Executive summary
“Soft drinks are enormously popular beverages consisting primarily of carbonated water, sugar and flavoring” (Council of American Food Technology Association, 2010). The industry has been among the most vibrant and profitable for a long time but has now come under great criticism for its products’ health effects (The Coca-Cola Company, 2010b). As obesity and other health complications become a priority in many countries, the industry is facing criticism from stakeholders in the health industry. The results have been reduced sales and revenues.
It is for this reason that there is a need for the industry to diversify its markets by introducing more nutritious drinks such as vitamin-enriched sports drinks. This paper aims at studying the soft drinks market and establishing the viability of a new vitamin-enriched sports drink in the global market through a survey that covered 500 people. The survey revealed that many people are more conscious of their health today, many people are working out and are willing to try a sports product if they were assured of benefits and zero side effects on their health.
Introducing a new product in such a competitive market would require a strong and effective strategy. This paper provides market analysis, market trends and a market entry plan intended at ensuring a good market share for the product. The implementation strategy will comprise a marketing plan, distribution channels, supply chain and logistics, promotion, pricing and finance operations. The paper finally makes recommendations based on the research. Among the recommendations include understanding competitors, marketing, establishing brand loyalty and using natural sweeteners to win customers who are concerned about their health.
Introduction
“Soft drinks are enormously popular beverages consisting primarily of carbonated water, sugar and flavoring” (Council of American Food Technology Association, 2010). Some contain caffeine, some have fruit juice and most of them have artificial additions for flavor and preservation. Some soft drinks also have small percentages of alcohol but beverage standards require that the percentage be less than 0.5% for a drink to qualify as “soft” (Deichert, et al., 2009). Soft drinks are rarely heated but can be stored and served at room temperature.
“During the production process, of most importance is that the ingredient meets the agreed specification on all major parameters” (Novinture, 2011). Standards put in place are less concerned about functional parameters such as major constituents but are more concerned about the absence of impurities, safety for consumers, and other physical parameters such as particle sizes (Shin, 2003). Packaging is mostly done in 300ml- 3liters packages. For a long time, soft drinks have been packaged in plastic bottles but the emergence of aluminum cans and glass bottles is slowly changing the trend (Solove, 2006).
In every part of the world, there are major soft drinks producers (Seddigh, Peter and Ashraf, 2006). However, Coca-Cola and Pepsi have dominated the market for a long time and registered a presence in every part of the globe. Other major producers include RC Cola in North America, Ajegroup, AmBev, Corporacion Jose R. Lindley S.A, and Embotelladora Don Jorge SAC, all in South America. In Europe, Perrier boasts of a good market share in the region while Bundaberg and Kirks do the same in Australia (Heinnman, 2010).
The industry has come under great criticism for its products’ health effects (The Coca-Cola Company, 2010b). As obesity and other health complications become a priority in many countries, the industry is facing major criticism from stakeholders in the health industry. Soft drinks have low nutrient levels and are largely associated with many types of diseases such as obesity, dental cavities, type 2 diabetes, and decreased immunity, among many others (Retail World, 2010). Many ingredients such as caffeine and sweeteners are on their own a source of major concern. The industry is largely blamed for the number of obese children today and the deteriorating health among children and adults alike. This is because, “unless fortified, soft drinks contain little or no vitamins, fiber, protein, or other essential nutrients”. (U.S Commercial Service, 2011).
Aim of the study
As soft drinks continually lose popularity for health-related concerns, manufacturers are forced to venture into other markets to boost profitability and distribute risk (Chaston, 2009). Big and small manufacturers of soft drinks find themselves urgently requiring new products and sources of income. A recent study by (Thompson, 2009) reveals that soft drinks manufacturers are switching to natural sweeteners as more people become health conscious. As more healthy products such as ice tea and bottled water gain market shares, the soft drinks industry continues to suffer and becomes less profitable (Capparell, 2010). It is for this reason that there is a need for the industry to diversify its markets by introducing more nutritious drinks such as vitamin-enriched sports drinks. This paper aims at studying the soft drinks market and establishing the viability of a new vitamin-enriched sports drink in the global market. Through a survey that covered 500 people, the results will be used to determine whether such a product would be viable or not.
Literature review
To understand the soft drinks industry and the different parameters that drive it, different books, journal articles, and government and non-governmental statistics proved very helpful. The American Beverage Association is focused on providing consumers, producers and different stakeholders with relevant and up-to-date information on the industry and the different parameters affecting it. From their report on soft drinks facts, it is clear that the industry remains among the most vibrant and competitive. It is also among the industries with the highest levels of revenue in different regions.
Anderson, in his book, the soft drink industry, helps the reader understand the history of the industry and how it has grown with time. Anderson points out that the industry has reached a maturity level, especially in developed countries, denying manufacturers enough opportunities to experiment. Chaston on the other hand, in his book on new marketing strategies to fit soft drink markets circumstances, helps the reader understand how consumer tastes and preferences have changed with time. While health was not a major concern for consumers a few years back, today health concerns are shaping the way products are made and marketed.
