How-to’ in the floral

How-to’ in the floral

industry ?

Ewoud Meeuwissen

How-to’ in the floral industry ?

Strategic recommendations for improvement of the market position of Martha’s Flowers

by

Ewoud Meeuwissen

Rijksuniversiteit Groningen, The Netherlands Faculty of Management & Organization

Stdnr.: 0898473

Printed and bound in July 2002, Groningen, The Netherlands.

Mentors

Rijksuniversiteit Groningen, The Netherlands, Faculty of Management & Organization:

Mr. Drs. H. Ritsema Drs. H.Stek

Martha Stewart Living Omnimedia, Martha’s Flowers in New York, United States of America:

J. Murphy

© The author is responsible for the content of this report; copyright belongs to the author.

Management Summary

This is a report on a research period at Martha’s Flowers, a new business unit at Martha Stewart Living Omnimedia, Inc.

Sales of branded products under ‘marthasflowers’ are a small part of the revenues of Martha Stewart Living Omnimedia. Martha’s Flowers is a small player in the floral industry in the United States. This research focuses on giving insights in the floral industry of the United States. To support the Omni-merchandising strategy, which has to realize growth in consumer sales of all branded products under the ‘Martha Stewart’ brand, strategic recommendations for a strengthening of the market position in the floral industry in the United States are given in this report.

To strengthen the market position in the floral industry Martha’s Flowers has to establish reliable sourcing practices and maximize the coverage of the brand ‘marthasflowers’. Therefore these attention points have been researched for giving recommendations. For giving recommendations for Martha’s Flowers the Strategic Marketing Planning framework of Alsem has been used to structure the research approach. Subsequently, Martha’s Flowers ‘self’, the floral consumer and distribution channels, the potential sources of cut flowers in California, Ecuador and Colombia, the competition in the floral industry and the state of the industry have been analyzed.

Martha’s Flowers is positioned in the market as a luxury and exclusive flower brand. Competitors as 1-800 Flowers and Proflowers have established a far stronger position in the floral industry. Strong points of Martha’s Flowers derived from the company analysis are a strong and growing brand name and reputation, a financial secure position, capability of reaching a wide audience through the mediaplatforms and availability of creative experts. Weaknesses found in the company analysis are lack of a clear strategy and goals, lacking flower ordering system, no experience and knowledge in marketing and supplier relation management in the floral industry, lack a reliable supplier network, the input of promotion ‘marthasflowers’ in the Omnimedia platform and the dependency upon Federal Express delivery services.

The competition in the floral marketplace is intense and differentiated. Companies act aggressively and new companies on the online marketplace are still entering; especially florists who can offer same-day deliveries. An important aspect for Martha’s Flowers is the strong position of the flower growers and the consumer in the industry.

The different analyses showed that several developments are taking place in the floral industry as well as on the supplier market as well on the consumer market. In different chapters this has been outlined. The potential sourcing markets are changing and Martha’s Flowers should take these developments into account. For reliability in sourcing a grower network will have to be established who are together able to fulfill any flower order. The analysis on the potential sources from Colombia, Ecuador and California and a comparison with 1-800Flowers and Proflowers showed several opportunities for improvement in sourcing and insight in the reliability of these sources in the future. Colombia and Ecuador are interesting for mainly carnations and roses. California is expected to be a more specialized and bulb flower source in the future. Furthermore, a comparison with 1-800Flowers and Proflowers shows several improvement points for sourcing of Martha’s Flowers. The outline on the floral consumer showed that Martha’s Flowers will have to focus on a wider target-group for more market coverage. Outline of the different market segments shows that for improvement of the position on the market the floral consumption should be also perceived as gift-buying.

Possible strategies and three strategic alternatives for Martha’s Flowers have been developed and have been evaluated in this report.

Insight from D.Aaker and Johnson & Scholes have been used for the development, evaluation and selection of the strategies. These provided the input for the strategic recommendations for Martha’s Flowers. To strengthen the position in the market Martha’s Flowers will have to be the best flower source and source. Possible activities and improvement points have been outlined in this research.

Besides sourcing, the best and widest services has to be offered to the floral consumer in the United States to be of any importance in the floral industry. Most important is that to strengthen the position in the market relations with several growers from as well California as Colombia and Ecuador will have to be developed, a more aggressive marketing policy with a strong focus on the gift segment has to be set out, an extension of the assortment and the development of better and more customer friendly order system will have to be realized.

“The Whole Is Greater Than the Sum of the Parts”

Aristoteles

Preface

This is a report on an internship at Martha’s Flowers, a new business unit at Martha Stewart Living Omnimedia Inc. In the past nine months I’ve been reading, studying and been doing research on the floricultural industry in the United States. It was a really interesting period in my life. I had the opportunity to travel abroad, see, learn and experience the ‘american-way’ of life and do my

‘Martha Stewart’-way of doing things. There are so many people I’d like to thank, because they’ve been very supportive to this research. Franceline, Anton, Niels, John, Suzanne, Margaux, Eric, Alex, Hermine, Garry, Jim, Lori, Gides, Barry and my family;

many thanks! Furthermore, special thanks to my mentors in Groningen. Their views and comments have been very constructive.

To the readers: the Martha Stewart’-way is really present; when I visited the office in New York I felt it (her) everywhere, it is an amazing experience!

