Habiburachman - 29111388 Dr Pepper Snapple Group 2011.docx

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Name Habiburachman

Student ID 29111388 Mobile phone 081321850144

Course code and title Businees Strategy

Course time and place Thursday/ 08.00 – 13.30/ R1 Program Young Professional

Lecturer Harimukti Wandebori

Assignment number Due date March 6th 2013

Assignment title/topic/case Dr Pepper Snapple Group 2011: Fighting to Prosper in Highly Competitive Market

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Dr Pepper Snapple Group 2011: Fighting to Prosper in Highly Competitive Market

To achieve their objective company used their own strategy that should be hard to imitate by

competitors. Based on reference book by Ireland “The Management of Strategy” strategy is

an integrated and coordinated set of commitments and actions designed to exploit core

competencies and gain a competitive advantage. Company used strategic management

process as a tool to achieve competitive advantage and know core competencies as we can

see on figure 1.

Since DPS spun off with Cadbury, DPS focused on their own strategic development.

Management has sought to establish the firm as leader in the higher margin segments of the

non alcoholic beverage industry. There are six specific strategies that established by

company: build and enhance leading brands, focus on opportunities in high-growth high-

margin categories, increase presence in high-margin channels and packages, leverage the

firms integrated business model, strengthen the firms distribution channels through

acquisition and improve operating efficiency. In arrange their strategies DPS are focused on

internal development and broaden their market share by acquisition and contractual

agreement.

The first step in strategic management process is strategic input that consists of external

analysis and internal analysis. A firm strategic actions are influenced by the conditions in the

three parts (general, industry, and competitor) of its external environment as we can see on

figure 2. General environment composed of dimensions in the broader society that influence

an industry and firms within it. The general environment segments are includes:

demographic, economic, political, socio cultural, technological, global and physical

environment. In beverage manufacturing and bottling industry economic and other market

condition are really influenced their business. Like on crisis between 2008 and 2010, total

consumer spending in United States decreased until 16% it makes consumers turned from

flavored drinks and colas to less expensive alternative.

Besides influenced consumer spending budget, recession significantly increase commodity

prices its press the company margin. The others general environment segment also influenced

the beverage industry like: changing demographic; beverage sales are higher during summer

months and holiday and become slower during winter. Changes in socio cultural trends are

one of the most affecting beverage industries. As consumers continue to reduce caloric intake

and look for products richer vitamins, the less-healthy sectors of the beverage are expected to

shrink. Soft drink sales will be decline however demand for healthier beverage is projected to

grow.

Industry environment has more direct effect on firms strategic actions. Company can use five

Porter forces model as a tool. By studying these forces, the firm finds a position in an

industry where it can influenced the forces in its favor or where it buffer itself from the power

of the forces in order to achieve strategic competitiveness and earn above-average return. I

try to make the porter five forces analysis of beverage industry like on table 1.

Threat of new entrants

Threat of substitutes

Bargaining power of supplier

Bargaining power of buyer

Rivalry among competing firms

High entry costs Non-CSD drinks like milk, alcoholic beverages, juices, sports drinks, tea-based, dairy-based drinks

Low switching costs.

Higher buying power – large grocers, discount stores and restaurants buy large volumes demanding a lower price.

Highly competitive and constantly shifting to respond to changes in consumer tastes and preferences

High risk for entrants due to diversified nature of Coke and Pepsi.

Threat of saturation of consumption in US market thereby leading to increase in the consumption of on-Cola beverages.

Huge number of suppliers.

Choice of customers is high due to competition and variety in the market.

Existing Loyal customer base.

Maintaining the quality and flexibility of supply chain through backward integration i.e. acquiring bottling plants.

Acquisition of major bottling units by existing firms increases the entry barriers.

After scanning the external environment we can move to strategic input by internal

environment. Internal environment is analyzing firm internal organization, in analyzing

process we should use global mid set. Global mind set is the ability to analyze, understand

and manage an internal organization in ways that are not dependent on the assumption of a

single country, culture or context. Components of internal analysis we can see on figure 3

below

Resources are consisting of tangible and intangible. We start to analyze tangible resources of

DPS: Overall DPS financial performance since spin off in 2008 are outside the expectations,

DPS sales increase and measures the company took increase efficiency, profits were down

approximately 5% from previous year. DPS is major beverage company that was spin off

from Cadbury and in time DPS do agreement with Pepsi bottling group in Minnesota. DPS

management seasoned professionals with decades experienced in food and beverages. DPS

always innovate their product followed the costumer trends. DPS also has a creative

marketing and operation team. DPS has their own factory and applied Direct-Store-Delivery

(DSD) distribution networks and third party distribution. DSD distribution is carried out by

railroad and truck.

Based on strategic input data we can formulate strategic business level strategy. Business

level strategy is an integrated and coordinated set of commitments and actions the firm uses

to gain a competitive advantage by exploiting core competencies in specific markets. The

purpose of business level strategy is to create differences between the firms’ position and

those of its competitors. To establish and defend their desired strategic position against

competitors firms choose five business level strategies (figure 4)

Cost leadership, differentiation, focused cost leadership, focused on differentiation and

integrated cost leadership/differentiation are five desired strategic position againts

competitor. Cost leadership is an integrated set of actions taken to produce goods or services

with features that are acceptable to customer at the lower cost, relative to its competitors.

Effective use of cost leadership strategy allows a firm to earn above-average returns in spite

of strong competitive forces. Differentiation strategy is an integrated set of actions taken to

produce goods or services at an acceptable cost that costumers perceive as being different in

that are important for them.

In terms of business level strategy DPS use differentiation strategy. DPS always made an

innovation in their products followed customer trends. DPS make healthier beverages to

faced customer needs. Besides healthier beverages DPS also make differentiation in their

products like new green tea ginger ale in Canada Dry Line.

The last chapter is Strategic Acquisition and restructuring. Acquisition and restructuring is

alliance strategy to increase their market share and hopefully above average returns. Merger

is strategy through which two firms agree to integrate their operations on relatively coequal

basis. An acquisition is a strategy through which one firm buys a controlling or 100 percent,

interest in another firm with the intent of making the acquired firm subsidiary business within

its portfolio.

DPS right now is the result of spin off between Dr Pepper Snapple Group, Inc and Cadbury in

2008. Cadbury Schweppes emerged in 1969 from the merger of Cadbury Plc, a British

confectionary and Soft Drink Company and Schweppes, an international beverage brand. In

time Cadbury Schweppes become third largest share of the beverage market in North

America by its strategic acquisition like: Duffy-Mot, Canada Dry, Sunkist, Crush, A&W and

Sun Drop. In 1995 Cadbury buy Dr Pepper/Seven UP and in 2000 Cadbury Schweppes

acquired Snapple Beverage Group. Three years after acquiring Snapple Cadbury Schweppes

combined its four North America beverage companies into Cadbury Schweppes Americas

Beverages (CSAB). In May 2008, CSAB officially spun off from Cadburys confectionary

manufacturing division and became known as Dr Pepper/Snapple Group, Inc.

Based on “Dr Pepper Snapple Group 2011: Fighting to Prosper in Highly Competitive

Market” case we can learn that a company should has a Strategic Competitiveness that makes

them different with their Competitor. One of Strategic Competitiveness of DPS is DPS are

focused in their internal development to increase their high profit margin and strengthen their

market by Acquisition. Focus on internal development and acquisition DPS success to

survive in beverage industry. I think acquisition and merger is one of the best strategic

formulations that can take by company to increase their market share.