Culinarian Cookware Case Culinarian designs, manufactures, distributes, and markets premium performance cookware, and its products features focused in advanced performance performance technology for serious cooks. In premium product segment, Culinarian is the top player, at 6.5% of the total cookware market. The four strategic priorities established by Culinarian’s CEO, Audrey Roux, in 2006, were (1) widen its distribution network, (2) increase its market share of premium cookware segment, (3) preserve its prestigious image, and (4) continue to capture revenue growth at 15%, w hile maintaining pretax earnings margin of 12%. The first question is how to evaluate the effectiveness of 2004 promotion. Donald Janus, the VP of cheapens the products’ image and is marketing of Culinarian, believes that a price promotion cheapens unnecessary. The assessment assessment of the profitability of the 2004 price promotion, conducted by external consultants, also concluded a negative impact on Culinarian’s profit – the promotion lost $469,489 in contribution. Victoria Brown, the senior sales manager, however, says that price promotion, with her reexamination reexamination on the data, was actually very profitable. The table below shows the comparison of consultants’ and Brown’s study
Consultant
Brown
W/O W/O Promotion Promotion Promotion 184,987 119,504 184,987 59,871 Units $ $ $ 62.40 $ 62.40 Price 72.00 72.00 $ $ $ 52.05 $ 38.64 Variable Cost 52.05 38.64 $ $ Profit Contribution $1,914,615.45 2,384,104.80 $4,395,291.12 1,997,296.56 Promotion
Profit Incremental $ -469,489.35 Loss due to Cannibalization Saving in Inventory Costs Promotion Contribution
$
$2,397,994.56
-99,332.00
$ 39,540.00 $ -529,281.35
$2,397,994.56
I think Brown’s objection to the consultants’ study was not valid, in the promotion profit contribution. 1. Brown highlights the CX1 sales orders’ drop of 24% in the first two months of 2004. However, consultants’ study was based on time series analysis utilized 10 year of sales history as well as
proprietary economic and industry models, and shall be a more reliable one. In addition, the premium cookware market was continuously growing, and 2% overall market sales drop was contributed by the prolonged transfer of manufacturing operations by a major aluminum cookware supplier. 2. Brown did not agree with the overhead cost allocation. However, as long as the overhead cost is proportionally allocated into variable cost, it shall be the right calculation model to rely on. I agree with the consultants’ approach approach to include allocated general and administrative administrative expenses, selling
expenses, and advertising/promotion 3. Consultants’ formula to calculate cannibalization costs and inventory savings is also a proper one to use Thus, in terms of profit contribution, the 2004 price promotion was not effective. However, the price promotion did contribute positively in creating brand awareness and also lift the sales of Culinarian’s other product lines. After the promotional, sales for the DX1 more than doubled in 2004 Fall, comparing to a year ago, which indicates a sustained lift in the DX1 sales. This positive contribution can also be observed through 2005 and 2006 promotion. Looking forward, I would suggest Culinarian to continue price promotion, but only limiting to its low end product lines. Furthermore, I recommend Culinarian to take following approaches to support its strategic priorities: Create a new brand for its premium product line 2005 telephone survey reflected that unaided brand awareness for Culinarian is low, and only 4% of survey participants positively recalled having seen Culinarian advertisement. Strengthen advertising to increase brand awareness is required. For low end product lines, other than price promotion, may consider partner with mass retailers to widen distribution network. Price promotion for low end product lines only is offered in peak sales months, rather than in spring. Again, Culinarian’s marketing mix needs to be evaluated and redesigned, to support its 4 its strategic
priorities.
