United Beverages, Inc. Summer 2012

¶ … United Beverages, Inc.

Summer 2012

GangBusters Interactive Beverages, the flagship beverage product created and marketed by United Beverages, Inc., has enjoyed sustained success over the past 5 years as well as widespread brand recognition including a collectors' following on the level with Pez Candy dispensers. Recently, however, the sales of GangBuster product lines have slowed and in this study, the product development team at United Beverage evaluates new approaches for future growth based on three potential courses of action. The study examines the factors that the product development team must consider when developing future plans and provides a summary of the research and recommendations in the conclusion.

Table of Contents

Introduction

Review and Analysis

Pros and cons of three United Beverage development projects

Factors that should be taken into account when deciding which product(s)

to develop

Development team project recommendations

Analysis of possible scenarios and underlying assumptions

Case Study of United Beverages, Inc.

Introduction

The first product created and marketed by the company, United Beverages, Inc., GangBusters Interactive Beverages, has been a major success and the product has achieved widespread brand recognition and has even acquired a collectors' following on the level with Pez Candy dispensers. During recent months, though, sales of the company's flagship beverage product have languished and the United Beverage product development team must formulate new approaches for the company's future growth. Among other factors, the product development team must take into account the respective costs and anticipated product life cycles of the products, together with market and technical uncertainties as well as resource allocation issues based on United Beverages' product development strategy. To determine which of three courses of action, or combination of approaches, is best suited to achieve United Beverages' goals for future growth, this study identifies the pros and cons of each, a discussion concerning those factors that should be taken into account when deciding which product or products to develop and a summary of the project team's recommendations. An analysis of possible scenarios and underlying assumptions is followed by a summary of the research and recommendations in the conclusion.

Review and Analysis

Pros and cons of three United Beverage development projects

The three ongoing development projects at United Beverages, Inc. (hereinafter alternatively "the company") are (a) the GangBusters expansion program, (b) the kid-energy drink project and (c) the dual-drink project. Each of these projects has some merit (and its champion), but each also has some corresponding drawbacks (and its critics). The respective pros and cons of each of these initiatives is set forth in Table 1 below.

Table 1

Pros and Cons of Three United Beverage Development Projects

Development Project

Pros

Cons

GangBusters Expansion Program

1. Potential new markets exist in foreign countries using expanded flavors and local and regional characters for interactive design.

2. Brand has become ubiquitous and acquired a collectors' following on a level with Pez.

3. Proven track record of success and main source of corporate revenues.

4. Distribution chains already in place.

5. Forty-five major world-class collectible characters currently under licensing agreements.

1. Product may have reached its plateau.

2. Highly vulnerable to competition from major players such as Coke and Pepsi.

Kid-Energy Drink Project

Easy to produce.

Fierce competition.

Dual-Drink Project

1. This market may be four to five times as large as GangBusters' market.

2. Innovative products are congruent with the company's culture, R&D commitment (8% to 10% of revenue) and in-house expertise.

3. Product may be patentable.

1. Market is not well defined and no consumer preference data are available.

2. Substantial development costs.

3. Project would drain scarce resources from flagship product, GangBusters, at a point when it is especially vulnerable.

Factors that should be taken into account when deciding which product(s) to develop

Because the company does not have deep pockets but does have a commitment to innovation, there is little room for experimentation or false starts so the first decision must be the right one. Therefore, the product development team at United Beverages, Inc. has much to consider in deciding which of these three avenues to pursue to fruition based on the highly competitive nature of the industry. For instance, Johnson and Taylor (1999) emphasize that, "Packaging is a crowded, competitive industry. Major beverage producers use all types of packaging even within individual product lines. Aseptics, glass, aluminum, paper, and plastic packaging manufacturers fight tooth and nail for even slight market share gains" (p. 44).

Clearly, first and foremost, to the extent that any corporate resources are diverted from improving and expanding the company's cash cow, GangBusters, will likely be the extent to which the company's revenues are reduced in the short-term. In addition, the target markets for the dual-drink and energy drink projects are ill-defined and uncertain compared to the target market for GangBusters, making the need for further research in this area an essential factor to consider. Consequently, the product development team should determine the size of the target markets for the respective products, what revenues can be reasonably expected, the potential life cycle of the products and what barriers to entry exist. Finally, and perhaps most importantly, the development team must consider current trends in beverage packaging technologies that might allow them to create even more interactive containers that will help them achieve their corporate goals for sustainable growth in the future.

Development team's project recommendations

In some cases, the development team project members merely brainstormed while in others more concrete observations and recommendations were provided. A summary of the development team's recommendations concerning which projects should be pursued is set forth in Table 2 below.

Table 2

Summary of Development Team's Project Recommendations

Team Member

Recommendations

GangBusters Expansion Program

Kid-Energy Drink Project

Dual-Drink Project

Paul Diaz

Ambivalent about expansion program and emphasizes the need for innovation in the face of increasing competition from Coke et al.

Since innovation is consistent with the company's culture, the CEO is highly enthusiastic about the dual-drink project and states this "should be our next product!"

Katja von Robinson

Favors expansion program including new flavors and countries; wants to create new barriers to entry for competitors.

Ambivalent but concedes the market is there and may be four or five times as large as flagship product.

