MARK4210, 2014 Spring, L1/L2

MARK4210: Strategic Marketing

2014 Spring, Section L1/L2

[Class #12]

Distribution Strategies:

Calyx & Corolla

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Case Learning Objectives

Examine intricacies of distribution systems, and

opportunities for restructuring inefficient systems

Identifying new segments that leverage current

capabilities/competencies

Financial and marketing implications of reaching

new markets

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Key Questions for Discussion

1. What’s the traditional channel of distribution for flowers (conventional florists, FTD, 1800-Flowers)? And what’s the distribution channel for Calyx & Corolla? Please draw the value chain for each showing the distribution of flowers from growers to consumers. Include all the various members of the distribution channel and any information about margins and prices available in the case.

2. What are the strengths and weakness of Calyx & Corolla’s business model? What advantages and disadvantages does Calyx & Corolla’s distribution model offer the consumers?

3. Customer lifetime value (CLTV) is an important analysis for companies to figure out the dollar value associated with the long-term relationship with their customers. Let’s try to calculate the CLTV of a Calyx and Corolla customer.

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Customer Lifetime Value (CLTV)

To calculate CLTV, use the following approach and ignore taxes; if a number you need is given as a range in the case, use the midpoint for simplicity.

First, think about the net acquisition cost of a new customer. To calculate this, you need:

• (1) how does C&C acquire customers and how much does it cost to acquire a customer (not the cost to reach a prospect); and

• (2) the average contribution of one order

Next, think about the discounted net value each customer can bring in their lifetime. Assume that each customer acquired stays with Calyx & Corolla for 5 years. To calculate this, you need to:

• (1) calculate the cost of retaining each customer every year (think about how C&C retains customers )

• (2) calculate the contribution from the orders each customer place in a year.

• (3) calculate the net value of each customer in a year (that is, Contribution – Cost),

• (4) do the same calculation for year 1 through year 5; and

• (5) calculate the discounted net value of one customer over the 5 years =

(Year1 net value) / (1 + i) + (Year2 net value) / (1 + i)2 + …… + (Year5 net value) / (1 + i)5.

Use a discount rate of 10% (i = 10%) to make this calculation.

The following table might help you:

Finally, the CLTV of a Calyx and Corolla customer is: Discounted net value of one customer over the 5 years – net acquisition cost.

Year 1 Year 2 Year 3 Year 4 Year 5

Cost

Contribution

Net Value

Discounted Net Value

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1.a. Traditional flower distribution?

Channel Structure

IN CLASS USE ONLY, NOT FOR RELEASE/CIRCULATION. TAKE NOTES AS NECESSARY.

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1.a. Traditional flower distribution?

Costs & Prices

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1.a. Traditional flower distribution?

Delivery Time

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1.b. C&C flower distribution? Channel

Structure

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1.b. C&C flower distribution? Costs &

Prices

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1.b. C&C flower distribution? Delivery

Time

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2. Strengths & Weaknesses of C&C

business model? Strengths Weaknesses

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3. CLTV: Part I – Net Acquisition

Cost of New Customer (1)

Net Acquisition Cost per New Customer

= Total Acquisition Cost per Customer – Average

Contribution per Customer

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3. CLTV: Part I – Net Acquisition Cost

of New Customer (2)

Total Acquisition Cost per Customer (i.e., cost of getting

paying customer) =

IN CLASS USE ONLY, NOT FOR RELEASE/CIRCULATION. TAKE NOTES AS NECESSARY.

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3. CLTV: Part I – Net Acquisition Cost

of New Customer (3)

Average contribution per Customer (i.e., the unit contribution

on average for actual paying customer) =

IN CLASS USE ONLY, NOT FOR RELEASE/CIRCULATION. TAKE NOTES AS NECESSARY.

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3. CLTV: Part II – Discounted Net Value

of Customers in lifetime (1)

Note: Assume each acquired customers stays with

Calyx & Corolla for 5 years

First, figure out Cost of Retaining each Customer

(i.e., costs associated with getting each consumer to

continue to be active)

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3. CLTV: Part II – Discounted Net Value

of Customers in lifetime (2)

Second, figure out Contribution from the successive

orders each customer places per year (i.e., unit

contribution based on actual potential orders, on

average)

Contribution from each successive Customer order per

year =

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3. CLTV: Part II – Discounted Net Value

of Customers in lifetime (3)

Then, figure out the Net Value (i.e., net or resulting

value between Contribution & Cost)

Net Value =

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3. CLTV: Part II – Discounted Net Value

of Customers in their lifetime

Finally, calculate Discounted Net Value per Customer over

5 years: (Year1 net value) / (1 + i) + (Year2 net value ) / (1

+ i)2 + …… + (Year5 net value) / (1 + i)5.

(Note: Assume discount rate i = 10%)

Year 1 Year 2 Year 3 Year 4 Year 5

Cost

Contribution

Net Value

Discounted

Net Value

IN CLASS USE ONLY, NOT FOR RELEASE/CIRCULATION. TAKE NOTES AS NECESSARY.

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3. CLTV: Final Part III – CLTV of Calyx &

Corolla Customer

CLTV of a Calyx & Corolla customer =

IN CLASS USE ONLY, NOT FOR RELEASE/CIRCULATION. TAKE NOTES AS NECESSARY.