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Main Issues
The Right Stuff (RS) is an electrolyte hydration product launched by David Belaga. The case is written because an innovative technology, namely, the NASA formula and patent, were employed to develop the RS, and their implementation is associated with particular managerial issues. With a start-up fund of $300.000, Belaga managed to grow within the domestic institutional and individual athlete markets. However, the major issue faced by Belaga is the targeting of new non-athletic and international consumer groups (Terjesen, 2016).
Base of the Pyramid and Born-Globals
Prahalad (2006) divides the economic pyramid into four sectors. Its top comprises people with the purchasing power of more than $20.000. At the same time, the bottom of the pyramid (BoP) comprises over 4 billion people who live on less than $2 a day (Prahalad, 2006). The given group of potential consumers provides opportunities for the business growth as the demand for high-quality and innovative products in this market is very high. Additionally, the BoP provides opportunities for the development of entrepreneurial partnerships because the productive sector in low-cost markets is underused, while the need for change and economic solutions remains great there (BoP Innovation Center, n.d.).
The “born-global” concept refers to a company that has a vision of becoming a global player from the very start. Although in a longer perspective, Belaga planned to compete with such large international brands as Coke and Pepsi (Terjesen, 2016), the RS cannot be considered a true born-global brand because it is a domestic start-up and the internationalization period takes a significant time for the firm. However, since the RS is “international by design” and aims to expand in the international market, it shares some characteristics of a born-global company (Tanev, 2012, p. 5).
Business Model
Belaga utilizes a direct sales model. He is both the manufacturer and the retailer. He uses raw materials to create the product and then sells the RS directly to customers − individuals and organizations − or turns to a well-developed network of partnerships to do so.
Table 1: The business model canvas for the RS.
With the initial fund of $300.000 for a 2-year business development, Belaga expected to break even in year 3 (Terjesen, 2016). However, he used an additional fund of $325.000 to cover expenses and, during the first year, could fulfill only 40% of the $63,000 sales goal (Terjesen, 2016). Still, product advancements (i.e., taste improvements), better promotion activities (i.e., athlete endorsements, etc.), and enhanced customer relations helped Belaga achieve greater brand awareness in the key segments. Thus, over time, the business model fostered more sustainable results.
It is possible to say that the RS’s distribution channels, value-creation capacity, targeting, and customer service define the scalability of the model. The given aspects directly affect the way the product is perceived by consumers. Moreover, they are related to the identification of customer interests and the organizational ability to meet them. The combination of the two activities will influence the pace of growth.
If internationalization and targeting of non-athletic consumers are regarded as a real problem in the case of the RS, the current business model can be potentially effective. The processes performed by Belaga provide him with sufficient information regarding risks associated with new markets. At the same time, the resources he employs allow mitigation of various environmental threats and maximization of business opportunities.
The Timmons Model
The Timmons Model suggests that opportunities, teams, and resources are critical to the venture’s success. Both institutional and individual athlete markets provide enough opportunities for better financial performance. For instance, Terjesen (2016) observes that the US major and minor sports leagues currently comprise 150 teams including the total number of 5,000 athletes whose purchasing power is sufficiently high. Moreover, at the high school level, there are nearly 7.5 million athletes with a slightly small purchasing power (Terjesen, 2016). The presence of potential consumers in the market is one of the major factors defining the RS’s expansion.
Secondly, Belaga “established contracts with former business colleagues with whom he had worked extensively during his corporate career” (Terjesen, 2016, p. 717). Thus, the relationships within the team are characterized as trustful and meaningful. It allows minimizing risks inherent with the supply chain management, e.g., supply delays, low-quality input, etc. Additionally, the partnership with a well-known organization, such as NASA, contributes to a better customer perception of the brand. Moreover, the given partnership can be regarded as an essential information resource that defines the efficiency and quality of multiple RS’ processes including manufacturing.
External Environment
Ecological Environment
In the energy drink industry, ecological factors have a high impact. Consumers demand more sustainable solutions and natural products, and firms have to adjust to the shift in their interests. The use of natural ingredients significantly improves the brand’s image.
Macro Environment
The macro-social environment and the factors of unemployment, demographic composition (i.e., age), as well as the fashion trends for energy drinks define the purchasing power and the interest of consumers. Thus, the management should consider these trends to take advantage of the segment. Additionally, since energy drinks are usually not included in the list of first-need products, in the economically unstable situation, the company must take into account such economic factors as pricing and market maturity.
Task Environment
Along with shifts in customer preferences, the major factor in task environment is competition. The RS has many large competitors including Gatorlytes, Nuun, etc. These brands mainly compete on price and product quality. Branding and marketing are the main processes that assist in dealing with the issues of customer interest and intense competition.
Internal Environment
The use of the NASA patent is the venture’s major sustained competitive advantage − it is valuable, costly to imitate, and rare. It ensures the quality of the product which no other substitutes available in the market have. Thus, it contributes to the overall firm’s competitiveness. The current product differentiation and a limited taste range are rather partly competitive advantages. They are unarguably valuable, yet easy to imitate and commonly used by competitors.
Lastly, on the one hand, the premium price may be regarded as a sustained competitive advantage because premium pricing promotes a better product image and is inherently associated with quality − the value, which the premium segment consumers seek most. At the same time, it may be regarded as a disadvantage because it reduces accessibility of the product to the BoP markets.
SWOT
Table 2: The RS’s SWOT analysis.
Technology and Innovation Management
The technology described in the case is the carbohydrate-free formula used by astronauts to ease the symptoms of dehydration. There was no similar product in the athlete market before the RS was introduced, and the number of available carbohydrate-free items was scarce. The distinctive feature of the formula its scientific validity as well as a high electrolyte content per portion. Based on this, the major managerial implications for the innovation are related to high production costs. To be profitable, the RS should have a high price. These factors largely define product segmentation and targeting.
Recommendations
The company should focus on the exploitation of its unique product properties, customer relations, and international expansion. The price may be considered the weakness in this case as it prevents the firm from entering developing markets where the product could be highly demanded. Since Belaga cannot compromise the quality of the product, the focus must be made on the niche segment instead. The best way to expand in the market is to try an online distribution model and promote the product on thematic websites. Moreover, Belaga should exploit the growing trend for the health-consciousness among consumers of energy drinks to develop a new marketing strategy. Fundraising and commitments to major customers, e.g., NBA, MLB, etc. may be considered the major sources of the venture funding. However, the latter requires the development of long-term, trustful relationships, and dedication.
Overall, the venture seems to be promising. It showed a sustainable tendency to growth. The further product differentiation, use of alternative distribution channels, etc. can make things even better. Thus, it can be appropriate to invest in the RS.
Case Update
The position of the RS in the non-athlete market has improved over time as the company started to use online sale platforms, such as Amazon, to distribute the product. The given strategy also allows entering the international market as Amazon offers cross-border shipping services. Still, professional athletes and workers in physically intensive spheres remain the primary consumer groups. However, the patented rehydration beverage yet has a potential to change the energy drink industry on a larger scale.
References
BoP Innovation Center. (n.d.). Base of the pyramid. Web.
Prahalad, C. K. (2006). The fortune at the bottom of the pyramid. Upper Saddle River, NJ: Wharton School Publishing.
Tanev, S. (2012). Global from the start: The characteristics of born-global firms in the technology sector. Technology Innovation Management Review, 5-8.
Terjesen, S. (2014). The right stuff: A NASA technology-based new venture and the search for markets on Earth. Entrepreneurship Theory and Practice, 40(3), 713-726.
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