Calyx N Corolla Assignment

AGRI-BUSINESS MANAGEMENT

ASSIGNMENT I CASE ANALYSIS

CALYX AND COROLLA

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INSTITUTE OF RURAL MANAGEMENT ANAND

INTRODUCTION Calyx and Corolla (C&C) is a company started by a entrepreneur, Ruth, M. Owades in 1988 which delivers flowers to the end customers using the courier service provided by Fed ex. Customers are provided with an option to order fresh flower and bouquets from a four-color catalogue by placing an order to the company, which also shows floral bouquets, plants, preserved designs, and corporate gifts. The fresh flower order goes immediately to one of 30 growers in the C&C network, who picks and packages the flower and ships them via FedEx. The flowers arrive fresher and last about 10 days longer than flower ordered from stores-best retailers. The credit for such an efficient value chain goes to the sophisticated system and C&C strong alliances with FedEx and the grower. Calyx & Corolla was primarily a mail order company, but management is now considering expanding their market and is unsure of how they should proceed. FTD1 florist network is one of the major competitors of Calyx & Corolla which has a member owned worldwide co operative of 25000 florists2. The calyx & Corolla top management team has exceptionally talented members like Owades and Lee but the things that the company is concentrating upon is that of the future strategy of the company to tackle various externalities faced by the company in future due to arrival of IT as a very strong medium. Again to capture significant market share they will have to spend specific amounts on the advertisement therefore it will have to assess the financial implications of spending heavily on the advertisements. Moreover what should be the strategy to advertise is also an issue because the catalogue medium was already fetching results then would it be safe getting into aggressive indirect advertising. VALUE CHAIN Before Calyx & Corolla: The industry was highly fragmented at each and every level, where small family run business were the major players. The channel of the flowers from the field of a grower to the consumer is depicted in the above flowchart. The consumers were buying 59% of flowers from the florists; supermarkets were holding a share of 18% in this market.3 Payments: Growers were paid by the distributors after a span of 60 to 90 days and distributors were paid by the whole sellers on the same terms. Retailers had to pay in cash as they were

1

FTD stands for Florists' Telegraph Delivery The members of FTD took orders from local customers for delivery by member florists at other locations. 3 The data has been taken from the case facts given in the Calyx&Corolla case 2

searching for quality i.e. price and suitability from the whole sellers who were supplying them the flowers. The conventional distribution channel in the flower market is as follows: $5 GROWERS

$10 DISTRIBUTO RS

$20 WHOLESELL ERS

$40 FLORISTS, SUPERMARK ETS, RETAILERS

ORDER BY CONSUMERS

CONSUMERS

Markup: Distributors were marking up fifty percent on the cost to the whole sellers. Whole sellers were marking up another hundred percent on the cost to the retailers. Retailers were marking up a huge two hundred percent on the cost to the consumers. Thus consumers were paying a hefty forty dollars to the florists and the growers were getting a meagre sum of five dollars.

Operations in the traditional market: Flowers were gaining popularity in USA as the people were purchasing them at each and every occasion like marriages, funeral, birthdays, anniversaries, Valentine’s Day and s called other days. Flowers are a perishable product and their shelf life varies from hours to weeks. Roses were acceptable after two to three days from their picking and anthuriums were acceptable for a long period of one to two weeks. This resulted in varying prices of the flowers of the same category. A flower, if not sold loses its value the very next day. Florists telegraph delivery: Florists Telegraph Delivery (FTD) was a member owned, worldwide co-operative of 25000 florists. The customers were giving orders to the local members and the members were arranging for the flowers even from the distant grower members if needed. The florists were having a catalog of FTD bouquets and the florists were given orders for the bouquets shown in the catalog. Even the customers were also provided bouquets from the same catalogs but the freshness of the flowers send to them was never assured. Every consumer was paying a sum of $ 3.5 as order transmission fee, $6.5 as delivery charges depending on the location and distance as well. During holiday periods incoming wire orders as well as wire orders increased compared to non holiday periods. In 1990 FTD got orders worth $ 21 million. A florist who is responsible for the origin of the order receives 20%, the florist who delivers receives 73% and FTD gets the rest 7% in a single transaction. FTD was also responsible for providing promotional and advertising support to its members, input supplies, educational programs, market research, publication and credit supply. In achieving orders FTD was clearly ahead of its competitors as it was earning revenue which was three times more than that of the nearest competitor. Supermarkets were also emerging as a major threat as they were providing flowers in $10 as against $ 40 of FTD by establishing linkages with the growers, importers and everybody. FTD never considered supermarkets as a threat because they believed that the employees of supermarkets lack the sensitivity, expertise in handling, packaging and managing the very fragile flowers.

