Cassandra Kennedy was feeling a variety of emotions, ranging from exhilaration to apprehension, as she reviewed her planned marketing strategy for her company's new producta vegan leather handbag which was almost ready launch. Headquartered in Antigonish, Nova Scotia, Cassandra's Closet had been designing and manufacturing luxury leather goods since 2016. By many accounts, Cassandra's Closet was a rural success story. After operating at a bit of loss in its first two years of operation, Cassandra's Closets had earned a modest profit in each of last three years. The company had also received some international publicity. In the last two years, the company and its products were featured in British Vogue magazine, Glamour UK magazine and the high-end home style magazine The World of Interiors twice. On a local level, the company and its products were featured on CTV Morning Live, profiled on Eastlink Community Television, and written about in the local publication, Maritime Edit. Cassandra's Closet was earning a reputation for its quality craftmanship and unique design. Cassandra's Closet makes three different leather products - a handbag that retails for $510, a small clutch purse that retails for $255 and a cosmetic bag that retails for $130. All items are hand sewn by Cassandra and two members of her production staff. To date, all of Cassandra's sales have been generated through the company's website. Cassandra's Closets maintains social media accounts on Facebook and Instagram but does not process transactions in those platforms. The company employs four people including Cassandra, two production staff employees and an office assistant who manages administrative tasks and the social media channels. The production staff pack and label each shipment as it is completed. Cassandra did not initially intend to launch another new product so soon, but she thought the opportunity to develop a vegan handbag with a unique, trending fabric was too good to pass up. Because the company was small, Cassandra wisely did not wish to spread her efforts over too many products at one time, but she also knew that if she waited, the opportunity would be lost, and she did not want to be left behind on an emerging trend. Vegan Leather Vegan leather, or faux leather, is a leather-like fabric that is not made from animals. Infinium Global Research predicts a compound annual growth rate of almost 50% for vegan leather until 2025, when the global market will be valued at $89.6 billion. The soaring demand for vegan leather is driven by a range of factors including increased consumer demand for animal-free products, concern for the environment, and a growing appreciation for the attributes of vegan leather. Vegan leather can be made from synthetic, plastic-based materials including polyvinyl chloride (PVC) and polyurethane (PU) to create plastic leather often referred to as 'pleather'. Increasingly, vegan leather is being made from natural materials including cork, kelp, pineapple leaves, and mycelium. Mycelium is made of fungi, but you shouldn't think of it as the mushrooms we eat. Instead, mycelium refers to fungi's rapidly growing network of roots,Mycelium derived leather is garnering considerable attention as a vegan leather option. Whereas plastic based vegan leather (pleather) uses toxic chemicals in the manufacturing process, does not fully biodegrade, and releases dangerous cancer-causing particles as it decomposes, mycelium-based leather is considered more environmentally friendly. As shown in a study conducted by researchers at the Technical University of Vienna, mycelium-leather emits fewer greenhouse gases, uses less water and other resources, and contributes significantly less to global warming than animal leather. There are two dominant manufacturers of mycelium based vegan leather in the United States - Bolt Threads, which manufactures the mycelium-leather known as MyloTM and MycoWorks, which manufactures the mycelium-leather known as SylvaniaTM. Bolt Threads has exclusive deals to supply their MyloTM fabric to Adidas, lululemon, and Stella McCartney for products intended to launch in 2021. MycoWorks has announced a partnership with luxury brand Hermes to make a version of the Victoria bag with SylvaniaTM. The production process of MyloTM is shown in Figure 2. In all mycelium leather created to date, the mycelium is killed with heat to maintain the product's intended form and eliminate the risk that it could form mushrooms and allergens such as spores.

The Opportunity for Cassandra's Closet Gavin Moffatt, a 2010

StFX Biology graduate, has been experimenting with mycelium-based products for

the last ten years and has just developed a mycelium-based leather that he

believes rivals the quality and colour options of MyloTM and SylvaniaTM brands

that currently dominate the market. Moffatt's manufacturing company,

MoffattMyco, supplies mycelium-based styrofoam substitute that is used for

packaging by a number of businesses, but he has not yet secured a contract to

supply his mycelium leather. Moffatt's facility is located in Pictou, NS, 75

kilometers from Cassandra's Closet headquarters, and after learning about

Cassandra's Closet on CTV Morning Live, he did not hesitate to contact

Cassandra to propose supplying his mycelium leather. While MoffattMyco has

secured a strong reputation with its customers for delivering consistent

quality product on time, the business has not attracted much media attention.

