Dr. Pepper Case Analysis BY illm0304 l. Define the Problem Central Problem Dr Pepper Snapple faced problems deciding whether the company should enter into the energy drink market. The energy drink market is a high growth and high- margin business. Recent rise in such functional drinks has Dr Pepper wanting to tap into this fast growing market. Dr. Pepper is one of the only major domestic carbonated soft drink companies that have not introduced a line of energy drinks. The challenge Dr Pepper Snapple faces is what would be the best way for it to market a new energy drink product.
The company simply does not have the income to ompete in advertising against Red Bull. Sub Problem Dr Pepper is indecisive about what market it wants to target. The energy drink market range from males ages 12 to 34. Dr pepper is trying to decide whether or not it would be good to target the existing market are restructure the drink and make it more segmented to an older group of people. In deciding, it must focus on the flavors and ingredients that will differentiate the product from its competitors. II.
Relevant Information Characterize the Industry The energy drink is a consumer product that satisfies the need for consumers to enhance their energy. There are several competitors in the energy drink market. Red Bull being the leader, followed by Monster. The main purpose of this product is to provide the user with energy. Most consumers drink energy drinks in the morning to get them going or in the afternoon. Some users drink energy drinks to help them stay focused and alert throughout their workday. Others use it to boost energy before going to the gym to perform a high intense workout.
Some people even add energy drinks to alcohol while out partying, to help them stay alert. Energy drink companies aren’t changing constantly, but there are lots of new companies entering he market, making it extremely competitive. The product line requires new companies like Dr Pepper Snapple to introduce line extensions to separate its products from the competitors. Characterize Product/Services The energy drink is considered a consumer product. The energy drink is purchased by consumers for personal use. There are several different types of energy drinks.
They come in 8-ounce, 16-ounce, or 24-ounce cans. The goal of Dr Pepper Snapple is to introduce an energy drink that is different from the others. Dr Pepper Snapple wants to introduce a drink that is packaged in a unique container hat allows the user to re-close the bottle, by adding a screw top. In addition to differentiating the package, the company wants to change the ingredients, by increasing the amount of caffeine, herbs, and vitamin B per serving. Although it has lots ot competition, the energy drink market is not a tast changing market.
Identify All Potential Segments and Target Markets Brand positioning is one of the challenges Dr Pepper Snapple currently face. Although the heavy users are currently males ages 12 to 34, the Dr Pepper Snapple wanted to tap into the untouched market of adult energy drinkers. None of the other major energy drinks positioned their product to target adults ages 35 to 54. Dr Pepper Snapple can target this age group to satisfy the need to boost energy, become more alert, or to make them feel revitalized. They can target women by offering a product to boost energy after a long workday.
Trends in the Market The energy drink is an item that will be purchased in the same style as a carbonated soft drink. This would be an item that consumers purchase daily. The average consumer would stop into a local gas station, convenient mart, or retail store and purchase this item. The energy drink can be categorized as a convenience product. The energy drink customer will make frequent purchases that will allow little comparison or shopping effort and low customer involvement. It is also a product that is not really affected by a recession.
Demographics of Current and Future Consumers The demographics of the energy drink consumer consist of males ages 12-34. There are some female consumers, but the male outnumbers them. Males were estimated to account for about 70 percent of energy beverage consumption. Future customers will be in the age range of 34 to 54, both male and female. Some other emographics are athletes and rock stars which were targeted by the Rockstar brand. Consumers’ Perception Consumers’ perception of the energy drink is positive being that they have proved to provide a great deal of energy. The drinks actually boost energy and increase alertness.
Dr Pepper Snapple being the third largest soft drink company positioned in United States, Canada, and Mexico. Dr Pepper Snapple has some of the leading soft drinks with 7 Up, AW Root Beer to name a few. So it is no stranger to the consumer market. The company has strong customer relationships with some of the largest bottlers and distributors. Dr Pepper Snapple is affiliated with major retailers such as Wal-Mart, Safeway, Kroger, and Target. Major Influences on Consumers The pricing in the energy drink market is low and competitive, with the suggested retail price of about two dollars per single serve package.
