Case Analysis for Culinarian Cookware

Case Analysis for Culinarian Cookware 2006-2010

Submitted By:

Andrei Grechko Shane Johnston Nakia Lape Kyle McDaniel Kevin Niehaus

Prepared for Ned Jackson, MKT 625 March 28, 2010

Table of Contents

Executive Summary

Situational Analysis A. Environment I. Economic conditions and trends As evidenced by the case material, the US cookware market experienced growth by generating approximately $3.36 billion in revenues from 2002 to 2006. However, due to economic recession of the recent years (2008-present), cookware market faced new challenges and opportunities. The following developments appear to create several opportunities for cookware manufacturers. Due to slow economy and unemployment, consumers cut back on dining out and defer back to home meals. According to Cookware Manufacturer’s Association (CMA), consumers have rediscovered their kitchen during 2009. Thus, visits to restaurants, carry-outs and frozen entrees have been replaced by meals prepared in the home kitchen. This trend highlights the possibility of increased demand on cookware products. In the foreseeable future, economists predict growth in private and commercial real-estate markets (by 2013). This potential development could boost demand for cookware when consumers, for example, start to move in to newly bought houses. However, the demand for cookware products would not move in the same direction for all price ranges. Due to elastic demand for high-end and luxurious products, it is reasonable to expect that consumers will try to either buy less of premium priced items, or try to shift their preferences to less expensive models altogether. This fact could burden some companies in the industry that rely mostly on manufacturing and distribution of premium priced products. Despite slow economy, current and future economic environment provides potential opportunities for players who could adjust their marketing strategy to meet changing demands of consumers. Culinarian Cookware could serve its target markets by focusing advertising efforts on their less expensive product lines, e.g. DX1 and CX1. Potential threats to the cookware market include growing unemployment and prospects of higher inflation in the near future. Current unemployment has climbed over 10% in 2009 (see Exhibit 1), which reduced the purchasing power of many US households. According to the U.S. Bureau of Labor Statistics, consumer price index (inflation) has grown pretty steadily in the recent years (see Exhibit 2). Additionally, many economists predict higher inflation in the coming year (primarily due to increase in the monetary base, high deficits, and underfunded liabilities) that will further reduce the purchasing power of consumers if the wages and salaries do not keep up with the pace (Marks, Gene , “Staying Cool If Inflation Heats Up”, Business Week, 06/26/2009, http://www.businessweek.com/smallbiz/content/jun2009/sb20090626_938025.htm, accessed March 13, 2010). These potential threats could signal to Culinarian Cookware that consumers might be more price-conscious in the near future, hence stipulating the company to re-evaluate its marketing mix.

Exhibit 1

Labor Force Statistics from the Current Population Survey

Series Id: LNS14000000 Seasonally Adjusted Series title: (Seas) Unemployment Rate Labor force status: Unemployment rate Type of data: Percent or rate Age: 16 years and over

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 4.0 4.1 4.0 3.8 4.0 4.0 4.0 4.1 3.9 3.9 3.9 3.9 4.2 4.2 4.3 4.4 4.3 4.5 4.6 4.9 5.0 5.3 5.5 5.7 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4 5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9 4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4 4.6 4.5 4.4 4.5 4.4 4.6 4.6 4.6 4.7 4.7 4.7 5.0 5.0 4.8 5.1 5.0 5.4 5.5 5.8 6.1 6.2 6.6 6.9 7.4 7.7 8.2 8.6 8.9 9.4 9.5 9.4 9.7 9.8 10.1 10.0 10.0 9.7 9.7

Source: U.S. Bureau of Labor Statistics, Data extracted on: March 13, 2010 http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

Exhibit 2

Consumer Price Index

Series Id: CUUR0000SA0 Not Seasonally Adjusted Area: U.S. city average Item: All items Base Period: 1982-84=100

Source: U.S. Bureau of Labor Statistics, Data extracted on: March 13, 2010 http://data.bls.gov/PDQ/servlet/SurveyOutputServlet II. Cultural and Social values and trends A few trends in the cultural and social areas have become visible in the recent years. These changes are and will continue to affect the cookware market. Due to increasing obesity epidemic in the country and rising healthcare costs, the nation as a whole has become more health conscious. This change results in the emergence of numerous diet and health plans. Most diets emphasize the importance of and reliance on home cooking as the means of achieving successful results and as a consequence leading to a better health. Thus, as more consumers opt to cook more meals at home as part of a diet plan or other reason, the demand for cookware would increase. Also, consumers have become more environmentally friendly over the recent years. Customers continue to scrutinize the quality and health hazards of many products, including cookware. Consumers are increasingly becoming more interested in products that are exhibiting environment-friendly traits, and those products that are deemed or proven to be less harmful to one’s health. There is no new information that could suggest that these trends will not continue into the future. Cookware industry needs to recognize the fact, and focus on providing consumers with products that satisfy their health and environmental standards.

