Brand managers Marcilie Smith Boyle and Allison Warren were tasked with determining the causes of the recent softening of the charcoal industry and coming up with recommendations to grow the Kingsford Charcoal brand. They faced a series of critical decisions in this task: 1.
Pricing – should prices be raised, and, if so, by how much? Should they implement a total line pricing increase or just increase the price of certain products? 2.
Advertising – should advertising be increased, and by how much? 3.
Competition – is Kingsford competing against other charcoal manufacturers, gas grills manufacturers, or a combination of both? 4.
Promotion – what was the best strategy to promote the Kingsford brand? Should Kingsford strive to increase overall grilling events, or just emphasize the Kingsford brand? 5.
Capacity – if the Kingsford business could be grown substantially, is the current manufacturing capacity adequate in the near-term? Long-term?
I determined that the specific goals that the brand managers should be focused on achieving are: 1.
Growing the charcoal market (resulting in growth for Kingsford due to its huge share of the market), 2.
Increase profitability through growth and production optimization, 3.
Strengthen the brand by employing a marked increase in advertising and specific promotional themes, 4.
New product development, and
Increase in non-seasonal business (this will both increase volume and smooth out production).
The challenge facing the brand managers is how to achieve these goals in the face of a declining charcoal market. Other obstacles include reluctance by management to spend money on advertising, burgeoning competition from the gas grill industry, and production capacity that could quickly be challenged with sustained growth.
DATA COMPILATION AND ANALYSIS
The Kingsford Charcoal business produces revenues of $350 million per year, which accounts for approximately 9% of the total yearly revenue of Kingsford’s parent company, Clorox, Inc (4.1 billion in 2000). The case data states that Kingsford accounts for “a substantially higher percentage of (Clorox’s) net income,” than its percentage of revenue. It is therefore assumed that 15% of the annual income of Clorox, Inc., is attributed to Kingsford. Thus, in fiscal year 2000, Kingsford had a net income of approximately $50 million on sales of $350 million, which equates to a profit margin of ~14%. Clearly, the Kingsford charcoal business is a great business to be in. However, the charcoal market experienced its first softening in the summer of 2000, after enjoying several years of steady 1 – 3% growth.
Colder, wetter than normal weather contributed to the softening, but a major factor could be the disturbing upward trend of gas grill purchases. Thus, it is imperative that Kingsford achieve growth in order to increase their market share within the charcoal market and maintain its high contribution margins. Given the huge market share enjoyed by Kingsford, it would also be beneficial to grow the charcoal market as a whole.
Currently, Kingsford maintains a 59.5% share of the total charcoal market (2nd half of 2000 figures). With sales of approximately $350 million in year 2000, this equates to a total charcoal market of about $590 million annually. Thus, for every percentage point increase in market share, Kingsford can raise revenue by $5.9 million. The contribution margin for Kingsford Charcoal is assumed to be 50% (the overall contribution margin for Clorox is 42% (1 – CGS/Rev), and since Kingsford contributes a larger % of net income than revenue to the Clorox bottom line, this is a safe assumption, especially considering that charcoal briquette production is manufacturing-intense). This equates to an increase in net income of approximately $3 million for every percent increase in market share (if the overall market...
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