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1. How would you characterize the energy beverage category in general, competitors, consumers, and channels in 2007?

2. Based on this background information, would it make sense for Dr Pepper Snapple Group to launch a new energy beverage brand, yes or no?

Even if you don't recommend a launch of a new energy drink, please develop suggestions for questions 3 through 5 anyway.

3. What target market should be chosen for a new energy beverage brand?

4. What product should be introduced and how should it be positioned/differentiated?

5. Through which channel(s) should a new energy beverage be distributed?

6. What dollar amount for media advertising and promotion should be budgeted for a new energy beverage brand?

7. What suggested retail price should be recommended for a new energy beverage brand?

8. What is a reasonable first-year sales forecast for a new energy beverage brand based on your recommended target market and marketing mix?

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Case Dr Pepper Snapple Group, Inc. Energy Beverages In early September 2007, Andrew Barker emerged from a lengthy discussion on the energy beverage market in the United States. As a brand manager for Snapple beverages at the Dr Pepper Snapple Group, Inc., he was charged with assessing whether or not a profitable market opportunity existed for a new en- ergy beverage brand to be produced, marketed, and distributed by the company in 2008. Dr Pepper Snapple Group, Inc. was the only major domestic nonal- coholic beverage company in the United States without a significant branded energy drink of its own. Energy beverages are broadly defined as drinks that provide a consumer with a boost of energy. The central ingredient in most energy beverages is caf- feine derived from the guarana bean. Other common ingredients include tau- rine, ginseng, carnitine, and B vitamins. Energy drinks are considered functional beverages. Other functional beverages include sports drinks, ready-to-drink tea, enhanced fruit drinks, soy beverages, and enhanced water. The decision to explore a new energy beverage was made by senior com- pany management as part of a corporate business strategy to focus on oppor- tunities in high-growth and high-margin beverage businesses. As part of this strategy, Dr Pepper Snapple Group, Inc. launched the Accelerade RTD brand, a ready-to-drink sports drink, in late May 2007. Barker believed that the decision to introduce the Accelerade RTD brand into a new beverage market for the com- pany (sports drinks) was similar to the situation he faced with recommending whether or not Dr Pepper Snapple Group, Inc. should introduce a new branded product into the energy beverage market. The cooperation of Dr Pepper Snapple Group, Inc. in the preparation of this case is grate- fully acknowledged. This case was prepared by Professor Roger A. Kerin, of the Cox School of Business, Southern Methodist University, as a basis for class discussion and is not designed to illustrate effective or ineffective handling of an administrative situation. Certain case information is disguised and not useful for research purposes. All financial, market, and other information is through 2007, unless otherwise noted. Brand names of Dr Pepper Snapple Group, Inc. are regis- tered trademarks and used with permission. Copyright © 2009 by Roger A. Kerin. No part of this case may be reproduced without written permission of the copyright holder. 91 92 CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING DR PEPPER SNAPPLE GROUP, INC. Dr Pepper Snapple Group, Inc. is a major integrated brand owner, bottler, and distributor of nonalcoholic beverages in the United States, Mexico, and Canada. In 2007, the company posted net sales of $5.748 billion. Eighty-nine percent of company net sales were generated in the United States, 4 percent in Canada, and 7 percent in Mexico and the Caribbean. Scope of Company Operations In the United States and Canada, Dr Pepper Snapple Group, Inc. participated primarily in the flavored carbonated soft drink (CSD) market segment. The com- pany's key brands are Dr Pepper, 7UP, Sunkist, A&W, and Canada Dry. The com- pany also sells regional and smaller niche brands. In the CSD market segment, the company is primarily a manufacturer of beverage concentrates and fountain syrups. Beverage concentrates are highly concentrated proprietary flavors used to make syrup or finished beverages. The company manufactures beverage con- centrates that are used by its own bottling operations as well as sold to third- party bottling companies. Dr Pepper Snapple Group, Inc. had an 18.8 percent share of the U.S. CSD market segment in 2007 (measured by retail sales), which increased from 18.5 percent in 2006 according to ACNielsen. The company also manufactures fountain syrup that is sold to the foodservice industry directly, through bottlers or through third parties. In the non-CSD market segment in the United States, Dr Pepper Snapple Group, Inc. participated primarily in the ready-to-drink tea, juice, juice drinks, and mixer categories. The company's key non-CSD brands are Snapple, Mott's, Hawaiian Punch, and Clamato, in addition to regional and smaller niche brands. The company manufactures most of the non-CSDs as ready-to-drink beverages and distributes them through its own distribution network and through third paities or direct to customers' warehouses. In addition to non-CSD beverages, the company manufactures Mott's apple sauce as a finished product. Exhibit 1 displays representative company-owned brands in the United States. EXHIBIT 1 Representative Dr Pepper Snapple Group, Inc. Beverage Brands Pepper ) (LAMATO no W MOTT'S pur Dlet Rite B44 NANTU (мото) Pue Ki News Sinks Svilupple WW HAWAWAN PUNCH 2. MOTT Snapple MOTT) Tips ght Schwar Sinks Wor Suds DGAB NON undy AN Staal MOTTU) MOT e DREAM ouk PBACO DU Snapple Sinkyst CANAS Shapp WAN Folia ENO! WEB