Subject: Advising a price promotion plan for Culinarian cookware
Culinarian is a strong brand that is ready for a successful 2007. We have reviewed the marketing mix of push vs. pull tactics, compared them to the industry, and examined past performance in this area. Most importantly, we have examined 2004’s price promotion and drawn conclusions that have allowed us to make recommendations for this coming year. Outlined below are our findings, with accompanying appendixes.
Culinarian uses an acceptable blend of push and pull tactics; they primarily utilize push for their premium cookware products. This is advantageous for Culinarian because the majority (55%) of consumers with income greater than $75,000 would be more likely to shop for cookware at stores with attractive displays or informed staff. Only 10% would respond to multimedia advertising while 20% would respond to a sale (Appendix 1). According to these results, the majority of the market would respond to measures affected by push tactics (displays and informed sales staff). Culinarian implements a push strategy by having sales visits (12 per year versus competitors’ 6 visits per year), having a higher retail margin for its products (52% versus competitors’ 48%), and using an incentive program for retail clerks. These factors create more informed retailers and incentivize retailers to create Culinarian displays and sell Culinarian products. Culinarian’s limited pull tactics remain relatively ineffective. These involve a higher than average advertising expenditure (4% of sales versus 3% of premium competitors) and the lowest brand awareness for the high income target market. They should not focus so much on this tactic, as a low proportion of the target market is responsive to it. Price promotions are beneficial to a pull strategy because a significant proportion of the market would be motivated to buy cookware if on sale. After reviewing the 2004 price promotion, there are two key variables that determine its success and profitability. The first is the expected number of units sold for the 2004 year. The consultants were very optimistic when projecting 119,000 sales of CX1 after only 78,000 units were sold the previous year. On the other end of the spectrum, Victoria Brown, senior sales manager, believed that sales should be 24% below 2003 numbers because of the January and February units’ slump. This would net just fewer than 60,000 sales in 2004 (Appendix 2). The second variable is variable cost, which has wide disparity between the consultants and Mrs. Brown. The consultants included higher variable costs than Brown ($52.05 vs. $38.64 per unit) who incorporated only labor and raw materials in her accounting (Appendix 3). This leads to less profitability and, ultimately, a negative return of $-469,489 thousands as a result of the promotion in the consultant’s analysis. Brown on her side calculated an increase in revenue of about $2.4 million (Appendix 4).
Our own analysis of the 2004 promotion incorporates a more realistic function of projected unit sales and variable cost. Rather than determine a growth rate for 2004, a sales estimate was determined by using the percentage of sales by month from 2005. Knowing the units sold in January 2004 without the promotion, sales were estimated at an average of 23.3% for March through May in relation to the full year. This creates a realistic projection of 99,800 sales of CX1 (Appendix 5). We also made the assumption that variable costs mirrored that of Mrs. Brown’s analysis. Another key factor taken into account for the profitability of the CX1 promotion is the cannibalization it might have caused. DX1 is the closest Culinary Cookware competitor and the effect of the promotions cannibalization is a real threat. However, judging its exact effect can become subjective so we performed a worst case scenario (Appendix 6). Due to the year over year growth...