Culinarian Cookware: Pondering Price Promotion

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By: Napaparn Jonglertjanya (Sham)

Culinarians fundamental marketing strategy Culinarian marketing requires a combination of pull and push strategy. Pull strategy can help the company: Maintain its elite brand position as the most advanced performance technology in the industry. Increase price insensitivity. Make customers believe that the value of Culinarian product is higher than its price. Increase awareness. Fraction of its target consumer is still unaware of Cultinarian brand. Create demand of using high-quality cookware. Some of its target consumer is currently buying mid-end brands. Create and lead cookware trend of coloured designer cookware and those endorsed by or branded with TV celebrity chef. Make cookware a fashion product that can be out-dated and needs to be replaced with new design. Communicate product features. Culinarian customers most important features are product performance and durability. Culinarians products already have these features; they just need to communicate those to their target. While doing pull strategy, the company should also do a push strategy. When customers are facing with many similar brands displaying next to each other, attractive push strategy plays big role in their purchase decision. The following is the list of reasons why Culinarian should also use push strategy: Store display. 30% of customers are drawn to attractive stores GWP Promotion. 20% are motivated to buy because of free gift with purchase Informed sales staffs. 25% prefer full-service stores with informed sales staffs. However, both strategies have its pros and cons. Culinarian has to manage them wisely [see answer of Q3] to reduce the cons. Pros of pull strategy are: [1] ease of communication controllability (low risk of information distortion) and [2] reach wide range of audience, while its main cons is the high cost especially for a niche-market brand like Culinarian. For push strategy, its pros are: [1] cost-effective, [2] happen at the point of purchase, where decision is being made, and [3] two-way communication (staff can encourage purchase in respond to customers action). In contrast to pull strategy, push strategys cons are: [1] risk of information distortion and [2] reach only customers that are deciding to do the purchase in the store. In the beginning, Culinarian should do pull strategy 70% and push strategy 30% because it is very essential to increase awareness, create higher demand of its product and build strong brand image. Then it should gradually shift its investment from pull strategy to push down to 50:50. As customers are now drawn to the stores looking for Culinarian, push strategy helps encourage their purchase and increase the spending. It is also crucial to keep the pull strategy at 50% to remind customers its brand existence and its high value.

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Price promotion in 2004 evaluation In Table 1, it shows that, according to the consultant, price promotion in 2004 is a failure, making negative impact on the companys profitability. However, Browns calculation and mine show that it is a success. Here are rational behind numbers that are used: Variable cost takes only labour and material costs into account because other costs will still occur even if these CX1 were not sold. Therefore, the more the company can sell, the lesser these costs per unit will be. Cannibalization should not be overlooked. It could be very costly if high sales volume from price promotion is taken from the future sales volume with normal price. Although inventory cost is a small value, it is taken into account to get the most accurate estimation of price promotion impact. There are many other aspects the company should take into its consideration: customers change of behaviour when knowing that it will be on sales at certain period of the year, premium brand image might be damaged, etc. My estimation of CX1 unit sales (See Table 2) is taken from an average of two methods of calculating normal sales of March-May sales unit in year 2004. First method assumes that the portion of sales during March-May in year 2004 is equal to the portion of sales during March-May in year 2003. Second method assumes that the negative growth of sales during March-May in year 2003 continued to year 2004 at a constant rate. The net profitability impact is $1.6 million, which is between consultants and Browns estimation. Although my net profitability impact is positive, I believe that there are other aspects that were hurt by the price promotion. So, is 2004 price promotion a success? To me, it is not a success as it puts the brand equity (with a much higher value than what the 2004 price promotion had generate) at risk. Whether the price promotion has positive impact on profitability or not, it is certainly costly to prove its success. There are other methods to generate more profit and to increase market share. Price promotion in 2007 As mentioned in answer of Q2, there should be no price promotion in the stores, as it is risky of damaging its brand image. However, there could be price promotion some elsewhere such as outlets to sell unpopular products. Discount rate can vary depending on its popularity. There will be no season of sales; therefore, there will be less impact on customers who usually buy at normal price. Long-term growth driver Culinarian long-term growth could not be rely on price promotion. However, it should offer other promotions and marketing that stimulate sales growth such as GWP, special occasion products, cooking events, etc. Main driver of its long-term growth should be its premium brand and high-quality products. These benefits should be consistently communicated to customers at sufficient amount.

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Culinarian Cookware: Pondering Price Promotion

By: Napaparn Jonglertjanya (Sham)

Table 1. Normal Sales Calculation Comparison Consultant 184,987 $62.40 $52.05 $10.35 $1,914,615 Consultant ($469,489) ($99,332) $39,540 ($529,281) Actual Sales Brown You 184,987 184,987 $62.40 $62.40 $38.64 $38.64 $23.76 $23.76 $4,395,291 $4,395,291 Brown You $2,397,995 $2,397,995 $1,739,790 ($99,332) $39,540 $1,679,998 Consultant 119,504 $72.00 $52.05 $19.95 $2,384,105 Normal Sales Brown You 59,871 79,601 $72.00 $72.00 $38.64 $38.64 $33.36 $33.36 $1,997,297 $2,655,501

A) CX1 Unit Sales (March-May 2004) B) Average Unit MSP C) Average Unit Variable Costs D) Average Unit Contribution E) Total CX1 Sales Contribution F) Actual sales contribution less normal sales contribution G) Cannibalization impact H) Inventory Carrying Costs I) Net Profitability Impact

Table 2. Deseasonalised March-May sales unit Deseasonalised through percentage of Mar-May sales in that year. 2002 March April May Total March-May Total yr % Deseasonal 2004 sales units Deseasonalised through Mar-May sales growth Total March-May % Growth Deseasonal 2004 sales units Average between two deseasonal 2004 sales units 91,247 78,778 -13.67% 184,987 134.82% 68,013 79,601 14,412 38,870 37,965 91,247 266,042 34.30% 2003 27,717 24,982 26,079 78,778 397,210 19.83% 2004 47,191 89,423 48,373 184,987 459,792 40.23% 91,190