After calyx and corolla: Calyx and Corolla made a fundamental change in the flower distribution as they established direct linkages with the growers with the help of Federal Express. This revolution decreased the delivery time and the final cost to the consumer as well. They delivered roses to consumers within one or two days from the time they were cut and anthuriums in 3 to 4 days. The value chain for Calyx and Corolla is as follows:

ORDER BY CUSTOMER

ORDER TO GROWER BY C&C

GROWER

FEDERAL EXPRESS

COMSUME R

C&C had a unique distribution chain and transportation mechanism. Orders were received by telephone, fax or mail from the customers at the central office in San Francisco and then sent via fax or computer to the 30 flower growers who supplied Calyx & Corolla. Then Federal Express was responsible for the further transit of flowers from C&C where they were packed to the customers. Prices were at par with the FTD prices and this included everything. C&C established linkages with the best flower growers and partnered with Federal Express the

number one air carrier. The top management was responsible for maintaining relations with both the parties and if any problem occurred they were held responsible for that. C&C was suffering from problems as the growers failed during the Christmas season and it was the peak season for the business. Still C&C managed to get rid of this problem by the combined effort of the growers and the carrier service i.e. Federal Express as well. It was an awesome effort as maintaining crop in the dreadful winters of west is an uphill task and the growers with the continuous support of C&C were able to do that. C&C had a very excellent staff that managed the supporting activities like sales and customer care staff that took and answered customer enquiries and complaints. C&C hired very professional people that had a flair for flowers and they were paid handsomely; handsomely means at par with the industry. Their remuneration was supplemented by various contests and incentive programs to reward them for exceptional qualitative and quantitative performance. The senior management always took care of the overall operations and the employees personally. Owades customized the operations as per the requirement of time and the changing pattern of the industry as well. The import of flowers had increased and the domestic production as well. There was a problem with the consumption as it was not increasing at the rate same t the production. There was paradigm shift when C&C recruited the growers who were in the business of packing 500 to 1000 stems in a large carton but now these growers were asked to pack 11 stems in a pack. This packing had to be very aesthetic, clean as per the standards. Along with this they were asked to write a card in a fine and beautiful handwriting. C&C along with the growers worked on the logistics, shipability and packaging. They tested a large number of packing materials that would keep the flowers safe, cool, maintain humidity and also maintain a constant temperature. The distribution mechanism of C&C was very effective and it resulted in increased sales. They provided growers with shipping boxes, cards, labels, vases and also sent them demand forecasts. If any grower was not in a condition to supply then he or she informed the company about it so that the company could make appropriate substitution for that. If any grower had excess produce then also the company was informed so that proper arrangements could be made for that. The price Calyx & Corolla paid to growers was a combination of two factors mainly wholesale prices plus a surcharge to cover extra labour and other added costs associated with their orders i.e. the retail function which the grower was performing.

It was Fed Ex which was the mainstay of the company’s success. The airline was delivering on the day of the shipment itself. They didn’t continue with the frozen flowers as this would have a negative impact on the future orders. The airline was quick enough to respond to the enquiries of the customers that were primarily about the whereabouts of the delivery orders. The catalogue brought out by Calyx & Corolla reflected changing tastes, seasonal variations and thus helped them to develop product line and introduce new products.

C&C was

providing information and knowledge about flowers so that they don’t look boring. Majority of the orders C&C got was due to the catalogs and this proportion was as high as 70% and the rest was because of the telemarketing and business tie ins. The remaining 10% was from outgoing telemarketing to previous flower recipients and existing customers. Competition analysis-Porter’s five forces model The company has been facing competition from newly emerging direct purchasing counters in the supermarkets and FTD. The company will have to come up with new moves to tackle these competitors. Firstly we will try to analyse the company’ current strategy from different viewpoints.We have used porter five forces model to analyse the threats to the organisation.

Threat of new entrants

Bargaining power of suppliers

Rivalry among existing competitor s

Bargaining power of Buyer

Threat of Substitute Threat of the new entrants: New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. Industry with higher returns attracts many new entrants which will increase the competition and try to reduce the profitability of existing players. New entrant will have to come up with more

efficient value chain like that of calyx and corolla. The new entrant can compete with Calyx and Corolla if they have shorter and cost efficient supply chain. The shorter supply chain will be helping them in faster delivery of flowers and cost efficient supply chain will be useful in reducing transaction cost. Calyx and Corolla will have to look up to new technical advancement which will help them in further reducing their time and cost of delivery. The barriers to entry for new entrants in the flower industry could be as follows: 

C& C has a very large and established customer base which helps them to identify their customers and the one who could do repeat buying. This helps them in the selling process of the flowers.



