Express. Their strong relation with Federal Express is a necessity as a mail order company with perishable products. However, this dependence could significantly hinder Calyx & Corolla's ability to meet customer demands if in fact a work stoppage occurred at Federal Express. Although Calyx & Corolla has a unique relationship with Federal Express, it may be wise to consider expanding this type of relationship with other shipping companies as contingency options. The customer satisfaction for Calyx & Corolla products is deeply dependent on the flower growers. With respect to the ordering process, the only activity of the overall transaction that Calyx & Corolla actually has revolves around the ordering process and subsequent transmission of a given order to the grower. They have no control over the quality of the flower, they do not have control over the packaging or arrangement, nor do they have control over a grower's lead-time (or amount of time it takes to get the product out the door). The satisfaction of the customer is not directly dependent on the actions of Calyx & Corolla, and therefore their customer satisfaction could be influenced by poor operations at the flower growers. Calyx & Corolla derived 80% of its base product from eight major growers; the other 20% came from an additional 22 growers (Wylie, 1999). If anyone of the eight largest players had difficulties delivering products or services, Calyx & Corolla would have a very large concern on its hands with respect to meeting customer demands.
Calyx & Corolla's high price points are potentially discouraging to a large-scale audience. The average single sale of U.S. florists was $32 per order in 1990 (Wylie and Salmon, 1991), while the average single sale of Calyx & Corolla in 1991 was almost $48 per order. Therefore, Calyx & Corolla are charging customers, on average, 50% more for products that floral shops. Calyx & Corolla cannot deliver flowers at the point of sale. The floral shops and supermarkets currently enjoy 77% market share of the $9 billion annual floricultural market (Wylie and Salmon, 1991). The sales revenue of FTD is approximately $700 million per year, and they are much larger than any other competitor (Wylie and Salmon, 1991). Therefore, the vast majority of the flowers sold in the U.S. are delivered fresh at the point of sale, where Calyx & Corolla has no mechanism to offer their products. The Marketing Approach at Calyx & Corolla
The Calyx & Corolla case presents significant strengths and weaknesses in their business. Given these observation, we at MarCo believe there are several improvements that Calyx & Corolla can make in their marketing approach and their business. However, before we offer these recommendations we would like to analyze the current sales and marketing approach of Calyx & Corolla.
Calyx & Corolla business is primarily based on catalog distribution and sales. Table 1 summarizes detailed calculations that are presented in Appendix B, which contains an analysis of the sales revenue, cost of goods sold, and sales and marketing costs experienced for the catalog derived sales during fiscal year 1991. Table 1 also presents data for non-catalog derived sales. In studying the Profit before G&A summary shown in table 1, it appears that even though 70% of the orders received by Calyx & Corolla were from catalogs that only half of the Profit before G&A can be attributed to catalog sales. This is mainly due to the low response rate to the catalogs distributed to people on rented lists of names. Calyx & Corolla actually lost $470,000 distributing catalogs to people on rented name lists because they must pay $0.40 to prepare and send catalogs and there is only a 1-2% response rate (Wylie and Salmon, 1991). This is in contrast to the distribution of catalogs to prior customers and prior flower recipients which is profitable. The main reason for sending catalogs to the prior flower recipients and rented lists of names is to find new customers, who, if they respond, become prior customers that historically respond at 5% to catalog distributions. Therefore, the distribution of catalogs to prior flower recipients and rented name lists is a marketing effort to build repeat customers. Since sending catalogs to prior flower recipients is modestly profitable, Calyx & Corolla should certainly continue to send catalogs to this group in order to grow its repeat customer base. However, sending catalogs to the people on rented name lists actually reduced profits at Calyx & Corolla in FY1991 by $470,000. Calyx & Corolla sent 7,855,000 catalogs to rented name lists and, assuming a 1.5% response rate, this resulted in 117,825 sales. Reducing Calyx & Corolla profits by $470,000 to add 117,825 customers has a net cost to add a new customer of $4 per customer.
However, since only 5% of these 117,825 customers are likely to make another purchase within one year, Calyx & Corolla is actually paying $80 per customer that might purchase flowers again within one year by using these rented name lists. We believe that marketing costs of $4 per new customer should be used as a benchmark to investigate alternative marketing approaches.