Table of Contents

Preface Contents

Chapter 1 Problem-statement and research approach 9

1.1 Introduction

1.2 Background 9

1.3

Problem-statement

1.3.1 Research goal 9

1.3.2 Research question 10

1.3.3 Research constraints and focus 10

1.3.4 Intended result 10

1.4

Research approach 10

1.4.1 Management literature and theory 11

1.4.2 Conceptual model 11

1.4.3 Split questions 12

1.4.4 Research stages 12

1.4.5 Methods of information gathering 14

1.4.5.1 Sources and methods 14

1.4.5.2 Sources related to split questions 15

1.5 Content of the report 15

Chapter 2 Description of the organization 17

2.1 Introduction

2.2 History: from Martha Stewart to Martha Stewart Living Omnimedia, Inc.

2.3 Core activities of MSO 17

2.4 Strategic objectives 18

2.5 Business Model

2.6 The idea of flowers 19

2.6.1 Flower-products of Martha Stewart 19

2.6.2 Activities of the unit Martha’s Flowers 19

2.6.3 Flower sources and fulfillment 21

2.7 Structure & Organization 22

2.8 Situation today 22

Chapter 3 Mission and market definition 23

3.1 Introduction

3.2 Description of the market 23

3.2.1 Floriculture 23

3.2.2 Trade structure 23

3.2.3 Description of the market for Martha’s Flowers 25

3.3 Mission

Chapter 4 Company Analysis 27

4.1 Introduction 27

4.2 Methods of sourcing 27

4.3 The Omni-merchandising strategy

4.3.1 The reasons and contents of the Omni-merchandising strategy 27

4.3.2 Implications of the Omni-merchandising strategy 28

4.4. The unit Martha’s Flowers 29

4.4.1 Performance of the unit 29

4.4.2 Determinants of strategic options 31

4.4.3 Strengths 32

4.4.4 Weaknesses 32

4.5 Conclusion

Chapter 5 Competitive Forces of Martha’s Flowers 34

5.1 Introduction 34

5.2 Methods of sourcing 34

5.3 Intensity of the competition

5.3.1 Competitors and Differences 34

5.4 New Entrants

5.5 Substitutes of flowers 37 5.6 Competitive forces of the floral consumer

5.7 Competitive forces of the growers 38

5.8 Conclusion

Chapter 6 The floral consumer 40

6.1 Introduction

6.2 Methods of sourcing 40

6.3 Floral segments 40

6.3.1 Supply-segments 40

6.3.2 Market driven-segments 42

6.4 Floral distribution channels 44

6.5 Developments

6.6 Conclusion

Chapter 7 Imports: Colombia and Ecuador 47

7.1 Introduction 47

7.2 Methods of sourcing

7.3 ‘Mas flores’

7.4 Colombian flower industry 47

7.4.1 Macro-factors 47

7.4.2 Production-factors 49

7.4.3 Other factors 50

7.5 Ecuadorian flower industry 53

7.5.1 Macro-factors 53

7.5.2 Production-factors 54

7.5.3 Other factors 55

7.6 Import developments, Opportunities and Threats in Colombia & Ecuador 56

7.6.1 Opportunities 57

7.6.2 Threats 57

7.7 Developments in Central America and The Netherlands 57

7.8 Conclusion

Chapter 8 California 59

8.1 Introduction

8.2 Methods of sourcing 59

8.3 Californian flowers

8.3.1 Production-factors 59

8.3.2 Other factors 60

8.4 Developments in California, opportunities and threats 61

8.4.1 Opportunities 62

8.4.2 Threats 62

8.5 Conclusion 62

Chapter 9 Potential sources and fulfillment 63

9.1 Introduction 63

9.2 Methods of sourcing 63

9.3 Strategy 64

9.3.1 Colombia and Ecuador 64

9.3.2 California 65

9.4 Martha’s Flowers and fulfillment 65

9.4.1 Sales by Martha’s Flowers and fulfillment 65

9.4.2 The role of the internet marketer and needs of the growers 66

9.5 Comparison of sourcing: Martha’s Flowers vs. 1-800 Flowers and Proflowers 68

9.6 Conclusion

Chapter 10 Strategic Issues 70

10.1 Introduction

10.2 Strengths, weaknesses, opportunities and threats

10.3 Statement

10.4 Activities for Martha’s Flowers 73

10.5 Possible strategies 73

10.6 Potential strategic options for growth

10.6.1 Improvement at Martha’s Flowers 74

10.6.2 Improvement and Maximization 75

10.6.3 Growth by taking new steps 76

10.7 Evaluation and selection of strategies 76

10.7.1 Suitability 77

10.7.2 Achievability 77

10.7.3 Acceptation 79

10.7.4 Most favorable choice 81

Chapter 11 Conclusions and Recommendations 82

11.1 Introduction 82

11.2 Answer to the split question

11.3 Answer to the problem-statement

11.3.1 Strategic recommendations 85

11.3.2 Reliability and validity 87

Epilogue 89

Literature list 90

Appendix 92

Chapter 1 Problem statement and research approach

1.1 Introduction

In this chapter the background, the problem statement, and the approach of the research for Martha Stewart Living Omnimedia Inc. , will be outlined. The background will give an introduction to the management question. Paragraph 1.3 will point out the problem statement and the intended result. To achieve the intended result, several steps have to be taken. The research approach, described in 1.4, will make clear which steps will be taken. The last paragraph will outline the content of this report.

1.2 Background

Martha Stewart Living Omnimedia Incorporated (MSO) is a creator of original “how to” content and related products for homemakers and other consumers. All the products bear the "Martha Stewart" brand name and are leveraged across a range of media and retail outlets. This provides consumers with “how to” ideas, products and other resources they need to raise the quality of living in and around their homes. This content and merchandise is created from the following areas: Home, Cooking & Entertaining, Gardening, Crafts, Holidays, Keeping, Weddings and Baby & Kids.

In the Martha Stewart Living magazine, in books and on television programs of Martha Stewart all kinds of flowers are used as a decorating item. When people showed interest in these flowers, the idea to sell flowers under the brand name marthasflowers was born. In 1999, the brand marthasflowers was launched. Marthasflowers are offered in grower’s bunches packed in a special designed

‘marthasflowers’ box and directly send from the flower grower to the customer. By ordering from a catalog and via a website consumers can order marthasflowers.

One of the corporate objectives of MSO for the future is an expansion of the merchandising line and realizing more growth in consumer sales in all her merchandise segments, thus also with marthasflowers. In the future a new business plan for Martha’s Flowers must lead to an increase in consumer sales of marthasflowers and so to a strengthening of the market position in the floral industry. The question for Martha’s Flowers-management hereby is: ‘how-to’ in the floricultural industry?

Martha’s Flowers realizes that to grow in the floricultural industry it is essential to offer and assure a good product to the consumer and maximize the coverage of the brand name marthasflowers. For the fulfillment of flower orders Martha’s Flowers depends on growers and/or distributors of flowers. If Martha’s Flowers wants to keep and strengthen her position in the floral industry it is essential to have reliable suppliers of flowers and attract more consumers of flowers.

Today, sales of marthasflowers are a small part of the revenues of MSO. Although benefiting from the success of floral sales on the internet, Martha’s Flowers remains a small player in the floricultural industry. In the past three years competitors like 1-800 Flowers and Proflowers, realized a higher growth of online floral consumer sales than Martha’s Flowers. Besides this, Martha’s Flowers is experiencing problems in her sourcing practices. In 2001, problems in product quality and capability of fulfilling the orders at the fulfiller in California resulted in customer complaints and negative publicity. At the same time there is a development going on that more and more flowers from South-America are entering the floral industry in the United States.