Brandweek, an organization that conducts consumer surveys for different industries, conducted a survey on the brand keys’ customer loyalty leaders survey. From the survey, Pepsi enjoys the biggest level of consumer loyalty, followed by Coca-Cola. The report also reveals that due to a change in consumer preferences, the trend is slowly changing and other smaller brands such as Red Bull are coming up on the list.
In the journal of decision support systems, Chen describes the role of competitive intelligence in different industries. Competitive intelligence has been key in keeping the two giant companies ahead of the competition. Competitive intelligence has especially played a key role in helping businesses use information and data to their advantage by converting it into knowledge. To understand competition further, Ford looks at competition and ethics in the modern age. In his books, the author looks at how unhealthy competition strategies have influenced the industry. The book points out a case study where the soft drinks industry nearly collapsed in the 1980s due to price wars.
Datamonitor, an organization that conducts surveys and does analyses for different industries has presented the parameters that influence profitability and revenues in the global soft drinks industry. Among the parameters discussed include prices, foreign policies, agricultural activities, population growth, labor markets and health factors, among others. Deichert, together with other authors, also discusses the industry from the same perspective and gives an industry analysis in the year 2009, in the midst of the financial crisis. Due to the global nature of the industry, the report points out that it was among the most affected due to reduced consumer wealth and purchasing powers.
DiMeglio discusses in detail the issue of health and its relationship with the soft drinks industry. In the International Journal of Metabolic Disorders, in his article on foods, the author discusses the effects of food intake on body weight. It is through his analysis that the reader understands how the consumption of soft drinks affects health. The industry has for a long time used artificial sweeteners and preservatives, most of which contain too much sugar than is recommended by doctors. As a result, many children and adults who regularly consume the products are overweight and are likely to suffer other medical complications such as high blood pressure and diabetes. The author points out that the initiative by different governments to fight obesity has affected soft drinks sales negatively. It is for this reason that many producers are now investing in new products and having more healthy options for their consumers.
The Euromonitor International report on the soft drinks industry this year analyzes different companies’ market share and positions in the market. It also discusses new innovations by different soft drinks manufacturers and how they are shaping the future of the industry. Among the innovations are production technologies and different marketing strategies such as online marketing. Finally, Fleisher in his book, controversies in the soft drinks industry, describes the industry as the most enduring and among the oldest. The author points out that the soft drinks industry plays a big role in shaping the global economies and its future still looks bright.
Industry Analysis
The soft drinks market has been the most buoyant for a long time now (Prasad, 2010). Energy and sports drinks still command good authority in the market even though there is a big growth in the retro drink segment after the recent economic crisis (Penzkofer, 2010). Different economies have registered different results in the last two years, a factor that contributed to the fact that different economies have faced challenges after the economic crisis (IEEE Spectrum, 2010).
The Russian economy registered the biggest growth in the soft drinks industry last year. The region’s GDP grew by 5% and production volume in the region grew by 10% (OzBevNet, 2010). In Saudi Arabia, population growth and hot weather throughout the year kept the soft drink market stable (The Coca-Cola Company, 2010c). The market is among those affected by consumers’ health concerns and therefore, health-oriented products such as vegetable and pure fresh juice products performed better. The bigger and developed markets such as Europe and North America are reported to have stagnated growth in the last few years. This is partly attributed to the global crisis. Analysts however argue that it is largely due to the fact that these markets have reached a maturity level, making it hard for producers to experiment (Nedja and Ajith, 2010).
According to (Schweppes, 2011), “as soft drinks manufacturers emerge from the global recession, many faces continued decline in developed countries due to maturity”. It is also notable that as more economies recover, credit accessibility is bigger and more competitors will emerge. More companies are therefore looking beyond their domestic markets to stay profitable and grow revenues. More companies are also looking at expanding their products categories to increase revenue (National Research Council of the US., 2010). Another emerging trend is mergers by smaller companies to create strategic partnerships that will allow them to gain access to new and bigger geographies (Waye and Christina, 2009).
The other reason for slowed growth is health concerns about soft drinks. “The Obama administration has pushed the fight against obesity further up the policy agenda, notably in areas such as labeling and advertising, ensuring a busy year for soft drinks lobbyists” (DiMeglio, 2010). The European region such as the UK has also put in place measures to help fight obesity and encourage more healthy eating. These factors have presented a good opportunity for healthy beverages such as bottled water but negatively affected other drinks with artificial sweeteners and additives.
The Asian market has continually reported a positive trend, a factor largely attributed to the growing population and an economy that has recovered faster than other regions. Other developing markets such as Africa are currently a target for the big companies as they capitalize on the fact that these markets have recorded increased consumer wealth in the recent past (Economic Intelligence Unit, 2011). These markets present opportunities for major products in the industry and offer a good environment for further experiments.
