Chipco Case Study Essay

2310 Words Aug 6th, 2010 10 Pages
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
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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

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