Dr. Pepper Snapple Group – Energy Beverages
MBA 630 Marketing Strategy Case 1
It is believed that bottlers and distributors will only produce and stock 2 SKU's of a new energy
drink. Given there are 24 possible combinations of packaging (2: single-serve, multi-pack),
package sizes (3: 8, 16,24), versions (2: regular, sugar free), flavors (2: one, two). Discuss
which 2 combinations should be selected and through which channels should they be
distributed?
SKU 1: Single-serve, 16 oz, Regular, One Flavor
SKU 2 Single-serve, 16 oz, Sugar-free, Same Flavor
Packaging: Single-Serve. This will allow us to sell in convenience stores, the largest channel
by sales percentage. By selling in convenience stores, our goal to have a product with a high
profit margin will be obtainable. Single-serve products and convenience stores yield the highestprofit.
Package size: 16 oz. This is the fastest growing packing size of energy drinks, and accounts
for 50% of convenience store sales. More research should be conducted to find if the 16.9 oz.
aluminum with resealable screw cap is an option the market finds attractive, as this feature can
differentiate our product.
Versions: Regular and Sugar-free. Choosing this will allow us to target both the 80% of the
market that prefer regular and the 20% that prefer sugar-free.
Flavors: One flavor because there are several energy drink beverages already on the market.
We believe it is better to have one strong initial offering which can lead to the expansion of
flavors after the initial version obtains ground in the market.
Channel: We want to launch our brand in convenience stores, as this has the highest share of
market sales with 52.5%* of total market coverage. We will be able to reach the largest
amount of consumers through them, while remaining consistent with the company objective to
be in high profit areas. Our offering of two SKUs is consistent with the limited product lines
convenience stores want to sell. Selecting one channel for launch will also help advertising and
promotion costs. Eventually we would like to expand into supermarkets and mass
merchandisers once the product is established, as well as possibly implement additional SKUs.
*Calculation- .71 portion of total sales in off premise x .74 portion of off-premise in convenience
store sales = .525 total portion of convenience store sales
What 'ballpark' dollar amount for media advertising and promotion should be budgeted for a
new energy beverage brand and why do you believe this is an appropriate amount?
Knowing that we don’t have the budget to match Red Bull’s media plan, while understanding
that significant money needs to be spend on the launch of the product to increase awareness,
we used Hanson as a benchmark to make our budget decisions. Hanson's Monster Energy is an
appropriate competitor to pick, because they target the same demographic and have the same
package size we plan to launch.
Media Advertising = $ 308,000 This is based on doubling Hanson’s planned media expense for
2007. This will give us approximately two impressions for every one Monster impression.
Promotion = $1.23 million Keeping with the industry standard we plan that our promotion
expenditures will be four times greater than our media budget.
Total: $1.54 million
To break even with this level of advertising and promotion expenditures we will need to
sell 203,849 cases.
Total sales
Selling price/unit
oz/unit 16 total oz
oz/case
$9,340,000
4,670,000
74,720,000
288
Total cases
259,444
Total profit
$1,960,000
Profit/case
$7.55
Adv & promotion
Breakeven (cases)
$1,540,000
203,849
Discuss what suggested retail price should be recommended for a new energy beverage brand?
We are entering a mature market with loyal customers, and do not have the ability to position
ourselves against the premium brand, Red Bull. As a result we plan to implement a competitive
value pricing strategy with a retail selling price below Monster, Rockstar, Full Throttle, and AMP
Energy. Based on the average retail selling price per case given for these companies, we
estimated their selling price to be between $2.11 and $2.16. Therefore, we plan to see our
product for $2.00, or $.125/oz.
Calculations:
Monster/AMP Energy $39/case / 288oz/case = $.135/oz or $2.16 for 16 oz
Rockstar/Full Throttle $38/case / 288oz/case = $.131oz or $2.11 for 16 oz
Discuss what would be a reasonable first-year sales forecast for a new energy beverage brand
based upon your recommended target market and marketing mix?
153 million (sales in 2006)
x 1.105 (growth in 2007)
x 1.105 (growth in 2008)
x .7 (% of males that are users)
x .71 (% of off premise sales)
x .74 (% of off premise sales that are convenience store sales)
x .5 (% of convenience store sales that are 16 oz)
x 1 ( 80% of regular and 20% sugar-free) x .7 (DPSG coverage)
= $24 million chain ratio projected sales
153 million (sales in 2006)
x 1.105 (growth in 2007)
x 1.105 (growth in 2008
= $186 million total market sales in 2008
$24 million project sales/$186 million total sales = 12.8% of the market
$186 million x 5% (expected DPSG market share) = $9.34 million in sales
Using the chain ratio method, we determined sales forecast of $24 million. As a market share,
that represents almost 13%, which we feel is unreasonable to obtain with a new product in its
first year. We are optimistic that we can obtain 5%, knowing that Tab was able to obtain a
2.5% share targeting only women. Capturing 5% of the market would result in sales of $9.34
million. Projected profit for this sales level would be the wholesaler’s margin in addition to the
gross profit, a total of $3.36 million.
Total Retail to Consumers
50% margin to convenience stores
To wholesalers
30% margin to wholesalers
Factory sales
COGS
Gross profit
*In millions of dollars
$
9.34
$ (4.67)
$
4.67
$ (1.40)
$
3.27
$ (1.31)
$
1.96