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).
1. Computation of Acquisition Cost
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.
- Sending cataloges to rented mailing lists only taken into consideration
- A customer becomes a prospect customer when he receives the catalogue and places the order.
- Yield taken is the percentage of prospect customers.
- Advertising costs are not taken into consideration.
- Costs and Revenues are not taken after placing the order
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.
2. Calyx and Corolla’s Customer Life Value
- Customer Retention= 90% per year
- Infinite time horizon
- Time-vale-of-money issues ignored.
- Stability of numbers
- Only catalogue channels of sales to be considered.
Cost and Revenues of flower recipients not to be included
- Assumes cost of goods of bouquet of flowers
- Ignore all costs related to shipping, packing and processing.
- Each order is assumed to be priced range between average value between $40 and $60
- As revenue margin decreased to 50%
- Cost of goods sold
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:
- Many assumptions are taken into consideration that is why the appropriate value is a little deviated.
- Hence, here customer retention as an asset is quite low. Given the study, it needs revision.
- The management sales, wages, and others are not taken into consideration leading to change in values.
- The retention of customer value is quite high not applying realistically.
3. Segment Selection for Calyx and Corolla
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.
4. Recommended Position for Calyx & Corolla for the Wedding and Funeral Segment
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.
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