Competition – is Kingsford competing against other charcoal manufacturers, gas grills manufacturers, or a combination of both? 4. Promotion – what was the best strategy to promote the Kingsford brand? Should Kingsford strive to increase overall grilling events, or just emphasize the Kingsford brand? 5. Capacity – if the Kingsford business could be grown substantially, is the current manufacturing capacity adequate in the near-term? Long-term? I. 1Goals I determined that the specific goals that the brand managers should be focused on achieving are: 1.
Growing the charcoal market (resulting in growth for Kingsford due to its huge share of the market), 2. Increase profitability through growth and production optimization, 3. Strengthen the brand by employing a marked increase in advertising and specific promotional themes, 4. New product development, and 5. Increase in non-seasonal business (this will both increase volume and smooth out production).
I. 2Challenges The challenge facing the brand managers is how to achieve these goals in the face of a declining charcoal market.
Other obstacles include reluctance by management to spend money on advertising, burgeoning competition from the gas grill industry, and production capacity that could quickly be challenged with sustained growth. II. DATA COMPILATION AND ANALYSIS II. 1Revenue The Kingsford Charcoal business produces revenues of $350 million per year, which accounts for approximately 9% of the total yearly revenue of Kingsford’s parent company, Clorox, Inc (4. 1 billion in 2000).
First, we would like to thank our supervisor, Carl Thunman, for his continuous support and guidance; he has made our work easier and more interesting. We are also thankful for our seminar colleagues for criticizing our work and exchanging constrictive discussions. Finally, we want to thank our beloved families, for helping and supporting us through the last months, without their love and ...
The case data states that Kingsford accounts for “a substantially higher percentage of (Clorox’s) net income,” than its percentage of revenue. It is therefore assumed that 15% of the annual income of Clorox, Inc. , is attributed to Kingsford. Thus, in fiscal year 2000, Kingsford had a net income of approximately $50 million on sales of $350 million, which equates to a profit margin of ~14%. Clearly, the Kingsford charcoal business is a great business to be in. However, the charcoal market experienced its first softening in the summer of 2000, after enjoying several years of steady 1 – 3% growth.
Colder, wetter than normal weather contributed to the softening, but a major factor could be the disturbing upward trend of gas grill purchases. Thus, it is imperative that Kingsford achieve growth in order to increase their market share within the charcoal market and maintain its high contribution margins. Given the huge market share enjoyed by Kingsford, it would also be beneficial to grow the charcoal market as a whole. II. 2Market Share Currently, Kingsford maintains a 59. 5% share of the total charcoal market (2nd half of 2000 figures).
With sales of approximately $350 million in year 2000, this equates to a total charcoal market of about $590 million annually. Thus, for every percentage point increase in market share, Kingsford can raise revenue by $5. 9 million. The contribution margin for Kingsford Charcoal is assumed to be 50% (the overall contribution margin for Clorox is 42% (1 – CGS/Rev), and since Kingsford contributes a larger % of net income than revenue to the Clorox bottom line, this is a safe assumption, especially considering that charcoal briquette production is manufacturing-intense).
This equates to an increase in net income of approximately $3 million for every percent increase in market share (if the overall market remains at $590 million annually).
II. 3Competition There are two major competitors with Kingsford in the charcoal market: Royal Oak and private label brands. Nearly all of the private label brands are manufactured by Royal Oak. The private label brand pricing is about 25 – 30% less than Kingsford, while the Royal Oak prices are about 5 – 15% less than Kingsford’s across all products. Royal Oak has done very little advertising in the past year.
The veterinary canine blood market is currently valued at approximately $40 million ($34-48 million), but if the potential of the market and the potential for medical benefit were fully realized, the canine blood and blood replacement market is $400 million ($314-$469 million). This potential market is based on the figure of 12 million dogs suffering blood loss annually, 30% (3. 6 million dogs) of ...
II. 4Products Kingsford sells 2 types of charcoal: regular (blue bag, in 10, 20, and 48 lb bags) and charcoal treated with lighter fluid (“Match Light,” red bag, in 8, 15, and 30 lb bags).