The sports drinks industry is slowly growing as more people begin to appreciate sports and fitness (Rouach, 2009). Sports drinks can be categorized into three classes; Isotonic, hypertonic and hypotonic. “These drinks have an equal concentration of salt and sugar as the body, higher concentration of salt and sugar than the body and lower concentrate of salt and sugar than the body respectively” (Goldberg, 2000).
Sports drinks are used by sportspeople to reduce the risk of water intoxication, a situation caused by excessive consumption of water to replace electrolytes lost during sweating (Rao and Shambhu, 2009). The benefits of sports drinks include their ability to balance the body’s electrolytes levels, give energy and provide the body with carbohydrates required for muscle strength (Schudel, 2000). As a result of these benefits and as more people become actively involved in sports, the industry is experiencing a heightened level of activity. The biggest brands in the industry include Gatorade, Staminade, Isostar, Powerade and Lucozade. To give athletes more benefits, many producers are now incorporating other nutrients such as vitamins in the drinks (Nash, 2010).
Porter’s Five Forces
“A porter’s Five analysis of the industry reveals that market forces are favorable for profitability” (Morton Research Corporation, 2009). The soft drinks industry has shown tremendous growth in profitability for both the bottlers and concentrate producers (Murphy, 2005). These two parts of the industry have always been dependent of each other since the birth of the industry. “They share costs in procurement, production, marketing and distribution” (Hallgarten, 2004). Some of their activities and functions also overlap. For example, bottlers conduct promotional activities and some concentrate producers still do bottling, even though very few do that now.
Rivalry
The soft drinks industry is characterized by concentrated revenues. By 1994, Coca-Cola and Pepsi commanded a combined 73% market share, a number that stands at 74% now (Plunkett, 2010). The market is many times considered a duopoly between the two giant companies, a factor that has brought about tremendous economic benefits for the companies. “However, the fierce competition existing among few players such as the intensive rivalry between Coke and Pepsi has sometimes hampered profitability” (Sutter, 2000). For example, in past years, price wars have time and again caused reduced profitability. In the 1980s, price wars caused poor margins and both companies registered losses in some the years.
For the new vitamin product, the beverage market is at a mature level making it hard for a new entrant to do experiments. However, the energy and sports drink market is not very saturated as producers have been more focused on other soft drinks (Knox, 2010). The two brands, which dominate the market and enjoy more than half the market share, will be the biggest competition. Pepsi and Coke Cola’s brand’s identity is strong putting them in a better position to market themselves. The competition will be from Coca-Cola, Pepsi, Cadbury Schweppes and other small players.
The threat of substitutes
For a long time in the early years of the industry, a soft drink meant cola to many people ( Air-force Research Labs, 2002). In the 1970s and 80s, the industry started experiencing an expanded portfolio and other beverages such as tea and bottled water became common (McMillan, 2000). When these products came up, the two companies responded by expanding their varieties, mostly through alliances and more internal innovations (Rao and Manish, 2007). Businesses in the industry now work towards increasing substitutes internally and growing their brand names. “The threat of substitutes has therefore been reduced by the expansion of products portfolio through the availability of alternative beverages such as juice, tea and many others” (Doyle, 2009). The proliferation of brands and products has in the past threatened profitability as the markets get more and segmented, but the industry has put in place measures to ensure these threats don’t hold (Qian, 2008).
Due to the high costs of doing business in major markets today, switching costs will be high for the new product. Soft drinks consumers exhibit brand loyalty, a factor that reduces the chances of a buyer switching to new products or trying out substitutes (McKnight, 2006). As a result, if the product is able to build high quality and desirable product, it would be able to enjoy loyalty from consumers and minimize the threat of substitutes
Supplier power
The inputs for most soft drinks are sugar and packaging. “Suppliers have less bargaining power because there are many substitutes for sugar or corn syrups and packaging” (Etzioni, 2002). Most of the time, sugar is easily available in many markets. When this is not the case or when prices are too high, corn syrup has been a viable option. This option has proved very viable in the past such as in the 1980s when sugar prices skyrocketed. As a result, suppliers do not have much bargaining powers and many times they have had to use price wars to get business.
The packaging industry such as the bottlers also has low bargaining power. Starting1990s, the availability of inexpensive aluminum further reduced bottlers’ bargaining powers (McCumber, 2001). Several companies went into a competition to get contracts with concentrated producers, putting them in a disadvantaged situation (Mathisen, 2003). “With too many aluminum companies vying for the available contracts, concentrate producers have for a long time been able to negotiate agreements that favor them and disadvantage the packaging producers” (Fleisher, 2003). The case will be the same for the new product.
Buyers’ bargaining powers
There are different levels of bargaining powers for buyers. According to Gansler and Hans (2004), the soft drink industry has in the past sold to consumers through five principal channels: food stores, convenience and gas, fountain, vending and mass merchandise”. Consumers pay less through these channels than in other outlets. The supermarkets, which have been for a long time been the principal customer of producers, have become too much fragmented, a factor that affects their bargaining power negatively. “This means that national merchandising chains such as Wal-Mart, which are able to build on customer traffic, are able to enjoy better bargaining powers” (Gansler and Hans, 2004).
