Kingsford Case

Kingsford Case

Problem

From 1980s up to the late 1990s, Kingsford Charcoal demonstrated a stable growth, which reached approximately 1-3 percent a year. In addition, there was an increase of charcoal as a category. However, the situation negatively changed in the 2000s. The sales of Kingsford reduced. This reduction was caused by the general fall in the category, as well as problems within the company itself.

One of the problems in the case is that Kingsford wanted to raise profits by increasing the prices; this step could lead to the drop in sales. On the other hand, this strategy seems reasonable because Kingsford has not increased the prices for several years, whereas other companies selling charcoal has made this step. Moreover, some Kingsford’s channel partners raised the prices on their own due to the overall tendency in the industry. In any case, the prices of Kingsford were still lower than the ones offered by the private-label brands by 25-30 percent. Therefore, the company could keep its sales on the previous level. The researches demonstrate that customers highly value the quality of Kingsford’s products; in particular, 60% of customers think that Kingsford sells charcoal of high quality whereas the percentage of customers that said about high quality of private labels reaches only 13%. It means that Kingsford has a competitive advantage over other companies, and it is high quality of the product offered. It is one more supportive argument for increasing the prices. Besides, 30% of customers that own barbecue grills are young large families with quite high income; therefore, they are not very price sensitive, and insignificant increase in prices for qualitative products will not frighten them. In addition, as the researches state, there are no good times for increasing prices. Nevertheless, charcoal belongs to the group of the happy products because they are associated with fun and happiness. Consequently, manufacturers have more freedom in the price changes. If to return to the profits, raising prices is able to cause the short-time growing of the profits, and this effect could be used for reinvesting in Kingsford and other Clorox’s companies.

Apart from the price issues, Kingsford has problems with advertising. In particular, the experts state that the company is characterized by the absence of media advertising and clear message to customers. Together with reducing the interest to charcoal grilling among customers, it is quite dangerous for the company because it might lead to the further drop in sales. Today, the average spending on the gas grilling has increased whereas average spending on the charcoal grilling has fallen. Customers choose gas grilling because it burns hotter and longer than the regular grilling. It is also more convenient than charcoal. Overall, the problem here is in the reduced advertisement of charcoal, which might lead to further reduction in sales. Consequently, this situation can reduce the general spending of the company.

Objectives

First, the company needs to make small (2.5%) blue bag price increase across all the channels. It would allow the company to raise their short-turn profits and keep sales approximately on the same level. The company operates in the competitive industry, so Kingsford cannot easily make significant price changes. Moreover, customers need time to adapt to the new prices.

Second, the company’s managers need to communicate the price changes to customers because they could be perceived as something strange. For example, Kingsford could start a new advertising campaign where it would stress its benefits over other manufacturers. The major focus could be put on the high quality of the company’s products. Another attractive feature of Kingsford is stability of its prices. Unlike other manufacturers, it has not changed them for many years. It could be shown as a sign of high reliability and respect to customers.

The third objective is making more advertising. Apart from the aspects described in the previous objective, Kingsford should also pay particular attention to advertising in food stores because they bring 66% of the sales. The target customers are young large families, so advertising should also be fresh and designed for people that like big companies. As Kingsford has limited financial resources, the advertising campaign should not be costly. For example, the company’s managers could use social media. It is less expensive than traditional media and not less popular among the youth. In particular, Kingsford could launch its channel on YouTube and post the videos about using its products for the barbecue grilling. Other effective tools are Twitter and Facebook. Twitter should be used for the short posts about the company’s products, funny news about barbecue, or even new approaches to preparing dishes. The main idea is that the posts should be funny and attractive. The blogs in Twitter should not look formal because customers associate barbecue as well as its products with fun and happiness. The page in Facebook is also a common tool for advertising. It possesses more opportunities for promoting products because the company can post different photos, long texts, videos, and contact details. Customers that visit the manufacturer’s Facebook page can get there all the necessary information.

The fourth objective is further promotion of gas grilling with keeping the current prices. This step could attract customers that do not like the changing prices for regular products but would like to stay clients of Kingsford. In the short-time perspective, such strategy could bring losses to the company due to the absence of the price changes. However, it is effective to maintain the marketing share and large customer base.

