Dr. Pepper Snapple Group,Inc.Energy Beverages

Jasmine Shattuck

Hugo Ayala

Nicole Hare

Casey Hynes

Erik Connelly

Introduction

● History of success in the Carbonated Soft Drink (CSD) market

● Only company in CSD without an energy drink

● Interest in breaking into the Energy Drink market

Problem Definition● Does a profitable market opportunity exist in the energy drink segment?

● If so, what is the appropriate way to enter the market?

● Dr. Pepper must determine:

○ The appropriate target market

● Positioning

● Product line

● Budget

● Price

Situational Analysis - SWOTINTERNAL Strengths:

● Competitive within the carbonated soft drink (CSD) industry

○ Customers ○ Market share

● Distribution channels ● Ability to invest in opportunities● Diverse brand portfolio● Executive Management Team

Weaknesses:

● Amateur in producing energy drinks● Unfamiliar Product● Not the number one brand in the current

beverage market ● The company does not have the

underdog biography to help consumer in a niche market trust a new product

EXTERNAL Opportunities:

● Energy drink market is increasing at a rate of 10.5% per year

● Consumers developing a new taste● Bargaining power of suppliers is low due to

the highly competitive market● There are several untapped niche target

markets● Dr. Pepper Snapple inc can distribute directly

to convenience stores and take advantage of these extra profits

Threats:

● Threat of new entrants● Buyers have high bargaining power● Suppliers have low bargaining power● Rivalry of competing firms

○ Price Erosion ● High risk of replacements

Situational Analysis - SWOTStrengths (Internal):

● Competitive within the carbonated soft drink (CSD) industry

○ Customers

○ Market share

● Distribution

● Diverse brand portfolio

● Ability to invest in opportunities

○ Stable cash flows

● Executive Management Team

Situational Analysis - SWOTWeaknesses (Internal):

● Amateur in producing energy drinks

● Unfamiliar Product

● Not the number one brand in the current

beverage market

● The company does not have the underdog

biography to help consumer trust a new

product in a niche market.

Situational Analysis - SWOTINTERNAL Strengths:

● Competitive within the carbonated soft drink (CSD) industry

○ Customers ○ Market share

● Distribution channels ● Ability to invest in opportunities● Executive Management Team

Weaknesses:

● Amateur in producing energy drinks● Unfamiliar Product● Not the number one brand in the current

beverage market ● The company does not have the

underdog biography to help consumer in a niche market trust a new product

EXTERNAL Opportunities:

● Energy drink market is increasing at a rate of 10.5% per year

● Consumers developing a new taste● Bargaining power of suppliers is low due to

the highly competitive market● There are several untapped niche target

markets● Dr. Pepper Snapple inc can distribute directly

to convenience stores and take advantage of these extra profits

Threats:

● Threat of new entrants● Buyers have high bargaining power● Suppliers have low bargaining power● Rivalry of competing firms

○ Price Erosion ● High risk of replacements

Situational Analysis - SWOT

Opportunities (External):

● Energy drink consumptions increasing

● Bargaining power of suppliers is low due to the highly competitive market

Situational Analysis - SWOT

Threats (External):

● Threat of new entrants

● Buyers have high bargaining power

● Suppliers have low bargaining power

● Rivalry of competing firms

○ Price Erosion

● High risk of replacements

Defining Alternatives● Alternative 1:

○ Target males 12-34 (which account for 70% of consumption)

● Alternative 2:

○ Target women who consume energy drinks

Evaluation of Alternatives: Alternative 1 ● Target market: 12-34 year old men

● Distribution: convenience stores

● Product line:

○ Flavors: regular (non sugar-free), two flavors

○ Packaging: single serving, 16.9 oz resealable aluminium bottle

● Positioning: Convenient and cheap

● Budget: $13,250,000

● Price: $1.75, penetration strategy

Evaluation of Alternatives: Alternative 2● Target market: women, 12 years old +

● Distribution: convenience stores

● Product line:

○ Flavors: Regular (non sugar-free): fruity flavors (strawberry banana, triple-berry, tropical)

○ Packaging: feminine colors, 16.9 oz resealable aluminum bottle

● Positioning: Convenience for the on-the-go woman, emphasize health benefits,

placed near cold coffee products

● Budget: $15,000,000

● Price: $2.80, premium

Selling Price=$1.75 per 16.9 ounce bottle

1.75/16.9=10.36 cents per ounce

10.36 x 288 ounces per case = $29.82/ case selling price

Less 50% of convenience store margin = $29.82 x .50 = $14.91

Our margin is 63% so, 14.91 x .063 = $9.39

Profit per case = $14.91-$9.39=$5.52

DPSG Sales For Alternative 1

Breaking Even for Alternative 1● Advertising promotion budget = $13,250,000

● Break Even:

$13,250,000/ 5.52 = 2,400,362.32 cases to break even

2,400,362.32 cases x $14.91/case = $35,789,402.2 in sales to break even

2,400,362.32 cases(to break even) / 130,771,777.5 cases (Total 12-34 Male Market

Available)

=1.84% of the unit sales of the total targeted market to break even.