For the consumer, the bargaining power levels also differ. For example, there is no bargaining power at the vending machine but there is a higher bargaining power at a fast-food restaurant. Through vending machines, the customer is the consumer, a factor that eliminates many other expenses. The concentrate producers are therefore able to offer the products for a cheaper price. Most markets are currently experiencing a healthy economy and increased levels of income. There have been high numbers in consumer expenditure recorded, making it easier to market a food product. Buyer volume is high as the world’s population continues to grow with a majority of youth. Price sensitivity is an issue of concern and may play a key role in product differentiation. Asian products are much more affordable and they attract a majority of the low-end market. The new product can introduce incentives such as discounts and rewards for loyal customers to attract a bigger clientele.
Strong barriers to new entrants
Entry to the industry involves having a clear strategy for concentrating production and bottling. An investor will need well-developed operations in both disciplines. A new entrant in the concentrate production discipline will threaten both producers and bottlers but a new bottler entering the market may only present a threat to the bottlers. Because of how much the two disciplines overlap, many times they are both included when defining the soft drinks industry. As a result, a new entrant is faced with the huge challenge of investing in both. As a result, the amount of capital investments required to enter the industry is too big for most investors wishing to enter the industry. The distribution channel is also a major challenge since most of the big companies have established exclusive territories. This makes it even harder for new entrants to access retailers and the retail channels.
Due to high levels of competition, the new product may not enjoy absolute cost advantages as it tries to penetrate the market. The cost of doing business in the industry is expensive and so is the licensing process. Many governments have today launched a campaign that is intended at marketing the local products, making it more difficult for foreign companies and making it harder for foreign brands to penetrate regional markets. However, the industry’s strengths such as high volumes of consumption serve as an advantage. An investor’s financial position plays an important role when trying to meet capital requirements. Access to distribution is a challenge since a product needs a well-established network through existing or new distributors.
Swot analysis
Market Analysis
“A market analysis is aimed at determining the attractiveness of a market and understanding its evolving threats and opportunities as they relate to those of a business” (Dutka, 2004). The new product would need this to help it determine who the customers are in the market and what they want from the product. “When doing a market research, areas of interest for the new product will include existing marketing strategies and sales forecasts” (Kahaner, 2009). As Prechter (2002) points out, “The dimensions of a market analysis include the market size, its growth rate, trends, profitability, its cost structure, success factors and distribution channels”.
In markets where vitamin-enriched drinks have done well such as Australia, the market for sports drinks seems to be dominated by one or two products. Using the Australian market as an example, the market is dominated by Suntory Holdings Ltd with their product V. The big companies’ market share in the energy and sports drinks industry seems to be so low, giving an advantage to the small players. The situation presents an opportunity for small businesses since it means they have a big market to target and cover. “The best and most commonly used method of forecasting is an extrapolation of historical data into the future” (Wood, Cogin and Beckmann, 2009). By studying the adoption rate of a similar product such as V, it will be easy to estimate or predict the shape of the product’s diffusion curve. The same strategy is applicable in other markets such as the USA where PepsiCo brand Gatorade dominates the market with a 75% market share.
The industry’s cost structures are an important factor when evaluating a market and its viability. According to White (2005), “it is equally important when formulating strategies for the product to develop a competitive advantage”. Cost structures play a big role in a product’s indirect costs and consequently, profitability. A company may not be able to sell a certain product in a market whose cost structure is too high even though the product may have a very low production cost. The cost is dependent on the market share a business holds and the number of sales (Sherwood and Robert, 2007). For the new product, a small market share in the sports drinks industry at the moment may increase the market’s cost structure for it, making it disadvantaged.
Market share: Companies
Market share: Brands
The following chart reveals different companies’ shares of functional drinks by off-trade value in 2009.
Market trends
A market trend helps identify the direction in which a market will move over time. Market trends can be secondary or secular. “Secondary market trends are short term and give a direction within a primary trend which includes few weeks or months” (Holtzman, 2011). The secular market trend is long-term and will cover the product’s presence in the market for the next five to more than twenty-five years. Changes taking place in a market are considered very important as they often come with new opportunities for businesses. They also come with threats that may work in favor of a company with better strategies because they can drive some of its competitors out. “Relevant market trends are very dependent on different industries but are also dependent on other factors such as price, supply, demand and level of emphasis and support for various products and services” (Holtzman, 2011).
Methodology
To understand the background of the industry, books, reports, academic journals and online materials were used. Government, non-governmental and companies statistics were also used to understand the market trends and structure. To determine how the consumers’ response to the new product would be and what influences such a reaction, a market survey was conducted using questionnaires and offering free samples to 500 participants. There were no restrictions on the age group but half of the questionnaires were given to people aged between 18 and 30 years old. To ensure gender balance, 250 of the participants were women and the rest were men, all of the different professions. 100 of the questionnaires were given to people who participated in sports professionally.
