Case Analysis - Dr. Pepper Snapple Group, Inc.
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Transcript of Case Analysis - Dr. Pepper Snapple Group, Inc.
Ruth Wawin, Paida Kangai, Thomas Ulrich
Case Analysis
Dr. Pepper Snapple Group, Inc.
Ruth Wawin
Paida Kangai
Thomas Ulrich
Submitted Oct 7, 2012
Ruth Wawin, Paida Kangai, Thomas Ulrich
Case Analysis - Dr. Pepper Snapple Group, Inc.
Executive Summary:
This case report will provide a current analysis of Dr. Pepper Snapple Group Inc.,
and whether entrance in the maturing energy drink market with the release of a new
beverage would be a profitable opportunity.
The alternatives that will be considered are to (1) introduce an energy beverage,
targeting heavy consumers, (2) introduce an energy beverage, targeting the adult niche
market or (3) not introducing an energy beverage.
In this case, we are recommending to Snapple brand manager, Andrew Barker,
to introduce an energy beverage targeting heavy consumers. This, in addition to the
marketing strategies we intend to employ, will provide the best chance at gaining
entrance into the energy drink market and taking ownership of sufficient market share
needed to ensure future success. We have based this decision on potential profit
margins, the ability to differentiate our product, and the ability to target the most
profitable market.
Problem Statement:
Dr. Pepper Snapple Group has no energy beverages in their product line; as well
they are a late adopter into the market. Mr. Barker would like to consider the opportunity
to gain market share in this high growth, high margin, energy-beverage market.
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SWOT Analysis
Resource strengths:
· Strong diverse portfolio of leading consumer-preferred brands in the CSD and Non CSD brands.
· Strong brand name
· Excellent company reputation.
· Owned 18.5 percent market share in 2006 of non-alcoholic beverages
· Follow an integrated business model
· Strong Customer relationships with competitors and distributors
· Strong financial position, net sales of $5.78 billion
· Extensive geographic manufacturing and distribution capability
· Experienced executive management team (over 20 years of experience)
Problematic weaknesses:
· The only major domestic non-alcoholic beverage company in the USA without an energy drink
· Not global like competitors
· Will be a late adopter should they choose to introduce a new line of energy drink
Market Opportunities:
· Great opportunities to expand 6.2 billion dollar Energy industry and a gain in an additional customer
group
· Increase presence in high-margin channels and packages
· Less barriers to attractive foreign markets
· Acquisition, through vertical integration strategy
· Copy Red bull strategy of aggressive media promotion
· Offering a sugar-free alternative
· Offer increased functionality in the physical design of drink
External Threats:
· Increased rival intensity
Slowed growth market
Growing bargain powers of customers and suppliers
Ruth Wawin, Paida Kangai, Thomas Ulrich
Industry
With annual sales growth rate reaching 42.5% from 2001 to 2006, the energy
beverage market has become the fastest growing non-alcoholic beverage category.
However, analysts expect this growth rate to decline to 10.5% in the next three years.
This is attributed to the market maturing, the increase in product price and the
emergence of the “hybrid” energy beverages, such as energy colas, fruit drinks and
energy water.
The energy drink segment is the ‘new wake up drug’ during the morning, ‘boost’
during the day and ‘alertness’ and ‘push’ during an evening of studying or partying. For
North America, sales are generally steady during the year unlike CSD and non CSD sales
which are affected during the cooler seasons of the year. The energy drink market does not
seem to follow a seasonal pattern.
The industry characterized by a high budget in media promotion and major sports
league sponsorships.
Company:
Being a large and highly successful brand owner, internal funding for
expenditures such as product development, market research and promotional expenses
should not be an immediate concern. DRS is a publicly traded company and this can
provide alternative avenues for any necessary fundraising through the issuance of
shares. This will all prove helpful in DRS’s ability to establish themselves as a serious
competitor in the energy beverage market.
DRS have built strong relationships with many major distributors, convenience
and supermarket chains that currently carry their CSD and NCSD products. The
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distribution networks are largely already in place. This, along with the reputation of
DRS, will make the obstacle of attaining shelf/fridge space to place their new products,
less of an issue.
Consumer:
The average consumer of energy drinks is males between the ages of 12-34.
They are what are known as the “heavy users” of the drink. They drink energy drinks to
increase their mental alertness and to give them energy through the day and night.
