Question #1. What is the primary cause of Calyx’s problem? What is the key actionable reason for the weak performance?
The root cause of Calyx’s lower than expected financial performance is lack of proper segmentation. Currently they have divided their marketing between customers, recipients, and rented lists. They have bypassed value based segmentation and proceeded directly to demographic profile based segmentation by grouping prospects by purchase history and demographics. This categorization is not sufficient in identifying key differences between customers therefore it does not enable customization of products or messaging. It also does not meet the mutually exclusive and collectively exhaustive (MECE) rule. There is likely to be overlap in characteristics between their customer list and their recipient list, and certainly between their customer list and the rented list. Their primary approach in differentiating between segments has been in frequency of mailings rather than in customization of product offerings, pricing, or messaging in response to their varying values.
There is no evidence in the case that demonstrates that they understand what attributes their customers’ value most. It appears that Calyx Flowers has positioned themselves as a premium flower retailer by establishing an average price of $80, not including delivery. Presumably this premium price is justified by providing superior freshness and longevity by cutting out middlemen, but it’s not clear they know what the customer’s willingness is to pay for these two benefits.
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Production & Operations Management Pizza USA is a chain of pizza restaurants that currently offers sit-down and take-out service. Many customers have said that they would buy more pizzas from Pizza USA if it offered a delivery service. This exercise is in two parts. In Part I, you play the customer. In Part II, you play the manager at Pizza USA who is responsible for developing the pizza ...
In addition, their target market seems misaligned. Calyx Flowers believes the majority of their customers are upscale professional women, therefore a quarter of their catalog budget is spent targeting this demographic. The abysmal 1% yield rate from the rented list, compared to the 4.5% yield rate from their customer base leads us to believe that the poor response is due to misidentified target market. We suspect this demographic describes the recipients better than it describes the buyers, as evidenced by the 1% yield rate from recipients.
Their marketing seems to vary only in frequency, not in messaging. They send the same catalog to all three segments – customers, recipients, and the rented list – the only difference is frequency of mailings. Presumably within the customer base values differ, as would they vary among the recipients. While price sensitivity may be low among the customers, it could be very high among the recipients, and this would help explain the 1% yield on catalogs sent to recipients considering the $80 average priced Calyx Flower item.
Question #2. What is important to people when they buy flowers? What attributes/benefits do they care about when choosing a flower retailer?
People care about longevity, variety, presentation, speed of delivery, ease of ordering, freshness, and price. The degree that an individual will care about each attribute will vary.
Question #3. What should John do?
The first step is to identify all the segments in the market and then further profile the segments that place a premium on Calyx’s differentiators – providing longevity and freshness. Understanding the values associated with these product attributes will aid in creating Calyx Flowers’ positioning strategy.
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Executive Summary Calyx & Corolla is a young company that offers a very unique choice for customers who are interested in buying fresh flowers. Fresh flowers industry valued approximately $9 Billion in the United States in 1990 with steady market growth rate of 7. 7% since 1985. However, the market potential did not reach the top yet. US fresh flowers market still has more room to grow. Per ...
Calyx should utilize value-based segmentation to target their products to customers who would care most about their offerings. The value-based segmentation should be focusing on customers’ psychological needs such as image and social status. Calyx should then complement value-based segmentation with profile-based segmentation focusing on demographic (age, income, education, social status) and behavioral (volume purchased, frequency repurchase) characteristics. This will aid in identifying effective and cost-efficient communication and distribution strategies for the targeted value-based segment.
If we were in John’s shoes we would craft a positioning strategy that would create a distinct image of Calyx Flowers as the “Cadillac of Flowers”. Quality would be the focus over variety, delivery, and ease of ordering.
Once Calyx identifies the correct target(s) and positioning strategy they will then be able to determine the most effective method of advertisement appropriate for those targets. Our recommendation is to create a pull strategy – target the typical recipients and create a strong brand perception for recipients so that they “demand” the Calyx brand. Similar to Tiffany Inc, Calyx should create very unique and well recognizable packaging in creating their premium brand. This approach will help Calyx justify the premium price and incent buyers to prefer Calyx over other retailers. We feel that option two is most likely the best method for implementing the pull strategy because it would allow Calyx to tell a story, whether it be in TV or radio. By reenacting the reaction of a Calyx Flowers recipient, they can convey how their unique direct from growers distribution and packaging guarantees freshness, thereby prolonging the longevity of their gift.
We absolutely would not recommend increasing the number of catalogs mailed to potential buyers from the rented mailing lists. This strategy has proven to be ineffective due to a misaligned target segment.