The fifth objective is creating more grilling events. For example, sports events can bring potentially more sales because today, the company is greatly dependable on the major holidays like the Independence Day or Labor Day. It does not allow having stable growth during a year, especially in the today’s situation when the sales of charcoal have declined.

The sixth objective is watching the growth levels of production. The company has factories with 80% of total capacity. It means that Kingsford cannot have more than 5% growth of production during few years in a row. This fact should be considered while opening new distribution channels and creating new advertising campaign because inability to satisfy the customers’ demands may lead to the weakening brand image. According to the researches, opening new factories will take too much time and finances, so it is not beneficial for Kingsford.

The seventh objective is using the pushing strategy in working with stores, especially food ones as the major sources of sales. In particular, it is necessary to persuade them to support only two brands: Kingsford and private label. It brings advantages to both sides. Kingsford achieves increased promotion and higher sales whereas stores have higher profits. Moreover, it is also convenient to customers because it becomes easier for them to choose a product as they have only two options: to buy either Kingsford’s product of high quality for lower prices or private label that costs more but is worse. Besides, this step allows increasing the market share of Kingsford because its main competitor Royal Oak losses its presence in the stores because of the discussed strategy.

Alternatives

The first alternative is keeping the prices on the same level and not increasing spending on advertising. For example, the company spent $465 million in 2000, $ 474 million in 1999, and $ 491 million in 1998. According to these numbers, advertising costs have been even reduced over the years; the proportion of advertising costs was 13% in 2000 (if to calculate the total costs and expenses) (Exhibit 1). The prices were more or less stable. Overall, all these facts have led to the absence of large sales increase. It demonstrates that the current campaign is not sustainable.

The second alternative is increasing spending on advertising with keeping the current prices. This strategy would probably lead to the raising sales and market share. The customer base of the company also might be expanded. However, it would have negative impacts on Kingsford’s profits. Such outcome is not reasonable for the company today due to the overall decline in sales in the industry. In such situation, it is more efficient not to increase spending on advertising at all than do this with keeping the same prices. Therefore, the first alternative looks more sustainable than the second one because it, at least, causes smaller spending of the company.

The third alternative is introducing a moderate price increase (4%) of Club/Home center. In the case of absence of merchandising loss, it will bring $780 of sales impact and $648 of profit impact (Exhibit1). However, the proportion of sales in this Club/Home center is insignificant in comparison with the other channels, so the price changes cannot substantially change the financial performance of Kingsford. Therefore, it is reasonable to refuse this alternative because it will only frighten customers

The fourth alternative is a moderate (5%) blue bag price increase across all the channels. This price change leads to a significant reduction of sales and profits due to losing competition to other companies especially in the case of 7% merchandising loss (Exhibit 2). Customers are not ready for such dramatic changes, so even the high quality of products will not help Kingsford keep its current market share. The only positive trend is in the case of the absence of the merchandising loss. Nevertheless, even in this case, only the profits will increase whereas the sales will reduce.

The fifth alternative is price increasing for both blue and red bag by 5% across all the channels. It will bring positive profit impact. However, the sales impact will be definitely negative (Exhibit 2) because, in the case of reducing the only selected product range, customers have at least another option. This scenario is the least attractive for customers because it affects all the channels.

Recommendations

According to the financial reports of 2011, the sales of Kingsford were lower than expected. This fact demonstrates that the company needs to overview its strategies. First, the company has increased its market share in the charcoal category due to the failures of competitors. On the other hand, Kingsford faced the growing competition in the gas grill category. The company has already risen its spending on advertising the products of the following category, but there is still potential for increasing the sales here. A new advertising campaign should pay more attention to the benefits of gas grilling. It should target the young large families with an average and high income because they are able to value the greatest advantages of the product. First, these people like when everything is done quickly, and gas grilling perfectly fits this criterion. That is why, they do not need to spend so much time on watching for the grill. Instead, they may pay more attention to their children and friends. Second, gas grilling provides higher temperatures; it is also important to young customers that prefer fast cooking. These and other benefits of gas grilling could be stressed in the new message to customers through various communication channels including social media.