Participants were given a free bottle of the vitamin-enriched sports drink and they were required to use it during their exercise over a period of 30 days. Professional sportspeople, were allowed to consult with their doctors before trying the samples out. After the trial, they were required to fill out questionnaires where they would describe their overall experience with the product and give their observations or thoughts on several other parameters.
The questionnaires were easy and straight to the point to encourage more participants and help them fill them up more easily. The questionnaires were divided into different sections, each aimed at establishing a different aspect of the market. The first part of the questionnaires was aimed at establishing the consumers’ overall experience with the product. Factors included here include taste, smell and the general satisfaction level. Other parameters of importance included the switching levels, belief factor and what the respondent thought should be improved.
These variables were used to measure whether the participants found themselves likely to buy and use the sports drink product on a regular basis in the future after the trial period was over. The level of satisfaction was also an important parameter. The level of satisfaction was used to measure a respondent’s satisfaction during the trial period. “A customer who is satisfied is more likely to purchase the product in future and even tell others about it” (Groucutt, Patrick and Peter, 2004). This, therefore, helped determine the respondents’ intentions of purchasing the product in the future.
The exercise was also aimed at measuring the switching tendencies of the respondents. It was aimed at establishing how often respondents switch between similar products and their level of loyalty to a brand or a product. This was helpful in understanding how likely interested consumers were likely to switch to other products in the future. The respondent’s belief factor was another important parameter in the survey. The belief factor measured whether the respondent believed in the statement that the drink will improve their health. In an era where more people are very concerned about how a product affects their health, a participant who believes the statement is true is likely to buy the product even after the trial period.
Another area of importance during the survey was the workout trends of the respondents. This was aimed at measuring whether a participant works out more than an hour per session and how many times they do so in a day and in a week. This was from the assumption that for any consumer, the more the workout time, the more drinks they would need. The final parameter that the survey sought to establish was the respondents’ belief in the product’s ability to improve their cardio-vascular performance, based on the 30 day trial period.
Discussion and analysis
From the process, it is clear that more and more people are actively involved in activities that improve their fitness and health. This was evident from the fact that it was not hard to get 500 people to participate in the survey. It was also clear that consumers were willing to try out products if they believed they would help them improve their cardiovascular performance without causing them any harm. Most of the participants were concerned about the presence of artificial sweeteners and additives in the product and what side effects they would have on them if any. The fact that the product is vitamin enriched attracted a lot of attention from the respondents.
Out of the 500 questionnaires issued, 480 were returned and ten of them were not filled correctly and could therefore not be used in the analysis. Men were more excited about the product than women were, a factor contributed by the fact that more men are physically active than women. Younger people also seemed more open to trying out new products. The older people were more inquisitive and more reluctant to try a new product that has not been on the market before.
Of the remaining 470 filled questionnaires well filled and returned, 400 said they had a good experience with the product. They mentioned it had a good taste and smell, making it easy to consume. The packaging was also attractive, making it appear like a trendy product that people would be proud to drink even in public. The 400 hundred pointed out they used the product consistently during the 30 days and felt more energetic and less thirsty as they worked out.
350 of the participants expressed an interest to buy and use the product after the trial period, while another 50 said they were not sure and would think about it. The remaining 20 made it clear that they didn’t intend to buy the product and gave different reasons for that. Reasons given include their loyalty to another product, they were not convinced the product worked for them and a general fear of trying out new products. Some pointed out that the price of sports drinks was high and increased their cost of keeping fit, therefore preferring to use natural products such as water carried from home.
Out of the 350 people who expressed interest, only 300 were willing to recommend the product to other people. Most of the respondents pointed out that they would have to use the product first for a considerable amount of time and if it worked out well for them, then they would go ahead and recommend it. The majority of the respondents were people who lived with their family, the right group of people to use for word of mouth marketing.
The number of people using sports drinks was average. Out of the 470 questionnaires that were used for this analysis, 300 of the participants pointed out that they use a sports drink. Out of this, only 100 used one consistently. These 100 were largely comprised of people who were involved in sports professionally and a few regular people. 80 of the people who used a sports drink regularly and consistently were notable men.
The level of loyalty among the participants was considerably low. Even people who were using other products were willing to buy and try the new product. They pointed out that different factors influenced the product they used at any particular time. These factors include quality, level of satisfaction, price, brand and benefits that a product offers. They also noted that weather seasons influenced their decision on whether to use a sports drink or not. More people said they used sports during the hot season.
Only 280 participants believed that the drink would improve their health. A majority of them pointed out that they would need more time to experience the product and make a decision about it. A big percentage of the participants however exercise regularly and worked out for more than an hour per session. 60% of the participants pointed out that they worked more than four times a week for an average of 1-hour session. Again, the majority of these were men while women worked out for an average of 40 minutes per session.
