Calyx and Corolla Case Report

TABLE OF CONTENTS
1. PROBLEM STATEMENT .................................................................................................... 1
2. ISSUES ..................................................................................................................................... 2
2.1 CONSUMER AND DEMAND ANALYSIS .................................................................................... 2
2.2 COMPETITOR ANALYSIS ........................................................................................................ 3
2.3 COMPANY STRENGTHS AND WEAKNESSES ............................................................................ 6
3. ALTERNATIVES ................................................................................................................... 7
3.1 ECONOMIC EVALUATION ....................................................................................................... 7
3.2 QUALITATIVE EVALUATION .................................................................................................. 8
3.3 MARKET IMPLICATION .......................................................................................................... 9
4. RECOMMENDATIONS ...................................................................................................... 11
5. PLAN OF ACTIONS ............................................................................................................ 12

MKT 6301.001 – 2011 FALL
1. Problem Statement
It was in the early 90’s that Owades and her associates assessed the options to grow their business. Although the
company had tremendously grown (revenue went from about $750,000 in 1988-‐1989 to about $10 million in 1990-‐
1991), Calyx and Corolla was still a start-‐up company, which could simultaneously enjoy the advantages of a nimble
business model and bear the risks of being crushed by a much bigger competitor.

When Owades and her company were planning for a growth strategy, a revolution in both technology and business -‐ the
advent of the Internet -‐ was also around the corner, a revolution that would change everything: from how a person
reads the news to how a big corporation should sell its products.

The Internet came and brought along many unbelievable opportunities to ambitious entrepreneurs; however, it also
introduces many dangers to those that could not ride along over its crushing wave. On one hand, it could help a small or
a start-‐up company to have a level-‐field against a big corporation. On the other hand, the Internet also creates much
more competition in any section of business because it would be much easier for new businesses to make a forceful
entry into a market.

In brief, facing the fact that one of its biggest competitor, 800-‐FLOWERS, was aggressively expanding their business into
the brand new online business platform, Owades and her associates were facing a big question of which path of growth
they wanted to take in their 5-‐year plan of expansion (1993 – 1998):
(1) The traditional path: the same competitors, the same business environments, partially proven that they could
succeed to compete and win customers
(2) OR the Internet path: new competitors, new business model, tremendous opportunities, much larger customer pool,
but unproven environment.

The answer to this question and the followingones (what business activities do the company have to take along the
chosen path) would be very critical to the company; it could be a make or break. A great solution could propel Calyx and
Corolla to the front of the Internet wave and capture the best share of the market in a brand new business environment.
Otherwise, they would fade away because they did not have deep resources to defend themselves from new business
comers as well as from brick-‐and-‐mortar competitors.

Beside the strategic question about expansion into the online business, Calyx and Corolla clearly has to maintain, and
expand if they can, their current business model.
MAREKTING MANAGEMENT CASE REPORT 1

MKT 6301.001 – 2011 FALL
2. Issues
2.1 Consumer and Demand Analysis

2.1.1 Who are the customers
Customers are divided into two different types, the current and the potential customers. According to C&C`s research,
85% of its active customers (who had purchased at least two times a year) are women ranging in age from 30 to 50 most
of which had work and had substantial disposable income. The reason for this situation may related to the way of
promotion, because the main group who attracted by the catalog and able to purchase are women with substantial
disposable income. For the potential one, C&C think the largest groups of potential buyers were people who patronized
florists or other retailers who were unaccustomed to buying anything by mail order since the concept of selling fresh
flowers by mail was really new at that time. According to the composition of current customers, men and young people
can also be the potential customers (maybe not the largest part of potential customers) of C&C. ButC&C should add
more promotion ways to attract different kinds of potential customers.

We may also analyze from C&C`s revenues. 70% of C&C`s revenues were derived directly from catalog, while 20% were
derived from corporate client and promotional “tie-‐ins”. Only the remaining 10% was from outgoing telemarketing to
previous flower recipients and existing customers. The data shows that C&C only has a very small percentage of old
customers which imply that C&C may need to focus more on how to keep the existing customers.

Also, per capital consumption of flowers and plants in the U.S. was $36 annually, whereas it was approximate $60 in
Europe. This shows the demand of the U.S. may grow up in the future, so same situation may happen to C&C in the
future. C&C should have a plan on how to attract more customers in the future and enlarge the share of the market.

Moreover, since the Internet is the trend of the future business, C&C may need to consider the situation in which the
number of customers rises exponentially. It’s time for C&C to develop the Internet business platform so that C&C can
attract the customers at the very first beginning when the Internet becomes a norm for business.

