Launching Energy-R - Case Study Example

 Contents Contents 1 Introduction 2 Business Philosophies 3 Five Forces Model 4 Industrial-Organization Economics 6 Analyzing the Market Potential for 8 Energy Drinks in the UK 8 Packaging of the Product 11 Marketing Channels 13 Making a Marketing Plan 14 Conclusion 17 References 19 Introduction Marketing is one of the most prominent constituents of business dynamics. It is integral to the operations of the firms, and is regarded as one of the chief functions of the organization, amongst other departments such as Research & Development and Human Resources. Dividing the various roles of the firm amongst these departments, one can appreciate that HR and R&D concentrate on the internal matters of the firm (Moore & Pareek 2009). On the contrary, marketing is perhaps the only functional division of an enterprise which is solely concerned with the consumer. It is regarded by many critics that marketing is the most crucial of all the functional aspects of the business; it can be argued that marketing is the prime means for attracting a customer, and without customers, there is little that the other departments are going to do. Marketing is important in helping the company to construct upon their corporate and business foundations, and to use them to solidify their goals. In order to further the objectives of the business, the business needs to consider the bigger picture. From the perspective of launching a product in the market, the bigger picture would entail exploring the market potential for the product, researching the competitors in the market giving particular attention to their strengths and weaknesses, coming up with an appropriate marketing strategy for the product and selecting suitable marketing channels. Moreover it is also important to develop apposite measures for managing and supervising the launch of the product in the market. The purpose of this paper is to research the market potential for an energy drink in London, UK, and to go through the aforementioned process of launching a product. The energy drink is called Energy-R. The initial part of the paper reviews the literature explaining strategic and operational literature. Business Philosophies There are various marketing orientations that the customers show towards the consumption of products. Functioning businesses have two main purposes. Firstly, they are working for the retention of the customers that they have attracted. Secondly, businesses are endeavoring for attracting new customers and increasing their clientele. There are a number of philosophies that can be implemented for the attainment of these two goals of the business. The first philosophy relates to the production concept. This means that all consumers are going to consume those products that are not only within the range of affordability but are also easily and extensively found. One of the famous corporations who follow this strategy is Wal-Mart. According to the founder of Wal-Mart, Sam Walton, the company should work on the philosophy of ‘Pile ‘em high and sell ‘em cheap’ (Moore & Pareek 2009). On the other hand, the product concept entails that customers are going to buy that product which is the most promising in terms of its value after taking into account the worth and performance of the product. Consumers are going to perform an evaluation of the product according to its various features, such as how durable it is or its serviceability; at times customers take into account a juxtaposition of the factors and their choice of different products depends on whether the products meet these juxtaposed product-based aspects. When referring to brands, customers also take into consideration whether the product is going to fulfill their psychological need or not. Five Forces Model Enterprises which operate on the selling concept support the notion that a large-scale effort is needed to promote a product; in the absence of a large-scale concept, customers are not going to consume enough products in order to generate a desired target of profits (Moore & Pareek 2009). Another concept is the marketing concept, which relates to how companies must make an analysis of the needs of the customers and produce and present their products in such a way that they are better off than their competitors in the market. This follows that the product produced should be made in a method that is more efficient than that of the competitors. Taking the marketing concept further, it is instrumental to make an analysis of the industry that the firm is operating in. There are many models that have been structured in order to gain an understanding of the market forces in which the firm operates. One such renowned model is the Five Forces Model proposed by the Harvard Business Professor Michael Porter. In his model, Porter outlined five major forces that help to evaluate and determine the profitability of the business. The theories were devised in the context of industrial organization, which refers to the branch of economics that relates to how industries can use the market to thwart competition. The five forces are enlisted and explained as follows (Burgers 2008): 1. Barriers to entry: is it easy to enter the market? Usually the concept that predominates is that the easier it is for competitors to enter, the less profit the already existing firm is going to make. 2. Rivalry: how many firms are present in the market? If there is more number of players sharing the same market, the prices are going to be less and hence fewer profits could be earned (Moore & Pareek 2009). 