They consume primarily in the afternoon hours, while at work, when they driving or even
just at home. This information is vital when considering marketing strategies for
introduction of a new energy drink as you are able to focus your attention on providing
convenient ways for consumers to find and purchase your product. Also, the promotions
and advertising can be honed in to appeal to the atypical energy drinker as well as
appealing to people new to energy drinks altogether.
The consumers in the energy beverage market have proven that they limit their
choice to, on average, only 1.4 brands. This suggests high brand loyalty in the energy
drink market. This may hinder DRS’s ability to get the current consumers of other
brands to give their new product a try.
Competition:
The energy drink market is full of major players as far as competition is
concerned. Not only that, but these competitors have had years of experience selling
these products. Red bull, for example, is an Austrian company who entered the market
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in 1997 with aggressive marketing strategies and is the clear frontrunner in the industry.
DRS has had proven success and while they are no stranger to a bit of competition, as
they deal with many competitors in the CSD/N-CSD markets, they are “late to the party”
in this case. Lines have been drawn and market share has been acquired. DRS is set to
attempt to hurdle itself into the mix in an attempt to gain a share of the market for itself,
but is it too late?
Alternatives:
Alternative (1) Introduce energy beverage, targeting heavy users
Our first alternative is to target heavy energy drink users which are men ages 12-
34. Since this group of men is the target of many of the competitors in the energy drink
market, this alternative offers a way to differentiate ourselves. To effectively target this
group of men, while differentiating ourselves from the many competitors whom target
this group also, we will be offering a16.9 ounce aluminum can with a re-sealable screw
top priced at $3.50. The brand loyal market could see this as enough of a change to
give the new product a chance. Although the flavoring of the drink will be custom fit to
our market, the ingredients will be much the same as competitors, with only a slight
increase in caffeine and taurine content.
To successfully integrate ourselves into the mind of our targeted group of
consumers, we will be spending $12,500,000 on advertising and promotion. This is
similar to what TAB energy spent in their initial year. Given the media expenditure of the
competitors in the market, we have placed ourselves around the middle to higher end of
the competition. It is vital that Dr. Pepper Snapple Group, Inc.’s energy beverage makes
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a big splash in its initial year in the market and media expenditure can be re-evaluated
for its second year in the market. In order to have a brand name that resonates with our
target market we selected a word that was synonymous with strength, something that all
men can yearn for. Not just physical strength but also mental strength and alertness,
which is why we decided on “Thunder.” Distributing “Thunder” to convenience stores
was the best option to successfully provide the target market with the most convenience
and frequent exposure to the product. Men visit convenience stores solely for the
reason of convenience, they are there to pick up a product and continue on their way.
Heavy users of energy drinks, such as our target market of men 12-34, are the type of
consumers who seek out energy beverages in order to consume them. The sole
purpose of visiting the convenience store could be to pick up an energy drink. We are
also targeting those who visit the convenience store for others purposes and grab
“Thunder” to gain that energy boost they are looking for to get through their day.
Convenience stores also have the largest gross margin at 50% in comparison to the
supermarket and wholesalers gross margins. The size and physical construction of our
of our can is what truly sets us apart from the competition, being the only available re-
sealable screw top in the energy beverage market. Having a re-sealable top enables
consumers to take the beverage on the road successfully without the fear of spillage or
the loss of carbonation. Men can take their energy drink to work, to school, to the gym,
anywhere knowing that it will travel without spilling a drop. 16.9 ounces is a single
serving size that will be desired by our target market because they are heavy users and
subsequently 16 ounce cans accounted for 50% of case sales. We felt since 16.9 ounce
was similar to 16 ounces it would still be a desired option for our target market. The
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price point of $3.50 is established to position “Thunder” just below Red Bull in price per
ounce in the convenience store distribution. Red Bulls price per ounce in the
convenience store distribution is $0.24 per ounce and “Thunder’s” would be $0.21 per
ounce. In order to not directly compete with Red Bull, we wanted to be slightly cheaper
and have the convenience of our re-sealable screw top being an added benefit to get
consumers to choose “Thunder” over Red Bull. In regards to the rest of the competition,
we have placed ourselves on the higher end of price per ounce for the convenience
store distribution channel. The next highest price per ounce is Tab at $0.19. Our target
market will value the benefit of the having the re-sealable aluminum can which will
justify having our price point at the second highest price per ounce for convenience
stores in the energy drink market.
