increase the brand recognition and awareness of Nundies, as well as gain a word of mouth through these bloggers. Also, another cheaper way to promote Nundies is utilize Youtube to introduce instructions for use.
Let audience know what is it and how to use it instead of just displaying in the store. As for stores, sales tips should be provide to retailers. And the display should avoid merging in with other merchandise products and become more attention getting. Train sales personnel to be informative and to be more proactive to suggesting and demonstrating Nundies to customers. Pamphlets and samples should be offered as well. Nundies can also be advertised using kiosks. As for reorders, AMI could offer discount to encourage repurchase.
Reference
1. Kerin, R.A., and Peterson, R.A. (2013).
“Nundies case study”, Strategic Marketing Problems Cases and Comments International Edition, 2013 Pearson. ISBN13 9780273768944
