Culinarian Cookware: Pondering Price Promotion

CASE BRIEF AND PROBLEM DESCRIPTION:

Culinarian Cookware manufactured, distributed and marketed premium performance cookware U.S cookware market experienced attractive growth from 2002 to 2006 when it generated $3.36 billion in revenues [Pg. 2, Para 2, Line 1] Sales of cookware was seasonal due to purchase for weddings and Christmas gifts The company wants to determine whether or not the company should offer a price promotion for its cookware products

Marketing Mix
Products:
Lowest Priced line CX1(Tyro Collection) Most Expensive Line - PROX1(Professional Grade Collection) DX1 - Classic Collection SX1 - Advanced Chef Collection

Sales and Distribution:

Good relations with retailers and Gross margin for retailers was 52% Channels: Kitchen Speciality chain (36%), Department stores (32%), 75 local stores and 5 % online orders

Advertising
Advertising expense estimate for 2006 was 4% of sales Targeted high income users Majority of Advertising budget went on National Advertising

Pricing and Promotion

First price promotion (20% consumer discount) in 2004 Gift Promotions were undertaken which increased the avg sales by 15%

Comparison of Consultant's and Victoria Brown's analysis Consultant

Victoria Brown

Forecasted sales for 2004 should have been 119504 units using the computer generated model[pg. 5, Para 4, line 3]

Variable costs includes labor, raw materials, manufacturing overhead, 5% advertisement, 7% selling expenses[pg. 9, Note c] Products in DX1 line were cannibalized and loss was calculated to be $99,332[pg. 5, Para 5, line 4] and Culinarian saved $39,540 in inventory costs [pg. 5, Para 5, line 5]

Forecasted sales for 2004 should have been 24% below the 2003 sales which would have been 59871[pg. 6, browns 1st reason, line 7] Variable costs must include only labor and raw materials which totaled 38.64[pg. 6, browns 2st reason, line 3] Cannibalization calculations are erroneous and so are unreliable

Conclusions from Comparison of Consultant's and Victoria Brown's analysis

Browns forecasted no of units is based only on the year 2003. Given that the sales are seasonal 24% drop in sales cannot be concluded for the promotional period. Consultants forecasted no of units seems to be a better estimate based on time series analysis with 10 year of sales history. The Variable cost should include only raw materials and labor. Advertising cost should be treated as a fixed cost. Loss due to cannibalization seems to be reliable as it is based on a similar time series analysis as done for no of units.

Considering the above points Forecasted no of units= 119504 (Without Promotion for 2004) Variable Cost per unit = $ 38.64 The results of the quantitative analysis shows Profit (No Promotion) = $ 3986653.44 Profit (Promotion) = $ 3986653.44

Incremental Profit = $ 348845.68 (considering cannibalization of DX1 and savings in inventory cost) Status Quo Pros Preserve its prestigious image With limited price promotions to slowest moving products, still 21% growth in revenue can be achieved [ pg 1, para 2, line 5] Offer 20% Price Promotions Pros Increase in Revenue Boost overall brand awareness

Cons Market Share will not increase substantially

Increase the customer base Encourage existing customers to purchase additional pieces Cons Lowering overall brand image of premium products May have Negative effect to premium product PROX1 & SX1

Status Quo vs. Offering 20% Price Promotions

Offering 20% Price Promotions vs. Gift Promotion

Offer 20% Price Promotions Pros Helps Retailers preserve floor space Advertising was through retailers Cons Gross Margin for Retailers was reduced from 52% to 48% Whole 20% discount was not getting passed on to most of the consumers[Pg. 4 Para4 Line13] Promotion by offering a Gift Pros Sales increased by an avg of 15% Does not significantly decrease the margins for both retailers and the firm Cons Took up valuable floor space without generating associated revenue

Recommendations
It should offer Gift Promotions for High end products as it would sales by an avg of 15% without compromising on the margins For the low end products, CX1 and DX1, it should offer 20% discount, resulting in increased revenues. For the low end products, CX1 and DX1, it should increase its channel distribution to mass merchandising outlets like WalMart, department stores like Macys [Pg. 8, Exhibit 3, and Point 2] in order to increase its market share and improve the sales of low end products. Advertisement should increase for all products in order to increase brand awareness. It should specifically advertise promotional offers for low end products actively and not rely on retailers for the same.