Culinarian Cookware: Pondering Price Promotion

As a market leading brand mostly focusing in designing, manufacturing, dispersing and marketing premium cookware, Culinarian Pots and pans takes pride in its outstanding item quality, advanced performance technology and the strong dealer with stores established throughout the years, which Donald Janus, the VP of Marketing believes makes Culinarian stands strong in its competitive industry. In no matter Culinarian's typical practice of preventing price discounting, a main price promo program was launched in 2004, which was later on concluded by an expert company that these promotions had a negative effect on earnings.

There are various views toward the cost promotion strategies and the matching report in the senior management: Janus felt rate promos were unnecessary, potentially damaging to the brand name image, and perhaps motivated merchant hoarding;

Brown thought the promotions reinforced trade assistance, enhanced brand awareness, and promoted sales from both brand-new and existing consumers. While Janus relied on the report results, Brown thought the study presumptions were flawed and required additional analysis, presumed the promotions had actually produced positive outcomes.

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In November of 2006, debates among the senior management team had actually been going on regarding the advantages and disadvantages of price promotions for the company's premium pots and pans products. A decision is needed to be made in terms of how rate promo can be utilized in Culinarian's marketing technique.

Secret Issue

The urgent and crucial question is whether to run a rate promotion in 2007 and, if so, to identify what merchandise to promote and on what terms. The more comprehensive issue is what method Culinarian ought to pursue to achieve its sales development goal, and what role, if any, rate promotion ought to play.

Clearly there are appealing advantages and draw-backs with significant effects for a cost promotion program. The last recommendation will need to be in line with the four strategic goals of the company: (1) Widen its circulation network; (2) Increase its market share of the premium cookware section; (3) Maintain its prominent image; (4) Capture its earnings growth of a minimum of 15% while maintaining pre-tax earnings margins of 12%.

Possible Alternatives

(1) No Price Promotion
This alternative would means there will be no official price promotion, only occasional free gifts would be given out with purchase of items at regular price. There are least risks associated with this option but the company will need to seek other ways to maintain their competitiveness.

(2) Discount on Slow Growing Items
The second option would be to apply a 30% discounted price to the slow growing items like what the company did in 2006. (3) Price Promotion Campaign (Discount on selected premium items) To invest in a comprehensive price promotion campaign. Discount price will be applied not only to the cheapest and slow growing items but to selected items from all lines. The campaign will be assist with edgy advertising methods to create a “hype” to the price cutting.

The Recommendation
Alternative 3: Price Promotion Campaign
The recommendation to pursue the third alternative was made based on a decision matrix with the following set of criteria: risk; ability to widen distribution network; positive impact on brand image; ease of implementation and financial return.

The Rationale
Price promotion is superior to a gift incentive in the following ways.

As Culinarian is heavily relied on retailers for distribution, their opinions carry a certain weight of important. Many of the retailers expressed that a free gift approach often confuse them as to how many gifts to order. These 0 value-carrying gifts also occupy valuable inventory spaces and thus are generally not welcomed by these distribution channels.

When looking at the company strategies, one should realize that the current very low brand awareness among the target groups (HHI $75,000+) is a big issue (Exhibit 4). Discounting merchandize can effectively attract attention and raise awareness, broaden its customer base and stimulate excitement for the brand among the customers.

When looking at the analysis of Culinarian’s target group - the households with income over $75,000, 30% cited price as the most important criterion in selecting cookware; 30% of these consumers would be motivated to buy new cookware because of a price discount versus 20% being motivated by a free gift; 20% would intentionally wait for a sale and “Price” is ranked top 3 in the criteria of choosing a cookware. These study result show that the customers value a price promotion and even actively seek these promotion out. Clearly a cut in price will generate increased sale volume.

Indeed it is true that there are uncertainties in whether the price promotion in 2004 was profitable or not. A report by a consultant firm concluded that the promotion program was not profitable. However, one group in the management team including Brown believes there are significant flaws exist in the analysis due to the following errors: the normal sales figures being too high; variable costs including overhead cost incorrectly; the cannibalization costs and inventory savings which, instead of being left out of calculations, were included and estimated inaccurately.

Another argument being that when you look at the figures provided in the case exhibit, one could see that sales volume drop right after the price promotion in both 2004 and 2005, thus easily hurry to conclude that a price promotion does not benefit the company. However it is possible that the failure of these programs is due to other factors affecting the profitability including the level of discount rate, the ordering size allowances etc. execution considerations. Thus, these calculations cannot serve as a proof against a price promotion.

Because of the above rationale, a price promotion would be appropriate to be run in 2007. Janus’s worries of the disadvantage of a price promotion could be counteracted by the recommendation of the second alternative, which were recommended with two major objectives in mind: raise brand awareness (while maintaining a leading prestige image) and widen distribution network (which potentially serve as a gateway to increase market share and profit).

The major concern of Janus was the potential negative impact to the brand’s premium image especially when the two direct competing premium cookware brands do not use price promotion. However this generally happen only when discounted items was focused on the cheapest line or the slow growing ones (which exactly was what happened in 2004 and 2005). In the new price promotion campaign, a limited number of premium items will needed to be selected for a discount to maintain the prestige and premium image of the brand while specific communication campaign will be employed to increase customer satisfaction on buying the premium product with a discount price. Expanding the discount to more expensive line could also

The next question would be how the promotion will be executed.

The Implementation

Again a limited number of premium items (eg. PROX1) combine with cheaper lines (eg. CX1) will be selected for a discount. In fact, the selection will cover specific items of all 4 lines. A communication campaign will be employed to call out the message to the public: “Here is the premium brand, and we are selling it for a lower price so that YOU can also try out these high-quality cookware” (“Quality” remains the top motivator for choosing cookware).

The discount period will still be around April and May to avoid direct competition with the other big cookware brands. In terms of the problem of retailers placing over-size trade orders and eating up the difference, Culinarian can counteract this by pre-print or attaching a discount notification on the product packaging and limiting each order size during the pre-discount period.

In conclusion, Culinarian should implement a price promotion campaign in reaction to the demand of customers. Discount price will be applied to items based on the direction of boosting relationship between the company and retailers, and raise consumer awareness to the prestige brand name. With the appropriate calculation of discount rate and promotion tactics, market share is likely to increase and the profit margins will be brought to the new height.