Table 1 - P&L Statement for FY1991 broken down by business type Projected FY4 1991-1992 (in thousands of dollars) Catalog Prior Prior flower Rented Outgoing Sales Customers Recipients Names Telemarketing Catalog Catalog Corporate Sales Sales, Sales Promotion Sale
Sales $2,858 $2,144 $5,613 $3,033 $1,516
Cost of goods sold 657 493 1,291 697 349
Gross Margin 2,201 1,651 4,322 2,335 1,168
Sales, marketing 1,224 1,590 4,792 2,498
Profit before G&A (loss) 977 61 (470) 1,004
General & Administrative 1,459
Net Profit 113
Recommendations
Recommended Market Segments
The retail flower and plant business was approximately $9 billion in the United States in 1990, and growing at nearly 8% per year (Wylie and Salmon, 1991). In 1991, Calyx & Corolla had less than $20 million in annual sales, so they currently hold a market share of ~0.2%. Given the information provided in the case, we believe Calyx & Corolla has sufficient product offerings 5 and a good distribution system with the FedEx alliance. We believe their future growth is dependent upon their marketing approach. Calyx & Corolla is operating in a niche market (Kotler, 2002) that consists of people who want to buy fresh flowers, have them delivered in the U.S., and are willing to purchase via mail order. We believe their company is built to serve this niche market, and recommend that Calyx & Corolla continue to focus on this niche market. Catalogs Sales in New Media .There are two striking pieces of information that can shape the catalog marketing approach at Calyx & Corolla: 1) 85% of active buyers are women from 30-55 years of age with high disposable income, and 2) using rented lists of names currently costs Calyx & Corolla $4 per customer to create a buyer. We believe Calyx & Corolla should focus its marketing efforts to the people that most often buy its products in an attempt to reduce the cost to acquire a new customer. We recommend that Calyx & Corolla place one or two page advertisements in magazines and other print media where they could reach the women that most often buy there are products, in lieu of sending catalogs to rented lists of names. We recommend they place these ads containing their most popular three-five products in Red Book, Modern Bride, Cosmopolitan, Soap Opera Digest, and other women's magazines. In addition, we recommend building advertising alliances with classical women's wear retailers such as Victoria's Secret. We recommend that Calyx & Corolla test this marketing approach in an attempt to attract new customers at a cost lower than the $4/customer, which is the current cost using rented mail lists. A further attempt to lower the cost of obtaining new customers is the subject of an experiment in Minneapolis/St. Paul. In this experiment, Calyx & Corolla is running a multimedia campaign in Minneapolis/St. Paul in order to see if heavily investing in marketing will offer sales rewards. We recommend that Calyx & Corolla complete this test and see if the cost of obtaining new customers is lower than $4/customer. And if so, they should expand this marketing approach to other, larger test markets.
Corporate Promotion
The corporate promotion related sales and outgoing telemarketing sales at Calyx & Corolla is responsible for over $1 million of Profit before G&A, based on the figures in Table 1 and Appendix B. These sales create less than half the sales revenue of the catalog derived sales, but account for over twice the amount of Profit before G&A than the catalog derived sales. The corporate promotions and outgoing telemarketing methods also reach new customers, which have historically proven to have a 5% chance of becoming repeat customers. It appears that these corporate promotion sales and outgoing telemarketing sales are extremely valuable as both sales revenue generators and as a technique to add names to the Calyx & Corolla database for future catalog distribution.
