Competition in Energy Drinks, Sports Drinks & Vitamin Enhanced Beverage

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Background material

The soft drink industry has been dominated by some major companies like the Coca-Cola Company and PepsiCo. Prior to the 21st century, these companies concentrated in the processing of carbonated drinks. The drinks had an exceptionally high demand and companies that processed such drinks flourished by making enormous sales.

However, as consumers have been informed on the dangers or health risks associated with the consumption of carbonated drinks, they have shifted their attentions to other drinks. As the demand for soft drinks continued to rise, dominant companies took advantage of this and hiked the prices.

All these contributed to a shift in consumption of the drinks as consumers sought for alternative drinks. Therefore, alternative drinks came not only as an option, but also as a change in strategy for beverage companies to address the needs of customers (Gamble, 2012).

From the year 2000, the alternative beverage market has been extremely active with many companies coming into the alternative beverage industry. However, the international market for alternative beverages was immensely affected by the economic recession of 2008 – 2009.

The United States, which is the main market for the alternative drinks, recorded a significant drop in the sale of alternative beverages and drinks. There was a 12.3 per cent drop in the sale of sports drinks between 2008 and 2009. During the same period, vitamin-enhanced waters recorded a 12.5 percent decline in sales. It is only the energy drinks which recorded a rise in sales during the recession period. The sales rose by 0.2 per cent (Gamble, 2012).

Beverage producing companies capitalized fully on the demand growth by extending their products. Many companies have been developing new products, as well as diversifying their existing products so as to capture a bigger share of the market.

Beverage companies sought to further extend and venture into the manufacture and processing of relaxation drinks to address the needs of the depressed people. Therefore, the alternative beverage industry has been marked with high scale competition. There exist too many alternative beverages and drinks in the market now (Katz, 2010).

The major strategy of the beverage companies has been to diversify and make enormous extension of their brands in the market. Increased competition has resulted in unhealthy or unethical business practices within the alternative beverage and drinks industry. Market capture and expansion has been the main objective of the beverage companies. They do not pay much attention to the aspects of sustainability in the market.

A number of companies have been receiving criticism owing to the effects of their products to the health of consumers. Some products like the beverages with high caffeine content were critiqued for promoting unhealthy consumption patterns. Companies do not let the consumers know the patterns of consuming these beverages and drinks.

Some companies do not expose the contents and the side effects of these contents to the consumers. Physicians have been warning consumers of the dangers associated with some of the ingredients in these drinks like kava and melatonin (Gamble, 2012).

The global beverage industry is still projected to grow as the beverage companies are sprouting and finding new markets across the globe. Therefore, better strategies have to be adopted by the companies in the beverage industry. This will assure that these companies achieve market sustainability (Gamble, 2012).

Strategy identification in the alternative beverage industry

For a company to beat the competition in the market, it must first understand and pursue a strategy. The company must understand the industry in which it is competing as this is the main source of competition. Also, a company has to know all the rules that are governing competition within the industry.

Notably, there have been many players in the beverage industry. Each of the major companies in the industry has its own way of enhancing its competitive advantage. However, since these companies are operating in the same industry, they tend to use almost similar strategies with only slight differences (Gamble, 2012).

There are different approaches or strategies to competition. The five main generic strategies to competition are focused low-cost strategy, focused broad differentiation strategy, a market niche strategy based on low cost. Others are a focused market strategy that is based on differentiation and a best-cost provider strategy.

Some companies do apply a mix of these strategies. It is advisable for companies to choose and pursue a single strategy. The pursuance of one policy helps in easing the positioning of a company. This helps in eliminating the complexities that may arise from integrating the varied strategies (Katz, 2010). Major firms in the alternative beverage industry have been applying most of these strategies in order to enhance their performance in the market (Gamble, 2012).

The Coca-Cola Company stands out as one of the oldest company in the soft drink industry. Also, the company is ranked as one of the best performing companies in the industry. In the year 2009, the company was the best manufacturer and distributor of soft drinks within the global market. Coca-Cola has a very wide market with different brands. Brand extension is the major strategy of competition for the company.

It has the widest distribution network with its plants located in over 200 countries globally. The Coca-Cola brand has been very helpful to the company. It positioned the company in the wider market enabling it to enter alternative beverages into the market effectively. With its new and high quality brands of alternative drinks, Coca-Cola has continued to maintain a competitive position (Gamble, 2012).

