PREPARE FOR TAKEOFF

LMNOP Marketing Group is thrilled to introduce JetBlast – a wildly exciting ready-to-drink energy beverage exclusive to the North American market. Now is the perfect time to enter this relatively new industry, while consumers are developing an affinity to energy drinks and are likely to try a variety of brands before deciding on their favorite. JetBlast’s powerful brand image, functional ingredients, great taste and pervasive North American distribution strategy will take advantage of this consumer susceptibility for maximum profitability.

JetBlast will be a well marketed and profitable energy drink in North America. This is far from an easy task but failure is unlikely with LMNOP Marketing Group’s determined strategy detailing what it takes for an energy drink to enter and thrive in the market.

MADE IN CANADA

JetBlast will be produced in Montréal, Canada. Montréal’s location facilitates distribution throughout North Americaand takes advantage of Canada’s supply of clean water thatrequires minimal treatment to comply with the strict requirements[1] of regulatory agencies to make the water suitable for the production of ready-to-drink beverages such as the Food and Drug Administration (FDA) in the United States,[2] Health Canada,[3]and the Secretaría de Salud de México.[4] Constructing a production facility from the ground up would require a significant capital investment that a company just entering the energy drink business may not have. Montréal is an ideal starting point because there are numerous existing bottling operations[5]to approachfor outsourcing the production and packaging of JetBlast until the business becomes financially prepared to build its own facility.

The Port of Montréal[6]eases the import of ingredients required in the production of JetBlast, particularly Guarana from Brazil,an important flavoring component and stimulant.[7] Montreal is also strategically located to ship the finished product to distribution centers in the United States and Mexico and eventually throughout North America. Such a strategy is an example of what any energy drink company should look for when choosing a location for production to minimize cost and distribution time. Once sales of JetBlast increase considerably in all markets served, a variety of distribution methods may need to be considered in order to best suit the company. Road, rail, air and sea transport are all available in Montréal.[8]

THE ENERGY DRINKS STORY

Energy drinks have roots in Austria in 1987 when Red Bull was introduced, a beverage containing ingredients claimed to “improve endurance, alertness, concentration and reaction speed.”[9] Red Bull is now available in 120 countries and 1.9 billion cans were reported to have been consumed worldwide in 2004.[10] The potential for the continued success of energy drinks, especially in North America, is high considering these products have only last year been approved for sale in Canada and new entrants to the market are numerous in the United States and Mexico.10 Sales of energy drinks in the United States in 2004 were estimated at about US$1 billion, and Mexicans consume the highest per capita rate of related soft drinks, after the United States.[11] These three countries are potentially challenging but lucrative markets for JetBlast.

JETBLAST IS A WINNER

Creating the perception that a beverage can help accomplish goals is the most important marketing objective on an energy drink company’s list. JetBlast is an experience and not just an energy drink. It does more than provide energy. JetBlast is the experience of “taking off” from mediocrity and achieving something otherwise considered impossible. Energy drinks are an increasingly common sight all over the world and this differentiation is essential as they have a functional unique selling proposition – they are the metaphorical sidekick helping an adventurer succeed along whatever tiring journey he or she undertakes. Energy drinks that do not create this impression will likely not survive because the product is not intended to quench thirst like the typical beverage. The consumer must be aware that it is more than a drink. JetBlast will be marketed as a functional “success potion” helping to reach new heights, but this will not be an unsubstantiated claim. Like most energy drinks currently available, it will contain ingredients intended to reduce fatigue, increase concentration and stimulate the mind. Without these characteristics, the functionality of the product would not exist. JetBlast will add another dimension to these desired effects with innovative packaging, motivating promotional activity and an inspirational, encouraging relationship with the consumer.

WHO IS JETBLAST UP AGAINST?