III. Political and legal issues The political and legal environment in the cookware market is characterized by the presence and enforcement of laws and regulations imposed on the use of certain materials in the cookware manufacturing process. This is especially true when it comes to materials that are used in contact with food. United States Food and Drug Administration (FDA) is responsible for regulating these materials. FDA conducts safety evaluations of all materials that are proposed by the industry for use in food contact applications. One of the most frequently cited investigations is the one related to safety of nonstick coatings used on cookware (EPA Seeking PFOA Reductions, 01/25/2006, http://yosemite.epa.gov/opa/admpress.nsf/68b5f2d54f3eefd28525701500517fbf/fd1cb3a075697aa4 85257101006afbb9!OpenDocument). The U.S. Environmental Protection Agency (EPA) is reviewing available information on PFOA, a chemical used in manufacture of fluoropolymer resins which in turn are used in non-stick cookware surface applications. EPA is investigating sources of human exposure to these chemicals because of some claims of various harm to human’s health. Even though the studies of this chemical are still continuing, EPA Administrator Stephen L. Johnson stated that “. . . to date EPA is not aware of any studies specifically relating current levels of PFOA exposure to human health effects” (Short Statement on Nonstick Cookware Safety, Cookware Manufacturer’s Association (CMA), May 26, 2006 http://www.cookware.org/safety_statement.php, accessed March 05, 2010). It is important for the cookware industry to continue full cooperation (as has been the case) with FDA and EPA evaluations of all materials with questionable safety records. For Culinarian, it is important to continue utilizing safe materials in the manufacturing process and promoting the quality of its products to satisfy increasingly health conscious and environmentally aware consumers. IV. Summary of environmental opportunities and threats As indicated above, significant opportunities and threats are floating in the future of the cookware industry in the coming years. Those companies that find a way to capitalize on those opportunities and to reduce potential threats, should be able to maintain or grow their revenues and expand their market share. V. Implications for strategy development Current state of the economy makes it difficult to predict how exactly consumers are going to react to the prospects of higher inflation or unemployment. If consumers continue to cut back on restaurant dining and prefer to prepare more meals themselves, it would present a clear opportunity to Culinarian to capture more customers. However, is this also going to mean that due to decrease in disposable income consumers will try to seek value versus quality and brand image? If so, Culinarian because of its focus on higher-end premium priced goods, might find itself in a difficult situation where tradeoffs might need to be made between its brand image and pricing/promotion. Overall, current state of the environment and future prospects will pose challenges to Culinarian and will require adjustments in company’s marketing mix.

B. Industry Information I. Industry Overview Culinarian Cookware is in the fabricated metal product, pot & pan, and kitchen utensil manufacturing industry. The NAICS code for this industry is 332214. Culinarian is one of 80 manufacturers in this industry, with increasing demand coming from Southeast Asia, competing for projected domestic demand of $2.2 billion. The 80 manufacturers in this industry employ over 6,000 employees with aggregate annual payroll exceeding $216 million. The industry's revenue for the year 2008 was approximately $1.7 billion USD, with an estimated gross profit of 31.73%. Competition from 42 countries imported $600 million of supply in 2008 compared to U.S. exports of $25.3 million to 86 countries. II. Industry Trends Declining Long-Term Demand U.S. kitchen utensil and cookware production has lagged the rest of the economy. From 1995 to 2005, while US manufacturing output grew 35 percent, cookware and cutlery production fell 20 percent. Foreign competition and the increasing complexity of autos and other devices - which discourages consumer tinkering - have blunted industry growth. This has resulted in declining longterm demand. Analysis of this industry also reveals a large dependency on personal consumption. The recessionary effects on consumer consumption play a large role making strategic pricing and marketing decisions. Cheaper imports are attractive to consumers with less discretionary income, forcing cookware and cutlery manufacturers to increase automation. Slow Growth in Prices Cookware prices have increased only modestly in the past decade. Slow demand and foreign competition have kept wholesale price increases below the inflation rate. From 2000 to 2005, wholesale cookware prices increased 11 percent, several points below the inflation rate. Similar Operating/Marketing Strategies Cookware manufacturers have used TV famous chefs, who have become cooking show hosts, to endorse their products and appeal to consumers. They also have appealed to consumers by selling product to big box stores (e.g. Wal-Mart and Target) and reduced prices to fit into consumers’ budgets. III. Porter’s Five Forces Threat of Substitute Products - High Demand for small appliances is connected to the growth in the economy and housing. The cookware industry has seen an increase in substitute products due to the increase in small

appliances over the past five years. This threat of substitution for cookware manufacturers is currently high, however, we would expect a decrease in substitution threat as the recession lingers. Threat of New Entrants - Low There are 80 manufacturers in this industry with a declining long-term demand. We would not expect to see new entrants but would rather look for mergers and acquisitions to dominate the competitive landscape moving forward to generate increased economies of scale. Bargaining Power of Buyers - High Buyers have ultimate buying power with no switching costs numerous options from competitors and substitute products. Buyers also only buy cookware sporadically and are therefore not typically loyal to one brand. The case states that demand increases seasonally due to holiday and wedding gifts. Buyers then may be more likely to look give more consideration to cost vs. brand preference. Bargaining Power of Suppliers – Low The inputs to manufacturing are basic commodities (e.g. steel, copper) and are not specialized or technologically advanced. Given this understanding of the products being supplied we can asses that supplier power is low. Rivalry Among Competitors – Intense The competitive forces (downward pressure on prices, declining demand, increased imports) are causing increasing rivalry among competitors, including foreign competition. IV. Industry Associations Key competitors in this industry are members of several professional organizations. The primary association is the Cookware Manufacturers Association. This association has served both the public and its members with information, statistics and standards for cookware, bakeware and kitchenware. There are several key associations many manufacturers in this industry are members of: •