For realizing growth, Martha’s Flowers realizes that it has to establish sourcing partnerships with reliable growers and/or distributors of flowers. Furthermore, MSO thinks that the floricultural industry in the United States is an interesting and important market for growth of her merchandise segment. However, there is a lack of sufficient knowledge and insight in the floricultural industry to develop a strategy and to realize growth. Therefore, the question arises to outline this industry with the major developments and important trends and to offer strategic guidelines for support of the growth strategy.

1.3 Problem-statement

The problem-statement of this research will consist out of three components: the research goal, research question and the constraints attached to this research. Furthermore, the intended result for this research will be pointed out.

1.3.1 Research goal

This research will be focused on giving insights in the developments of the floricultural industry. It will give support to a new strategy of Martha's Flowers. The research will provide strategic guidelines to a growth strategy of Martha’s Flowers.

The information derived from this research will be supportive to the management of Martha’s Flowers and MSO concerning the realization of a growth strategy of merchandise branded under ‘marthasflowers’. This research is focused on the sourcing of flowers, but also on the floral consumer. To reach an accurate strategy it is necessary to understand the developments in the flower production areas for the United States and to know how flower producers think about sourcing and the role of Martha’s Flowers. Furthermore, it is important to know the possible target markets in the industry and the channels where floral consumers buy flowers to develop an accurate strategy of growth.

Goal statement:

The goal is to give insight in the developments and trends in the United States floricultural industry and doing strategic recommendations to deal with these developments in relation to Martha's Flowers strategy. It will give strategic guidelines to the sourcing of flowers and to the market coverage of the brand ‘marthasflowers’. The guidelines will be input for the new strategy of Martha's Flowers. This strategy will have to strengthen the position of Martha’s Flowers in the floricultural industry in the United States.

1.3.2 Research question

The knowledge needed to realize the goal of this research can be derived from the research question. The research question is formulated as followed:

Which strategic recommendations can be given to the management of Martha’s Flower for the development of a growth strategy to strengthen her position in the floricultural industry in the United States in the scope of the Omni- merchandising strategy of MSO?

1.3.3 Research focus and constraints

As stated above, MSO wants to establish growth with Martha’s Flowers. A new business strategy must realize an increase in consumer sales of marthasflowers and therefore result in a strengthening of the market position in the floral industry. The management sees two options for strengthening the market position of Martha’s Flowers:

1. Offer and assure a good product to the floral consumer.

2. Maximizing the coverage of the brand ‘marthasflowers’.

This research will focus on how to realize these options.

For the fulfillment of this research a few constraints are attached to this research. The following constraints have to be stated:

• For better sourcing, this research will be focused on the flower suppliers in the United States and South America. This is limited to the state of California and the countries Colombia and Ecuador. These three areas are all suitable for flower production. Ecuador and Colombia show significant growth of flower imports in the United States and are responsible for almost all the flower imports from South America. California is responsible for 70% of the flower production in the United States. These areas offer opportunities for commercial flower cultivation, are close to the US market and therefore are starting point for this research. Potential sources for cut flowers are growers and distributors of flowers from these areas.

• Next to the developments on the side of the producers/fulfillers of the floral products, the focus will be on the floral consumer market and on the other players on this market. An outline of the other players and the characteristics of the floral buyer together with the developments and trends in the industry are an essential part of this research.

• MSO is engaged in international activities and expansion, but this research for Martha’s Flowers will only focus on growth opportunities within the United States.

• This research will only be on cut flower products

• This research will probably take 6 months.

• The research will be done in the United States and if needed in South-America..

1.3.4 The intended result

The final result will be a document where the floricultural industry in the United States is analyzed and strategic recommendations for a growth strategy in the floricultural industry for Martha’s Flowers will be given. These strategic recommendations will show how Martha Stewart Living Omnimedia,Inc. and Martha’s Flowers should define her strategy according to the developments and characteristics of the floricultural industry in the United States to strengthen her position in the market.

At the end of the research period the findings and experiences of this research will be presented and discussed with the management of MSO and Martha’s Flowers.

1.4 Research approach

To achieve strategic recommendations for Martha’s Flowers several steps will have to be taken. A conceptual model will support and contribute to the research approach and can be seen as the general approach to the problem-statement. Management literature and theoretical frameworks will contribute to the realization of this model and also to the structure of the research. From this conceptual model split questions will be derived. These split questions will cover the total research question. The answers to the split questions will answer the general research question and so the intended result will be achieved. In order to be able to answer the research question, the research will be split up into several stages in which information will be gathered.

First, the theoretical framework used to tackle the management question will be shown.

1.4.1 Management literature and theory

In paragraph 1.1 and 1.2 I stated that Martha’s Flowers wants to realize more growth of consumer sales to strengthen her position in the market. A new business strategy will have to realize this. Within the management literature there are several theories, articles and books on what steps organizations should take when formulating a new business strategy.

For doing recommendations on the new business strategy for Martha’s Flowers the approach of Alsem (1997), outlined in his book

‘Strategic Marketing Planning’ , will be used as the bases for doing recommendations on the new strategy for Martha’s Flowers.

Because Alsem’s framework consists out of several steps for doing strategic recommendations for a certain business strategy, this framework will be used. Alsem states that when developing a new strategy an organization have to take several steps to come to recommendations. Strategic planning is a tool to take into account the uncertainties in the environment and goals and strategy are focused on the long-term; thus for several years (Alsem, 1997). The research steps of Alsem will be used for the development of the conceptual model. Within these steps, other theories and frameworks will be supportive and used. Alsem’s model can be seen as a general approach to an answer of the problem-statement. Alsem’s framework consists out of several steps: market definition and mission, company analysis, external analysis, strategic analysis, goals and strategic recommendations. To use this framework the important elements for this research will have to be defined.

1.4.2. Conceptual model for Martha’s Flowers

Strategic recommendations have to be given to Martha’s Flowers. As said, this research focuses on the two growth options mentioned in paragraph 1.3.3

More sales must establish a better market position in the floral industry for Martha’s Flowers. Following an article in the McKinsey Quarterly, starts the building of a brand with a precise definition of the target customer group and its needs and expectations and a realistic assessment of how well the brand currently meets them. For defining the target customer group of the brand ‘marthasflowers’, insights in floral consumption patterns will have to be acquired. Insight in the floral consumer patterns will be supportive for realizing more market coverage of the brand marthasflowers and therefore have to be outlined.