3. Power of suppliers: how much influence the suppliers have over the market as a whole and on the business? This encompasses the number of suppliers in the industry. 4. Power of buyers: how much influence do the buyers have on the industries operating in the market? The more the power of the buyers, the greater the suppliers would have to suffer. 5. Threat of substitute products: what other alternatives are available to buyers? This entails that if there is an increase in the price of the product, are there other choices available in the market for customers to choose from. Porter’s model suggests that a company will be able to perform well if the aforementioned conditions are favorable. The model helps the company to evaluate the current situation of the market, and to not only have an idea of the current position that the company holds in the market, but also gain insight where the company will stand once it has penetrated it. The company is able to assimilate where the power lies, and having this knowledge could enable the company to assess its strengths and improve its weaknesses while at the same time to prevent from taking the wrong steps (Porter’s Five Forces 2011). Investigating the market for energy drinks, one needs to make an analysis of the business environment. For instance when Tequila London was deciding to launch a new high-energy drink, which was a new product in the market, they made put together an integrated campaign for launching it. The aspect that was taken into consideration was not only how the company is going to create a brand value for the product, while at the same time investigating and deciding upon the most effective approaches for communicating the information to the targeted population. In the UK, the energy drink that has been the dominant brand has been Red Bull. It has been observed that new competitors that have tried to break in the market have not been able to achieve much success. They have failed to pose any significant threat to Red Bull, and are ‘more or less gathering dust on shelves’ (Cummins & Mullin 2003). According to the Five Forces model of Porter, in order to break into a market, the company should choose that market which is thought as the most unfavorable market. As Burgers (2008) observes that in order to break into a market, you need to ‘find a battlefield, filled with wounded and dying customers’. It can be seen that some of the most successful companies in the world today such as Dell, Southwest Airlines and Wal-Mart are seen to have either made a start in industries which were commoditized (PCs), or there were a number of powerful suppliers in the industry operating both internally and externally; these markets for also at times characteristic of have an extreme degree of competition or run by strong brand names. Therefore, Burgers (2008) asserts that it does not make much of a difference which industry the company is planning to enter; what matters is that the industry is not on the brink of disappearing e.g. typewriters in the 1980s. On the contrary, Burgers observes that what is important when deciding upon the industry is what the company does when it enters it. He concludes that it is feasible to break into a bad industry than a good one. Industrial-Organization Economics From this perspective, one can conclude that even though the energy drink market in London, UK, does not look very promising in terms of ease of entry and the power of the existing competitors, it can be considered that the market is the right option to break into. As Barney observes that when a strategy is viewed in the context of industrial-organization economics, the typical conditions of anticompetitive and socially undesirable business environment viewed under the neoclassical system of economics are completely thrown into an upheaval (Hunt 2002). For the purpose of breaking into such a market, it is imperative that the company works hard on developing a marketing strategy that is different and unique, and more dynamic and dramatic than the marketing strategies of the competitors who have tried to break into the market in the past years. JB Barney is a famous name in the world of resource-based view. Resource-based view (RBV) is considered as an integral business management tool and is employed by organizations to investigate and decide the strategic resources that are at the disposal of the company. Theorists explain that the main philosophy encompassing RBV is that it is the strategy that firms can apply for gaining competitive advantage. The only way that firms can gain competitive advantage is by deploying the resources that the company has. Barney, in his journal Firm resources and sustained competitive advantage, outlined the VRIN resource-based review. VRIN stand for (Value Based Management 2011): V= Valuable (those