18 March 2013
Culinarian Cookware Case
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 sales 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...