Chipco Case Study Essay

Introduction Bill Gates, founder of Microsoft, said, “It’s fine to celebrate success, but it’s more important to heed the lessons of failure. How a company deals with mistakes suggests how well it will bring out the best ideas and talents of its people, and how effectively it will respond to change. ” This quote definitely applies to Colleen Klein’s company Chipco. “Chips,” as Ms. Klein is common known, invented a 3-way mirror for the application of eye make-up: The Eye Maker. It was Chips’ personal belief that this product was a useful essential for all women that wear eye makeup.

Although she was aware of the fact that 95% of new products end in failure (Chipco, p. 1), Chips took a risk and launched her creation. This risk, however, was uncalculated and lacked vital research and development that could have lead to potential sales and success. These and other factors lead to the initial failure of this product. A well-known marketing concept, “The 4 P’s of the Marketing Mix,” could have dramatically affected the outcome of the product. This essay will explore some issues concerning Chipco, their impact, and how they could have been avoided all together. 1. Product

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The first “P” is product. Ibrahim and Ellis detail four stages of product development (Ibrahim & Ellis, 2002, p. 132). The first is the idea generation stage. The idea for Chips product came from her experience as cosmetologist and applying makeup in cramped spaces during her dancing career. She perceived a need for a solution to the difficulty of applying ones’ own eye makeup. A 3-way mirror that allowed one to see their top and bottom lids was Chips’ potentially innovative product. This stage was complete. The second and third stages are the development and the incubation stage, respectively.

During these stages, an innovator researches all aspects of their idea and, based on this, develops a feasible prototype. Although Chips conducted some research, it was insufficient to ensure success for her product. Chips began by drawing what The Eye Maker would look like and making an initial prototype out of household items. She then visited many metal and plastic fabricators to learn about the manufacturing process necessary (Chipco, p. 5). The main issue with the way that she proceeded to develop her product was that she knew nothing about its feasibility and potential.

With the state of the cosmetic market and 1 billion in annual sales in Canada at the time, Chips perceived that her product could accompany the use and application of makeup. She felt that makeup mirrors and accessories were underrated by cosmetic counters and generally unavailable. Chips thought that The Eye Maker could fill this supposed niche. But, perhaps there was a reason for this lack of accessories and innovative mirrors. With only 2 million cosmetic mirrors sold in 1981, was there really a market for Chips’ mirror?

According to Ibrahim and Ellis, “Feedback is essential in order to refine the product and identify unique features of the product innovation. ” (Ibrahim & Ellis, 2002, p. 133) Way before pitching her embarrassing homemade prototype to a cosmetic manufacturer, Chips should have ordered a couple of professionally-made prototypes and planned focus groups. Focus groups of women, including those who wore eye make-up, would have generated feedback from possible purchasers and users of the product. A while variety of questions, both directly and indirectly related to the product, could have been asked to generate quantitative and qualitative data.

Such as: •Do you wear makeup? If so, how often? What kind? •What kind of makeup accessories do you own? •Where do you purchase your makeup? Accessories? •What do you think of the usefulness of The Eye Maker? •What do you think of the design of The Eye Maker? •Would you purchase The Eye Maker? How much would you pay? With her background as an educated cosmetologist, her perception of her product would be different from the average makeup wearer. If there were issues with the usefulness, design and aesthetics of the product Chips would have been made aware of them well before mass-production and distribution.

For example, when Fred Becker was conducting the little market research that was done, a salon owner who was shown the product commented that it was “too cheap and tinny. ” (Chipco, p. 8) Chips herself stated, “Women hoped and prayed that by using this or that makeup they would somehow change their appearance to that to their favorite movie star. ” (Chipco, p. 3) “Cheap and tinny” are not terms usually associated with movie stars. Another major issue with the product was the packaging. As previously stated, women saw makeup as one step closer to achieving the looks of their favorite stars.

This demonstrates the need for the packaging to be glamorous and enticing for women. Chips chose beige and brown colored boxes with an acetate film covered paneled. These neutral colors may not have been the best choice to attract attention and interest while on display. Furthermore, while being transported some of the acetate films tore, rendering them unsellable. Once Chips’ research was complete and analyzed, Chips should have produced about five of the newly adjusted and improved Eye Makers, using the actual materials and packaging.

This assumes that the results of her research indicated that the product was useful, feasible and sellable. These five Eye Makers would be used for quality tests for the durability, sturdiness, and safety of its materials and packaging. This could have avoided the issues Chips had with the product and packaging, such as the mirror coming unglued from the frame and the acetate film ripping. Chips did a lot of research on the specific materials used to eventually make the product. If the same effort was made to research the utility, feasibility, and stability of the mirror itself, Chips may not have proceeded further with her product.

If the product did prove to have potential success, while gathering proof of this she would have gain other insight into how she needed to go forward with the production and sale of The Eye Maker. The remainder of this essay assumes that development of this product continued. 2. Price Chips decided on two prices for The Eye Maker: $5. 00 for wholesale and $10. 00 for retail sales. Where did these prices come from? How did Chips decide that these would be a suitable pricing scheme? Chips said that this was an educated guess and deduced from a “gut feel. There does not seem to be an approximate markup or consideration of promotions, sales, and the fact that sales of cosmetics follow a seasonal pattern. (Chipco, p. 4) Chips should have laid out all the direct material, direct labor, and overhead costs associated with a various volumes produced in order to establish different costs per unit. Usually, as the volume produced increases, the overall cost per unit decreases. The benefits of such an analysis are threefold. Firstly this would allow Chips to choose an ideal number of units to be manufactured based on her financial capabilities.

