Calyx & Corolla – challenging the retail flower industry

The brainchild of Ruth Owades was Calyx & Corolla, a company that pushed the boundaries of the $9 billion retail flower industry in the US. Traditionally, flower retailers were florists. But more recently, supermarkets and FTD, also known as Florists Telegraph Delivery, came into competition. All retailers operated on relatively the same distribution channel and network, which consisted of four to five players and looked something like this:

Distributors would pay growers in advance. Upon receipt of the flowers, distributors would mark-up flowers 50% to wholesalers. Wholesalers would markup flowers 100% to retailers. And Florists would mark-up anywhere from another 150% to 200% when selling to customers. “A flower that a grower would sell for approximately $5, for example, would thus cost the ultimate consumer about $40” (3). Additionally, consumers would often have flowers delivered by florists themselves for an additional markup.

This long and complicated chain was fae from efficient. In addition to the pricing that increased down the line, what made this distribution process even more difficult was the considerable level of fragmentation throughout the industry. Smaller, family-owned operations were the majority among growers, distributors, wholesalers, and retail florists. Additionally, these operations were often part of many different roles, with some growers acting as distributors, etc.

Ruth Owades’ innovation revolved around a new distribution chain for her corner of the industry. As there was a range of perishability with the product, efficient distribution was crucial in establishing a place in the market. Fragmentation would be a thing of the past and fresh, quality flowers would be a thing of the present and future. To do this, Calyx & Corolla would capitalized on the inefficiencies of the market by cutting out the middlemen in the equation and standing as the connection between consumers and growers.

A closer look at this can be seen through the lens of the daily operations at Calyx & Corolla. First, orders were placed by customers through telephone, fax, or mail, which were received at the central office in San Francisco. They were then faxed or digitally sent to Calyx & Corolla’s 30 dedicated suppliers throughout the United States. Upon receipt of the orders, suppliers would pack and ship the orders to customers through Federal Express.

This innovative design of the distribution channel drastically decreased the number of days from point of purchase to point of receipt of flowers. In fact, customers would receive flowers that were seven to ten days fresher than those they would have received through traditional retailers. Armed with this new concept for flower distribution, Calyx & Corolla would be able to position itself as the market leader for fresh flowers.

Business Model

Being the market leader meant creating and capturing an incredible amount of value in the customer’s eyes.

By replacing the middle three links in the traditional distribution chain (distributor, wholesaler, retailer) and directly connecting consumers with growers, the time it took to deliver and receive flowers was greatly, thus increasing the quality and lifetime of the flowers in the hands of consumers at roughly the same price as other retailers.

While classic retail options, such as florists and supermarkets, were available, “supermarket employees lacked the sensitivity and expertise required to handle, package, maintain, and sell flowers effectively. 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” (5). Additionally, with retail florists and FTD, it could not be guaranteed that they would deliver the freshest flowers, adding to the unpredictability and variability of purchasing from them.

The quality and longevity of the flowers was not the only way Calyx & Corolla was able to create and capture value. Compared to other companies, they offered superior customer service, hiring only “service-oriented people who demonstrated a real interest in flowers and plants” (6), thus exceeding where supermarkets faltered. Additionally, they offered broad distribution, seen in their catalogue, with customization, variety, and transparency as pillars of their offerings – what you saw in the catalogue was guaranteed to be what you would get, competing with the potential inconsistency from florists and FTD.

Lastly, Calyx & Corolla captured value in terms of pricing. With the average price of single items being $30-$60, comparable to other options on the market, coupled with their service, speed, and quality, Calyx had the potential to stand as a real market leader.

Catalogue Efforts

To gain visibility and ensure that their company would be seen by consumers, Ruth Owades hired Ann Hayes Lee about a year into Calyx & Corolla’s life. By the time Ann Hayes Lee joined Calyx as the Vice President of Marketing, she had already spent twenty years in the catalogue business, reaching roles as prestigious as creative director for a home and apparel company. Lee worked on managing all merchandising and marketing programs as well as creating six bi-monthly catalogues. In order to make them interesting for the consumer, regular product pictures and prices were coupled with trivia, consumer information and arrangement suggestions.

The success of the catalogues was the biggest in the marketing and advertising department. “Seventy percent of Calyx & Corolla’s revenues were derived directly from the catalogue, while 20% were derived from corporate clients and promotional ‘tie-ins.’ The remaining 10% was from outgoing telemarketing to previous flower recipients and existing customers” (9).

With 70% of total revenue derived directly from the catalogue, it stood as the main advertising medium for the company. The recipients of the catalogue, totaling 500,000 people, included those who had previously ordered Calyx & Corolla flowers and those who called to inquire about the business.

The main draw of the catalogue, for repeat and potential customers, was the transparency. They knew exactly what they were going to receive or send. This consistency marked the brand as one of the most reputable in the industry, while other flower delivery services such as FTD and 800-Flowers were not able to deliver exactly the bouquet that would be viewed in pictures.

While there were incredible benefits of the catalogue and whilst it was a pillar of Calyx & Corolla’s advertising, there were many cons that could seems to outweigh the pros at times. One of these was that response rates would have so much variance. While the catalogue would yield a response rate of 5-10% of previous order customers, it only yielded about 1-2% response rate from those who signed up for recipient mailing list (9). Additionally, the fact that so many other companies were sending catalogues meant that Calyx & Corolla’s had the potential to get lost in a sea of mail and advertisements. Lastly, the rising postal rates meant that the cost of getting the attention of consumers was rising for this medium of advertising.