To offer and assure a good product Martha’s Flowers is dependent on suppliers of floral products. For giving recommendations an analysis will have to be made of the different production centers of flowers for the United States floricultural industry. The most important production areas of flower cultivation for the United States market will therefore have to be analyzed. This will have to give insight in what to expect of suppliers in the future from these countries. Secondly, if Martha’s Flowers wants to source successful it will have to take notice of the needs of these sources for establishing a successful relationship in the future and how it can improve her sourcing practices of today. A comparison with the competitors 1-800 Flowers and Proflowers in sourcing practices will be valuable for providing insight in the sourcing practices of Martha’s Flowers, because these companies are the main competitors and have a good reputation in the industry. These insights must result in better product quality and fulfilling capabilities.

Applying the first step of Alsem to Martha’s Flowers, the market and mission of Martha’s Flowers will have to be defined. For sourcing it is important to define what Martha’s Flowers for flower products want to source and who are seen as potential sourcing partners. Besides that, this step will have to define what Martha’s Flowers views as her consumer market and what it wants in the future. Together this step will define the range of the situation analyses and so who Martha’s Flowers competitors are and what business it is in.

The second step is an analysis of the situation. For the development of a growth strategy for Martha’s Flowers the suppliers of floral products from Colombia, Ecuador and California, the floral consumer, the competition -for sourcing: 1-800 Flowers and Proflowers- and the characteristics of the floral industry play an important role. This step will have to clarify what the opportunities, threats, strengths and weaknesses are for Martha’s Flowers in the floral industry.

In the third step, the strategic analyses, the opportunities and threats in the environment will be related to the strengths and weaknesses of Martha’s Flowers. Possible strategies will emerge. Different strategies will be outlined, evaluated and matched to the goals of Martha’s Flowers. This will result in the best strategic alternative for Martha’s Flowers. Next, a strategic recommendation will be given to for realizing a better market position in the floral industry in the United States.

Taking into account the different steps of Alsem’s framework and supplemented with the important elements for Martha’s Flowers growth strategy the following conceptual model will be used as the bases for the structure of this research:

1.4.3 Split questions

From this conceptual model several split questions can be derived. Together the answers to these split questions will form an answer to the research question (See 1.3.2).

For this research the following split questions can be formulated:

1.What is meant by the Omni-merchandising strategy of Martha Stewart Living Omnimedia, Inc ?

The management of MSO wants to establish more growth along her merchandise line in the future. This question will outline the reasons of this strategy and what this strategy means for Martha’s Flowers.

2.What is the strategy and position of Martha's Flowers today?

This question is focused on Martha's Flowers today. It will outline the current situation of the business, the strategy and the position in the market. This question will clarify the strategy and position towards sourcing of flowers and market coverage of the brand

‘marthasflowers’.

3. What are the strengths and weaknesses of Martha’s Flowers?

Martha’s Flowers have been able to realize a certain position in the floral industry and have been able to establish growth. However there is a trend that other players in the market are growing much faster. This question will have to point out the strengths of Martha’s Flowers causing a certain market position in the floral industry. On the other side this question will have to identify weaknesses why other companies are growing faster and thus attract more customers.

4. What are the characteristics of the floricultural industry and what are the latest trends and developments in this industry?

When formulating a new strategy, the market must be used as a starting point. It is important to know the opportunities in the market, who the producers and customers are and what their needs are. When this has been done, strategies, goals and operational plans can be defined (Croft, 1994). The needs and requirements of the market and the developments have to be analyzed to give recommendations.

The Omni-merchandising strategy will mainly be defined by the developments and characteristics in the market. In order to give recommendations, the wishes, requirements and developments on the market have to be analyzed. To be able to answer this question, the growers (potential sources), the competitors and the floral consumers active on this market have to be analyzed.

5. What are the characteristics of the floral consumer and what are the latest trends and developments in consumption patterns?

For the formulation of a growth strategy it is necessary to take into account the consumers of floral products. For defining the target customer group of the brand ‘marthasflowers’, insights in floral consumption patterns will have to be acquired. Insight in the floral consumer patterns will be supportive for realizing more market coverage of the brand marthasflowers.

6. What can Martha’s Flowers expect from the production markets of cut flowers in the future and how do potential sources view Martha’s Flowers?

This question is focused on the potential sources for Martha’s Flowers; the suppliers of floricultural products. For the development of a strategy it is important to take into account the suppliers of the product. Reliable suppliers for Martha’s Flowers are an essential requirement for the realization of the Omni-merchandising strategy. This question will focus on what Martha’s Flowers can expect from potential sources and how they view fulfillment for Martha’s Flowers

7. How can Martha’s Flowers act upon the developments and trends in the floricultural industry in the United States?

This split question will lead to recommendations, based upon the answers to previous split questions. These recommendations will help to answer the general research question.

1.4.4 Stages of research

To find answers to these split questions this research will go through several stages. Within these stages answers to the split questions will be found. The steps taken to find answers to these split questions will be outlined.

Below the different stages of this research are outlined.

Stage 1: Market and mission and Martha’s Flowers: range of situation

In this stage literature about the floricultural industry, the different production markets and literature about the development of a business strategies and brands will be gathered through books and articles. In this phase knowledge of Martha Stewart Living Omnimedia, the strategic objectives and the unit Martha’s Flowers will be gathered and the range of the situation analysis will be determined; the next stage.

Stage 2: Company analysis

In this stage answers have to be found to the split question 1 to 3. Within this stage several steps will have to be taken to answer these split questions. To give an answer to the first split question 1 the omni-merchandising strategy will be outlined and the consequences for Martha’s Flowers sourcing and market coverage will be mentioned. To answer split question 2 and 3 the unit Martha’s Flowers be the focus. In the book ‘Developing a Business Strategy’ of D.Aaker a performance analysis and an analysis of the determinants of strategic options are part of a company analysis. Focus points of Aaker will be used to analyze Martha’s Flowers. The strength and weaknesses (split question 3) of Martha’s Flowers will be identified through a resource-based view in this part of the research.