Cookware Manufacturers Association

•

Home Furnishings International Association

•

International Interior Design Association

•

National Home Furnishings Association

V. Key Competitors • • • • • • •

All-Clad Metalcrafters Calphalon Corp. Eagleware Manufacturing Co, Inc. Lifetime Brands Meyer Corp. Nordic Ware Tramontina USA Inc.

•

T-Fal

C. Organization I. Objectives and Constraints Culinarian Cookware has four strategic priorities in 2006: (1) widen its distribution network, (2) increase its market share of the premium cookware segment, (3) preserve its prestigious image, and (4) continue to capture revenue growth of at least 15%, while maintaining pretax earnings of $12.5 million. The achievement of these objectives depends profoundly on Culinarian’s marketing strategy. The marketing department is exploring the risks and opportunities of price promotion as a strategic and tactical marketing tool in 2007. Through quantitative analysis they hope to evaluate the financial impact of a price promotion using different cost and sales assumptions. The most vital goal is to determine if a price promotion is necessary and then to develop the details of a price promotion policy that is consistent with the company’s overall strategic objectives. There are several constraints that could limit Culinarian from developing a price promotion and ultimately its ability to meet its strategic priorities. The preservation of brand equity could prevent Culinarian from considering a price promotion, fearing that it would cheapen the products’ image. Perceived negative impacts from a price promotion offered in 2004 are heavily influencing the decision; however, in reanalysis it may be found that the promotion was in fact beneficial. Finally, the company is very selective in how merchandise is distributed, which limits the market in which the products are sold. II. Financial Condition Culinarian Cookware is in a market that experienced attractive growth from 2002 to 2006 when it generated more than $3.36 billion in revenues. Individually, Culinarian Cookware has generated more than $1041 million in revenue in 2006, representing approximately 3.1% of total market revenue.

Total Market Revenue 2006

3.10%

Culinarian Cookware Competition

96.90%

1

Revenue amounts for 2006 were estimated, as 2006 was the current year for this case study.

Culinarian Cookware has shown inconsistent annual revenue growth rates from 4.59% to 25.97% with an average growth rate of 17.64% annually. Annual Revenue Growth 30.00% 25.00%

25.97%

20.00%

21.04%

18.96%

15.00% 10.00% 5.00%

4.59%

0.00% 2003

2004

2005

2006(E)

In 2006, Culinarian has forecasted to capture revenues of $104 million with pretax earnings of $12.5 million and has allotted $4 million (4% of sales) for advertising expenses. If this forecast is successfully met, this will fulfill one of the strategic priorities for 2006. III. Management Philosophy The management philosophy at Culinarian Cookware seems to be paternalistic. Management (Donald Janus) consults employees (Victoria Brown) over issues and listens to their feedback and opinions. The manger however makes the actual decisions. This management style brings more two-way communication which in turn motivates workers. Conversely, this philosophy does tend to slow down decision making and still be quite dictatorial. IV. Organizational Structure Culinarian’s departments are formally structured by function. Everyone engaged in one activity or several related activities are brought together in one department. For example, Culinarian has separate departments for marketing, sales, and manufacturing. This structure makes efficient use of specialized resources and makes supervision easier. Unfortunately, this structure can also make it difficult to get quick answers, determine accountability, and it can be difficult working with other departments in a unified way to achieve the organization’s goals. The following organization chart can be inferred from those individuals identified in the study:

Culinarian Cookware Organizational Chart

Chief Executive Officer Audrey Roux

Vice President of Marketing Donald Janus

Senior Sales Manager Victoria Brown

V. Organizational Culture Culinarian Cookware has a strong organizational culture. The culture takes pride in having unparallel product quality, the most advanced performance technology and strong dealer support. The company has been built on brand equity and has no intention of lowering its status. In fact, almost every decision takes into account the preservation of Culinarian’s prestigious name and image. VI. Summary of Strengths and Weaknesses Potential Resource Strengths and Competitive Capabilities • Clear strategic direction. • Core competencies in quality and performance technology. • Strong brand name image/company reputation. • Stronger dealer relationships than key rivals. • Leader in metallurgy technology. • Proven product innovation capabilities. • Good management philosophy. • Employees are motivated. • A strong financial condition. • A distinct competence in utilizing internal and external consumer research. • Business decisions are highly scrutinize before implemented. Potential Resource Weaknesses and Competitive Deficiencies • Weak advertising and promotion. • Losing market share because of attachment to brand name image. • Flawed data analysis by a third-party consultant. • Limited distribution channels. • Management is cautious to pursue bolder price promotion. VII. Implications for Strategy Development The following issues could cause complications for strategy development:

• • • •

The preservation of brand equity could prevent Culinarian from considering a price promotion, fearing that it would cheapen the products’ image. Perceived negative impacts from a price promotion offered in 2004 are heavily influencing the decision; however, in reanalysis it may be found that the promotion was in fact beneficial. The company is very selective in how merchandise is distributed, which limits the market in which the products are sold. Weak advertising and promotion policies.

