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Newsletter--Volume 3, Number 4

In late 1993, legislation was approved for the implementation of a national program to generically promote fresh cut flowers and greens in the U.S. domestic market. All programs were underwritten through an assessment of .5 percent on qualified handlers with annual sales of $750,000 or more. The first commercials, aired on national television in late February 1996, introduced “BuzzTM” and the “Think FlowersTM” campaign. These programs were administered through the National PromoFlor Council.

Generic promotion of fresh flowers is unique among the current national checkoff programs because it is the first program designed solely to promote the aesthetic value of a product. For many commodity checkoff programs, the promotion message is directed primarily to informing potential consumers about the physical attributes of the product. Promoting flowers is intended to change perceptions, awareness, and recall with a message focusing on the pleasures received from buying and giving flowers.

Understanding Demand
Has the promotion of fresh cut flowers and greens changed the demand for flowers and greens? To answer this question, we need to have a clear understanding of demand and how to measure promotion’s impact on it. While flowers are purchased throughout the year, there are clearly special occasions such as Valentine’s and Mother’s days, etc., where purchasing activities increase several fold. We refer to these buying patterns as seasonal factors in demand reflecting consumer habit persistence. The quantity purchased also depends on price, consumer income, inflation, and other economic and demographic factors that cannot be easily changed, especially by the flower industry. This group is referred to as the external factors of demand. Finally, one may attempt to change perceptions, awareness, and recall through promotions, product development, and innovations. We refer to this third group as the controlled factors of demand. PromoFlor fits into this third group. Demand is then defined as the relationship between the purchases of flowers and the three categories of factors influencing demand; to measure it, the empirical linkage between consumers and the seasonal, external, and controlled factors must be known. For PromoFlor specifically, one must measure how much of a change in demand can be attributed to the generic promotion of fresh cut flowers while recognizing that other factors also cause changes in demand.

Total demand for flowers can change in basically two ways:
(a) The number of buyers changes from period to period with the entry of new buyers, and increases in the number of buyers with a history of purchasing flowers. The frequency of buying is expressed as a percent of U.S. households buying flowers within a given time period. Likewise, the numbers can be shown across demographic groups such as income categories.
(b) The quantity and expenditure per buyer reflect the intensity of consumption. Demand rises and falls with changes in the purchases per buyer.

To measure the potential effects of PromoFlor, it is essential to determine if the generic promotion of fresh cut flowers attracted additional buyers to market (a) above, and if the advertising generated additional purchases per buyer (b) above.

How is Demand Measured?
To measure demand, data on consumer purchasing activities must be available. Given the data, statistical tools, specifically, econometrics, must be used to determine the linkage between purchases and promotion. In our case, models depicting the relationship between demand for flowers and generic advertising are estimated. Empirical models are then used to calculate a rate-of-return to the programs.

Potential buyers of fresh cut flowers in U.S. households are grouped into four income categories: (1) under $25,000; (2) $25,000 to $49,999; (3) $50,000 to $74,999; and (4) $75,000 and over. Flower purchases are recorded for each income group along with prices, purchase period, and other economic factors. Using statistical models, the impact of PromoFlor advertising and promotion on flower sales (including the number of buyers and the amount of expenditures within each income group) is estimated.

Since assessments occur at the handler level, it is essential for gains to be reflected at that level. To convert retail sales back to the handler level, we must determine the value of fresh cut flowers in retail sales of arrangements. It is assumed that 65 percent of the retail arrangement value is in fresh flowers (includes costs of the flowers and other costs associated with the flower component of the arrangement, and profits on flowers included in the arrangement). Whereas, for other flower sales, almost all of the product is in fresh flowers. Once the retail flower value from arrangements and other fresh cut flower sales is known, then the retail flower value is divided by an assumed industry retail markup to reflect the fresh cut flower value to handlers (i.e., the equivalent gain in handler revenues).