Stage 3: External Analysis

This is the largest stage of this research. This stage will also supplement to the strengths and weaknesses of Martha’s Flowers (split question 3). To do this the analysis of the competition, suppliers and the floral consumer will come up with and supplement to the strengths and weaknesses of Martha’s Flowers. Besides that opportunities and threats for Martha’s Flowers in the floral industry will have to be identified.

To achieve an answer to the split question 3,4,5, and 6 the following steps will have to be taken in this stage.

1. analysis of the competitive forces 2. analysis of the floral consumer

3. analysis of production markets and potential sources.

All these analyses will contribute to strengths, weaknesses, opportunities and threats for Martha’s Flowers. How these analyses will be done are explained below.

Ad. 1.

To analyze the competition in this industry M. Porter’s framework will be used in this stage. According to Porter there are five-basic forces influencing the state of competition; suppliers, buyers, new entrants, substitutes and the intensity of rivalry. These are forces influencing the state of competition. For the formulation of a strategy for Martha’s Flowers it is necessary to understand these forces and how they influence the organization. Martha’s Flowers will have to take into account these forces when formulating a strategy.

Insight in the competitive forces will contribute to the identification of opportunities and threats and to a comparison with the competition and so will give more insight in the strengths and weaknesses of Martha’s Flowers. This analysis will contribute to split question 4.

Ad. 2.

The goal of this analysis is to give an insight in consumption patterns in the cut flower industry, which can be supportive to the definition of the target-customer group and so towards the building of the brand marthasflowers and, so to guidelines to growth. For maximizing brand coverage, marketing activities will have to cover the largest consumer group as possible. Through market segmentation groups of buyers can be distinguished to match their needs (Kotler, 1997). The focus here will also be on providing insight in the distribution channels of flowers. This part of the research will deal with split question 5.

Ad.3.

This part of this stage will specifically deal with split question 6.

To know what Martha’s Flowers can expect from the production markets of cut flowers an analysis of the factors influencing flower production Colombia, Ecuador and California will be outlined. Macro, micro and other related factors influencing the production markets of flowers will have to be analyzed. This will give insight in the reliability, flexibility, quality and costs of sourcing from these markets today and in the future. To know what can be expected of potential resources and fulfillment a group of potential sources will be formed after the analysis of the production markets on the bases of certain criteria (the potential sources). An important aspect in this stage is that Martha’s Flowers sourcing methods will be compared with the sourcing practices of 1-800 Flowers and Proflowers. This will give insight in the strengths and weaknesses in the sourcing practices of Martha’s Flowers.

Stage 3: Strategic Analysis

Strategic Analysis will consist out of a SWOT-analysis and the formulation and evaluation of alternative strategies for growth.

This stage will focus on giving an answer to split question 7. Strategic options will be formulated by using the SWOT-analysis.

Johnson and Scholes in ‘Exploring corporate strategies’ outline a framework for strategic analyses. They also work with an internal and external analysis and finally come to the best strategy. The criteria of Johnson and Scholes used for the evaluation of strategic options will contribute to the answer of split question 7.

Stage 4: Strategic outcome

In the last stage an answer will be given to the split questions and research question. This will be followed by strategic recommendations for growth. An answer to the research question will be given in this stage.

1.4.5 Methods of information gathering

To answer the questions several analyses will be carried out in this research. Information about MSO and Martha’s Flowers, the floricultural industry in the U.S and South-America, the growers, importers, and the consumer have to be gathered. Below the different sources and methods will be shown who will be used to gather relevant information. For every research question the methods of gathering information will be shown.

1.4.5.1 Sources and methods

The information needed for analyzing MSO, Martha’s Flowers and the floricultural industry will be provided by meetings with managers, members of the board of directors, growers, importers and buyers and representatives of floral associations. Furthermore, desk-research and doing observations in the floricultural industry will be done. Primary as well as secondary information methods will be used.

Primary information methods

For information on the production markets of California, Ecuador and Colombia primary information will be gathered by doing observations and having meetings with growers. There will be no written survey. The floricultural industry has a very low response on surveys due to the high work pressures of the employers and employees. Also the fact that in general floral companies are small business owners where companies are runned by families and where personal relationships are very important, the decision was made to visit several farms and growers and to work three months at the present source California Fresh Direct, Inc. We decided that a survey would not be carried out.

Meetings and conversations

With growers, grower/importers, representatives meetings and the management of Martha’s Flowers conversations will be held. For Martha’s Flowers it is of importance to understand the flower business and the needs of growers and the characteristics of the floricultural industry. In this research structured meetings were held. Before the meetings the important subjects for discussion were outlined. In the meetings the growers were able to tell all different subjects and things to understand the developments in the market, products, fulfillment and other important aspects. Because there are a lot of growers, grower importers and time is limited it is not possible to meet and talk to all these players. With relation to the possible sources for Martha’s Flowers it is important to understand the developments in product assortment and how growers view fulfillment for internet marketers, how they view Martha’s Flowers and what the developments are on the market in the future. For Martha’s Flower it is important to search for sources which can offer a broad and extensive assortment of flowers. Growers who are known in the industry and gained reputation in the past and have a broad and extensive assortment will be contacted.

For the different production markets the gathering of information will be different.

California

The production market of cut flowers in California has to be outlined. Growers in this state will be involved in the research. It is not possible and effective to visit all the growers. There are about 1000 growers and they are spread throughout the state. There are about 35 growers in California who realize about 80% of the production of cut flowers. All the other farms are small, local retail nurseries which produce for themselves or the local and farmers market. Because three months of this research will be spent in California several farms will and can be visited.

Colombia and Ecuador

The situation of the growers and farms in South America must be outlined. Together with the management of MSO it was decided that a visit would be made to growers in these countries. Hereby it must be said that it is not easy to plan a visit to these countries due to the political situation in these countries and the closeness of the production centers. To undertake a business trip, the Colombian Flower Council has been contacted. Because the trip is only 8 days a limited number of growers can be visited. According to the findings of this trip a second visit to these countries might be scheduled.

Industry Analyses

To acquire information on the floricultural industry information will be derived from members of representative organizations of the floral industry and from managers from nurseries who will be visited and/or visit the office in New York. Also the growers provided information about the consumer. Market information has been derived from internal reports, market statistics of organizations, literature and articles on the floricultural industry in the United States. Time-constraints, efficiency, costs and lack of sufficient and adequate information on the floral industry have been the motives for these reasons.

Martha’s Flowers

Information on the strategy of Martha’s Flowers today, developments and the situation of the business will be derived from conversations and meetings with the management and executive management team.

