CULINARIAN COOKWARE PONDERING PRICE PROMOTION A Marketin Mana ement-I Case Anal sis
Submitted By: Team AC2 Ankit Baranwal Ashish G Gyanchandani Charu Pandey Natesh Bhardwaj Surya Bakshi
Introduction Culinarian Cookware was considering the option of providing a price promotion to its consumers on its premium cookware. The company’s Vice President , Marketing, Donald Janus was against this option as he thought it diluted the brand value. He felt that given the product’s qualit y technology and performance the price was apt. On the other hand the company’s senior sales manager Victoria Brown opines that the price promotion strategy was going to be profitable as it will extend the company’s reach and increase the brand awareness. With these arguments and facts Victoria Brown had to come up with a detailed analysis and recommendation whether price promotion should be provided or not. Problem Statement Should the company offer a price promotion for the company’s line of premium cookware in the coming
year? Consumer Behavior: The consumers in the cookware market could be split into 2 income groups with one containing those earning over 75000$ and the other containing less than 75000$. In the case, cookware consumers earning more than 75000$ were surveyed and the results were presented in Exhibit 4. Based on this, some inferences can be drawn about the behavior of consumers. Consumers of cookware prefer brands. And for this income category of consumers, price was not a major deciding factor but they were driven by lower prices. They prefer buying in mass merchandising outlets and kitchen specialty stores. Also they prefer buying at stores with attractive displays and stores that provide good service. These suggest that the consumers prefer quality and better service and were ready to pay an appropriate price for it. Most of the consumers in this prefer to buy premium cookware. How it was bought and sold? Culinarian sold its products through retailers, specialty stores, and through internet. Most of the sales were through retailers and specialty stores while a small portion accounted for sales through their web site. Culinarian’s channels involve sales force, selective retailers and specialty stores. 32% sales suggests
a huge potential in mass merchandising outlets. The cookware sales were price sensitive owing to 30% respondents selecting price as the most important criterion. 55% Cookware sales as gifting items suggest that seasonal purchases and offerings help draw customers. There was an increased clamor to cookware that matches the décor in kitchen. Brand awareness through celebrity chef were widely recognized and impactful for sales conversion. Sales were usually done through kitchen, local specialty chains, departmental stores, mass merchandisers, grocery stores, TV, online sales, catalogues. Implications of Culinarian marketing strategy: Given that the consumers perceive this as a premium brand, making the product available at selective locations was a good strategy. It helps keep up the brand value. And the survey conducted by Culinarian shows that the unaided brand awareness of Culinarian among cookware customers was lesser that those of Le Gourmand and Robusto. And to increase the awareness among consumers, Culinarian would need to advertise. Currently they were using 4% of their sales on advertising expenditures and this strategy was sensible. And advertising in selective magazines and newspapers based on the target audience was also a right strategy as Culinarian expects to maintain its brand value. However Culinarian
does not subsidize the advertising of trade organizations in magazines and newspapers other than those recommended by it. This restriction can be subjective as in certain cases the trade organizations know the advertising vehicles to be used better. This might be the reason for low awareness amongst consumers despite good advertising spending by Culinarian. Culinarian. With the premium segment competitors never running price promotions, Culinarian cookware marketing strategy helps boost its brand awareness and sales as it serves as a differentiator. However, this comes at the cost of reduction in prestige image. Marketing strategy should be non-cannibalizing. Increase in sales of CX1 during 2004 price promotions led to decrease in DX1 sales. CX1 recorded 57% increase in sales while DX1 sales reduced by 17% during the spring sales promotions. Price promotions in 2005 augmented DX1 sales at the cost of CX1 sales. CX1 sales have declined by 25% while DX1 recorded 60% sales growth. Sales fluctuations from spring to fall in CX1 series during 2004 indicate the promotions transferred transferred sales from fall to spring. Only DX1 saw an increasing trend in sales despite promotions in 2005, CX1 line promotions were evident only in 2004 and have consistently dropped in later years thus creating only short term sales momentum. Sales through catalogues were only 5% indicating direct sales force sales will tremendously help Culinarian’s sales. Price promotions have not been advertised at national level leading to price variations offered by various retailers. As a result, only 50% received/benefited fully from price promotions. Also, ad policy restricting restricting co-op retailers limited aggressive ad promotions.
2. What are Culinarian’s strengths and weakness es? Why has the company been successful? Strengths Strong image because of its product quality and its advanced performance technology
Weakness Lack of consistency and meaningful discount events
Wide range of products; offering from a high priced, advanced performance technology product to lowest priced with the least advanced technology product, there by catering to the different set of consumers ranging from normal buyer to a serious cooks.
Since the advertising budget was spent mainly in national advertising. This led to low brand awareness in lower income households.