Using these procedures and the econometric models, a change in PromoFlor promotion leads to potential gains in retail markets. These gains are then expressed in terms of equivalent values to handlers. Handler gains from promotion are compared to the program costs, thus giving a measure of the rate-of-return to the programs.

Flower Purchasing Data
Data collected by the National Panel Dairy Group (NPD) and sold through the American Floral Endowment provide a rich source of information about the retail sales and number of flower buyers. NPD data are based on a consumer panel of several thousand households who report their purchases of flowers, including zero purchases. While the NPD panel is a representative sample of U.S. households, the panel does not cover all consumers. Hence, NPD’s national projections still represent only part of all domestic flower purchases. Our calculated impact for PromoFlor is based on these data and may in some cases understate the full impact, since other types of consumers including commercial purchases are not captured in the NPD panel.

Flower Types and Buying Patterns
For evaluation purposes, retail flower sales are divided into three categories: fresh cut flowers, flowering pot plants, and dry/artificial flowers. While promotion activities and assessments apply only to fresh cut flowers, promotion may influence the sales of all three types of flowers. In this evaluation analysis, we are dealing only with the impact of PromoFlor on fresh cut flower sales.

Fresh cut flowers accounted for 52 percent of retail flower sales. Within the fresh cut sales type, arrangements accounted for 55 percent of the total; single stems contributed 16 percent; bunches totaled 23 percent; and the remaining was 6 percent. When viewing fresh cut sales across our four income groups, the lowest income group of households accounted for 22.7 percent of the sales; 35.8 percent were from households with incomes between $25-$49,999; households between $50-$74,999 contributed 23.4 percent; and the highest income group equaled 18.1 percent for fresh cut flower sales.

Buyer patterns also differed by income groups. During an average month, approximately 3 percent of households in the lowest income group bought fresh cut flowers. For the $25-$49,999 and $50-$74,999 groups, the percent buying within a month averaged 4.3 and 6.2 percent, respectively. Finally, around 9 percent of households in the highest income group bought fresh cut flowers at least once during a month.

Comparing Buyer Behavior Across Years
While the percent of households buying in any one month was around 5 percent, on an annual basis the percentages were larger. In 1993, almost 23 percent of the households purchased some form of fresh cut flowers within the year. From 1993 through 1995, the percentage trended downward ending with 20.5 percent in 1995. During the full year of 1996, the downward trend reversed direction with 22 percent of U.S. households buying fresh cut flowers. An important issue is whether or not PromoFlor contributed to this positive change.

Around 7.7 percent of the households bought flowers on special occasions such as Mother’s day, etc. There have been only small changes in this percentage over the last four years. In contrast, changes in buying patterns during non-calendar occasions were more pronounced. Almost 20 percent of U.S. households bought flowers in non-calendar periods in 1993. This value declined to 16.8 percent in 1995 but increased to 18.2 percent in 1996. It should be noted that most of the gains in buyers in 1996 were for non-calendar occasions.

But what about the frequency of purchases per buyer? In 1996, on average, there were 3.3 purchasing occasions per buyer. This was an increase over the 1995 level of 3.16 occasions per buyer and about 3.5 percent above the 1993 level. While the rate of change was relatively small, it points to an improvement in 1996 over the period seasons. Again, the main question is if PromoFlor contributed to the gains seen in 1996.

The Economic Impact of PromoFlor
Using NPD data and the statistical models noted above, the effect of PromoFlor advertising on the demand for fresh cut flowers was estimated. The impact was seen in both attracting additional buyers to the retail market and in additional expenditures per buyer. These advertising effects differed across the four income groups. The statistical analysis showed fresh cut flower advertising and promotions had a positive and statistically significant influence on demand for flowers. Household expenditures on fresh cut flowers increased at the retail level. Using the procedures described earlier, these increases in retail sales can be expressed in terms of dollars of additional gross sales to handlers. These gross sales are the revenues generated back to the handlers before subtracting out handler costs and profits.

