Culinarian cookware is sold through retailers and directly to consumers. Culinarian has carefully cultivated relationships with its limited retail network, comprised of three upscale kitchen specialty chains, two department store chains, and 75 local specialty stores. Direct-to-consumer sales are made through Culinarian’s website or its catalogs. Because Culinarian relies on a variety of intermediaries to sell its products through retail channels (see Exhibit A for details), it must be careful how any planned promotions will change incentives for those intermediaries. For example, price discounts offered by Culinarian may not be passed on to end users. Thus, although end users ultimately drive sales of Culinarian products, Culinarian must take care to protect the interests of retailers and their salespeople in order to remain successful. The Orion Market Research Study reveals a great deal of useful information regarding Culinarian’s target demographic. Despite the many options to purchase remotely (via online vendors or mail order catalogues), purchases from retail locations account for 85% of total sales. See Exhibit B for details. This is strong evidence that consumers want to evaluate the quality and style of the cookware at the time of purchase. 75% of consumers in the study already own more than 5 pieces of cookware. See Exhibit C for more details. The majority of households in the Orion study had either given or received cookware as a gift, which aligns with evidence suggesting that cookware sales are seasonal – purchasing peaks occur in May and June (wedding season) and November and December (the holiday season). Because cookware is a durable good (i.e. it is not consumed and carries forward from one period into the next) it may be especially sensitive to sales discount cycles. Details on pre-sale losses and post-sale losses due to cannibalization are shown in Exhibit E. See Exhibit F for details on variation in cookware purchases by month. If consumers are purchasing in anticipation of annual events, they may be especially sensitive to promotional offers. This means that any analysis of cannibalization due to promotions or price discounts must be sure to analyze the full impact of pre and post-sale cannibalization.
II.Culinarian success factors
Culinarian has built a premium brand by producing innovative, high-quality cookware and developing strong relationships with retailers. Culinarian’s products are trusted by consumers who consider cooking to be their number one hobby (60% of Culinarian customers), and by professional chefs. The company meets the needs of these different segments by offering four product lines, each varying in terms of the level of technology and features involved, but all high quality. Culinarian has also been a leader in terms of metallurgic improvements in the cookware industry. Most important to Culinarian’s success, however, is its relationship with retailers. The company’s focused retail strategy allows the Culinarian sales team to visit retailers more often than their competitors, keeping retailers abreast of new products and training sales clerks as necessary. In addition, Culinarian products are more profitable for retailers than competitors’ products, creating additional warmth for their cookware among retailers.
III.Evaluation of 2004 promotion
Culinarian’s senior sales manager, Victoria Brown, maintains that the 2004 promotion was profitable, while a team of consultants believes it lost Culinarian money. The tables in Exhibit G depict each viewpoint on the effectiveness of the promotion, in addition to our own midrange analysis. Differences in the estimation of projected vs. actual sales largely accounts for the difference in profitability estimates. The consultants included cannibalization estimates in their model, while Brown argued that different “normal” estimates should be used when calculating sales. However, we find...