Case Write Up

The Living Christmas Company: Making Christmas Merry for Trees

Case

Author: Shreshthi Mehta

Online Pub Date: January 04, 2021 | Original Pub. Date: 2021

Subject: Entrepreneurial Strategies, Marketing Strategy

Level: | Type: Indirect case | Length: 3395

Copyright: © Shreshthi Mehta 2021

Organization: The Living Christmas Company | Organization size: Small

Region: Northern America | State: California

Industry: Forestry and logging

Originally Published in:

Publisher: SAGE Publications: SAGE Business Cases Originals

DOI: http://dx.doi.org/10.4135/9781529751918 | Online ISBN: 9781529751918

© Shreshthi Mehta 2021

This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes. 2021 SAGE Publications Ltd. All Rights Reserved.

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This content may only be distributed for use within University of South Florida. http://dx.doi.org/10.4135/9781529751918

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Abstract

Christmas trees are commonly displayed during the festival of Christmas. Mostly, real trees are cut down and used for decoration. Artificial trees are also extremely popular. To counter what he sees as the destruction of millions of trees, Martin, an environmentalist, founded The Living Christmas Company, based in California. The company rents live trees to families and businesses, which are then used as Christmas trees. These potted plants are brought back to the nursery after Christmas. With the Living Christmas Company, Martin had introduced a new trend in Christmas celebrations. Martin wanted to grow his business by renting more trees to more people. He realized that he needed to think of a way to encourage people to change their habits and use living trees. It is a big challenge as Christmas tree farms are widespread in the United States and the market for artificial trees is also very large. What should Martin do to be successful?

Case Learning Outcomes

By the end of this case, students should be able to:

• Evaluate the challenges associated with launching a new product or concept. • Analyze consumer preferences by analyzing external forces. • Suggest a strategy for business and drivers to support the strategy.

Dilemma

In 2008, with a vision towards pioneering eco-friendly celebrations, Scott Martin founded The Living Christmas Company in southern California, United States. His company delivered potted plants that were used as Christmas trees before the holiday season and then retrieved the plants after the Christmas holiday. Martin’s delivery team sang Christmas carols and created much excitement when they delivered living Christmas trees. In spite of the enthusiasm of Martin’s team, only 120 trees were distributed, and most of these were donated to nonprofit organizations as a marketing strategy (Sewell, 2010). The next year, 2009, the company distributed 650 trees.

By 2011 Martin had scaled up his business to 1,300 trees and had generated a revenue of USD 150,000. But the profit was only USD 33,000. This was not much considering that Martin did not receive a salary (Russell, 2016).

After being in business for about 4 years, Martin identified an investor who was willing to invest USD 150,000 for a 40% stake in the company. Martin was determined to rent more trees and increase his profit margin. In order to do so, Martin needed a strategy to reach out to a larger audience in California.

Martin had introduced a new trend in Christmas celebrations, but it was more expensive for customers to use a living tree as a Christmas tree than it was to use an artificial or axed tree. This had deterred many from using his services. Martin wondered how he could direct his marketing efforts to grow his business.

The Living Christmas Company: An Introduction

Scott Martin was a resident of California, a state in the southwest United States. Since childhood, Martin had a passion for nature and had started working in a plant nursery at the age of 15. He later earned a degree in landscape architecture and started his own landscape architecture firm (Merlino, 2012).

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Martin had spent several of his Christmas vacations as a seasonal employee delivering trees for a local nursery. Although he enjoyed the delight in people’s faces as they received the Christmas tree and set them up in their house, Martin was equally sad when he saw the same tree lying on the curb, discarded a few weeks later.

Martin wondered, “How could it be that a tree that symbolized hope, joy and new life just weeks earlier could be so easily abandoned?” This thought led to the establishment in 2008 of the The Living Christmas Company. The company’s mission was “to change the way California celebrates Christmas”. Martin began by renting live potted trees to families and businesses in and around metropolitan Los Angeles. The cost of rentals depended on the size and tree variety and customers also had to pay a delivery charge, which varied by location.

The Living Christmas Company did not make a profit off a tree until it had been rented several times. Hence, Martin used several strategies such that the tree became part of the holiday celebrations. Customers could name the tree and reserve it for the following year. Martin advertised pictures of children with a living tree on his website and on other social media platforms (Facebook and Twitter), both growing tall with time.

When a tree was delivered, customers received additional instructions about ways to care for the tree. If the living tree died, then the customer incurred a fine and was added to the list of problem customers. Martin also presented ideas to decorate a tree using eco-friendly materials. He also sold ecologically sensitive ornaments and fair trade decorations.

Can There Be Christmas Without a Tree?

Christmas Day is a public holiday in many countries. The practice of putting up decorations during Christmas can be traced back to the 15th century. During the 18th century, Europeans started decorating Christmas trees with lights, candles, and other ornaments. These rituals eventually became common in the United States and other parts of the world (Clancy, 2002).

