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Calyx & Corolla

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I. Problem Definition

Calyx & Corolla (Calyx) needs to determine whether it should change its current strategy and positioning as a mail order operation to compete more directly against more traditional outlets, such as florists, and wire services, such as FTD. How could Calyx attract the largest group of potential buyers who patronized florists or other retailers and were not accustomed to buying by mail order. Calyx needs to determine what actions it should take to make a profit and grow its business.

II. Solution Possibilities

Calyx's objective is to position and market its flower business to fully utilize its competitive advantage to reach its profit and growth potential. To accomplish this objective, Calyx must determine whether it can effectively target potential buyers who patronize florists and other retailers versus mail order.

The retail plant and flower industry in the U.S. is a $9 billion per year industry. The industry has grown at a rate of 7.7% since 1985. The market landscape is broken into three areas. Twenty five thousand retail florists have 59% of the market ($5.31 billion) and supermarkets have about 18% of the market ($1.6 billion). Nurseries, mail order companies (seed companies) and other retailers accounted for the remaining 23%.

FTD is a member owned co-operative of 25,000 florists. Member florists take orders from local customers for delivery by member florists elsewhere. FTD positioned itself to target customers in a wide cross section of households with incomes greater than $35,000. FTD provided a service by allowing customer who desired to purchase flowers for someone in another location to conveniently use a local florist to make that purchase without a need to find a florist in another location. FTD processed 21 million orders with a total value of $700 million in 1990. FTD's average order was $32 in 1990. (Ex. 3) FTD retained 7% of the sales while 20% went to the order taking florist and 73% went to the delivering florist. Net profits for FTD member florists averaged 4.6%.

Calyx is currently positioned primarily as a more upscale mail order flower business. Calyx differentiates its product from FTD and other retail florists based upon its distribution system that allows it to deliver fresher flowers to the customer. Calyx eliminated two levels from the traditional florist distribution chain by linking the customer directly to the grower. The customer receives freshly cut flowers that are between 1 and 4 days old and can pick the delivery date as compared to FTD and other florists whose flowers are 1 to 3 weeks old when they reach the customer.

What makes Calyx's distribution system work is that Calyx has strong ties to its suppliers, the growers and Federal Express. Calyx has contracts with 30 quality flower growers. These contracts prevent the growers from supplying any other mail order retailers. Eight of its 30 growers supply 80% of its orders. Calyx does not account for more than 25% of any one growers business. Calyx also has a strong relationship with the number one air carrier. Federal Express provides trailer to the growers during the busy holiday season, terminals to Calyx to track orders, Saturday delivery and little differentiation of price regardless of the weight. Calyx has a distinct advantage over FTD and other florist retailers.

Calyx targets women age 30-55 years old, most of who work and have substantial disposable income. To smooth out some of the cyclical nature of flower sales, Calyx markets continuity programs which provide flowers to the customer on a monthly basis. These were a significant portion of Calyx's sales. This segment makes up 85% of Calyx's mail order sales. Calyx's average catalog order was approximately $43.75. (see attached). This is approximately 33% higher than FTD's average order.

Calyx primarily markets its flowers by catalogs. This segment of its business accounts for 70% of its revenues. Calyx also markets flowers to corporate clients for reception areas, customer gift programs and for promotional tie-ins. This segment of its business accounts for 20% of its revenues. The remaining 10% of its business comes from telemarketing to previous flower recipients and customers.

One option Calyx has is to maintain its current strategy of targeting 30-55 year old women using its catalog as its primary form of advertising. Based upon Calyx's 5 year summary projections, Calyx should begin to make a small profit in year 4. However, this option is risky. Floral Gift Express, the most direct competitor to Calyx who was well financed recently failed. Calyx's cost structure, especially its sales and marketing (S&M) expense as a percentage of sales, suggests that it's cost per order are extremely high. In 1991, Calyx's S&M expenses were 68% of sales. (Ex. 1) In comparison, FTD's S&M expenses were 3.5% of its total sales or 49% of its gross revenue.

While 70% of Calyx's sales are through its catalogs, the current approach is extremely expensive. In 1991, Calyx shipped 12,055,000 catalogs at a cost of $4,822,000. (see attachment). Calyx received 60,000 orders from the 1.2 million catalogues sent to prior customers at a cost of $480,000 for an average cost per order for catalogue sent of $8. This expense is reasonable based upon Calyx's average order size. However, for the remaining 10,855,000 catalogues mailed at a cost of $4,342,000 to recipients of prior orders, people who made inquires and rented names, Calyx received approximately 108,550 orders for an average cost per order for catalogue sent of $40. This cost is not acceptable. In comparison, FTD annual advertising budget was .21 per U.S. household. FTD spent $24 million on TV, radio, newspaper and other forms of advertising. Based upon FTD's 21 million orders and $24 million in advertising cost, FTD spent $1.14 in advertising to obtain an order.

Another option is that Calyx could change its marketing strategy to become more focused on the corporate programs and promotional tie-ins. Currently corporate tie-ins are limited to not aggravate seasonal peaks. The Bloomingdales and SmithKline Beecham tie-ins were both very profitable. Tie-ins with retailers have strong potential to increase incremental sales as well as increase new mail order customers without having to buy a name and send a catalog to an unknown quantity. Corporate sales currently make up 20% of Calyx's revenues and offer significant potential for growth at less marketing cost. Calyx offered flowers at a discount as part of these promotions, but Calyx had little to no other sales



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