Vermont Teddy Bear Company has diversified its horizon and acquired Calyx and Corolla, a company that ship flowers through mail catalogues. The floral distribution industry includes more than 75,000 florists (Hunter). This industry is a seasonal industry as different flowers bloom in different seasons. The wholesaler sells the flowers to retailers at a discounted rate and further it is distributed among different retailers. Calyx and Corolla is one of the retailers, which deal in online trading of fresh flowers. Their shipper is Fed Ex. This company deals with partnership in three ways- the flowers growers, Fed EX and the company itself. The new distributional challenge is achieved by preparing special boxes of perfect flowers and shipping it right away to customers (De Hertogh).
Here, CAC for Calyx and Corolla is done based on customer receives the catalogue and places the order. An order is assumed complete when the customer places the order. No costs and revenue after that are included. The following excel sheet will help in identifying the cost of acquisition of a customer.
According to the strategy given by Calyx and Corolla, the mailed recipients being mailed online are 13 million in which the rent mailing yielded in 1% (according to the strategy). The production and mailing cost of each catalogue is $0.048 and cost of mailing list rental is $0.06. The prospect customers are according to the yield came out to be 130,000. The total cost of mailing came ot to be 0.54 and the marketing spend for 130,000 customers where 70,200. The cost acquistion without wages came out to be $0.54.
Whereas if hypothetically we take marketing and sales staff as 10 and with salaries paying each staff as $100. The total cost came ot to be $ 1000. Though with headcounts, the customer acquisition was more or less the same as 0.54769 ≈ 0.548.
Cost and production of mailing per customer= Production and mailing cost of each catalogue + cost of mailing list material.
Prospect customers= Total rented mail recepients X Rented mailing yield.
Marketing Spend= Prospect customers X cost and production of mailing per customer.
Total Headcounts= No. of sales and marketing staff X Cost per employee.
Cost Acquisition without headcounts= Marketing spend/ Prospect customers.
Cost Acquisition with headcounts= (Total Headcounts + Marketing Spend) / Prospect customers.
Cost and Revenues of flower recipients not to be included
Average of bouquets ranging from $44 to $126 = 85
Average of considerable offering from $40 to $60 = 50
For a year= 12 months
Gross margins= Revenue-COGS/ Revenue= (70200- 85 X 50 X 12)/ 70200 = 19200/ 70200 = 0.2735%
As revenue margin is decreased to 50% of gross margin= 0.13675%
The formula applied for lifetime value is
CLV= Gross margin X (Solomon, 2012)
Here, r= customer retention percentage
D= discount rates
Hence, CLV= 0.13675 X 0.9/1-0.9 = 1.23075
Hence, Cost Acquisition should be 1/3rd of CLV
As Cost Acquisition is 0.54, according to CLV, Cost acquisition value is coming as 0.41.
According to the above study, certain limitations can be done:
The selection of the type of segment to be selected would depend on several parameters. These parameters are as follows:
What would be the volume of demand associated to each of the segment?
What would be the frequency of demand for each segment?
Who would be the target customers for each segment?
On complete analysis of these questions, it has been estimated that every segment is associated with some benefit. On focusing on the first question regarding the volume of demand, it can be assumed that Weddings and Funerals segments are associated with the huge bulk of orders. An elaborate display of flowers on a huge scale is commonly observed in the type of rituals (Maureen and Stringer).
Comparing to the segment of ‘Romantic Gifts’, it can be analyzed that the volume increases to a certain hike on special days, but not as much as the wedding segment. On the other hand, the home décor segment is associated to low transactions and depends on personal demands (Christopher, Martin, Adrian Payne, and David Ballantyne). Relationship Marketing. Taylor & Francis, 2013. Hence, targeting this segment would influence bulk order for Calyx & Corolla.
Based on the second question, it can be analyzed that the frequency of demand is highest in Home décor segment. This is because these sectors involve regular utilization of flowers. On the other hand, the frequency of demand associated with the segment of romantic gifts and wedding fluctuates considerably (Skok) , it cannot be compared directly.
Analysis of the final question highlights towards the most important sector for marketing (Qiu), i.e. identification of the target audiences. The Romantic Gift segment is associated with the males, who purchases bouquet in a definite occasion (Soloman)
On the other hand, the Home Décor Segment is associated with the female segment. It can be analyzed that female customers are considered as loyal customers in this market sector. However, the wedding and funeral segment is associated with both the male and female. Hence, it is more advantageous and avoids the differentiation in concept (Gogan, Janis and Mark).
Therefore, on critical analysis of all the three segments, it can be analyzed that Weddings and Funerals Segment would promote the maximum profit as it has the highest demand volume and attracts most of the customers at a stretch (Meffert). Moreover, its frequency is comparable to the other segments. Thus, Calyx and Corolla targeting for this segment would acquire indefinite prosperity.
Calyx & Corolla should be highly focused towards the Wedding and Funeral Segment as this is the most prosperous segment as compared to the other. The reason for selecting the segment is due to its vast demand structure, which is not observed in the other segment. In a marriage occasion, a single customer purchases for nearly $2000 (minimum), which is incomparable to the other segments? It can be analyzed that a single purchase in this segment is equivalent to the weekly purchases of the other segments. The frequency of purchase is approximately higher in the market. The marriage ceremonies occur quite frequently all over the year. Moreover, funeral ceremonies are frequent yearly. Hence, customers remain frequently accustomed to this industry. Finally, both the customer segment (both males and females) attracts the Marriage and Funeral segment. Thus, the factor of targeting and developing the strategy for the specified customer sector (such as males for the gift segment and the females for the home décor segment) are neglected.
Thus, the Wedding and Funeral Segment equally fulfill all the parameters, and thereby it is considered the ideal segment for Calyx & Corolla.
Acquisition, e. (2015). eCommerce: Calculate Cost of Customer Acquisition. [online] Elite Strategies. Available at: https://www.elite-strategies.com/ecommerce-calculate-cost-customer-acquisition/ [Accessed 21 Dec. 2015].
Christopher, Martin, Adrian Payne, and David Ballantyne. Relationship Marketing. Taylor & Francis, 2013.
De Hertogh, A. "The Globalization of Flower Bulb Industry."Ornamental Geophytes: From Basic Science to Sustainable Production(2012): 1.
Gogan, Janis L., and Mark O. Lewis. "Peak experiences and strategic IT alignment at Vermont Teddy Bear." Journal of Information Technology Teaching Cases 1.2 (2011): 61-70.
Hunter, Norah. The art of floral design. Cengage Learning, 2012.
Maureen, and Christina Stringer. "Small Firm Specialisation in Global Value Chains: Evidence from the Cut Flower Industry." International Journal of Business and Economics 14.1 (2015): 43-62.
Meffert, Heribert. Marketing-Management: Analyse—Strategie—Implementierung. Springer-Verlag, 2013.
Qiu, J. I. N. "Introduction to Ethics for Marketing Managemnet in the Medium-sized and small Enterprises." Logistics Engineering and Management 1 (2013): 050.
Skok, D. (2010). Startup Killer: the Cost of Customer Acquisition. [online] For Entrepreneurs. Available at: https://www.forentrepreneurs.com/startup-killer/ [Accessed 21 Dec. 2015].
Solomon, J. (2012). What is Customer LifeTime Value (CLTV)? Why is it considered an important SaaS Metric?. [online] ChargeBee Blog. Available at: https://www.chargebee.com/blog/customer-life-time-cltv-considered-important-saas-metric/ [Accessed 21 Dec. 2015].
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