CASE NO. 1
DR PEPPER SNAPPLE GROUP, INC.
Definition of the problem
The Dr Pepper Snapple Group, Inc. senior company management has developed a corporate strategy to target high-growth and high-margin beverage businesses. The firm is the only major domestic nonalcoholic beverage company in the US without a significant branded energy drink of its own while this beverage market is the fastest growing category. Dr Pepper Snapple group needs to determine if a market opportunity exists to introduce its own, new energy drink brand. In order to effectively evaluate the benefits of entering the energy beverage market, the company needs to identify a ...view middle of the document...
3. The firm possesses strong customer relationships.
4. The firm has broad distribution and manufacturing coverage.
5. The firm has an experienced executive management team.
6. The firm has experience in successful diversifications such as the Accelerade RTD product.
The company’s weaknesses:
1. The firm is currently underrepresented in some regions where they do not have regional bottling companies.
2. The firm has no previous experience in the energy beverage market specifically.
The company’s opportunities:
1. The firm is a recognized leader in the US, Canada, and Mexico markets which are well positioned to benefit from emerging consumer trends.
2. The firm’s established businesses provide significant stable cash flows that can be utilized to explore new products.
3. The firm’s stable cash flow will allow the firm to acquire additional bottling companies, which can accelerate the introduction of new products.
4. The energy drink market is a $6.2 billion dollar market with significant growth expected by industry analyst. In 2006, the energy drink market was the fastest growing category.
The company’s threats:
1. Energy beverage consumers limit their choice to only 1.4 different brands, on average, which suggests customer brand loyalty.
2. The market has seen an increase in product proliferation and increasing competition as the market has matured.
3. The market has seen price erosion of 30 percent over the last five years, though not all price erosion is directly related to competition and decreased margins.
4. Major competitors’ brands are supported by significant expenditures in media and other promotional vehicles.
The first alternative, choosing not to enter the energy drink market, would minimize the company’s risk of investing resources into an unprofitable venture. Diversification is often a high-risk strategy because both the product and market served is new to the firm. This strategy would be recommended if it is determined that success requirements for the energy drink market do not align well with the company’s existing competencies.
Choosing the second alternative, the company would attempt to enter the high-margin and high-growth energy beverage business which aligns with the company’s corporate business strategy. However, obtaining favorable profit margins in the energy drink market will only be achievable if the market success requirements align well with the company’s distinctive competencies.
Make a choice
The best alternative for the company is to launch a new energy brand to the market. While the company has not competed in this market in the past, the company does have distinctive competencies that will support a positive performance in this new market. The company owns well-known and consumer preferred brands in several other non-alcoholic beverage markets. The company’s success in these markets is evidence of its ability to effectively build and enhance its brands, as well as...