Market leader in metallurgy technology. POD such as copper cookware with effortless cleaning and maintenance and patented copper construction Its strong relationship relationship with retailers helped it in offering all its variants thus establishing a broad network
The company had imposed strict restrictions regarding the type of the publication the trade could use Highly priced products of Culinarian, which largely targeted the premium segment of the market. This eventually resulted in to a low penetration & selective channel distribution
High margins compared to its competitors leading to greater retail participation
Difficulty in handling inventory control during the promotion, shows that the company was still not ready of handling the sudden surge in the orders. This could have strained the relation with retailers Favorable trends in the market for its Difficulty in maintaining the excitation of the premium segment. Copper cookware, retailers in pushing the programs that offered premium cookware, matching kitchen décor a gift with purchase Favored and endorsed by chefs and experts Cannibalization among brands due to price difference Experienced managers to provide inventory management suggestions
Culinarian was successful owing to seasonal promotions, having the first mover advantage over its premium copper segment. The company was successful largely on exploiting the opportunities and exhibiting its core strengths. The company had a clear picture of its target audience and offered a wide range of products with its main focus on premium segment of the market. Strong retail distribution outlets, healthy relationship with the retailers and high offering of 52% margins as compared to its competitors and also the highly efficient & experienced sales force made the company to increase its revenue and profits year on year. The success could also largely be attributed to the offering of advanced high priced performance technology products (for highly informed consumer) to low priced least advanced technology product to mid-level and low-end consume rs. 3. Should Culinarian run a 2007 price promotion? If so, what should be the specifics of such a promotion (Egg: Product scope, discount rate, timing, communication)? In case you feel a price promo was not suitable, come out with another type of sales promotion (Manufacturer rebate program, gift with purchase etc.) to recommend No, No, Culinarian should not adopt price promotion. The general trend in the industry, especially in the segment in which Culinarian operates was higher middle class segment. Customers from this segment prefer quality and features over price as shown by the Orion Market Research. Moreover the competitors of Culinarian in this segment were not offering any discount. The price discount in this situation to garner untapped market would weaken the positioning of Culinarian. The price discounts would directly affect the revenue and distributor margin which would result in falling short of achieving 15% YOY increase in growth and also takeout the advantage of ‘a supplier with high margin’ image among distributors. Which will not only discourage
distributors but also removes the only edge Culinarian had when compared with its competitors. The capacity of the plant to handle the surge due to increase in sales when prices were discounted was questionable. From the past experience (in 2005) Culinarian was not able to handle the surge in sales. Hence Culinarian should not go for price discounts unless it was prepared to handle the demand. The price discount given by Culinarian may not reach the customers. Form the previous experience in 2004 it was known that most of the distributors did not pass the benefits of price discounts to the customers. If we see compare the profitability calculations of the consultant’s analysis and that of Victoria
Brown, we can find how the assumptions of the senior sales manager, Brown were irrelevant and showed the flawed image of the price promotions. Consultant With Promotion Total Units Sold
Brown
Without Promotion
With Promotion
Without Promotion
184,987
119,504
184,987
59,871
$62.4
$72
$62.4
$72
Variable Costs
$52.05
$52.05
$38.64
$38.64
Profit Contribution per Unit
$10.35
$19.95
$23.76
$33.36
$1,914,615.5
$2,384,104.8
$4,395,291.1
$1,997,296.56
Selling Price
Profit Contribution Loss due Cannibalization
to
$99,332
Saving in Inventory Costs Costs
$39,540
Profit Increase/Decrease due to Promotion
$(529,281.4)
$2,397,994.6
The difference in profitability due to promotions according to the calculations done by Consultant and Brown are because of the total sales volume which are considered erroneously by Brown as 24% yoy growth directly from the previous yea r’s monthly data. Also in Brown’s calculation, the variable costs include only labor and raw materials which totaled $38.64. Brown also did not consider Cannibalization costs and inventory savings. Because of these differences in consideration, there is Profit in Browns calculation and loss in the calculation done based on Consultant’s logic.
Recommendations Culinarian should adopt consistent and meaningful price promotions to avoid cannibalization of CX1 due to DX1 sales. Culinarian should adopt a promotion strategy that should not enforce a trade discount. Culinarian has poor brand awareness in its target market than its competitors who never run price promotions. Hence to increase the brand awareness, Culinarian should invest in marketing to improve its business. Following steps can be taken in this regard:
Sponsoring cookware for national TV featuring its product line Cooking events with chefs and customers in shopping malls, to induce trials Offer gift promotions for high end products or with a bundled purchase (for example, 2 or more items on a cookware set purchase) as it would increase sales by an average of 15% without compromising on the margins. Because retailers do not appreciate the space wasted by the gifts, the gift vouchers can be mailed to the customer after the customer returns the warranty card with a conveniently attached survey Gifts can be offered at non-peak time periods because retailers prefer non-overlapping promotions from the vendor lines they carry Vouchers can be given to customers on purchase of CX1 & DX1, which can be redeemed on purchase of high end SX1 or PRO1 Celebrity endorsements through high-profile chefs, to appeal to customers through opinion leaders can be helpful Increasing manufacturing capacity will help in dealing with increased sales during promotions
