Table of Contents

I. Introduction...................................................................................................................................2
1. Overview of the Company............................................................................................................. 2
2. Problem in the Company............................................................................................................... 2
II. An analysis of two options......................................................................................................3
Option 1: Offline stores............................................................................................................................ 3
Option 2: Online stores............................................................................................................................ 4
III. Solutions and Recommendations for the Problem............................................................5
 I. Introduction

1. Overview of the Company

The Rideau Artisanal Chandlery (RAC) - the largest manufacturer of artisanal candles by
2016 founded by Johanna Perkins in 1992. The company is located in Westport, Ontario,
Canada. Since it was established, RAC was just from a small shop serving local tourists in
Westport to hit a growth of more than $20 million in sales and becoming an artisanal candles
distributor for specialty stores such as Bed Bath and Beyond, Home Sense, Marshall, and
Williams-Sonoma in Canada and the North-Eastern USA.
The company has two offerings which are standard and citronella. These offerings provide
more than 50 scents available for sale, among them 15 scents are best-selling. Specifically,
Lavender, Vanilla Getaway and Morning Spice are three most popular. The Founder and
Owner of the company reported that over 80% of RAC’s Profit was contributed by 20% of
RAC’s scents sales. RAC manufactured 4 types of boxes which are jar, pillar, taper and
votive. Each box included 6 candles and the costs of manufacturing was just $4.45 / box
(variable costs), and $5.50 (fixed costs). Then, the cost to its distributors was $8.00 / box,
while the price for retailing was at $16.00 / box.

2. Problem in the Company

Top management is listed below
The Founder and Owner of RAC: Johanna Perkins
The Sales and Marketing Director: Axel Campbell
Web Designer for RAC online: Oleg Fetisov (Johanna’s husband)
The conflict happened between Axel and Oleg. They argued vociferously about pricing in
RAC’s new online store in comparison with RAC’s traditional stores.

Traditional Online

Variable Cost per Box 4.45 4.45

Fully Allocated Cost per Box 5.50 5.50

Wholesale Price* 8.00 n/a

Shipping Cost per Box n/a 2.50

Retailer Margin 8.00 n/a

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 Price to Customer 16.00 14.00

Profit per Box $3.50 $6.00

● Retailers were responsible or shipping costs from Westport to their shops
One the one hand, Axel’s perspective was concerned about “price discrepancy”. The
Director thought that Oleg’s initiative would create a disadvantage for his sales people as
they believed that RAC online was cannibalizing sales from traditional channels. Besides,
the traditional sales also accounted for 90% of RAC sales though the volume growth was not
positive in the 2nd quarter of 2016. In contrast, RAC online portrayed a mere 10% of RAC
sales, and accounted for over 14% of its profit, and volume growth was about 15% per
month.
On the other hand, Oleg was standing for protecting his perspective as he believed that RAC
would be almost entirely an “online play” within 2 years. By RAC online, the profit of the
company would be higher and thus if all its sales were online, RAC would be significantly
more profitable.
However, the Sales and Marketing Director - Axel was not just putting profit and sales on
account, but he also cared about customers’ experiences about new scents. He stayed with the
belief that if customers were attracted by scents in store, they would increase their shopping
baskets without concerning the value of increased sales of candles. Obviously, that was
Axel’s perspective, and Oleg still protected his digital creation. Consequently, the conflict
between Axel and Oleg arose about the overweight benefits between RAC traditional and
RAC online in terms of profit, sales, volume growth, and other customers’ benefits. Johanna
was standing in the middle to take the final decision but she also had some agrees and
disagrees for both twos, thus she was in a difficult position to make the final decision and she
was also concerned about how her decision would not affect both of them.

II. An analysis of two options

Option 1: Offline stores

 Advantages
By having an official store, RAC’s customers would have a chance to experience the scents
of naturally scented artisanal candles. Actually, it seemed to be critical for the newbies, such
as tourists to have that experience and consider carefully before buying. In fact, shopper
research showed that attractive scents “in store” increased the size of customer's shopping

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basket. Customers tend to buy more when they visit the store and try the sample instead of
ordering online. The second advantage is that having a channel would help the RAC to create
a stronger bond with customers without conflict because of “price discrepancy” between
online and offline channels. To be more specific, as the role of supplier, RAC could create a
good relationship with their distributors or retailers without conflict of cannibalization when
RAC just focused on offline channels. Then, RAC could remain profitable with good deals
from their distributors or retailers. Furthermore, in terms of sales, traditional channels
accounted for 90% of RAC sales. Last but not least, the sales team will only have one focus,
so they can have a better performance.
 Disadvantages
On the other hand, there are some disadvantages of traditional stores. First and foremost,
RAC will definitely lose the online market and fail to reach potential customers. Actually, it
could drastically affect the company in the long run because digital marketing is now
growing very fast. Secondly, in terms of data collection, RAC will lose a chance to collect
precise and immediate feedback on sales performance of major scents. Instead, they just only
can collect from their key distributors, like Home Sense, they proposed to provide RAC with
detailed sales information “monthly” by store. Another disadvantage is about the price. In
detail, the price in offline channel is currently higher than online channel, $16 and $14
respectively. In fact, people can go to the official store to test the scents, then they can go
home to make purchases online. Furthermore, RAC has to depend on distributors' sales rate.
To illustrate this, if the sales rate of distributors goes down, RAC’s sales rate will also be
affected.