Source: Courtesy of Dr Pepper Snapple Group, Inc. DR PEPPER SNAPPLE GROUP, INC. 93 In Mexico and the Caribbean, Dr Pepper Snapple Group, Inc. participated pri- marily in the carbonated mineral water, flavored CSD, bottled water, and vegetable juice categories. Its key brands in Mexico include Peñafiel, Squirt, Clamato, and Aguafiel. In Mexico, the company manufactures and sells its own brands through both its own bottling operations and third-party bottlers. In the Caribbean, the com- pany distributes its products solely through third-party distributors and bottlers. Company Strengths Dr Pepper Snapple Group, Inc. senior executives have identified seven key strengths that the company brings to the marketplace. Each is summarized below. Strong Portfolio of Leading, Consumer-Preferred Brands Dr Pepper Snapple Group, Inc. owns a diverse portfolio of well-known CSD and non-CSD brands. Many brands enjoy high levels of consumer awareness, preference, and loyalty rooted in their rich heritage, which drive their market positions. This diverse portfolio provides bottlers, distributors, and retailers with a wide variety of products and provides a foundation for growth and profitability. The com- pany is the number one flavored CSD company in the United States according to ACNielsen. In addition, it is the only major beverage concentrate manufacturer with year-over-year market share growth in the CSD market segment in each of the last four years ended 2007, according to ACNielsen. Its largest brand, Dr Pepper, is the number two flavored CSD in the United States, according to ACNielsen, and the Snapple brand is a leading ready-to-drink tea. Overall, in 2007, more than 75 percent of Dr Pepper Snapple Group, Inc. volume was gen- erated by brands that hold either the first or second position in their category. The strength of these key brands has served as a platform for launching innova- tions and brand extensions such as Dr Pepper Soda Fountain Classics, Motts for Tots, and Snapple Antioxidant Waters. Integrated Business Model Dr Pepper Snapple Group, Inc. management be- lieves its brand ownership, bottling, and distribution are more integrated than the U.S. operations of its principal competitors and that this differentiation provides the company with a competitive advantage. The company's integrated business model also provides opportunities for net sales and profit growth through the alignment of the economic interests of its brand ownership and its bottling and distribution businesses. Strong Customer Relationships Dr Pepper Snapple Group, Inc. brands have long-standing relationships with many of its top customers. Company products are sold to a wide range of customers, from bottlers and distributors to national retail- ers, large foodservice, and convenience store customers. The company has strong relationships with some of the largest bottlers and distributors, including those af- filiated with Coca-Cola and PepsiCo; some of the largest and most important U.S. retailers, including Walmart, Safeway, Kroger, and Target; some of the largest food- service customers, including McDonald's, Yum! Brands (KFC, Pizza Hut, Taco Bell, Long John Silver's, and A&W All-American Food), and Burger King; and conve- nience store customers, including 7-Eleven. Attractive Positioning Within a Large, Growing, and Profitable Market Dr Pepper Snapple Group, Inc. holds the number three position in each of the United States, Canada, and Mexico beverage markets. Each of these markets is position to be efit om emerging consumer trends su as the need for convenience and the demand for products with health and wellness benefits. In 94 CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING addition, the company participates in many of the growing categories in the liquid refreshment beverage market, such as ready-to-drink teas. The company does not participate significantly in colas, which have declined in CSD volume share from 70.0 percent in 1991 to 57.4 percent in 2006 in the United States, according to Bever- age Digest, a major trade publication. Nor does the company participate significantly in the bottled water market segment, which is a highly competitive and generally low-margin market segment. Following its acquisition by Coca-Cola, Energy Brands, Inc. terminated its distribution agreement with the company on August 30, 2007, for Glacéau brand products, including vitamin water, fruit water, and smart water. Broad Geographic Manufacturing and Distribution Coverage Dr Pepper Snapple Group, Inc. has 21 manufacturing facilities and approximately 200 distribution centers in the United States, as well as four manufacturing pro- cesses. Company warehouses are located at or near bottling plants and geograph- ically dispersed across sales regions to ensure company products are available to meet consumer demand. The company manages transportation of its products using its own fleet of delivery trucks, as well as third-party logistics providers on a selected basis. Following recent bottling acquisitions and manufacturing in- vestment, the company has broad geographic coverage with strategically located manufacturing and distribution capabilities, enabling it to better align its opera- tions with customers, reduce transportation costs, and have greater control over the timing and coordination of new product launches. Strong Operating Margins and Significant, Stable Cash Flows The breadth and strength of the Dr Pepper Snapple Group, Inc. product portfolio have en- abled the company to generate strong operating margins which, combined with relatively modest capital expenditures, have delivered significant and stable cash flows. These cash flows create stockholder value by enabling the company to consider a variety of alternatives, such as investing in its business, reducing debt, and returning capital to its stockholders. Experienced Executive Management Team The Dr Pepper Snapple Group, Inc. executive