Overall, while the catalogue efforts were substantial in terms of the revenue brought in by the marketing team, Calyx & Corolla was still operating at a loss in FY3 (Exhibit 1, 13). In addition to this, it faced many drawbacks that made it seem less appealing and more ageing and burdensome for future upkeep.

In order to turn a profit, it would be necessary to identify a new segment to target.

Segmentation and Targeting a New Segment

Before choosing a segment, it is essential to determine the criteria by which the segments will be judged in order to find the best one to target. In this case, I will be evaluating the segments on:
High similarity within the segment and low similarity/overlap with the existing dominant active segment defined below.

Coupling with this, the behaviors, reactions, and market tendencies of the individuals in the segment are distinctive and relatively similar.

  • The size of the market. It must be large enough.
  • It is clearly defined and identifiable.
  • The stability of the segment.

It is important to define these before moving into the potential segments as they will be discussed in regards to these criteria.

With the advanced data collection systems, the company was able to examine databases of current customers, recipients, and prospective customers. This revealed the segments that captured the active customers, who were defined as purchasing at least two times per year. “Eighty five percent of these customers were women, mostly ranging in age from 30 to 55. Most worked and had substantial disposable income” (9). Additionally, this revealed that “the largest group of potential buyers, however, were people who patronized florists or other retailers and were unaccustomed to buying anything from mail order” (9).

This large segment of potential buyers can be segmented by their psychographic qualities, referring to their values and lifestyle. One could say that they are active consumers of flowers who are knowledgeable and care about the product. They are accustomed to receiving their orders in a larger frame of time and the quality of the product is not as good as it can be. Calyx & Corolla comes in as delivering exactly what the consumers want in a shorter span of time with much better quality. While Calyx & Corolla is able to deliver on the aspects that this segment seeks, the psychographic segmentation of the potential consumer makes it much more difficult to predict the exact number of individuals in the segment (as opposed to, say, demographic segmentation).
Another potential segment can be defined by their demographic. Young adults, or individuals under the age of 25 can be targeted. This segment fits well with the low similarity compared to the largest segment of active buyers. Additionally there is high similarity within the segment. However, this does not act in the most beneficial way for Calyx & Corolla as the shared actions of the segment include a lack of brand loyalty. Additionally, they are not a stable segment as they are in a highly and quickly changing stage in their life. Thus, this would not be the ideal segment to target.

Another possible segment can be grouped together by their socioeconomic situation. As many of these people share the same behaviors and actions, there is high similarity within. Additionally, they are a very stable and consistent segment with their choices and preferences. However, as the top active segment is women with larger disposable incomes, there likely is not enough of a difference to put the time into targeting higher class individuals.

Lastly, Calyx & Corolla could segment by geographic area, specifically city dwellers across the US. These are consumers who are different from the current top active consumer segment. They have a high similarity within and similar stable actions, being busy and on the go. Calyx & Corolla would make an impact on the segment because of the segments lack of time to make sure that something like flowers are right. They need it to be completely taken care of as they likely will not want to take the time to check up on the order. The convenient, no-hassle, consistent flower arrangements and deliveries will be perfect whether they are ordering their own flowers or sending them as a gift. Additionally, the segment is easily measurable.

Facing the decision of which segment to target out of the four, I believe that if two segments are chosen, the geographically and socioeconomically segmented groups should be targeted. The geographic segment is stable, with common traits, and Calyx & Corolla is exactly what would appeal to those who are purchasing through other retailers. Regarding the socioeconomic segment, although there exists overlap with the current top active consumer segment, the marketing efforts towards this group, through the _______, have already been successful and many more high-end partnerships are in the cards for the future.

To craft a positioning statement for the geographically segmented group:

To customers who live in cities and are always on the go, Calyx & Corolla offers a service that will bring you the exact flowers that you want with a shorter delivery time, longer lifespan, better quality, consistency, and knowledgeable service. Relative to conventional retailers of flowers such as florists, markets, and other delivery services, we connect your order directly with growers and growers to you through FedEx. This drastically cuts down on the jumble that happens from the cutting of the flower to the delivery at your doorstep.

To craft a positioning statement for the socioeconomically segmented group:
To customers who ______, Calyx & Corolla offers a service that _____. Relative to conventional retailers of flowers such as florists, markets, and other delivery services, we ________. This _______.

This statement is a clear example of how Calyx & Corolla is able to capture value through offering the customer service and knowledge of a traditional florist, the ease and relative immediacy of purchasing from a supermarket, and is able to create value with quality, transparency, consistency, and longevity like no other player in the market. It will be possible to convey these points to the target segment through facts about shipping time as well as customer testimonials.

Marketing Options for the New Segment

Although there were many new prospective marketing ideas, I believe that the best thing to do is make small changes with big impact.
One option is to incentivize the purchase of Calyx & Corolla flowers by offering a money back guarantee to those who are not satisfied with their bouquet of flowers. While this would promote potential customers to take a leap and purchase the flowers, knowing that their money would be protective, it may not incentivize the right people and may have a similar effect as the Range Rover ______. Since Calyx & Corolla has such a large proportion of buyers with “substantial disposable income” (9), something like a money-back guarantee may not be the best way to market to an up-market segment.

Another ______ to the marketing strategy would be the application of prospect theory in ads. Since the target segment includes buyers who patronize florists, it would be important to not just highlight the gains that will be had from switching to Calyx & Corolla, but also the losses that would be incurred by sticking with their current florist. Even when describing the gains, it is the losses that will be felt more.

04.07.2018