Calyx and Corolla Case Analysis

2/15/2014

Introduction

Calyx and Corolla (C&C) pioneered an innovative concept of selling high quality flowers directly from the growers to the consumers through FEDEX, eliminating distributors and wholesalers from the supply chain. Since flowers varied in their perishability and their quality deteriorated steadily from the time of picking, efficient packaging and distribution are paramount to the flower industry. C&C substantially reduced the time it took to deliver flowers from growers to consumers from one to two weeks to one to two days after cutting. As a result, C&C’s customers received flowers that were fresher than the competitors’ by as many as seven to ten days and lasted longer.

Problem Statement: Promotion as a Growth Strategy

Having functioned successfully as a mail order operation for the first two years, Ruth Owades and executive management would like to reassess C&C’s options for growing the business. Some specific questions were:

• Should C&C remain a mail order operation or begin to compete directly against traditional retail florists and wire services, such as Florist Telegraph Delivery (FTD)?
• What would be the financial implications of the various growth strategies?
• How should C&C react to direct competition from new waves of mail order flower retailers with slightly different concepts, such as Stillwater, a division of a large, well-capitalized Japanese conglomerate?
• How should C&C respond to unfavorable US weather condition particularly during peak demand periods?
• C&C management had planned a marketing campaign in Minneapolis/St. Paul TV Market test area. They wanted to understand the following:

• What sort of response would they have to generate in order to justify expanding the advertising program beyond test area?
• Should C&C time the campaign to coincide with a holiday and confront FTD head on, or choose a less-competitive season and promote everyday floral purchases?

Consumer and Demand Analysis

Retail flower and plant sales business were valued at almost $9 billion in 1990, having grown at a rate of 7.7% since 1985, with C&C having a market share of $10 million. Per capita, consumption of flowers and plants in the U.S. was $36 annually compared with $60 in Holland, indicating a growth potential for C&C.

C&C’s current and potential consumers can be segmented for targeting as follows:

• Special occasion purchases such as weddings, funerals, birthdays, anniversaries and during several seasonal peaks such as Mother’s Day and Valentine’s Day.
• Consumers also bought flowers for dinner parties and regularly kept fresh flowers in their homes.
• Active C&C buyers were characterized as having purchased at least two times a year, although some had purchased up to 10 times a year.
• 85% of active buyers were working women, ranging in age from 30 to 55, and had substantial disposable income.
• 20% of C&C’s revenues were derived from corporate clients who purchased the flowers for reception areas, conference rooms, incentive programs and customer gift programs.
• The greatest proportions of corporate purchase were for promotional tie-ins (joint marketing approaches with specific partners and consumer brands). This segment of the business presented a major opportunity for incremental sales, generating new mail order customers and expanding awareness of C&C’s services and products.
• Potential consumers were people who purchased flowers from retail florists or supermarkets and were unaccustomed to buying by mail order.

The main form of advertising was the catalog which generated 70% of the firm’s revenue. Of the 12.055 million catalogs distributed in fiscal 1991, 1.2 million went to prior customers, 3 million to flower recipients and previous inquirers and 7.855 million were sent to rented mailing-list names. The response rate from prior customers mailing was around 5% to 10%, while recipient and rented mailing-lists only yielded between 1% and 2% (see Exhibit 1: Market Share Analysis).

Competitor analysis

Various Business Models in the Floriculture Industry

There were two main business models in the flower distribution market in the U.S. during 1990. In the first, the consumer goes to a store (Direct Purchase), buys flowers and takes them with him/her. In the second, the consumer places an order for flowers to be delivered. The business model diagrams are shown in the Exhibit 2: “Various Business Models in the Flower Industry”.

Direct Purchase

This model represents the customers purchasing directly from the store. Supermarkets and florists fall under this category. While supermarkets offered great value and convenience, they lacked expertise and quality. Store associates usually did not have the necessary skills to care for and present the flowers properly. Supermarket prices started less than $10 and moved upwards to compete with florists. While florists offer the convenience and quality to a certain extent, their price may not be competitive. Due to the several steps involved in the delivery of flowers from grower to florists, at times the flowers were not fresh and lacked viability. Florists’ price points started less than $20 and moved upwards, averaging about $32 per order. The supply chain from growers to consumers can also be classified into two categories: a traditional model and a cohort of evolving models.

Traditional Model

In this model, typically a distributor purchases the flowers from growers and marks up a certain percentage and delivers them to wholesaler, who also marks up a certain percentage for distribution to the retailers. Retailers also increase the price by a certain percentage before selling to the consumers. As a result, the flowers sold by the growers for $5 will be sold to the consumer for $40. This model is shown in Exhibit 2.

Evolving Models

Supermarkets and florists are actively trying to reduce the number of steps in the supply chain to reduce their costs. Specifically, more and more supermarkets were reaching out directly to growers to negotiate agreements. This helped consumers, but increased the price competitiveness in the flower market.

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