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    Harrington Case Brief

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    Rachel Blais

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    Harrington Case Brief

    Uploaded by

    Rachel Blais
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    Copyright:

    Attribution Non-Commercial (BY-NC)
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    Download as docx, pdf, or txt
    3K views5 pages

    Harrington Case Brief

    Uploaded by

    Rachel Blais

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 5

    March 31 2011

    Harrington Collection, Case Brief


    Rachel Blais

    S t r a t e g i c M a r k e ti n g M a n a g e m e n t
    Key Issue: At what price should Harrington introduce the new Vigor active-wear line?

    Harrington Collection has faced declining sales from 2005 to 2007. The clothing
    company is currently looking for ways re-strategize and boost its revenues, and it is
    considering doing this by creating a new active-wear clothing line to follow the latest
    rising trends. The proposed retail prices for pieces in the active wear line are $100 for a
    hoodie, $40 for a tee-shirt, and $80 for a pair of pants. Harrington needs to determine
    whether or not these are the optimal prices that will achieve higher profits for the new
    Vigor line.

    Alternatives
    1. Introduce Vigor active-wear at proposed prices

    2. Introduce Vigor active-wear at 20% higher prices than proposed prices

    Criteria

    Quantitative Criteria:
     High profit margins
     Sales potential
     Market share potential

    Qualitative Criteria:
     Customer satisfaction
     Brand perception

    Alternative 1: Introduce Vigor active-wear at proposed prices

    Because the number of women’s active-wear units is expected to double by 2009,


    Harrington could take advantage of this trend by introducing active-wear to the fifty
    stores carrying its Vigor line of clothing. Department stores have already begun to sell
    active- wear at double the turnover rate that Harrington collection has been turning over.
    It can take this opportunity to boost its sales by following the active-wear trend.
    The 2009 total projected number of active-wear units is expected to be 15 million
    units. Of these units, 6 million are expected to come from the relevant market of the
    “better” classification of active-wear (Please see 2009 projected number of active-wear
    units in Appendix). Assuming Vigor can maintain 7% market share in its active-wear
    line, it should sell approximately 420,000 units (Refer to 2009 Vigor active-wear market
    share with proposed prices in Appendix). This translates into $39.9 million in wholesale
    revenue and over $6.3 million in profits before tax with a profit margin of 15.70%.
    Of the customers who typically purchase items in the “better” category with price-
    points between $100-200, 98% do not believe that a slightly cheaper active-wear line
    would cause the brand to be perceived as cheap. And even though it was agreed that the
    durability was below Harrington standards, 95% of the customers were happy with the
    overall look, feel, and durability of the new active-wear. Those who shop at Vigor are
    typically trend-setters who seek fashionable yet comfortable clothing.

    1
    Alternative 2: Raise suggested prices by 20%

    Because Vigor is a moderately expensive brand, consumers will be less sensitive to a


    20% price hike than would those shopping within the “budget” to “moderate”
    classifications that are more price-conscious. Therefore, if active-wear prices were
    introduced at a 20% higher price that the original price suggestions, Vigor will be able to
    maintain most of its market share. At 20% higher prices, a hoodie at retail will cost $120,
    a tee-shirt will cost $48, and a pair of pants will be $96.
    These prices will not affect most consumers who shop with Vigor because they
    already have a higher willingness to pay than the items that are being offered for under
    $100. These consumers already associate the brand with item prices between $150 and
    $500 and perceive Vigor as being of good quality. Customers are satisfied with the look
    and feel of the active-wear designs, and are willing to pay more for fashionable active-
    wear pieces.
    It is proposed that Vigor would be able retain no less than 6% market share if
    prices were introduced at 20% higher levels. With a 6% “better” active-wear market
    share, Vigor would sell 360,000 active-wear units (refer to 2009 Vigor active-wear
    market share with 20% higher prices in Appendix). This would produce $41,040,000 in
    wholesale revenue with $114 per unit sold. By selling active-wear at 20% higher prices
    than the current proposed prices, Harrington can cash in on higher contribution per unit
    with $65.71 and lower total variable costs because it will be producing less. At these
    higher prices, Harrington will generate profits of $9,464,400 before tax and a profit
    margin of 23.06%.
    Furthermore, active-wear markdowns are not as significant as they are for other
    product lines. Therefore, if Harrington needed to place some of the items on sale, it could
    easily sell the items at a 20% discount at the same prices as the original price suggestions
    while still covering costs and making profit.

    Recommendations: Alternative 2

    Target Market
    Trend-setters age 25-50
    Active, professional women seeking edgy, yet comfortable, fashions

    Objectives
    Boost sales with addition of new active-wear line
    Tap into new active-wear market

    Overall Strategy
    Product-development strategy
     Introducing new product line to existing market

    2
    Marketing Mix, Alternative 2: Raise Suggested Prices 20%

    Product
     Objective: Introduce new fashionable active-wear line to Vigor division
     Strategy: Product differentiation strategy
     Tactic: Good quality, comfortable, and fashion-forward active-wear

    Price
     Objective: Uphold market share between 6%-7% while maximizing
    profits
     Strategy: Price-skimming strategy (within “better” classification)
     Tactic: Price active-wear higher than market for “better” classification
    (“better” active-wear priced just below $100)
    o $120 Hoodie
    o $48 Tee-shirt
    o $96 Pants

    Promotion
     Objective: Increase awareness of Vigor active-wear product line
     Strategy: Push and pull promotion strategy
     Tactic: National advertising campaigns and sales staff

    Channel
     Objective: Use existing channels that Harrington currently uses for its
    Vigor product line to sell active-wear
     Strategy: Indirect channel strategy
     Tactic: Sell new Vigor active-wear at each of the 50 Vigor store locations

    Budget

    The new budget to add the new Vigor active-wear line will feature annual depreciated
    start-up and launch costs of $2.54 million per year, ongoing fixed annual operating costs
    of $11.5 milllion, and variable costs of $17.54 million (with 360,000 units).

    Evaluate and Control

    Harrington will evaluate the active-wear line on a quarterly basis each year. It will
    determine the overall performance of the new active-wear line by determining whether or
    not it is meeting its profit margins and maintaining its overall share between 6 and 7% in
    the market. Harrington could also evaluate consumer brand perception of the Vigor
    active-wear and overall customer satisfaction by distributing surveys to customers. If the
    new active-wear line proves to be successful, Harrington may consider introducing
    active-wear lines to one or more of their other brand divisions.

    3
    Appendix

    2009 projected number of active-wear units:


    7.5 million units (sold in 2007) * 2 (double by 2009)= 15 MILLION UNITS
    15 million units* 40% “better” market share= 6 MILLION UNITS

    2009 Vigor active-wear market share with proposed prices


    6 million units * 7% Vigor market share= 420,000 UNITS

    Percent Change in breakeven units


    (213,600-289,879)/289,879= 26.31% fewer breakeven units to sell at
    20% higher price point

    2009 Vigor active-wear market share with 20% higher prices


    6 million units * 6% Vigor market share= 360,000 UNITS

    Market Share needed to sell at 20% higher price point:


    213,666 units/ 6million units relevant active-wear market= 3.56% MARKET
    SHARE

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