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Yi Jie Ying (hw8827)

Mgmt. 4650

James Riley

Case 4: Competition in the Bottled Water Industry

An industrys key success factors (KSFs) are some competitive factors that have great

influences on the industry members ability to prosper in the marketplace. In the bottled water

industry, there are some manufacturing-related KSFs, distribution-related KSFs, marketing-

related KSFs, technology-related KSFs, and other types of KSFs. First, bolted waters purity and

safety generate the industry. Even though a lot of gallons of carbonated soft drinks has been sold

for a long time, consumers starts to concern more about sugar consumption and other nutrition

and fitness in the drinks; these concerns lead them to shift from soft drinks toward bottled water.

They emphasize their healthy lifestyles and improve their awareness of the need for hydration, so

they believed that drinking more water improves the appearance of their skin and gives them

more energy. Chemical taste of tap water provided by municipal water sources including

chlorine and fluoride is a big problem to U.S. people, but bottled water has more regular and

pure taste they preferred. Also, bolted water is required to meet the standards of both the EPA

and FDA. There must be label information of source water and chemicals on the bottles.

Therefore, the purity and safety play a key role to meet customers needs. Second, convenient

locations are important in the bottled water business. Convenience and portability are the major

two reasons for consumers to purchase bottled water; as a result, consumers can buy bottled

water in nearly any location where food is sold as well. In the distribution-related KSFs, some

bottled water companies can make deliveries of bottled water along with their deliveries of other

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beverages. For example, Coca-Colas and PepsiCos beverage distribution systems make Dasani

and Aquafina available anywhere Coke or Pepsi could be purchased. In addition, some bottled

water companies always negotiate contracts with sports stadiums, universities and school

systems to sell their nonalcoholic beverages. Third, in the marketing-related KSFs, a well-known

and well-respected brand name is very important since many beverage products experience

increasing brand loyalty in the bottled water industry. Consumers are looking for a specific or

acceptable brand; this makes the bottled water sellers aware of the importance of brand

recognition and develops the brand-building skills. In addition, there is overall low costs and

they can spend the money needed on marketing the product. Price competition in the industry

makes high utilization of large-scale plants to achieve low production costs. In the technology-

related KSFs, equipment of water purification and filling bottles are manufactured and marketed

by about 50 different companies; some offer a complete line of filling equipment, distillation

equipment, bottle washers, deionization equipment, and reverse osmosis.

During the period of the bottled water industry trend, the overall growth rate for the

industry is declining as the market becomes saturated, even though per capita consumption is

still growing. The main sellers of bottled water are now engaging in price competition. Some

companies such as Coco-Cola, Nestle, and PepsiCo, offer considerable discounts on 12-bottle

and 24-bottle multipacks to boost unit volume sale. Moreover, these 3 largest sellers purchase

smaller regional brands such as joint ventures and acquisitions to generate the maturity and

prosper of the industry. They expand their business in many countries of the world to increase

use of bottle water. Since companies are marketing local brands of bottled water, they make it

difficult for regional sellers to survive. Furthermore, due to widespread acceptance of bottled

water, many companies are attempting to differentiate their product. They make enhanced

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bottled waters or functional bottled waters which include vitamins and minerals. These are the

important product innovation and become a hit with consumers. It is a signs that the bottled

water industry is reaching the stage of maturity as well. However, some companies change their

approaches to functional bottled water at last. Some of them gives up on vitamin-enhanced water

in favor of flavored water or retain only one chemical inside enhanced water.

Nestle is broadly diversified into many beverage categories with very recognizable brand

names. It generates either spring water or mineral water with no carbonation in the U.S. market.

Nestle has test-marketed functional waters with vitamins and plant extracts in 2003 and 2004.

Enhanced waters are innovative calorie-free flavors introduced in 2006. It also has packaging

innovations to differentiate its bottled water brands, such as spill-proof cap for child-sized bottles

and bubble shaped bottle for children. New PET container is part of strategy to revitalize the

brand intended to better match the on-the-go lifestyles of young consumers. Home and office

delivery is a major component ofNestls strategy. It is the low-cost leader as well.

Coco-Cola markets and distributes its own brand of bottled water called Dasani in 1999.

It is purified water includes combination of magnesium sulphate, potassium chloride, and salt.

The company believes these are the best attributes of spring water. It supports by $20 million

advertising budget in 2005 and is distributed through all retail channels where coke is available.

It also negotiates contracts with universities, sports stadium to make it available anywhere coke

can be bought. Like Nestle, Coca-Cola extends Dasani line into fruit flavored and flavored water

with light carbonations with no calories. It joint venture with DANONE in 2002 provided coke

with bottled water products at all price points. Dasani is positioned at upper-mid priced water.

This joint venture would allow the company toprotect Dasanis near premium pricing.

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PepsiCo purchases a spring water company called Aquafina and the managements

believe that utilization of same water purification facilities are used to produce soft drinks.

Stripping out all chlorine and unpleasant smell of tap water is a key point to distinguish its brand

of purified bottled water from competing brands. Besides, PepsiCo introduces other brands-

Gatorade Propel Fitness Water, SoBe Life Water, and functional versions developed around

customer type and lifestyles.

With the strategies of the "Big 3" companies, product innovation and degree of product

differentiation are key points. Their bottled water is differentiated with package or taste towards

different population; the bottled water is more enhanced and functional. The strategies meet the

buyers needs and requirements. They also attract consumers interests within the new taste

flavored. The distribution systems make cost-effectiveness. Name recognition and the image of

pure, refreshing, healthy drinking water are vital in generating demand for the product. The well-

known brand name and quality can lead consumers brand loyalty.