Case write-up - Calyx Flowers

Case write-up: Calyx Flowers Statement of problem Calyx Flowers (“Calyx” or “the Company”), a subsidiary of the Vermont Teddy Bear Company, has been underperforming financially despite high gross margins of over 50%. These high margins imply that the poor financial results were driven by low sales. Our analyses (detailed below) suggest that current problems are caused by issues in three areas: customer segmentation and targeting, the value proposition being communicated to targeted segments, and the channels through which these segments are being targeted. Implementing changes in these three areas could substantially increase revenues and boost Calyx’s financial performance. Analysis 1. Segmentation and targeting We believe that Calyx has a problem of over-segmentation—it is missing a large share of the consumer base that would be interested in its products. Currently, it uses only behavioral and demographic segmentation, and is not using geographic or psychographic segmentation (e.g. high-income areas or offices that might be interested in fresher, longer-lasting flowers). Moreover, it might also be missing certain demographic segments that would be interested in its products: it is important to remember that BearGram gifts, a potential alternative to Calyx's flowers, are mostly purchased by men. We also believe that Calyx has a problem of shotgun targeting, since it is spending marketing dollars to target segments that are not interested in its products. Our analysis (Exhibit 2) suggests that flower recipients and rented mailing list names, which comprise 50% of Calyx’s current catalog recipients, are actually loss-making: the cost to print and mail the catalogs to these segments outweigh the revenue generated from them. Thinking about the "SLIDER" framework for good segmentation, it is clear that Calyx's strategy is missing the following components: (i) "Large", because its targeted segments are not substantial enough to make money (financial results are poor); (ii) "Identifiable", since there is no data to clearly identify the characteristics of people that Calyx is targeting through the shipment of catalogs to flower recipients; (iii) "Exhaustive", because it is overlooking a part of the market that could be interested in its products (e.g., males with disposable income and offices); and (iv) "Responsive", since Calyx's current market strategy is producing very low yields for the 50% of catalog recipients that are flower recipients and mailing list names. 2. Value proposition to targeted segments The floral retail market is very fragmented with lots of players and similar products offered. To increase sales, a company should be able to differentiate itself from all other competitors to win more customers. Among all the competitors, Calyx can easily differentiate itself with its capability to deliver best quality flowers from efficient distribution process and innovative packaging, which can meet the demand of customers who care about this the most. The majority of the big players in the markets, retail florists, 1-800-FLOWERS.COM and FTD, are using the traditional logistic and distribution process to sell flowers, where growers sell to distributors, and distributors sell to wholesalers, and wholesalers sell to retailers, and finally retailers sell to end customers (See exhibit 1). Calyx, however, has significantly shorter lead times due to its pioneer concept of shipping flowers directly from growers to end customers. It allows Calyx to substantially increase the longevity and freshness of flowers, two qualities that customers commonly value. Calyx Flowers also differentiates itself from competitors in the patented packaging. The specially designed Weather Wrap™ by AirlinerⓇ with temperature packs can keep the condition of the flowers during transportation and ensure the same level of longevity and freshness when customers receive the flowers. This also serves to keep Calyx’s flowers at a high level of quality. Even though Calyx Flowers has the above outstanding capabilities to deliver the best quality products, it is not clear that they have emphasized this as their value proposition to customers. Moreover, the current marketing method of catalog is not able to communicate its superior product quality to customers who value quality over all other features. Calyx should restate their value proposition and use more effective way to communicate this to customers. 3. Marketing channels for targeted segments Calyx currently markets its products mainly via printed catalogs but accepts orders via a toll-free number and website. When a customer who receives a catalog wants to make an order, they would need to look up Calyx’s phone number or website in the catalog and enter this into their phone or computer to make an order. This generates friction in the customer journey that is potentially causing lost sales. To address this, Calyx should increase alignment between its marketing and sales channels, for example by increased use of online targeted ads: a customer that sees an online ad could simply click on the ad and be directed to Calyx’s website and place an order right away. The website could also accommodate customers who prefer phone ordering by allowing customers to enter their phone number into the website and receive an immediate call back from a customer service representative. Reducing friction in the customer journey in this manner could substantially raise Calyx’s order volume