Dr. Pepper Snapple Group, Inc. Analysis.
Mar 4804 Andrew Yap, Team 4:
- Yenney Hernandez
- Claris Clealand
- Ivette Lopez
- Maria Valdes
- Brenda Borges
How would you characterize the energy beverage category, competitors, consumer,
channels, and DPSG’s category participation in late 2007?
Porter’s 5 Forces:
For this analysis we viewed it
based on the Energy Drink
industry in late 2007;
● Threat of New Entrants:
(High) Energy drinks
were the new trending
beverage. Many
Beverage industry
giants were entering
the energy drink market
due to its increasing
profitability.
● Power of Buyer: (High) The buyer’s power was high due to the amount of
availability for energy drinks. They were everywhere! In supermarkets, vending
machines, and mass merchandisers. Not only that but there were many brands to
choose from so ultimately the buyer had high buying power.
● The threat of Substitutes: (High) The threat of substitutes was high because
energy drinks were booming in late 2007 resulting in high competition. There
were rivals such as RedBull, Monster, Rockstar, Pepsi-Cola, and Coca-Cola.
● Power of Supplier: (low) There are a large number of suppliers like ingredient
makers, manufacturers of cans, and packaging suppliers. Since there's plenty of
suppliers in this market, the power of suppliers is low.
● Competitive Rivalry: (High) Competition is high in this market. Consumers have
multiple energy drink options to choose from and most drinks are around the
same price range, essentially making it easier for them to switch to a different
brand.
●
4 Ps of Marketing:
Product: Dr. Pepper Snapple Group Inc. is an international corporation that
manufactures
beverage concentrates for key brands such as Dr. Pepper, 7UP, Sunkist, A&W, and
Canada Dry. In addition to beverage concentrates the company also manufactures
fountain syrups. Beverage concentrates are highly concentrated proprietary flavors
used to make syrup or finished beverages. These concentrates are used in their own
bottling operations as well as sold to third-party bottling companies. The manufactured
fountain syrups are sold directly to companies in the foodservice industry through
bottlers or third-party distributors. In the non-Carbonated Soft Drink segment, Dr. Pepper
Snapple Group, Inc. Participated primarily in the ready-to-drink tea, juice, juice drinks,
and mixer categories. The key non-carbonated soft drink brands are Snapple, Mott’s,
Hawaiian Punch, and Clamato. For the non-carbonated segment, the company also
manufactures Mott’s Applesauce as a product. The Dr. Pepper Snapple Group Inc. in
Mexico and the Caribbean primarily focused on carbonated mineral water, flavored
carbonated soft drinks, bottled water, and vegetable juice categories. The key brands in
Mexico include Peñafiel, Squirt, Clamato, and Agaufiel. However, Mexico utilizes its own
brands through both its own bottling operations and third-party bottlers. On the other
hand, the Caribbean distributes its products exclusively through third-party distributors
and bottlers. Andrew Barker and his team recognized that senior executives at Dr.
Pepper Snapple Group Inc. expected that energy beverages presented a profitable
market opportunity for the company. Therefore, any proposal to enter the energy
beverage market would require a marketing strategy for a branded energy drink.
Price: Single-serve energy beverage drink retail prices have generally settled at roughly
$2.00 per single-serve package, regardless of package size. However, as a
consequence of this, the larger single-serve packages are priced lower on a per ounce
basis than smaller packages. Looking further into the estimated retail, wholesale, and
manufacturer energy beverage margins, on a per-case basis, vary within a fairly tight
range. Supermarkets and convenience stores, that make up the retailer segment,
typically report gross margins in the range of 40% to 50% respectively. Manufacturers
typically suggest the retail price. Wholesalers report an average of 30% to 36% of the
price sold to retailers. Finally, manufacturers usually obtain a gross margin between 60
and 66% on sales to wholesalers.
Place: Industry analysts estimated that there were about 43 million energy drink users
in the united states or 18% of the united states population 12 years of age or older.
