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Strategic Issues and Problems
Cadbury Schweppes is an important player in the American soft drink market where American consumers drink more soft drinks than tap water.In conjunction with population growth and rising per capita consumption there was an estimated $4 billion in retail sales in 18.However, trend data suggests that sales of diet drinks accounted for a large portion of the overall growth of carbonated drink sales in the 180's with supermarket sales the key to successful soft drink marketing.
Despite being the fourth largest soft drink marketer in the United States, 71.4% of the total market was produced by Coca Cola, PepsiCo or Dr. Pepper/7up.However, Cadbury has carved out a niche in the non-cola segment of the soft drink industry where their brands were often the market leader in their specific categories.With their acquisition of Crush in 18, Cadbury controlled % of the orange category of the soft drink market through Crush and Sunkist.The orange category has the third largest share of the market, with a market share of .%.
After purchasing Crush, Cadbury executives needed to restructure the Crush brand to gain a higher market share while neither contradicting its current brand image nor cannibalizing Sunkist soda sales. Restructuring is to occur through revitalizing the bottling network, developing a brand position, and developing a new advertising and promotion program.
Analysis and Evaluation
When Cadbury acquired Crush in 18 they discovered that Crush was available in markets that represented only 6% of orange category sales due to Proctor & Gamble's decision to distribute its product through warehouses rather than bottlers.This decision caused many bottlers to look elsewhere for business and lead to a decrease in the number of bottlers that distributed the brand.Looking at Tables 1 and which look at market shares and market coverage of orange carbonated drinks from 185 to 18 it is apparent that there is a positive correlation between the two.Brands such as Mandarin Orange Slice which has 88% coverage has a 1% market share.Figure 1 shows the corresponding correlations between market share and market coverage for the other brands.
Because the number of bottling distributors directly influences market coverage, an increase in the number of bottlers is needed for Crush to increase its market share in this industry.While an important first step has been accomplished by initiating and renewing long-term contracts with the bottlers allowing for increased distribution, the bottlers are "gauging the kind and amount of advertising and promotional support that Cadbury would provide." Therefore Cadbury should aggressively participate in promotions that will establish their recognition of the important role the bottlers will play in Crush's re-launch.
There is also a correlation between advertising expenditure and market share. See Table and Figure 1.Mandarin Orange Slice, which has a market share of 1%, spends $11. million on advertising, while Crush, which has a market share of only 8% spends $1.8 million on advertising.Typically soft drink marketing is jointly implemented by concentrate producers and bottlers and focuses on media advertising, such as television commercials and magazine ads in conjunction with merchandising and consumer promotions.
Merchandising promotions for retailers are an important factor in increasing market share as supermarkets account for 40% of soft drink sales and one industry analyst has stated that a brand is "locked out of 60% of the supermarket soft drink volume if it can't get end-aisle displays." End of aisle displays cost concentrate producers about $0.0 per case to bottlers who participate in these retail promotions.Because most supermarket soft drink purchases are unplanned, displays near the register and at the end of aisles can be very influential.In addition, because their purchase is frequently unplanned consumer price promotions are also important marketing tools.Concentrate producers offer anywhere from $0.05 to $0.5 per case to bottlers who support these promotions.Finally, concentrate producers also occasionally offer distribution incentives in the range of $0.15 to $0.5 cents per case depending on the amount of effort desired.Because Crush is attempting to reestablish relationships with bottlers, these distribution incentives may be very helpful in convincing bottlers of Crush's realization of the importance of their position to Crush's successful re-launch.
Cadbury would like to position Crush in a manner that will increase market share while not cannibalizing Sunkist sales.Currently, Crush is focusing on the 1- segment while Sunkist focuses on the 1-4 segment.We would suggest that Cadbury position Crush as "a thirst-quenching, healthy soft drink (possibly add vitamin c to the soft drink)." This would please the typical supermarket purchaser, a married woman with children and would not contradict their current brand image (thirst-quenching benefit).This position will also differentiate Crush from Sunkist, which should minimize cannibalization.
In addition, by focusing on an older segment and emphasizing the healthier features of Crush, Crush may be able to increase their distribution of diet soda drinks.This would increase Crush's bottom line as diet drinks have a higher dollar price/liter than regular soda.Minute Maid and Mandarin Orange Slice both have a larger diet soda distribution which is likely influenced by their focus of an older age segment, as older purchasers are more likely to buy diet sodas.In addition, as it appears that the diet soda market is producing much of the industry growth, Crush needs to focus more attention on their diet production to maintain and increase their market share.
