Warm Fuzz Cards Case

This case deals with the dilemma faced by Eric Mills who is the founder and CEO of Warm Fuzz Cards. She is the sole decision maker of the organization and currently is facing a problem with regards to deciding her business growth strategy. Eric is married to Craig and they decided to start a family within one year. She is therefore unsure whether to grow the business quickly or at a slower rate and therefore has to decide at this point which strategy to implement. Warm Fuzz Cards sole owner is Eric Mills who founded the organization with simply a laptop and a gifted card printer from a relative.

Mills has always had a strong passion for art which she pursued at an early age and developed sales/ management expertise during her work in the medical field. Craig while having a Job as a human resource executive at a large firm also assisted Eric with assembly and in quality control. Currently, all the management functions are performed by Eric Mills which include accounting, finance, marketing and sales departments. The firm’s organization structure is fairly straightforward with Eric being the sole owner/ manager and Craig as quality control and assembly worker.

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The philosophy for Warm Fuzz Cards came from Erica’s desire of having cards not only for occasions but Just to spread warmth and fuzziness. While Eric enjoys more control and considered a slow growth prospect, Craig on the other hand was a proponent of faster growth. This is perhaps the only conflict of objective existent within the firm as Craig obviously as a husband would play a major role in advisory. Warm Fuzz Cards current marketing and sales strategy is focused on building more relationships with retailers, exploring new opportunities in card industry and developing custom cards. Mills has a base of 150 retail customers across Canada.

Most of her customers are small store owners and thus Mills maintains a strong personal relationship. Unlike most Mass card manufacturers, Mills also made card modifications and loved the feedback from customers to help her generate better ideas. Apart from this, Mills also identified an opportunity in custom card products such as wedding invitations and business cards. Mills used the internet as her promotional strategy by developing a website and using social media tools to promote her ideas, designs and products. The Corporate market was another customer that Mills identified as companies looked for custom cards for holidays, events etc.

Most of the marketing for corporate clients was carried out through word of mouth. The design strategy and expertise of Mills is what separated her from the competition. There was a unique modern style to Erica’s products and the focus on high quality and customer satisfaction set it apart from the rest. The production strategy for Mills focused on the type of customer and was extremely customer specific. Retail customers made really small orders and Eric used a “Just-in-time” model which enabled her to meet unique wants at low risk.

She invested in a high quality printer to make small batches but this significantly increased her material costs as it would be cheaper to mass print. The rest of the stationery supplies were purchased from a local store for the lowest price available. Embellishments were bought from a local craft store. For custom card products, Mills currently had them in her office while larger orders were outsourced to a print house. Cost of this varied depending on the handwork, embellishment and size of order. So far the results for Eric are positive with monthly sales averaging $3,500 in 2008.

Warm Fuzz Cards does not have a particular mission statement that defines its objectives. It is based on a philosophy to make people smile and gifting people cards for almost any or no occasion whatsoever. The pure purpose was to spread warmth and fuzziness. Mills clearly had a strong passion for card design and leading a business. Her openness to ideas, creative mind and graphic designing skills make her fulfill the philosophy in a perfect manner. Current customers as mentioned primarily include retail stores mostly small vendors, marriages and corporate clients.

The custom card business accounts for 50% of the sales, while retail makes up the other 50%. She sold the cards to retailers for $2. 25 whilst material cost in office was $0. 50 per card. Mills labor cost is hard to estimate although she did withdraw a small salary from the monthly revenues. Custom cards however offered greater margins as wedding invitations were sold between $5-10 each whilst material cost was only $1 per card. Custom business cards also provided good revenue generation as corporate clients would place large and repeat orders.

It appears that the custom radar business is more profitable than the retail business and offers a great opportunity for Warm Fuzz Cards to expand. The channel of communication used by Mills for her retail clients were mostly through personal telephone calls. In this way Mills was able to develop a more personal relationship and at the same time receive valuable feedback from the customers. In terms of custom cards, corporate clientele was communicated purely through word of mouth. For wedding invitations, Mills used online communication channels by creating a website, social media pages and free listings on websites.

The firm’s pricing in comparison to its competition was fairly similar. Greeting card price range between $0. 50 to $10 in the market. Typical cards would have average price of $3 while other custom cards were sold for higher prices. In terms of the industry, annual card sales were estimated at $7. 5 billion. Warm Fuzz Cards sales for 2008 were a mere $42,000 which makes its market share insignificant. In terms of revenue generation, Warm Fuzz Cards revenue has grown from its previous year of operations. In 2007, annual sales were $24,000. This meaner that the percentage growth in revenue between the years 2007-2008 is 75%.