resources that allow a firm to create and devise strategies which improve its efficiency) R= Rare (the resources must be rare; if the resources are widely accessed and owned by a number of suppliers in the industry, the company would not be able to acquire competitive advantage) I= Imperfectly Imitable (resources that are a juxtaposition of three main elements: unique historical conditions, causally ambiguous and social complex) N= Non-substitutability (no strategically equivalent resources must be able be present in the market that are both rare and imitable) VRIN resources are hard to acquire but in a study conducted by Danny Miller, it was found that asymmetries are typically close to VRIN resources. This is because asymmetries encompass the skills, assets or processes that the other competitors of the firms do not have and are not imitable or substitutable. They are rare and are linked to a system of value creation in the company. Therefore, firms entering the market may not be able to trace and identify their VRIN resources, since many of them are identified when companies downsize, reengineer and benchmark. As a result, by undergoing a process of identifying and re-conceptualizing the asymmetries that are present in the organization, impregnating them in an organizational design that synergizes the goals of the organization, and controlling different market opportunities through them, firms develop the means to convert their asymmetries into sustainable capabilities (Value Based Management 2011). In the case of launching a product in the market, the company should consider making use of its asymmetries, and VRIN resources if they are able to identify them, in order to gain competitive advantage. In the aforementioned scenario, since the market for energy drinks is already dominated by Red Bull, it is essential for the company to develop a strategy that takes into account these processes. Analyzing the Market Potential for Energy Drinks in the UK Taking into account these trends that exist in the market, the most appropriate marketing strategy would be one that has the most impact on the target audience. The target audience for energy drinks is basically regarded as male teens and the youth. In order to make teens believe that the drinks that their highly caffeinated, $2-a-can soft drink is better than the rest of the energy drinks available in the market, small companies are depending on and adopting some increasingly brave marketing approaches (Helm 2005). Where the giants of the beverage industries are still dominating the market, startup businesses are embroiled in a race to outcompete other suppliers. The energy drink industry in the UK can be regarded as a ‘guerrilla-marketing street fight’ (Helm 2005). Companies have employed various stunts in their advertisements such as rocket launching, bridge jumping and skydiving to emphasize upon the concept that their energy drink boasts the energy of the consumer and enables him or her to perform extraordinary stunts. The sole purpose for the so-called guerrilla-marketing street fight is not only to attract the attention of the people but also to generate an adequate number of consumers for controlling and establishing a niche within another niche. The modern lifestyle is pushing up the demand for energy drinks. Functional drinks have risen in popularity over the past years, and their sales have moved from being a niche to a mass-market (Hollensen & Banerjee 2010). When analyzing the market for functional drinks, one comes to appreciate that Red Bull is now starting to meet more competition, with firms coming up with innovative energy drinks. There is higher revenue per liter in the production of energy drinks and even carbonated soft drinks manufacturers such as Pepsi and Coca Cola have come out with their versions of energy drinks. In Western Europe, Red Bull dominates the market and has 26.8% of the market share for functional drinks. In the region, UK is attributed to be the country with the maximum number of sales of functional drinks. The consumption of energy drinks in the UK remains more than 50% of the total consumption of these drinks in Western Europe (Hollensen & Banerjee 2010). According to a report released by Mintel, 484 million liters of energy drinks were consumed in UK in 2008 (Williams 2009). Sales of sports and energy drinks are expected to increase by 48% since 2009 to £1.5bn till 2014 (Thomas 2009). The market segment for Energy-R drinks relates to blue-collar workers as well as managers etc. There is some definite market potential for producing energy drinks for this segment in particular. This can be exemplified from the fact that the success of energy drinks in Thailand. Chaleo Yoovidhya, the founder of T.C. Pharmaceutical Co. in Thailand, made a formula for Krating Daeng, which was an energy drink. The formula was made many decades ago, and over the time, the brand has become to be the most preferred and consumed brand amongst blue-collar workers in the country (Onkvisit & Shaw 2008). Energy drinks are lightly carbonated beverages and suppliers are vouching for promoting them so much that they become the next chief brand after carbonated soft drinks such as