Observations

With the management of Martha’s Flowers it was decided to visit Colombia and Ecuador at the start of the research. This visit made it possible to see growers in South America, to see their product and farms and the developments on these markets. Also several samples of different growers were taken. Because the personal relation with the grower and the farms is important a second visit was planned but cancelled due to the situation in these countries.

By a working period at California Fresh Direct, Inc at the division E-business it was possible to understand the processes at a grower and of fulfillment centers in the internet floral business and thus for sourcing at Martha’s Flowers. This also provided information about the competitors of Martha’s Flowers in the internet marketplace.

In addition several visits have been made to the head office in New York of MSO providing insights in the different processes and culture within the organization.

Secondary information methods

Desk research will be done to understand the consumer and production markets. Information on MSO will be searched through internal documents, annual reports, articles and books. The Colombian Flower Council and the Colombian and Ecuadorian export organizations will provide statistics and information on the growers , products and export information.

For the consumer analyses information will be derived from different associations and market studies, articles on floral managements, books, papers, magazines and other material.

1.4.5.2 Sourcing related to split questions.

In chapter 1 I formulated split questions to answer my general research question. The information gathered is needed to answer these formulated questions. Now I will outline the split questions where they are related to information sources.

1.What is meant by the Omni-merchandising strategy of Martha Stewart Living Omnimedia, Inc ? Source: - internal documents, meetings and conversations with the management and business articles.

2. What is the strategy and position of Martha’s Flowers today?

Source: - internal documents, literature research, interviews with suppliers, meetings and conversations with the management.

3. What are the strengths and weaknesses of Martha’s Flowers?

Source: - internal documents and reports, literature research and interviews with suppliers.

4. What are the characteristics of the floricultural industry and what are the latest trends and developments in this industry?

Source: - internal documents, literature, conversations with growers and articles.

5.What are the characteristics of the floral consumer and what are the latest trends and developments in consumption patterns?

Source: - internal documents, literature, conversations with growers and articles.

6. What can Martha’s Flowers expect from the production markets of cut flowers in the future and how do potential sources view Martha’s Flowers

Source: - observations at farms, meetings with growers, literature, magazines and articles.

7. How can Martha Stewart Living Omnimedia ‘source’ and grow within the floricultural industry?

Source: - information derived from the strategic analysis.

1.5 Content of this report

In this chapter the background, problem-statement and approach of this research has been outlined.

In chapter 2 an introduction to MSO and Martha’s Flowers will be given. This will give an understanding of the company’s activities and business model. Chapter 3 will deal with the mission and market definition of Martha’s Flowers. In this chapter an introduction will be given to the floricultural industry and to what MSO and Martha’s Flowers want to achieve in the future. In this chapter the range of the situation analysis will be given.

Chapters 4 till 9 are about the situation analysis of Martha’s Flowers. In Chapter 4 a company analysis on Martha’s Flowers is done.

This chapter will deal with split questions 1,2 and 3. First the Omni merchandising strategy will be explained and the meaning for Martha’s Flowers. An performance analysis will be done of Martha’s Flowers and strengths and weaknesses will be outlined. Chapter 5 is about the competitive forces for Martha’s Flowers. The different forces in the industry will be outlined and so this will contribute to the formulation of a strategy. In Chapter 6 the floral consumer is the subject. This chapter will outline what possibilities there are for Martha’s Flower to have more market coverage in the floral industry. This chapter will deal with split question 5. In Chapter 7 the suppliers of ‘import’ flowers are the subject. Colombian and Ecuadorian flower production will be analyzed. Chapter 8 will specifically deal with California as a flower supplier. In Chapter 9 the potential sources and sourcing practices will be the topic. In this

chapter the view on Martha’s Flowers of these sources and needs of sources will be identified. The chapters, 7,8, and 9 will contribute to split question 6.

Chapter 10 will outline the strategic analyses done in this research. It will provide an answer to split question 7.

Chapter 11 will be the last chapter. Conclusions and recommendations will be made, an answer to the general research question will be given and strategic guidelines for growth will be outlined.

In Chapter 12 the personal experience along this research period in the United States will be discussed.

Chapter 2 Description of the organization

2.1 Introduction

The aim of this chapter is to give an impression of MSO and the unit Martha’s Flowers. First an impression of the entire organization will be given through an explanation of the history, the core activities, the strategic objectives and the business model. In 2.5 the unit Martha’s Flowers will be introduced. Subsequently the business idea, the flower products, the activities of this unit and the suppliers of the flower products will be outlined.

2.2 History: from Martha Stewart to Martha Stewart Living Omnimedia, Inc.

Martha Stewart was raised in New Jersey, in a family with six children where she developed a passion for cooking, gardening and home keeping. After earning a bachelor degree in history Martha worked as a stockbroker on Wall Street. When she moved to Westport, Connecticut, in 1972 she developed a catering business. The visual presentations of the food and recipes were the basis for her first book, “Entertaining” published in 1982. Since then “Entertaining” has become an American classic; now is in 30^th printing.

Martha Stewart and Time Publishing Ventures (TPV) launched the Martha Stewart Living Magazine in 1991. With the publication of the magazine it started focusing on small media niches like gardening, cooking, entertaining, crafts, and holidays. Within one year, the magazine went from a circulation of 250 to 500,000 and from four to six to ten issues in a year. Martha Stewart Living magazine, in 2001 has 11 issues a year, has reached a circulation of about 2.4 million per issue and readership of over 10 million per issue. The magazine is an important medium of driving the brand awareness. In 1993 TPV started with the production of a weekly television program with Martha Stewart. In 1995 Martha by Mail, a mail-order catalog was launched. People were now available to buy products seen on television and magazines. When Ms. Stewart bought the company back from TPV and after some mergers, the company went public in 1999 under the name: Martha Stewart Living Omnimedia, Inc (MSO).

Today, when people want to learn how to make a birthday cake, an herb and/or vegetable garden or make a flower arrangement people turn to Martha Stewart. “With her magazine Martha Stewart Living, television shows, website, newspaper columns, and radio shows, mail-order catalogs and product lines, Martha shares the creative principles and practical ideas that have made her America’s most trusted guide to stylish living¹”.

