In the ever changing world of customer needs and expectations Dr Pepper-Snapple was faced with an increased customer focus on energy drinks. This area, when exploited correctly, is a high growth and high margin beverage business. In early September 2007, Andrew Baker had his marching orders. He emerged out a long discussion about entering the energy drink business and off he went. First let’s understand that an energy drink simply does as its title suggest, gives the consumer energy. This is accomplished most of the time with caffeine from a guarana bean. Some of the other players in this market also use taurine, ginseng, carnitine, and B Vitamins
Let’s also take a look at Dr Pepper Snapple Group Inc. They are a major integrated brand owner that also performs bottling and operates strong distribution capability in the United States, Mexico, Canada, and the Caribbean. They also have a business model that differs from its competitors. They are a major carbonated soft drink (CSD) business but they put theretheir focus and margins in there ready to drink market (RTD). This investment in the RTD sector gives them a strong leverage point when evaluating entering the energy drink market, which is strong with RTD products.
Dr Pepper- Snapple needs to make a strategic decision as to whether or not they want to enter the energy drink business and if so where and how do they want to proceed. If they proceed they will need a strong targeted marketing plan, determine how to leverage their strengths in the market, and determine if their short comings will impact the introduction of a new product line.
1. Leverage and expand their Accelerade RTD product line. In a rapid response to competitors they created Accelerade RTD, could this be expanded. 2. Introduction on New Product Line: Leverage the entire business model and systems in place to leverage a new product line.
3. Do nothing.
After reviewing the report I determined that a SWOT analysis would be a great method of evaluating the firm’s strengths, weaknesses, opportunities, and threats.
The company’s strengths:
1. The company has a strong portfolio of consumer-preferred brands
2. The company has an integrated business model.
3. The company has strong customer relationships with attractive positioning in large, growing, and profitable markets.
4. The company has broad geographic manufacturing and distribution coverage
5. The company has significant stable cash flow and strong operating margins.
6. The company has an experienced management team.
7. The company, unlike competitors has a majority of its products in RTDs and subsidized with CSD. The company’s weaknesses:
1. Significant competition in this new market.
2. They need to protect themselves from product proliferation and price erosion issues that have occurred in the energy beverage market. The company’s opportunities:
1. US Males from 12 to 34. There is an increase of 14% and average use is 4.32 8oz servings per month 2. Off Premise Retail Channels strongly support sell of product. 3. Strength in the RTD market and market channels can provide a great “in” to the market. The company’s threats:
1. Dr Pepper Snapple will have to compete with Red Bull, Monster, Rockstar, Full Throttle, AMP Energy, Tab Energy, Coca-Cola, and Pepsi. 2. The investment process could take more than 1 year before it sees an stable ROI. Entry mode evaluation
1. Leverage and Expand Accelerade
They could leverage and expand the Accelerade product line, but the focus of the company is to make a bold statement and introduce an entirely new product line that can stand on its own. They have great success as an integrated brand owner and they need to continue leveraging that success. 2. Introduce an entirely new product line
This method for Dr Pepper Snapple has an strong proven track record. This will allow them to exercise all of their strengths. This could be company strengths, current market penistrationpenetration, supplier agreements and simply all of the business and/or customer loyalties that they have had. Also in today’s market the consumers are looking for the “next new thing”. They no longer want an extension of what they already have. The consumers are loyal to a company, but can quickly change focus if a company fails to continue to change to meet their needs and/or demands for change. 3. Do nothing
Dr Pepper could always do nothing at this time. During the stand down they could evaluate mergers, joint ventures, or buyouts as they market strengthens.
Making a decision
Given the track record of Dr Pepper-Snapple and looking at the SWOT analysis I feel that Dr Pepper should introduce an entire new product line. They can leverage their ability to manage a diverse brand business, the leverage they have in the RTD segment, and the strengths that the business as a whole has.
Implement the choice
FDr Pepper has a great opportunity to penetrate the energy drink market. They could quickly take a major market share and continue to support the ever changing customer needs and ever changing expectations. The only remaining concept is how to do it. 1. Target Market Selection – Who is to be serviced needs to be determined. Target heavy users, all users, or even what age and gender to focus on. 2. Product Line and Positioning Choice – The product line itself has to be determined. Is it single serve, multi pack, RTD, dry mix, etc. Positioning is also important. The product needs to have a meaningful differentiation. The product needs to stand out and provide something that the consumer really matters. Apple did a great job at this when they made the MP3 player better and the cell phone a must have.
3. Marketing Channel Choice– Looking over the report and the information available, it appears that a clear selection would be to start with a focus on off premise retailers. 4. Advertising and Promotions- The proper advertising that impact and meaningful differentiation has to be conveyed. How much and how it occurs requires further focus. 5. Pricing and Profitability – Since entering the game a little later then other players they know that the target price is about 2 dollars per single serving package, regardless of the package size. The profitability requires further evaluation but a target of current expectations within Dr Pepper already exists. This means that focus on volume and product cost will be key since the 2 dollar price is already in target.