Kingsford Charcoal Case Study
In 2000, the Kingsford charcoal brand was facing revenues below forecasted levels, while the charcoal category as a whole was slowing. During this time, Kingsford actually increased its market share in the charcoal category, however it faced burgeoning competition in the gas grill market. Consequently, brand managers Marcilie Smith Boyle and Allison Warren must form a plan involving pricing, advertising, promotion, and production to generate further sales growth Kingsford should not immediately raise prices, as its competitors’ previous price raises led to consumers shifting either to Kingsford charcoal or to gas grills.Kingsford should invest heavily into advertising its product, as research suggests that Kingsford’s ’98 advertising campaign led to a 7% sales increase, along with a 3-4% volume increase the following year. However, since that time Kingsford has only further cemented its role as market leader, while the market has continued to shrink as the sale of gas grills increases.
Accordingly, the 2000 advertising campaign should focus less on the quality of the brand relative to its charcoal competitors; but rather, the firm should emphasize the advantages of charcoal grilling instead of using gas (exhibit 1).Regarding promotion, the brand must maintain a strong presence on the selling floor to facilitate the significant portion of purchases that are made on impulse. Furthermore, Kingsford should continue to influence customers to use its product more often in the fall and winter months by promoting increased tailgating primarily for sporting events to increase the number of occasions in which their product is used. Finally, Kingsford must closely monitor the plant production level, as the plant is currently operating at 80%, and it is extremely costly to expand production capacity.Therefore, if the proposed plan successfully leads to 3-5% sales growth per year, then Kingsford must be prepared to raise prices as the plant nears capacity in five years, to effectively decrease demand (exhibit 2).
First, this plan assumes that competing charcoal brands will not respond by increasing their advertising as well, thereby forcing Kingsford to further reinforce its value proposition within the category; that it produces the highest quality charcoal, which lights faster and burns longer. Second, the lan speculates that the elasticity measures from 2000 will remain accurate over the forthcoming years, when Kingsford raises prices to avoid reaching capacity. And third, the plan assumes that increased advertising will prevent the growing disparity between the percentage of households that own gas grills, and those with charcoal grills, so that the market will remain at its current size after 2000. Kingsford should invest $7 million into media advertising, partly funded by diverting funds earmarked for seasonal price reductions.It’s advertising campaign should focus on the benefits of charcoal instead of gas grills, while reminding consumers that 60% of surveyed customers label Kingsford as the highest quality charcoal brand.
Furthermore, Kingsford should promote tailgating events for NFL games in the fall and winter months, while partnering with Budweiser to alleviate marketing costs. Finally, as the successful advertising campaign causes production to approach capacity, Kingsford should raise the price for all merchandise by 5% to avoid the $30-$50 million in costs associated with plant expansion.Exhibit 1: Sample Kingsford Charcoal Advertisement Why should I use Kingsford brand charcoal instead of Royal Oak or private label brands? * Kingsford’s lab tests show that it offers the highest quality product in the charcoal category. * Approximately 60% of surveyed consumers indicate that Kingsford “is a high quality brand. ” * Kingsford charcoal lights faster and burns longer than other charcoal brands.
Why should I use a charcoal grill instead of a gas grill? Offers a more hands-on experience, involves the enjoyment of working with fire. And while there is more heat, the heat source is more uneven, which leaves room for the grill master to customize his/her grilling experience. * Preferable smell and flavor. The charcoal grill provides a smoky flavor that cannot be reproduced using propane on a gas grill. It may take a bit longer to cook, but the time invested is well worth the reward of a superior tasting meal. The charcoal grill is markedly cheaper, as it requires less assembly.
Furthermore, a bag of charcoal costs less than the commensurate amount of propane necessary to support the gas grilling experience. Exhibit 2: Year| Regular 10# Weighted Average Base Price| Regular 20# Weighted Average Base Price| Instant 8# Weighted Average Base Price| Instant 15# Weighted Average Base Price| Capacity %| Net Sales ($)| 2000| 4. 11| 6. 83| 5. 15| 8. 46| 80%| $4,083 | | 2001| 4.
11| 6. 83| 5. 15| 8. 46| 85%| $4287. 5| | 2002| 4.
11| 6. 83| 5. 15| 8. 46| 89%| $4450. 47| | 2003| 4. 11| 6.
83| 5. 15| 8. 46| 93%| $4613. 79| | 2004| 4. 11| 6.
83| 5. 15| 8. 46| 96%| $4736. 28| | 2005| 4. 32| 7.
17| 5. 41| 8. 88| 91%| $4,736. 28 | | | | | | | | | | Exhibit 2 shows projected net sales and capacity level from 2000-2005. In 2005, as production nears capacity, the data demonstrates the projected effect of a 5% price raise on capacity levels.
A rise in price offsets the subsequent demand decrease, and net sales are unaffected.