Additional retail revenues attributed to PromoFlor were expressed in terms of gains in handler revenues. Dividing these revenue gains to the handlers by PromoFlor’s expenditures on advertising and promotions gives a total of $6.62 (gross) in handler sales for each dollar of PromoFlor expenditure. That is, for each dollar of PromoFlor advertising and promotion expenditures, the models show $6.62 of additional handler gross revenues generated per promotion dollar (including all handler costs and profits). A net rate-of-return in terms of revenue occurs by subtracting the $1 promotion cost from the $6.62 gained per promotion dollar. Therefore, for the 1996 season (through November 1996), each dollar of generic promotion of fresh cut flowers generated $5.62 in additional handler revenues per promotion dollar.

This gross gain of $6.62 per promotion dollar includes both the costs of goods and handler profits. While costs may vary across handlers, an industry standard markup of 1.43 can be used to express handler revenue gains in terms of changes in gross profits. If the .43 represents gross profits in the handlers’ markup, then 30 percent of the handler sales are gross profits. Multiplying this percent times the $6.62 in revenue gained per promotion dollar gives an increase in handler gross profits per promotion dollar by PromoFlor. Using this percent, a dollar of PromoFlor promotions produced $1.98 (i.e., $6.62 x .30) in additional gross profits per promotion dollar before subtracting out promotion costs. The net gain in profits per promotion dollar was $.98 after subtracting costs.

To reemphasize, these gains are based on a portion of the total industry captured by the NPD data. For example, commercial sales are not included in the calculations. If PromoFlor has positively impacted sectors not in the NPD data, the rate-of-return is understated.

PromoFlor Gains Across Income Groups
Estimated gains differ across the four income groups as noted earlier. Having a clear understanding of where the gains were generated is essential to program design and revisions in subsequent periods. Around 31 percent of the total sales gains attributed to PromoFlor occurred among those households with incomes of less than $25,000 annually. The $25-$49,999 group accounted for almost 40 percent, while the next group was near 30 percent. These three groups accounted for 93 percent of U.S. households. Interestingly, the analysis showed there were no gains estimated among those households with incomes of $75,000 and greater. That is, this income group did not show a consumption response to the promotions-- one can only conjecture why.

A second dimension to understanding gains relates to changes in the number of buyers vs. the intensity of buying as discussed with points (a) and (b) earlier. Within each income group, gains can occur with new buyers entering the market and with additional expenditures per buyer. Knowing how promotion works in this context is extremely useful for longer term programming.

But what share of total gains can be attributed to increasing the number of buyers in each income category? First, the percent of buyers is not relevant for the highest income group since responses were not statistically significant. However, for the lowest income group, the analysis showed that 70 percent of the gains among those households resulted from additional buyers entering the market. The majority of gains in this income group resulted from more buyers, less in terms of the amount of purchases per buyer. For the middle two income groups, between 52 and 57 percent of the promotion gains were due to more buyers. More households were attracted to the market and the intensity of consumption per buyer also increased.

Gains in Fresh Cut Flower Buyers
The analysis clearly shows additional buyers have been attracted to the fresh cut flower market with the introduction of the national flower advertising and promotion campaigns. During a typical month, around 5 percent of U.S. households bought fresh cut flowers (percentage differs by income group as stated earlier). Using statistical models, the additional number of buyers attracted to the market in a typical month can be estimated.

On average, there were 4.5 million households per month buying fresh cut flowers. An estimated 460,000 additional households bought flowers. These additional buyers represent an approximate 10 percent increase in the number of buying households within the NPD database for a month. This gain is directly attributed to “Buzz” and the “Think Flowers” promotions. Among these additional buying households, nearly 40 percent were within the lowest income category with roughly 70 percent of the total additional buyers among the two lower income categories.