It was also evident that the word-of-mouth form of marketing was very appropriate for marketing in the industry. 90% of the participants say they use a product that was recommended by a friend or because they saw a friend use it. This was so, especially for people below the age of 30. The brand name also played a key role when choosing which product to buy. Most of the participants mentioned that if their favorite drink was not available in the shop, their next option would be largely influenced by brand names. The results can be summarized in the graph below:
From the results, it is evident that the sports drinks market is still growing and offers major opportunities for businesses to experiment further. Many people still use plain water during exercise, especially the older generation. Men are a better target market as they seemed more receptive to the product and worked out more times and for longer sessions. From the survey, it is also notable that consumers will easily switch to a new product if they no longer believe they are getting enough value from their present product. It is therefore important for a business to ensure quality and exceed consumers’ expectations to earn their long-term loyalty. The results can be summarized in the graph below:
Implementation
Market entry plan
In order for the new product to successfully enter the sports drinks market, it must be able to choose a model that is already working in the market (Nygard, 2003). In this case, the strategy will include partnering with a distributor that is already well established. Pepsi for example uses Pepsi Bottling group Inc. to market and distribute its products together with tens of thousands of registered distributors. The same is with Coca-Cola, which uses Coca-Cola bottlers to distribute and market its products. The product will need a strong and well-developed distribution channel, one that will offer it the much-needed avenue to reach the consumers. A well-established distribution channel not only helps a manufacturer reach the markets but also receives timely feedback from the market (National Security Agency, 2008).
Distribution channels
Distribution channels are important in helping a business decision on the best methods to distribute their products and ones which will ensure that products are accessible to as many customers as possible. “In any market, there are existing distribution channels, emerging channels, trends and a well-defined structure for the channels” (Hill and Gareth, 2010). Existing channels are more direct to the customers as they are more used to them. Emerging ones however offer businesses an opportunity to develop a more competitive advantage as each business has a chance to come in with a new one. The power structures give retailers and other middlemen a ground to negotiate with the manufacturers. Launching a new product in any market requires a well-established distribution channel and a system that allows easy access to products. The product will require a well-developed and structured distribution channel to reach its targeted consumers and establish consistency.
Supply chain and logistics
The operational techniques to be used in the new product’s logistics management will be aimed at sustaining quality in the company. Using such techniques is intended at attaining better quality and keeping it monitored at all times. Quality assurance will be a big part of the product’s success, largely because of the market share that the business is expected to command in different markets and the loyalty that the product will aim at achieving.
For other manufacturers, logistical management is made possible through the companies’ commitment to quality. It is through quality that manufacturers are able to have a competitive edge, especially in such a changing, competitive and wide market. For a product with such a large market, handling information can be hectic and inaccurate without proper quality and organization. Knowing when products have been released and when they are due for delivery may be challenging without real-time information, which can only be made through logistics management that assures quality.
Continual improvement will be a big part of the product’s culture. It is one of the focuses of the industry’s modern research projects (Griffins, 2008). The company will seek to continually improve its products’ quality while reducing the cost of doing so. Being in such a competitive industry, customer satisfaction will have to be on top of the business’ priorities. It will be made possible by ensuring quality assurance through continuous improvement. Logistics will play a major role in quality assurance by ensuring supplies are available and are handled with proper care during transportation and storage.
Another important factor for the vitamin-enriched product’s quality assurance will be a factual approach to decision making. Such an approach can only be made possible if there is enough and accurate information for the company’s decision-makers. Logistics management will have to be in place to ensure that information collection, storage and recovery are available to the executive organ of the company. It is through market and customers information that the company will be able to sustain a mutually beneficial relationship with its clients, who provide the company with the needed feedback about their products and services.
“In this industry, logistics management and distribution, a mechanism put in place to ensure that the needs of different operations in the business are met, will be more than a measure of quantitative throughput or output” (Alger, 2001). When the mechanism lacks quality, many other operations in the business will be affected. For this reason, quality has to be paramount in the business’s logistics management.
Marketing strategy
In order to achieve the marketing objectives, the product will be packaged in a combination of local and international brands but ensure that it remains a flagship brand in all the markets. The business will implement measures that will ensure it gains a broader position in the sports drinks market. A top or second position in the market will help the product deliver a high target in both marketing, distribution and even production (Anderson, 2002). Moreover, such a position will create the much-desired platform from which the business can further increase its energy drinks range of products. Brands doing well in other markets such as North America and Europe are good examples of how much an asset position can be. With a continued focus on other market factors such as price and quality, the product will undoubtedly reach its marketing objectives.
Promotion
“The key success factors in a market include those elements which are important for a firm to achieve its marketing objectives” (Blyth and Gerald, 2006).The company with the best economies of scale is able to do much better than its competitors in any market and so will a company with technological resources that best suit the market. “They include access to essential unique resources such as communication services, a company’s ability to achieve economies of scale, accessibility of distribution channels and technological processes” (Chen, 2002).