D. Marketing Strategy I. Marketing Objectives Culinarian Cookware’s marketing objectives were set by CEO Audrey Roux roll out of the four main priorities for the company: (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%, while maintaining pretax earnings margin of 12% (1). Roux’s priorities for Culinarian Cookware fall in line with the organization’s objectives. The first of Roux’s objective is to widen its distribution network, with majority of distribution coming from mass merchandise outlets and department stores. Culinarian Cookware has the opportunity to widen their distribution network by expanding the number of mass merchandise outlets/department stores they offer their different lines of box set/open stock cookware products. Increasing the number of stores that product lines are offer, will increasing the product exposure for new customers. With more than half of the 2003 purchases being given as gifts or purchases for the intent of being a gift, the new exposure of increase distribution, new customers are more likely to make a purchase. To have the greatest success, Culinarian Cookware should turn to venues that offer a similar setting as the mass merchandise outlets and department stores. They need to make sure they are sending the correct lines through the correct channel of distribution (i.e. DX1 and CX1 through wall-mart, PROX1 through William Sonoma). To increase market share of premium cookware segments must look at what competitors are doing and adapt a similar strategy. Major market share holders, such as Star Chef and Kitchen select offer mid-level and low-level cookware and utilize the same means of distribution. With a target market that wants the best quality and most features, for the best price, if Culinarian Cookware wants to gain more market share in the over all cookware arena, than they must focus on more than just premium cookware. If they want to stay solely a premium cookware supplier, they will be competing for a very small portion of the cookware market share. If they want to compete for the larger market share, they will have to introduce either a low-level or mid-level product to compete with the leaders of the cookware market share. Roux’s final two priorities, preserve its prestigious image, and continue to capture revenue growth at 15%, while maintaining pretax earnings margin of 12% are realistic with the company’s growth and brand. II. Marketing Constraints A major constraint that Culinarian Cookware needs to be cautious of is market over saturation. By over expanding their distribution, they run the risk of competing against themselves. When price is an active variable in the decision process of the target market, the consumer could go from a higher end product (PROX1 or SX1) to a lower end product (DX1 or CX1) because of the cost difference, leading to a loss in sales.

Along with over saturation, Culinarian Cookware should be cautious about how many celebrity chiefs they associate their cookware with. Having too many faces on boxes could confuse a consumer during their decision making process. Though to some it may appear that all of Culinarian Cookware’s products are top notch since many celebrities choose their products, it leaves the consumer wondering which celebrity to listen to. Who is better? Though, when it comes to other competing players, Culinarian Cookware must make sure that their celebrities are able to compete against the celebrities of other companies. With the consumer identifying they are more likely to purchase a product they recognize, Culinarian Cookware should make sure that their celebrities are going to win when compared to competing products Another constraint would be the distribution center as partners. With offering premium products, distributing them through mass merchandiser outlets such as Wal-marts, consumers could become confused due to the disconnect between high end products being sold through, what the consumer could perceive as a lower end retailer. Though, Culinarian Cookware should be careful not to exclude their consumers that are more likely to purchase products through a mass merchandiser outlet or department store as a gift for someone else. III. Market Share Analysis Culinarian Cookware at a premium level is the leader in premium cookware. Culinarian Cookware is at 14% of the cookware market share. The closest player to Culinarian Cookware is Le Gourman at 6.5%, and then Robusto at 4%. The leaders in over all cookware market share offer different levels of cookware (i.e. low-level or mid-level). IV. Target Market Analysis The Culinarian Cookware target market is a mix between men and women of households that have an income of 75,000 plus. The age range of the target group tends to be between ages 30 to 55. Majority of the group received their products as either a gift from someone or purchased the product as a gift for someone else. The group tends to care more about what the product can do rather than how it looks. The group also has a large likely hood of watching cooking shows and then purchasing cookware with familiar names of cooking celebrities or brands used by those seen on shows. In the results of the 2004 company questionnaire, women were identified as being the majority purchaser of Culinarian Cookware. Their claim for purchasing the cookware was that cooking was a number one hobby of theirs. Though, when men, making up thirty percent of the purchases, purchase they tend to make decisions about what line of cookware products they want to “arm” themselves with when cooking(2). From a distribution standpoint, the target market is more likely to purchase cookware at a large mass merchandise outlet or department store where they are able to see cookware displayed along side other competing products. The target preferring to purchase the highest quality with the most features is most likely going to compare competing brands, so they prefer stores that display products for easy comparisons. The target market is likely to turn to specialty stores (i.e. William Sonoma) and online stores i.e. Amazon) when they need to purchase in an open stock fashion (purchasing cookware piece by piece) From a price standpoint, the target market, like many want to have the biggest “bang” for their dollar. They are likely to purchase more if there is a promotional price for products, and/or if there is a free promotional item given away when a purchase is made. Rated number three behind quality and features on the 2003 Orion Market research study, Price of products, indicates that the

