Dr. Pepper Snapple Group,Inc. Energy Beverages Jasmine Shattuck Hugo Ayala Nicole Hare Casey Hynes Erik Connelly
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