Males, between 12 and 34, were the heaviest users of energy beverages. Meaning that
places in which energy drinks are usually advertised are locations in which this
demographic would see the ads. Excluding the demographic targeted, as mentioned
earlier Dr. Pepper Snapple Group Inc. has manufactured in many different places
internationally, including Mexico, and Canada.
Promotion: Brand media advertising in the energy beverage market is modest. Instead,
competitors rely on promotional vehicles such as brand websites, events, and
sponsorships to promote their brands. For example, in 2011 Red Bull became the
official beverage sponsor for the x-games and spends about $300 million annually on
sports sponsorships alone. However, in 2006, the top five competitors spent an
estimated $70 million for measured advertising media.
The PLC Model:
Following its own derivative, Dr. Pepper Company took a leap of faith when they
launched their energy drink by relatively changing the branding and name of it from the
original company name. Prior to analyzing the Product Lifestyle, Dr. Pepper Strategically
targets the highest percentage of the population that uses energy drinks. Their ideal
sales strategy according to mine would be to target the following group of people: 12-17
yr. Old Hispanic females. Some of Dr. Pepper’s main competitors are Red Bull, Coca-
Cola, and Hansen Natural, who account for 94% of the sales in unit volume in America.
Because of these competitors' major success, Dr. Pepper has increased their sales over
the years in the following ways:
Over the years, Dr. Pepper, Red Bull, Monster Energy, and many others have
single-handedly controlled the energy-drink industry from its first viral introduction in
2001. The growth over time has been constituting the immense amount of marketing-
generated by people with influence, like celebrities and professional athletes. This
growth accounts for 42.5 percent of sales in a 5 year period, finally being equaled in the
year 2006 to a 153 million beverage sale. The maturity of the product generated even
more increase in sales over time, specifically proven by a 10.5% increase from 2007 to
2011. But one thing happened, in late 2006 the increase in sales was no longer there.
The cause was the popularity in CSD purchasing, accounting for a $72 billion dollar
market, continuing to grow at a steady 2.5 % rate every single year, leaving a very small
amount for companies like Dr. Pepper.
The decrease in sales could be accounted for by the fact that many of their
competitors are releasing products that are sugar-free with a variety of flavors in large-
scale multi-packs. Even to the point that Coca-Cola is developing a product for people
with hangovers called “Rehab”. Ever since the popularization of energy drinks in the
early 2000s, the price per ounce has significantly decreased by 30%, this a direct result
of supply and demand and more competitors arising to supply products for that energy
demand. One example of the influence of the industry, Dr. Pepper and its main
competitors have maneuvered to withhold a 50% of sales in the 16-ounce size energy
packs, the fastest growth yet since its release back in 2004.
The PESTLE analysis:
Political:
Dr. Pepper is a non-alcoholic drink, so it is monitored by the FDA. As they are
controlled by the U.S. Food and Drug Administration and are an expanded company
around the world, they should maintain a substantial standard of the laws that are
appointed by them accordingly. They are assumed as a company from the U.S. so this
only means that they must follow the regulations from their country deliberately.
Government policies and practices impact every industry. The beverage industry is no
different in this matter. The industry also belongs to a subcategory of the food industry
and hence in the USA, regulated by FDA. There are so many industries that have several
regulations that impact their operation. Some of these regulations go national, regional,
and local rules that could have an impact on its profit margin. Naturally, if a new product
must be launched and or an existing product’s composition needs to be changed then
FDA approvals are required. This makes the industry comparatively restricted.
Economical:
Dr. Pepper Snapple acquires its revenues from selling carbonated soft drinks.
The company is divided into the given groups: Packaged Beverages; Beverage
Concentrates; Latin America Beverages. Revenues come from the sale of finished
beverages, also the sale of certain third-party brands (the United States and Canada) are
what determine the Packaged Beverages category and it supported 72% of the
company’s revenues, according to statistics; also, was 38% of the total category’s
operating profits. Its revenues come from the sale of branded concentrates and syrups,
the majority being carbonated soft drink brands to also third-party bottlers (mainly the
U.S. and Canada). The most lucrative category is the Beverage Concentrates, which was
allegedly 20% of the company revenues and a powerful 57% of the overall category’s
operating profits. The last category, Latin America Beverages, sells concentrates,
syrups, and finished beverages throughout the Caribbean, Mexico, and other
international markets. This group contributes to 8% of revenues and 4% of the absolute
operating profits.