2.1.2 Why do they buy?
The reasons that customers purchase from C&C are as follow:

(1). Efficiency and quality. Since C&C directly linking the consumer with growers through Federal Express, customers
received much fresher flowers, often fresher by as many as seven to ten days, than were available through conventional
retailers. High quality made customers` need, since most of the flowers are sent as gifts.


MKT 6301.001 – 2011 FALL
(2). Saving money for customers. Since customers can directly connected to C&C`s office which help to transfer
customers` order to the growers without any other intermediary, customers can save money.
(3). Convenience and reachable. The way C&C sell flowers (order by mail, telephone and fax) is convenience and easy
to reach by the customers.

2.1.3 How do they buy?
The way customers make purchase is convenience. Customers can make an order by telephone, fax, or mail which is
reachable for them. Customers do not need to go to store which let busy customers can purchase product easily. Also,
C&C sent lots of catalogs to its customers so that customers can know much more information about the product which
helps customers make their decision much easier. However, since C&C rely on its catalogs, C&C may lose the one who
do not received or see its catalogs.

Also, since the Internet is a new trend for selling product, C&C can develop the Internet platform for selling their
product. C&C can also combine the catalog and Internet together to promote and sell its product so that C&C can attract
more customers.
2.1.4 When do they buy?

According to C&C monthly sales` record, its sales grow high in May and December and low in July and August. The rapid
change of sales brings some issue to C&C. C&C should develop more continuity programs which are less seasonal to
offset peaks and valleys. Also, C&C cannot delivered on Sunday and holiday which is still a problem to the customers,
since some customers want to send out the flowers as gift on the holiday.
2.2 Competitor Analysis

2.2.1 Market Structure
In US, the whole market keeps growing at a rapid rate. Furthermore, since per capita consumption of flowers and plants
in the United States was $36 annually, which only approximated the average in Europe, the potential market is huge in
US.
The main competitors in fresh flower industry are:
(1). FTD
(2). Conventional florists and retailers
(3). 800-‐Flowers
(4). Supermarkets


MKT 6301.001 – 2011 FALL
To sum up, the fresh flower industry in US is very competitive, yet the potential market is huge.

2.2.2 Relative strengths and weakness

(1). FTD:

Strengths:
First, FTD has 25,000 florist members worldwide; these florists occupy a large part of market.

Besides, FTD provides its members with many other relative services, like promotional and advertising support and
supplies etc. These services can make a good relationship with its members and thus improves and unifies the services
of members in different location.

Thirdly, FTD and its members have a very complementary advertising strategy. As we can see from Exhibit3&5.Most FTD
member shops’ advertising Expenditures was focused on local business (advertised on the Yellow Page, local newspaper,
and local radio). By contrast, FTD concentrated most of its advertising on network television spots(73%).

Weakness:
The service varied between the original florist and the florist who delivered the order. Since consumers received flowers
from another florist instead of the one which originated the order, the flowers offered to consumers might be different.

(2). Conventional florists and retailers:

Strengths:
Florists have a long history. People are used to buying flowers in a nearby florist. Florists also provide customers with
relevant services, such as custom bouquets and arranging services.
MKT 6301.001 – 2011 FALL

Weaknesses:
These retailers are location oriented, if they are far from the producers, the cost will dramatically increase.Besides, the
transportation time is longer, so the freshness of the flowers can’t be guaranteed.
.
(3). 800-‐Flower

Strengths:
As a member of FTD, 800-‐Flowers is different from other florists. It can not only use FTD’s resources, but also can take
orders by itself and utilize other service. In this way, it can expand the market very quickly.
Besides, it’s convenient for consumers to order flowers by phone. With the intense advertising through billboards,
subway posters and CNN television, 800-‐Flowers will become increasingly popular among the customers.
800-‐FLOWERS is also very ambitious and aggressive to take advantage of new technologies to expand their business and
capture the market. In 1992, 800-‐FLOWERS already partnered with one of the biggest Internet service providers (ISP),
COMPUSERVE, so that they could initiate their online business.


MKT 6301.001 – 2011 FALL
Weaknesses:
Since the flowers are delivered by the florist eventually, the freshness of flowers can’t be guaranteed.

(4). Supermarkets

Strengths:
Supermarkets florist departments set a lower price of $10 than the average price of florists, which is 32$, to make
themselves more competitive.
In addition, larger supermarkets chains purchase flowers directly from distributors, growers and importers, which can
reduce the price.

