Culinarian Cookware Case

Han Zhao
MBA 671

1. Describe consumer behavior in the cookware market. How is cookware bought?

How is it sold? What are the implications (of the market characteristics) for
Culinarian’s marketing strategy.

Looking at the market overview and economics, cookware market has a growth in
recent years, so there is a possibility of increased demand on cookware products. Culinarian is
one of the top players within this market has a market share of 6.5%. This percentage
market share is not a highest one, but can be considered a second tire. Culinarian has a
focus on the high-end cookware products targets at a customer group with high income.
However, the biggest market is still shared by mid-level and low-end price cookware product,
which constructs a market share of more than 32%. Culinarian’s high-end consumer behavior
can be described in many aspects.
For the distribution, there are also some constrains against Culinarian consumer behavior.
Basically, Culinarian cookware are bought and sold through retail outlets. Although it has a strong
relationship between retailers, it does not have a wide enough distribution. With offering
premium products, distributing them through mass merchandiser such as Wal-marts, consumers
could become confused due to the disconnection between high-end products being sold through,
what the consumer could perceive as a lower end retailer. What happened is most products like
cookware are sold in mass merchandisers and grocery stores. To build a wider distribution,
Culinarian will have more chances to increase product exposure to new customers.
For Culinarian’s customer files, research shows that 75% of its customers are 30 to 55
years old, 82% are women and 70% have household incomes over $75,000, and 60%
consider cooking to be their number one hobby. Customer behavior study is based on
consumer buying behavior, with the customer playing the three distinct roles of user,
payer and buyer. In this case, since more than half of the consumers consider cooking to
be their first hobby, they are more likely to play roles of users. This may indicate
customers are less sensitive to price, or they seek quality and brand more than value.
However, the study shows previous price promotion has some effects on Culinarian’s
consumer behavior.
For pricing and promotion, 70% of the customers feel the price promotion is
important or very important in their purchase decision. This indicates that the target market
considers price a major factor when making a decision to purchase or not. The promotion is also
successful in creating brand awareness, especially to new customers. In economics, there is a
concept of elasticity in demand, it is by different pricing, and there are different demands for
products. Therefore, it is reasonable to expect that consumers will behave according to price
change. They will ultimately switch to less expensive products.
All of the above implicates that Culinarian still has a long way to study when, why,
how, and where customers do or do not buy its product. The effects on consumer
consumption play a large role making strategic pricing and marketing decisions.
Culinarian tries to construct consumer loyalty by making a high pricing policy that
reflects its high status. However, loyalty should be retained by high product quality and
service instead of high price. The implications for future development of marketing
strategy are huge. Current marketing strategy extends some challenges to Culinarian, and
will need to be adjusted someway with its marketing mix, but should be thoughtfully not

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 hurting its brand image. Culinarian can think of operating a new product line to enter the
mid-level market, which will both keep its current brand and pricing strategy focus on
high-end market, and will boost sales and market share within the industry.

2. What are Culinarian’s strengths and weaknesses (do not simply list)? Why has
the company been successful?

Culinarian has a very concentrative and straight objective that is to build its own
position in the premium product market. Culinarian Cookware produces premium
performance cookware. This is supported by three major components from the company:
reputation, product quality (services) and performance technology. These are also
Culinarian’s core competencies that make it successful in business. For the product,
Culinarian never stop in developing product innovation and capabilities. It is even the
leader in metallurgy technology. The company has a quite clear product catalogue offers
four product lines with each of them has its own technology or feature description and its
own product position. Their consumers evoke the Culinarian name with quality and high
technology. Culinarian also has a strong sales force that makes strong and stable
relationship through its distribution channel. Culinarian is highly selective in choosing
retail outlets as partners, since retailers gain higher gross margins with Culinarian’s
product sales. For marketing management, Culinarian puts many efforts in advertising
and consumer researches compared to its competitors such as Le Gourmand and Robusto
who are also in premium market. The works help Culinarian to understand fully about
their existing customers and also to draw more attentions from new or potential markets.
Consequently, Culinarian occupies 6.5% market share, which is the highest among the
premium lines. Inside the company, Culinarian has a strong financial condition which
protects it from fierce competition and economic depression. By well establish
atmospheres, Culinarian has very motivated employees that works hard and creatively for
it.
All in all, these definitely have positive effects on Culinarian’s successful in business,
but they are afraid of making a movement which may cause to cheapen their high class
image or reputation. These so-called strengths on the other side make the company
sensitive to consumer preferences and distribution networks. Culinarian is too
conservative to maintain the brand position. This is a two edged sword, which can be
strength but also can be weakness.
Culinarian’s current strategy makes it narrow down the customer range. People who
have a lower budget will never pay attention to Culinaria’s product, which directly reduce
the company’s market share within the whole industry. Compare to mid-level and low-
end product market, Culinarian’s 6.5% market share has a magnitude distance from Star
Chef and Kitchen Select who has 18% and 14% market shares. For the same reason, to
attach to Culinarian’s pricing policy that reflects to brand image, it limits the distribution.
For another issue, Culinarian has a very little of 5% orders comes from direct sale via
company website and catalogs sending to existing customers only twice a year. This is to
say, the company has very poor direct connection with its customers. The loss
opportunities of online selling should be considered a major weakness, because nowadays
internet becomes the most common social media, and many firms are moving its sales
from traditional retailers to online direct sales which reduce the cost of middle man. The

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 last but not least, Culinarian may reevaluate its co-operation with outside consultant,
since it made a flawed analysis, which may lead to wrong marketing decisions.
It seems Culinarian should make itself relax from pressures of maintaining brand and
bring itself more into advertising and promotion. That is to grow in attack but not grow in
defense.

