MKT 271 ASU Business Case Culinarian Cookware Marketing Strategy Porposal You should assume that you have been hired by the leadership at Culinarian Cookwa

MKT 271 ASU Business Case Culinarian Cookware Marketing Strategy Porposal You should assume that you have been hired by the leadership at Culinarian Cookware as a marketing consultant and you have been selected to answer several questions related to their marketing efforts. You must advise the company, Donald Janus and Victoria Brown on what to do.In November of 2006, senior executives at Culinarian Cookware were debating the merits of price promotions for the company’s premium cookware products. The VP of Marketing, Donald Janus, and Senior Sales Manager, Victoria Brown, had different views. Janus felt price promotions were unnecessary, potentially damaging to the brand image, and possibly encouraged retailer hoarding; Brown believed the promotions strengthened trade support, improved brand awareness, and stimulated sales from both new and existing customers. The issue was complicated by a consultant’s study of the firm’s 2004 price promotions which concluded that these promotions had a negative impact on profits. Janus trusted the results, but Brown, believing the study assumptions were flawed and required further analysis, suspected the promotions had actually produced positive results. The pressing decision is whether to run a price promotion in 2007 and, if so, to determine what merchandise to promote and on what terms. The broader issue is what strategy Culinarian should pursue to achieve sales growth goals, and what role, if any, price promotion should play.You must read the HBS case and prepare a response. Read the scenario carefully and develop your position using supporting arguments from the text reading material and any supporting videos. You must outline your position clearly. Any questions at the end of the case are suggestions to prompt your thinking and do not need to be answered in sequence. For the exclusive use of P. Cameron, 2016.
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SEPTEMBER 22, 2009
JOHN A. QUELCH
HEATHER BECKHAM
Culinarian Cookware: Pondering Price Promotion
On November 6, 2006, the vice president of marketing of Culinarian Cookware (Culinarian),
Donald Janus, and the senior sales manager, Victoria Brown, met to discuss whether or not the
company should offer a price promotion for the company’s line of premium cookware in the coming
year. These two executives had very different views on the value of a price promotion and the role it
could play in the company’s marketing strategy.
Janus expressed his opinion first:
My gut tells me that offering a price promotion is unnecessary and cheapens our products’
image. We have unparalleled product quality, the most advanced performance technology in
the industry, and strong dealer support—all of which argues for standing firm with our
suggested retail prices and offering no consumer discounts. Look at 2006 so far: we are on
track to grow overall revenue by 21% and we’ve limited price promotion to only our slowestmoving products. Look at the consulting study we commissioned that shows our 2004 price
promotion had a negative impact on our profits. I know you feel price promotions are critical
to our marketing strategy and that the consulting study had flawed assumptions. Help me
understand where you are coming from.
Brown knew that Janus was determined above all else that Culinarian should remain known as a
high-quality product and an elite brand—“an American icon” was Janus’s term—and that all good
things would flow from that status. He grew wary when he perceived, rightly or wrongly, a hint of a
threat to that status. Still, Brown was obliged to be candid. She said:
I believe we need to be bolder with our price promotions. The number one complaint that
my sale force hears from the trade accounts is the lack of consistent and meaningful price
discount events. Providing a 30% discount promotion will increase commitment and support
from the trade and will boost our overall brand awareness. It’ll also provide us with new
customers who would otherwise not purchase because they feel the suggested retail is too high
and encourage current customers to immediately purchase additional pieces. And yes, I think
if the data in the consulting study is re-examined, you’ll see the 2004 price promotion was
actually very profitable.
________________________________________________________________________________________________________________
HBS Professor John A. Quelch and Heather Beckham prepared this case solely as a basis for class discussion and not as an endorsement, a source
of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any
resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. HBS thanks Owen
Mack of Kitchen Arts for his input.
Copyright © 2009 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Preston Cameron in 2016.
For the exclusive use of P. Cameron, 2016.
4057 | Culinarian Cookware: Pondering Price Promotion
After a one-hour discussion of the pros and cons of price promotion and validity issues
surrounding the consulting study’s conclusions, Janus said:
You’ve made some good points and I have a lot to think about. We need to put much more
analysis into this decision. I’d like you to dig deeper into the consulting study and provide me
with your version of the calculations for profitability of the 2004 promotion. I also want you to
consider what we discussed today and provide a formal recommendation on whether to run a
price promotion in 2007 and if so, what merchandise to promote, and on what terms.