target market considers price a major factor when making a decision to purchase or not. With the target market purchasing majority of products through mass merchandising outlets and department stores, some of the target market will not make a purchase till a discounted/promotional price is offered. V. Sales & Profitability Analysis The sales for Culinarian Cookware have an average of 15% growth per year since 2002. While the 2004 promotion gave a small boost, still below average at a percentage of 5%, to the Premium (Cast Iron, POI, and Cooper), and an average growth increase of 15% for the Stainless Steel products, Culinarian Cookware’s aluminum product sales took a 17% hit due to the 6 month of disrupted shipments. In 2005, the premium line begins to increase at a rate of 48% (A continuous expectation is inferred in 2006 forecasting), the Stainless Steel line continues on at an average of 15% (Also expected in 2006 forecasts) The aluminum line made a 15% recovery in 2005 trying to recoup from the large decline during 2004. (A slow down in growth is forecasted for 2006) The Culinarian Cookware sales also follow a seasonal sales trend. During the first quarter sales sit between 6-7%, and then begin to peak during the second quarter, hit their mid year high during June’s wedding season. During the start of the third quarter the sale begin to decline back to the 67% range. Finally starting off the fourth quarter at averages close to the first quarter, sale quickly increases as customers begin shopping for the holiday seasons. Near the end of the fourth quarter sale hit the annual high, and then return to the 6-7% average at the beginning of a new year. With the average growth of 15% Culinarian Cookware has had a track record with increasing the need for their product. With increasing unit orders each year and increasing their advertising spend to ensure they are reaching their target market. With the 2004 price promotion, Culinarian Cookware actually hurt them. The price promotion caused confusion in the consumers, and made them purchase from the CX1 or DX1 line instead of the PROX1 or SX1 lines. In case exhibit 4, during the spring of 2004, consumers purchased a higher quantity of CX1 products. While everything else stayed at a constant growth, then during the 2005 fall period (after the promotion) growth dropped off for the PROX1, SX1, and the CX1 lines, while the DX1 line’s growth slowed. Culinarian Cookware’s price promotion hurt their sales growth. During the promotion trade resellers bought up product and then resold the product a normal cost for a gain. Culinarian Cookware since 2002 seen a constant 15% growth in sales, and should not offer a price promotion (discounted sales price) unless their growth falls below the average. If they want to attack new or returning customers they should offer a free gift with the purchase of a certain amount of product. This will satisfy their customers, who want to see the most for their money, and sway the customer to buy now. VI. Marketing Mix Variable Analysis Products The products that Culinarian offers, while all relatively high-end, are reasonably distributed in price and technology. They have carefully designed their line to appeal to the amateur, novice and expert chefs, aligning themselves as quality cookware makers whose users would proudly display their products on their stovetops. The line-up, which consists of four lines, includes the Tyro Collection (CX1), the Classic Collection (DX1), the Advanced Chef Collection (SX1), and the Professional Grade Collection (PROX1). The only delineators between the value propositions of each line are the materials used in construction. The PROX1 uses a proprietary copper construction, and represents the most