A proper marketing strategy must ensure that the product is felt in the market, not just when it is new but in the many years that follow. “Ultimately, each product will reach its maturity stage and a decline period but how long that takes is dependent on several factors” (Boyce and Dan, 2002). These factors include the ability to fight price pressure from a competing product, the ability to maintain brand loyalty, how well it can hold with the emergence of new products, and how soon the market gets saturated, amongst many other factors. A lack of growth drivers has negative effects on a product’s performance in a market regardless of its quality or how well it can cope with pressure and competition in the market.
After a successful launch of the product into the market, there will be a need to encourage consumption. The promotion strategy will be aimed at meeting consumers from different places, especially the urban market which is largely targeted. Promotion will include the use of video and print advertisements, audio channels and e-marketing. A big percentage of the target market is aged between 18 -and 25 years, an age group that is more excited about sports and physical activities, making it easier to reach them through e-marketing. Strategies to be applied in e-marketing will include the use of social groups such as Facebook and Twitter, email advertising, videos posted on the internet and the use of a well informing and attractive website.
The product’s reputation as a healthy option will serve as an advantage as the business tries to market the product. The high level of quality exhibited will be used to prove the company’s commitment to customer satisfaction. The foundation on which the product will be built is based on putting customers’ needs first and ensuring a good experience with the company’s products. The promotion campaign must therefore be focused on selling these strong points. Acquisitions and partnerships are a good way to build the business’s position in any developing market and must therefore be put into consideration.
Pricing and profitability strategy
“While the profitability of different companies will vary in the same market, its average profit potential is used to give guidelines on how easy or difficult it is to do well in it” (Chen, 2002). According to the Competitive Intelligence Foundation (2006), “a market’s profitability is influenced by several factors among them being supplier power, buyer power, the threat of substitute products, entry barriers and rivalry among different firms”. It helps to identify a market’s potential and the benefits a business will enjoy by entering the market. This then allows a company decides on which products to sell in the market, selling and pricing strategies.
“Any business with intentions of launching a new product to a market must base their pricing on several key trends that continually shape the global marketplace of soft drinks in that market” (Computer Associates, 2007). Factors that will affect pricing include the cost of production, target market, competitors’ pricing, consumers’ wealth, and spending habits, among many others. The product’s pricing strategy must take into consideration how much its other products have performed in the target markets. “In terms of market segment, the sports drinks have a share of volume growth estimated at 5% per year, against the 2-3% overall growth rate” (Intellectual Property Organization, 2010). Such a growth level offers an advantage for the product as it tries to convenience people to try one more product in the industry. The business will ensure profitability through high sales volumes. Poor sales volumes could be caused by several factors analyzed in Fig. 1.
Finance and Operation plan
Proper financial strategies in a business will determine how well the other implementation strategies work (Dark, 2010). Good financial planning standards require comparable financial statements that allow the organization and analysts compare what is going on in their organization with the performances of other organizations in the same industry. Several indicators have been set to help compare different beverage companies in the industries. Comparison will make it possible to point out areas of error in the new product.
The business will need to have proper priorities in their expenditure, especially during the implementation period. Priority will be placed on promoting the product and doing a comprehensive market analysis to help the business establishment where they can make improvements. Research and development will be an important investment to ensure the product meets the consumer’s expectations and stays ahead of the competition.
The product will also be required to ensure the development of an integrated financial analysis. To protect investors, financial records and information will be comprehensive and easy to understand. Financial information will also be confidential and only enough information will be released to stakeholders. This will protect the organization from being over-exposed to competitors. Proper financial reporting standards demand that financial strategies should reveal a proper approach to the future which should involve examining the current and anticipated factors. The factors have also to be associated with customers who make the external and internal environment, and the business itself, which makes the internal environment (Cook, 2002). Proper financial planning is supposed to envision new and effective strategies for the product, while exercising its creativity and aligning its practices, resources and policies, to realize its goals. The biggest part of operations will be manufacturing where important factors to consider will include manpower, machinery, method and methods. Factors that could hinder an effective manufacturing process are summarized in Fig 2.
Measuring success
“The most common method business use to measure success is financial worth” (Cronin 2009.). In the last financial year, the industry, in general, registered a 6% sales growth in the global markets (Hasanali, 2010). The new product’s success will be measured by a further increase in sales and profitability. It is estimated that the sports drinks industry has the potential to grow its revenues by 3% every year in the global market (American Beverage Association, 2010), growth that could be made possible through the introduction of new products such as the new vitamin-enriched product. Another measure of success will be growth in the company’s cash flow. Last year saw the companies registered a 13.4% increase in revenues from the previous year. A further increase would be expected if the industry established more activity in the sports drinks market.