JetBlast will be available in Canada, the United States and Mexico, taking on small competitors with local operations and large globalized companies. The energy drink market in North America has grown rapidly over the last decade. In fact, it is almost 40 times the size as it was in 1998.[12] Red Bull has been the dominant energy drink inthe United Statessince its introduction in 1997,10 however, an increasing number of competitors have recently taken market share as more variety-searching consumers have become aware of the products. Leading soft-drink companies like Coca-Cola and PepsiCo have introduced their own line of energy drinks in the United States while new entrants continuously appear. The Canadian energy drink market is currently unsaturated because Health Canada restricted the sale of beverages using caffeine as an additive until the summer of 2004 when these restrictions were revised.10A variety of energy drinks are available to Mexico’s highly populated universities,[13] a country where the median age in a population of over 100 million is a very young and potentially energy drink friendly 24.6 years.[14]

Energy drinks distributed widely in North America include Red Bull, Monster, Bawls, Guru, Hype, SoBe Adrenaline Rush, Energy 69 and Blue Shot. All of these brands have highly graphical interactive websites giving product details, where it is available, events sponsored by the company, games and other entertaining features. PepsiCo’s Mountain Dew AMP, Coca-Cola’s Full Throttle, and Anheuser Busch’s 180 are these large companies’ responses to the energy drink craze and have the advantage of existing distribution systems. Hundreds of other brands exist bearing upbeat names: Jones Soda’s Energy, Impulse, RockStar, Shark, Dark Dog, Pink, Tornado and Venom, to name a few.

Table 1 - Overview of Major Competitors in North America[15]

Company / Brand Name / Website / Product Size (ounces)
PepsiCo / Mountain Dew AMP / ampenergy.com / 8.4
Anheuser Busch / 180 / 180.com / 8.2
Coca-Cola / Full Throttle / coca-cola.com / 16
These brands have the advantage of established distribution channels,
the financial support of a large company, strong core brand recognition,
and long specialized histories in the beverage industry.
Red Bull North America / Red Bull / redbull.com / 8.3
Created the energy drink market, worldwide brand recognition, financial
support of the company, has the "first mover" advantage.
Hobarama Corporation / Bawls / bawls.com / 10
Distributed throughout the United States, also offers sugar free version
and mints with guarana. Online ordering.
Hype Energy Drinks / Hype / hype.com / 16
Regular, extra strength and sugar-free versions available. Distributed
worldwide. Online Ordering.
Monster Beverage Co. / Monster / monsterenergy.com / 16
Regular, low-carb and extra-strength "assault" versions. Distributed
in North America. Also offers branded clothing. Online ordering.
Sobe Beverages / Sobe Adrenaline Rush / sobeadrenaline.com / 8.3
Regular and sugar free energy drinks are extensions of the existing
Sobe beverage line. Well distributed throughout North America.
Energy 69, LLC / Energy 69 / energy69.com / 8.4
Available in the United States. Uses sexuality as unique selling
proposition. Online ordering.
Blue Shot / Blue Shot / blueshot.com.mx / 10
Produced, distributed, and widely recognized throughout Mexico,
has a good connection with the spanish-speaking market

JetBlast will not only be competing with other energy drinks. Alcoholic beverage companies have realized consumers enjoy mixing energy drinks with alcohol[16] and have responded. Anheuser-Busch has introduced BE, a beer “infused with caffeine, guarana and ginseng”[17] in the United States. Molson’s Kick, a beer similarly infused with guarana, became available in Canada on March 21, 2005.[18]Coffee, the traditional “pick-me-up” beverage, has not been ignored either. Starbucks’ Doubleshot[19] is a 6.5 ounce ready-to-drink espresso beverage containing no guarana as do the other competing products, but the high caffeine content provides a similar stimulating effect. These beverages benefit from the strength of the companies’ existing distribution capabilities, promotional dominance and brand recognition.