Conclusions
We started with the question, “Has PromoFlor impacted the demand for fresh cut flowers?” Given the statistical analysis based on the NPD database, the answer is yes. Specifically, at this juncture in the evaluation process, the following major conclusions are noted:

(a) Statistically, PromoFlor has positively and significantly affected fresh cut flower demand, specifically among households with incomes under $75,000.
(b) An estimated rate-of-return indicates $6.6 of additional handler revenues were generated per dollar of PromoFlor advertising and promotion expenditures. Subtracting out the cost of PromoFlor, a net gain of $5.6 in additional revenues per advertising dollar was realized at the handler level.
(c) The gains attributed to PromoFlor’s programs resulted from both attracting additional buyers and increases in the expenditures per buyer. For the lowest income group, nearly 70 percent of the gain was due to additional buyers entering the market. The share was nearly 50 percent for the next two income categories.
(d) PromoFlor’s advertising and promotions produced an estimated 10 percent increase in the number of households buying fresh cut flowers in a typical month. Over 40 percent of these additional buyers were within the lowest income group.

At this point in the evaluation, one must recognize that the total promotion experience was relatively short since PromoFlor only had one year of promotion activities to study. Statistically, the analysis indicated the “Buzz” and “Think Flowers” campaigns stimulated a response among the buying public.

*Footnote: A handler referendum on the PromoFlor program was initially scheduled for November 1997 but was later moved up to June 1997. All evaluation materials and other aspects of PromoFlor’s efforts were distributed to handlers. In June 1997, the industry voted through referendum to terminate PromoFlor, with a vote of 58 percent against the programs. Although the industry benefitted economically from the programs, there were equity concerns about sharing costs. As the legislation was written, handlers paid all assessments (particularly handlers with sales above $750,000). Yet it is clear that some of the promotion benefits were accruing at levels in the vertical distribution system (i.e., retail) not subject to the assessments. While we may never fully understand all the factors influencing the final vote, assessment equity was definitely a concern.

Ronald W. Ward is a professor in the Food and Resource Economics Department, University of Florida, Gainesville, Florida. The American Floral Endowment was instrumental in providing the data essential to this evaluation.

Manager's Viewpoint
Maureen Varnon
former Marketing Director
National PromoFlor Council

Category-Building Campaigns Worth It

The National PromoFlor Council’s Buzz/Think FlowersTM campaign was an excellent illustration of how advertising works. It reinforced how in today’s cluttered advertising marketplace, an innovative, creative approach that resonates with consumers can increase product awareness better than a campaign that is merely comfortable for the industry to support. Ultimately, it showed advertising could increase sales for a mature product with a high familiarity among consumers.

Prior to developing the Buzz campaign, the National PromoFlor Council conducted research to a) better understand how consumers think about flowers, and b) determine how to make them think about buying flowers more often. Through this research it became clear that there were a number of barriers preventing consumers from buying flowers more often. Consumers often feel flowers are short-lived pleasures only for the self-indulgent and special occasions. The challenge was to address these barriers without sacrificing the beauty and magic inherent in flowers.

The concept of using a bee as the campaign spokescharacter was further tested with consumers. They perceived Buzz as the authority on flowers and a friendly, approachable character who effectively addressed the barriers preventing them from buying flowers more often. Importantly, they viewed the Buzz approach as a new, different way to sell flowers. Buzz made people think about buying flowers throughout the year rather than just for special occasions.

PromoFlor’s $20 million budget was often criticized as not being enough to make a difference. Yet in addition to separately noted sales increases, additional research showed 34 percent of consumers were aware of the “Think Flowers” campaign after only four weeks of advertising. This level was sustained after the first year, with directional increases in the key messages. These results can be attributed to the cutting edge creative approach, an effective media schedule, and a comprehensive, research-based, integrated marketing program.

Industry-funded advertising programs do make a difference, and industries need to support these efforts to maintain and increase consumer demand for products. The challenges these industries face in the future are greater than continuing to implement successful marketing programs. The real challenge in this world where every dollar counts is for industry members to continue viewing advertising as an investment, not an expense.