Pepsi and Coca Cola. The only main supplier of energy drinks has been Red Bull, which has more than 60% of the market share. Red Bull started more than 23 years ago and BevNET, a Boston-based research company on beverages, reports that more than a thousand suppliers have entered the market ever since (Helm 2005). The new suppliers are endeavoring to draw attention and generate a greater customer base by using daring and bold stunts and maneuvers in their advertisements. The stunts used are not only jaw-breaking in terms of their performance, but are also appealing because a lot of financial input has been put into them to make them glamorous. Many of the suppliers give marketing as much importance as the production of the drink itself in order to make a niche for them in this competitive market. Also the pricing of the product along with the consumption patterns have changed over the years. Before the surge in popularity of energy drinks, sports drinks used to dominate the market. However with the increased popularity of energy drinks, consumption patterns have changed and energy drinks are now being targeted to a diverse range of target segments. The pricing of the drinks have also changed, and energy drinks are priced higher than sports drinks (Dahlén, Lange & Smith 2009). It has been noted that when a firm enters an industry, the focus should be on the segment of the industry the firm is trying to break into. For instance in the case of Dell, when Dell entered the market for computer products, it created its own segment by catering to the demands of the people for fixing their own computers by themselves, amongst other aspects that Dell covered; this shows that Dell concentrated its attention on a specific market segment. In the case of energy drinks, the market segment is narrowed down to mostly males in their teens and twenties. Therefore, marketing potential lies in captivating focused marketing segments. Kelly O'Keefe, CEO of brand-consulting firm Emergence, observes that, ‘Right now there's an ability to get a toehold more quickly if you can build loyalty with a niche of the market’ (Helm 2005). There is a scope in marketing for energy drinks to people who are interested in extreme sports, video games, hip-hop and even marijuana (Helm 2005). For the energy drink Energy-R, greater focus should be on the aspect of reinvigoration of the energy of the consumer. Packaging of the Product Another important tool for marketing energy drinks is their packaging. Packaging, along with the advertisements, is instrumental in generating an appeal for the product in the specialized marketing segment. Packaging of the product has a role not only in attracting the customers but also in disseminating information about the product to the consumers. Moreover, packaging has been seen to give rise to certain expectations in the potential consumers. Producers can opt from an array of packaging types in order to enhance and convey the main essence of the product. For example producers making perfumes would like to keep the packaging elegant and subtle so as to create a look of status and luxury. On the other hand, producers might harness the shock value of the packaging to attract the consumers. For energy drink manufacturers, packaging is important since the first impression is going to be a deciding element in the consumption of the product by the consumers. Generally, suppliers rely on making the packaging of energy drinks flashy and bright rather than toning down the colors. Also, since the targeted segment includes hip-hop stars and extreme sportsmen, energy drinks are packaged such as to give off an aura of energy, audacity and enthusiasm (Fact Expert 2011). In the case of Energy-R, the marketing segment also includes industrialists, consultants, workers and managers, who would prefer energy drinks for the purpose of energizing themselves and boasting their energy levels. The particular style of the packaging of the energy drink depends on the container that the drink is packaged in. The containers are usually metallic cans having metallic vibrant colors; some producers also opt for simpler designs that are representative of a particular brand and promote the unique brand image. Moreover the packaging should also contain information about the products. Although putting too much information into that cannot be very exciting, some information needs to be added in the packaging such as main ingredients, amounts of sugar, sodium, carbohydrates etc (Fact Expert 2011). Focusing on the ingredients that the producers use in the drink is of great importance. This is because there have been a number of cases where the drinks have been banned because the ingredients were not considered healthy for the consumers. For instance, in France and Denmark, Red Bull is banned because of its unhygienic ingredients. Also, there has been a trend in the preferences of the consumers. For the past few years, consumers have become more health conscious and they have started to prefer more low calorie beverages and energy drinks that do not have chemical additives or caffeine (Brede & Far 2010). Since the drink Energy-R is representative of a high level of hygiene and