2.3 Core activities of MSO

MSO is a creator of original “how to” content and related products for homemakers and other consumers. All the products bear the well-known "Martha Stewart" brand name and are leveraged across a broad range of media and retail outlets. This provides consumers with “how to” ideas, products and other resources they need to raise the quality of living in and around their homes. This content and merchandise is created from the following areas: Home, Cooking & Entertaining, Gardening, Crafts, Holidays, Keeping, Weddings and Baby & Kids.

MSO consists of four business segments: publishing, television, merchandising, internet/direct commerce. Below is a short description of these segments.

Publishing

Publishing is the largest segment. The publishing segment includes magazines, books; CDs and paper columns written by Martha Stewart and editors. Examples of the magazines: Martha Stewart Living, Martha Stewart Weddings, Martha Stewart Baby and Martha Stewart Kids. Revenues of this segment represent 63% of total revenues

Television

This segment is responsible for producing television programming. It includes a national, daily one-hour television program: ‘Martha Stewart Living’, the program Martha's Kitchen on Food Network, weekly appearances on CBS's The Early Show broadcast, and periodic network primetime television specials. This segment is good for 11% on the total revenues.

Merchandising

The merchandising segment designs merchandise. The designed merchandised is manufactured and distributed by third parties under the Martha Stewart brands. The merchandise segment controls the creation and design of all related consumer facings including packaging, in-store signage and advertising material. Merchandising has established direct merchandising relations with the following companies: Kmart Corporation, The Sherwin-Williams Company, The Hudson’s Bay Company, P/Kaufmann, Inc and Fine Paints of Europe, Inc. Furthermore, merchandise is sold at Sears, Calico Corners, Jo-Ann Fabrics and Crafts, Janovic Plaza and Canadian Tire, the Seiyu Ltd., and other specialty stores. Merchandising accounts for 8% of the total revenues. The Martha Stewart Everyday product-line is sold through 2,100 Kmart stores in the United States and 300 Zellers stores in Canada.

1Ad week: ‘Martha Stewart Living Everyday’, September, 1999

.

Internet/Direct Commerce

The Internet/Direct Commerce segment consists of the catalog, Martha by Mail, and the website http://www.marthastewart.com, which includes the online Martha by Mail store and Martha's Flowers, and eight linked content and community channels. This segment also includes The Wedding List, a wedding registry and gift business. 18% of the revenues are realized by this segment.

2.4 Strategic objectives

In each of the eight core content areas (home, cooking, entertaining, gardening, crafts, holidays, baby, keeping and weddings) creative experts are developing new ideas that support the high quality and look associated with the ‘Martha Stewart brand way’. Editors, art directors, designers, cooks, gardeners and craftspeople have developed an extensive library of "how to" articles, books, television programs, newspaper columns, radio segments and products relating to the eight core content areas.

MSO has two primary strategic objectives:

•

•

"Martha Stewart way"

2.5 Business model

To accomplish the strategic objectives the company developed a business model. Below the model is shown. Furthermore, the elements in the model and how the model works will be explained.

Figure : Business Model MSO

Core Content

At the center of the business model you can find the ‘core content areas’: Cooking and Entertaining, Home, Holidays, Gardening, Crafts, Keeping, and Weddings. MSO developed a library where all assets are devoted to lifestyle: 9,000 magazine pages, 3,000 television segments, 5,000 merchandise SKUs, 4,000 book pages, 400 newspaper columns and over 750 radio segments. Investments are made to produce original and proprietary content for the core contents of the business. The investments are leveraged across the Omnimedia (the media outlets), Omni merchandising (all retail channels), and Internet/Direct Commerce distribution platforms. The leveraging of investments through multiple multimedia platforms creates a ‘multiplier’ effect. This results in high economies of scale, cost sharing, cross-promotion, and cross-selling.

Omnimedia platform (Publishing and Television segment)

Any idea for the content areas is driven through a broad range of media outlets: magazines, books, newspaper columns, radio shows and television program. This platform drives all the ideas through national media audiences. This creates demands for products.

Furthermore, development costs are spread.

Omni merchandising platform

The demand created by the Omnimedia platform is fulfilled by this platform. This platform consists of products or designs selected for production or sale. This year the merchandise counts over more than 5,000 products. Products like; bed and bath products, baby items, craft kits, garden tools, flowers, interior paints and house ware lines. The products are offered through different distribution channels:

mass market discount channels, national department stores, specialty paint, craft and fabric stores, a Martha by mail catalog, online store (www.marthastewart.com) and a shared site Bluelight.com.

Internet/Direct commerce platform

Martha by mail merchandise (for example ‘marthasflowers’) forms the foundation of this platform. This platform offers high-end and specialized products for sale on the internet and by a catalog.

2.6 The idea of flowers

The Business Idea is the organization’s mental model of the forces behind its current and future success and drives the strategy of the organization (van der Heiden, 2000). MSO built their business around the following principle: the pursuit of a lifestyle leads to a deeper relationship with one’s family and home and is a serious creative and educational spirit. This resulted in eight content areas (home, cooking & entertaining, gardening, crafts, holidays, keeping, weddings, baby & kids) which compromise ‘lifestyle’. The creation of customer value starts with the recognition of this principle and the creation of ‘How-to’ content. These ‘How-to’ creations generate value for the customer and so create resources for MSO. One of these ‘How-to’ creations for MSO are flowers. In 1999, the Martha Stewart brand was extended to flowers: marthasflowers. Flowers raise the quality of living in and around the home and contributes to the lifestyle principle. Flowers are send direct from the farm to the consumer and they’re in the form of a grower bunch, so people can arrange their own flowers and raise the quality of living.

2.6.1 Flower products of Martha Stewart

The following product-lines are branded under the name ‘marthasflowers’ and are sold through the Martha by Mail catalog and the internet/direct commerce platform;

Martha by the bunch

This product line contains bunches of seasonal flowers and roses. The seasonal flowers include the following cut flowers: apricot hybrid lilies, pink oriental lilies, and white oriental lilies, blush gerbera daisies, pink gerbera daisies, pale-yellow green gerbera daisies, freesias and carnations. The prices of the bunches vary between $28 ( for freesias) and $68. Prices are bases on the number of stems a customer orders per bunch. Prices of the roses vary from $35 to $100.

Martha by the Month

Martha by the month consist out of three different programs of marthasflowers: one for 3 months for $148, one of 6 months for $278 and a complete year-programs for 500$. Subscription for a month program provides customers every month a different bunch of flowers. The following flowers haven been used for the programs: tulips, calla lilies, delphiniums, hydrangeas, roses, gerbera daisies, freesias, dahlias and sunflowers. Martha by the month is also available for only roses.