Maureen Varnon also directed the advertising programs for the NDPRB. Through Varnon Marketing Services, she now provides marketing support for a variety of category-building marketing campaigns.

The Rest of the PromoFlor Story...
Marvin N. Miller

Flowers. The term means different things to different people. Except for the occasional hay-fever sufferer, most people love flowers. Consumers just need the occasional reminder to buy them. A commodity? If you believe a rose is a rose is a rose, perhaps, so. But to most, the thoughts of “flowers” are quite varied, but the term itself is usually all-inclusive. Most consumers use the term to include cut flowers, potted plants, and even garden flowers. So what was there to debate about industry promotion? Plenty.

When it was announced that the PromoFlor referendum had failed, there was shock. PromoFlor was very focused in its approach, unlike the industry’s previous effort to organize, Floraboard. Floraboard included potted flowering and foliage plants, as well as the cut flowers and greens that were PromoFlor’s sole focus. More cut flower producers had voted in favor of the Floraboard referendum than growers in other industry segments, so the narrower focus seemed appropriate. Floraboard was to assess thousands of growers rather than the mere hundreds of handlers, as defined by PromoFlor, making collections more manageable--another plus for PromoFlor. PromoFlor spoke specifically to so-called “handlers,” those selling at least $750,000 in cut flowers and greens to retailers. And while some growers qualified as handlers (those vertically integrated into wholesaling or those bypassing wholesalers and selling directly to retailers), most handlers were either wholesale florists or importers, making the PromoFlor focus that much sharper.

Indeed, a referendum vote in favor of industry promotion had been anticipated this time. Before the industry even went to Congress for enabling legislation, an Ernst and Young survey found 78 percent of respondents were in favor of the idea. Industry organizers had also done their homework, speaking at every opportunity to answer questions, address concerns, and poll participants. The delayed referendum allowed advertising to begin and allowed for research showing ads made a difference. If there was any fault, Monday-morning-quarterbacks might suggest that the referendum, which was held earlier than required, was rushed before industry periodicals had a chance to editorialize suggesting a “pro” vote. But the anticipation was such that most observers felt PromoFlor would easily pass. Hence, the early-referendum timing and the subsequent shock.

Of course, I was forced to rationalize the defeat. As an AgEconomist working in the industry, I knew the industry was under-marketed for several reasons. First, the industry has always been fragmented, and the fragmentation has always been best observed among cut flower growers. Unlike growers of potted plants or bedding/garden plants, where production diversity is the norm, cut flower producers have often focused on one species, e.g., roses vs. carnations vs. chrysanthemums. Product line offerings usually don’t appear homogenous until the product moves through the market channel and gets combined with other species and services at the wholesale and retail levels.

Secondly, many growers have historically believed that as long as they grew “quality,” they could sell all they could produce. While certainly more true in the days of the Floraboard referendum (1983-84), many, especially those in the cut flower sector, have come to realize that global competition on the supply side has repeatedly challenged that belief. Domestic cut flower producers have always resented imports and have repeatedly brought suit before the U.S. International Trade Administration alleging unfair dumping; the suits have often resulted in duties being imposed. By 1980, over half of the U.S. carnation and pompon chrysanthemum supplies were already coming from offshore. By the time PromoFlor was being conceived, more than half of the U.S. rose supply was also being imported. To many producers, fighting imports was preferred to tackling demand issues.

Third, industry fragmentation is inherently part of today’s “disjointed market channel.” Domestic floriculture producers have really changed their focus in the last 15 - 20 years away from cut flowers to potted flowering or foliage plants, and/or bedding/garden plants. Most of the domestic floricultural production goes one way, to mass merchandisers or garden centers, while the perishable focus of both wholesale and retail florists is almost exclusively geared to cut flowers and greens, products now coming primarily from offshore producers.