We recommend that Calyx & Corolla move to expand corporate promotion and outgoing telemarketing to capitalize on the benefits these marketing efforts appear to create. We also believe there are opportunities to help Calyx & Corolla increase sales under continuity programs using these corporate promotion and outgoing telemarketing campaign. We recommend that Calyx & Corolla move to build corporate promotional programs with restaurants, hospitals, retail stores, beauty salons, boutiques, and women's clubs and spas. Calyx & Corolla should also focus these activities on building continuity programs to reduce dependence on holiday orders and 6 offset demand peaks during these times. Calyx & Corolla should focus of putting their products and catalogs in areas that will reach their target niche market, and substantially focus on their primary customers - working women aged 30-55 with disposable income. This implies that Calyx & Corolla might focus on higher-priced beauty salons and upscale department stores such as Bloomingdale's and Nordstrom. We further recommend that Calyx & Corolla focus on building continuity programs and sales by supplying fresh flowers to upscale hotels, funeral homes, wedding planners, and restaurants at substantial discount. The level of discount would be at least 30%, which is still profitable. But the discount may be greater if the partner would serve to market or sell Calyx & Corolla products. But, beyond these classical brick and mortar stores, we believe Calyx & Corolla should build corporate promotional ties with other catalog retailers who are not direct competitors, such as L.L. Bean, Spiegel, Fredrick's, Victoria's Secret, and Lands' End. These promotional arrangements will likely include cooperative advertising arrangements and placing Calyx & Corolla products in the catalogs of these other mail order companies.
Teaming with Florists and Supermarkets
In 1991 Calyx & Corolla had no retail locations, and distributed flowers direct from growers to the retail customers nearly exclusively. They had no apparent link to retail floral shops or supermarket floral shops. However, florists sold 59% of floriculture products and supermarkets sold 18% in 1987 (Wylie and Salmon, 1991), which constitutes 77% of the market. We recommend that Calyx & Corolla move to capture a portion of this large market by making their products available to consumers through florists and supermarkets. We believe Calyx & Corolla should supply catalogs and marketing displays to florists and supermarkets, and allow them to take orders that Calyx & Corolla would ship. Calyx & Corolla would allow the florist to keep 30% of the sale as commission. Under this scenario, Calyx & Corolla would essentially offer florist and supermarkets a discount on the items inside the Calyx & Corolla catalog, such that the florist and supermarkets could sell the Calyx & Corolla products to consumers at the same price as Calyx & Corolla would, but profit from the discount offered them by Calyx & Corolla. Calyx & Corolla would likely need to print and distribute a more rugged and attractive catalog for a year-long survival at a retail counter, as well as some instructions for the florist employees. We estimate that if (1000) floral shops could sell one Calyx & Corolla order per week, that Calyx & Corolla could earn Profit before G&A of $416,332/year, while the florists would earn $743,028/year (see Appendix C for calculations). This marketing approach would essentially bring Calyx & Corolla into competition with FTD, but only in the order taking portion of the FTD business (and not the delivery portion). However, with FTD the selling florist only earns 20% of the sale (Wylie and Salmon, 1991). The proposed approach would allow florist to earn more than with FTD and eliminate the flower delivery and inventory handling. In this scenario, Calyx & Corolla would be competing with FTD and local florists would be competing with 800-Flowers. In addition, Calyx & Corolla would gain new customer names and addresses that would be used in their direct marketing catalog business. This approach of having florist retail Calyx & Corolla products would not change the niche market that Calyx & Corolla was servicing, but it would change how consumers were introduced to the Calyx & Corolla catalog.
7 The European Market
In addition to altering their marketing practices in the U.S., Calyx & Corolla has the option of entering the European market, which initially appears attractive. The per capita consumption of flowers in Europe is approximately 1.7 times that of the U.S. (Wylie and Salmon, 1991), and Calyx & Corolla stands to profit by serving this market. However there are some significant barriers to marketing flowers in Europe via a mail order catalog system. The first major problem is that flowers are an agricultural product, which routinely has difficulties while passing through customs at the borders of foreign countries. In order to circumvent this problem, Calyx & Corolla may need to put considerable effort into establishing partnerships with new growers in the European Community. The second major difficulty is the language barrier, where Calyx & Corolla would probably be forced to print catalogs in foreign languages and employ people that speak foreign languages in order to receive orders via telephone. We believe that the language barrier, potential need to build relations with new growers, and potential problems with losing flower freshness at customs combine to detract from the potential profitability of doing business in Europe. Furthermore, Calyx & Corolla only has ~0.2% of the U.S. market share and may be much better served to focus on the U.S. market in the near term. For these reasons, we recommend that Calyx & Corolla refrain from entering the European market.