There was a decline in the price of the energy drink from 2001 to 2006. Attributes such as, larger packages, multi-packs, and increasing availability in supermarkets and other stores caused the prices to decline. The ratings of such energy drink are relatively high and users are generally loyal toa certain brand. General Decision Process ot Consumers The buying behavior of energy drinks differs greatly from the buying behavior of a new house. The purchase of an energy drink can be categorized as a variety seeking buying behavior. In this case the consumer may do a lot of brand switching.
The consumer will have low involvement but significant differences among brands similar to a customer purchasing cookies. The customer may try several different brands just because it is available. Changing brands doesn’t mean the consumer is dissatisfied but simply curious to try other brands. In categories such as this, marketers focus on changing variety behavior to habitual behavior by promoting lots f shelf space and increasing advertising. Where/How is Product/Service Purchased? Distribution of the Dr Pepper Snapple beverage is huge. The product is purchased in the U.
S. , Canada, and Mexico. The Dr Pepper Snapple drink can be purchased at gas stations and large retailers such as: Wal-Mart, Target, and Saveway. Dr Pepper Snapple Group Inc, “has 21 manufacturing facilities and approximately 200 distribution centers in the United States as well as four manufacturing processes”(Kerin 82). Dr Pepper Snapple Group have warehouses located near bottling plants and are geographically dispersed across the region. The company ransports its own products by using company owned delivery trucks as well as third- party logistics providers.
The company is able to reduce distribution cost by having such broad distribution capacity. Identify Channel(s) of Distribution The company distributes its products in convenient stores, vending machines, small independent retail outlets, and through increased selling activity and significant investments in coolers and other cold drink equipment. The Dr Pepper Snapple group bottles its own products. The company strengthened its geographic coverage from its recent acquisition and creation of Dr Pepper bottling Group. Some of its top customers and distributors include; Wal-Mart, Safeway, Kroger, and Target.
It also has large foodservice customers including McDonalds, KFC, Pizza Hut, Taco Bell, Long John Silvers, and W All American Food. Burger King and 7 Eleven are two more of the convience store customers that distribute Dr Pepper Products. In the Caribbean, Dr Pepper Snapple distributed is product specifically through third party bottlers. If there are intermediaries What are their Needs? Are these Needs Met? How do intermediaries influence the marketplace? The Dr Pepper industry maximizes its intermediaries by using intensive istribution and ensuring its product is made available when and where consumers want them.
Convenient stores and supermarkets are the most dominant intermediaries in the energy drink industry. “In 2006 convenience stores accounted for 74 percent of off premise retail dollar sales, up from 11 percent in 2004”. The better the energy drink manutacturers product line and distribution, means the greater the chance they have in gaining shelf space in supermarkets and mass merchandisers. Intermediaries influence the marketplace by making the product available for the consumer to purchase. In most stores the energy drink is in the ame aisle with all of the impulse items, right at the check out lane.
This allows the intermediaries to market the product to every customer that makes a purchase. Identify Existing and Future Competitors Some of Dr Pepper Snapple’s existing competitors consist of Red Bull, Hansen Natural, Pepsi-cola, Rockstar Inc. , and Coca-Cola. These are the top five competitors and all have market share in the energy beverage industry. Some of its future competitors will be the other private Label companies, which in 2006 held an estimated 6% in market share in dollar sales and 6% in unit case volume.
Assess Competitors Health in terms of market share, financial stability and profitability Red Bull is the market leader holding 43 percent of the dollar sales market share in 2006, down from 82 percent in 2000. The company is headquartered in Austria and it was considered the pioneer when it was first introduced to the market in 1997. The Red Bull is usually priced higher than other energy drinks, and this is said to be the cause of the decline in its dollar sales over the years. “The Red Bull Brand was supported by $39. 6 million U. S. edia expenditure in 2006 and estimated $60. 9 million media expenditure in 2007” (Kerin 87). Hansen Natural Corporation markets several different non-alcoholic beverages in the United States. They have the second largest market leader called Monster Energy. The Monster has seen increased profits by partnering with the popular brand Anheuser-Busch to distribute its brand to retailers in different areas within the United States. Monster Energy distributes to bars, nightclubs, and restaurants in areas selected specifically by Hansen. Pepsi-Cola is the third largest competitor.