expensive/advanced product offered, costing on average (2006) $300. Next down the list, and appealing to those customers who do not have the penchant for fine copper cookware is the SX1 and DX1; both are made of aluminum except with the SX1, a stainless steel exterior is used. Average cost in 2006 is $250 and $200 respectively. Lastly, at the bottom most tier of Cunlinarian’s product offering is the CXI. The CX1 offers the least amount of technological features and the average cost of $150 reflects it. All four products offered are bracketed $50 apart yet an overwhelming percentage of sales are carried by the lowest of the two offered. It would stand to reason that the PROX1 and CX1 exist for the thrifty and profligate alike but they also serve the purpose of driving sales to the middle of the road, benchmarking the customer’s decision for them. This is certainly represented in the sales data as the $200 DX1 line sold 236,350 units compared with its cheaper brother, the CX1 at 166,600. This additional %41 percent in sales can be directly attributed to both promotional initiatives (as it did not exist prior to the promotion) and to the cost/benefit analysis of customers when shopping. This, in cognitive science circles is known as the decoy effect (asymmetric dominance effect). This phenomenon was triggered when an influx of consumer perception for Culinarian products was activated by the promotion offered in 2004. Distribution Retailers are the backbone of Culinarian’s distribution chain. Culinarian has, for the most part, a successful relationship with its retail partners because of the high margin it offers (52% versus the 48% average from Le Gourmand and Robusto). There is however a variance in the types of retailers Culinarian conducts retail activities through. 36% of trade orders come from a network of three upscale kitchen chains that specialize in high quality products that perfectly match the brand equity of Culinarian. Upscale department stores also represent a relatively high proportion of trade orders at 32% and 27% coming from local specialty retailers. Only 5% of orders came from the company’s on-line store and direct mailers. The strong relationship between retailers and Culinarian is most certainly due to the expertise of the personable and intimate sales force employed by Culinarian. The force, consisting of 8 experienced account managers who had all been with the company for a considerable amount of time (7+ years), would routinely visit major account holders to offer hands on training and inventory management suggestions (the direct competition made account visits around half as much). Thus, these account managers became the face of Culinarian, giving it the personality of one who is passionate, attentive and caring for those charged with distribution of its products. However, in the study by Orion Market Research, key findings indicate that more people buy (or would be willing to buy) Culinarian cookware in catalogs and online retailers (15%). This presents a unique opportunity for Culinarian to expand its distribution into those areas and at a potentially greater margin (direct sales). The findings also show that many (55%) have received or purchased Culinarian cookware as a gift. Expanding distribution into the boom online retailers are experiencing (Amazon has seen 276% sales growth from 2004 – 2008 alone) would be the forward thinking thing to do without compromising brand equity in the process. Promotion and Advertising Promotions are a bit of a hot topic at Culinarian as the Vice President of Marketing, Donald Janus, and the Senior sales Manager, Victoria Brown are at an impasse regarding the success of a 2004 price promotion and whether to move forward with another promotion for 2007. Janus believes that Culinarian is a strong brand producing quality products and should stand by its retail price. He cites

overall sales for 2006 showing 21% growth in revenue and a 2004 consulting report, which shows that the promotion had a negative affect on profits. Brown, in all, felt strongly that promotions had a negative affect on the brand and cheapened their reputation as a high quality cookware company. Brown on the other hand felt they needed to embrace promotions as a method of brand building. She felt that Culinarian needed to be bolder with promotional offers as feedback from sales teams indicated that retailers were unhappy that there were no “consistent and meaningful price discounts.” Browns contention is that promotions and discounts “increase commitment and support from the trade and will boost overall brand awareness.” When looking at the data regarding the 2004 promotional, it becomes apparent that CX1 did underperform after the promotional period but sales for the DX1 more than made up for any deficit in sales. The trend coming off of the promotional period indicates a sustained lift in the DX1 sales with all other lines flat lining with moderate increases intermittently. These figures also are representative of the subsequent promotions offered by Culinarian in 2005 and the yearly promotion, which offered a free Dutch oven with the purchase of more than $500 of merchandise. The free gift directly reflect marketing data indicating that %20 would be motivated to buy if offered a free gift. This was not the opinion of the consultants brought in to analyze the effectiveness of the promotion. They felt the 2004 price promotion had an overall negative affect on profits. They concluded that during the promotional period sales underperformed by $469,489. Also, they believed that the DX1 was “cannibalized” as sales did not meet forecasts for the spring period (Spring sales were off around 5,000 units). Brown felt that the study was flawed in its assessment of the losses in three ways. She saw that the first few months of 2004 underperformed the first few months of 2003 by %24, thus, projections for March – May orders should be rolled back by 24%. If this adjustment were made, Sales would have exceeded projections, indicating sales figures that fit with the sort of lift associated with price promotions. Brown also felt that the margin for statistical error on cannibalization costs for the DX1 line was too high and thus should not have been included in the study. It would then appear then that the promotion was successful in creating brand awareness. More importantly, the interaction affect between the lines should be considered when making an assessment on the effectiveness of any promotion. Advertising by Culinarian follows a steady trend of spending (around %4 of revenue) statistically identical to their competition. However, competitors at the lower end of the product spectrum, Kitchen Select and Star Chef, both out-spent Culinarian by 50% - 70% in 2006. The majority of Culinarian’s ad budget went towards advertising in magazines that targeted high-income markets (Bon Appetit, Cook Illustrated, Martha Stewart Living, etc.) and newspapers (USA today.) Culinarian’s cooperative advertising only targeted retailer catalogs and direct mailers; none went to supporting retailers advertising on TV, newspapers or other magazines that were not already advertised in. It would serve Culinarian well if they were to align advertising strategy with their promotional activities as those that would have purchased the CX1 line while on promotion do not regularly purchase or follow the offering of Culinarian. They should, momentarily, cheapen the brand and advertise in those areas that Kitchen Select and Star Chef. If the price is right, and a broader spectrum of people are aware of the promotion, Culinarian may then drive sales towards its products and away from low-end competitors. Also, to devote the better portion of $4,000,000 to those advertising mediums, which are slowly fading from the public consciousness, is a