Background
Market Overview
The U.S. cookware market experienced attractive growth from 2002 to 2006, when it generated
approximately $3.36 billion in revenues (see industry sales figures in Exhibit 1). Cookware could be
classified by price and quality as well as by material. Cookware was available in aluminum, stainless
steel, porcelain-on-iron (POI), cast-iron and copper. Copper was the most expensive category and the
first choice of most professional chefs due to superior heat conductivity. Manufacturers of cookware
had to balance the need for performance, time-saving features, and aesthetics, with price. A growing
trend in premium cookware was the offering of colored designer cookware that matched kitchen
décor and product lines endorsed by and branded with the name of a widely recognized television
celebrity chef (e.g., Emeril Legasse).
Cookware was purchased either by the piece (open stock) or in a boxed set (ranging from 5 to 14
pieces). A typical 5-piece set included a 10-inch fry pan, a 2-quart sauce pan with lid, and a 4-quart
stockpot with lid. Retail distribution outlets for cookware included kitchen specialty chains (e.g.
Williams Sonoma), local specialty stores, department stores (e.g., Macy’s), mass merchandisers (e.g.,
Wal-mart), grocery stores (e.g., Kroger), direct TV sales (e.g., Home Shopping Network), online
retailers (e.g., Amazon), and catalogs (e.g., manufacturers’ direct mailings). Sales of cookware were
somewhat seasonal due to the purchase of cookware for weddings and Christmas gifts (see Exhibit 2
for a breakout of consumer sales by month).
Top players in the cookware market included Star Chef (mid-level and low-end products) at 18%
of market dollars, Kitchen Select (mid-level and low-end products) at 14%, Culinarian (premium
products) at 6.5%, Le Gourmand (premium products) at 4%, and Robusto (premium products) at 3%.
Culinarian Cookware
Culinarian designed, manufactured, distributed, and marketed premium performance cookware,
generally defined as pots, pans, and similar non-electric tools used in food preparation. The
company selectively distributed merchandise through a limited number of kitchen specialty retail
outlets and high-end department stores. Brown felt the retail sales team was critical in
communicating Culinarian’s value proposition of performance, durability, and quality.
A
comprehensive training program was provided for all retail sales clerks.
In 2006, Culinarian’s CEO, Audrey Roux, established four strategic priorities for the company:
(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 margins of 12%. Revenues in 2006 were forecasted to be $104 million
with pretax earnings of $12.5 million.
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Culinarian Cookware: Pondering Price Promotion | 4057
Culinarian Consumer Research
Janus and Brown had pored over three consumer research studies to obtain insight into the
market and Culinarian’s target customers. The first study had been conducted in 2003 by the Orion
consulting firm. Orion was an independent firm that routinely conducted market research on kitchen
products such as cookware, bakeware, and small kitchen electrics. Key findings from the 2003 survey
are summarized in Exhibit 3.
Culinarian also conducted market research with its own customers. In 2004, the company
received questionnaires from a sample of 1,500 consumers who had completed warranty cards for
Culinarian products in the past five years. The results of the study revealed that 75% of its customers
were 30 to 55 years of age; 82% were women; 70% had household incomes over $75,000 and 60%
considered cooking to be their number one hobby. Product performance and durability were
regarded the most important features in selecting cookware.
A 2005 telephone survey commissioned by Culinarian included a random sample of households
that had purchased cookware in the last year. The survey revealed that unaided brand awareness for
Culinarian ranged from 15% for respondents with household incomes under $75,000 (17% for
Le Gourmand, 14% for Robusto) and 25% for those with household incomes over $75,000 (30% for
Le Gourmand, 28% for Robusto). Star Chef and Kitchen Select both commanded unaided brand
awareness levels of 35% for respondents with household incomes under $75,000 and 45% for those
with household incomes over $75,000. When asked if they recalled having seen Culinarian
advertisements, 4% of survey participants answered “yes.”
Culinarian’s Marketing Mix
Products
Culinarian product features focused on advanced performance technology for serious cooks.