Profitability and customer satisfaction are the biggest measures of success for a new product (Garretson, 2007). Launching a new product will require a significant amount of investment and the period it takes to break even will depend on the company’s marketing strategy (Cunningham and Fried, 2002). Customer satisfaction will be a significant measure of the success of the product. A new product will mean new employees in the industry and employees’ satisfaction will be significant when measuring the product’s success and quality consistency. The industry registered increased profitability in the last financial year, a trend that presents a good opportunity for any new product in the market (Ford, 2010). Further growth in revenue and profits will be a good indicator of success for a new sports drink in the market.
Challenges and risks
The soft drinks industry is generally experiencing a positive trend in most markets (Murray, 2009c). Revenues are growing and so are market sizes. A recovering economy also offers better opportunities for soft drinks producers and marketers (Sicher, 2010). However, like every other market, investing in the industry poses several challenges. The biggest challenge is high levels of competition, which also poses a major risk. “The soft drink’s market is characterized by dominance by few large firms such as Coca-Cola and Pepsi” (Cadbury Schweppes, 2010). Launching a new product in such a competitive market will not be an easy task and will definitely require enough resources and a strong marketing strategy.
Another significant challenge is the high cost of venturing into the market (Datamonitor, 2009). Increased competition means that any new product needs to venture into a big size of the market to make profits. This makes it even more expensive to launch a new product and develop a distribution channel. The other challenge is the market’s access to low-cost producers such as China (The Coca-Cola Company, 2010). Any producer must therefore demonstrate satisfactory added value to convince consumers. Competing against low-cost producers means that the company has to find ways to overcome most of its expenses and offer its products at competitive prices (Swanson, 2009). This, combined with the fact that doing business in most markets is very expensive, makes it hard to maintain profitability. The new product will need to build a strong brand and work on consumer loyalty.
Conclusion
The soft drinks industry is having a hard time retaining customers as more and more people embrace healthy options. It is for this reason that the industry needs to develop new products and expand its markets to increase revenue (Walker, 2009). Big and small manufacturers of soft drinks find themselves urgently requiring new products and sources of income. A recent study by (Thompson, 2009) reveals that soft drinks manufacturers are switching to natural sweeteners as more people become health conscious. As more healthy products such as ice tea and bottled water gain market shares, the soft drinks industry suffers. The new product is vitamin-enriched, offering more health benefits to the consumers and making it easier to convince the markets.
The sports drink market size for energy drinks has grown by 19% in the last year (Vaugh, 2002). The growth definitely means that launching a sports drink to the market right now is a good and timely investment. The fact that the sports drink market in many regions is still in its growing stages puts the new product in a position where it can grow and develop with the market as they stamp their authority in it (Brandweek, 2010). Consumers’ spending levels in many markets, especially in the developing world, are going up offering a promising situation for the product.
The product’s strategy will involve conducting a comprehensive market analysis, a demographic study, designing a pricing strategy and ensuring a well-established distribution channel, which is already available through willing distributors looking to win contracts with new products in the market. Risks involved in the market include a highly competitive environment and the market’s access to low-cost producers such as China. To counter these challenges, the product will need to build a strong brand and work on brand loyalty, which will ensure that its customers don’t change preferences when cheaper products come in.
Recommendations
“Since cost is an essential consideration in any business, assessing a company’s costs position against that of its competitors can have more explicitly strategic implications” (Willet, 2008). If a business understands its competitor’s costs and strategies, it is able to understand the competitor’s supply curve which it can use to develop a market strategy (Vaughn, 2008). The new product will need to understand its market’s cost structures and use them to become a cost leader.
The sports drinks market is gaining as much popularity as other soft drinks markets all over the world (Hein, 2010). The new sports drink can take advantage of this factor and use the market numbers to its advantage. The biggest reason for this trend is more health concerns, a situation that presents more opportunities for the product (Murray, 2009a). By using natural sweeteners, the brand will attract a bigger population that has health concerns about artificial sweeteners. Since sports drinks already enjoy recognition in the beverages industry, the product can use this factor to its advantage.
Strengthening brand loyalty will be of valuable significance in such a competitive market. Healthy brand loyalty will ensure that its customers do not abandon the brand when cheaper products become available in the market (Murray, 2009b.). It will also protect the brand from aggressive competitors’ marketing strategies. It is important for the business to invest in cost-cutting measures to compete effectively with products from the Chinese and other low-cost markets.
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Appendices
Questionnaire
Personal information
- Gender:
- Age:
- Profession:
- Income/ year:
Questions
- Are you currently using a sports drink?
- What was your experience with the product?
- Did you like the test?
- Did it meet your expectations in a sports drink?
- Do you intend to buy the drink in future? If not why?
- Would you recommend the drink to another person?
- Do you have any health concerns about the drink? If any which ones?
- How does health influence your decision when buying a sports drink?
- What do you think about health products and supplements in general?
- What is your average daily consumption of soft drinks in a day?
- What determines your choice of a soft drink?
Photos
Different packaging methods for soft drinks
Different brands displayed for sale in a supermarket
Different brands available in the soft drinks markets
