DR PEPPER SNAPPLE GROUP, INC.

ENERGY BEVERAGES

CASE STUDY ANALYSIS

STUDENTS: AIDA HALILOVIC, ALMIRA KULOVIC, AMRA KALDZIJA

Nature of Industry, Market and Buyer Behavior

Dr Pepper and Snapple Group, Inc emerged three centuries ago, and evolved from a combination of discovery, invention and collaboration. Charles Alderton, a young pharmacist from Texas, invented Dr, Pepper in 1885. First,it was u drug store, which served Alderton for work. The oldest soft drink in the United States was named Dr.Pepper. Dr. Pepper and Snapple Group, Inc , the flagships brands of DPS, have the origins that share Schweppe'sentrepreneurial spirit. Dr. Pepper and Snapple Group, Inc is one of the most successful groups in the area of energy beverages. It is also a major owner of brand, bottler and distributor of non-alcoholic beverages in the United States, Mexico and Canada. It is based in Plano, Texas. This group posses 21 manufacturing centers, more than 200 distribution centers and approximately 19,000 employees across North America. In the United States and Canada, the main market segment of the Dr. Pepper and Snapple Group is the flavored carbonated soft drink or CSD. Key brands of the company are Dr. Pepper, 7UP, Sunkist; A&W.In this market segment company produces beverage concentrates and fountain syrups. On the other hand, in the non CSD market segment in US, company's main products are ready to drink tea, juice, juice drinks and mixer categories. Key brand or products are Snapple, Mott's Hawaian Punch and Clamato. Company distributes these beverages through its own distribution network and through third parties or directly to customers. In Mexico and Caribbean, Dr Pepper and Snapple Group mainly operates in the carbonated mineral water, flavored CSD, bottled water and vegetable juice categories. Main brands in Mexico area include Squirt, Clamato and Aquafield. In Mexico company produces and sells its own products through its own bottling operations and third party bottlers, while in the Caribbiean company distributes its products solely through third-party distributors and bottlers.As every large and successful company has its own competitors, so does the Dr. Pepper and Snapple Group. There are lot of them, but the most important ones are those who dominate the US energy beverage market: Red Bull North America, Hansen Natural Corporation, Pepsi-Cola, Rockstar,Inc and Coca-Cola. These companies and their brands and products, accounts for 94 percent of dollar sales and unit volume in the US. Red Bull North America has its own network of independent distributors in the US where the Red Bull brand. This brand was the energy beverage market pioneer when was first introduced itself in US in 1997. It is the market leader in dollar salles but their beverages are much more expensive than others. This high price of Red Bull energy beverages brought losses for the company sometimes, and it is one weakness because there are lot of competitors and brand with lower price. Hansen Natural Corporation is the second competitor of Dr. Pepper and Snapple Group who sells and markets a variety of non-alcoholic beverages in the US. Their major strength is that Monster energy sales have benefited from recent distribution agreements and PepsiCo Canada is the exclusive master distributor of Monster Energy throughout Canada. Pepsi- Cola is also one of the main competitors of Dr.Pepper and Snapple Group. It has two energy beverage brand and both are marketed through Pepsi-Cola distribution system in the United States. But the problem is that none of the two brands was supported by significant US media expenditures in 2006. Coca-Cola Company markets its brands through its distribution network. It has two main brands and it pursues licensing agreements to distribute independent energy brands, such as Rock Star, and this make one of the strengths of Coca Cola Company. Main consumers of energy beverages and Dr.Pepper and Snapple Group consumers are males that are between 12 and 34 years old. One of the main reasons why consumers drink energy beverages is because of taste, refreshment, and because it gives energy boost and mental alertness. Most of the consumers drink their energy beverages at home, in the car and at work or school, and most of the time they drink it in the afternoon and in the morning. Dr. Pepper and Snapple Group is very successfully company or group that makes one of the leaders in the market of energy beverage drinks. There are three reasons for their success. First is that their success is filled up with more than 50 brands which are synonymous with refreshment, flavor and fun. Another reason is that they invest a lot in the company and have lot of business and marketing strategies that help them to stay on the top. Third reason is that they put sustainability in action by doing their business ethically and responsibly.

THE ORGANIZATION

Mission: Be the Best Beverage Business in the America.

Objectives:Their goal is to create great-tasting products that consumers love, and they rely on their scientists to develop products that beat the competition. To meet this objective, they use a variety of test methods both in the laboratory and with consumers to get qualitative and quantitative measures of the full range of sensory attributes. They know that scoring well against these metrics correlates to a great-tasting product, a competitive advantage in the marketplace and repeat purchases by the consumer.