Socio-cultural:
This company has one of the oldest and most unique brands of all time, not only
because of its existence but also because of its unique taste, compared to other multi-
millionaire brands such as Coke, Pepsi, or Fanta. The logic behind such a loyal customer
base is the mix of 23 flavors into one small can. Dr. Pepper knows exactly how to target
their customers: slogan and advertising. In 2012 the company made an “Always One of
a Kind campaign”, which was created based on the 1970s “I’m a Pepper'' commercial,
which its purpose was to point out that any consumer who was drinking Dr. Pepper,
stands out. The soft drink giant launched a product called TEN in 2011, which was a
lower-calorie product with the exact same flavor as Dr. Pepper. As a result, the company
had consumers such as young men.
Technological:
One of the key processes of the beverage industry is manufacturing and
logistics. Technology plays a significant role in reducing cost, improving efficiency, and
smoothening the process end-to-end. Naturally, the industry needs to keep a tab on the
technological impacts and brace them to their benefit whenever possible. Since the
breakout of the internet, this brand has used this way to promote their products, they
now know that the public can see it at any time and anywhere, so this gives them an
advantage to presenting their advertisements on billboards or televisions. They have put
good use to the internet by making more and more videos with a big number of
campaigns such as their most recent social campaign “Lip Sync Battle “.
Legal:
Dr. Pepper Snapple wanted to promote more health and safety for the consumers
and 31% of the innovation pipeline was focused on health and wellness initiatives. They
have made a list of changes by 2015, which included: fewer calories, the offer of smaller
sizes, and improving nutrition.
Environmental:
As with any manufacturing business, the beverage industry produces a large
number of waste materials. The impact on the environment is considerably high when
compared to non-manufacturing industries. In addition, take into consideration logistics
and the overall carbon footprint increases dramatically. However, organizations are
continuously attempting to reduce the environmental impact in their business.
Shareowners of Dr. Pepper requested that the board of directors endorse a broad
recycling strategy for beverage containers sold by the company. The main goal that the
shareowners wanted to implement was to reuse plastic, glass, and metal containers,
therefore, to be more environmentally friend
Consumer Buying Behavior:
What is the consumer buying behavior?
After viewing the graphs specifically Exhibit 2 it looks like consumers have
different needs based on their age, gender, race, and ethnicity. The target audience
seems to be 18 - 34-year-olds. Although Caucasians make up 66% of the U.S. population
they only create about 12% of energy beverage users, the Hispanic population takes a
strong lead with 27% consuming energy drinks. Different factors influence consumers
to buy energy drinks, starting off with the price, how cheap can they buy it for, are the
drinks convenient to find? Meaning are they easily accessible in a grocery store or a gas
station, and how fast does the drink work for them to feel the energy boost right after
consumption.
2- How would you characterize the competitive position of Dr. Pepper Snapple Group,
Inc during late 2007?
SWOT Analysis of the Company and One Other Competitor:
Strengths Weakness
● Strong portfolio of leading consumer-preferred
brands. ● Competing with several Carbonated Soft
● Integrated business models Drink industry giants like Coca-Cola and
● Strong customer relationships. Pepsi-Cola.
● Attractive positioning within a large, growing, ● Energy drink market presence is very low.
and profitable market. Entered late
● Broad Manufacturing and distribution coverage
● Strong operating margins and stable cash flow
● Experienced Executive management team
Opportunities Threats
● Improving operating efficiency to reduce costs ● Price erosion because of different types of
● Build and enhance the product offering packaging and distribution options
● Exposure to growing segments of the market ● Pricing is competitive
Type of Generic Business Strategy Used:
Generic Strategies
Cost Leadership Differentiation Focus
Company manufacturers Creating a belief their Concentrating on driving
beverage concentrates that brand ownership, bottling, growth in its business in
are used by its own and distribution are more profitable and merging
bottling operations as well integrated than the U.S. categories.
