Culinarian Cookware Case Analysis Essay
Culinarian Cookware Case Analysis
Culinarian Cookware has a prestigious band image, is a leader in premium cookware market, and delivers an outstanding product. With this said, there are still areas in which the brand could improve, as it still has a much lower brand awareness and market share than industry leaders Star Chef and Kitchen Select. We believe that one way in which Culinarian could combat these issues and push towards completing its strategic objectives is to run a price promotion in 2007.
Though there was dispute as to whether the promotion of 2004 was profitable, due to our analysis of the 2004 promotion and the current state of the cookware market we believe that there is room for a price promotion within Culinarian’s strategic objectives. First and foremost, we believe that Ms. Brown is correct in her calculations of the profitable nature of the 2004 sale. Ms. Brown’s calculations differ from those of the consultants on two basic points: the way in which they projected the sales for the CX1 model during the sales promotion and the contribution margin which they attributed to each unit.
The consultants argue that, according to the sales numbers of the previous year, the projected sales of the CX1 model should have been 119504. Ms. Brown disagrees, saying that due to the fact that sales were down 24% during the first few months of 2004, the projected sales for the period should be much lower than what the consultants calculated. She says that the projected sales calculations should be 59871. According to Exhibit 1, which outlines the retail sales of cookware across the US, sales for cookware were down 2% during 2004. This information is in line with what Ms.
Brown used in her calculations, as she argued that the projected sales for March through May of 2004 should be significantly lower than usual due to a major decrease in sales during the first few months of 2004. Not only were sales for the year down, but according to Exhibit 2, March, April and May are not higher than average months for sales in 2005. According Exhibit 2, during 2005 6. 9% of sales were in March, 7% of sales were in April and 9. 4% of sales were in May. This information is telling in that it shows that the months that the ales promotion ran in there is no reason to expect higher than average sales.
This is important because, if Ms. Brown is correct in that sales were down 24% during the first few months of 2004, then there is no reason to expect that sales would rise significantly from March to May. The second point in which Ms. Brown’s number’s differed from that of the consultants was the way in which they calculated the contribution margin for each unit of CX1. We found that there was little evidence to support either Ms. Brown’s costing method or the consultants. However, as long as Ms.
Brown was correct in her sales projections, the price promotion would have been profitable even if the consultants were more accurate in their costing method. By multiplying the actual sales numbers (184987) by the actual contribution margin that the consultants calculated (10. 35), then subtracting the normal sales that Ms. Brown calculated (59871) multiplied by the normal contribution margin according to the consultants (19. 95) we found that there would still be a profit of 720189 dollars. This means that even if the consultants were correct in the cannibalization impact costs and the contribution margin calculations, as long as Ms.
Brown was more correct in her sales projections then there would still have been a significant net profit. Therefore due to the fact that we find Ms. Brown’s projections of the sales for the period to be more consistent with the information provided for us in Exhibits 1 and 2, we also find that she is likely more correct in saying that the price promotion was profitable for the company. Not only would the price promotion be profitable regardless of costing method, but the consultant’s cannibalization impact estimation seems unfounded as there was still a 21% increase in growth of the DX1 product sales from Spring 2003 to Spring 2004.
This is only about 3% down from the growth rate from 2002 to 2003, which lead us to believe that a major cannibalization impact from the sales promotion was improbable. This evaluation of Ms. Brown’s profitable calculations, the strategic objectives the Ms. Roux outlines for Culinarian and our analysis of the cookware market lead us to believe that a price promotion in 2007 would be a good move for Culinarian. As we will discuss below, Ms. Roux’s strategic priorities for the company included not only growing revenue but also aintaining the prestigious brand image and increasing its share of the premium cookware market segment.
We would argue that running another price promotion during 2007 would be the first step in achieving all of these strategic objectives. The price promotion run during 2004 was, according to our calculations, profitable and was able to drastically increase sales for that period in the CX1 model. According to Exhibit 4, sales of the CX1 model rose 57% from the spring of 2003 to the spring of 2004. This is a huge increase, especially when compared to a 30% increase from spring of 2002 to spring of 2003.
According to surveys done after the price promotion, 70% of customers who bought the CX1 said that the promotion was important in their buying decision. This information, coupled with the Orion study which concluded that 30% of cookware buyers would be motivated by a price discount to buy cookware, tells us that many cookware consumers are highly interested in price promotions. Though customers are highly interested in the price promotion, to better understand how the promotion would fit into Culinarian’s overall strategic objectives we must look at how the cookware market functions as a whole.
The U. S. cookware industry is divided into categories of low-end, mid-level, and premium products based on price, quality, and material. The market is thus segmented based on several demographic, socioeconomic, and psychographic variables. But primarily the market is segmented based on age, occupation, gender, and most importantly income. Market research conducted by Culinarian found that of its own customers 75% were between the ages of 30 and 55, 82% were women, 70% had household incomes over $75,000 annually, and 60% of previous customers considered cooking to be their favorite hobby.
Cookware is purchased either in sets of between 5 to 14 pieces or open stock by piece. Consumers in the cookware category almost always make planned purchases according to responses from the Orion Market Research Study. If there were to be an unplanned purchase it would generally be a single piece, opposed to a boxed set, and motivated because of a discount or promotion. According to the survey, in households with income over $75,000 only 30% of respondents were swayed by price discount and a promotional incentive, such as free gift with purchase, only affected the purchasing decisions of 20%.