Recommendations
We recommend that Crush adjust their advertising focus to older crowd by adding a health aspect to their advertising to avoid cannibalization and increase diet sales.We also recommend that distribution promotions as well as consumer and retail promotions be utilized.
We recommend that Crush increase advertising to $7 million of which $.5 million they (as the concentrate producers) will be responsible for. We also recommend the following promotions, (1) $0.0/case for end aisle displays () $0.15/case for consumer price promotions and () $0.15/case for distribution incentives.These recommendations will result in an increase of fixed costs to $.5 million and increased variable costs to $ 1,0,708 .This will result in a new break even level of 48,60,800 cases which would require a market share of 15%.However, the increased bottling and advertising costs should allow for the increased market share.We believe that a 1% total market growth with an increase to 1% of market share is a conservative estimate and there is a likely possibility this increase is possible with increased advertising, promotions, and increased market coverage.By increasing these variables Mandarin Orange Slice was able to increase their market share by a large amount in 186 and 187.We believe that the increased advertising and promotions make this a realistic possibility.In addition Crush's willingness to implement and support promotions will result in positive feedback for the new bottling companies.This will result in them being willing to devote more bottling capacity to Crush products as well as influence other bottlers to contract with Crush in the future.Because market coverage strongly influences market share these actions will increase Crush's total market share.
Appendix
Table 1
Market Share
18518618718818
Sunkist%0%1%1%14%
MandarinNA16%%1%1%
Minute MaidNA8%14%1%14%
Crush%18%14%11%8%
Table
Market Coverage
18518618718818
Sunkist5%8%7%86%1%
Mandarin10%68%87%88%88%
Minute Maid10%60%87%88%88%
Crush81%81%78%78%6%
Table
Advertising $
18518618718818
Sunkist7,176.4,01.010.71,71.,01.
Mandarin17,80.4,07.,555.815,001.11,88.1
Minute Maid174.47,5.,07.1,811.10,46.1
Crush4,71.7,154.4,6.76,841.11,85.6
1,516.5,186.145,777.48,61.07,5.7
Figure 1
Regression
Market Share
vs. Market Coveragevs. Advertising $
Sunkist0.6450750.844177
Mandarin0.7566711-0.510046
Minute Maid0.80780.54741
Crush0.780111840.5817456
Break even Analysis
unit break even volume = total $ fixed costs / (unit selling price - unit variable cost)
=(500000 +(0.1B))/(0.7(0.76-(0.11+0.0+0.15+0.15+0.))+0.(0.-(0.1+0.0+0.15+0.15+0.)))
= 48,60,800 cases
Cadburys Beverages, Inc.
Crush Brand
Pro-Forma Income Statement
For the year ended December 1, 10
Net Sales $0,6,4
Less Cost of Goods Sold (4,1,750)
Gross Profit 6,648,44
Less Operating Expenses
Selling and Delivery $76,560
Advertising and Promotion 18,771,00
General and Administrative Expense4,6,140
Total Operating Expenses 4,47,00
Net Income $ ,150,44
Assumptions
17,60,000 total cases sold in supermarkets 18 volume with conservative growth of 1%
18,150,000 by .5 to get total cases sold
8,178,000 estimated 10% market share w/ 75% market coverage
Estimated 70/0 split on diet soda/regular
Advertising Estimates
5,76,700 0.15/case for bottlers distribution incentives to increase market share by % in 1 year
5,76,700 0.15/case for bottlers for consumer promotions such as price reduction
,817,800 0.0/case for end of aisle display
15,71,00
11,,60 Selling price for % cases sold as diet at 0./case
1,70,0 Selling price for 68% cases sold as diet at 0.76/case
0,6,4 Total
4,1,750 Cost of goods sold (0.11 regular/0.1 diet w/ 70/0 split)
4,6,140 Fixed General & Admin Costs (.1/case)
76,560 Variable Selling/Delivery Costs (0./case)
10,048,450 Total Costs
15,71,00 Variable Advertising Costs (Figured Above)
,500,000 Fixed Advertising Costs (Print and Broadcast) spend 7 million and divide by for concen % (.5Million)
18,771,00 Total Advertising
,150,44 Grand Total
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