● Testing:

$14.91 x 2,400,362.32 = $35,789,402.19 (Revenue)

$9.39 x 2,400,362 = $22,539,402.19 (Variable Costs)

$35,789,402.19 - $22,539,402.19 = $13,250,000 Profit before Advertising

$13,250,000 - $13,250,000(Advertising Budget) = 0

● 2,400,362.32 cases need to be sold in order to break even with a Price of $1.75/ can with a

promotions budget of $13,250,000 (1.28% of the total market)

Defining the Market for Alternative 1186,816,825 cases sold in the total market

Males aged 12-34 is… 70% of the market

Off-Premise share is… 71% of the market

Convenience Store premise is… 74% of off-premise

16 oz package sales % of Convenience Store premise is… 50%

Regular and not sugar-free premise is… 80% of sales percentage

DPSG has a reach and distribution coverage to hit… 80% of the market

186,816,825 x .70 x .71 x .74 x .50 x .80 x .80 = 21,986,397.4 cases can be sold yearly to

our target market through our distribution channels.

*2,400,362.32 cases (Break Even unit sales) / 21,986,397.4 cases (Cases that we have the

capacity/ potential to sell) = we need to sell 10.92% of our potential sales capacity in

order to break even.

*Through our distribution centers we have potential of 21,986,397.4 cases x $5.52 =

$121,364,914 - $13,250,000 = $108,114,914 in profit if we reach our full potential.

DPSG Sales For Alternative 2Selling Price=$2.80 per 16.9 ounce bottle

$2.80/ 16.9=16.9 cents per ounce

16.9 x 288 ounces per case = $47.72/ case selling price

Less 50% of convenience store margin = $47.72 x .50 = $23.86

Our margin is 63% so, $23.86 x .63 = $15.03

Profit per case = $23.86-$15.03=$8.83

Breaking Even for Alternative 2● Advertising promotion budget = $15,000,000

● Break Even:

$15,000,000/ $8.83 = 1,698,754.25 cases to break even

1,698,754.25 cases x $23.86/case = $40,532,276.4 in sales to break even

1,698,754.25 cases(to break even) / 18,121,230.03 cases (Total Female Market Available)

=9.37% of the unit sales of the total female market to break even.

● Testing:

$23.86 x 1,698,754.25= $40,532,276 (Revenue)

$15.03 x 1,698,754.25= $25,532,276.4 (Variable Costs)

$40,532,276-25,532,276= $15,000,000 Profit before Advertising

$15,000,000 - $15,000,000(Advertising Budget) = 0

● 1,698,754.25 cases need to be sold in order to break even with a price of $2.80/ can with a

promotions budget of $15,000,000 (9.37% of the total female market)

Defining the Market for Alternative 2 186,816,825 cases sold in the total market

Female are… 9.7% of the market

Off-Premise share is… 71% of the market

Convenience Store premise is… 74% of off-premise

16 oz package sales % of Convenience Store premise is… 50%

Regular and not sugar-free premise is … 80% of sales %

DPSG has a reach and distribution coverage to hit… 80% of the market

186,816,825 x .097 x .71 x .74 x .50 x .80 x .80 = 3,046,686.49 cases can be sold yearly to

our target market through our distribution channels.

*1,698,754.25 cases (Break Even unit sales) / 3,046,686.49 cases (Cases that we have the

capacity/potential to distribute) = We need to distribute 55.76% of our potential

capacity

*Through our distribution centers we have a potential of 3,046,686.49 cases x $8.83 =

$29,902,241.7 - $15,000,000 = $14,902,241.70 in profit if we reach our full potential.

Pro Forma Income Statement Applying our numbers to Market Share targeting 1% of the total market:

Alternative 1: $5.52 (profit per case) x 1,868,168 (1% of total market) = $10,312,287.36

$10,312,287.36 - $13,250,000 (promotion budget) = -$2,937,712.64 (Loss)

Alternative 2: $8.83 (profit per case) x 1,868,168 (1% of total market) = $16,495,923.40

$16,495,923.40 - $15,000,000 (promotion budget) = $1,495,923.44 (Gain)

Recommendation & Implementations

● Alternative 2

○ PROS:

■ Less saturated market

● Not as much advertising towards women

■ Increased ability to charge a premium

■ Potential to increase consumption habits

■ Higher reward

○ CONS:

■ 9.6% of the energy drink market

■ Difficult market to succeed in targeting women

■ Higher risk

■ Need to reach 55.76% of our potential to break even

Implementation of Targeting Towards Women:● Budget: $15,000,000

■ TV: $7,000,000

● Product placement on shows

● Ads featuring successful women and their busy lifestyle

■ Print: $3,000,000

● Magazines

● Newspapers

■ Endorsements/sponsorships: $5,000,000

● Olympic athletes, yogis, well-respected female celebrities (e.g. Oprah)

● Projections/goals:

○ 2011

■ DPSG: 3% of the market

■ Revenue nearing $100,000,000

■ If successful, consider moving into male target market or into supermarkets

Implementation of Targeting Towards Women:● Timeline

○ Q4 2007: Product development

■ Test flavors and opinions of target market

○ Q1 2008

■ Develop distribution plan and packaging

○ Q2 2008

■ Secure advertisement placements and at least one endorsement

○ Q3 2008

■ Produce product

■ Create advertisements

○ Q4 2008:

■ Launch product, distribute to convenience stores

■ Launch advertisements