CULINARIAN

COOKWARE

PONDERING
PRICE
PROMOTION

FAS 15
Working Group O1
Authored by:
Anand Janardhanan- 21F312
Gunisity Venkat Shashidhar- 21F324
Niyati Saraf- 21F337
Parag Sharad Karguppikar- 21F338
Sarika Chakrapani- 21F350
 1. Describe consumer behavior in the cookware market.  How is cookware bought? How is it sold? What are
the implications for Culinarian’s marketing strategy?

CONSUMER BEHAVIOUR IN THE COOKWARE MARKET

Mass retail outlets have a lot of promise that has yet to be realised.

The culinary items were seen as one-time purchase items. At the same time, cooking tools were seen as present
items at celebrations such as weddings, Christmas, and other festivities. As a result, there has been a noticeable
increase in sales in both May and June, as well as December. According to the data, the majority of the customers
were active chefs who valued quality as the most important feature. In the cookware market, the majority of buyers
were the middle-aged people, with the maximum of them being women.

 Talking about purchase, 55% of customers made the purchase of it as a present which in turn indicated that
it is was not being acquired as a usual self-purchase product.
 Clients purchased those that coordinated the insides of their homes and also if they were able to acquire the
same. As a result, they like the cookware's feel.
 A significant increment in deals was observed at whatever point the restrictions were set. Half of the people
bought only the brands that they had always considered.

Hence, as per the above data there was a lot to be done in terms of advances and marketing of the organisation. This
is also because customers valued quality, features, and pricing of cookware the most.

Culinarian put greater emphasis on channel expansions and, as a result, didn't spend as much money on traditional
advertising, such as television and other popular media. Direct sales have a small market share, and the customers
present in this channel were not a lot. 75 local specialty retailers account for 27% of all cookware sales, and the sales
via this channel had to be minimized. They marketed their high-end products mostly through magazines targeted at
upper-class people. Little significance was given to the center and the breadth of Culinarian outcomes was reduced.

People were not very well aware. Culinarian missed out on a big number of customers since the great majority of
them believed brand was a crucial consideration when purchasing these goods.
2. What are Culinarian’s strengths and weaknesses? Why has the company been successful?

Strengths Weakness
Culinarian had a strong brand image owing Lacking meaningful and consistent discount
to superior product quality and advanced events.  Culi
manufacturing technology nari
Offers wide variety of products; Basically offered Since advertising budget was implemented an
highly priced and highly technologically mainly through national advertising. Brand was
advanced products as well as low priced (like penetration into lower income households
PROX1) and not so much technologically were relatively less.
advanced products(like CX1) thus attracting a
wide variety of customer base from casual
buyers to skilled chefs.

Established market leader in metallurgy Highly restricted on the type of marketing

technology. POD such as copper cookware communication the trade could capitalize on.
with effortless cleaning as well as
maintenance and had patented its copper
construction
Had a strong relationship with retailers High price of products made the brand seem
which enabled the brand to get wider like a niche. This resulted into lower
coverage across wide variety of products.penetration & selective channel distribution.
Achieved higher profit margins relative to its
Difficulty in managing inventory during peak
competitors which enabled better retail promotion periods meant that the
participation. production shortcomings could pose
strained relationships with retailers.
Produced goods with favourable trends in Difficulty in convincing retailers to offer free
the premium segment such as Copper gifts with purchase.
cookware, premium cookware & matching
kitchen décor.
Endorsed by experts such as Chefs. Cannibalization among different segments
arising from pricing differences.
Experienced managers would provide
inventory optimization strategies.
successful resulting from seasonal promotions specially with its premium copper segment.
 Culinarian was well aware of its target audiences and offered wide variety of products (CX1,DX1,SX1
and PROX1).
 Moreover, the brand had better coverage because majority of its market share was through mass
merchandise outlets (32%) followed by department stores (29%) followed by kitchen stores(24%)
followed by other retail distributors(15%) as is evident from the sample population tested in the
Orion Market Research study.
 Moreover, Culinarian had healthy relationship with retailers and offered them a better profit
margin of 52% which was better than what other competitors offered. Highly experienced
salesforce was also driving increases in revenue and profits.
 The success could also be largely attributed to offering technology advanced high priced products
(PROX1 line) for highly informed customers as well as offering lesser technological & priced
products (CX1,DX1 & SX1 lines) to mid-level and low-end consumers.
3.Was the 2004 promotion profitable? Calculate the profitability using Brown’s logic and then calculate profitability
using the consultant’s model. How would you calculate profitability?

Profit Consultant Brown Actual Contribution

Comparison W/ O promotion With Promotion W/ O Promotion With Promotion W/ O Promotion With Promotion

Units Sold 119504 184987 59871 184987 119504 184987

Price $72.00 $62.40 $72.00 $62.40 $72.00 $62.40
Variable Cost $52.05 $52.05 $38.64 $38.64 $38.64 $38.64
Price-Cost $19.95 $10.35 $33.36 $23.76 $33.36 $23.76
Profit $23,84,104.80 $19,14,615.45 $19,97,296.56 $43,95,291.12 $39,86,653.44 $43,95,291.12
Incremental profit Impact $4,69,489.00 $23,97,994.56 $4,08,637.68
Cannibalization Loss $99,332.00 $99,332.00
Savings $39,540.00 $39,540.00
Contribution from promotion $5,29,281.00 $23,97,994.56 $3,48,845.68

We did a deeper analysis of all the numbers mentioned in the case study. We understood that there are two
perceptions to the promotion event that was live during 2004. As per consultants, the promotion had a negative
impact on profit, whereas Brown felt that it actually helped to generate profit as well as more sales.

