Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/eBack Matter Video Cases © The McGraw−Hill
Companies, 2002- What are some of the potential target markets for U.S.
hardwood suppliers selling to the Canadian market?
Which marketing mix variables are likely to be most
important to the target markets you have identified?
Celestial Seasonings*In the late 1960s, the era of Woodstock and Summer of
Love music festivals, Mo and Peggy Siegel and two friends be-
gan picking herbs in the mountains around Aspen, Colorado.
They decided to start a company that they named after one of
their friends—Lucinda Ziesing, whose nickname was Celes-
tial. The next year, 10,000 muslin bags of Mo’s 36 Herb Tea
were sewn, filled, and sold to a health-food store in Boulder,
Colorado. A year later, Sleepytime Herb Tea was created, and
the business was moved to a barn in Boulder. But that didn’t
last long. Mo and his friends were onto something hot! Soon
they were purchasing herbs around the world and learning
how to mass produce their product in a factory. Loose-pack tea
was eventually replaced with single-serve tea bags, and addi-
tional flavors were created—all of which fueled sales. Today,
Celestial Seasonings is recognized as a leader in herbal prod-
ucts, accounting for half the herbal tea market in the United
States and expanding worldwide.
Celestial Seasonings’ core business is herbal teas. Along with
Mo’s 36 Herb, Red Zinger, and their best-selling product, Sleepy-
time, the company has created over 60 different herbal teas.
The tea market is comprised of black teas, herbal and me-
dicinal teas, diet teas, iced teas, and Chai, a sweet Indian
spiced blend. The U.S. tea market has an annual growth rate
of about 10 percent in recent years. Herbal and medicinal teas
represent two-thirds of the total tea market and are growing at
about 12 percent a year. Celestial Seasonings is the leading
competitor in the herbal tea category, holding 50 percent
market share. Other herbal tea competitors include Republic
of Tea, Tazo (Starbucks), Yogi Tea, and Oregon Chai.
Herbal teas compete with traditional black teas, dominated
by Lipton Tea Company. In the 70s, Celestial revolutionized
the tea industry when it introduced the idea of herbal teas as
flavorful, healthy beverages for everyday consumption. At that
time, herbal teas were perceived as foul-tasting medicinal
brews. Few retail stores carried a complete line of herbal teas,
so creating awareness, favorable image, and distribution posed
a daunting challenge to the company. Initially, Celestial Sea-
sonings promoted and distributed its products through
health-food stores.
In 1984, food industry giant Kraft Foods bought Celestial
Seasonings. With its marketing muscle and channel power,
Kraft expanded distribution of Celestial Seasonings and added
a line of gourmet black teas under the Celestial brand name.
Shortly after the Kraft buyout, Mo Siegel retired from the com-
pany, and Barney Feinblum was named successor. However, the
Kraft way of doing business sometimes conflicted with Celes-
tial’s culture, which from the beginning was influenced by
“hippie-style” entrepreneurship, employee involvement, and
earth-friendly community initiatives.
2The values of the company are epitomized in its belief
statement:
We believe in marketing and selling healthful and naturally ori-
ented products that nurture people’s bodies and uplift their souls.
Our products must be superior in quality, of good value, beauti-
fully artistic, and philosophically inspiring.
In 1988, Celestial Seasonings management along with a
venture capital firm bought the company back from Kraft. A
new board of directors was created, and new headquarters were
constructed outside of Boulder, Colorado. In 1991, Mo Siegel
returned as CEO and chairman of the board and agreed to stay
until 1997.
During Mo’s second period of leadership, Celestial Season-
ings went public and attempted a variety of product
diversifications. A partnership with Perrier was formed to li-
cense and produce a line of ready-to-drink bottled teas under
the Celestial Seasonings brand. A line of After Dinner Teas
was launched, targeting more upscale consumers than Celes-
tial’s original back-to-the-earth customers and promoting tea
as an after-dinner beverage. Iced Delight teas were created
and marketed as “Brews in Your Fridge.” A licensing agree-
ment with Warner-Lambert produced Celestial Seasonings
Soothers, herbal throat drops. In 1995, with HP Hood Com-
pany, Celestial created iced tea flavored frozen popsicles, but
they were not a market success. That same year, Celestial de-
veloped its first medicinal herb tea—Herbal Comfort. In
1997, based on the success of Herbal Comfort, Celestial Sea-
sonings expanded the line of medicinal teas to include
Echinacea, Green Tea, GinkoSharp, Diet Partner, GingerEase,
Detox A.M., LaxaTea, and Melatonin P.M. Celestial Season-
ings now has 46 percent (up from 24 percent in June 1998) of
the fast-growing medicinal tea category.
In 1998, Celestial acquired Mountain Chai, a Boulder-
based manufacturer of concentrated Indian-style tea. Six
varieties of Mountain Chai were reformulated and introduced
under the Celestial logo. That same year, a line of six green
teas was launched. Green teas have been used in Asian
cultures for hundreds of years and are known for their curative
qualities. Green teas were introduced to the American market
in the 60s but were not widely successful due to their bland
taste.
In 1997, Mo Siegel’s commitment to manage the company
ended, and Steve Hughes, known in the industry for growing
the Healthy Choice line of food products, became Celestial’s
CEO. With Hughes at the helm, Celestial Seasonings entered
a new phase. Saying that Celestial was “a $500 million brand
trapped in a $100 million business,” Hughes initiated a series
of efforts to leverage the Celestial brand name, including the
creation of herbal supplements. According to Hughes,For 25 years we’ve cared about one thing—creating healthy,
natural products that make our customers feel good. Our herbal
supplement line is a natural extension of that mission. We know
the power of herbs and the simple solutions they provide for good
health. We want to share that.
Launched in April 1998 in capsule form, the herbal
supplements line included nine single-herb extracts and
eight advanced-formula blend products. The timing seemed
perfect. Herbal supplements were rapidly gaining consumer700 Video Cases
*This case and the script for the accompanying video were
prepared by Professor Davis Folsom of USC Beaufort.