Week #8: The Culinarian Cookware Case

The Culinarian Cookware case presents an interesting marketing strategy dilemma – should price promotion be used to create value and achieve company goals?  Or not?

Copper - the "Ferrari" of Cookware 

Culinarian Cookware has established itself as a premium performance cookware manufacturer, focused on advanced performance technology as the leader in metallurgy innovation and as the first manufacturer to provide the benefits of copper cookware with effortless cleaning and maintenance. 



Given this elite positioning for the brand, my opinion is that the previous promotion was not effective in achieving the goals set forth by the CEO.  Those goals include 1) widen its distribution network, 2) increase market share in premium cookware segment, 3) preserve its prestigious image, and 4) continue to capture revenue growth of at least 15%, while preserving pre-tax earnings margins of 12%.

First, the previous promotion did not help increase the distribution network.  While it did appease trade requests, it required existing retailers to accept a 48% margin instead of their usual 52%.  Moreover, retailers were not passing all of the savings on to the customer – they were buying at the lower cost (sometimes stocking up for the future), and then pocketing the difference.  The relationship with the 50% of the retailers who did not pass along the entire discount to the customer was strengthened due to their higher profits, but those were definitely temporary gains.

Secondly, it is debatable whether the promotion actually increased overall market share.  It’s clear that sales of CX1 line increased due to the promotion, but we can’t look at just the CX1 line in isolation.  From the unit order data, I think it’s clear that the discounted sales of CX1 series cookware cannibalized the DX1 line sales.  Furthermore, once the promotion ended, unit orders of CX1 returned to their previous levels and continued growth was possible without any pricing promotion activity.  The aforementioned promotion did, however, have some positive results.  First, the mail-in survey results show that the pricing promotion was successful in attracting cost-conscious customers – 70% felt that the price discount was very important in their purchase decision.  Additionally, 20% of the buyers during the price promotion period were new to the Culinarian brand, which spreads brand recognition to new customers.

Third, the prestigious image of Culinarian Cookware was definitely not preserved.  Price discounts dilute a company’s image and potentially devalue a brand, which is definitely not desirable for the branding strategy Culinarian is trying to maintain and grow.  Culinarian’s main competitors, Le Gourmand and Robusto, never run price promotions, allowing them to maintain their status as premium cookware brands.

Finally, the previous pricing promotion had a direct negative effect on margins.  If the goal had been to increase sales without any thought to preserving the brand’s image and revenue generated, then it succeeded.  However, it did not meet the stated goals of the CEO.

Going forward, I believe Culinarian should pursue promotional activities that are more aligned with the CEO’s strategic goals.  The use of pricing promotion erodes the premium positioning that Culinarian has been working hard to build and goes against the CEO’s goal of strengthening the brand’s equity.  Furthermore, from the market research results, performance and durability were regarded as the most important features driving purchases – not price.   Pricing promotions also have a negative effect on profits, which is counter to the CEO’s goals. 

I would suggest promotional activities that DO support the goals of the company.  As an example, Culinarian should use targeted advertising to improve their perceived value and increase their brand awareness from their current levels to the levels of Le Gourmand and Robusto, especially with higher household income customers.  This advertising could be targeted at the 39% of customers who watch television cooking shows and/or the 18% who purchase cookware seen on television cooking shows.  Additional market research should be obtained surrounding the 55% of households that either purchased or received cookware as a gift, as this presents a large growth opportunity.  To strengthen relationships with retailers and widen the distribution network, Culinarian should pursue promotional activities that reward and support retailers, rather than asking them to decrease their margins.  I believe promotional activities such as these support Culinarian’s objectives much more than the use of pricing promotions.

To end, I will tie this discussion back into the automotive industry.  So-called premium brands such as Cadillac and Lincoln continue to offer large incentives and discounts to maintain and increase market share.  This has proven to continually erode brand equity and hurt resale/residual value in the long run.  Compare this with the strategies such as Mercedes and BMW utilize, which rarely put “cash on the hood”, where the long term positive effects on brand equity can be observed.  Other elite brands never… ever… run promotions, as they know it will have a large effect on their perceived value.  Have you ever seen a large advertised discount on a Porsche 911, Bentley, or Ferrari?

