The beverage industry is witnessing rapid evolution with constant flow of new market entrants. These entrants attempt to avail product or marketing tactics that set them apart from the existing firms.
Firstly, the beverage market is able to support a certain number of successful companies. With the crowding of the market, there is reduction of room for new entrants thereby giving the customers as many options as they want. Consequently, customers might either reject these new entrants failing to notice them the most obvious result is that competition becomes so fierce that new entrants find it challenging to compete financially with the existing firms. In addition, the market share of the existing companies is reduced leading to sustainability challenges. In this regard, it is recommended that existing beverage companies adopt creative marketing techniques to retain and capture more market share.
Secondly, these new entrants in the beverage market affect the market prices. Stiff competition is always beneficial to the customer and disadvantageous to the existing companies. Many existing companies find themselves in compromising situations where they have to reduce their prices. It is common for new entrant to differentiate themselves by offering lower prices. This forces the existing competitors to respond with aggressive pricing strategies of their own.
The most common mergers in the beverage industry are horizontal mergers. Most companies use it in to gain market advantage over their competitors during product sales in the markets. There are many benefits of horizontal mergers as compared to others; the main objective in horizontal merger is to create a new, larger organization with more market share. Most governments are not keen in allowing horizontal mergers. In the United States, the antitrust community is continually pursuing the optimal way of handling horizontal mergers that can result from big combinations in highly competitive markets. In the beverage market, efficiency tradeoff commonly occurs in such mergers where the market is concentrated resulting in either oligopoly or monopoly. In this cases there is most likely to be an increase in prices. Mergers are likely to generate price increases by transforming an ordinarily competitive market into a monopolistic or perfectly collusive market (Fisher, Johnson, & Lande, 1989).
Currently, the beverage industry is becoming more globalized than ever with beverages produced in enormous, centralized factories being shipped long distances to various international markets through a worldwide shipping network. Various international beverage products find their way into competitive long distant markets. In a diverse market such as in the United States, these products can have an effect on the market creating pricing pressures on the existing products. Thus, rationalizing and managing operations in the customer-driven, innovation market, and supply chain areas from global, holistic view becomes a major undertaking.
In pursuit of new revenue opportunities and an aim to lower production costs, beverage manufacturers have resorted to creating global networks to help in marketing, sales, as well as development activities. Globalization of production in the beverage industry has proved to be a key capability of in increasing profit margins of most manufacturers. Beverage companies that have highly optimized globalization have given them a competitive edge above their competitors leading to greater market penetration and market shares; the result being increased revenues and profit margins. Besides companies taking great strides in global optimization are reaping the benefits through higher growth, profitability, and shareholder value (Koudal & Engel, 2006).
Government Policies and Regulations
The overabundance of policies regarding food safety standards and mandatory government regulation is an inhibitive factor in the beverage industry. Regulations such as Food Safety Modernization Act (FSMA) of 2011 have greatly affected beverage manufactures. Such regulations require the producers to meet customers' demands for improved quality and safe products. Besides, the industry is required to ensure that manufacturers establish preventative controls and capabilities to track and trace defective product batches; a process that has reduced production time and profit margins since most time is used in monitoring product flow from the manufacturers to the consumers (Wilde, 2009).
In addition, the FDA requires manufacturers to maintain records of key manufacturing data to ascertain whether the producers are in compliance with its regulations (Diggines & Walker, 2012). This calls for recording of up-to-date and accurate manufacturing data such as ingredients used and their sources, recipes, among other relevant data. The FDA use this data to pinpoint products flow from the manufacturers to the ultimate consumers.
Recent taxations imposed upon beverages in this industry is influencing production, beverage consumption as well as profit margins (Geiger & Hamburger, 2010). The penny-an-ounce tax that is imposed has seen the reduction in beverage consumption to with a 23% drop in consumption levels. These taxations meant to reduce consumption of sugary juices have made manufacturers record low product sales and profit margins. These taxes have made links between diet and health driving producers to develop beverages with validated health claims in order to capture a share in this burgeoning market and increase profit margins.
Apart from rising production costs and adverse currency movements, the global beverage markets have become increasingly competitive over recent years greatly impacting manufacturers. The emergence of global competitors across is likely to increase steadily; a process influenced by policy changes at WTO level meant to liberalise global trade.
Global competition has led to high energy costs as well as high waste disposal costs. In addition, cost competitiveness, global production pressures and price restrictions have greatly impacted the beverage industry. Nevertheless, increasing buying power of global retail groups is bringing about price insecurities due to the ever fluctuating pricing system of beverage products in the global market. The development of markets to extend the reach of exports and to attain higher levels of penetration on high value markets will remain a key challenge for the sector.
Strategic managerial decisions can have far-reaching effects on the organization from its products and brand recognition to its employees and other stakeholders. Management pricing decisions can impact the brand identity, and, in turn, affect the consumers who identify with the company and its products. However, certain managerial decisions can have a dramatic impact on the company's performance.
Decisions regarding product pricing have a direct effect on product positioning in the marketplace. Products priced more aggressively are perceived by customers as having greater quality leading to higher demands (Gilbert & Bower, 2007). Thus, depending on the company's strategic vision and brand management priorities, either product pricing strategy can be effective in a particular market. Thus, regardless of the market, proactive marketing and other non-pricing competitive decisions can increase market strength and managerial pricing power by creating and stimulating consumer demand.
To conquer the already crowded and highly competitive market, beverage manufacturers should uphold marketing strategies that focuses on their product offerings. In line with this, the producers should grossly advertise their products and convince potential consumers their product offerings are the best for their consumption. Furthermore, the giant beverage producers should seek ways of building stronger brand equity via targeted efforts by gross marketing and sales strategies. The companies can as well create partnerships with other suppliers as well as joint branding with other food manufacturers to exploit complementary synergies in the highly competitive market.
The other recommendation for these beverage manufacturers is adopting proactive product and service differentiation strategies. By focus on successful product lines and global diversification, these companies can experience sustainable growth and competitive edge over their competitors. Focusing on product innovation as a long-term goal for a sustainable competitive edge by understanding consumers' motivation for buying product can reduce production downturns in this hard economic times for the beverage producers.
The other recommendation is effective communication to potential consumers via branding and advertising. Consumers are willing to buy products that effectively communicate to them; a factor…