Culinarian was the leader in metallurgy technology and was the first manufacturer to provide the
benefits of copper cookware with effortless cleaning and maintenance. The company offered four
product lines: The Tyro Collection (CX1), The Classic Collection (DX1), The Advanced Chef
Collection (SX1), and the Professional Grade Collection (PROX1). Exhibit 4 provides information on
each line’s 2006 average retail price and a summary of trade orders from the spring and summer of
2002 to 2006. The most expensive line was the PROX1, which offered a patented copper construction.
The SX1 and DX1 were similar in style to the PROX1, but used a stainless steel exterior with
aluminum center for the SX1 and an aluminum exterior and center for the DX1. The CX1 was the
lowest-priced line and had the least-advanced technology and features.
Sales and Distribution
The company had very strong relationships with retailers, and therefore each retailer carried all
four product lines. Retailers were enthusiastic because they could capture a higher level of
profitability with Culinarian products versus competing products. Gross margins for retailers
averaged 52% for Culinarian products (Le Gourmand and Robusto merchandise averaged 48%).
Culinarian was highly selective in choosing retail outlets as partners. The company’s products were
sold through a network of three upscale kitchen specialty chains (36% of trade orders), the
Bloomingdales and Nieman Marcus department store chains (32% of trade orders), and 75 local
specialty stores (27%). Approximately 5% of orders came from direct sales via the company website
and catalogs sent to existing customers twice per year.
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4057 | Culinarian Cookware: Pondering Price Promotion
The Culinarian sales force included eight experienced account managers (each had been with the
company at least seven years) who received approximately 60% of their compensation as a base
salary and 40% in incentive pay from exceeding sales quotas. Account managers visited major
accounts once per month to highlight new products, offer retail sales training on product technology
and features, and provide inventory management suggestions. The sales forces of competitors
Le Gourmand and Robusto averaged only six sales visits per year. Culinarian’s account managers
also oversaw a unique retail merchandising incentive program built around a point system that
rewarded exceptional retail clerks with free cookware.
Advertising
In 2006, Culinarian was forecasting $4 million (4% of sales) in advertising expenses (advertising
expenditure for the company is provided in Exhibit 5). By contrast, Le Gourmand and Robusto
would spend approximately 3% of sales on advertising in 2006. Industry leaders Star Chef and
Kitchen Select were estimated at $13 million (4% of sales) and $10 million (4% of sales) respectively
on advertising. The majority of Culinarian’s advertising budget went toward its national advertising
campaign. The campaign focused on magazines (e.g., Bon Appétit, Cook Illustrated, Martha Stewart
Living) and newspapers (e.g., USA Today) targeted at high-income audiences. Culinarian’s
cooperative trade advertising was a fraction of competitors’ Star Chef and Kitchen Select due to the
company’s strict requirements regarding the type of publication the trade could use (e.g., no
newspaper advertising would be supported). Culinarian would subsidize cooperative trade
advertising only for retailer catalogs, direct mail, and magazines that Culinarian already utilized for
its national advertising campaign. Because of these restrictions, Culinarian products and promotion
programs were seldom advertised by the trade.
Pricing and Promotion
Janus felt Culinarian’s pricing policy should reflect its high-end status. Suggested retail price
points were in round dollars (e.g., $200.00) vs. .99-cent pricing (e.g., $199.99), which Janus believed
signified bargain products. In order to discourage retail outlets from instituting discounts on
Culinarian list prices, suggested prices were pre-printed on each product’s packaging.
After the sales force reported that all three of the kitchen specialty chain accounts and the majority
of their independent stores were demanding price reduction events, Culinarian offered its first price
promotion in 2004. The objective of this promotion was not only to appease the trade, but to broaden
its customer base and stimulate excitement for the brand at consumer level. A 20% consumer
discount was available to participating retailers on all pieces in the CX1 Tyro Collection line from
April 1 to May 31. As was standard in the industry, Culinarian notified the trade and provided
details about the promotion in advance of the program’s actual dates. The price promotion was
announced January 1, 2004, and the trade could place orders at promotional prices for products
delivered March through May. For consumers to receive their full 20% discount, Culinarian
requested each participating retailer to accept a 48% margin instead of their usual 52%. Although
Culinarian did not feature the price promotions in any of its national advertising, several retailers ran
local advertisements featuring the discount. A total of 184,987 units of CX1 pieces were sold to the
trade during the promotion. Reports from the field sales force led Culinarian management to believe
approximately 50% of all retailers actually passed along the full 20% discount to consumers, while the
actual discount averaged 10% for the remaining retailers. The company had inserted in the promoted
pieces special warranty cards that customers mailed postage-free to Culinarian. From customer
responses to questions on these cards, Culinarian was able to determine that 80% were from
households who already owned one or more Culinarian product, 70% felt the price discount was
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Culinarian Cookware: Pondering Price Promotion | 4057
important or very important in their purchase decision, and 15% would consider upgrading to the
DX1, SX1 or PRO1 lines for their next purchase.