management team has an average of more than 20 years of experi- ence in the food and beverage industry. The team has broad experience in brand ownership, bottling, and distribution, and enjoys strong relationships both within the industry and with major customers. In addition, the management team has diverse skills that support operating strategies, including driving organic growth through targeted and efficient marketing, reducing operating costs, enhancing distribution efficiencies, aligning manufacturing and bottling and distribution in- terests, and executing strategic acquisitions. Company Business Strategy There are six key elements of the Dr Pepper Snapple Group, Inc. business strategy as described by executive management. Each capitalizes on company strengths. Build and Enhance Leading Brands Dr Pepper Snapple Group, Inc. has a well-defined strategy to allocate marketing and sales resources. The company uses an ongoing process of market and consumer analysis to identify key brands that have the greatest potential for profitable sales growth. For example, in 2006 and 2007, the Snapple product portfolio was enhanced by launching brand exten- sions with functional benefits, such as super premium teas and juice drinks and Snapple Antioxidant Waters. Also, in 2006, 7UP was relaunched with 100 percent natural flavors and no artificial preservatives, thereby differentiating the 7UP DR PEPPER SNAPPLE GROUP, INC. 95 brand from other major lemon-lime CSDs. The company intends to invest most heavily in its key brands to drive profitable and sustainable growth by strength- ening consumer awareness, developing innovative products and brand exten- sions to take advantage of evolving consumer trends, improving distribution, and increasing promotional effectiveness. Focus on Opportunities in High-Growth and High-Margin Categories Dr Pepper Snapple Group, Inc. is focused on driving growth in its business in profitable and emerging categories. These categories include ready-to-drink teas and functional beverages. For example, the company recently launched Snapple super premium teas and juices, Snapple enhanced waters, and Accelerade RTD, a protein-enhanced sports drink. The company also intends to capitalize on oppor- tunities in these categories through brand extensions, new product launches, and selective acquisitions of brands and distribution rights. Senior management be- lieves the company is well positioned to enter into new distribution agreements for emerging, high-growth third-party brands in new categories that can use its bottling and distribution network. The company can provide these brands with distribution capability and resources to grow. These brands, in turn, can provide the company exposure to growing segments of the market with relatively low risk and capital investment. Increase Presence in High-Margin Channels and Packages Dr Pepper Snapple Group, Inc. is focused on improving its product presence in high-margin channels, such as convenience stores, vending machines, and small independent retail outlets, through increased selling activity and significant investments in coolers and other cold drink equipment. The company intends to significantly increase the number of branded coolers and other cold drink equipment over the next few years, which is expected to provide an attractive return on invest- ment. The company also intends to increase demand for high-margin products like single-serve packages for many key brands through increased promotional activity and innovation. Leverage the Company's Integrated Business Model The company's inte- grated brand ownership, bottling, and distribution business model provides op- portunities for net sales and profit growth through the alignment of the economic interests of its brand ownership and its bottling and distribution businesses. The company intends to leverage its integrated business model to reduce costs by cre- ating greater geographic manufacturing and distribution coverage and to be more flexible and responsive to the changing needs of large retail customers by coordi- nating sales, service, distribution, promotions, and product launches. Strengthen the Company's Route-to-Market Through Acquisitions The recent acquisition and creation of the Dr Pepper Snapple Bottling Group is part of a longer-term initiative to strengthen the route-to-market for the company's prod- ucts. Additional acquisitions of regional bottling companies will broaden geo- graphic coverage in regions where the company is currently underrepresented, enhance coordination with large retail customers, more quickly address changing customer demands, accelerate the introduction of new products, improve collab- oration around new product innovations, and expand coverage of high-margin channels. Improve Operating Efficiency The company's recently announced restruc- turing will reduce selling, general, and administrative expenses and improve operating efficiency. In addition, the integration of recent acquisitions into the
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Surname 1
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Instructor
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1. How would you characterize the energy beverage category in general, competitors,
consumers, and channels in 2007?
The energy beverage category is increasingly growing with as a result of the increasing
market. The targeted customers are teenagers and young adults who range between the age of
12-34. The market is defined by major brands such as Redbull, Rockstar and Monster drink,
and other smaller brands. The major distribution channels include wholesalers, retailers and
convenience stores and supermarkets.
2. Based on this background information, would it make sense for Dr Pepper Snapple
Group to launch a new energy beverage brand, yes or no?
Yes. There is an opportunity for the Dr. Snapp...


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