Question #1. What is the primary cause of Calyx’s problem? What is the key actionable reason for the weak performance?
The root cause of Calyx’s lower than expected financial performance is lack of proper segmentation. Currently they have divided their marketing between customers, recipients, and rented lists. They have bypassed value based segmentation and proceeded directly to demographic profile based segmentation by grouping prospects by purchase history and demographics. This categorization is not sufficient in identifying key differences between customers therefore it does not enable customization of products or messaging. It also does not meet the mutually exclusive and collectively exhaustive (MECE) rule. There is likely to be overlap in characteristics between their customer list and their recipient list, and certainly between their customer list and the rented list. Their primary approach in differentiating between segments has been in frequency of mailings rather than in customization of product offerings, pricing, or messaging in response to their varying values.
There is no evidence in the case that demonstrates that they understand what attributes their customers’ value most. It appears that Calyx Flowers has positioned themselves as a premium flower retailer by establishing an average price of $80, not including delivery. Presumably this premium price is justified by providing superior freshness and longevity by cutting out middlemen, but it’s not clear they know what the customer’s willingness is to pay for these two benefits.
In addition, their target market seems misaligned. Calyx Flowers believes the majority of their customers are upscale professional women, therefore a quarter of their catalog budget is spent targeting this demographic. The abysmal 1% yield rate from the rented list, compared to the 4.5% yield rate from their customer base leads us to believe that the poor response is due to misidentified target market....
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