Apart from promoting gas grilling, the company should change its pricing strategy. It is reasonable to make small changes (e.g. about 2,5%). It will not bring immediate increasing of sales and profits, but it may have the long-term positive effects. In particular, the company cannot allow rising spending on the advertising for now. Therefore, the further growth of sales is also impossible. The necessity of small gradual prices changes is proved by the experience of Kingsford’s competitors that had lost their customers due to the quick price increase. One more aspect of pricing is providing the temporary discounts. For example, Kingsford could offer price reductions during the winter and fall when demand for the product is low.

Besides, the charcoal grilling itself also needs promotion. Advertising is important, but Kingsford is able to generate high revenues in the result of selling this product because it has a significant market share. In the advertising campaign of charcoal, it is efficient to focus on the benefits of the product over the gas grilling instead of praising the quality of the brand and comparing it to other manufacturers. Kingsford is strongly associated with charcoal, so additional promoting of the brand name is unnecessary. However, contrasting the charcoal and gas grilling is useful because today, customers often doubt which kind of grilling to choose.

Another important aspect is the strategy of working with the stores. First, encouraging stores to support only two brands, particularly Kingsford and private label, is effective. The stores, especially food ones, are very important channels, because they have the key impact on the sales increase. Therefore, promotion there should be done carefully but efficiently. Second, pushing stores has to be followed by attempting to keep a strong presence of the products on the selling floor. It allows achieving high amount of purchases performed on impulse. In fact, this kind of purchases makes up a large part of the company’s sales. Moreover, it is also beneficial for the stores because their revenues increase in the result of this strategy. The role of sales in stores is so important that the company managers should pay attention even to the slightest details. For example, the amount and variety of products are also crucial, especially during holidays when Kingsford has the highest sales. Besides, salespeople should demonstrate qualitative customer service. Customers consider charcoal a happy product, so they want to have an enjoyable shopping experience. For example, salespeople can facilitate the selection process because today, the company offers not only different groups of products (e.g. charcoal and gas grilling) but also various size and price options. Therefore, customers might be frustrating while standing in front of the pile with different goods.

One more suggestion is careful monitoring of the production level of the factory. For the company, it is not efficient to raise the production capacity. Therefore, if the introduction of the following idea causes about 3-5% sales increase, the company will need to increase the prices.

Overall, Kingsford Charcoal has two major problems: absence of advertising and unreasonable pricing. The most effective way to solve the issues is to make small price changes, which will help increase the profits with insignificant drop in sales. Besides, a new advertising campaign is necessary.

Exhibit 1

Advertising=$456 million (in 2000)

Total costs and expenses=$3,461

_____________________________

13% of spending- advertising

Exhibit 2

1.The Club/Home Center 4% price increase

A. No merchandising loss 60%

Sales Impact- $780

Profit Impact- $ 648

B. 300 MSC loss at Costco 25 %

Sales Impact – (278)

Profit Impact – 0

C. 1,000 MSC loss at Castro 15%

Sales Impact – (1,080)

Profit Impact – (375)

2. Minimum (2.5%) blue bag pricing increase

A. No merchandised loss

Sales Impact – (1200)

Profit Impact – $560

B. 10% merch. loss in 10 lbs, 20 lbs bags

Sales Impact – (3,090)

Profit Impact – (-810)

3. Higher (5%) blue pricing increase

A. No merchandising loss

Sales Impact – (1,900)

Profit Impact – $1,060

B. 7% merch. loss in 10 lbs, 20 lbs bags

Sales Impact – (4,140)

Profit Impact – (110)

4. Total Line Pricing (5%) increase

A. No merchandising loss

Sales Impact – (2820)

Profit Impact –(1870)

B. Combination of:

7% merch. loss in blue 10 lbs, 20lbs bags

3 mech. loss in 8# Matchlight

5 mech. loss in 15# Matchlight

Sales Impact – (4,020)

Profit Impact –1,720