Week #7: Pricing/Channels and Integrated Marketing Communications (Gap Inc.)

In reflecting on this week’s material, I’ll shift gears and discuss something outside of the automotive industry… the clothing industry.  In particular, Gap Incorporated. 

I find Gap Inc. to be very effective in bringing the “four P’s” together to successfully create value for their customers.  First, some quick background information about the company - Gap Incorporated includes five clothing brands:  Gap, Banana Republic, Old Navy, Piperlime, and Athleta.  I find their descriptions on the corporate website very helpful in clearly defining and positioning those brands:

Gap:  Iconic.  Inventive.  American

Banana Republic:  Accessible Luxury.

Old Navy:  Great Fashion, Family Value.

Piperlime:  A unique online boutique.

Athleta:  Strength and Beauty.

As a result, the target audience for their products is very far-reaching – from the value-conscious, family-oriented consumer at Old Navy to the fashion-savvy, trendsetters at Banana Republic, and to athletic women at Athleta.  Likewise, Gap Incorporated products are also far reaching – from workout clothes to suits, shoes, belts, and jewelry accessories.  No matter what a potential clothing customer may be looking for, Gap Incorporated can usually fulfill the need.  Gap has also expanded into the children and baby apparel market with GapKids and BabyGap.

What I find to work well at Gap Incorporated is their wide target audience, and associated strategy.  To appeal to such a wide array of customers, they have a very differentiated approach to their marketing plan.  Anyone who has shopped at any or all of the stores instantly recognizes that the shopping experience in each of the different stores is custom-tailored to the target audience.  The atmosphere, display, organization, and service are different in an Old Navy store versus a Banana Republic retail store.  Even the location (place) is key – although Banana Republic, Gap, and Old Navy are the same company, they don’t co-locate the stores together.  This prevents any brand-dilution, and allows the respective stores to be placed in the most appropriate location.  For example, Old Navy might be placed next to Sears in a mall and Banana Republic may be located near Nordstroms or Nieman Marcus.  I would postulate that most customers don’t even know that the brands are all under the same company umbrella.

Similarly, the pricing strategy follows a congruent pathway.  As described previously, the products offered are far-reaching at the various brand stores.  The associated far-reaching pricing strategy allows customers to meet their needs AND their budgets.  For example, a sweater may be $20 at Old Navy, $40 at Gap, and $60 at Banana Republic.  The quality (or at least the perceived quality) is, of course, higher as we move up the scale.  This creates value for each of the target audiences.  The family-oriented, budget shopper enjoys the value created by a perceived deal, while the fashion-savvy trendsetter enjoys the value created by a high-quality product that is on the leading edge of the fashion horizon.  In general, customers have the impression that they will receive a good deal at Old Navy.  Likewise, the prices established at Banana Republic are associated with higher-end apparel, and their reputation follows suit.

Finally, the respective promotional aspects of Gap Incorporated are also custom-tailored to the target audience.  For example, Old Navy is known for its mass-market TV commercials that seem to change with the seasons.  Banana Republic bucks the aforementioned mass-marketing for targeted marketing via emails sent directly to established customers.  Piperlime appeals to internet-savvy customers with no brick-and-mortar stores and promotes its continually-fresh mix of products heavily on Facebook and other internet sites.  Gap attempts to appeal to the “everyman” through more generalized, wide-ranging advertisements.  Finally, Athleta uses lifestyle marketing to appeal to active women through mobile ads and even a channel on Pandora that lends itself to working out.

In summary, I believe all of these aspects of the mix come together to create intense value for Gap’s customers.  I will continue to watch their magical “mix” as my family and I shop at their stores.

Week #6: The Cleopatra Case

As the air turned colder and the first snowflakes of the season arrived (yes, there were snowflakes in Detroit!), it seemed appropriate to stay inside, make some coffee, and enjoy the reading this week.  I found the textbook and course pack material on value-based pricing versus cost-based pricing to be extremely intriguing.  The idea of creating and starting with a product and its cost, setting a price to be profitable (often just adding a set margin), and then marketing/advertising the value to customers is one that is very familiar to me.  On the other hand, value-based pricing is new to me – beginning by researching customers’ perception of value (or true economic value), finding a way to produce the product at a reasonable cost to generate a profit, and ending with the product.

