Week 9 - Culinarian Cookware

Culinarian should run a price promotion to hit the objectives outlined by the CEO.  I believe this for a few reasons.

The 2004 promotion was not a flop like the consultants suggested.  The consultants made a lot of questionable assumptions and I agree with Victoria Brown’s critique.  First, to estimate the cannibalization of the DX1 line, the consultants estimated DX1 revenue growth should be exactly the same as the year before without the price promotion (+24%).  With the CX1 price promotion the DX1 line only grew sales by 21%, so they assumed the (3%) variance was cannibalization and deducted the lost profit.  I don’t think it’s reasonable to assume, all else constant, revenue growth will be the same as the year before, it’s too simplistic!  There was likely some cannibalization, but none of the product lines had negative year-over-year sales growth.  There doesn’t appear to be enough info for the consultants to accurately assess cannibalization.  The other two critiques were related to inventory savings and overhead cost allocations.  If overhead costs are not changing dramatically there’s no reason to add this to the analysis.  If there are incremental increases to the SGA budget specifically for this price promotion, then they should be factored into the analysis, but I didn’t see anything like this in the case.  The inventory savings related to production falling behind schedule is silly.  It’s not a hard savings and definitely not a repeatable incident that you would plan on happening during another price promotion.

So the consultants were wrong about the 2004 sales promotion and it was actually a success for Culinarian.  In fact, the sales promotion for the lower price CX1 line may have increased (not cannibalized) the sales of Culinarian’s more expensive product lines.  In 2004, total cookware sales in the United States, excluding aluminum cookware (cheaper cookware), increased 6% & 16% for copper and stainless steel cookware respectively.  Culinarian’s more premium brands (made of copper and stainless steel) had year-over-year sales increases of 9%, 30% & 20%.  I think this evidence suggests that some customers were drawn to Culinarian’s products by the CX1 price promotion and decided to buy a more expensive version of the cookware instead.

Based on the analysis of the 2004 price promotion and the objectives of the CEO, Culinarian should run another price promotion.  Culinarian’s distribution network clearly prefers some form of regular price promotions, so this could only help the company widen its distribution network.  But action will need to be taken to remedy the situation of retailers pocketing the promotional savings.  While price promotions may not be common with premium cookware brands and threaten Culinarian’s prestigious image, they’re ultimately necessary to accomplish the CEO’s objectives of a wider distribution network, increased market share, and consistently strong revenue growth.  Culinarian’s marketers will need to do a better job positioning the product in the mind of the consumer to maintain their prestigious image.  The other key part of another price promotion is the effective use of Advertising.  Culinarian spends 4% of sales on advertising and only 4% of people purchasing cookware has seen a Culinarian Ad.  A more efficient use of advertising dollars in concert with price promotions will be necessary to meet the CEO’s objectives.