Culinarian cookware case analysis

CULINARIAN COOKWARE

Pondering Price Promotion By Group 10

D E SC R IB E C O N SU M E R B E H AV IOR IN T H E C OO KWA R E MA RK ET. H OW I S C O OKWA RE B OU GH T ? H O W IS I T SOLD ? W H AT A R E T H E IMP LI C AT IO N S F OR C U LI N A R IA N ’S MA R KE T I N G ST R AT E GY?

Q. 1.

DESCRIBE CONSUMER BEHAVIOR IN THE COOKWARE MARKET ? Consumer purchase either by the piece (open stock) or in a boxed set (5-14 pieces) In order of importance - Quality, Features and Price were the top three criteria while making a purchasing decision. Brand Recall was also a major factor while making a purchase Sales increased during May-June (Wedding) and NovDec (Christmas) months. This shows a seasonality in sales. Cookware was given a high preference as a gift item Professional chefs prefer copper based cookware due to superior heat connectivity A growing trend towards premium cookware, designer cookware that matched kitchen décor and endorsed by celebrity chef

Where would R consumers e prefer to s shop? p o n d t o Stores with Attractive Informed Sales Staff T display Wait for sale (20%) (30%) (25%) V , r a d i

HOW IS COOKWARE SOLD ? Mass merchandise outlet (32%) Department Store (29%) Kitchen Specialty StoreRet (24%) ail Ou tlet (15 %)

Points of Sale for households with income > $75000

 Promotions work for mid and low level segment product.  Mid level and low level segment producers ran price promotions several times a year  Premium products Customer feel a deterioration in quality, hence price promotions is an inefficient way to increase sale in this segment  Premium produces

IMPLICATIONS FOR CULINARIAN’S MARKETING STRATEGY ? Target Customers -

Majority of Culinarian’s advertising budget were on magazines and newspapers, targeting high-income audiences 70% of its customers had household income > $75000 Implication 

Even though Culinarian’s market share amongst the premium product producers was the highest (6.5%), it was way behind the Mid-Low level producers

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They were forced to give price promotion on CX1 product and later on its DX1 and SX1 line of product.

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From customer responses they realized that 70% felt price discount played a major role in purchase decisions

WHAT ARE CULINARIAN’S STRENGTHS AND WEAKNESSES? WHY HAS THE COMPANY BEEN SUCCESSFUL?

Q. 2.

STRENGTHS Strong Brand Equity • Strong brand awareness of providing unparalleled quality with highly advanced performance technology

Robust Sales Force

• Sales force included 8 experienced account managers who visited major accounts once every month • Incentive-driven pay for account managers and Comprehensive training for retail sales clerks

Strong dealer support due to high margins Selective marketing channels

• Advertising and marketing spend focussed and lean due to selective marketing channels

Strong and clear management philosophy • Their management cares about the image of the company • Sensitive to consumer perceptions and hold their retailers in high esteem

Market Leader in Premium Segment and Strong Revenue Growth Consistent marketing image and message

WEAKNESSES Control over advertising and promotions • Constant pressure of promotions from other manufacturers throughout the year • Retailers demands of price promotions wasn’t handled well by the company • Culinarian products and promotions seldom advertised by the trade • Infrequent campaigns and lack of consistent product promotion • Management differences over price promotions

Limited distribution channels • Low penetration in low to middle income customers due to premium image and selective channel distribution

Loss of market share

• Low brand awareness in lower income households and low advertisement recall

Poor inventory planning during promotion period Failure to develop a strong direct mail/on-line presence Cannibalization amongst brands Seasonal sales swings

REASONS FOR SUCCESS Strong Retailer Relationships • Monthly field visits by the account managers for providing information and consultation • Retail merchandising incentive programs • High retail margins • Maintained relationships where each dealer carried all of its product lines

Strong Brand Equity • Focus on product quality, performance and durability • Selective channel distribution and advertising to corroborate premium brand image • Highly advanced performance technology • Leader in metallurgy innovation and provided benefits of copper cookware

Skilled company personnel • Comprehensive training for retail sales clerks • Experienced account managers with incentive-driven pay • Extremely robust sales force with monthly visit to major accounts

WA S T H E 2 004 P R O MOT I ON P R OF I TA B LE ? C A LC U LAT E T H E P R OF I TA B ILI T Y U SI N G B R OW N ’S LO GI C A N D T H E N C AL C U LAT E P R O FI TA B ILI T Y U S IN G T H E C ON SU LTA N T ’S M OD E L. H OW W O U LD YOU C A L C U LAT E PR OF ITA BI LI TY ?