C& C has maintained a very good relationship with its delivery partner Fed ex and the growers as well which helps them to deliver the specified flowers in an efficient and timely manner. Again it would be difficult for any new entrant to establish itself in the market using the same value chain that the C& C uses.



The initial investment for any new entrant could be high and moreover developing relationships with the growers could be time taking process

Threat of substitute product: The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on: - Buyers' willingness to substitute - The relative price and performance of substitutes - The costs of switching to substitutes In the case of Calyx and Corolla has differentiated its product on two parameters- freshness of flowers and quick delivery. No competitor in the market is now able to supply flowers with this much efficiency. The target group for this product is often high income segment who prefer quality products. So until any company come up with better product, chances are that calyx and Corolla will enjoy higher growth. But calyx and Corolla needs continuous product differentiation according to changing taste of the customer and season otherwise it may be loss its privileged position in the market.

The bargaining power of suppliers: Suppliers are the businesses that supply materials & other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. There could be a threat if the flower growers try to forward integration and open up their own retail stores. Again the cost of input is very low when compared to the payment made by the end consumer .Hence there exists chances that the growers get into their own business to earn higher margins although one of the constraints in the process could be that of low purchase orders when compared to a large company like calyx & Corolla which has a global presence. While on the other hand, it is comparatively difficult for the firms to have backward integration and perform the functions of a grower At present there are 30 flower suppliers to Calyx and Corolla. There are eight growers who supply 80% of total flower supply to Calyx and Corolla. The sales of the company represent not more than 25% of any one grower’s business. It shows that these 8 suppliers have more bargaining power than rest of the suppliers. They can dictate the terms and conditions of supply. Federal Express plays a major role and the company lays a lot of emphasis on building strong relationship with it as the excellent service of Courier Company provides a competitive advantage to Calyx and Corolla. The bargaining power of buyers Buyers are the people / organisations who create demand in an industry. The bargaining power of buyers is greater under the following conditions- There are few dominant buyers and many sellers in the industry - Products are standardised - Buyers threaten to integrate backward into the industry - Suppliers do not threaten to integrate forward into the buyer's industry - The industry is not a key supplying group for buyers In the case of calyx and corolla the advantage that it has got is that there are very few players presently and moreover they don’t have the same supply chain structure that of calyx. Moreover the products of calyx are standardised when compared to the other competitors

Again the idivisual buyers have less possible chances of backward integration but the B2B customers in the future could integrate backward. (We have discussed the significance of the B2B in the strategy part as C & C is not pursuing the B2B business very vigourously in the present context.) Intensity of Rivalry The intensity of rivalry between competitors in an industry will depend on Degree of differentiation – Calyx differentiates itself from the other competitors in term of the value chain which delivers the flowers to the end customers through the mail order whereas the other competitors in the arena deliver the flower directly. Switching costs – The switching cost for the other competitors like FTD to the mail order would be certainly higher and moreover convincing the courier companies to deliver the fragile products like flowers would be definitely difficult. Besides, in case of Calyx & Corolla, Federal Express (courier service provider) also plays a major role and the company lays a lot of emphasis on building strong relationship with it as the excellent service of the courier company provides a competitive advantage to the company. The structure of competition - There are number of players in the flower business e.g. Supermarket, FTD, 800-Flowers etc. FTD is the biggest rival because of its extended market coverage (59%). The supermarket are aggressively entering into this business (18%). The mail order business has limited competitors. Remember that these kind of institutes involved in marketing of flowers are not only competing with same kind of institution but also competing with other institutions i.e. mail order companies are not only competing with other mail order company but also with FTD and Supermarket. The competing companies need innovativeness which may result in overall cost leadership and differentiation of products. At the present moment Calyx and Corolla through its innovative supply chain has taken advantage over other rivals.

SWOT Analysis Strengths

Weaknesses

• Time advantage-C&C has a strong network •C&C is unable to provide its customers with that helps it to deliver the flowers faster then customized service the other competitors due to strong business •Small numbers of growers to cater the terms with Fed ex and the growers.

increasing demand.

• Contractual relations -with third parties like •Standardisation is one of the major problem growers restrict them to provide service to because C&C does not have any measures for quality

any other florists.

check

or

intervention

during

• Low overhead, low product loss and high processing of flowers nor do they have standardized product system.

profits due to efficient value chain.

• Maintenance of a sophisticated customer •The business depends upon more on growers database helps to manipulate and

design and Federal express.

efficient strategy •Just in time (JIT) cuts the cost of having inventory.

