Reference no: EM132219721

Question - Fall is the time for back to school and back to hobbies. For craft supply retailers like Michaels, most of their annual profits are made while the weather outside is frightful. The Kapoor family has a long, successful luxury fabric merchant history in their former home, Mumbia. Bollywood royalty including the Khans, Kapoors (no relation) has made the Kapoor family a household name in Indian fashion fabrics. Recently the newest generation of Kapoors immigrated to Canada and opened their new fabric store in Abbotsford BC. After a reviewing the Fraser Valley area, the Kapoor family determined that a luxury fashion fabric store similar to home would not survive. However, they also believed that what is sorely missing from this growing metropolis Abbotsford, is a fashion forward fabric store. Having a large Indo-Canadian community in Abbotsford and believing that many Canadian residents would also embrace the entry level luxury fabrics well-known to the Kapoors, the family decided to slightly modify their homeland inventory strategy to be successful in their new home and opened up Kapria Kapoor.

Another big difference in Canada compared to Mumbai, is Canadian women purchased pre-stitched clothes and the only people who purchased fabric by the yard are predominately hobbyists. To spread the word about their new store to the hobby sewers located in the greater Vancouver area, the Kapoors need to develop an advertising campaign strategy. From the skills he learned in a marketing course at the University of the Fraser Valley, Barinder told his father that the best way to reach home sewers in the Abbotsford area is to use a direct mail campaign. According to Forresterâ€TMs Research there are approximately 300,000 known hobby sewers in the Greater Vancouver area. Using her graphic design skills she learned from BUS 426, an advertising course taken at UFV, Jyoti, the daughter of Mr. and Mrs. Kapoor designed two different direct mail campaigns: 1) a 4 x 4, four colour, glossy postcard and 2) a six-color, die-cut, four-sided,folded card for them to choose between. While the first direct mail piece does the job, Jyoti believes it does not convey the image of an affordable luxury fabric store as well as the more expensive direct mail piece.

To produce the postcard a special printer is not required. It can be sent to Allegri Printers and they quoted a total cost of $1250 for a 1,000 piece production run. Total postage costs are estimated to be $750. Jyoti estimates she spent 4.5 hours developing the postcard graphics. To design the die-cut card Jyoti spent 12.25 hours. Production of this piece requires a specialize printer due to the scissor shape die-cut and the raised thermal ink printing. Additionally there will be foiling required on the card. Several specialty printers were contacted to quote on the more expensive die cut piece and the lowest price quote received was $2750 for the first 1000 and then $1275 for each additional 1000 pieces.

No purchased mailing list will be required if the mail-out is done using Canada Post; it provides targeted postal code distribution for Direct Mail campaigns at an additional cost of $0.15 per piece. However, should you wish, Canada Post also offers delivery using its proprietary company client list. The cost to use this option is 120% more than the postal code option and generally results in a 20% increase in response rates. Since the design of the first campaign is a postcard, the personalization should happen during printing. Having a label stuck on by Canada Post after the fact will be unsatisfactory. Allegri will charge an extra $250 for the mail merge to personalize the postcards and Jyoti will need to spend 2 hours setting the address block. The second design does not really lend itself to personalization. Currently Jyoti is paid by the hour because she only works part-time for the family business. Her hourly rate is $35.00, the standard rate paid to Graphic Artistic in Abbotsford.

Barinder is concerned about the blanket strategy of a postal code driven distribution and instead thinks that all cards should be targeted to hobbists. Therefore Barinder is strongly urging his parents to pay for the premium client list distribution offered by Canada Post. Recently Barinder read that a targeted direct mail campaign typically enjoys a 40% to 60% response rate compared to less than 5% response rate for a blanket distribution strategy. Furthermore, Barinder has learned that there is really no connection between luxury fabrics purchases and postal codes. Instead, weddings, graduations, and Christmas party seasons are stronger indicators for luxury fabric purchases. Renting a client list from a local wedding dress retailer, Champaign Dreams, or sewing machine supply company Forresters, would be a more attractive option than using either one of Canada Postâ€TMs distribution options. The other added benefit of a direct mail campaign is CASL rules do not apply to direct mail campaigns, only cold-call telemarketing and email campaigns. Renting the client lists from analogous firms can be expensive, it is estimated that these companies charge between $500 to $1500 per list. Forresters has agreed to rent its list for $1100.

From research on the effectiveness of direct mail campaigns using targeted postal codes, Barinder believe that Kapria Kapoor should expect a response rate of about 1.5% from the lower cost direct mailer (DM1) campaign, of which about 33% of respondents will actually make a purchase. He is also estimating the net revenue (after shipping and handling and any discounts if applicable) is $175 per purchase. The more expensive direct mail piece (DM2) would increase marketing spend costs by more than 100% to almost $3.00 per piece. With this enhanced piece, Kapria Kapoor estimates that the response rate would increase to 1.9% and the conversation rate will be 25%. Furthermore, the average purchase value will increase by $75. The small increase in response rate is solely based on the effectiveness of the mailer itself. Kapria Kapoor estimates its product margin after discounts and other charges to be approximately 25%.

According to Barinder, renting the list from Forresters, should result in an increase in response rate to 32% for both pieces and the average revenue per sale will increase by 10% for the economy option and 20% for the luxury option of the direct mail piece.

Required:

Prepare an appendix examining the profitability of DM1.

Prepare an appendix examining the profitability of DM2.

Prepare an appendix that examines the profitability and BE of both campaigns.