Weaknesses:
First, supermarket employees are not as sensitive and do not have much expertise as the salesmen.
Besides, supermarkets only account for 18% of the retail florists market. Comparatively, 25,000 florists had about 59%
market share, which is more than twice of the supermarkets’.
Furthermore, Flower shops in supermarkets often, for example, were placed next to produce departments where fruit,
as it ripened, produce ethylene gas, a chemical which hastens the deterioration of flowers.
At last, there were about 11,349 chains and 4651 independent supermarkets sold flowers in 1990 with average annual
sales of 104,950. Though the whole volume was great, nearly 17million, they were separated nationwide and couldn’t
form one strong power.
2.3 Company Strengths and Weaknesses

SWOT Analysis
§ Revolutionary business model,connect consumer and grower directly.

§ Products are fresh and long-‐lived.
§ Experienced team.
§ Good relationship with Federal Express.
Strength
§ Close relationship with the growers.
§ Good relationship with customers, providing products & services of good quality at competitive
prices.
§ Sophisticate information system helps to analyze customer`s need.

MKT 6301.001 – 2011 FALL
§ Calyx and Corolla was still a start-‐up, their resources were not deep enough to defend itself from
any assault from a much bigger competitor or a business downturn period.
§ C&C cannot delivery flowers on Sunday and holiday.
§ C&C cannot handle huge demand on seasonality.
§ It`s too much work for such a small manager team.
Weakness § Products lack of flexibility
§ C&C cannot delivery products in one day, which cannot fulfill some customers` need.
§ The ways for C&C makes promotion is too limited.
§ C&C has no special specialists for wedding and funeral which events have a huge demand in
flower market.
§ Flowers arrive in a bland FedEx package.
§ Internet business are right on the corner

§ According to the Europe flowers market, Europe
Opportunity
§ New information technology is developing fast,it allows C&C to get useful information from
customers’ personal data and consume history to enhance their sales and CRM.
§ Seasonality
§ Transportation
§ C&C’s growers most located in 3 states, which means if any extreme weather happened in these
Threat 3 states.
§ FTD, supermarket and local florists are also exploring new approach to expanding their market
share.
§ Model can be easily copy
3. Alternatives
3.1 Economic Evaluation

We can see from the Exhibit1 that during the 5 years development, the sales increase from 756 million to 24,431 million
which demonstrate that it increase its market share and the mode which using mail to sell flowers actually make a
sense.

MKT 6301.001 – 2011 FALL
At the same time the cost of goods sold increase with the number of customers and the market developing worldwide. It
shows that the company developed well and fast. Because it uses new mode of management and delivery so that it cost
less but gain more profit than other competitors.
Gross margin increases from 567 million to 18935 million which increased three times more. It reduces the process of
grower to customer which will decrease the cost and more competitive to other traditional mode. It retains the
freshness of the flower and enlarges the profit at the same time. In 1991, the company got investment from18 investors
who have provided 2 million in capital.

At 1991-‐1992, the net profit decreased to 113million because the expenses are about the advertising so that the Calyx
Corolla sent the catalog to prior customers and the people on the name-‐listing.

Because the sales staff and customer service representatives were key components of the entire system, they have to
hire people with real interest in flowers and plants. It will cost more than other competitors.Due to the short life cycle of
flower for longevity and being shipped as well as packaging, the cost to protect the flowers to keep them cool and wet.
It will need machine or technology to maintain a constant temperature. Transporting by mail, there will be some risk on
the way. In some occasion, it will cost loss of money. for example, the weather, the inevitable accident which is mail
people's may trigger extra cost.

It has to pay grower extra labor and added cost which should be avoided.To develop a good relationship with growers,
the company should send them demand forecasts which will require extra cost.Besides, The company‘s current supply is
not enough for the growing market demand which will restrict the development of the company.
3.2 Qualitative Evaluation

Calyx and Corolla is a new company in the fresh flower market and have bought in the concept of selling the fresh
flowers in the market by mail. The Calyx and Corolla company established an excellent relationship with the growers and
gave them new distribution opportunities that could increase sales even in the off season because of their excellent
business model which attracted the customers as the company offered fresh flowers in no time .Having the excellent
relationship with federal express made sure that the flowers would be handles carefully, cautiously and also the flowers
would be delivered to customers on time. This also made sure that the flowers would reach to the customers as if they
are freshly plucked. The excellent sales staff and customer representatives were key factors for the company success
since they were in touch with the customer directly. The calyx and corolla made sure that they are hiring the right
people by in taking those people who had interests in flowers and gardening so that they can perform their job with

MKT 6301.001 – 2011 FALL
great excellence. Also the involvement of the senior management in training the new employees and in the preparation
of the catalogue gave an edge. Also providing the growers with the shipping box card level and vases assured of the
uniformity and quality in the product.