JetBlast’s successful competition with traditional energy drinks and other related products depends on the ability to connect with and excite the consumer. Engaging e-commerce, aggressive promotional activities, appealing packaging and the product’s extensive availability are vehicles to achieve this goal. The hundreds of different brands on the market greatly reduces the consumer’s attention span and patience for comparing differences. Most of these brands will likely not survive if the energy drink market continues to grow and large companies like Coca-Cola and PepsiCo, who have so far not aggressively competed,[20] decide to become more forceful. JetBlast should strive for brand recognition and equity to position itself to either defend against a hostile takeover or become attractive enough to be the number one choice for a large company to buy and use as a competitive tool.

INFRASTRUCTURE

JetBlast energy drinks will be available to consumers throughout North America. Shipping by truck in Canadaand the United States is highly efficient over the 1,408,800 and 6,400,000 kilometers of roadways available in each of the respective countries over a combined 18,000,000 square kilometers of land.[21] Various routes are available allowing adverse conditions such as weather or construction to be avoided to ensure JetBlast can be timely distributed throughout both nations. Mexico has about 330,000 kilometers of roadways14over approximately 1,900,000 square kilometers of land, still allowing for effective ground transportation between nations and to major urban centers in Mexico.

The proximity of the three nations and accessibility to both the Pacific and Atlantic oceans provides the opportunity for shipping by sea, if alternative means of distribution were to become necessary. Transportation by air is very common within North America between the 233 airports in Mexico, 823 in Canada, and 9,729 in the United States. Extensive railway networks also present an alternative means of ensuring distribution never becomes an issue.21

DEMOGRAPHICS

Canada, the United States and Mexico are populous nations with about 32.5 million, 293 million, and 105 million people in 2004, respectively.21Comparing purchasing power parity figures estimated in 2003, US$29,800 in Canada, US$37,800 in the United States and US$9,000 in Mexico, the question of whether the Mexican market is a lucrative choice arises. However, the richest 10% of the population (10 million people) account for about 36% of the consumption in Mexico.21This group is likely to include university students and young professionals who would consume energy drinks. The median age in Mexico is 24.6 years, very young compared to 38.2 in Canada and 36 in the United States,21 further supporting the profile of a typical JetBlast consumer.

The Roman Catholic and Protestant religions represent the majority of the populations in all three North American countries. The consumption of energy drinks should not conflict with the teachings of these beliefs, minimizing the concern that faith would interfere with the product’s success.

Language differences are of extreme importance when marketing in North America. Mexico is the most populous Spanish-speaking country in the world and the language is the second most common in the United States after English, spoken by 11% of Americans.21 70% of Canadians speak Englishand 22% are native French speakers,21 meaning the marketing of JetBlast must include all three languages in order to succeed.

INFORMAL TRADE BARRIERS

According to Transparency International,[22]Canada scores 8.5 out of 10 on the corruption index, placing 12th in the world. The United States scores 7.5 out of 10 which placing 19th in the world. Mexico, on the other hand, scores significantly lower at 3.6 out of 10, 65th in the world on the corruption index.[23] This index, although not a total measure of the actual business environment, illustrates the informal barriers to doing business in a developing country. Bribery and other unethical business practices are common occurrences a company attempting to do business in Mexico needs to recognize.23Understanding corruption exists will help JetBlast avoid it and possible adverse regulatory action.

POLITICS

In January 1994, Canada, the United States and Mexico launched the North American Free Trade Agreement (NAFTA) and formed the world's largest free trade area. This has allowed for the free flow of goods for the most part tariff free between the three countries. The NAFTA Agreement has brought economic growth and rising standards of living for people in all three countries.[24]

Since September 11, 2001, increased security at the United States border has made expensive and slow the inward flow of goods. Setting up a facility in the United States to receive, store and act as a distribution epicenter makes sense to minimize the number of times goods need to cross the border. This is a strategy JetBlast will employ not only in the United States but also in Mexico. Facilities will initially be situated near Chicago and Mexico City as centralized locations for distribution coordination within each country.