Cleopatra Soap

Turning to the other key reading this week, let me now transition to the Cleopatra case.  I believe the major issues from the perspective of the product itself are the perfume and the perceived harshness of the soap.  From the customer research data, it seems that within the group of people that have tried Cleopatra soap, there is a great divide between people who like the smell and perceived mildness, and people who perceive the soap to have too strong a smell and be too harsh.  The product may have been perfect for French consumers, but the French Canadian market could be vastly different.  Also, the soap was placed in the skin care segment of the market, and the consumer research results display those attributes (“good for the skin” and “moisturizing your skin”) for Cleopatra to be mid-pack in the results at best.  In addition, 76% of respondents only used the soap on their body and not their face, leading to the conclusion that they thought the soap was too harsh to use on their facial skin.

From the pricing perspective, the soap was priced at the top of a highly-competitive, price-sensitive market.  The “price is too high” was the number one dislike in the consumer research results and “being good value for the money” scored equally poor.  Moreover, when asked the question “Why haven’t you tried Cleopatra?”, the third most popular response was “Too expensive”.

Moving on to the market research, I believe there were a couple major oversights here.  First, the market research was performed in Toronto and the soap was marketed in Quebec.  The two markets could be very different.  Secondly, the research was specific to the product and not surrounding the potential customer.  The research could have focused on what attributes potential customers wanted, or felt were desirable, in skin care soap. 

Finally, once the product did make it to market, it was not widely distributed and available to customers as shown in the consumer research results.  Furthermore, when it was available at a retailer, it was placed on the bottom shelf – very far away from its closest competitor, Dove.

From an organizational standpoint, there was a strong difference of opinion between Steve Boyd, the Group Product Manager for Canada, and Ken Johnson, the Product Manager for Soap.  Ken Johnson did not support the launch of Cleopatra, and was in favor of creating a “national” brand for the Canadian market, while Steve Boyd thought the launch was a great idea and wanted to support his colleagues in New York by showing them that Cleopatra could do as well in Canada, or better, than in France.  Complicating things further, the Assistant Product Manager, Stan House, supported the launch of Cleopatra… in part because he knew Steve Boyd was convinced it would be successful.  In the end, Steve Boyd was higher in the organizational structure than Ken, and made the decision to proceed.

So did they make the correct choice to introduce Cleopatra in Quebec?  Well, yes and no.  Yes, I believe it was a good decision to introduce the soap into the Canadian market.  But… I believe the differentiation and positioning of the soap should have been supported by more targeted pre-launch research.  As introduced, I believe it was the wrong pricing, wrong placement, and possibly the wrong product for the intended target market.  I’m also convinced that the promotional aspects were incorrect – Cleopatra’s brand awareness results are far behind Camay Dove, and Palmolive.  I think Cleopatra soap would have been much more well received if it was priced at the same level as Dove.  The product placement on store shelves is key, and Cleopatra needed to be directly next to its competitors.  The target segment should have been more fully researched, and all aspects of the product (especially the perfume strength) and promotional activities focused at that segment.  In conclusion, I think Colgate-Palmolive should continue to offer Cleopatra in the Canadian market, but they need to severely alter their current strategies to take into account the recommendations above.

Even though this case took place in the mid-80’s, I believe it is still relevant in today’s marketplace.  Many companies continue to make the same mistakes that Colgate-Palmolive made in this case.  There will always be organizational differences of opinion, poor research data, and optimism that opposes any negative data.