Opportunities

Threats

•Exploiting B2B market

•Supermarket

•Organsing

and local organized vendors

flower market like that of food could be a threat •

market •Exploiting

Seasonality in both demand and the supply

internet marketing and Online of the flowers. •Imitation

tracking of orders •Developing

their

own

website

strategy

and • The competitors like FTD have a network

registering the orders online.ex-Dell inc.This of

25,000 florists and a large advertising

would need developin their own online budget •

catalogue •Promotion

houses

Competitors can offer spur-of-the-moment

through tie-ups with corporate purchase decisions.

and

other

companies

Bloomingdale’s manufactures vases

like

PRESENT & FUTURE STRATEGIES: Advertising Strategy Flower industry still remains aloof to aggressive advertising campaigns when compared to the other industries. . Calyx & Corolla mainly advertises through sending catalogue to its existing and prospective customers .Calyx generally uses the direct advertising method wherein in some cases it experiments with the advertising strategy like that of the Bloomingdales advertisement on mother day (Exhibit 8 ) to enhance its customer base at special occasions. FTD follows television and radio as its main media. However, other retailers also provide catalogue to the customers .But when it comes to advertising then visual mediums like radio and television campaigns are more penetrating and have a larger reach to the customers. Moreover the print campaign is also a good medium to capture the customers then mailing catalogues to them indivsually. This would save a lot of time and money and the repetition of catalogues to the customers. IT Strategy Calyxes have a very efficient information system that helps them to manipulate and analyze a large pool of customer related data from their large database. Thus the company targeted the specific customers with this system ensuring that the expense made on marketing was in conformity with the sales. Again fed ex had computer terminals at both the c& c and growers which help them to track the status of the each and every delivery made to the end customers. This helped the company to gain the confidence of the consumers by reporting them tha latest updates of their delivery when required i.e if a customer wanted to know the status of the delivery then they had to just contact C&C. Thus the company maintained a very efficient system to help its supply chain working smoothly. But still there was room for improvement as the case was written in 90’s and to compete in the modern environment the C&C needed to enhance its IT system with substantial usage of internet and increase the number of transactions intimated to the growers using modem or the internet. Future business strategies Brand building-Today customers are very much brand conscious and they try to get the best brand available in the market at whatever coat they could get itIn the case of the flowewrs

their are no specific brands and they are mostly sold by the loose venders without any brand name.When we see the other industries then we find that they have been able to create a strong brand value in the mind of the customers. If we take the case of the Mc Donalds 4 we see that earlier the food market was not very much organised but after the arrival of the Mc D it created a strong penchant for the Mcd burgers in the customers mind. Moreover MC d standardised its food all across the globe which lured the customers to buy the burgers only when it was a McD burger. C&C should exploit this strategy by building a strong brand value for its flowers so that whenever a customer buys a flower he should prefer buying the C&C flowers. For this it should place its advertisements in all the leading print and visual mediums apart from the catalogues that it uses to reach its customers. Moreover the company should focus its product placement into the movies wherein there are extensive uses of the flowers. It could establish contracts with directors to place their products in specific scenes. Innovative technologies-C& C should create its own website so that they could capture the orders through the site and moreover the customers could track their shipment online like that of Dell Computers limited. The site would help the customers to register their order online and this would reduce the company’s cost incurred on maintain a dedicated phone line for customer orders. Again today internet has the largest reach among the masses hence the company can exploit the reach by placing its ads on the sites of the search engines(Yahoo or Google)5 and the various other most surfed sites. Every time a customer clicks on the ads placed on the sites the company will have to pay to the site owner but this will increase C&C chances of getting to a new customer. Specific day sellings-The company should target on the special day sellings like valentine day wherein the demand soars up spontaneously and the company could capture this opputunity.It should start promoting its product day before the event so that people could place their order in time. Target segment-In the case C&C it should start targeting the B2B customers like the one providing the funeral services, marriage service providers who need the flowers in bulk while servicing the end consumers. This will replace the local flower vendors and help them integrating further into the B2B segment. Similarly there are several event management 4

Mc Donalds is global restaurant chain with standardized products all across the globe and its core competency is the quik service for its burgers and meals . 5 If seen from the context of the case it was written in 1990s and at that time google didn’t exist but when talking of the future strategies we have tried to include all the possible perspectives.

companies who regularly need flowers during the events , C&C could target these segments so as to have a bulk deal in advance. The growers could accordingly get an estimate of the demand for the flowers.

ANNEXURE I

Breakup of the advertising expenses of FTD

Expenditure on advertisement by FTD others network radio 4% 8%

newspapers 14%

television spots 74%