Alternative (2) Introduce energy beverage, targeting adult niche
Our target market for this alternative is adults, both men and women 35-54. This
product is an energy beverage called “Zen”; a 16 ounce can, priced at $1.60 a can. At a
much lower price, the “Zen” beverage will contain less sugar and less of the expensive
ingredient “taurine”, in comparison to other energy drinks. This will fit with the interests
target market we aim to reach by reducing the potential crash-effect of a drink that is
high in sugar. In order to best target this market, it is optimal to have the product
distributed to supermarkets because this where our target market will visit frequently.
The gross margin in supermarkets is 40%, which is slightly less than convenience
stores at 50%. However, convenience stores are leveling off in their sales of energy
drinks and we think our target market will be found in supermarkets more regularly then
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convenience stores. Since Dr. Pepper Snapple Group Inc. is a well-established brand in
itself, it will be easier for the company to obtain optimal shelf space in supermarkets
compared to brands that have no established companies behind them. The targeted
group is comprised of busy adults; users within this group represent 34% of all energy
drink users. “Zen” was determined to be the most appropriate brand name for a
beverage to be targeted at adults from 35-54. We felt that promoting this brand as a
calming and stimulating drink would better appeal to this market of adults. Current
energy drinks targeted at heavy user have bolder brand names to appeal to younger
consumers, while “Zen” will promote mental clarity and alertness that will appeal to the
busy adult who is trying to stay alert while getting through their day, stress free. Our
target group is picking up an energy drink while grocery shopping, going to the store to
grab lunch on the go, or walk by and see our product and realize it is something that will
benefit them. Adults are busy spending time with their families, working, and trying to
live fulfilling lifestyles. “Zen” will enable them to go about their busy day with mental
clarity and a boost of energy.
The media expenditure budget for promoting “Zen” to our niche adult market is
$7,000,000. This number is larger than what the majority of the competition is currently
spending on media expenditure in 2007; with the exception of Red Bull who is spending
60.9 million. Since “Zen” is targeting a niche market of adults, we determined
$7,000,000 to be an appropriate number to make our product known in the market.
Since “Zen” is targeted to a smaller group of the market and since the profit on each can
sold is lower, we felt it was necessary to spend enough money to make an impact but
not so much that it would take a long time and a lot of units sold to break even. When
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marketing a product to a niche group, less advertising expenditure is needed to be
spent in comparison to the money needed to make an impact when advertising to a
larger group of consumers. Since the manufacturing and bottling aspect of Dr. Pepper
Snapple Group Inc. is well established and functioning, there is less of a need to spend
an excessive amount of money to make a splash in the energy beverage market. Some
consumers will recognize the company behind the brand and try it because they
recognize the name and are familiar with Dr. Pepper Snapple Group Inc.
When determining the size for this niche group of adults we took many criteria
into consideration. We figured that if we choose the 8 ounce size can, which is a unique
size specific to Red Bull, it would subsequently place is in direct competition with that
brand. We wanted to avoid direct competition with Red Bull due to their current market,
loyal customer base, and large media expenditure. Looking at the 24 ounce size can, it
was determined that for the adult niche market that we were trying to target the can size
may be too large for everyday convenience and would not be consumed as frequently
as a smaller size. Therefore, by the process of elimination we decided 16 ounces would
be the size that would best suit our target market. 16 ounces accounts for 50% of case
sales and has the ability to travel well and be consumed more frequently than a larger
size. We want our consumers to be encouraged to consume their beverage as a single-
serving beverage which will encourage repeat purchase. In some cases repeat
purchase will occur in the span of a day.
Since our energy drink is targeting a narrower niche market, we opted for a
relatively conservative price. When trying to attract a niche market you need to have
specialized offerings, which in this case, will be a niche product at a lower price per
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ounce. This places “Zen” among the competition as having the lowest price per ounce in
comparison to the other brands in supermarkets. “Zen” will have a pricing advantage
over Monster, Amp, Sobe, Rockstar, Full Throttle and especially Red Bull. Although the
gross margin per unit will be somewhat low, it is our goal to sell more units by pricing
“Zen” as a cheaper niche energy drink at retail price of $0.10 per ounce which equates
to $1.60 in a 16 ounce can. This is the lowest price per ounce for an energy beverage
available in supermarkets. The next highest price per ounce is Monster, Rockstar and
Full Throttle at $0.11 per ounce. On average, an older consumer base is more likely to
be on the conservative side when it comes to the money they spend on functional
beverages.