Distinctive competency:

  • Their leading brands have always given DPS a distinctive competency: “Our brands are a simple pleasure that people should be free to enjoy. We offer products to meet every consumer expectation from fun and refreshment to functionality and nutrition. As consumer needs continue to shift toward health and wellness, we’re using the strength of our innovation pipeline to bring a variety of great-tasting “better-for-you” and lower-calorie beverage choices to the market”. (Marty Ellen, CFO)Ellen joined DPS as chief financial officer
  • rapid continuous improvement (RCI)

The Organization’s Offering

  • With a brand heritage spanning more than 200 years, Dr Pepper Snapple Group’s portfolio includes more than 50 brands and hundreds of flavors of carbonated soft drinks, juices, teas, mixers, waters and other beverages. Explore our fun and flavorful world.
  • Dr. Pepper Snapple is manufacturer and distributor of non-alcoholic beverages in the U.S, Mexico and Canada and they also distribute their products in the Caribbean. In 2010, 89% of their net sales were generated in the U.S., 4% in Canada and 7% in Mexico and the Caribbean. The following table provides highlights about their key brands: Dr. Pepper, 7UP, Sunkist soda, A&W, Canada Dry and Crush.
  • In the NCB market segment in the U.S., they participate primarily in the ready-to-drink tea, juice, juice drinks and mixer categories. Their key NCB brands are Snapple, Mott’s, Hawaiian Punch and Clamato, and we also sell regional and smaller niche brands.
  • In Mexico and the Caribbean, they participate primarily in the carbonated mineral water, flavored CSD, bottled water and vegetable juice categories. Their key brands in Mexico include Peñafiel, Squirt, Clamato and Aguafiel.
  • Innovation spotlight: Health and Wellness

Some of the factors which contribute the present situation:

Marketing: DPS include new and reformulated products, improved packaging design, pricing and enhanced availability. They use advertising, media, sponsorships, merchandising, public relations and promotion to provide maximum impact for their brands and messages.

Employees: DPS employed approximately 19,000 employees, including seasonal and part-time workers (At December 31, 2010). They believe they have good relations with their employees.

Warehousing and Distribution: Distribution network consisted of 174 distribution centers in the U.S. and 23 distribution centersin Mexico. Their warehouses are generally located at or near bottling plants and are geographically dispersed to ensure product isavailable to meet consumer demand.

Available information: DPS web site address is They make available, free of charge through this web site.

Information Technology and Transaction Processing Services: DPS use a variety of IT systems and networks configured to meet their business needs. Their primary IT data center is hosted in Toronto, Canada by a third party provider.

SWOT ANALYSIS: SWOT Analysis is the essential source for top-level company data and information. It examines the company’s key business structure and operations and provides summary analysis of its key revenue lines and strategy.

Internal Factors / External Factors
Strengths / Weaknesses / Opportunities / Threats
Integrated business model / Possible strikes / Increased health consciousness / Operations in highly competitive markets
Strong portfolio of leading,
Consumer –Preferred
brands / Doesn’t have a complete network of bottlers and distributors / Changes in lifestyle / They may not effectively respond to changing consumer preferences, trends and other factors
Strong customer relationship / Benefits cost increases could reduce their profitability / Growing demographic segments in the U.S. / Dependent on a small number of large retailers for a significant portion of their sales
Attractive positioning with large, growing and profitable market / Total indebtedness could affect our operations and profitability / Volatility in raw material costs / Financial results may be negatively impacted by some economic
conditions
Broad geographic manufacturing and distribution coverage / They may not comply with applicable government laws / New distribution channels / Substantial disruption to production at the manufacturing could occur
Experienced Executive Management team / Products may not meet health and safety standards / Costs for raw materials may increase substantially
Strong operating margins and significant, stable Cash - flows / They could lose key personnel or may be unable to recruit qualified personnel / Weather and climate changes could adversely affect the business
Changes in accounting standards could affect arepor. financial results

Defining the Problem: Dr Pepper Snapple, Inc. is a leading producer of flavored beverages in North America and Caribbean. The success of the company is characterized by more than 50 different brands that are synonymous with the refreshment, fun and flavor. Some of the leading brands are number one in the market. The problem they faced in 2007 was related to whether or not the company should enter into the energy beverage market. Dr Pepper Snapple Inc. was the only major domestic carbonated soft drink company (CSD), which did not introduced a line of energy drinks. The company is trying to find the best way to market a new energy drink.

Relevant information: The energy drink is the product that satisfies the needs of consumers in order to improve their energy. The main idea of this product is to provide energy to consumers. Most of the people use this drink in the morning or afternoon. Users are divided in two categories. Those who drink to stay focused and alter throughout their working days. Other are using energy drinks to boost energy before going to gym to perform a high intense workout. The strength of the Dr Pepper Snapple Inc. is constant development in launching innovations and brand extensions. Differentiation in the products gives them competitive advantage in the market. Their products are sold to the wide range of customers. They have strong relationship with the most important US retails, including Wall Mart, Safeway, Kroger and etc. they have good business relationship with food service customers including McDonalds, Yum and Burger King.