Martha’s Tools & Essentials

This product-line of Martha's Flowers includes accessories related to flowers. It includes: scissors, the book “Flower Arrangements”

by Martha, knives, floral frog-sets and vase cleaners.

Martha’s Wreaths & Greenery

The wreaths and greenery consists out of 14 different wreaths, from magnolia wreaths to rosemary and eucalyptus wreaths. Prices are between 35$ and 160$.

Why roses and seasonal flowers?

Following Martha Stewart these varieties were an enrichment to all the other products and to the idea of bringing lifestyle in people’s life. As a designer she started using flowers for decorating the house. For all her made arrangements, shown every month in Martha Stewart Living magazine under ‘Arrangement of the Month’, she was using roses and seasonal flowers. The composition of the assortment is largely based on the colors and varieties Ms. Stewart likes. In the Martha Stewart Living magazine there is every month an arrangement shown under ‘Arrangement of the Month’. Floral designers create bouquets and arrangements from different flowers.

The flower used are roses and different sorts of seasonal flowers like tulips. The decision of which flowers are sold is made by the preferences of Ms Stewart and other ideas of the creative experts team at MSO

2.6.2 Activities of the unit Martha’s Flowers

Since August 2001 everything what has to do with the brand ‘marthasflowers’ is done within a separate unit within MSO: Martha’s Flowers. The activities of Martha's Flowers can be divided into promotion (branding), customer service, product/design management and maintaining the supplier relation.

Promotion trough multiple contact points

The main activity has been promoting the brand marthasflowers and the use of flowers to raise the quality of living in and around the house. Through the Omnimedia platform marthasflowers are promoted through different media outlets: magazines, books, television program and newspapers. In the magazine Martha Stewart Living flowers are promoted by the flower arrangement of the month column and by a photo’s where flowers are used for decorating homes, tables, kitchens etc. In August 2001, the cover of Living was a bouquet of Hydrangeas. Hydrangea, as a cut flower, was the ‘Bloom of the Month’ for August. Furthermore, a book was published to show people the beauty of flowers and what people can do with flowers to raise the quality of their living and lifestyle; ‘The best of Martha Stewart Living’, Arranging Flowers. On the television shows Martha Stewart Living, from Martha’s Kitchen and holiday special shows like “Martha Stewart’s Christmas Dream” flowers are used as decorating items and/or are subject of the program. The daily show Martha Stewart Living reaches about 1.6 million households who watch the show everyday.

In addition to the media promotion marthasflowers are promoted through the website, www.marthastewart.com, and by the catalog, Martha by Mail. Last year eleven editions were mailed of this catalog with a circulation of about 15 million people.

Customer service

This supportive department is helping customers by providing information and answering questions they have regarding a product. It gives consumers information and support on how to order a product, how to pay for a product, about the delivery of the product, about care and conditioning of the product, guarantees and sales taxes.

Furthermore it provides a service to track the order down and making gift cards to go along with the product(s). The customer service gives information to customers about discounts, new products and products they wish to be informed about. Customer services provide customers the ability to register the product they like. Resulting in keeping customers up-to-date about products. This can be discounts, new products, and non availability of products. Furthermore, customer services keep customer records.

Customer service is also providing order management activities. Customer service is receiving all the orders from the customers and sends these to the suppliers. When someone orders Martha's Flowers on the web, the order comes in and is processed by customer service. It is responsible for the payments and sends an order to the fulfillment center. This department also makes monthly and weekly projections for the sales of products. The projections are send to the supplier. The customer service center for all the merchandise is located in Atlanta. For Martha’s Flowers there are two people involved in the customer service.

Product management and assortment

This activity is controlling everything what has to do with the products. The most important task within the product management is maintaining the relationship with the supplier.

When in 1999 MSO management started with selling flowers, it chose to sell flowers in a bunch, a grower bunch. This means just spikes of flowers ; not a bouquet. People can make their own arrangements when ordering a flower bunch.. At the start of the research the products included the following: roses and seasonal flowers. The seasonal flowers include the following varieties: gerbera daisy, calla lily, sunflower, tulip, hydrangea, dahlia and oriental and hybrid- lily. People can order just a bunch or subscribe at for a 3-6-9-or 12 month club. Not only the decision of what product will be in the product assortment and how, but also the following tasks deal with product-management: the design of boxes where the flower is shipped in, providing and design of information cards with the flowers for learning people about their flower, and the creation of greeting cards.

Supplier relations-fulfillment

This activity controls the relation with the suppliers of products who are involved in the fulfillment of the received orders. Since 1999 one person has been responsible for managing supplier partnerships. Since 1999, Martha’s Flowers has dealt with two suppliers: one grower and one shipper. The tasks compromising this activity are: maintaining the relation with the suppliers, negotiations about price of the products, the product requirements and availability and responsibility for the distribution of flowers. For the delivery of products of Martha’s Flowers it is dependent on a delivery company. Delivery of all the products is carried out by Federal Express.

The negotiations about prices of delivery belong to the tasks of managing the suppliers.

Every order Martha’s Flowers receives must be fulfilled. The fulfillment is an outsourced process. Martha’s Flowers are grown, packed, prepared and shipped by other companies. For the fulfillment of all the Martha Stewart products supplier – relations are set up with all different suppliers for every product. There are several reasons for this strategy. First, MSO is not the producer of tangible products, it only creates, designs and markets them. There are no competencies (like technical) in production on scale and producing cheaply. Furthermore, the buyer-supplier relations give MSO variable costs above fixed costs of assets.

Martha’s Flowers is an outsourcer of flowers meaning that it does not act as a grower but as a link between the market and the producers. When in 1999 MSO started selling flowers under the name marthasflowers it needed a source to fulfill the realized customer orders. While the focus here is on the suppliers of flowers and the fulfillers of the total product also sources for the boxes, the cards are needed.

The total fulfillment process consists out of the following activities: receiving and collecting orders, sending orders to the suppliers and distributor, the processing of the order through the supplier and the delivery of the product. The supplier plays the most important role. He will pick the orders up and process them delivery ready. Since 1999 Martha Stewart has been working with a grower/shipper in California. The growers activities are: growing of the wanted varieties, cutting and post-harvest care and packing of the product in a box.

On the next page a picture of the order process is shown.