Q2. Will consumer and trade respond to guardians marketing investment?

Trade Response
On the existing product, the retailers were provided 40% margin on private label knitwear and 50%
margin on branded knitwear. Perhaps, the new product was providing a 45%. The 5% trade off refers to
the expenditure on displays and retail spaces which reduces the retailer’s margin and would lead to less
intention to stock the products. In contrast, the allowances provided by the guardians might be a lucrative
offer for the retailers.
Consumer Response
Taking reference from exhibit 2, it shows that 185 respondents were interested in buying the product. The
research shows that 60% of the respondents would definitely buy and 38% of 60%( i.e. 23 respondents
appx.) would do the same in the next 2-year introduction period. The company also projects that 50% of
23 (i.e. 12 appx.) respondents would definitely purchase an additional product in the following year.

Q3. What sales volume is required to breakeven on Classic’s 2-year marketing investment?
The following table shows the calculation for breakeven sales(units) for two years: -

Particulars Amount ($)

Selling Price Per Unit 17.87
Less: Cost of Goods Sold (10.82)
Trade Promotion Allowance(5% of 32.49) (0.89)
Advertising Allowance (0.36)
(10% of 20% of 17.87)
Royalty (5% of SP) (0.83)
Contribution Per shirt 4.96

Break even can be calculated as follows: -

Break Even sales (units) for 2 years = Fixed costs* / Contribution Per unit
= (1,000,000+1,200,000+510,000) / 4.96
= 545,961 units

* Fixed cost: -
Display Expenses (10,000*$100) = 1,000,000
Advertising Expenses = 1,200,000
Salary of 3 emplyees for 2 years (85000*3*2) =510,000
2,710,000