The Internet Tidal Wave
Calyx & Corolla needs to develop a strategy for the Internet. In 1992 the Internet was not a viable option for e-commerce, but the potential for the growth had been identified. The Calyx & Corolla business strategy of providing customized products directly to the consumer appears to be very well suited for the Internet. We recommend that Calyx & Corolla assign one of their corporate executives to develop a plan for e-commerce.
Calyx & Corolla, After the Case:
After 1991, Calyx & Corolla continued to be a market niche leader in mail order flowers, and later expanded their business onto the Internet. Interestingly, because of the introduction of the Internet, the circulation for Calyx & Corolla catalogs decreased during this time from over 12 million in 1991 to less then 10 million in 2000. As of 2000, online sales made up 15-20% of the $20 million in catalog revenues (Miller, 2000).
In June of 1999, Gerald Stevens purchased Calyx & Corolla. Gerald Stevens is a large floral shop and floral import business. A short time later, in June of 2001, Gerald Stevens sold Calyx & Corolla to Equity Resource Partners Inc. because of flat profits from Calyx & Corolla and the need to raise capital for their ailing business (Schillinger, 2002). Many in the industry blamed the woes of Gerald Stevenson on buying businesses in markets they should not have bought, and treating dissimilar markets such as high-end and working-class neighborhood shops the same (Schillinger, 2002). Did this affect Calyx & Corolla? The answer to this question is not easy. Upon examining E-pinions.com (n.d.) about Calyx & Corolla, a web site that allows customers to post critiques on a company's products or performance, nearly two thirds of the postings were complaints about poor customer service and products. Although we realize that opinion web sites are not scientific, they can provide an indication of a trend and consumer sentiment. MarCo believes that this trend is caused by a change in organizational culture, where emphasis was shifted from quality products and services to a focus on volume sales and prices.
The new leadership has shifted the values of the business, and in return, the reputation of the
company appears to be suffering. Additionally, it appears Calyx & Corolla has not realized significant growth in sales revenue since 1992. Until emphasis on quality floral products and customer satisfaction returns to the business, we believe that Calyx & Corolla will continue to under perform.
Conclusions:
The niche market served by Calyx & Corolla appears to be well established and viable. We at MarCo believe that the business of Calyx & Corolla in 1991 could substantially benefit by changing and adding some new marketing strategies. We believe that Calyx & Corolla should seek alternatives to using rented mail lists to obtain new customers at a cost of $4/customer. We recommend that Calyx & Corolla increase their marketing via new media and move to increase their corporate promotions business. The marketing via new advertising media would allow Calyx & Corolla to market their products more directly to their core customers - working women aged 30-55 with disposable income. The increased focus on marketing via corporate promotions would be a direct attempt to grow an area that has been historically profitable for Calyx & Corolla. We further recommend that Calyx & Corolla build substantial teaming arrangements with floral shops and supermarkets where the retails stores sell Calyx & Corolla products and retain 30% of the sales revenue. We believe this would help Calyx & Corolla capture a portion of the 77% market share these retail stores possess. Finally, we recommend that Calyx & Corolla avoid or delay entry into Europe to avoid language and customs related problems; and prepare the company for the advent and widespread application of e-commerce.
References:
E-pinions.com Home Page. (n.d.) Retrieved October 24, 2002 from http://www.e-pinions.com
Kotler, P. (2003). Marketing management, (11th ed.). Upper Saddle River, NJ: Prentice-Hall.
Miller, P. (2000, October). Calyx & Corolla on the block again. Catalog Age. Retrieved from
www at http://catalogagemag.com/ar/marketing_calyx_corolla_block/ on October 22, 2002.
Schillinger, A. (2002, March/April). Marriage, Frigidity, Divorce, Bankruptcy. Flora
Magazine. Retrieved from www at
http://www.cenflo.com/floramag/archives/v1iss1/Schillinger.html on October 22, 2002.
Wylie, D. & Salmon, W. (1991). Calyx & Corolla. HBS 9-592-035. Boston: Harvard
Business School Press.
