Dr. Pepper Snapple and Competition - Case Study Example

? Dr. Pepper/Snapple and Competition al Affiliation] I. Competition (Hypothesis) Dr. Pepper Snapple Group is among the leading soft carbonated and uncarbonated drinks company in North America with an estimated yearly revenue of $5.9 billion and a broad range of beverages that includes 7up, Dr. Pepper, Mott’s, and Snapple among others. It has 200 distribution centers and 24 manufacturing centers across the United States (Fuhman, 2010). It is facing a market where the demand has been experiencing indifferent growth because customers are shifting toward healthy energy drinks, sports drink, and cheap drinks such as tap or bottled water (Ashurst, 2005). The company has also been facing competition from other firms such as Coca-cola and Pepsi (PEP), which have managed to moderate the effects of a declining U.S. marker by expanding their sales to other regions outside the United States. For instance, China whereby demand is still increasing, and the customers are not conscious about their fitness. The company’s competitive strategy on existing products in existing markets focuses on market penetration whereas the strategy for new products in existing markets is product development. When it comes to the competitive strategy for the new markets, the company seeks to develop markets for existing products in new markets and diversify new products in the new markets. Dr. Pepper/Snapple’s strategy as it relates to the Competition will be effective because it will enable the company to exploit both the new and existing markets. II. Evidence Dr Pepper Snapple Group’s mission is to be the best beverage business in the United States. This mission is in line with the company’s competitive strategy because through market penetration and market development, it will manage to beat both Coca-Cola and Pepsi. The company’s competitive strategy reflects and builds upon its position as one of the leading beverage companies in the United States. The company’s overall strategy focuses on building and improving the company leading brands; pursuing profitable packages, channels and categories; leveraging integrated business models; strengthening the company route to market and improving operating efficiency (Dr. Peppers Group, 2012). These overall strategies are in line with the competitive strategy because their main purpose is to develop both new and existing markets. Dr. Pepper Snapple Group operates primarily in the U.S., Canada, and Mexico, and it distributes some of its products in the Caribbean. It faces a distinct competitive disadvantage as it lacks operations outside the U.S. and dwindled use of soft drinks in the region. The company thus faces a distinct disadvantage because its two main competitors are solidifying their market share in the markets abroad (Power, 2011). The company also has a strong market position in numerous products categories and this will come in handy in market penetration and market development. The company has a wide range of product offerings in non-carbonated beverages and carbonated beverages, and this makes it to be one of the leading corporations in the United States non-alcoholic beverages market. In 2010, brands that hold either the first or the second position in their respective category generated approximately 77% of the company’s sales (Power, 2011). Most of the company’s products benefit from elevated levels of consumer preference, responsiveness as well as loyalty. In addition, its wide range of product portfolio offers its customers (distributors, bottlers, and retailers) with a wide range of beverages. Strong brand names come in handy in its competitive strategy because it will allow the company to launch innovative brand additions like Cherry, Cherry Antioxidant, Dr Pepper, 7UP, and Snapple value teas and Mott’s for Tots (Fuhman, 2010). The company supports the brands effectively with numerous sales and marketing initiatives. In FY2010, the company’s advertising and marketing expenses reached $445 million. Therefore, well-recognized brand names supported with strong advertising and marketing initiatives helps the company to command a leading position in the U.S. non-alcoholic beverages market. The company’s research and development group is engaged in matters related to microbiology, product development, process engineering, sensory science, knowledge management, analytical chemistry, regulatory compliance, and nutrition. The company spent $16 million on research and development during FY2010. Substantial investment in R&D allows DPS to launch new products in the market, which have expansive end user appeal, which the company can sell at competitive values and which it can repeatedly produce in a varied manufacturing set-up (Dr. Pepper Snapple, 2011). The company’s focus on research and development adds to market competitiveness. Products developed around customer requirements and taste preferences would help it to stay ahead of the curve in the competition and enjoy a leading market position. It also widens the platform for revenue generation. Excessive dependence on few market players for operations and revenue generation is detrimental to the company’s success. The company is excessively dependent on a few players for the conduct of its operations and revenue generation. Coca-Cola associated and PepsiCo associated bottling systems distribute almost 71% of Dr Pepper volumes. In FY2010, Coca-Cola and Pepsi accounted for 21% and 30% correspondingly, of the beverage concentrates sector’s net transactions (Dr. Pepper Snapple, 2011). As independent companies, these bottling partners have the liberty to take business decisions according to their interests, which may not always align with the company’s interests. DPS’s inability to offer a suitable incentives mix to its bottling associates via a mixture of marketing, pricing, and advertising, can lead to acts that may be detrimental to DPS or its brands. III. Findings The competitive strategy by Dr. Pepper Snapple Group will enable it to beat its top two competitors-Coca cola and Pepsi. The competitive strategy will enable Dr. Pepper/Snapple to exploit new markets because it is evident that its competitive disadvantage arises from lack of market diversification in other regions. By exploiting new markets, the company will manage to sell its products to new markets and increase its sales revenues. It will also manage to exploit the existing markets by diversifying its products to meet the new demands. An effective market strategy reaches the right buyers at the right time, persuades them to try the product, and develops a strong relationship with them over time (Boone & Kurtz, 2011, p. 47). Dr. Pepper Snapple Group’s competition strategy will enable it to reach more buyers in existing and new markets and develop a strong relationship with them. Dr, Pepper has been facing a distinct competitive advantage from the expansion of a zero-calorie sweetener by PepsiCo (PEP) and Coca-Cola Company in 2008. The federal authorities’ zero- calorie sweetener comes from the stevia plant and most companies take the plant as the Holy Grail in the manufacture of carbonated soft beverages (Associated Press, 2008). Unluckily, Dr. Pepper/Snapple did not take part in the development of the sweetener, which both Pepsi and Coca-Cola marketed under the names Purevia and Truvia respectively. Because of the extensive sensitivity, which customers have concerning every change to well-known soft beverages tastes, only the two competitors use the sweetener to alter the existing soft drinks. In addition, there are various gustatory and regulatory hurdles because many countries banned the sweetener as it leaves an unlikable licorice-like savor in various situations. Regardless, the development of the zero-calorie sweetener has presented DPS with a divergent technical drawback, which hurts an increase in sales because customers often look for products that are healthier and those that do not sacrifice taste. This means that DPS has to come up with unique healthier drinks that do not sacrifice tastes to compete effectively on the same level as its two major competitors. IV. Strategic Changes To increase its competitive advantage further, Dr. Pepper Snapple can come up with a health drinks product line to take care of the changing consumer preferences. Consumers’ preferences are shifting towards healthy energy drinks; the company can diversify its product to include healthy drinks to cater for a larger market segment. The subject of health and diet is increasing on the public agenda. In line with this public debate, the healthier drinking categories have seen a greater rate of growth. The company can increase products such as pure juices, fruit drinks, smoothies, and dairy drinks those individuals and their families perceive as healthy for consumption. Second, the company should expand its operations to benefit greatly from ensuring that their products are available on store shelves around the world. People find Dr. Pepper/Snapple products on store shelves globally. However, the sales do no benefit the company because Pepsi and Coca-Cola effectively own the rights of the Dr. Pepper brands abroad (Reilly, 2008). Dr. Pepper/Snapple can sell its products under its own name in other countries where Coca-Cola and Pepsi do not have rights to sell its products. The company should also extend its products to growing economies like India and China. Third, there is growing functional drinks market in the U.S. The demand for functional drinks (functional drinks market comprises of retail sale of sport drinks, energy drinks, and nutraceutical beverages) in the U.S. has been growing steadily. According to Data monitor’s report, the US functional drinks market increased by 1.2% in 2010 to arrive at a value of $ 16,048.2 million (Dr. Pepper Snapple, 2011). Further, in 2015, the market researchers predict that it will be worth of $ 18,607.9 million, an increase of 38.5% from 2010. The U.S. reports 33.3% of the worldwide functional beverages’ market (Dr. Pepper Snapple, 2011). Energy drinks are the leading subdivision of the functional beverages market in the United States, and they account for 83.2% of the market's sum value in 2009. Therefore, by leveraging its expertise, distribution network, and a broad product portfolio, DPS can cater for the increasing demand for functional drinks in the US. By being a part of a rapidly growing market, the company can boost its revenue and enhance profit margins. Strategic alliances can also boost the company’s growth. The company’s strategic acquisitions and partnerships in the recent past would increase its growing opportunities. For instance in June 2010, DPS declared that it had decided to license various products to Coca-Cola. Moreover, the Coca-Cola Company would provide Dr Pepper and Diet Dr Pepper in its local fountain accounts at present under Coca-Cola and will consist of Diet Dr Pepper and Dr Pepper on its Freestyle fountain dispenser (Dr. Pepper Snapple, 2011). In the same month, the company arrived at an accord with Vita Coco to distribute pure coconut water. Further, in March 2011, the company signed a multi-year agreement with Popeye’s to bring Dr Pepper and Hawaiian Punch to more than 1,300 US locations (Dr. Pepper Snapple, 2011). Therefore, by forming strategic alliances with these leading companies, DPS can improve its presence in the high margin channels and enhance its market presence. Wider market presence will help the company to boost its revenue and enhance its market position. Conclusion The company’s competitive strategy is effective. However, the company can make certain additions to the strategy to establish itself competitively in the market. The company’s competitive strategy challenges the company to break out of the intense competition with Pepsi and Coca-Cola by creating uncontested market space that makes competition irrelevant. Dr. Pepper/Snapple needs to reconstruct its market boundaries to cater for a larger market segment in different parts of the world. It has to reach beyond the existing demand to increase revenues and offer adequate competition for Coca-Cola and Pepsi. It also has to overcome its key organization hurdles and build execution into its competitive strategy. References Ashurst, P (2005). Chemistry and technology of soft drinks and fruit juices. 2ed. Oxford: Blackwell Publishing Ltd. Associated Press. (2008). F.D.A. approves 2 new sweeteners. Retrieved from http://www.nytimes.com/2008/12/18/business/18sweet.html?_r=1&scp=1&sq=S tevia&st=cse Boone, L., & Kurtz, D. (2012). Contemporary marketing, 2013 update. 15ed. Mason, OH: South-Western College Pub Dr. Pepper Snapple Group. (2012). Our mission. Retrieved from http://www.drpeppersnapplegroup.com/company/mission/ Dr. Pepper Snapple: A Growth, Margin, and Free Cash Flow. (2011). Black Book-U.S. Beverages & Snacks: Opportunity Outweighs Risk, 193-236. Fuhman, E. (2010). 125 years of 23 satisfying flavors. (Cover Story). Beverage Industry, 101(5): 26. Power, S. (2011). Dr. Pepper Snapple: A growth, margin, and free cash flow story. Bernstein Black Book-The Best of Bernstein: Global Edition. Reilly, M. (2008, May 7). Dr. Pepper fizzles away from Cadbury. Retrieved from http://www.fool.com/investing/general/2008/05/07/dr-pepper- fizzles-away-from-cadbury.aspx Read More