Q. 3.

CALCULATION OF PROFITABILITY Category

Consultant’s view 

Sales Forecast

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Variable Cost

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Cannibalization Loss

Forecasted sales for 2004 should have been 119504 units using the computer generated model Variable costs includes labor, raw materials, manufacturing overhead, 5% advertisement, 7% selling expenses Products in DX1 line were cannibalized and loss was calculated to be $99,332 and

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Victoria Brown’s view Forecasted sales for 2004 should have been 24% below the 2003 sales which would have been 59871 Variable costs must include only labor and raw materials which totaled 38.64

Cannibalization calculations are erroneous and so are unreliable

CALCULATION OF PROFITABILITY 

The consultant’s sales projection was based on 10 years forecast model, which seemed more reliable than a simple comparison of first two months sales by Brown.

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The Variable cost should include only raw materials and labor. Advertising cost should be treated as a fixed cost. Hence, variable cost estimated by Brown (which is $38.64) is correct.

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Regarding cannibalization of DX1, we cannot say that the decrease of sales in DX1 are not completely because of the promotions on CX1. Hence, we should not use these costs.

CALCULATION OF COSTS

Microsoft Excel Worksheet

 

Consultant Victoria Brown Actual Estimate No No No 20% 20% 20%   Promotio Promotio Promotio Promotion Promotion Promotion n n n Units 119504 184987 59871 184987 119504 184987 Price 72 62.4 72 62.4 72 62.4 11543188. 11543188. 11543188. Total Revenue 8604288 4310712 8604288 8 8 8 Variable Cost 52.05 52.05 38.64 38.64 38.64 38.64 Total Variable 9628573.3 2313415.4 7147897.6 4617634.5 7147897.6 6220183.2 Costs 5 4 8 6 8 Contribution 1914615.4 1997296.5 4395291.1 3986653.4 4395291.1 2384104.8 Generated 5 6 2 4 2               Profit/Loss -469489.35 2397994.56 408637.68

Hence, 2004 promotion was profitable for Culinarian Cookware.

S H O U L D C UL I N A R I A N R U N A 2 0 0 7 P R I C E P R O MO T I O N? I F S O, W H AT S H O U L D B E T HE S P E C I F I C S O F S UC H A P R O M OT I O N (E . G . , P R O D U C T S C O P E , D I S C O U NT R AT E , T I MI N G , C O M MU N I C AT I O N )? I F A P R I C E P R O MO T I O N I S N O T S UI TA B L E , T H I N K ABO U T AN O T HE R T Y P E O F S A L E S P R O M OT I O N (E . G . , M A N U FA C T U R E R R E BAT E P R OG R A M,

Q. 4.

NO !  Brown’s analysis may be flawed 

24% dip in the sales of cookware in Jan-Feb from Nov-Dec cannot be extrapolated for March-May. This may be because Nov-Dec is the Christmas season when people shop more than the rest of the year.

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There is lack of quantitative data for not accounting inventory and cannibalization costs

 Industrial Trends 

The competitors do not prefer to give any discounts. Gifts are the preferred mode of promotion

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StarChef and KtchenSelect also provide discounts only during the peak seasons i.e November-December (mainly due to the Christmas season)

 Inability to handle peak demand 

In May 2005, the plant was not able to handle the surge in demand when 20% price promotion was given. As a result there was trade overbuying during promotion, the demand of which could not be

TYPES OF SALES PROMOTIONS 

Use gifts as sales promotion tools: 20% of the consumers would still be motivated to buy because of a free gift with purchase

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Use bundled packages. One low end product with a premium end product for a limited time period

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Offer gifts at non-peak seasons. Use slow-moving products as gifts in these seasons to clear inventory

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Promote the purchase of SX1 and PROX1 on purchase of CX1 or DX1 by coupons, etc. to convert the users from CX-DX1 to SXPROX1

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Offer in-store promotions to influence buying

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Run volume discounts. This will ensure capturing a larger market share

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Product placements in cookery shows

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Exchange offers on the lines of the Indian brand ‘Prestige’ cookware

THANK YOU

Group 10 Shwetabh G012 | Tanay G0 Spandana G019|Purva G02 Harsh G052