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 (include the calculation)?

From the case, the retail sales of Culinarian from 2002 to 2006 have an average
growth over 15% each year, expect year 2004 has a decrease sale of 2%. The vice
president of marketing Janus believes the consulting study provided 2004 price
promotion had a negative impact on 2004 profit. He does not accept price promotion
and worries that the discount will hurt brand image as premium products. However
the sales manager Brown opposes that the profit analysis of 2004 should be re-
examined, because it has flaws. She wants to prove the 2004 price promotion was
actually profitable. The sales manager wants to implement the price promotion,
because she believes that discount can increase commitment and brand awareness.
The argument between two sides debates on the data of sales unit and contribution
margin. Thus, these are the key to figure out 2004 profit.

Consultant
non-promoted 20% promotion
Average retail
selling price 150 120
Average
manufacturers
selling price 72 62.4
Variable costs 52.05 52.05
Average
contribution 19.95 10.35
unit sales from
March to May,
2004 119504 184987
Total
contribution 2384104.8 1914615.45
Incremental contribution (Loss) -469489.35
Brown
non-promoted 20% promotion
Average retail
selling price 150 120
Average
manufacturers
selling price 72 62.4
Variable costs 38.64 38.64

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 Average
contribution 33.36 23.76
unit sales from
March to May,
2004 59871 184987
Total
contribution 1997296.56 4395291.12
Incremental contribution (Gain) 2397994.56

We can see from the table above, there several differences between two calculations.
First, they have different variable cost. The consultant analysis has added all types of
expenses to variable cost including administrative expenses, manufacturing overhead,
selling expenses, advertising and promotion expenses, besides direct labor and raw
materials. Whereas, Brown decides to add only direct labor and raw materials to variable
cost. Second, they have different findings in unit sales without promotion from March to
May in 2004. Janus and his consultant found the sales of 119,504 units; while Brown got
a result of 59,781 units’ sales by comparing the first two months sales of year 2003 and
2004. Therefore, when applying the numbers into the formula, the results of incremental
contribution with and without promotion turn out to be two opposite directions. Janus and
consultant conclude that with price promotion, there is a loss of 469,489 in contribution,
but Brown discovered a profit gain of 2,397,994 in 2004.
I think Brown’s calculation is more appropriate. For one reason, the overhead should
be somewhat fixed cost instead of variable cost, and it should not be added to the variable
cost, and it does not change due to unit change. The average fixed cost will ultimately be
considered zero with large scales of production. The flawed number of average variable
cost used by consultant leads a result of underestimated contribution with price
promotion. However, Brown still has to explain more about how she got the number of
unit sales by 59,871, so I reserve the number of non-promotion unit sales used by
consultant.
My calculation below is to combine Consultant and Brown’s. The price promotion
increased the revenue for 2004, but not as much as Brown’s calculation.

My Calculation non-promoted 20% promotion

Average retail selling price 150 120
Average manufacturers selling
price 72 62.4
Variable costs 38.64 38.64
Average contribution 33.36 23.76
unit sales from March to May,
2004 119504 184987
Total contribution 3986653.44 4395291.12
Incremental contribution (Gain) 408637.68

4. Should Culinarian run a 2007 price promotion? If so what should be the

specifics of such a promotion? If a price promotion is not suitable, think up and
describe another type of sales promotion to recommend. Include your rationale
for your promotion.

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 I think Culinarian should run a price promotion in 2007 by not just taking down
the price. For one reason, within Culinarian’s target customers, 70% of them are
motivated to buy new products or upgrade cookware by a discount price or a free gift.
For another reason, Culinarian strongly relies on retailers who also have positive
feedbacks from free gift approach. In my opinion, price promotion will not only
generate increase in sale volume and market share, but also effectively attract
attention from potential customers and raise Culinarian’s brand awareness.
However, the promotion should meet the following currieries: do not hurt brand
image, less risks and can broaden the distribution. There are several solutions
Culinarian may think over. First of all, should a price promotion only aim at the
cheapest and slow-grown line of products like what Culinarian did in previous years?
A price promotion should not only be carried out when a product is in decline stage in
its product life cycle. In this circumstance, the price promotion may cheapen the
brand as Janus concerned. A new price discount with some of selected or limited
premium products will attract premium customers. By an appropriate way of
communication and advertising, the discount on premium products should maintain
the high class image and increase customer satisfaction which also raises demand up.
Strategy change should always be made based on customer needs. Moreover, the
promotion should be adjusted seasonally due to a high demand during wedding and
Christmas season, which will increase the efficiency and effectiveness of the price
promotion.
There is another alternative that Culinarian does not run a price promotion. This is
the easiest solution that does not have any extra cost and with not risk lower
prestigious image. However, to achieve another two CEO’s goals of widen
distribution network and increase market share, some kind of sales promotion need to
be pushed out. My recommendations are keep the policy of gift with purchase which
has good feedbacks, and launch new product line under new brand name. An
individual brand name can lower the risk of hurting brand image and at the same time
increase market share and generate sales. The new brand can also be distributed
throughout mass merchandisers, which broaden the product distribution network and
boost sales even across country.

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