9
Appendix A - Distribution Model
Calyx & Corolla
Distribution Channel
Customers
Calyx & Corolla
Growers
Federal Express
Traditional Model
Growers
Distributors Wholesalers
Traditional Outlets
(Retail Florists,
Supermarkets, etc)
Customers
Appendix B - Catalog Sales of Calyx Corolla - Analysis of Fiscal Year 4
Data and Assumptions from the Case Study
Catalog sales revenue is 70% of total sales Reponse rate from Catalogs sent to prior customers is 5%
Assume cost of goods sold from catalog is 70% of total cost of goods Reponse rate from Catalogs sent to prior flower recipients is 1.5%
Total Sales Revenue (Exhibit 1) = $15,163,000 Reponse rate from Catalogs sent to rented name lists is 1.5%
Total Cost of Goods Sold (Exhibit 1) = $3,487,000
otal Sales and Marketing Costs (Exhibit 1) = $10,104,000
Number of Rate of Number of Percentage of Estimated Estimated
Catalogs Customer Orders Catalog Sales Sales Revenue Sales Revenue
Sales Revenue Distributed Response Received from Each group from Each Group per Order
Sales to Prior Customer 1200000 0.05 60000 0.188488724 $2,858,055 $47.63
Sales to Prior Flower Recipients 3000000 0.015 45000 0.141366543 $2,143,541 $47.63
Sales to Rented Name Lists 7855000 0.015 117825 0.370144732 $5,612,505 $47.63
Total = 12055000 222825 0.7 $10,614,100 $47.63
Number of Rate of Number of Percentage of Estimated Estimated
Catalogs Customer Orders Overall Sales @ COGS COGS
Costs of Goods Sold (COGS) Distributed Response Received 70% Catalog COGfrom Each Group per Order
COGS to Prior Customer 1200000 0.05 60000 0.188488724 $657,260 $10.95
COGS to Prior Flower Recipients 3000000 0.015 45000 0.141366543 $492,945 $10.95
COGS to Rented Name Lists 7855000 0.015 117825 0.370144732 $1,290,695 $10.95
Total = 12055000 222825 0.7 $2,440,900 $10.95
Number of Production & Rented Name Number of Costs for Costs for Total Sales &
Catalogs Mail Costs @ List Costs @ Order Shipping Handling Marketing Costs
Sales and Marking Costs (SMC) Distributed $0.32/Catalog $0.08/Catalog Received Orders Orders per Group
SMC for Prior Customer 1200000 $384,000 $0 60000 $540,000 $300,000 $1,224,000
SMC for Prior Flower Recipients 3000000 $960,000 $0 45000 $405,000 $225,000 $1,590,000
SMC for Rented Name Lists 7855000 $2,513,600 $628,400 117825 $1,060,425 $589,125 $4,791,550
Total = 12055000 $3,857,600 $628,400 222825 $2,005,425 $1,114,125 $7,605,550
Sales Revenue - COGS - SMC for Catalog Sales
Prior Customers $976,794
Flower Recipients $60,596
Rented Name Lists -$469,740
Appendix C - Analysis of Potential Sales if Calyx Corolla Teams with Florists
Assumptions
Rugged Catalog/promotional center for floral shop with instructions for the florists will cost $20
C&C could find (1000) floral shops interested in selling C&C products at a substantial profit.
C&C would allow floral shops to keep 30% of the sale
Particpating floral shops would sell (1) C&C product per week
The average sale at the florist shop would be $47.63 (from Appendix B)
The average COGS at the florist shop would be $10.95 (from Appendix B)
Sales Revenue
Estimated C&C Estimated Floral Shop
Number of Rate of Number of Sales Revenue Sales Revenue
Catalogs Customer Orders per Order @ per Order @
Distributed Response Received $47.63 x 0.7 Average Sale $47.63 x 0.3 Average Sale
1000 52 52000 $1,733,732 $743,028
Costs of Goods Sold (COGS)
Number of Rate of Number of Estimated
Catalogs Customer Orders Cost of goods sold
Distributed Response Received @ $10.95/sale
1000 52 52000 $569,400
Florist Derived Catalog Business Sales and Marking Costs (SMC)
Number of Production & Number of Costs for Costs for Total Sales &
Catalogs Mail Costs @Order Shipping Handling Marketing Costs
Distributed $20/Catalog Received Orders Orders per Group
1000 $20,000 52000 $468,000 $260,000 $748,000
Sales Revenue - COGS - SMC for Catalog Sales for C&C = $416,332