Secondly, it would highlight what costs had to be covered and what a suitable makeup would be. Lastly, the flexibility of the markup could be explored to determine what promotions and discounts would be possible at both the wholesale and retail sale levels. This information would be vital when negotiating sales with companies. Chips needed to know how low she could sell The Eye Maker for a given volume, all the while sufficiently covering her costs and making a reasonable profit. A single wholesale price of $5. 00 would not be appropriate for all companies.

Large department stores ordering thousands of units will not pay the same price as a small pharmacy ordering 50 units. Knowledge of these figures and their flexibility demonstrates professionalism and credibility as a supplier. An additional advantage of having these statistics readily available is that they would allow Chips to create budgets and projections for other steps in the development, distribution process, and management of payment terms for both purchases and sales. For example, a higher markup and gross margin leads to more income for promotional campaigns and advertising.

Knowing how much she will or needs to receive and when will allow her to effective manage her cash flow. 3. Place The third “P,” place, involves how the product is distributed. Judging from Chips experience trying to pitch the product to different companies, she was not prepared for this step. When looking at The Eye Maker, its true value and benefits are not immediately evident. It would have been advantageous for Chips’ propositions to be accompanied by a live demonstration. As such, Chips could have prepared a kit for meeting with companies, or to send to companies.

This kit could include a sample Eye Maker (in its packaging), an information brochure on the product and company, a video demonstration, sample marketing images, and contact information. There would be costs associated with this, but they would definitely be justified and covered if they succeeded in attracting and persuading companies to purchase the product. Chips saw the need for her to recruit an agent to aid her in the distribution of her venture. She made Mr. Fred Becker the sole representative for her product through a signed contract. Mr.

Becker may have been qualified and experienced enough to aid in distribution, but a single sales representative may have been insufficient. A better strategy may have been to contract several representatives on a commission of sales basis. Many sales representatives would spread the idea of The Eye Maker over a larger surface area in a shorter amount of time. A commission based on sales would encourage these representatives to do everything within their capacity to sell the product, with little cost to Chips if they were unsuccessful. Chips and Mr.

Becker attempted to sell the product to major cosmetics companies, department stores, and drug stores. As stated previously, demonstrations of the product and its use could be positive for luring customers. Though they are very rare these days, individuals hosting “Avon Parties” organized by “Avon Ladies” were very popular during the 80’s. If Chips managed to make an arrangement with Avon to have its sales representatives demonstrate The Eye Maker during these parties, women’s interest might be sparked. Having potential customers actually try the product would give them a firsthand account of its use.

In similar fashion, the product could have been exhibited at trade shows, independent kiosks at shopping centers, or on television (i. e. Home Shopping Network). Chips only manufactured about 5,000 units so planning for inventory management, warehousing and transportation was very limited. The entire operation was run out of her home or that of a friend. Had the number of units produced been higher, she would have had to carefully administer and manage these details. 4. Promotion It seems that there was very little promotional consideration given to The Eye Maker.

Chips and Mr. Becker do not appear to have any sort of strategy for promoting the product. Chipco was a very small company, with limited resources. Surely Chips could not afford mainstream television and magazine advertisements in comparison to companies like Revlon and Avon. A suitable type of advertisement for this product would be a point-of-sale display. The presence of such a display could have an impact that would attract customers. Once customers become interested and approached the set-up, the advantages of the product could be written on the display.

A demonstrator on the display would allow potential buyers to pick up the product and see how it works. A point-of-sale display could be maintained by Chips or another of Chipco’s employees. This would give them direct insight into its effectiveness and impact on sales. Another strategy could be for retailers of The Eye Maker to offer it as a freebee with the purchase of another article. Since the mirror is something new that a shopper is likely not familiar with, offering it with the purchase of eye makeup would be a good introduction.

Assuming the customer liked The Eye Maker, this may generate further interest to purchase a compact version of the mirror, or spread the good word to their friends and family. This option, however, takes for granted that a store or company decides to sell Chips’ product. Conclusion The scope of the case of Chipco is limited in terms of its timeline and final outcome. There is not any post-1982 information given or clearly available, and one can only speculate as to what happened exactly happened to product. Did sales suddenly increase, making Chips a millionaire?

Was the design of the product altered to create a chic appeal? Did Chips invest in the production of thousands more, only to end up in debt? Within the information given, the answers are unknown. However, some advice can be given. It is accurate to say that although Chips did not go into debt, she was not successful in her venture. Early in the case it is expressed that Chips was determined to develop the idea that lingered in her mind for years. If she was determined to have her product succeed, Chips’ experience ith The Eye Maker, in combination with the evaluation conducted by the Canadian Industrial Innovation Centre should have be used to improve Chipco’s product, price, place and promotion. It is cliche to say, but we must learn from our mistakes. Chips did not study and perfect her first product’s marketing mix, but this does not impede her from using this past lesson to make future advancements. ? Bibliography Chipco. Entrepreneurship Case. Ibrahim, A. , & Ellis, W. (2002). Entrepreneurship and Small Business Management (Fourth Edition). Bubuque: Kendall Hunt Publishing.

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