The idea of advertising through the catalogues and media was taken into consideration but before that the company
had to make sure of two things:
1) Will the growers would be able to meet to the customers increased demand?
2) Will the FedEx be able to make the onetime delivery of the increased demand of the flowers to the customers
maintaining the same quality?
3) They also had to find the right time to do the advertising depending on weather the season is peak or off. The
conversion rate in the peak season would be higher than in the off season.

In the recent years the supermarkets are the greatest competitor to the traditional florist .In the last ten years their sale
has increased to almost more than fourfold bringing them close to 18% of the floral retail market. But the employee
base in the supermarket has been one of the most important drawback .The employees lack specialization in the floral
knowledge and expertise required to handle and pack flowers. Hence in comparison to the traditional florist it lacksin
overall poor service. The C&C also faces competition from FTD.
3.3 Market Implication

The major short term marketing problem confronting the C&C is, as a startup company, how they could raise enough
funding without any profit in the fiscal year 1988-‐1991. And, averagely, on a single transaction, there was a net loss of
$2.85(During 1990, it had consummated over 150,000 transactions, and from Exhibit 1 we can see the net loss was
$427,000.) And in 1990, after a $ 0.4 million net loss they raised $ 1 million in the spring of 1991.With limited funding,
they should optimize their marketing strategy to generate profit and balance the loss.

Based on the case statement, acquisition costs for new customers are the primary impediment to profitability for Calyx
& Corolla. Let’s see the main form of C&C advertising approach: catalog, and what’s the difference cost between prior
customers and mailing-‐list customers:
(1)For prior customer:
500,000 Recipients *6 catalogs per year*$ 0.32=$ 960,000
(2) For rent-‐list customer:
12,055,000 catalogs*$.32 per catalog=$3,875,600

MKT 6301.001 – 2011 FALL
Plus 7,855,000 mail list name*$.08 per name=$628400, the total cost is$4,506,000.However, the rent-‐list name only
yields 1%-‐2% and prior customer yield 5-‐10%.

First reason for this situation is they already got so many catalogs, which means catalogs from the C&C cannot gain such
attention. Thus, the increased effectiveness and efficiency of the new customer acquisition strategy will enable the
company to continue revenue growth while dramatically improving profit performance.

Second reason is that catalog as a advertising approach is very product oriented. It lacks of flexibility and gives customer
less customizable choice. Customers can only choose what C&C already have instead of what they really want.

For the plan of expansion into the online business, competing with 800-‐FLOWERS, C&C has to raise a large amount of
funding so that they have enough resource to execute their plan.

For the online business, the upfront cost to set up the online system is the most significant one. For examples, they have
to buy servers (web servers), hire system administrators to maintain them, register with search engines, etc. These are
the new costs that they did not have to pay in the current catalog business model.

However, with the new business model, they can reach much larger nation-‐wide pool of customers and the cost to
acquire a new customer in this new business model is very low. There is no catalog to create and to print, no catalog to
send to customers, etc. All these catalog-‐related costs are very high.

In the brand new online business platform, C&C has to register their business domain with search engines so that
customers can access their business. However, the cost for premium search service registration (in the early 90’s) is only
about several thousand dollars a year.

Let’s look into more details of the cost to set up the online business
1) Technical costs (in the early 90’s)
a. Web server: $ 50,000.00
b. Mail server: $50,000.00
c. Software: using open-‐source software applications (Linux, etc.) à FREE
d. Backup system: $20,000.00
e. Maintenance and replacement: $50,000.00/year
i. Plan for 5 years: $50,000.00 x 5 = $250,000.00
Total: $120,000.00 + $250,000 = $370,000.00
MKT 6301.001 – 2011 FALL
2) Service costs
a. Domain registration
i. use the domain services provided by ISP (COMPUSERVE) or AOL: $10.000.00/year
• Plan for 5 years: $10,000.00 x 5 = $50,000.00
3) Human-‐labor costs
a. Chief Technology Officer: $40,000.00/year (in the early 90’s for a small company)
i. Plan for 5 years: $40,000.00 x 5 = $200,000.00
b. One system administrator: $25,000.00/year (in the early 90’s for a small company)
i. Plan for 5 years: $25,000.00 x 5 = $125,000.00
4) Business-‐related costs
a. To get more supplies from more regions, build up the relationship, etc..: $100,000.00
Totally, the cost must be at least:
$370,000.00 + $50,000.00 + $200,000.00 + $125,000.00 + $100,000.00
= $845,000.00

Therefore, for the 5-‐year plan of expansion into the new online business platform, C&C has to raise at least more
$1,000,000.00 (one million)

Generally, for the both business models (the current catalog model and the new online business platform) in their 5-‐
year expansion plan, they should try to raise at least 2 million so that they can have enough resource to execute their
expansion plan.
4. Recommendations
From the 1900s onwards, electronic commerce would additionally include enterprise resource planning
systems(EPR),data mining and data warehouse, especially with the advent of Internet.
It was clear that in the early 1990s, the retailers already aggressively took advantage of the brand new technology – the
Internet – to enter a very potential business environment. For the case of Calyx and Corolla, one of its biggest
competitor, 800-‐FLOWERS, already quickly expand their business into this new business model. Calyx and Corolla had no
choice to expand their business into the new environment for its own survival and expansion.