Saturn Astra

At General Motors, we have made some bad choices (in hindsight) in the not-so-distant past that display some of the same characteristics as in the Cleopatra case.  The Opel Astra, a sales hit in Europe, was introduced to the North American market as the Saturn Astra.  The vehicle never resonated with customers here because of its poor ride quality (no potholes in Europe=no problem), small engine (predicated by high fuel prices in Europe, but not up to the 0-60 mentality in the US), and hatchback body style (most popular in Europe, but negative implications in the US market).  We repeated this with an Australian vehicle, the Holden Monaro come Pontiac GTO in the US market.  Once the vehicle went through the necessary changes to meet US crash standards, the result was a comically-small trunk and cramped back seat due to the fuel tank relocation.  In addition, some aspects of the vehicle were never changed, such as the radio’s volume knob that was on the wrong side ergonomically (although correct for the Aussie right-hand-drive market).  In conclusion, yes, I think companies today are still open to making some of the same mistakes that took place in the Cleopatra case.  The key is learning about them and from them, and being to recognize when they are happening in the future!

Week #5: Product Development Management

Post Diamond Shreddies

This week I really enjoyed the video by Rory Sutherland on intangible value creation.  His ideas are very original, and I admire his off-the-cuff thinking and hilarious quips.  The “Diamond Shreddies” perfectly exemplifies the idea of intangible value creation through marketing techniques.  I do, however, think this type of value creation lends itself well to the UK culture versus the US.  My favorite other notable excerpts were the idea of a “placebo education” and “impulse saving”.

I work within the area of Product Development, so I’m well versed in the 8 steps of the new product development process and developing a product for the entire lifecycle.  But… the ideas of branding, brand equity, and positioning are fresh learning opportunities for me.  Likewise for the idea of product “levels” – I haven’t previously considered the three levels of a product (Core, Actual, and Augmented).

Within the automotive industry realm, let us consider the idea of product levels.  A car provides the core level, which is meeting the transportation needs of the customer and transporting them from point A to point B.  The actual product would be the car or truck itself.  Finally, the augmented product level is the support structure of the dealership network to provide service and parts/customization support for the vehicle, as well as any peripheral services used in the vehicle such as Onstar or XM/Sirius satellite radio.

Staying on the XM/Sirius thought, I think these services are on their way to becoming obsolete.  As vehicles become connected to the internet, satellite radio is quickly being replaced by services such as Pandora that do not require a monthly subscription.  Other once-popular products that have become obsolete are the tube television (I just sold my last one at a yard sale for $10), the Palm Pilot (given away at the same yard sale), and records/tapes/CD’s as digital media (MP3’s) have taken over.  In the video world, streaming video is quickly rendering DVD’s obsolete.  My wife and I routinely rent and stream movies, rather than run out to a brick-and-mortar store to rent a physical DVD.

One string that ties many of my thoughts above together is technology.  Technology seems to be moving forward at an incredible pace, and the general buying public can’t get enough of it.  This has, in turn, shortened product lifecycles and forced companies to keep pace or risk losing business to competitors that are on the cutting edge.   Consequently, several steps of the product development process end up being performed concurrently, and in some cases, eliminated completely.   Within the auto industry, the trend is to eliminate uber-costly prototypes and complete all development and testing via analysis and simulation tools.  Examples such as this prove that the product development process is definitely being altered by shorter product lifecycles.

The product development lifecycle has most certainly been affected by the advent of new technology.  Of course communications have improved with the advent of email, texting, and handhelds/tablets, and that has a large effect on each step of the product development process.  However, I think the largest gain has been in the concept development phase.  Technology has made it possible to design products in the digital world with CAD (computer aided drafting), test them analytically via simulation, and then rapid prototype them in the same day. 

Opel Astra by Dosch Design

Thinking about new vehicle development, we no longer mock up full-size clay prototypes – everything is done in CAD.  Virtual reality tools now allow us to open the door and actually sit in a vehicle before any hardware exists.  A full-scale replica can be constructed in a matter of days, and this has greatly shortened the product development process and associated product lifecycles.  Crash testing and manufacturability studies can be carried out in hours rather than weeks.  Vehicle lifecycles used to be 8-10 years, and now a new version of a vehicle is expected every 3-4 years by our customers.

I look forward to learning more about how to effectively create a brand and strengthen brand equity.  I see this as a huge tool that all aspects of a company should collaborate on together.