Memo To: From: Team: Section: Date: Re: John Gilbert Sasha Agapiev, Kyung Mo Kim, Christy Shum, Dean Creedon Creative Consultants, LLC. MKTG-UB.0001, J- Term. Professor Bonezzi. 1/13/21 Calyx Flowers Recommended Action Plan Executive Summary To address the problem of negative marketing P&L in promotional activities to acquire new customers, and a low penetration rate outside of female consumers, we recommend Calyx Flowers reposition itself as a technologically sophisticated, high-quality, full service flower delivery company. To successfully shift into this new position, Calyx would have to invest in greater targeted advertising targeted towards men through online mediums, eliminate catalog mailing to rented mailing lists, implement an up-to-date mobile ordering system, and consider partnerships with wedding ballrooms and other venues which need flowers for their services. Situation Overview The primary problem that Calyx faces is a negative P&L in marketing to new customers. Since the average order size for Calyx is $80, and it has a gross margin of 50%, with an average gross contribution of $40 for each order. Since the cost per catalog is $0.74, and the average yield rates for existing and new customers are 4.5% and 1%, respectively, if we divide the cost per catalog by the average yield rates (the proportion of catalogs sent to sales received), we can figure out the average advertising cost per additional purchase. So, Calyx spends $16.44 per purchase from existing customers and $74 per purchase from new customers. If we segment the mail catalog marketing P&L into new and existing customers, we see the net contribution per purchase from marketing activities is $23.56 for existing customers and -$34 for new customers. While higher gross profit margins could drive positive net contribution from these marketing activities, the minimum such gross profit margin is 93% for new customers, which is difficult to attain. Furthermore, gross margin does not fall under marketing responsibilities. Thus, the primary actionable cause of Calyx’s main financial problem is their inefficient customer acquisition strategy for new customers. We believe that Calyx’s current approach to customer acquisition, sending promotional catalogs, is the cause of this problem for reasons outlined in the previous paragraph. Secondly, female customers comprise a disproportionately large share of Calyx’s customers, which is counterintuitive given the value proposition of flower products and the fact that similar holding companies owned by Vermont Teddy Bear rely on males as primary customers. Finally, Calyx is not capitalizing on the seasonality and perishability of flowers to drive sales, which leaves them short of their true financial potential. Brand Recommendations Based upon the situation outlined, we can propose one overarching recommendation to improve Calyx Flowers’ strategic marketing approach. Considering Calyx already has a strong female customer base but is also failing to meet its financial potential, we recommend that the company shift their strategic priority to focus on acquiring more male customers. Vermont Teddy Bear’s subsidiary BearGram has 66% of sales coming from men, with almost $4 million in sales in the 24 hours preceding Valentine’s day. While BearGram and Calyx offer different products, flowers and teddy bears have historically filled similar needs for their male customers: the need for a quick and simple last minute birthday, holiday, anniversary, or apology gift for a family member, significant other, or close friend. Thus, the customer base for BearGram is likely to derive value from Calyx’s offerings as well, making it logical for Calyx to spend more on customer acquisition for this segment. It is critical to Calyx’s growth that they capture a large portion of the market share for flower delivery from male customers to supplement the existing, predominantly female, consumer base. To achieve this strategic shift, we propose a number of marketing tactics which Calyx Flowers could employ. First, Calyx should increase their spending on internet advertising, as 40% of Calyx’s sales are placed online, and their current approach of mailing catalogs yields a poor response rate. Calyx should aggressively pursue targeted advertising on Google, buying words such as “Gifts for women”, “Mother’s day/Anniversary gifts” and sponsored ads when people search “flowers”. Furthermore, Calyx can gain brand recognition among younger audiences by purchasing similarly targeted Instagram, Snapchat, and Facebook ads. Positioning themselves as a superior, yet convenient last-minute gift option through internet ads will help procure new male customers and younger customers in general. Second, Vermont Teddy Bear’s should consider running promotions on their “future delivery dates” option, perhaps combining it with their “Year Of Flowers” program deliveries. This offering would be used to order flower deliveries in-advance for anniversaries, birthdays, Mother’s Day and other similar recurring events. A third marketing tactic Calyx should apply is the integration of mobile delivery apps for smartphones and tablets which would support single-click ordering or similarly convenient functionality. This tactic would complement the tactic of increased internet advertising. A fourth marketing tactic we recommend Calyx consider is pursuing partnerships with cemeteries, funeral homes, wedding ballrooms, and other venues that routinely require flowers. By positioning themselves as a premier supplier of flowers, Calyx could boost sales through distribution partnerships, they could improve brand recognition, and they could reach a wider range of new customers who might consider buying Calyx flowers for themselves. Fifth, Vermont Teddy Bear’s should consider running cross-brand promotions, offering bundles with their other product offerings: the Bear-, Pajama-, or Tasty-Gram delivery services, which have all seen high levels of sales. Finally, Calyx must abandon their catalog mailing to rented mailing lists altogether, as these have proved highly cost ineffective and can be replaced by more relevant, profitable internet advertisements. Rationale for Recommended Course of Action We strongly believe the proposed change to Calyx Flowers’ overall marketing strategy is the best approach to solve their financial problems, because ‘upscale professional women’ drive most of Calyx’s current sales. This customer segment is quite narrow, representing about 20% of only one of the two genders, so it will not be easy for Calyx to acquire more customers in this specific segment. Rather, to grow sales and to reach financial potential, Calyx should position itself to add value for customers which they have previously neglected: Male buyers and younger customers. Calyx’s current advertising strategy relies on sending catalogs through the mail. This strategy has a customer acquisition cost which is 185% of the gross profit margin. While it is imperative to source new customers, this method is inefficient. In calculating the undiscounted CLV, using the 4.5% purchase rate for existing customers as the retention rate, and the $23.56 as our cash flows, we can see that the CLV is negative if we pay $34 up front to acquire each new customer. Thus, by sending catalogs to rented mailing lists, Calyx is losing money both up front and in the long run. What Calyx does well, and should continue to do, is sending ad catalogs to existing customers, as there is an average positive net contribution from these activities associated with customers who have already displayed interest in the brand. However, it is critically important that Calyx finds more efficient ways to source new customers. As such, we feel that with 40% of total sales revenue already coming from online sales along with the growing popularity of e-commerce, Calyx should reposition itself as a technologically sophisticated, high-end flower delivery service. By investing more in targeted online advertising, Calyx will not only be able to reach more of the current customer demographic of upscale professional women, expanding their presence in this customer segment, but also gain new value from a customer segment consisting of men who purchase last-minute gifts for their significant others or family members. Finally, Calyx could even gain a share of younger customers who use social media -- a demographic that has gone overlooked by Calyx and other flower companies. Since flowers have a very short product lifespan, they are even more of a last-minute purchase than teddy bears, and as marketing research from BearGram displayed, teddy bears see massive surges of sales in the days directly preceding big holidays like Valentine’s Day. A mobile application would make it easier for consumers to make spontaneous purchases than having to call toll-free numbers or manually visiting a new website, which are the only two options Calyx currently offers. Having a mobile app would also make it easier for customers to see flower options and compare Calyx’s offerings with those of competitors, as a lot of people use their smartphones when doing market research. Finally, this tactic of using mobile applications for deliveries would help reinforce the repositioning of Calyx as a technologically sophisticated, relevant option for consumers.