Based on the new trends of business environment, generally, and of the flower industry, particularly, the following
recommendations are made to Calyx and Corolla’s executives:


MKT 6301.001 – 2011 FALL
1. Calyx and Corolla should spread out the supplies over more growers to reduce the risk.

2. Calyx and Corolla should quickly expand their market -‐ both demographic customers and flower
growers, i.e. both ends of the business -‐ demand and supply

3. Most importantly, the Internet was right at the corner. Owades and her top associates should take bold
moves to ride the Internet wave. This strategy path fit very well to the company position (still a start-‐
up), ambitious top executives ready to take bold move (“... Calyx and Corolla represented a true
departure from traditional channels of distribution by directly linking the consumer with growers and
through Federal Express, growers with consumers...”), and a company goal to expand quickly and spread
out the risk.

4. The core strategy of expansion consists of 2 parts
a. Do business as normal for the current business model (let’s name it: catalogue model)
b. Set up the brand new business model (online business): This is where the expansion should be

5. Plan of Actions
1. Re-‐training and Re-‐Education

a. Owades and her top associates should read books, take courses in colleges/universities to re-‐
train/re-‐educate themselves about the Internet and the new business model.

b. Owades should suggest all the staffs do the same: learn and get used to using the Internet
communication tools like email, web sites, etc. to familiarize themselves with the new business
model

2. Create an excellent business plan for the strategy of expansion in the new Internet era

3. Raise a fund of at least two more million (talking with venture capitalists about the business plan)

4.
Calyx and Corolla should be ready to shift their business to the Internet business model
a. Get an Internet identity for their business
1. Register an Internet domain name (using ISP services)
2. Suggesting register 2 domain names
• one contains “Calyx_and_Corolla”
• another domain name that contains “flower”, simple, short, and easy to remember

b. Set up a web server and mail server
c. Create the company web site and move all paper content to the web
d. Register the company URL with search engines for marketing and advertisement

5. Create a new web business group to take charge of the new business activities
MKT 6301.001 – 2011 FALL
a. Hire a CIO to handle all the technology-‐related business
b. Train some of the existing staffs and move them to the new group beside hiring some new staffs

6. Product
a. With the web business, service can be classified into 2 levels: Premium and Express
1. Premium service: is served as currently: the same price, etc.
2. Express service: lower price with reduced service level (but quality is mainly the same)

7. Suppliers
a. Try to expand the pool of flower-‐growing suppliers


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2.1 CONSUMER AND DEMAND ANALYSIS .................................................................................... 2

2.2 COMPETITOR ANALYSIS ........................................................................................................ 3

2.3 COMPANY STRENGTHS AND WEAKNESSES ............................................................................ 6

3.1 ECONOMIC EVALUATION ....................................................................................................... 7

3.2 QUALITATIVE EVALUATION .................................................................................................. 8

3.3 MARKET IMPLICATION .......................................................................................................... 9

5. PLAN OF ACTIONS ............................................................................................................ 12

MAREKTING MANAGEMENT CASE REPORT 1

2.1 Consumer and Demand Analysis

MAREKTING MANAGEMENT CASE REPORT 2

2.1.4 When do they buy?

2.2 Competitor Analysis

MAREKTING MANAGEMENT CASE REPORT 3

MAREKTING MANAGEMENT CASE REPORT 5

2.3 Company Strengths and Weaknesses

§ Revolutionary business model,connect consumer and grower directly.

MAREKTING MANAGEMENT CASE REPORT 6

§ Internet business are right on the corner

3.1 Economic Evaluation

MAREKTING MANAGEMENT CASE REPORT 7

3.2 Qualitative Evaluation

MAREKTING MANAGEMENT CASE REPORT 8

3.3 Market Implication

MAREKTING MANAGEMENT CASE REPORT 9

MAREKTING MANAGEMENT CASE REPORT 11

5. Plan of Actions

1. Re-­‐training and Re-­‐Education

MAREKTING MANAGEMENT CASE REPORT 13

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1. Re-‐training and Re-‐Education