misallocation of advertising resources. Culinarian should be looking into advertising outlets targeting the mass market with lower placement costs and higher visibility. Even a partnership with popular cooking television shows would fulfill the need to diversify ad spending while keeping the Culinarian brand “elite”. VII. Summary of Marketing Strengths and Weaknesses Despite the promotional dispute within the company, Culinarian is in a relatively strong place. Year over year they are growing and, in turn, spending more on advertising ($4 million in 2006). They have a decent spectrum of products, all on the higher end of quality and pricing in the market. Culinarian also has a strong sales force that makes more retailer visits during the year than their competitors and, in turn, Culinarian has strong relationships throughout its distribution network. Their consumers equate the Culinarian name with quality and high technology. These characteristics are completely in line with the market that they dominate (the high end cookware market) with an overall %14 cookware market share. This is about %55 more than their closest competitor LeGourmand who holds %6.5 of the cookware market and Robusto, who holds %4 of the cookware market. Culinarian is keenly aware of their dominance and its management wishes to maintain the brands reputation. They are hesitant to make a move that would potentially cheapen the brand or one that would increase sales at the expense of brand equity. This, all else aside, is a great strength for Culinarian. Their management cares about the image of the company. They are sensitive to consumer perceptions and hold their retailers in high esteem. This all comes from a strong and experienced management team. This same strength is, paradoxically, Culinarian’s greatest weakness. They are so incredibly trepidacious in regards to maintaining brand equity; they fail sometimes to meet fundamental retailer and consumer desires. The report by Orion Marketing has shown that %30 of consumers would be motivated by a price discount (a figure reflected in sales data during the promotion) and it’s own retailers have expressed frustration. If anything, they should be making more price promotions during those times, around November and December, where many people (%55 according to the market study) are giving cookware as gifts. The competition at the lower end of the market are running promotions during this period, Thus, Culinarian may do well to follow suit. A failure to develop a strong direct mail/on-line presence is also a major weakness for Culinarian. To do so would be the equivalent of ignoring a major potential market (and a rapidly growing one) and subsequently missing a major growth opportunity as well. The perception on Culinarian’s part would be that make a large portion of its sales online would be analogous to selling in a Wal-mart of sorts and they would ultimately loose the ability to regulate the prices. However, they would in fact be able to regulate prices to their liking and may even be able to eliminate the trickery that retailers have employed (over stocking during a promotional period then selling items bought during the promotion at a regular price). Plenty of companies have successfully brought their products to the online market through reputable retailers like Amazon.com while maintaining their brand’s image (LL Bean, Bodum, Allen Edmonds etc.) Culinarian overall suffers from over-protective-mothersyndrome and would do well to diversify itself in promotions, advertising and distribution. VIII. Implications for Strategy Development As Culinarian goes forth and develops future market strategies it may be wise to consider the following ideas before developing new growth strategies. We have seen thus far that Culinarian is very protective of its brand. One method of growing as a business without changing its brand strategy is to develop a new product line aimed at lower

markets which it does not serve (those currently served by Star Chef and Kitchen Select) but marketed under a different name. This would give them the opportunity to tap into the %83.5 of the market they do not currently serve while preserving the equity of the Culinarian name. Along the same lines, the advertising strategy of Culinarian is in horrible shape. They are behind in the times in the mediums they choose to advertise in and are unnecessarily stringent in choosing which avenues of brand communication to use. They are still diverting the majority of advertising resources to magazine advertisements and cooperative retail pieces. A creative approach must be used to market their products effectively in a rapidly changing media environment. Websites are perfectly capable of maintaining the standards of Culinarian’s ad needs while also giving them a more ad impressions and (something that may be new for Culinarian) interactivity. They could essentially have a conversation with their consumers rather than a linear relationship with them and develop a lasting loyalty with those who have bought Culinarian products in the past. Another point, and possibly an answer to the question posed by the case, is that promotions, when used correctly, do not hurt the Culinarian brand but actually enhance it. This would go against the instinct of any experienced marketer but the most important thing a promotional does it create awareness for the brand and respect from the consumer side that a prestigious brand, such as Culinarian, would give “me” the opportunity to purchase their products. This is very powerful from the consumer’s perspective. The price of the promotion (%20) indicates that this is simply an opportunity, not a blowout fire sale. It says that we care and want you to experience our wonderful products. In essence, the implications for future development of marketing strategy are huge. They have many opportunities to reevaluate their position but are not pressed to do so as they dominate the high-end portion of the market. Whatever move Culinarian makes should be done thoughtfully but boldly, else, they run another risk, becoming stale.

