Calyx And Corolla

Introduction: Calyx and Corolla is a new company in the fresh flowers market. They have pioneered the concept of selling fresh flowers by mail. In its short lifetime, C&C has established strong relationships with many large growers, who cut flowers when ordered, thereby increasing the life of the buds tremendously over typical florist shops whose buds may already be a week old when purchased. They have also developed a strong relationship with Federal Express, who is their primary distributor. Federal Express has a well-established brand name, known for speedy, ontime, and reliable delivery, giving C&C’s promise for freshly delivered flowers credibility among customer who are unfamiliar with C&C’s brand. C&C reaches customers through a catalogue, which is mailed out to repeat customers and rented mailing lists. Individual consumers are more familiar with competitors such as FTD, who has a national network of florists. C&C’s top executives, however, are no strangers to the mail-order business, which gives them at least somewhat of an edge. Instead of going for a full summary we would take up different models to split open the case. Firstly we try to look at the Calyx and Corolla in light of Porter’s frameworks.

Porter’s five forces industry analysis:

Above is the graphical representation of the framework suggested by Porter. Taking each of the forces one at a time we try to see that how is it that Calyx and Corolla created a differentiation and established the company in very short time. The framework is taken just as the basis and analysis extends and includes many other points relevant to respective forces. Competition within industry: Fresh flower industry in US stood at $9 billion and has been growing at a very healthy rate. Majority of flowers (60%) are imported from Columbia. A typical distribution network in traditional flower market in US has the following structure –

Cost price 50% mark 100% mark 150-200% to up on cost up on cost mark up on From the above distribution channelwe can see that the price of a flower sold for Rs. X to the Distributor cost

distributor costs around Rs.8X-12X. This chain typically provides 10% of the total sales value to the growers. The chain has high mark ups but it remains very inefficient with regards to freshness of flowers which might be 7 to 10 days old before reaching to retailer. FTD, member owned 25,000 strong cooperative is the major competitor of C&C in the US markets. This network is mainly used by retailers to distribute flowers in the region remote to retailer’s own shop. Of the deliveries made through all the three parties involved benefitted in varying proportions. A typical FTD working model is shown as below –

Geographic location 1

Geographic location 2

Delive O

In above structure a retailer takes an order from the consumer and if the recipient is more than 7 miles radius from the store, it relegates the requirement to FTD which in turn located the nearest retailer to recipient who in turn delivers the actual product. In this originating retailer gets 20%, FTD 7% and rest 73% by delivering retailer. Another emerging retailer was in the form of Supermarkets. Supermarkets bought directly from the wholesaler or distributor and sold them directly in their outlets. However, they lacked finesse required for the business and shop design also posed a severe constraint in maintaining the freshness of the flowers. C&C does not follow the traditional mode of buying and selling. For efficient distribution it developed a whole new concept and this distribution channel became the single biggest contributor in C&C’s rise. The network typically is given as below –

Relegati on

Order

Coordinatio n

Dispatch

Delivery

The beauty of the C&C distribution channel is evident from above diagram. It effectively removes all the intermediaries and links the producer to the market. FedEx is a strategic partner in this venture and its goodwill is mighty important in the success of C&C. Relationship with grower has also been a pioneering effort of C&C. Growers who previously merely packed all their stuff in bunches were trained to carefully pack the flowers in special packs as per given specifications. In this new framework growers got almost 20% of the sales value which was on

an average 10% in traditional model, however they also need to comply with company specification which was easily met after requisite training. C&C is by far the most successful venture in the “mail order flower retailer.” New ventures in this particular segment have either failed or struggling to establish. The major competitor for C&C remained to be FTD which has completely different mode of operation thus in effect the job which C&C needs to do right now is to attract more customers to the mailing mode of distribution as the major chunk of consumer still rely on traditional way of placing the order at the retailers.

Suppliers: C&C even in present situation keeps around 80% of sales in form of gross margin and the suppliers (here growers) may try to gain a larger share of the profit. However, C&C has done good enough to keep geographically dispersed supplier it helps C&C in two ways one by avoiding over dependence on one region at the same time catering to environmental uncertainties. Also majority of supplier are small thus keeping their bargaining power to a minimum. The bigger growers though supplied 80% of C&C business none supplied more than 25% of its produce. This is a very subtle strategy by C&C though not explicitly stated. At 25% share growers are satisfied with the return they get and worry about selling rest 75% rather than running after C&C for more profit share. The return as it is which they get presently is pretty handsome and more than anything they would get if supplying to any wholesaler. This effectively discourages buyers from bargaining and keeps them satisfied at the same time. The argument is further substantiated by other case fact that in any season a retailer in FTD gets order for almost 20% of its revenue and rest, almost 80% it needs to sell by itself. Consumers: The consumer here have very limited or no bargaining power. This is mostly because neither of the consumers is big enough nor they are organized as such. Also looking at the present market there seems very little or no possibility of consumers acquiring any substantial bargaining power in near future. Threat of new entrant and substitutes:

Looking at the market barriers we see that both entry and exit barriers are pretty low as initial investment ($2million here) for a new venture is not too high. In mail order retailing business the firm acts more as the intermediary rather than producer thus exit barrier also come down. However as pointed out earlier new firms have been failing in this business the probable reason may be that the business requires certain unique capabilities be it in case of human resource or operations which are clearly tough to attain. Even though the entry barrier remains low presence of unique capabilities makes it tough for the new companies to survive in the business. Talking of substitutes, there are not many, at least situation does not suggest any. Also we do not have any reason to assume otherwise because flowers are pretty unique and have unmatchable importance. After analyzing the industry we can safely say that C&C presently need not worry about consumer’s bargaining power, threat of new entrants or the substitutes.

Generic value chain: A value chain disaggregates a firm in to its strategic relevant activities. Below is the graphical representation of the generic value chain of a firm –

Firm infrastructure:

The firm rather than being a production firm is a service organisation. For this reason the firm does not have any huge capital investment. C&C is neither planning to diversify in growing or other related activity thus present holding of an office and a warehouse seems sufficient physical infrastructure. The case of cramping in peak season is cited but it is not a problem to worry about with present business volumes. Other infrastructural requirements like management, planning, financial, quality control are well established as well. However, as transfer of order is relegated to growers individually a strict quality control is not possible even though a C&C manager is present at the center. For avoiding any bad experiences C&C promises its customer a full money back guarantee in case of stale or bad flowers. The present infrastructure looks fine and further expansion would require mere addition of the resources to take care of added workload. Human resource management: The organisation is well staffed and has a flexible staffing policy, understandably so. In peak seasons the number of customer support staff goes up while in lean season the number reduces to almost one tenth. The number of support staff is kept flexible. Apart from this there are three top level executives and middle management. The top level executives are flower business veterans and two are Harvard business graduates. This extraordinary team was thus able to mobilize sufficient funds and resources at the right time. Apart from this C&C has long recognized the importance of training their workforce and regular training programs are carried out for skill enhancement. Apart from competitive salaries various contest and incentives are provided. Technology development and Procurement: Technology developments are grouped in to efforts to improve the product and process. It is not merely linked to end product but to design, process and service as well. It is in these aspects that C&C brought radical changes. The whole process of distribution was changed and the product delivery was made within 2-3 days of cutting the flower. The service format is also changed and people can order directly from their home and extended timings are provided in peak seasons for catering to excessive demand. These developments made possible to obtain the freshest of flowers in shortest of time and delivered fresh in shortest possible time to the consumer. The above discussions give us the picture as to what C&C is and how does it operate. After getting this understanding of the industry and value chain we try to figure out what strategy and how C&C should position itself.

STRATEGY: Generic strategy framework can be given in the following form –

The above framework suggests the possible generis strategies that can be adopted by any organisation. As we have seen the present market has two major competitors C&C and FTD. In this situation the low cost leadership would not be advisable as it would erode the profit from the business and give the bargaining power to consumers which they lack presently as stated earlier. However, the differentiation strategy may be fruitful to pursue in present situation. The differentiation may provide C&C with new consumer segments and variety of product to compete upon. In present situation there are number of bouquets and their variations but other than that no particular differentiation is provided, this variety may easily be copied and followed by FTD thus C&C needs to come up with new and innovative products or schemes so as to very clearly make their offer stand out. C&C currently follows such schemes but only on experimental basis and peak seasons. For expanding its customer base in such an industry as discussed above C&C would need to attract either new customers or break away the customers from FTD. In present situation C&C is not going for extensive marketing except for peak seasons, this seriously hampers new customer acquisition capabilities of C&C. Also the catalog distribution to customer and recipients is the only major promotional activity carried out which is unfortunately not very high yielding. C&C should very seriously think about mounting on a full fledged media campaign to acquire or break FTD customers. It should also try to concentrate on lean season when FTD also stays low. By following this strategy C&C might be able to capture a larger share of the minds and hearts of the consumer. It

may be noted that when the actual time comes for buying even in peak season people would prefer what comes to the top of their mind. One way to bring in specialty is to provide customer design their own bouquets; presently C&C sends the catalog and receives the order as per the listings. This however may not go down well with the consumers which would like customized products. Certain provisions need to make so that complete satisfaction may be provided to the consumer. The supplier base though does not have enough bargaining power as discussed but a small number (30) of supplier would constantly put the company under pressure. Also these suppliers are concentrated in few selected states. If C&C is looking at future strategy it definitely needs to diversify in more geographical regions to cater to whole US market in efficient and fresh way, the way it is known to be. Also the majority of flowers in US come from Columbia and C&C has no external links, so if C&C is looking in long term future it should bring in some strategic partners to have full surety of supply.