Regular charcoal represents 75% of total shipments, with the 20 lb blue bags representing 60% of total sales. The types of outlets selling Kingsford and a breakdown of the % sold follows in Table 1: Table 1: Distribution Channel – Percentage of Sales Retailer Percentage of Sales Food Stores66 Mass Merchandisers15 Drug Stores2 Club Stores16 Currently, the average price for 20-lb blue bag is $6. 8, while the average price for a 10-lb blue bag is $4. 25. For the instant (Match Light) charcoal, the average prices are $5. 20 and $8. 07, for the 8- and 15-lb bags, respectively. The competitors (see Section II. 3) have been steadily raising prices over the past year, such that the gap in pricing between Kingsford and the private label brands has fallen by an average of about 8%. Although there is never a good time for a price increase in consumers’ minds, Kingsford would be justified in enacting a modest price increase (and probably not see a huge reduction in sales volume).
III. RECOMMENDATIONS III. 1Pricing My recommendation would be to institute a 5% price increase across all charcoal products. Figure 1 below represents a decision tree analysis, in which an expected value of all of the pricing options discussed in the case are computed. The total line 5% price increase had an expected value of $1. 765 million (net effect on profits), which far exceeded the expected value of the other three price-increase options and the option of not increasing prices at all.
The price increase is justified because: 1) Kingsford has not raised prices recently, and 2) Kingsford’s competitors have been steadily raising prices and it’s important for Kingsford to maintain the image of being the premium charcoal brand. It is not expected that the retailers will resist the price increase, due to the price increases instituted by Kingsford’s competitors in the last year (many Kingsford retailers have already increased the retail price of Kingsford anyway).
Actions of the Government and The Increase in Prices The United States economy is currently producing at a level of full employment in long-run equilibrium. The government then decides to increase taxes and to reduce government spending in an effort to balance the budget. The results of the actions taken by the government is the decrease of real GDP. When taxes are increased that the amount of ...
Finally, consumers will probably also accept the price change, as it simply reinforces the Kingsford brand as being a premium product, and the small price increase is likely not enough to drive people away from grilling occasions, which are viewed as a happy, family-fun type of activity. Figure 1: Pricing Increase Decision Tree III. 2Advertising / Promotion My recommendation would be to increase advertising immediately, particularly during the heavy grilling season of May through August.
The intent of the advertising should be two-fold: •Increase the number of overall grilling opportunities, by stressing the many positive aspects of outdoor grilling (family-oriented endeavor, outdoor cooking is an American thing to do, it’s a relaxing way to cook, etc. ) •Differentiate charcoal grilling from gas grilling. Trending analysis shows that gas grill purchases grew at an 8% pace in 2000, while the sale of charcoal grills declined by 3%; it is important to convince Kingsford’s targeted consumers that charcoal grilling is superior to gas grilling.
Clearly identifying that food cooked over a charcoal flame has a superior taste to food cooked over a gas flame is one factor that would convince people to choose charcoal over gas. This declaration is substantiated with blind taste test results that showed 2 out of 3 people preferred the taste of meat grilled over charcoal versus gas. Furthermore, the overall experience of charcoal grilling should be conveyed. Charcoal grilling is an American endeavor, and it should be associated with family gatherings, fathers teaching sons how to grill, and outdoor activities in general.
While this message in no way differentiates Kingsford from Royal Oak or any of the private label brands, it does differentiate the charcoal market from the gas grill market. This message will increase Kingsford sales markedly due to the market share advantage that Kingsford maintains in the charcoal industry. The target market for the advertising campaign should be male (while 40% of grillers are women, a much lower percentage of women will be interested in charcoal grilling due to the extra effort and clean-up issues), lower income, and across all age groups.
... the gas grilling had increase their advertising spends from less than $4M in 1998 to over $ 10 M in 2000. Although Charcoal is ... provide some of the flavors charcoal grilling has in gas grilling or produce gas grills under the brand of Kingsford in order to cover ... reviewed several new products that could be developed and increase Kingsford market share, revenues and profits should they be successful ...
While some higher-income males will be interested in charcoal grilling, it is my opinion that they will turn more to the expensive, convenient gas grills than will the lower-income males. Current advertising levels are at a very low $1 million per year, and yet Kingsford maintains an almost 60% market share. Increasing advertising to $6 – $7 million per year should have the benefit of both increasing charcoal grilling as a whole and increasing the market share Kingsford holds within the charcoal grilling segment.
It is not unreasonable to predict a 7% growth rate for Kingsford as a result of the increased advertising (studies performed by MMA in 1998 showed this).
This equates to an increase in revenue of about $24 million, which, at a 50% contribution margin, should increase profits by about $12 million per year. This is a conservative outlook and would cover the cost of the additional advertising while adding about $6 million to the bottom line. Also, advertising should be increased outside of the peak grilling season, in an effort to increase the number of overall grilling events.