The market channel issue is further complicated by imports. While both the importer and the wholesale florist qualified as handlers in the program when selling to retailers, there could be an inherent inequity in the assessment amount paid per flower as the latter could have taken another markup on imported product prior to its sale to a retailer. Supermarkets, the one mass marketer typically selling cut flowers, often bypass the traditional wholesale florist, buying much of their product directly from importers, thereby benefitting from this inequity for much of what they purchase. During the program’s conception, both the import equity issue and whether those cut flowers sold to supermarkets were even to be assessed by the promotion order were heavily debated.

The consumer’s role in the market channel must also be recognized. There is evidence that the consumer sometimes favors other industry products at times previously considered prime cut flower occasions, e.g., Mother’s day. This issue, combined with the general market environment created, in part, by the influx of new mass marketers and the resulting pressures on margins they bring to the industry as a whole, may have also led to PromoFlor’s defeat. Some have suggested that handlers just voted their pocketbooks, perhaps, admitting that the industry was benefiting but noting that, individually, their businesses weren’t. The one-firm-one-vote referendum could have been a factor here, as some have questioned whether sales increased as much at the many smaller firms as at the few larger firms that handle the bulk of any industry’s sales.

Subsequently, the PromoFlor organizers have maintained that the cause was right and that most of the industry really does want and need promotion. One organization is already examining issues to see where the industry goes from here. Some have cited Floraboard, suggesting that other product segments should have been included in PromoFlor because the term “flowers” is more comprehensive than cut product alone for most consumers. Others have noted that the entire industry benefits from promotion, and that the entire industry market channel should contribute, not just larger cut flower handlers. Time will tell what happens, but the industry is already talking.

Dr. Marvin N. Miller is Market Research Manager for Ball Horticultural Company, West Chicago, IL, a breeder, producer, and distributor of seeds and young plants for the commercial floriculture production industry.

Editor's Notes
Jennifer L. Ferrero

This NICPRE Quarterly offers a unique perspective: research results from a study of a promotion program that was recently overturned in referendum. Ron Ward wrote his report earlier this year but we couldn’t run it until this quarter. In the meantime, many things happened to the subject that make for interesting reading. Offering viewpoints on advertising in general and PromoFlor specifically are Maureen Varnon, the former Marketing Director of the program, and Dr. Marvin Miller, an agricultural economist.

Harry M. Kaiser remarks on the history of the NICPRE Quarterly, specifically, changes in the editorial staff (including my impending resignation). Yes, in just a few short weeks, I'll be bound for sunny California. However, leaving is bittersweet-- working for NICPRE has been both rewarding and fulfilling. I’ll miss not only the variety of tasks faced on a weekly basis, but also my staff and industry colleagues. Thanks for making the last two years so enjoyable and I wish all of you well.

Director's Corner
Harry M. Kaiser

This is the fourth and final issue of NICPRE Quarterly for 1997, and concludes our third full year of publishing this newsletter. We have received very favorable comments from many of you on the content and format of this publication. This pleases me very much because I consider extending research results and industry viewpoints in a clear and concise manner to be a number one priority of NICPRE. Your comments suggest the NICPRE Quarterly has been doing just that. Over the past three years, we have had several changes in the NICPRE staff responsible for the Quarterly. John Lenz and Valerie Johnson did an excellent job getting this publication off the ground and running during the first year. Jenny Ferrero ably took over as editor two years ago, and has continued to produce a quality publication. Jenny has also developed and maintained the NICPRE website that complements the newsletter.

This will be the last newsletter edited by Jenny, as she is moving back to her native state of California. The staff at NICPRE and myself are sad to see Jenny leave, but wish her the best of luck in her future endeavors. At this moment, it is unclear how we will replace her position since there is no word yet on whether NICPRE will receive funding for the next fiscal year. If NICPRE is refunded, we will refill the editor’s position and will continue producing the NICPRE Quarterly. Let’s keep our fingers crossed.