Similar to Coca-Cola, PepsiCo has a number of popular products like Pepsi. The company has employed several competitive strategies to survive in the competitive alternative beverage and drink industry. One of the key competitive strategies has been brand-extension and brand-diversification.

PepsiCo has established itself in the market as a company that has quality products. The company is creative and has been coming up with different products that are filing the market and making it a strong player (Shankar & Carpenter, 2012). As one of the biggest beverage companies, PepsiCo noted this demand and ventured into processing the different brands. Some of its products were rated the best in the industry in the year 2010.

There are various advantages associated with broad brand distribution. However, what stands out is that this form of distribution provides a wide range of options for customers. The company has further expanded these brands into different flavors. Brand differentiation and extension has been the leading force behind the organization’s performance in a competitive industry (Katz, 2010).

Hansen Natural Corporation has ben dealing in the manufacture of alternative beverages for a long time. The company sales have been growing in the recent years. This growth is equated to the launch of several other beverages by the company from the beginning of the year 2002. The company has adopted an aggressive differentiation strategy.

Apart from coming up with many brands of products and taking them to market, the company also uses price as a means of differentiating its products in the market. In the year 2002, the company decided to lower the prices of its products with the price of Red Bull products. In-store promotions have also been extensively used by the company in familiarizing its products to customers.

The company uses creative promotional strategies. They promote their products in the events that they sponsor for instance sporting events and art and music concerts (Gamble, 2012).

Red Bull GmbH has been one of the leading companies in the processing of soft drinks in the beverage industry. The company concentrated in the manufacture of beverage drinks since its inception. This explains why the company is a strong force in the industry. Whereas other companies have diversified and produces products in different categories within the industry, Red Bull has concentrated in one lane of products.

The concentration in these products has made the company a master in such products. However, all other companies in the industry have been diversifying their products and even becoming good producers of sports drinks. This competitive strategy is not very favorable in an industry which has many players. Dependence on a single product is highly risky for a company. The company is bound to flop in the event other companies develop stronger substitutes (Trigg, Himmelweit & Simonetti, 2002).

The alternative beverage industry has been marked with competition. Companies in the industry are using almost similar strategies of competition. With products in the industry being close substitutes, broad differentiation strategies are the main focus of the companies.

Most of the main firms in the industry are coming up with more products so as to fill and dominate the market. In this aspect of differentiation, quality is also playing out as an important element of differentiation. Some companies are earning fame in the industry because of the quality of their substitute products (Thompson, Gamble & Strickland, 2006).

Analysis of performance of the broad differentiation strategy by major firms in the alternative beverage industry

Just like many other strategies, differentiation strategies are aimed at maximizing profits in companies. It enables firms to raise the unit of sales, gain the loyalty from their customers, and commanding a premium price for company products. When this has been achieved, the company gains competitive advantage over its competitors in the market (Shankar & Carpenter, 2012).

PepsiCo gained access into the alternative beverage market by virtue of having dealt in the soft drink industry for a long time. The broad brand differentiation strategy has been argued to be the main reason why the company has been ranked first in the alternative beverage industry globally (Thompson, Gamble & Strickland, 2006).

PepsiCo has been remarkably innovative knowing the amount of efforts that are being employed by its competitors like Coca-Cola and Red Bull. The company formed vast distribution systems for its carbonated soft drinks like Pepsi-Colas. As it introduced its new brands of the alternative beverages, it ensured that the new brands were found where in the distribution centers for its famous brands. Therefore, as people purchased these products, they came across the new products.

PepsiCo has over one hundred sub–brands of brands in the market that have been developed from the main brands. The first aspect of differentiation in the company was the venturing into the production of alternative beverage drinks. At one point, PepsiCo has managed to come up with over 12 different flavors of products from a single product. There are different methods or approaches of differentiating products in a competitive market (Gamble, 2012).

Differentiation can focus on either the main products or even on other aspects of product marketing like pricing and other marketing approaches (Keller, 1998). PepsiCo has concentrated much on diversifying its alternative beverage drinks. This forms the core of its differentiation strategy. The company has many alternative beverage drinks in the market. This means that the company attests to the differing tests of customers.

This also aids the company to have a wider market relative to its competitors, and thus a competitive advantage to PepsiCo. A company can choose to pursue brand differentiation in multiple ways. This gives the company a stronger platform on which to compete with its competitors. However, it is suitable for a company to identify its strong pointer in differentiation as this will serve the company best when competitive pressures mount (Kotler & Pförtsch, 2006).