Option 2: Online stores

 Advantages
By focusing only on online store, there are many benefits for RAC. Firstly, by using social
media, RAC could get attention from customers and then reach a large number of potential
customers to increase their sales without depending on distributors. Secondly, in terms of
prices, selling online helped RAC save lots of costs, such as renting, utility or salaries for
staffs. Moreover, the price of an online platform was also cheaper than a traditional one, $16
compared to $14, which then helped RAC to generate $2.5 higher in profit per box than
offline store and it also helped RAC to reduce cost comparison between online and offline
channels. Furthermore, RAC online volume growth was approximately high, 15% per month,

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in 2016 in comparison to traditional channel. Thirdly, in terms of data collection, sales data
from online store provided precise and immediate feedback on the sales performance of
major scents, so it would be more convenient for RAC due to fast response and more cost
efficiency. Obviously, RAC’ community forum had more than 450 members and a feedback
blog for RAC products, so it helped RAC have a good base as well as a good opportunity to
do business online in the future. What is more, RAC online was also used as a source of
advertising revenue.
 Disadvantages
However, there are also some disadvantages of having an online store only. Firstly, the
company would lose the source of profit from distributors and offline channels which is the
good source of customers (accounted for 90% of RAC sales). Secondly, RAC at the moment
just has 6 sales representatives for the entire country, so it is quite hard for RAC to build up
the online platform.

III. Solutions and Recommendations for the Problem

It is hard for RAC to choose only online or offline channel because these two options above
have some weaknesses and limitations for RAC to develop further. So, the solution for RAC
is that they should use integrated strategy, which means that they should use both online
and offline channels. To be more specific, there will be three factors to adjust in this
situation, which are distribution, pricing, and promotion.
1. Distribution
With both online and offline flatforms, RAC can fulfil customer’s needs easier. In online
channel, RAC should focus on standard candles with limited scents and more on accessories
like candle holder, candle tray, or jar,... and so on. In offline channel, RAC should focus on
both standard and citronella candles with more choices of scents. From this, it will help RAC
avoid cannibalization which then supports and increases profit of RAC. Furthermore, this will
help RAC keep the number of customers who were loyal and the ones who bought candles at
traditional store, tourists, or newbies.
Moreover, creating an online platform can help RAC gain more profit from advertising
revenue. Actually, in the long term the company can cooperate to produce their product for
Wedding company or Yoga company. However, the problem according to Alex is that there
are only 6 sales representatives. Therefore, in order to solve this, the company should hire
more online sales people.

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 2. Pricing
The pricing is one of the problems that leads to the conflict between online and offline
channels. Normally, many stores set the same prices for both online and offline channels.
Nevertheless, this case is different as the company has to think for reaching potential
customers online but also minimizing the concern of retailers.
The solution here is setting different price for online channel and physical stores.
3. Promotion
In online platforms, RAC can do online promotions and send sensed samples with each box
for its new product for every purchase. Furthermore, because of the limited scents in online
channel, to attract customers, RAC can offer customized candles that customers want to use
in special events such as Christmas day, Valentine day, Birthday or Wedding.

However, taking distribution and promotion factors into account, the final decision will be
informed. The table below will distinguish the differences as well as some challenges when
distributing products at physical stores and promoting products via online platform.
Distribution Promotion
Online stores should focus on product’s Online stores should send sensed samples
accessories and standard candles with with each box for its new product for every
limited scents purchase and offer customized candles on
(new products in online stores) holidays
2nd. Mass producing for offline stores 1st. Purpose of customized (online)
Sell newly scents Is it worth to customize candles?
 customers can see new designs, new No, because it’s more expensive and
experiences  they tend to buy more consumes more time, thus customized
 when introducing more new scents, candles can be not much practical.
sellers can sell lower price for older
versions via online platform.
Target customers
Students: limited budget  buy older versions with cheaper prices online
Middle class: go to physical stores to try the new scents
Consideration
By using this way as well as targeting different customers in different channels, the
company can reduce the conflicts as well as concerns from:

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Internal (workers)
External (offline partners channel such as Homesense)
- Consumer (behavior, preferences)
- Your channel partners of offline stores (which you do not own)
1. Differentiate product that you sell online and offline
2. Mass produce products to offline stores (most customers
buying from offline stores)
Customers have optimal customization on choosing products as they have time to choose
products for themselves, they might pay for extra-price to buy products.
We sell cheap products online and higher price new products offline stores.
We offer newly products in offline products to make partners feel they don’t take over
control on physical stores when developing online stores.

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 Lesson from the Case Study
Why do we need to sale less profit products?
We need to balance between quantitative and qualitative aspects, we offer the most profitable
products and withdraw less profitable products. But customers prefer great diversity.
Therefore, although products do not contribute much to total products, but it attracts
customers. And that’s psychology. It does not mean that we should eliminate those away. But
we need to consider because it makes our stores old, out-of-fashioned.
Some people just love their products ideas – brain chaos. That’s human psychology.
What needs to point out from this Case Study
- Conflict in the case: internal conflicts related to the distribution
- Related to customers’ insights. Point out internal sources (consider debt)
- Try to find out what we can do with their ideas
- Strategic issues, human issues, psychology issues
Discussion
 Feasibility: if you open your own stores, your distributors will become competitors,
they won’t help you anymore. Because you’re from manufacturing  retailing. You
many get a lot of damages, they may first give you consumer insights, and deliver
products. Setting own stores would end up all.
 Same price between online >< offline (think about distribution cost, who will cover
that – you or customers?)
- Visibility: distribution with distributors (who covers it?)