quality. Therefore there is increased need that the producers pay attention to the contents of the drink. Marketing Channels Marketing is not the aspect that the beverage companies need to concentrate on. Having a reliable and solid distribution of the products is equally important. John Cravgen, editor of BevNET, states that keeping reality in perspective, suppliers cannot expect to become successful overnight and establish a large customer base extending to the whole country; rather the supplier needs at least 250 to 300 distributors. There are also a number of channels that marketers need to choose from in order to promote their goods. For the marketing of energy drinks, companies have employed an assortment of marketing channels such as one-to-one marketing as well as guerilla-marketing. Some energy drink brands have featured sportsmen in their commercials and have sponsored extreme sports in order to promote the image that the energy drink caters to the need of the consumers’ adventurous side as well as infusing them with energy. Internet interactions and text messages are increasingly being used for the marketing of the energy drinks. The marketing channels have even extended to social networking websites. MySpace and Facebook have been used by energy drinks brands to market themselves. Nevertheless, traditional channels are also equally popular mode of marketing the products, and include television, radio, magazine and outdoor advertisements (Brede & Far 2010). Companies have used many methods of promoting their energy drinks. For instance, Burn used viral or buzz advertising (Hall, Jones & Raffo 2004). For Energy-R the methods that are the most economically feasible and culturally and legally appropriate should be used. Making a Marketing Plan Pervez (2006) observes that the reason why Red Bull has been able to gain control of such a large share of the market is because it is a ‘true marketing company’. He regards Red Bull as the company with the best marketing since Red Bull does not focus of the production of the drinks but rather on their marketing. The idea of producing and selling a functional drink outside the Asia came to Dietrich Mateschitz, who is the founder of Red Bull. It was in 1984 when Mateschitz established the Red Bull GmbH. He improved the quality of the product; the most instrumental contribution of Mateschitz in the development of the product was the creation of a unique marketing concept that drew its appeal from high energy sports event (Pervez 2006). In order to make a marketing plan for Energy-R, the company should aim to develop an effective marketing plan. The company needs to take three main things into account. This encompasses the identification of the target market, development of a marketing mix and the determination of a recommended budget for the launch of the product (Roger 2010). An analysis of the target market shows that about 70% of the energy drinks are being consumed by the males aged 12 to 34. Also there are some drinks operating in the markets for females. The research into the launch of Energy-R has shown that employees are more willing to consume products that enhance upon their proficiency and help them sharpen their alertness and contribute in sharpening the characteristics that professionals use in their daily lives. Professionals are seeking drinks that offer the ideal combination of perfect energy diets. The main marketing strategy is that managers like people who are hardworking, honest and intelligent. Research shows that employees and managers are of the view that a perfect and hygienic energy drink is good on a routine basis. Moreover workers have spoken in favor of the consumption of energy drink. Many of the workers also expressed the view that professional stability is one of the most effective means of satisfaction. In this regard, the managers shared the view that giving workers energy drinks can be an effective way to relieve themselves from the exhaustive affairs of the office for some time, while at the same time rejuvenating their strength. Energy drinks can be an effective way of increasing the efficiency, concentration and awareness of the workers (Bizzed 2010). Therefore for the purpose of formulating a comprehensive marketing plan, the objective of the product and the target segment has been identified. Energy-R is meant to target the employees and professionals working across various fields in London. The main aim of the energy drink would be to boast the energy of these people. Marketing the drink should focus on the essence of the drink i.e. the provision of energy. The producers of the drink should research on the taste that the consumers would like to prefer. The ingredients should be appropriately decided upon. Also the drink should meet certain minimum standards of quality and hygiene. Further aspects that the marketing team should consider are product line and brand positioning. There should be a consensus amongst the different departments of the company such as manufacturing and packaging and marketing regarding the product line. The departments need to decide upon the packaging that is the most appealing and offers an appropriate amount of the drink in each