Differentiation is an extremely broad strategy. For a company to realize the benefits of differentiation strategy, it has to incorporate differentiation activities in its supply chain. A strong and differentiated supply chain ensures that products reach customers in time and required qualities and quantities (Thompson, Gamble & Strickland, 2006).

PepsiCo has done well in sustaining its supply chain by enhancing its distribution channels and points. Its products are easily found in the market. This boosts the sale of the products. Research and development have also helped the company in its initiatives of brand diversity.

With a significant number of products in the market, the company has to shift its attention to active marketing practices like advertising and promotional activities. There are many products from the company that are not yet known by many potential customers. The brands that have been developed in the recent years need to be made known to the potential customers of the company (Gamble, 2012).

Recommendations for future decisions for a new company in the industry

Companies that are aiming to venture into this industry have to be extremely creative. Nonetheless, with many customers, this industry is highly saturated with master companies. The first thing for a new company will be to assess the industry in terms of the main companies operating in the industry and strategies that they use. The attractiveness of a firm in any industry is the attractiveness of the industry. Industry attractiveness is determined by the profits that are being made by the firms in the industry (Porter, 1998).

The new firm must also be familiar with the rules that govern competition in the industry. According to Porter (1998), the rules are to be found in the five forces of competition. These are competition for new entrants, threat of substitutes, the buyers and their bargaining power, the bargaining power of suppliers and rivalry in the industry. The most compelling force in the beverage industry is the issue of the threat posed by substitute products and rivalry among the firms.

When a company chooses to pursue a certain competitive strategy, it does not imply that the company should work with the strategy in an isolated manner. Strategies do not work in isolation just as it is in the business. Other strategies have to be incorporated within the main competitive strategy to make it work efficiently.

Each strategy has its advantages, as well as disadvantages to the company. Therefore, the company must ensure that it maximizes on the strengths of a strategy. Capitalization on the strengths of a strategy helps in eliminating the negative effects of a strategy. The broad brand differentiation strategies have been applied in greater heights. Ii is more risky for a new firm to concentrate on a single strategy in a market that has highly volatile activities (Thompson, Gamble & Strickland, 2006).

The company has to monitor the different companies and capitalize on the aspects of weakness in the competitors. As a company develops products in the market, it has to monitor competition both from within and without the organization. The company must fully understand its competitors so that it can choose the best strategies to out-compete them. As a market leader, a company is always prone to scrutiny from other firms (Yoffie & Kwak, 2001).

The adoption of blue ocean market strategy could also be favorable to the new company. The beverage industry is marked by similar products with only slight differences in flavor. This can be effectively applied in marketing by choosing inventive strategies, which will help the company set itself above the other companies. The strategy chosen by the company has to be integrative basing on the assessment done to the strategies of the other companies already in the industry (Kim & Mauborgne, 2005).

The new entrant has to adopt defensive strategies as it enters the market in the first time. Open competitive strategies will then be applied when the company has attained a significant market share. This is because the activities of the company can be influenced be put to jeopardy by the actions of the smaller (Thompson, Gamble & Strickland, 2006).

References

Gamble, J. E. (2012). Competition in Energy Drinks, Sports Drinks, & Vitamin Enhanced Beverages. Web.

Katz, J. S. (2010). Competing for global dominance: Survival in a changing world. Silicon Valley, CA: Superstar Press.

Keller, K. L. (1998). Strategic brand management: Building, measuring and managing brand equity. Upper Saddle River, N.J: Prentice Hall.

Kim, W.C. & Mauborgne, R. (2005). Blue ocean strategy: How to create uncontested market space and make the competition irrelevant. Boston, Mass: Harvard Business School Press.

Kotler, P. & Pförtsch, W. A. (2006). B2B brand management: With 7 tables. Berlin: Springer.

Porter, M.E. (1998). Competitive Advantage: Creating and Sustaining Superior Performance: with a New Introduction. New York: Simon and Schuker Inc.

Shankar, V. & Carpenter, G.S. (2012). Handbook of marketing strategy. Cheltenham [etc.: Elgar.

Thompson, A. A., Gamble, J. & Strickland, A. J. (2006). Strategy: Core concepts, analytical tools, readings. Boston, Mass: McGraw-Hill.

Trigg, A., Himmelweit, S. & Simonetti, R. (2002). Microeconomics: Neoclassical and institutionalist perspectives on economic behavior. London: Thomson.

Yoffie, D. B., & Kwak, M. (2001). Judo strategy: Turning your competitors’ strength to your advantage. Boston, Mass: Harvard Business School Press.

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