It markets AMP Energy and SoBe Adrenaline Rush Energy beverage brands. They were first introduced to the market in 2003. Rockstar, Inc. s a producer of alcoholic, Juice, cola, and energy drinks. The Rockstar Energy brand was introduced in 2001. The Coca-Cola Company distributes this brand in the United States and Canada. In the Pacific Northwest and Northern California, Rockstar retains its original distributors. Coca-Cola is the fifth competitor of Dr Pepper Snapple. It markets the brand Full Throttle that is distributed through Coca-Cola’s distributing network.
The company also distributes independent energy brands. Assess competitors’ aggressiveness. Active? Reactive? Passive? All of the top five competitors have been aggressive by being active in mplementing new products and forming alliances with other companies to help distribute its products. Red Bull has the most aggressive prices. The other four are relatively comparative in price. They focus on targeting certain types of markets to stay profitable. They are constantly entering new markets, changing flavors, and bottle sizes.
Assess the Financial Health ot the Firm/Organization Dr Pepper Snapple Group is a major owner, bottler, and distributor of beverages in the United States, Mexico, and the Canada. The company is in good health, with popular brands such as Dr Pepper, 7 Up, Sunkist, A;W Root beer, and Canada Dry. The company is the only major carbonated soft drink company with year over year market share growth. Dr Pepper is the number two largest brand of carbonated soft drinks in the United States. They have continued to bring value and earnings to their stockholders by utilizing their strong operating margins.
The organization is also run by a well-experienced management team, with over 20 years of experience in the food and beverage industry. Ill. SWOT Analysts Strengths The Dr Pepper Group has a strong portfolio in leading consumer-preferred brands. Dr Pepper carbonated soft drink is the number one flavored and the umber two drink in the United States. Snapple is a leading ready to drink tea. Seventy five percent of the volume was generated by key brands that held the number one or number two positions in their category. This allows such cash cows to financially promote new products or question marks into the market.
Weakness Entering the market will require the company to due lots of research and advertising. The company will have to project overall sales in order to create an annual plan, to insure they receive profits from the entrance into this new market. The company simply does not have the funds to for media advertising. Opportunities Dr Pepper Snapple Group has an opportunity to enter the profitable energy drink market. The existing users are males ages 12-34. The company could target other markets women of different ages to tap in to some of the low using markets segments.
There is also an opportunity to use its already popular brands to help promote new products. The company could differentiate a new brand by improving the ingredients. Threats The energy drink market has lots of new competitors entering and several that have already set the mark in the industry. This has caused prices of the drink to decline due to supply and demand. There is such a large supply of the item that producers have to lower the prices to stay competitive. There would be a need for an income statement to determine whether entering this market would be profitable.
IV. Alternatives Identify at least 3 but not more than 5 alternatives There are several alternatives that could be used to replace energy drinks. The first and healthiest alternative is water. One hundred percent natural Juice is another healthy alternative. The herbal green or black tea is third recommended alternative to energy drinks Last is cottee, which is a very popular energy booster and 8-12 vitamins. The caffeine in coffee has been used for several years to keep people focused and alert. The 8-12 vitamins are known for stopping fatigue.
Choose 3 most viable and identify the advantages and disadvantages of each alternative. Water is would be the number one alternative to drinking energy drinks. Lots of times when people are feeling tired are fatigue, they are simply dehydrated. The use of water will help the body become hydrated therefore regaining energy. Drinking one hundred percent all natural Juice is also a good alternative. The advantages of drinking Juice are it is all-natural, with no added preservatives is caffeine. The disadvantage is it may increase the daily sugar intake.
The green or black tea is a good alternative because it is all-natural. The disadvantage would be tea has lots of caffeine in it as well, which can be unhealthy. Ill. Recommendation Choose Best Alternative or combination of alternatives Dr Pepper Snapple should focus on producing an energy drink that will give it the most competitive advantage. Dr Pepper needs to make sure it positions this new drink correctly. The company needs to create marketing development strategy. The company must be careful to promote only products and features that it will be able o provide.