According to a survey conducted in 2013 by Nielsen Media Research on behalf of the American Christmas Tree Association (ACTA; n.d.), more than 94 million households, or more than 79% of all households in the United States, displayed a Christmas tree in their home. In 2012, U.S. households bought 24.5 million real and 10.9 million artificial trees, according to a survey by the National Christmas Tree Association (NCTA; 2012).

In 2012, 109,045 trees were harvested as Christmas trees in California and a total of 17,318,440 trees were harvested in the United States. Many trees were also exported abroad.

Christmas tree farms, which supply many of the real cut trees in the United States, were nationally affiliated through organizations such as NCTA, ACTA, or the Pacific Northwest Christmas Tree Association. Thus, this industry was nationally recognized due to the revenue it generated.

Martin observed that Christmas tree farming was a booming industry in the United States. The sales figures demonstrated that Americans liked to buy trees from the farms. Martin wondered what he could do to convince people to change their habits. He wondered how his company could be positioned to attract customers.

According to the Carbon Trust (2013), a real Christmas tree that ended up in a landfill decomposed. The decomposition produced methane gas that was 25 times more potent as a greenhouse gas than carbon dioxide. The wood from these discarded trees could be recycled as lumber for houses or as mulch for landscaping, but many of the trees ended up in landfills since they were not disposed of responsibly. On the other hand, a living Christmas tree was a plant that played a role in reducing the carbon footprint. One acre of land yielded approximately 1,500 trees, which daily produced enough oxygen for 18 people.

After the trees were returned to the nursery, Martin’s team repotted them into larger containers and maintained them until the next season. If, at any point, the tree became too large or unusable as a Christmas

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tree, the tree was planted in the local community or nearby forests through an Urban Reforestation Project. This forest tree provided forage to deer and other animals. Customers even had the option of purchasing the living tree after Christmas. Martin’s crew offered assistance by planting it in their garden or backyard for an additional fee.

Spokespersons of the Christmas tree farms argued that Christmas tree farming was no different than farming corn or wheat or any other commodity (Zraick, 2018). However, Martin believed his idea could encourage ecofriendly behavior to some extent. A living Christmas tree was a plant that played a role in reducing the carbon footprint even if it was in a small way.

The Magic of The Living Christmas Company

Martin said in an interview, “I set this up as a for-profit company to do well by doing good. Having a business that is able to give back and make money is meaningful” (Schreiber, 2012). Having said that, Martin wondered about competition. Even though his product was different from the axed trees sold by farms or the artificial trees sold by retailers, Martin was wary of the potential rivalry. The farms had the knowledge and the infrastructure to grow plants. It would not be difficult for existing large farms to add another product type to the existing portfolio in the form of a living Christmas tree. The existing customer base of the farms could help them engage customers. Manufactures of artificial trees were large conglomerates with highly developed distribution channels.

Martin’s idea could be replicated by other businesses. To remain in business, The Living Christmas Company had to focus on delivering a superior customer experience that was not easily replicable.

Additionally, Martin knew that just because he had introduced a new trend in society, it would not encourage people to use his services. Additional financial resources were needed to reach and to educate a wider audience. With this thought in mind, like many startup ventures, Martin decided to search for a partner and investor. Martin presented his business on the famous reality show Shark Tank, where budding entrepreneurs had a chance to showcase their business plans. His pitch was aired on December 14, 2012 (McEneny, 2012). Mark Cuban, an angel investor, was interested in the business and offered USD 150,000 for a 40% stake in the company.

Cuban was the cofounder of video portal Broadcast.com, which was later acquired by Yahoo for USD 5.7 billion in 1999. He owned the Dallas Mavericks NBA basketball team and had stakes in Landmark Theatres, Magnolia Pictures, and AXS TV. These companies had a global reach. Cuban had good connections within the industry and had partnered with many startups to grow their business.

With Cuban as his partner, Martin wanted to improve his company’s infrastructure and build strategic alliances within the industry. Due to the shortage of water in California, Martin wanted to install an automatic irrigation system that would reduce the wastage of water. With a larger customer base, Martin would need more trees, hence a larger place to keep the inventory. The number of staff would also increase.

After the show was aired on national TV, The Living Christmas Company received more than 50,000 emails in the next few hours. That number did not translate to sales as mostly people had emailed Martin wishing him good luck. It was good publicity for the company, but Martin realized that he needed a new strategy to increase the revenue.

Buying the Right Tree, or Maybe Renting One!

In purchasing Christmas trees, customers traditionally had two alternatives—a real tree or a fake one. Martin had introduced a new concept with The Living Christmas Company.