as sold to third bottling operations of its principal
companies. competitors. Example: Dr. Pepper
Snapple Group
Example: Dr. Pepper Example: Dr. Pepper
Snapple Group Snapple Group
The Company’s Competitive Advantage:
Dr. Pepper Snapple Group Inc. has many different factors that set them apart from their compe
relationship with some of the largest bottlers and distributors affiliated with Coca-Cola and PepsiCo. T
based measures. For example, in 2006 7UP was relaunched with 100% natural flavors and no artificial
Competitive Advantage Formula & Application:
Your Business + What you’re best at +Why
Name
Dr.Pepper Is best at having long- Because company products are sold to a
Snapple Group standing relationships with wide range of customers from bottlers and
many of its top customers distributors to national retailers
Dr. Pepper Is best at their own brand Because this business model provides
Snapple Group ownership, bottling, and opportunities for net sales and profit growth
distribution through the alignment of the economic
interest of its brand ownership, bottling and
distribution business
Dr. Pepper Is best at having a strong Because this diverse portfolio provides
Snapple Group portfolio of leading bottlers, distributors, and retailers with a
wide variety of products and provides a
foundation for growth and profitability
Core Competencies:
Therefore, Dr. Pepper Snapple‘s core competence has been in the introduction of
new brands, and those brands are aimed at catering to the new changing market share.
For instance, the variety of brands increases their market share and enhances loyalty
among their customers. Core competencies are an internal activity that is part of the
company’s strategy and competitiveness. It is a strength a firm boosts of and how it can
sustain itself in the long run through sustaining profits overall. Therefore, through proper
use of resources a company’s core competence can lead to the creation of new
products and boost profits. In addition, distinctive competence puts a firm in a better
position than its rivalries once the demand for that product grows. The company’s
innovation in brands and meeting up to changing customer market segments has been
a unique core competence on the part of the firm. In addition, the company's investment
in R&D led to the improvement of operations to sustain its success in the long run. Dr.
Pepper is also making strong investments in product development, microbiology, and
regulatory compliance. The product development gave the company an edge in bringing
out new brands into the market so as to increase its market share.
3. What target consumer market should be chosen for a new energy beverage brand?
As a result of the major competitors arising every single day to the surface,
selling even better and better energy drinks, in the modern-age it is very challenging to
keep up. These companies like Bang Energy, have connections with authoritarian
individuals capable of quadrupling any company’s sales, but unfortunately, not everyone
has those connections. According to the research portrayed in this case analysis, one of
the best markets suited for a new energy beverage brand is in weight loss programs, the
healthy living consumer market. The energy drink that has proven ingredients capable of
making a person lose weight, sweat more while exercising or slowing down
metabolism. If this is marketed the right way, in the right fitness centers with the right
markets, it will have major success. A product with natural ingredients, that
revolutionizes the market. The consumer to be obtained is the one into fitness, the ones
with gym membership or meal plans, these prospects are the ones most likely to
purchase these kinds of products.
4. What product should be introduced and how should it be positioned/differentiated?
With a new energy drink design gear towards being on the move, Dr. Pepper
Snapple Group Inc. should introduce an energy drink with a new life span in mind.
Redesigning the way energy drinks are sold could help tap into the demographic of
consumers that the market contains. As a proposal to become positioned better or
differentiated. The bottle should be designed differently so it can stand out. Also
potentially having a lid structure that is resealable unlike the current design, made for
one sitting consumption. Competing companies utilize designs similar to soda cans.
Feasibly positioning in a way that promotes “on-the-go” since nowadays everyone is on
the move, especially as a result of this new product design having a resealable lid
structure.
In addition to having the product’s design changed, the bottle itself will contain a
a more grippale body. One that adjusts to one's fingers in case it falls from your hands
in the middle of a workout or by simply walking in a rush. A hypothermic body
composure will ensure the drink stays cold and refreshing through the time of
consumption, because sometimes energy drinks tend to get tasteless or land badly
while hot.