To further increase penetration of consumers in the premium segment, another 20% Culinarian
price promotion ran in May 2005 on its popular 10-inch fry pans, 2-quart sauce pans, and 6-quart
stock pots in the CX1 and DX1 and SX1 line. Trade partners were again expected to adopt the 48%
margin for the promotion. Culinarian featured this promotion in advertisements in four national
magazines.
Participation for this promotion caused a surge in orders that Culinarian’s
manufacturing plant could not handle—several backorders had still not been filled by June 2005.
Janus was also concerned when June, July, and August orders for the pieces in the promotion
dropped well below 2004 levels. Janus felt the trade was overbuying during the promotion period,
then later selling a portion of the discounted products at normal prices and pocketing the difference.
As a result, Janus mandated that promotions be scaled back, and in 2006 a 20% price promotion was
offered on only the slowest-moving CX1 and DX1 pieces. Several retailers complained that this
promotion was of little value to them and Culinarian saw only a slight increase in trade orders for
these pieces during the promotion period.
Culinarian also ran at least one promotion each year that offered a gift with purchase (e.g., free
Dutch Oven with $500 purchase of select merchandise). Consumer feedback showed enthusiasm for
these programs and sales for the promoted pieces increased an average of 15% each time a gift was
offered. Janus felt these promotions were ideal because they could be offered without a reduction in
list prices. Retailers, however, had not been excited about these promotions. Stores were often
confused about how many of the gift products to order and they felt the gift products took up too
much valuable floor space without generating any associated revenue.
Premium producers Le Gourmand and Robusto never ran price promotions. However, both
companies often ran promotions that offered gifts with purchases. Both Star Chef and Kitchen Select
ran regular price promotions, several times a year. Traditionally, their price promotions
corresponded with peak sales months, such as November/December (Christmas) and May/June
(wedding gifts). Retailers preferred to run one price promotion per manufacturer at a time versus
overlapping several manufacturers’ promotions in the same month. By spacing out the price
promotions, the retail outlet could provide a more steady flow of traffic building discounts.
Analyzing the 2004 Price Promotion
Janus had engaged outside consultants to assess the profitability of the 2004 price promotion.
Using a computer-generated model,1 the consultants determined that normal sales, without the
promotion, would have been 119,504 units for March through May. They also gathered pricing and
cost data for the promotion pieces (Exhibit 6). Applying the formula {(actual units * actual
contribution) – (forecast units * normal contribution)} = incremental contribution impact, the
consultants concluded that the promotion lost $469,489 in contribution.
Using another time series analysis, the consultants determined sales of the DX1 line in the Spring
of 2004 should have been 134,180 units (actual sales were 129,386). As a result, the consultants felt
cannibalization of the DX1 line should be included in the profitability analysis. They estimated
$99,332 in contribution was lost due to this cannibalization. On the positive side, the consultants
estimated that Culinarian saved approximately $39,540 in inventory costs because the company
1 This time series analysis utilized 10 years of sales history as well as proprietary economic and industry models the
consultants had developed from working with several companies in the Housewares space.
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4057 | Culinarian Cookware: Pondering Price Promotion
dipped below normal inventory levels when manufacturing fell behind when trying to produce
enough products to fill the spike in orders.
Brown felt the consultants’ analysis was flawed for three major reasons:
1.
She believed the normal sales figures were too high. Brown reviewed sales order data for the
CX1 product line (Exhibit 7) and discovered that March–May orders for 2003—the prior
year—totaled 78,778 units. She further noted that CX1 sales orders in the first two months of
2004 were 24% below the first two months of 2003. Therefore, she felt the most accurate
method to forecast 2004 March–May…
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