Of course, the message should always state that Kingsford is the charcoal that lights the fastest, burns the longest, and produces the best barbeque flavor! Out of season advertising could include NASCAR and football (professional and college) tailgating promotions, and could show that grilling outdoors in cooler weather can be just as enjoyable (if not more so) than grilling outside during the summer months. It is also important to develop some promotional activities that would strengthen the Kingsford brand.
These should include: •Giving away a bag of the Match Light brand of charcoal with new grill purchases (this product is highly profitable), •Cross-promotional tie-ins with other products associated with outdoor grilling, such as beer, soft drinks, potato chips, and hot dogs, •Placing a Kingsford display at the end of the meat aisle in food stores, •The packaging could include tips to make charcoal grilling quick and easy, •The Match Light product should be promoted to those individuals concerned with convenience but aware of charcoal’s flavor advantage to gas.
Nowadays, advertising is a very big business. Very often is the major means of competing among firms. Furthermore, supporters of advertising claim that it brings specific benefits for consumers. First off all, they claim that advertising provide information to consumers about the quality or the availability of several products. This is very important for consumers because they do not waste time ...
The overall message in the advertising campaign should be that Kingsford does more than just get the grill hot: Kingsford Charcoal not only improves the flavor of the food cooked on the grill, but offers a more authentic grilling experience and enhances the fun of outdoor gatherings with family and friends. III. 3New Product Development A few ideas for new product development could add to the growth associated with the increased advertising and price increases: •Wood chips for placement in gas grills.
This product would enhance the flavor of foods cooked with gas by imparting the smoky, woodsy (hickory, mesquite, etc. ) flavor associated with charcoal. This product would be marketed to higher income, professional types who prefer the convenience and aesthetics (gas grills look better) of a gas grill but still want the authentic barbeque flavor associated with charcoal grilling. •A “Kingsford” brand grill. Development of a Kingsford brand grill (in conjunction with a grill manufacturer) and Kingsford brand grilling products would enhance the brand name and increase sales of Kingsford Charcoal. Charcoal with enhanced flavoring, such as “Hickory smoked” or “Mesquite flavored” briquettes. •A single bag product, in which the consumer simply places the bag in the grill and lights the bag. This would greatly add to the convenience while maintaining the authenticity and great flavor associated with charcoal grilling. III. 4Capacity / Distribution Current capacity for Kingsford Charcoal is at 80%, with production consisting of five plants that each house both steps in the charcoal briquette production process.
Building a new plant would cost between $30 and $50 million and take as long as five years. Therefore, in order to keep up with the increased demand expected from the aggressive advertising and promotional initiatives outlined in Section III. 2, it is imperative that Kingsford look for ways to improve production efficiencies. This could be accomplished with technology improvements and better educating the employees on “working smart” strategies.
Also, in view of the anticipated increase in demand, consideration of off-shore production is advisable. Profitability can be greatly influenced by a reduction in production costs. While the case focuses little on distribution, at least one aspect of distribution stands out as having room for improvement: timing of shipments. If a plan could be devised to ship the charcoal uniformly throughout the year, then production would not have to ramped up prior to peak periods and ramped down prior to down periods.
In today’s world, where market is unpredictable, strategies play crucial role in defending a firm’s product position. “The main reason why companies must continually develop new products is because products have life cycle”, (Bittel, 1980). Just as operation managers must be prepared to develop new products, they must also be prepared to develop strategies for both new and ...
This would allow for a considerable reduction in fixed costs (possibly allowing for shutting down a plant), which would greatly increase the contribution margin and lead to higher profitability. IV. SUMMARY Kingsford Charcoal can achieve significant growth by incorporating the following initiatives: •Increase prices across all products by 5%. •Increase advertising to $6 – $7 million per year to drive overall charcoal market growth and Kingsford growth within the charcoal market. The advertising campaign should stress the great flavor and the authentic grilling experience associated with charcoal grilling. Develop new products, such as wood chips for gas grills, a Kingsford Series grill in partnership with a well-known grill manufacturer such as Weber, wood flavored briquettes, and single-use bags to drive continued growth. •Improve production techniques so that increased volume will not result in a failure to be able to meet demand. Off-shore production could also be considered as a way to reduce costs and improve profitability. •Explore distribution strategies to allow for a more uniform shipment of charcoal to retailers throughout the year. This would have the effect of reducing fixed costs and increasing profitability.