Real trees that were cut and used as Christmas trees were further categorized as pre-cut trees or cut-my-own trees. According to a survey conducted by the NCTA in the United States in 2012, 77% of people who used real trees bought pre-cut trees (NCTA, 2012). Pre-cut trees were cut by farmers or wood cutters and then sold at a variety of locations, including retail lots and garden centers. People could also visit Christmas tree farms,

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choose their own, and then cut the tree themselves or have a tree farm employee cut the tree. Both of these latter approaches are considered the cut-my-own approach.

Some people preferred using fake trees made of plastic and metal for Christmas. It was a convenient investment in terms of storage and avoided the mess of loose needles from real trees. Many considered the use of fake trees as being environmentally conscious, as real trees were not removed from their habitat. Fake trees lasted an average of 11 years, but they were not biodegradable after disposal.

While renting trees, Martin categorized his trees as premium or misfit. The only distinction of a misfit tree was that it had some imperfections, such as a hole or a slight bend in the trunk. Misfit trees could be used during Christmas and could make a family happy. Martin rented these trees for a lower price. The smallest trees that Martin rented were 2 feet in height and the tallest were about 9 feet.

In choosing a tree, buyers consider factors such as needle retention, needle stiffness, foliage color, and tree aroma. There are more than 500 varieties of coniferous tress that can be used as Christmas trees, each with its own characteristics. Species of trees rented by The Living Christmas Company included the Aleppo Pine, Blue Spruce, Monterey Pine, and White Spruce.

Paying the Price of Christmas

As per NCTA, in 2012 the Christmas tree business was valued at USD 1 billion in the United States. This number only included sale of artificial and axed Christmas trees. The size of the market presented an immense opportunity for the Living Christmas Company.

Many factors could influence the cost of Christmas trees. The price of a cut tree was usually directly proportional to the height of the tree. People spent between USD 15 to USD 300 in purchasing a cut tree. A tree stand, necessary to support cut trees, cost an additional USD 15. Flocking was a technique by which trees were sprayed with colorful powder or dust for decoration. People paid more money to flock a tree.

The average cost of an artificial tree was USD 150. The trend in consumer behavior for buying harvested Christmas trees is shown in Tables 1 to 3.

Martin knew that Christmas tree farms and artificial trees had dominated the industry for more than a century. To compete in the market, he encouraged people to make sustainable choices by using the live trees.

Table 1. Locations for Buying Pre-cut Christmas Trees (%)

Location 2008 2009 2010 2011 2012

Choose and harvest farm 31 32 33 31 2

Nursery or garden center 11 10 12 15 11

Chain store (Walmart, Home Depot, etc.) 24 20 21 16 24

Retail lot 7 17 13 14 15

Non-profit group (Boy Scouts, churches, etc.) 19 13 9 13 15

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Other 9 8 12 11 11

All cited values results have an error range of +/− 3.1%.

Source: Consumer Surveys commissioned by NCTA (2012).

Table 2. Christmas Trees Purchased Since 2008 (in millions)

2009 2010 2011 2012

Real (harvested) 28.2 27 30.8 24.5

Fake 11.7 8.2 9.5 10.9

All cited values have an error range of +/− 3.1%.

Source: Consumer Surveys commissioned by NCTA (2012).

Table 3. Christmas Tree Retail Value Since 2008 (USD)

2008 2009 2010 2011 2012

Mean average spent per tree 36.50 40.92 36.12 34.87 41.30

Total (in billions) 1.03 1.15 0.98 1.08 1.01

All cited values have an error range of +/− 3.1%.

Source: Consumer Surveys commissioned by NCTA (2012).

In 2012, an average individual spent USD 41.30 purchasing a tree from a farm. The Living Christmas Company rented trees for USD 100 to USD 200. Misfit trees were rented at the lower price of USD 60. Martin knew he was charging much more than his competitors. Live trees required more attention. Also, the price of gasoline and water increased on average over time and the costs associated with nurturing and delivering trees had increased proportionally. In spite of these challenges, Martin was confident in the success of his business. Martin had given people an opportunity to reuse trees and rent them again the next year, when they would usually be thrown away.

The Road Ahead

According to a report by Scarborough Research (2011), consumers who engaged in the most environmentally friendly activities were the top earners with a taste for luxury. A conclusion based on this report is that wealthier people were more concerned about the state of the natural environment, hence were more willing to pay to protect it than those with less income.

In the United States, the average national household income is approximately USD 50,000 and only 5% of the population in the United States had household incomes of more than USD 150,000. In 2010, the

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population of California was 37,253,956; 24% of the statewide population had an annual household income between USD 100,000 and 200,000 and 10% of the population had an income of more than USD 200,000. As compared to other U.S. states, the people in California were known to engage in 10 or more ecofriendly activities on a regular basis. Further research established that Californians were more likely to believe in climate change, hence were more likely to make sustainable choices by following clean car regulations, green farming initiatives, and other carbon negative projects than people living in other states.