In addition to being planned, sales of cookware are often seasonal because it is frequently purchased as gifts for weddings and holidays. The implications for a push versus pull strategy in the cookware industry depend on the category of product (low-end, mid-level, or premium) and the brand’s history and image (how long have they been in the cookware industry and its’ positioning). The pull strategy should be used when trying to recruit new consumers, expand market share, or publicize a promotion.
Premium brands often experience more success with the pull strategy than low-end and mid-level brands do, which often requires that they use a combination of the pull and push strategy with consumers and distributors and their approach will change with the growth of the brand. The push strategy is essential in getting new channels to stock a company’s products, so if the company’s goal to enter a new distribution channel or to widen its’ distribution network the push strategy should be implemented.
But Culinarian Cookware and other high-end brands that are very selective in their distribution can use the pull strategy with both consumers and their distribution base. Consumers of the Culinarian brand regarded product performance and durability as the most important features in selecting cookware. By creating demand and loyalty amongst consumers, retailers will continue to request to sell the product. The corporate objectives suggest that the company has a strong business that tailors itself to the segments that we found above.
The first objective is to widen its distribution network, which is always a great way to create new distribution channels and to grow for the company. The push strategy would be used to gain more distribution channels. Right now, Culinarian only has three specialty stores by widening its distribution they would branch out and increase their customer base. By increasing their customer base, Culinarian could segment their customers more efficiently and also increase their segment base. The pull strategy would be used for new products and for gaining a larger customer base.
The second objective is to increase the market share of the premium cookware segment. Le Gourmand their main competitors possesses 4% while Robusto has only 3%. Even though, Culinarian already has a 6. 5% of the market, they are behind the mid to low level manufacturers as Star Chef has 18% and Kitchen Select obtains 14%. By increasing the market share Culinarian would increase their revenue and also acquire a stronger brand name in the market. This leads to the next objective, every strong business posses a prominent image.
As a leader in the premium cookware market Culinarian wants to preserve its prestigious image. Its customers are high income and 50% of them favor a brand that they recognize, which means in order for Culinarian to attract the high-income customers the company must maintain the strong brand and the prestigious image it possesses. Lastly, in order for Culinarian to thrive and be a successful business it must cover cost and capture a revenue growth of 15% while maintaining the pre-tax earnings of 12%.
According to this information about the cookware market, we believe that if Culinarian ran a similar price promotion to the one it ran in 2004 on the CX1, while changing the timing and distribution method, then it would help Culinarian gain greater revenue and market share while not damaging their brand image. The CX1 model seems like the best model to run a promotion on because by running a promotion on the cheapest and lowest quality line of products, Culinarian would be more likely to gain new consumers while still maintaining its brand image.
The CX1 model has a normal retail price of 150 dollars, making it significantly cheaper than any other product line that Culinarian offers. By reducing this price by the same 20% that was offered in 2004, the price drops to 120, which would make it 40% cheaper than the next cheapest model, SX1. We feel that this drop in price is ideal as it was obviously enough to lead to a huge increase in sales in 2004 while still making the product line profitable.
Though we would run the promotion on the same product line with the same price reduction, we would change the timing and distribution method of the price promotion. We believe that running the promotion in the fall, from August to October, would be more beneficial to the company as it represents a time when normal sales are down after the summer months and before those of the holidays. If Culinarian ran promotions during this period, it might be able to buoy sales and allow them to gain a stronger hold on the market just before the holiday season.
During the 2004 promotion 20% of customers who bought the CX1 model were new to the Culinarian brand. An increase in new customers might be most beneficial before the Holiday season, as according to exhibit 3, 55% of people surveyed in the Orion Market Research study said that they either bought cookware as a gift or received it as a gift. Exhibit 3 also mentions that 50% of consumers are more likely to buy a brand that they recognize, which shows that increasing brand awareness during the time before the biggest cookware buying season could be incredibly beneficial to boost sales.
Another change that we would make to the price promotion is the way in which the promotion was distributed. According to the case, only about half of the retailers passed the full sale on to the customers. This represents a major problem for Culinarian, as they want customers to receive the full sale to entice more current customers to buy and more new customers to switch brands. Our recommendation would be to advertise coupons available online by putting coupon codes in their advertisements in magazines and newspapers.
In those advertisements they could publicize the price promotion and urge consumers to get coupons online to buy in stores. This would make the retailers pass the full sales discount onto consumers. Not only would this method of delivery allow customers to get the full discount, but it would also increase traffic to the Culinarian’s site. As of now, only about 5% of sales come from the company’s website, which shows a major lack of traffic. By putting the price promotion coupon online, the company could get more web traffic and increase the sales through their site.
Thus a well done price promotion could help Culinarian move towards meeting many of its major strategic objectives. Not only would it increase revenue by buoying sales and increasing brand awareness before the Holidays, but, through increased sales, it could also help them capture more of the premium cookware market. By running the price promotion infrequently and only on the lowest quality product line, there would be no damage to the brand’s prestigious image. This price promotion would vault the brand into more consumers’ consideration set and allow them to expand their brand toward the future.