Dr. Pepper Snapple Case
September 2007 A brand manager(Andrew Barker) for Dr. Pepper Snapple Group Inc. was responsible for assessing whether or not a profitable market existed for a new energy beverage brand to be produced. He believed producing energy drinks as part of their brand was similar to the ready to drink Sports drink market opportunity. Senior management launched the Accelerade RTD brand into the sports market on May 2007. Dr. Pepper Snapple Group Inc. •Dr. Pepper Snapple Group Inc. is a major integrated brand owner, bottler, anddistributor of non alcoholic beverages in the United States , Mexico, and Canada. •In 2007 the company posted net sales of $5. 748 billion Company Operations ? ? ? In the United States and Canada, the company mainly participated in the flavored carbonated soft drink market segment. Key Brands: Dr. Pepper,7UP, Sunkist, A&W, Canada Dry. In the non CSD market, the company’s key brands are Snapple, Motts, Hawaiian Punch, and Clamato.
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In Mexico and Caribbean the company primarily participated in flavored CSD, bottled water, carbonated water, and vegetable juice. The key brands were Penafiel, Squirt, Clamato,and Aquafiel. Business Strategy ? 1)Build and Enhance Leading Brands- Company uses an on going process of market and consumer analysis to identify key brands for future growth. ? 2)Focus on Opportunities in High-Growth and High-Margin Categories- Their new and emerging profitable categories are ready-to drink-Teas and functional beverages. ? 3)Increase Presence in High-Margin Channels and Packages-Dr. Pepper Snapple Group Inc. is focused on channeling their products in vending machines, convenience stores, and independent retailers. Business Strategy ? 4) Leverage the Company’s Integrated
Business Model- Company is trying to reduce costs by creating greater geographic manufacturing and distribution coverage. ? ? Strengthen the Company’s Route-to-Market Through Acquisitions 6)Improve operating Efficiency-The company is focusing on reducing selling, general, and administrative expenses and improve operating efficiency. Energy Beverage Market ? In 2006, energy beverages were the fourth largest nonalcoholic beverage category in the United States after carbonated soft drinks, sports drinks, and bottled water (excluding coffee). Energy Beverage Market ? ? Major Brands-Red Bull, Monster, and Rockstar
In 2006 these brands produced estimated retail dollar sales of 6. 2 billion. Product Proliferation and Price Erosion ? Energy drink market experienced product proliferation and price erosion. Many companies introduced new varieties and flavors (diet, sugar-free) to extend their product lines or differentiate. Marketing Considerations ? 43 million energy drink users in the US (about 18% of the US population 12 years of age or older) ? Males between the ages of 12 and 34 are the heaviest users of energy beverages (about 70% of energy beverage consumption) ? Tab Energy is the only energy beverage that focuses on female consumers ? Major Five Competitors- Red Bull North America, Hansen Natural Corporation, Pepsicola, Rockstar, Coca-Cola Marketing Considerations ? Product Line ? Regular energy drinks have an 80% share on the energy drink market, while sugar-free versions have a 20% share. ? Sizes range from 8. 3 ounces (Red Bull) to 24 ounces. The 16-ounce size, representing about 50% of case sales in convenience stores, has posted the fastest growth (150% since 2004) Marketing Considerations ? Brand Positioning Emphasis on energy boost, mental alertness, refreshment, and taste.
Brand slogans reflect these qualities: ? Red Bull: ? Monster Energy: ? Full Throttle: ? Tab Energy: ? ? “Red Bull Gives You Wings” “Unleash the Beast” “Go Full Throttle or Go Home” “Fuel to Be Fabulous” Rock Star Energy positions itself as the most powerful energy drink with an “edgier” message focused on “active and exhausting lifestyles-from athletes to rock stars” Marketing Considerations ? Marketing Channel ? DPSG bottlers and distributors deliver to all types of off-premise retailers where energy drinks are sold. However, company bottlers and distributors did not serve all areas of the U. S. (by 2008, the company expected to have bottlers and distribution centers in place to serve 80% of the U. S. population) ? Historically, new energy drink brands were introduced exclusively to the convenience store channel in single-serve packages because of higher profit margins and then migrated to other channels. Marketing Considerations ? Manufactures Suggested Retail Selling Price and Channel Margins ? ? Single serve energy drink retail prices generally settled at roughly $2. 00 per single-serve package, regardless of package size. Larger single-serve packages are priced lower on a per-ounce basis then smaller packages.