Martin had the location advantage of being in California and he had the support of a rich and famous investor. Martin noticed that many companies had focused their marketing campaigns and promotions on sustainability to capture the American high spending population. For example, the retail grocery company Whole Foods had focused on educating its consumers about the ethical sourcing channels. By focusing on sustainability, Whole Foods was able to entice its consumers who did not mind paying a premium for the food. Many companies such as BMW, Tesla, and Cisco Systems had followed similar strategies to remain competitive. But Martin observed that these companies were large conglomerates with large advertising budgets.

What strategies could Martin implement to engage new customers?

Discussion Questions

• 1. Analyze the internal environment of The Living Christmas Company using the valuable, rare, inimitable, and organized (VRIO) framework. Define its strengths and weaknesses in the Californian market.

• 2. Analyze the external environment of The Living Christmas Company using the political, economic, social, technological, and legal and environmental (PESTLE) framework for market analysis and Porter’s (1996) Five Forces framework for industry analysis. Define opportunities and threats in the Californian market.

• 3. Based on the responses in Discussion Question 2, recommend a positioning strategy for The Living Christmas Company and define its competitive advantage.

• 4. Recommend drivers to implement the strategy set out in Discussion Question 3.

Further Reading Boyer, M. (2016). How to choose a living tree to replant after Christmas? Inhabitat. https://inhabitat.com/how- to-choose-a-living-christmas-tree-for-a-green-holiday-season/ Downey, D. (2006, November 26). Fake, real or potted?—Christmas tree dealers, conservationists debate what is best for environment. The San Diego Tribune. http://www.sandiegouniontribune.com/sdut-fake-real- or-potted-christmas-tree-dealers-2006nov26-story.html Fairbrother, M. (2013). Rich people, poor people, and environmental concern: Evidence across nations and time. European Sociological Review, 29(5), 910–922. https://www.researchgate.net/publication/ 259638681_Rich_People_Poor_People_and_Environmental_Concern_Evidence_across_Nations_and_Time Pacific Northwest Christmas Tree Association. (n.d.) Facts at a glance. http://www.pnwcta.org/news-events/ facts-at-a-glance/ U.S. Census Bureau. (n.d.). Population estimates. https://www.census.gov/quickfacts/CA Every Shark Tank Product (2016, September 11). Living Christmas pitch (Shark Tank season 4 episode 11) [Video]. YouTube. https://www.youtube.com/watch?v=F0Q3-iMhU88

References American Christmas Tree Association. (n.d.). Finding the best tree for your family. https://www.christmastreeassociation.org/ Carbon Trust. (2013). Carbon Trust Christmas tree disposal advice. https://www.carbontrust.com/news-and- events/news/carbon-trust-christmas-tree-disposal-advice Clancy, R. M. (2002). Children’s Christmas Classics, Volume 3. Christmas Classics Ltd. McEneny, T. (2012.) Shark Tank Christmas Special—aired December 14, 2012.2020,

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https://timmceneny.wordpress.com/2012/12/14/shark-tank-christmas-special-aired-december-14-2012/ National Christmas Tree Association. (2012). 2012 Census of Agriculture Tables. http://www.realchristmastrees.org/dnn/News-Media/Industry-Statistics Pick Your Own Christmas Tree. (n.d.). Tips for a Great Trip to a Choose and Cut Your Christmas Tree Farm. http://www.pickyourownchristmastree.org/ Porter, M. (1996, November–December). What is strategy? Harvard Business Review. https://hbr.org/1996/ 11/what-is-strategy Russell, B. (2016, March). The Living Christmas Company after Shark Tank – recent update. Gazette Review. http://gazettereview.com/2016/03/living-christmas-company-shark-tank-recent-update/ Scarborough Research. (2011). Today’s most environmentally-conscious consumers are wealthy, educated and have luxury tastes. Cision. https://www.prnewswire.com/news-releases/todays-most-environmentally- conscious-consumers-are-wealthy-educated-and-have-luxury-tastes-126771408.html Schreiber, J. (2012). Mark Cuban invests in Living Christmas Co. on ‘Shark Tank’. Patch. https://patch.com/ california/redondobeach/mark-cuban-invests-in-living-christmas-company-on-shark-tank Sewell, A. (2010, December 11). Renting a really green Christmas tree. Los Angeles Times. http://articles.latimes.com/2010/dec/11/business/la-fi-living-christmas-trees-20101211 Merlino, R. (2012, December 20). Scotty Claus Martin from Living Christmas interview. Shark Tank Blog. http://sharktankblog.com/scotty-claus-interview/ Zraick, K. (2018, November 26). Real vs. artificial Christmas trees: Which is the greener choice? The New York Times. https://www.nytimes.com/2018/11/26/business/energy-environment/fake-christmas-tree-vs-real- tree.html http://dx.doi.org/10.4135/9781529751918

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