Action Plan

Steps that must be evaluate in order to develop a good strategic plan in introducing a new energy product for Dr Pepper Snapple Inc. are Target Group, Product line and Brand Positioning, Market Channels, Sales Price and Advertisement and Promotion. These specific tasks must be done before assessing the final decision whether or not profitable markets exist for them to enter in new market of energy drinks.

Target group: According to the research 43 million of the people are users of energy drinks in United States. 18% of the users in are US are in the age of 12 or older. Males between the ages of 12 and 34 and from 34 to 55 are the heaviest users of energy drinks. Only small percent are female users. Most of the people use this drink in the morning or afternoon. Users are divided in two categories. Those who drink to stay focused and alter throughout their working days. Other are using energy drinks to boost energy before going to gym to perform a high intense workout.

Product line and Brand Positioning: Current brands of energy beverages are mostly served as a regular and sugar free varieties. Regular energy beverages have 80% of market share and sugar free 20%. Single serve package size range from 8.3 ounces to 24 ounces. But the most popular size is 8.3 once. Brand positioning in the energy beverage market classically put emphasis on energy boots, mental alternates, refreshment and tastes. Brand slogans are important because they represent the position of the product in the market.

Marketing channels: Dr Pepper Snapple Inc. delivers their products to all types of off-premise retailers, where energy drinks are sold. They have good relationship with leading US retails. In 2008 they expected to cover 80% of US territory to serve.

Manufactures suggested retail selling price and channel margins: Single-serve energy beverage drink retail prices have generally settled at roughly $2.00 per single-serve package, regardless of package size. Estimated retail, wholesale, and manufacturer energy beverages margins, on a per case basis, vary within a fairly tight range. Retailers typically report gross margins in the range of 40% (for supermarket) to 50% (for convenience stores), based on the manufacturer’s suggested retail price. Wholesalers (distributors and bottlers) typically report a gross margin of 30% to 36% of the price sold to retailers. Manufacturers typically obtain a gross margin between 60% and 66% on sales to wholesalers.

Advertising and Promotion: Media advertising and promotion expenditure are necessary to launch a new energy drink. Costs for advertisement and promotion of the new product are high. Top five competitors spend 70 million for advertising media. But expect for Red Bull, brand media advertising in the energy beverage market is modest. Reasonable expenditure for media advertisement, without specific details would be enough.

Final outcomes: According to the data collected, Dr Pepper Snapple, Inc. should enter in the new market of energy beverages. The target group of population should be males, between the age of 12 and 34, and adults from 34 to 55 because this target group is the heaviest users of energy drinks nowadays. They are consuming energy drinks in the morning and afternoon. These target groups are divided in two categories, those who drink to stay focused and alter throughout their working days. Other are using energy drinks to boost energy before going to gym to perform a high intense workout. When product line comes in question the company should serve, single serve package with volume of 8 ounces and 16 ounces, version of regular and sugar free with two flavors. Brand positioning should require attention. Energy drink positioning should be focused on providing an energy boots, mental alertness, refreshment and taste. Opportunity to differentiate product depends on packaging and ingredients. Packaging should be single serve aluminum bottle with a resalable twist cap. No other brand has this type of packaging and it will be more visible to the customers on the shelf among many energy drinks in cans. Other way to promote this product depends on differentiation in quality of beverage. The new product should contain increase of vitamins, caffeine and herbs. When the target group is in the question, there is also one way to differentiate this product. To serve this new energy drinks only to the adults males from age of 34 to 55. Adults were less frequent user than the teens. But this would require a different drink, with less carbohydrate in the product formulation. The best way to differentiate this product form their competitor is to produce two lines of regular and sugar free energy drinks with two different flavors. .Also the company should include possibility to include head to head position against competitors. In our opinion the best way to compete is through good quality of beverage and attractive packaging. When the price is question? People who are looking for satisfaction of using energy drink and getting all needed expectation of the product, then the price is not so important, if its reasonably differentiate from competitors. For the distribution channel the best way to sell the product is through off- premise retailers. Distribution channel should be focused on convenience stores, supermarkets and mass merchandise. Brand slogan is also important fact to be considered in this case. Brand name and slogan will give the place to the product in the market. This can be done through the proper advertisement and promotion. They are several ways to promote this product, through media, sports clubs as sponsorships, social responsibility and Web communities. The advertisement process of the product in the first year it consider highly costly but the benefit received back is more valuable. In conclusion profitable marketing opportunity exists for introducing new product. The best way to gain customers attention is to develop product which will satisfied needs of the consumers in the best possible way. Dr Pepper Snapple Inc is innovative company who sells the product to the wide range of consumers. They position in the market is strong they have good relationship both with the customers and retailer. Differentiation in the products gives them competitive advantage in the market over the competitors, good business strategy gives them strength to maintain and develop their market position in the business world.