In fact, most people in the area do not even know the company exists. Cassandra

was certainly aware that she was losing prospective customers by not providing

a vegan leather option. In fact, her own sister-in-law and a close friend

refused to buy any of Cassandra's products because they were vegan and were

fundamentally opposed to using animal-based products. As a result, Cassandra

had seriously explored using a polyurethane leather (pleather) substitute in

the past, but found the material had a cheap appearance that detracted from the

luxury image she was trying to maintain for her products. Even still, she went

so far as to test a prototype of the product with a focus group, but quickly

dropped the idea when the focus group confirmed her suspicions about the image

the pleather product conveyed. In addition, members of the focus group also

mentioned concerns about the number of chemicals that were required to

manufacture the pleather option and were appalled to learn that pleather is

really a type of plastic. So, when Gavin Moffatt called Cassandra with his

offer to supply mycelium leather, she was more than a little skeptical, but

wanted to keep an open mind for a fellow local business and decided to hear his

pitch inperson so that she could investigate MoffattMyco's mycelium leather

first-hand. The product exceeded all of Cassandra's expectations. It was not

exactly like traditional leather, but she was impressed by the texture and

somewhat amazed at the colour tones MoffattMyco was able to produce. Cassandra

left her meeting with Moffatt convinced that his mycelium leather was exactly

the fabric solution she needed to be able to offer a high-end vegan option, but

she still needed to determine if she could turn the fabric into a viable

product with an appropriate marketing strategy. Consumer Behaviour Cassandra's

customer records suggest that her current clientele is primarily women aged

30-60 years old who exhibit a great deal of loyalty to her product. While the

majority of her customers live in Atlantic Canada, about 30% of her business

comes from customers located in other parts of Canada, the United States, and

the United Kingdom. Cassandra's Closet products are of very high quality,

designed to last, and supported by a 10-year warranty, so Cassandra was a

little surprised to learn from customer records that she has multiple repeat

customers. It is not unusual for customers to purchase more than one product

from Cassandra's Closet for their personal use. Reviews on Cassandra's Closet

social media pages suggest that it is common for a customer to own the entire

collection of Cassandra's Closet products (handbag, clutch and cosmetic bag)

but it also seems that customers who have products of their own, tend to

purchase them as gifts for loved ones. Though Cassandra does not know how many

of her customers follow a vegan diet, she would be very surprised if any of her

current customers fit in that category. Statistics Canada reports that

approximately 17% of Atlantic Canada's population of 2,330,000 are women

between 30-60 years; approximately 1.5% of Atlantic Canadians are vegan.

Cassandra had also learned of a recent report from Business Development Canada

(BDC) which emphasized that over half of global consumers take "green"

factors into account when making purchasing decisions and that 60% of Canadians

consider themselves to be ethical consumers. Price Waterhouse Cooper reported

that approximately one-third of Canadians choose sustainable products to help

the environment and buy brands that support sustainable practices. Moreover,

the aforementioned BDC report also indicated a majority of Canadian consumers

made an effort to buylocal or made-in Canada products when they could, but

Atlantic Canadians and those living in Quebec expressed stronger 'buy-local'

sentiment than was found in other parts of the country. To understand the

consumer behaviour of handbag purchases generally, Cassandra relied on an NPD

Group research report she recently found which revealed that "women are

doing an extensive amount of research prior to purchasing a bag, leveraging a

number of resources like websites, retail stores and social media. It is a

rational process, as handbags of course serve a functional purpose, but they

also serve an emotional one. A woman considers the purchase to be an investment

in her style and personality, regardless of price point, and she does not want

to make a wrong choice. Just like buying a car, it's a very personal

choice." And, while overall handbag sales in North America have declined

in the last decade, there is still a market for companies that can cater to the

emerging consumer demand that brands engage in the social and environmental

issues that matter to them. However, since March 2020, COVID-19 has

significantly altered consumer behaviour. As early as March 2020, Deloitte had

forecast that COVID-19 would contract the economy by 20% and unemployment rates

would double. Deloitte's report further revealed that consumers had

transitioned most of their spending to essential items and most indicated an

intent to purchase items online. By November 2020, KPMG was reporting that

store visits to non-grocery stores declined by 26% from the previous year and

that Canadians planned to spend 34% less on non-grocery items over the next 6-12

months. In addition, KPMG also revealed that consumers were impacted

financially by the pandemic with 47% indicating the pandemic had made them much

or slightly worse off financially; 40% stating they had been unaffected; and,

10% reporting they were slightly or much better off. By March 2021, RBC

Economics reported that retail spending was starting to rebound, buoyed by

consumer optimism, but also cautioned that the third wave of virus resurgence

and consequent lockdowns in parts of the country would lead to more spending

restrictions.