and sales. An added advantage of online advertising is that ads on social media could be targeted to the priority segments identified in section 1 above. Another issue is that Calyx only uses profile-based segmentation (i.e. previous customers, previous recipients, rented mailing lists) but does not use value-based targeting. In particular, it does not target individuals that are already actively searching for a flower ordering service—this is a segment that does not need to be persuaded that they should buy flowers, only that they should make the order with Calyx. Calyx can target these individuals by placing online ads on search engines such as Google, to be displayed to users that enter search terms such as “flower delivery”. Such ads would enable Calyx to acquire new customers, including those that may never have heard of Calyx before and who might otherwise place an order on a competitor’s website. Strategic recommendations Calyx should rethink its segmentation strategy based on demographic, geographic and psychographic criteria. Demographically, the company should target both men and women, ranging age from thirty to fifty-five years old, with disposable income. With men, there is of course a risk of cannibalization with BearGram, but the products are not exact substitutes so there is a great share of the market that can be targeted by both. In terms of geography, Calyx should target high-income residential areas and office locations, which are likely to contain demand for continuity programs that provide an effortless solution for maintaining spaces regularly decorated with fresh flowers. Finally, from a psychographic perspective, the company should target people that have a more luxurious and social lifestyle, also proxied by high-income residential areas, since these are the ones more likely to care about longevity and freshness of flowers. These segments could all be targeted specifically using online social media. In addition to that, it would also be useful to research who are the customers of Calyx's main competitors, to ensure that no segment is being overlooked. From the list presented in the case, it is clear that Calyx currently competes against retail florists, which provide custom bouquets and arrangements for special events to clients looking for quality and differentiation. It is clear that the quality of the florist and flower selection matter, so Calyx may have an edge against 1-800FLOWERS.COM, FDT and supermarkets, which are more commodified. Tactical recommendations    Emphasize superior longevity/freshness in marketing communications. Calyx Flowers should restate and emphasize its value proposition in delivering the best quality flowers compared to its competitors to ensure customers’ expectations on longevity and freshness. Displaying its high quality on advertisement or exhibiting quality comparison with competitors’ products would be effective in communicating that. For example, Calyx Flowers can make a short movie or advertisement to showcase the disappointment on customers’ faces when they see competitors’ flowers wither within a couple days, while they become delighted after shifting to Calyx’s flowers and see them last for a week. Stop mailing catalogs to flower recipients and rented mailing lists. These segments are loss-making, since the cost of printing and mailing catalogs to them are higher than the sales revenues. Ending catalog-mailing to these segments would therefore increase profits. Increase online advertisements on social media, targeted at priority geographic, demographic, and psychographic segments. Reaching customers via online ads would reduce a hurdle in the customer journey: potential customers can simply click on the ad and be directed to Calyx’s ordering page, instead of having to look up Calyx’s phone number or website on the catalog and enter it into their phone or computer. These online ads should be targeted to priority segments: thirty- to fifty-five-year-old men and women   with disposable income and those with luxurious lifestyles (proxied by high-income residential areas) and areas with office locations. Add a feature to the website that will allow customers to enter their phone number and receive a callback from a sales representative. This will similarly reduce friction in the journey for customers who prefer to make an order by phone. After clicking on an online ad, they could enter their phone number on the website—which is likely much easier than having to look up Calyx’s phone number and entering it into their phone—and receive a call back from a sales representative who can then take their order. Increase ads on search engines. In addition to profile-based targeting via catalogs and social media ads, Calyx should also use value-based targeting by placing ads on search engines such as Google, to be displayed to users searching for flower delivery services. This will allow the Company to acquire new customers from a segment that already has a need for flower delivery. Exhibits Exhibit 2: Profitability analysis of different segments targeted by catalog mailing Rented mailing list Prior customers Flower recipients names Yield 4.50% 1.00% 1.00% Revenue per order $80 $80 $80 Gross margin 50% 50% 50% Gross profit per catalog sent* $1.80 $0.40 $0.40 Cost per catalog sent Gross profit minus catalog cost $0.68 $0.68 $1.12 -$0.28 * Assume one order per customer per catalog sent Includes both catalog production, mailing cost, and $0.74 mailing list rental -$0.34