Energy Drinks Competition - Case Study Example

Energy Drinks Competition al Affiliation) Energy Drinks Competition Projections posited that globally, the beverage industry would grow to an approximated $1.78 trillion this year from $1.58 trillion five years ago. The entry of beverage producers into new geographical markets and diversified portfolios of beverages by these companies support this growth (Christou & Vettas, 2003). Further, this growth would arise from the steady increase in consumers’ purchasing power, especially in developing countries. The changes in consumer preferences globally also have a direct influence on the sales figures of beverages. The beverage industry has been affected by the change in consumer preference (Gerber, 2010). More consumers have developed preference for drinks other than carbonated drinks. The demand for alternative beverages in the US in 2009 contributed to the global demand considerably, with close to half of the demand for beverages coming from the US. Sales in the US made up 42.3% of the $40.2 billion in sales in 2009. The alternative beverage section changed the status-quo in the beverage industry, since it was, at the beginning, a unique product that offered better nutritional quality. The alternative beverage section of the beverage industry has unique economic characteristics too. To begin with, the growth of the segment depends on the purchasing power of the consumer. As more consumers become more economically empowered and their desire to have healthier lifestyles increases, they tend to switch from the carbonated drinks to the alternative beverages. Secondly, the alternative beverage section appeals to all age groups in the society (Christou & Vettas, 2003). Carbonated drinks are more associated with adults than school-going children because of the chemical components. Analysts in the industry project a decline in the sales figures for carbonated soft drinks and an increase in sales of sports drinks, ready-to-drink tea, energy drinks, bottled water, fruit juices, and vitamin-enhanced beverages among other types of alternative beverages, setting the ground for competition among companies producing alternative beverages. Competition in the beverage industry is considerably intense, with the established companies such as PepsiCo and Coca-Cola facing stiff competition from other companies such as Redbull (Gerber, 2010). Other companies other than PepsiCo, Coca-Cola and Redbull, with a 55% market share, dominate the larger share of the global market. In the United States, PepsiCo had the larger share at 47.8%, while the other companies had 31.5% of the total market share. Both Coca-Cola and Redbull had slightly over 10%. Alternative beverages attract higher prices, therefore attracting both new entrants and established companies such as Pepsi and Coca-Cola to invest in the segment. This increased competition between players in the industry both within the US and globally, with companies implementing different strategies to get a competitive edge in the industry (Blythe, 2006). The strongest competitive force is product innovation. Product innovation is strong because it offers consumers new products with the potential of ensuring consumer loyalty. Differentiation provides manufactures with the opportunity to brand their product in attractive ways (Gerber, 2010). The weakest competitive force is the volume of production. With consumer preferences forming the core of subscription, the volume of production does not contribute to increased competition. Even when the producer produces as many units as they could, without appealing to the consumer’s preferences and sales they would not perform well in the industry in terms of sales. Good performance in this industry depends on quality, marketing, innovation and distribution (Blythe, 2006). The distribution systems have an effect on the attractiveness of the industry because for new entrants to be profitable in the beverage industry, they need to invest heavily in their distribution network. Distribution is expensive, with high prices charged for trucks, warehouses, labour and tracking devices. This has prompted smaller producers of alternative beverages to outsource delivery services to third parties like wine and beer distributors. PepsiCo and Coca-Cola have been able to sell their alternative drinks at events and in other markets because of their vast distribution network (Blythe, 2006). The market for sport drinks, energy drinks and vitamin-enhanced beverages keeps increasing in volume globally, despite the sales figures being low in the United States. The introduction of energy shots targeted to parents, office workers and other adults had drastically shifted demand for alternative beverages across the globe. The alternative drinks industry continues to prompt producers to develop new products that appeal to the different market segments in order to increase their sales and remain competitive in the market (Blythe, 2006). For instance, energy drinks no longer target children in schools, rather grown-up individuals with need for energy at their places of work or residence. There are several drivers of change in the consumption patterns of alternative beverages. One underlying driver of change is the purchasing power of consumers. With consumers in emerging markets and the US becoming more financially empowered, the beverages industry is expected to grow. Another driver is differentiation. Consumers have different preferences, therefore differentiating products would serve to cater for different segments of the population, thus promoting growth. Producing alternative drinks that appeal to specific preferences and tastes of consumers would serve to develop consumer loyalty, which is a boost for any company (Gerber, 2010). The forces that companies exploit in the industry may collectively promote the growth of the industry through providing alternatives to the consumer, contributing to competition in the industry. However, differentiation may individually make the industry less attractive because of the high costs associated with research and branding (Christou & Vettas, 2003). For new entrants into the alternative beverage market, research into and production of new products may be too expensive. Distribution may also make the industry unattractive, because of the expenses involved. For a producer to maximize sales, he needs to expand the distribution network to cover the widest area possible. Below is a strategic map for the alternative beverage industry. The map shows the sales volumes against the market share of companies in the industry. High SALES Low Low MARKET SHARE High From the strategic map, the best-placed organizations are PepsiCo and Coca-Cola because they control a considerable percentage of the market share. They also individually have differentiated products, which ensure that they appeal to different segments of the global population. The worst placed are the other companies. Despite them controlling the bulk of the market share, they do not have much influence individually. To break into the market and become successful producers, they will need more investment in research, diversification, marketing and distribution (Blythe, 2006). The first determinant of producer’s success is product differentiation (Christou & Vettas, 2003). With product differentiation, producers can appeal to a wider market, thus increasing sales. In addition to that, product differentiation offers producers the opportunity to test new markets. The second determinant is the distribution system. Producers need to ensure that their products reach the consumers in good state and on time. Further, producers need to expand their distribution networks to cover the widest area possible. Finally, the quality of the beverage determines whether it will sell in the market or not. Producers should ensure that their products are of high quality consistently (Gerber, 2010). The established companies can also implement several changes to consolidate their positions in the industry. Coca-Cola should concentrate more on the alternative beverage segment to improve competitiveness. This is because the consumers are increasingly developing a preference for alternative beverage, with the sales figures for carbonated drinks reducing every year both in the US and globally. Through concentrating in alternative beverages, the company will be able to produce more differentiated products, as well as work on its marketing and distribution strategies. PepsiCo already has a strong presence in large markets. To improve competitiveness, PepsiCo should diversify its products to further increase its share of the market and fend off competition from Coca-Cola and other brands. Differentiation will also help PepsiCo to expand its market share by putting more products to the market (Christou & Vettas, 2003). Redbull GmbH is already the world’s largest energy drinks producer. To remain competitive, Redbull should market its products vigorously in new markets. This will assist it in increasing its sales (Blythe, 2006). Further, Redbull should also consider differentiating its products. The energy drinks producer will have an easier task of marketing the new products because the Redbull brand is already popular (Gerber, 2010). References Blythe, J. (2006). Marketing. London: SAGE Publications. Christou, C., & Vettas, N. (2003). Informative advertising and product differentiation. London: Centre for Economic Policy Research. Gerber, D. J. (2010). Global competition: law, markets and globalization. Oxford: Oxford University Press. Read More