Kingsford
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Kingsford Charcoal
Background and Managers’ Decision Matter
Kingsford Charcoal is one of the specialty products manufactured and sold by Clorox Company. The sales growth for Kingsford has slowed down due to slow down in the charcoal category from 1998 to 2000. The company has been relying on sales promotions and reduced revenue to boost volumes, and has been reducing the advertising budget in that period.
In order to accelerate the revenues and profits, Clorox needs to decide whether to grow the charcoal category through additional media spending or to increase its market share within charcoal category through aggressive promotional spending, or to selectively increase the prices of Kingsford charcoal.
Analysis
External Analysis
The customers like charcoal grill for its hands own experience and food with better flavor, while gas grill is preferred for convenience and speed. In the US, charcoal grill is owned by almost half of the households and gas grill is owned by a little over half of the households, with about 20% of them owning both types of grills (see case exhibit 6). However, with help from media spending, the market for gas grills was growing since last 5 years, while the demand for charcoal grills was stagnant, with a drop of 3% in year 2000 (see case exhibit 5).
The competitors in charcoal market included high quality Kingsford brand at the high end, private label brands at the low end, and Royal Oak priced between the two. Most of the private label products were manufactured and distributed by Royal Oak. Kingsford has been gaining market share from Royal Oak since 1997, and has captured almost 59.5% market share (see case exhibit 8), while the latter’s share has dropped from 14.2% to just 6.4% in second half of 2000. The private label brands have sustained their share of about 34% in that period.
The charcoal business is highly seasonal, with 60% of the consumer purchases occurring in summer, when the weather is good for barbecues. The number of annual barbecue events has more than doubled to over 3 billion during 1987 to 2000, and continues to grow.
Considering the growth in grilling occasions, grill penetration trends and Kingsford’s large market share in charcoal market, Kingsford stands to gain a lot if they can effectively use media to promote greater use of charcoal grills. They can target the households owning both types of grills as well as the new ones in market for buying a grill. By increasing media spending from $4M in 2000 to $7M in 2001, Kingsford can try to repeat the success of 1997 ad campaign, which led to 7% and 3.5% volume growth in 1998 and 1999. If they can achieve similar growth rates, and if the growth is uniform across all product lines, the Kingsford revenue can grow from about $51.5M in 2000 to about $55M1 and $57M1 in 2001 and 2002 respectively. The additional media expense of
$3M can be more than recovered from additional profits of $3.6M2 and $4.65M2 in those years.
Kingsford can choose to selectively increase the prices of its products, especially since its competitors have been raising the prices and closing the gap. However, taking the weighted averages from case exhibit 11, we can see that each of the 4 pricing scenarios will increase profits, but reduce the revenue. The club store price increase causes minimum revenue loss of $0.58M3, but increases profit moderately by $0.28M3. The total line pricing option gives maximum profit boost of $1.77M4, but causes a revenue decrease of almost $3.66M4.
Kingsford is gaining market share from Royal Oak through its existing promotional spending budget. Also, extending grilling