Alternative (3) Status Quo
This alternative is for Dr. Pepper Snapple Group Inc. to remain at status quo and
not enter the energy beverage market. The threat of the existing competition and the
domination by its five main competitors makes the market difficult for any company to
penetrate. With 94% of the energy beverage market being monopolized by five main
competitors and the remaining 6% belonging to private labels, there is not much room
left for a non-established energy drink to enter the market. 43% of the market currently
belongs to Red Bull; the first energy beverage to introduce itself into the market. Despite
emerging competition, Red Bull has still managed to maintain almost half of the market
share. Regular consumers of energy beverages are considered to be extremely brand
loyal, as the average users varies between 1.4 brands. With consumers being as loyal
as they are to their favorite energy beverage, it is harder to absorb the competition’s
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portions of the market share. In order for an energy drink to successfully be introduced
into the market, it would have to do a variety of things: develop a new brand, target a
niche market with specialized offerings, and/or differentiate a product clearly from that of
the competitors. The introduction of a new brand in an established, mature market that
has exhibited signs of slowed growth would need a well devised and well executed
marketing plan. An appropriate advertising budget would need to be quite large in the
initial years in order successfully position the product in the consumer’s minds.
The energy beverage market has begun to see many different energy beverages
enter the market resulting in price erosion. Larger package prices, multi-packs, and the
increase of availability of energy beverages in mass merchandisers are causing lower
prices and resulting in lower profit margins. It is predicted that convenience stores will
continue to have problems with price erosion for energy beverages in the future. In
order for a company such as Dr. Pepper Snapple Group Inc. to break into the energy
drink market, there are a lot of criteria to consider. With this industry already saturated
with strong competition, an energy beverage may not be as profitable as they may have
hoped and therefore not entering the market may prevent Dr. Pepper Snapple Group
Inc. from losing revenue.
Key decision criteria
Our key decision criteria include:
- Profit Margins - The market is a high growth, high profit market. This is
something that was considered when choosing whether or not to enter the market.
- Differentiation - We needed to choose an alternative that made our product
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stand out from the competition in order to attain a decent market share.
- Market Choice - We are choosing what we believe is the market that will
provide us with the best potential to be profitable and successful.
Choice and Rationale
We have chosen to implement alternative (1); introduce energy beverage,
targeting heavy users. The “Thunder” brand will focus on males, 12-34. We have
chosen a single serve can at a size of 16.9oz that will include a revolutionary re-
sealable screw cap to differentiate the product from other competitors, especially the
other similar sized cans. This way we follow the general guidelines of entering a
maturing market as a late adopter by (1) Attracting customers with a specialized offering
and (2) Differentiating our product clearly from those of competitors. Our can design will
be of the 16.9oz size to avoid mimicking Red Bull’s renowned 8oz can. It is not our
immediate concern to compete with Red Bull’s share of the market, therefore the 16.9oz
can will compete with the others in that size range. Also, we have chosen to use this
size because it has shown the largest growth, at over 150% since 2004. We provide
newfound functionality by incorporating the first re-sealable screw-top to an energy
beverage. Consumer Trends: Agriculture and Agri-Food Canada (AAFC) are quoted as
reporting:
“For energy drinks and shots, consumers are looking for greater functionality...”
Consumer Trends: Agriculture and Agri-Food Canada (AAFC), 2011
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With this choice, we will be using convenience stores as our main source of
distribution. The margins using this channel, although slightly declining, have proven to
be the highest in the industry at about 50%. We feel that this is right where we need to
be to match with our target market of heavy users, which it would be expected our
competition has also come to realize, as reported by AAFC:
“Certain manufacturers have targeted non-specialist retailers, such as convenience stores to
drive product sales. These are appealing due to their potential to capture casual athletes
who currently use these products infrequently or not at all.”
Consumer Trends: Agriculture and Agri-Food Canada (AAFC), 2011
We will be introducing the “Thunder” beverage with an initial media expenditure
cost of $12,500,000. This, we feel, will provide enough of a presence in our first year of
sales to get our product off to a good start and is similar to what TAB energy spent in
their initial year. The physical benefits of energy drinks have already been widely taught
by the pioneers of the industry, such as Red Bull. This means, that we will not have to
spend as much time and money educating the public on what energy drinks do and we
can focus on promoting the brand name, “Thunder” through various media avenues.
A sugar-free alternative was decided against as the regular energy drinks
account for 80% of the market and we do not feel that our target market makes up a
large portion the 20% that would be left untapped.
With this choice, our breakeven is relatively low at only $25,000,000. To reach
this number, we would only have to attain 0.4% of the current total market sales of
$6.2B. This would appear to be easily attainable based on how the competition currently
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fares and how Tab Energy fared in their first year. We hope to attain at least 2.5% of the
current market by having sales numbers at $155,000,000 in the first year. These sales
figures are similar to the initial introduction of TAB energy drink.