Estimated retail, wholesale, and manufacturing energy drink margins vary within a tight range. ? ? ? Retailers such as supermarkets and convenience stores typically report gross margins in the range of 40% and 50% respectively based on the manufacturer’s suggested retail price. Wholesalers (distributers and bottlers) report a gross margin of 30%-36% of the price sold to retailers. Energy drink manufacturers obtain a gross margin between 60%-66% on sales to wholesalers. Marketing Considerations ? Advertising and Promotion Except for Red Bull, brand media advertising is modest.
Competitors rely on promotional vehicles such as brand websites, events, and sponsorships to promote their brands. ? In 2006, the top five competitors spent an estimated $70 million for measured advertising media. ? Expenditures for other promotional vehicles were 4-6 times higher than media expenditures. ? ? Red Bull spends about $300 million annually on sports sponsorships. U. S. Sports Drink Market ? ? ? ? Market posted total retail sales of $7. 5 billion in 2006 (year-over-year growth rate of 13%). Gatorade (Pepsi) was the sports drink pioneer and market share leader. 81% of market in 2006 and was supported by $183 million in media. Powerade (Coca Cola) had 18% market share. Competitively priced with each other. Each brand distributed through it’s company’s network that serves convenience stores, supermarkets, mass merchandisers, etc. Accelerade Brand ? ? ? ? Dr. Pepper Snapple Group introduced Accelerade RTD in 2007. Target Market for this was the 35 million Americans who exercised regularly. 20oz bottle, 4 flavors. Retail price was $2. 79(2x the amount of Gatorade). First protein sports drink. Used media like websites, SEO, podcasts, etc for promotion. Theme was “sweat smarter”.
The Sports Drink Market and Accelerade RTD Launch ? ? Andrew Barker believed there was a strategic similarity between the launch of Accelerade and the possible introduction of a new energy drink beverage brand. In both cases, DPSG was introducing a new branded product into a new beverage market for the company. Snapple’s Energy Drink and Differentiation ? ? ? ? Snapple noticed that there was no energy drink targeting 35-54 year olds. There was also no energy drink with a bottle shape with a resealable screw cap. Had to use higher media expenditures to introduce new product, but had nowhere near the funds Red Bull did. Retail selling price around $2. 79 per singleserve 16. 9oz can.
Pro Forma Income Statement Sales $620,000,000 10% of $6. 2 billion COGS $248,000,000 Gross Margin $372,000,000 60% of sales Media Expenditure $10,000,000 More than Full Throttle, less than Tab Non-Media Expenditure $40,000,000 4-6 times higher than media expenditure Profit before taxes $322,000,000 Marketing Decisions ? Target Market Selection ? Dr. Pepper Snapple Group should introduce an energy beverage that targets adult males who are 34-54 years old, since that is a group not currently targeted by current energy drink competitors. ?
This group consumed energy beverages at a rate that was only slightly less than consumers under 24 years old, meaning that there is a market of consumers that current energy drinks with no drink specifically targeted to them. Marketing Decisions ? Product Line and Positioning Choice ? Introduce an energy drink beverage with an aluminum bottle shape with a reseal-able screw cap because “it would stand out on a store shelf among the cylinder-shaped cans sold by competitors. ” ? Should introduce a regular version and sugar-free version. ?
Adults 35-54 can be seen as more “health-conscious” than younger adults since health problems are more prevalent in adults as they grow older, therefore a healthier alternative should be made available. Marketing Decisions ? Marketing Channel Choice The product should be sold to off-premise channels. The new product would have no promotional means or recognition to compete with other energy drink brands in on-premise channels such as restaurants, bars, etc. ? Convenience store sales have been decreasing for energy drinks while other off-premise channels such as supermarkets have been increasing sales.
Brands with a limited product line that can demonstrate high turnover are stocked while those with low turnover rate are discontinued . ? Marketing Decisions ? Advertising and Promotion Media expenditures for the new energy beverage should be $10 million in order enter the market with a significant amount of promotion similar to competitors such as Coca-Cola ($7. 3 million) and Tab ($12. 6 million). ? Cost of non-media expenditures advertising should be 4 times larger than the cost of media expenditures equaling $40 million(Top 5 competitors spend 4-6 times more on non-media expenditures than media expenditures.
Marketing Decisions ? Pricing and Profitability To ensure that the entrance of the energy drink is keeping with other similar competitors, the selling price per case to off-premise channels should be $44 per case. ? Price for each package of energy drink should be $2. 79. ? This accounts for the amount of differentiation in the product (screw on caps) that increase the “value” of the product. ? Adults 35-54 have more income than younger demographics and therefore have more money to spend on the product. ? Recommendation ? Dr. Pepper Snapple Group should enter the energy beverage market.