Problems in Situation Analysis

Strategic Alternatives for Solving Problems In reviewing Culinarian Cookware’s current problem, there are three alternatives that should be considered. The three alternatives consist of Culinarian Cookware creating new opportunities for market share, create and introduce a lower level of cookware under a different name, and finally, introduce a brand extension, where Culinarian Cookware could introduce other cookware items needs for culinary success under the Culinarian Cookware name. Create Market Share

Culinarian Cookware has an opportunity to find untapped target markets to create need for their current products. Possible areas consist of school cafeterias, small restaurants/catering companies, or small hotel restaurants, areas that currently have a need for high quality cookware. These areas also play into Culinarian Cookware’s high quality specialty brand image. If the commercial areas used Culinarian Cookware products, this would add to the brand image, Culinarian Cookware could further position their products as favored by the new commercial areas. Culinarian Cookware has an opportunity to cross over into a more commercial market. Currently, they target a more private/public consumer market. Creating new market share would allow Culinarian Cookware to gain market share in other areas of the cookware industry. The new areas would also allow the sales team new opportunities to distribute the products. This alternative fall logically with the company’s marketing priorities and would be the easiest for Culinarian Cookware to adapt. To take advantage of this alternative, Culinarian Cookware would only have to research the need of the possible new areas. The current product lines could be offered, and packaged in a way that is better suited for the commercial needs. The costs to Culinarian Cookware would include more than market research. Culinarian Cookware would have to ensure that commercial areas are a viable market to try to enter. Culinarian Cookware would also have to ensure that the sales team would be able to cover the new areas and demand the expansion would require. They would also have to market the brand in a new light. With product features as a major qualifier for decision making, Culinarian Cookware would have to identify the needs of the commercial market and focus marketing material in a way that display the products as the best solution for the commercial needs. Create new product line under new name/brand (Multibranding) Culinarian Cookware second alternative to consider is the creation of a new level of cookware (Med or lower) to offer consumers under a new name/company/brand so that premium image is not hurt. This multibranding method has been adapted by other companies (I.e. McDonalds, GAP), to introduce different products under different brands. Culinarian Cookware could introduce a new line of cookware of a mid/lower level quality to offer consumers under a new brand name. Then Culinarian Cookware could gain market share in the culinary cookware market. Currently, they lead the premium market, with the introduction of a lower quality brand. Culinarian Cookware could try to gain up 30-40% as the competitor who offers multiple levels of cookware do.

Multibranding has worked for companies such as McDonald’s. McDonald’s created the McCafe brand to offer espresso style drinks in competition to the standard black coffee offered with breakfast. McCafe was introduced in Canada as a coffee shop. Later, McDonald’s marketed the espresso drinks as something offered in standard restaurants. The espresso drinks would be offered during all hours the restaurants were opened, verse the image of regular coffee (to whom most consumers only consume during the morning hours), In this case, McDonalds wanted the McCafe to be seen as a premium brand and wanted to appeal to those consumers that would see McDonalds as a lower brand, but McCafe as a premium coffee worthy of a stop.

Like The previous alternative, the Multibranding idea of creating a new product under a new brand works with Culinarian Cookware marketing strategy. The organization wants to reach new markets and give people what they want. Yes, the McCafe brand has the legendary ‘Mc’ in the brand names telling people that the item is a McDonald product, but the idea of creating the McCafe brand to promote and market their coffee house style espresso drink as a premium brand. Culinarian Cookware could create a lower quality cookware line that has many features similar to mid/lower level lines of competitors at the price consumers want to pay for their cookware. With price as one of the top three deciding factors in consumer decision making, a new mid/lower level product line with a new brand name, not to hurt or lower the premium feel of current products, could be exactly what Culinarian Cookware needs to succeed in the future. This alternative offers new challenges for Culinarian Cookware. The major concerns consist of Culinarian Cookware’s abilities to create the new level of products. Culinarian Cookware does not have the knowledge of the proper resources, the engineering of the new product, or how to market it as a lower product. Culinarian Cookware has success in the premium cookware market, and the adaptation into the newer lower markets could prove to be difficult. With the proper research and development Culinarian Cookware should be able to create such a line, but it will cost the company a large amount of funds in consumer market research so they can ensure a success. Introduce other culinary needs (Brand extension)

Similar to introducing a new lower level cookware product, Culinarian Cookware could tap into the culinary needs market and begin to offer premium cookware items that complement their premium cookware (i.e. Knives, cutlery, and measuring bowls). This brand extension strategy would allow Culinarian Cookware to expand upon their premium brand name and break into a larger market to compete in. Culinarian Cookware would become a more complete solution such as the Kitchen Aid brand. Consumers will be more likely to purchase complementary products under the same premium brand, than a complementary item to go with premium cookware. Like the two previous alternatives, the brand extension plays into Culinarian Cookware marketing priorities. The brand extension idea would allow for Culinarian Cookware to market them as a complete culinary solution. Culinarian Cookware would be able to offer both premium cookware but also premium support items to complement the cookware items they purchased. The extension would also allow Culinarian Cookware to compete in newer markets and free them of the very tight cookware market. The cost of the brand extension is similar to that of the multibranding alternative. Culinarian Cookware would have to do intensive research to ensure they understood how to produce the other culinary products. Unlike the second alternative, Culinarian Cookware would have to understand even more about the different industries and how to produce products that can compete within those different industries. This alternative would have heavier front loaded expenses, but has the biggest chance to have high returns for the company in the end. Culinarian Cookware would also need to expand their knowledge of the materials needed to produce the other support items and where best to purchase said materials.

Selection of Strategic Alternative and Implementation

Summary

Work Cited