Competition Globally, the handbag market is substantial, valued

at $52 billion in 2021 with 20% of worldwide sales occurring in the United

States and almost 2% of sales occurring in Canada. Until now, Cassandra's

Closet has viewed its competition as the makers of luxury leather handbags

including Calvin Klein, Herms, Gucci, Louis Vuitton, Kate Spade, Burberry,

Prada, Chanel, and Coach. Whereas these brands all havewidespread brand

recognition, Cassandra's hand-sewn production process and attention to detail

allowed Cassandra to create product

of comparable, or arguably, superior quality. While the luxury handbag market

was projecting continued growth, it was also experiencing pressure from growing

luxury re-sale businesses and changing attitudes about luxury accelerated by

the COVID19 pandemic. Growth in luxury apparel and accessories consignment

businesses (luxury re-sale) including RealReal, ThredUp and Poshmark was being

driven by Millennial and Gen Z consumers who are primarily motivated to

purchase used products due to environmental concerns. But, overall attitudes

toward what can be considered a 'luxury' good were also changing as a result of

the pandemic. As recently explained in Forbes, "Products that enhance [the

consumer's] ability to enjoy what they love are now competing with what have

always been luxury products...Luxury is now also about what the products say to

the consumer about themselves, what they are committed to and not just about

what it says to other people when it's worn." Within the vegan sector of

the market, there are a number of vegan handbags available, but most use

plastic derived leather substitute (pleather). Most Canadian made vegan leather

options including Matt and Nat, Jeane and Jax, and Pixie Mood use polyurethane

based leather. Very few vegan leather handbag manufacturers use more

sustainable organic material like mycelium. Although, Stella McCarthy handbags

are only made with vegan leather and has just announced a handbag made with

MyloTM will be forthcoming as a result of a partnership with Bolt Threads.

Hermes, too, will complement its traditional leather handbag product line when

it launches its Victoria bag made with the mycelium leather, SylvaniaTM.

Neither of these products are yet available. Canadian vegan accessory company

Matt and Nat's website indicates the company is experimenting with fruit-based

leathers, but similarly, does not yet have an organic leather substitute

product available for sale. Marketing Mix Cassandra's Closet's new mycelium

leather handbag will be available in one colour to start - black. The bag

measures 16 inches wide by 10 inches high. The exterior of the bag is made from

MoffattMyco mycelium fabric and the interior of the bag is lined with

sustainably sourced cotton. There are two interior pockets on the sides of the

bag; each pocket is equipped with a snap closure. The main compartment is

entirely empty; there are no dividers so that consumers are not restricted in

what they can place inside. The main compartment has a zipper closure. The

handbag is fitted with an adjustable strap affixed on the exterior of each side

of the bag with metal clasps. The Cassandra Closet's logo is colorlessly

pressure stamped on the exterior of each bag. The durability of the mycelium

fabric was somewhat uncertain so Cassandra was reluctant to offer the same

warranty she applied to her traditional leather goods and decided to offer a

fiveyear warranty on the vegan handbag instead. Though comparable to other

luxury vegan handbags on the market, Cassandra felt that her product was

demonstrably superior. In addition to being proudly Canadian, using one of the

most sustainable vegan fabric options set the product apart from many

competitors, particularly those using plastic derived leather substitutes. The

final point of differentiation was that each of Cassandra's handbags was

meticulously hand sewn.

Cassandra's Closet planned to sell its mycelium leather handbag

directly to consumers through its website for $510 each but was also considering

whether an exclusive distribution arrangement with Halifax retailer Sattva

would be worthwhile. Sattva has only one location, and according to its

website, is "a shopping destination for women who enjoy stylish, modern,

high quality and socially aware products." Sattva prefers to stock

products that align with its social objectives including products that are

ethically made, eco-conscious, locally sourced, and socially aware. The

carefully curated collection of women's clothing sold at Sattva is somewhat

expensive with prices of its current collection of handbags retailing from a

low of $259 to a high of $420; t-shirts are priced at over $100 and sweaters

are priced in the range of $200-$300 each. Cassandra's preliminary discussions

with Sattva's owner have led her to believe an exclusive distribution

arrangement might be possible. The retailer would apply a markup of 25% on the

retail selling price if she decided to proceed. The unit variable costs for

Cassandra's Closet's mycelium leather handbag were $295. These costs included

the mycelium fabric, cotton fabric that would line the handbag, zippers, snaps,

clasps, the shipping carton, freight, and direct labour for preparing packages

for shipment. The largest single direct cost was the mycelium fabric. The

company projected it should be able to sell 1,800 mycelium leather handbags

during the first year of production. Administrative and office salaries would

be $200,000. Other overhead costs, including travel expenses but excluding

advertising, were figured at $40,000. Of course, the largest single operating

expense would be advertising, and Cassandra had budgeted $145,000 for all

promotional expenses. If necessary, Cassandra has indicated she would be

willing to operate at a loss for a few years during the launch of the mycelium

leather handbag rather than skimp on promotion.

Q1) Would Cassandra's Closet's vegan handbag be

considered a convenience product, shopping product or specialty product?

Explain, providing at least three reasons that support your classification.