can. The size of the packages in which the company delivers the product needs to be decided as well. It has been seen that with regard to energy drinks, 16-ounce size have more than half of the case sales in convenience stores; this size has shown the greatest growth, incrementing by 150% since the year 2004 (Roger 2010). In order to break into the market, the company needs to take into account two main elements: product class positioning and psychological positioning. Product class positioning encompasses that the limits of the product class are demarcated. This is done either broadly or narrowly, taking into consideration the competing firms in the market. For example, energy drinks can be classed broadly into the beverages or more narrowly against other energy drinks in the industry. On the other hand, psychological positioning is carried out for products which have a number of uses and have a number potential target markets and competitors. However the use of the product takes predominance over target markets and competition in the market. For instance, in the case of Energy-R, the product class positioning would relate to the fact that the product has caffeine, vitamins, carbohydrates and vitamins (Lantos 2010). On the contrary, the psychological position of this energy drink would be that it can be used to boast the energy of people in their teens and twenties before they start work or during work. Energy-R can be given an advertising appeal to make it more meaningful. The advertising appeal entails a position statement that not only explains how the particular use of the product meets the needs of the targeted market in an efficient way as compared to the energy drinks offered by competitors. For the purpose of creating an advertising appeal, the company can focus on making a position statement that embraces three main elements: use, competition and target market (Lantos 2010). The use aspect can be used to promote that the Energy-R is going to refresh the employees working in the offices who have been through a hectic time. Competition can entail the idea that Energy-R can be used as an alternative to other drinks. The ingredients in the drink are guaranteed to enhance the efficiency of the workers in contrast to other beverages such as Cola, or tea and coffee. Target market is people who are involved in hectic activities throughout the day; moreover, people would also prefer to drink the energy drink if they have had a long night and need to be fresh when they go to work in the morning. The energy drink can be a good way to get rid of the grogginess. Positioning is of great importance when it comes to pricing. The reason why Red Bull has been able gain such a large market share in UK, US and many other regions of the world is also attributed to its clear positioning. Positioning has helped the company to increase its sales multifold and hence to sell the product at a premium price as compared to other brands. In fact the energy drink sector is one sector where premium pricing has been easily carried out. This is because of the fact that the products are responsible for meeting the demands of the customers for goods that refresh them and enhance their mental capabilities. Since these goods give the customers benefit, companies are able to set premium prices over them. In fact, linking the product positioning to the customer benefit is a good marketing strategy to achieve positioning (Lilien, Rangaswamy & Bruyn 2007). Conclusion Following these arguments, one can see that for the launch of Energy-R in London, energy drinks seem to be a promising area (Careers in Focus 2007). It has been predicted that the industry would grow yet more because they are “driven by innovation” (Addy 2010). Companies should gravitate towards the creation of a strong position statement as it has a number of benefits. Moreover, the promotion of the product at the time of the launch is also very important. The company can employ many channels such as featuring celebrities to market the product and endorse it. Campaigns are to be carried out on the level of television and print media, taste test and give-aways (Hollensen & Banerjee 2010). Advertisements can be quirky and promote the positioning of the drink (Keller 2008). Concluding remarks to the marketing strategies mentioned above encompass that it is of great importance that the target population is identified and daring and hardcore marketing is being done to establish the brand. Moreover in order to remain updated with the market, the company needs to position Energy-R accordingly and come up with a catching position statement which is trendy and appeals to the overworked urbanites of London (Johanson 2008). References Addy, R 2010, Health to drive growth in UK drinks market, William Reed Business Media Ltd, viewed on 20 January, 2011, Bizzed 2010, Where does Red Bull fit in to the UK soft drinks market? Biz/ed, viewed on 20 January, 2011, Brede, J & Far, SW 2010, Business plan for a fictional energy drink without chemical additives, GRIN Verlag. Burgers, W 2008, Marketing revealed [Electronic book]: challenging the myths, Palgrave Macmillan. 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