Implementation
Our goal is to attract our target market, men ages 12-34 by positioning our brand
at the forefront of their minds as the man’s “go-to” energy beverage. An extensive
promotional strategy will aid in placing “Thunder” in the evoked set of our target market
and consumers will recognize our drink as the one that gives you a strong energy boost
that will get you through the day. “Thunder” is a 16.9 ounce can, priced at $3.50. Its
promotion will focus on the convenience of having a re-sealable top so that you can
take it with you throughout the day. The promotional budget of $12,500,000 will be used
on a well devised marketing plan targeted towards men. Advertisements for “Thunder”
will be placed in all of the major men’s magazines, car magazines such as Car and
Driver, fitness magazines such as Men’s Health, and a variety of sports magazines such
as Sports Illustrated. Point of purchase displays in convenience stores will be a large
portion of our promotional advertising. Since energy beverages are a low involvement
purchase and differences between brands are small, it is necessary to have advertising
present at the point of purchase. With low involvement purchases consumers tend to
select brands because they are familiar with, therefore it is necessary for the
promotional efforts of “Thunder” to have a big impact on the target market especially
within its initial year in the market. Having a point of purchase display will show
consumers our product is out there and when they go into the store for an energy
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beverage they will be inclined to try the newest energy beverage by Dr. Pepper Snapple
Group Inc. The display will be a large energy drink can cut out, vibrant in color, with
shelving to hold the cans. Consumers will see the display when entering any
convenience store that “Thunder” is available, and will hopefully spark our consumers’
interest. Not only will this grab our target markets attention, but we will also reach out to
the consumers outside of our target market using this method.
Another great way to advertise to our target market is to use social media
advertising on sites such as Facebook, Twitter, and Tumblr. Appealing banner ads with
a click-through to the “Thunder” website is an optimal way to get attention from
consumers who spend a lot of time on social media sites. Similar banner ads for internet
sites that are popular among our target market will also be a prominent part of our
advertising. Sports websites, car websites, fitness websites, as well as miscellaneous
sites that are popular among men are where the majority our internet advertising will
take place.
Sponsoring an athlete in an extreme sport such as motocross will allow us to
have our presence known among our target audience that watches extreme sports. Our
competition is known for sponsoring extreme sports such as motocross. Monster, Red
Bull and Rockstar are all well-known sponsors in the motocross industry. Having
“Thunder” seen among our competitors in the market will give our brand notoriety by the
consumers. Sponsoring an athlete strengthens the “Thunder” brand not only because of
television and promotional exposure but also because it places our brand in the
forefront of consumers mind as a man’s energy beverage. With the advertising
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expenditure that Dr. Pepper Snapple Group Inc. is spending on its promotions, our goal
for “Thunder” is to obtain 2.5% of the current market share.
Control-evaluating criteria
The criteria that Dr. Pepper Snapple Group Inc. will use to determine whether or
not the energy beverage “Thunder” is performing successfully in the market will be
based largely on profits and unit sales. Our goal is to obtain 2.5% of the current market
by the end of year one. The current market share that “Thunder” has obtained will be
evaluated quarterly and re-evaluated at year end to see if we have obtained our goal.
Important performance criteria such as how many units we are selling in convenience
stores will be evaluated against the current competition to see how we are performing in
our chosen channel. Since TAB energy has been a newer entrance into the energy
beverage market, we will compare our results in unit sales against theirs in their initial
year. Our media expenditure is also similar to their first year, so this makes the two
performances easier to compare. If “Thunder” does not reach its goal of obtaining 2.5%
market share it will be below the $80,500,000 million in net income that we expect the
beverage to make. At this point we will need to re-evaluate and consider changes to the
marketing mix and to promotional expenditure.
If changes need to be made, we will evaluate the response of our various
sections of advertising is having on our target market. Marketing research will be
completed on our target market to see if we are making the expected impact the
consumers mind. Re-evaluating our promotional themes will be considered as an option
to recover if we do receive lower than expected sales performance.
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At the end of year one, necessary evaluations will take place. If they are less
than half the percentage of what we expected we will change course. Changing the
course of where “Thunder” is distributed is also a reasonable option if performance in
convenience stores levels off, as predicted. Changing the various aspects of the
marketing mix will be seriously considered including the changes to the product, price,
place and promotion.