It indicates the great potential the business has to grow even though its small nature. Cost structures based on 2008 sales would mean that $21,000 was revenue through retail stores while $21,000 from custom cards. This meaner that around 9,300 cards were sold through retail stores, which gives a material cost for the year of $4,600. This meaner gross profit would be around $16,400. It would be hard to estimate the profit generation from custom cards due to the varying price and cost structures. Overall due to low overhead, it would be safe to conclude that Warm Fuzz Cards is operating profitably.

There was no financing required for the initial setup as Eric had a laptop and the printer was gifted by a relative. As everything was produced to order, there was no financing required for inventory and overhead costs were very low and included costs such as phone, internet, website etc. It is sold mostly in retail stationery stores. The greeting card market itself can be broken down into several segments such as seasonal and everyday cards, Occasions, custom cards etc. The industry is fairly large and likely to boom during strong economic periods.

In terms of competition, major competitors included Hallmark and American Greeting brands with their overall market share being 85%. As need for convenience rose, more cards were sold at convenience chains and specialty stores were slowly getting eliminated from the marketplace. These two firms clearly dominate the card industry and can threaten to eliminate small businesses. E-cards were another significant competitor as use of electronic cards increased due to the availability of technology. Generally, firms in this type of industry compete with each other on innovation and ideas.

High quality product and great service are other areas f competition due to the nature of the card industry. Warm Fuzz Cards measures perfectly to how most firms in the industry compete. It has the creative entrepreneur in Eric with great graphic designing skills and openness to ideas. Mills great passion for her work meaner she ensures quality in the product. Customer service is also of high priority with reruns being made if any issue arises. A SOOT analysis would provide us with a good indication of the current situation of Warm Fuzz Cards. The strengths associated with the business lies pretty much in the entrepreneur Eric Mills.

Her passion for her work, experience in leadership, graphic design and sales skills make her the most important asset of the firm. Another strength is the favorable growing conditions of the greeting card market with an average of 11% growth between 2004 to 2006. Mills also possessed an extensive portfolio of designs which enabled creation of custom designs in a speedy and efficient manner. The “Just in time” production strategy is another strength of the firm as it does not lead to money tied up in the inventory and gives the business flexibility. In terms of weaknesses, we can identify several that Warm Fuzz Card faces.

The firm has a market share that’s insignificant which meaner it would be hard for Mills to gain any financing for expansion. The lack of enough staff is another weakness within the organization as Mills has too much tasks to handle. This would not help her to focus on the more strategic objectives of the business and would slow down the progress of growth. The other major weakness is the inability to produce large quantities which can lower costs significantly as well as enable the business to greaten its market share through greater revenue. Several opportunities can be identified for Warm Fuzz Cards.

The first big opportunity is her Toronto retail connection that has nationwide stores selling cards and gifts. This would enable her to expand the business and take it to new heights. Another opportunity is the wedding invitation segment which yields a high profit margin for Mills. By investing more in this area, profitability can improve and she would be able to finance the growth of the company internally. Further, she could use her own sales skills and invest in trade shows/events to expand her client base. The threats faced by Warm Fuzz Cards include the heavy competition faced from industry leaders.

Another wreath is the booming electronic card industry, which could make the traditional card industry obsolete. The fact that smaller specialty stores were closing down was biggest competitive edge Warm Fuzz Cards has is its entrepreneur who has the ability to create unique modern designs and who is passionate about her business. Eric Mills is considering several alternatives with regards to the current problem. She basically has to decide whether to partner with someone or seek for an investment/loan as the main issue was funding. She could grow the business slowly which would allow her greater control and flexibility.

The other alternative would be to expand the retail aspect of the business by partnering with a large national chain of stores. This would greatly boost revenues and profitability as large orders would be required. However, this would require a significant investment in inventory. Another option was to hire staff in accounting and finance so that Mills could focus on other more important aspects of the business. Other possibilities were hiring a sales broker, marketing team or graphic designer. A sales broker would have a good network which would allow Mills to promote her business.

However, since Warm Fuzz Cards might not get attention from a broker due to the small size of the business. Online campaign would enable her to focus on high margin wedding invitation cards which would boost profitability considerably. The recommended strategic option would be for Mills to grow her business. It would be better to get the business to a certain level before starting a family. Mills should therefore close the deal with the Toronto connection as this gives great revenue potential for her firm. An investment in inventory would be required since order sizes would be large.

Mills would also have to hire someone for the financial and accounting side of business as well as quality control. This would increase costs but allows for mass production. In order to implement this plan, Mills should focus on getting a loan from a bank or an angel investor. By using her sales skills, she should then seal the deal with the Toronto connection. The cash should then be invested into inventory and employing of staff. Mills should then take charge of sales, marketing and strategy of the business whilst employing staff for accounting, finance and production.

Jesse
from Nandarnold

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