Looking at the units sold, it is clearly understood that the sales have been increased due to the promotions and we
see a huge jump in the number of units sold. This does not mean it had no negative impact. The assumption made by
brown that cannibalization cost should be excluded from the calculation is not correct.

Consultant Calculation: The consultants believe that the variable cost of each unit sold would be 52.05. This number
is directly taken from exhibit 6. This cost includes allotted general and administrative expenses, manufacturing
overhead, 7% selling expenses, 5% advertisement expenses., direct labor, and raw material.

Browns' Calculation: She comes up with 3 point analysis to disagree with the consultant. First is the units sold
estimate by the consultant in the W/O promotion section. She believed that as the sales in January and February
2004 had declined by 24%, the sales in march may decline at a similar rate. Second, she did not agree with the
variable cost price given in the exhibit. She believed for a product only direct labor and raw material costs should be
included. Third, as mentioned earlier, she felt no need to include cannibalization and inventory saving estimates
within the profit calculation as the methods are not reliable.

Our Analysis: We agree with consultants' estimation of units sold because they used a mathematical equation and
statistics to estimate the value. As during April and May sales were generally higher than the first two months,
Brown's calculation of 59 thousand odd units being sold seems incorrect. We also agree with the consultant that as
the promotion increases the sale of a particular product rapidly, it definitely does have the cannibalization effect on
the subsequent product. But we do not agree the variable cost be 52.05. As the prices are set for a specific product,
only direct labor, and raw material costs should be included. Hence we consider that variable cost would be on a
similar line as that of Brown.

As we see that although the 2004 promotion did not have a large impact as Brown estimated, it definitely had a
positive effect on the profit and brand. The consultants' report showing a negative impact on the incremental profit
seems erroneous as they have considered manufacturing overhead as part of the variable cost in calculating profit
CX1. Plus, as the number of units was almost 50% more than the estimated unit sold without promotion, it definitely
created more market penetration and brand awareness. Hence although the profit from our analysis is that less than
that of Brown’s analysis, the points mentioned above adds to the intangible profitability of the company.
4.Should Culinarian run a 2007 price promotion? If so, what should be the specifics of such a promotion (e.g.,
product scope, discount rate, timing, communication)? If a price promotion is not suitable, think about another type
of sales promotion (e.g., manufacturer rebate program, gift with purchase, sweepstakes, product placement, etc.) to
recommend.

Upon analysing various factors mentioned in the case, we would recommend Culinarian Cookware, to go ahead with
the 2007 price promotion. From our findings in the calculations of the Incremental Profitability of the 2004
promotion, we could find that Brown's and the Consultants' analysis was flawed. So, we will implement a different
approach for bringing the 2007 promotion to success. The same approach is described below-

 From the unimpactful but ambitious 2004 price promotion, some key takeaways for the company were the
consumer behaviour changes, and the effect on brand awareness. The customer feedback reported that 80%
of the consumers were existing users of Culinarian Cookware, which meant that 20% of the customers were
new. Also, 70% of the total consumers were actually attracted as a result of the lowered prices. 15%
customers also expressed interest in upgrading to the DX1, SX1, or PRO1 lines in the future. This shows that,
consumer behaviour turned positive using price promotion.
 Going ahead, to continue the premium image of the brand, the company should apply price promotion to
two brands, and not all. CX1 and DX1 should be promoted while leaving the SX1 and the PRO1 for the
premium segment. This would help the company maintain its position as a premium cookware brand, while
increasing its profit.
 The price promotion for CX1 and DX1 should run between the months of November & December and May &
June, so that the peak buying season can be tapped using the strategy. The promotion should not run for
more than 2 months to prevent overpowering the production capacity of the company. This will also save
the company from tarnishing its image (deriving from the 2005 promotion where they couldn't meet the
demand with the adequate supply).

Sales %

14

10.4
9.4 9.5
8.4 8.1
6.7 6.9 7 7
6.5
6.1

 While the promotions run, the company should tackle the problem of cannibalization with a positive
attitude. The company should optimise the production of the popular lines while minimising costs on the
redundant lines. This will result in cost savings for the company while making efficient use of the capacity.
 The price promotion should be made clearly visible in order to influence the customers to buy the two
products. Psychological pricing should be applied to the prices so that the consumer becomes directly aware
of the price benefits the company is offering. For example $100 product should be priced at $99.99.
 The company should use multiple channels to advertise the promotion so that the awareness increases and
continues throughout the entire duration of the promotion. The company should advertise intensively, and
should start one month before the promotion rolls out for maximum reach and cost management.
 Culinarian's unaided brand recognition is poor, according to a 2005 telephone study, with just 4% of
respondents favourably recalling seeing a Culinarian advertising. It is necessary to improve advertising in
order to raise brand recognition.
 To tackle the promotion of the SX1 and the PRO1, the company should advertise the products using the Gift
with purchase method. 20% of consumers were interested in the gift add-on concept as a motivator for their
purchase, which can be used to the benefit of the promotion of the two product lines.
 As the premium players in the market also use the gifting strategy, this will place the two products along the
same lines as them. This will assure that the company is able to make profits through price promotion, as
well as continuing in the premium segment.
 Using this informed strategy to implement the price promotion, the company is bound to be successful with
its plan, increase sales and revenues.