Basing the manufacturing process in Canada is an economical decision. “The corporate tax rate in Canada is now below the average U.S. tax rate and will be more than 6 percentage points lower by 2008.”[25] Non-residents of Mexicoare generally subject to higher taxes than residents further supporting the decision to base operations in Canada. Setting up a Mexican based distribution center, however, will take advantage of low Mexican property taxes.[26]

REGULATION

Government bodies like Health Canada, the Food and Drug Administration, and La Secretaría de Salud de México impose regulations1 JetBlast will need to carefully follow to make sure the product remains available for sale. For example, JetBlast’s labeling must adhere to strict guidelines from Health Canada[27] identifying:

  • The recommended use or purpose of the product;
  • The recommended route of administration;
  • The recommended dose and duration of use of the product;
  • The risk information relating to the product, including any cautions, warnings, contra-indications or known adverse reactions associated with its use;
  • The name and address of the product license holder, and if the product is imported, the name and address of the importer;
  • The common name of each medicinal ingredient, and its proper name when that name is not a chemical name;
  • The quantity per dosage unit or potency, if any, of the medicinal ingredients;
  • A list of all non-medicinal ingredients;
  • Storage conditions, if any are recommended;
  • The product’s lot number and expiry date;
  • A description of the source material of the plant used, such as the root, for Vitamin C, source could be sodium ascorbate) (

Few studies have been conducted on how safe energy drink ingredients are for human consumption. France, Denmark, Norway and Sweden have completely restricted the sale of energy drinks because of this lack of study.10Any company competing in this industry needs to use caution when making claims about the benefits of drinking their product and have a contingency plan to handle media and regulatory agency inquiries in case an incident arises implicating the brand. JetBlast would indicate on its labeling the potential danger of mixing it with alcohol, pregnant women should not drink it and only a limited amount per day should be consumed by others as a way of avoiding legal hassle and to comply with the rules.

INTELLECTUAL PROPERTY RIGHTS

Protection of intellectual property rights in Mexicois significantespecially for American companies because of the enormous volume of trade between the countries. In 2004, bilateral trade totaled $167,543 billion, including $111,752 billion in U.S. exports to Mexico. This trade is increasingly composed of products protected by intellectual property rights under international treaty obligations and NAFTA.[28] Even with improving government regulations piracy is still a huge concern when doing business in Mexico. The protection of intellectual property is complicated by Mexico's extensive poverty and corruption. Black markets are a significant source of employment in the informal sector, which may account for up to 50 percent of the total economy.28

Since the implementation of NAFTA in 1994, protection of intellectual property has been improved in Mexico. Canada and the United States have very developed regulations dealing with intellectual property. The announcement by the Canadian government on March 24, 2005 introduces legislation that will implement the provisions of the 1996 World Intellectual Property Organization[29] (WIPO) Treaties, clarify liabilityfor internet service providers, facilitate the use of the internet for educational and research purposes, and harmonize the treatment of photographers with that of other creators. This is good news for companies like JetBlast who run the risk of competitors using the established brand name to take market share away from the legitimate company. Once JetBlast gains market share, brand equity and continent-wide recognition, these laws will help ensure the JetBlast brand is protected.28

ECONOMIC CONSIDERATIONS

The stability of the North American economy is conducive to JetBlast’s entry. The currency exchange rates between nations on March 29, 2005 are outlined below.

Table 2 - Currency Exchange Rates[30]

base / target
USA / MEXICO / CANADA
USA / 11.31 / 1.2195
CANADA / 0.82001 / 9.26609
MEXICO / 0.08842 / 0.10792

It is evident that the US dollar is still the strongest currency amongst the three countries but with rising deficits in the US the Canadian dollar will continue to rise against the American dollar. This means that it will become more economical in terms of real dollar amount to do business in the US. The advantage Canada used to hold over the US in being able to do the same business cheaper because of the exchange rate is no longer so dramatic.