The case study considers the $350 million Kingsford Charcoal brand of Clorox corporation. Kingsford has been the dominant charcoal brand in the USA, where charcoal is used widely for grilling outside during the warm seasons (Narayandas & Wagonfeld, 2006). Two main grilling methods in the USA are charcoal and gas grilling. The former is better when it comes to the taste of the grilled food and hand-on experience, while the latter is more convenient, easier to clean up, and reduces cooking time. Kingsford represents around 9% of Clorox’s revenues and an even higher percent of the corporation’s net income, thus, playing an essential role for Clorox’s management and shareholders.
Within the charcoal market of the USA, Kingsford’s share exceeded 50%, with Royal Oak and some private label brands as the only competitors. All of the competitors have been selling their products at a discount compared to Kingsford’s charcoal and have been perceived by the customers as inferior in terms of quality. Historically, the role of Kingsford’s sales team, their work with the retailers, and their promotion activities have been significant. According to Kingsford’s sales team, one of the leading sales tools was the correct display of charcoal.
Kingsford company and the whole charcoal sector have been growing steadily since the 1980s, yet by the early 2000s, the growth has stalled, and the market’s size has reduced. Four main reasons caused the issue for Kingsford Charcoal: an overall increase in charcoal prices across the industry, absence of media advertising, reduction in promotional activities, and weather patterns in the US. Firstly, all of Kingsford’s competitors have raised the prices in recent years, which increased the company’s share in the market yet made the market smaller and incentivized some customers to switch to gas. Secondly, due to the belief that charcoal sales were driven mainly by the correct promotion activities, the company has been heavily underinvesting in the advertisement. Thirdly, Kingsford’s competitors reduced their promotional activities, which affected the whole charcoal market. Finally, the average temperatures in the US dropped during the year, which, in combination with an increase in rainfall, disincentivized people and reduced opportunities for outside grilling.
Decisions regarding the following spheres were made to improve the situation. Firstly, several scenarios modeling the price increase were analyzed. It is apparent that there are some likely scenarios that can increase the firm’s profits. These profits can be used to fund the company’s new costs associated with increased advertising on TV, which was recommended to increase sales volume. Therefore, the first suggestion is to increase the prices according to Scenario 4 and then gradually boost the TV advertisement in accordance with MMA recommendations. Secondly, the promotion optimization activities are to be performed as well as they have the potential to improve the situation with sales and offset some of the negative consequences of the price hike.
Within that framework, it is essential to focus the advertising message on the competition with gas grilling, as it is the main threat to Kingsford’s sales. Finally, it does not seem necessary to invest in additional production facilities at the moment, as the company is still passing through an unstable period. Drawing large sums of money away from urgent costs that include advertisement and promotion and investing them into facilities that will start working in years can be dangerous for the company. Furthermore, considering the recent trends of the charcoal market shrinking, investments in additional production capacity may be irrelevant.
Reference
Narayandas, D., & Wagonfeld, A.B. (2006). Kingsford Charcoal. Harvard Business School Publishing.