Luis Hernandez

Although easy to produce, the competition in this market is fierce and it is no guaranteed success.

Pragmatic about the initiative and cautions that there may be market-side problems involved and cites the high development costs that will be involved; the results might be worth it though, and the new container might be patentable.

Mary Smith

The GangBusters product line is currently vulnerable and needs additional investment to avoid disruption of revenue source.

Pragmatic and also cautions that diverting substantial amounts of resources away from GangBusters expansion program might jeopardize the company's primary revenue source.

Bill McBride

Recommends pursuing this initiative to maintain revenue stream and avoid spreading the company's scarce resources too thin.

In the alternative to GangBusters' expansion program, recommends this approach based on ease of implementation.

Passionate about uncertainty of the size and consumer preferences in this market.

Analysis of possible scenarios and underlying assumptions

The lack of consensus among the development team members indicates that the company must proceed with caution in formulating the optimal use of its scarce resources in responding to an increasingly competitive marketplace and the erosion of its market position. Clearly, to the extent that resources are diverted from the GangBusters' expansion program for either of the other two initiatives will be the extent which the company's primary source of revenues is adversely affected. Given the company's stated allocation for research and development, the GangBusters' initiative will require the lion's share of the available money but the ease of implementation of the kid-energy drink program makes it worthy for consideration as an addition to the product mix. Likewise, given the company's in-house expertise in beverage container design, the dual-drink initiative also represents a potentially viable use of the company's resources based on the projected size of the target market and the patentability of the resultant containers. Within these various permutations of resource allocation will be the optimal balance that provides the company with the desired outcomes. The company's development team established the assumptions set forth in Table 3 below for these three product initiatives.

Table 3

Assumptions and Preliminary Conclusions for Three Product Initiatives

Assumption/Preliminary Conclusion

Product Initiative

Assumptions

1. Continued growth for GangBusters in target customer segment (consumers aged 9-14 years).

2. Cross-selling opportunities due to product familiarity with GangBusters.

3. Kid-Energy Drink initiative has potential for moderate to successful outcome.

4. Dual-Drink project potentially lucrative but market is uncertain, development time will require about one year and the development costs will be high.

5. Ongoing investment will be required to maintain market share of GangBusters.

Preliminary Conclusion for Dual-Drink

1. Potential market is four-five times as large as GangBusters over the long-term.

2. Potentially slower take-up rate.

3. Just a quarter of focus group participants viewed product with some type of positive feedback; fully half were "not sure."

Preliminary Conclusions for Kid-Energy Drink

1. Potential market is smaller than current GangBuster market.

2. Fast acceptance rate.

3. Approximately 80% of focus group responded favorably to concept.

Based on current trends in beverage packaging, it is also reasonable to suggest that further innovations in nanotechnology will provide manufacturers with the ability to produce truly interactive beverage containers that can provide a wide range of product information (including the history of the temperature of which the beverage has been maintained), display different graphics and messages that change (like a slideshow), and perhaps even respond to individual questions from the consumer (Buzby 2010). In fact, according to this industry analyst, "In the beverage packaging sector alone, worldwide sales of products using nanotechnology grew almost six-fold in two years from $150 million in 2002 to $860 million in 2004" (Buzby 2010, p. 529). While much of this investment in nanotechnology has been focused on improving the integrity of the beverage containers themselves, these innovations will also provide manufacturers with the ability to manipulate containers in new ways that have never been possible in the past. Indeed, it may even be possible within the foreseeable future for beverage containers to warp into new shapes after consumption such as an aerodynamic shape that can fly like a glider or be spun like a Frisbee. According to Wilson and Vozikis (2008), beverage producers that remain tied to a static design run the risk of being run over by their competition that recognizes the potential in new technologies for beverage containers. In this regard, these authorities report that, "It is important to realize that no design is sacred: form follows where the future leads. Consider the containers used in the beverage industry" (Wilson & Vozikis 2008, p. 39). In support of this assertion, Wilson and Vosikis (2008, p. 40) cite the following examples from beverage container developmental history:

1. Glass bottles and crown bottle caps allowed beverages to be stored for individual consumption;

2. Advancements in the tin and aluminum production industry allowed for the replacement of glass bottles (in some cases) due to cost savings associated in transportation and production;

3. Advancements in plastics, namely high density polyethylene, allowed for the substitution of tin and aluminum for beverage packaging;

4. Advancements in materials technology changed the bottling industry and likewise the design of the container itself.

It can also be assumed that consumer interest in innovative packaging will continue to increase in the future. For example, studies have shown that consumer perceptions of beverage packaging have changed in significant ways in recent years. As a result, "Instead of viewing it as a necessary evil, consumers see desirable packages as a reason to purchase, and packages they don't like as a reason to avoid products they might otherwise choose" (Consumers yearn for better packaging 2004, p. 37). The eye-catching and colorful designs used by the company in its extensive GangBusters product line are therefore a desirable reason for consumers to select this product over its numerous competitors, but there are other factors involved that must be taken into account as well. For instance, the results of a survey by the Consumer Network found that, "Triggering such a shift is a critical mass of consumer-friendly packages that relieve widely experienced frustrations, delight the eye, or facilitate multi-tasking lifestyles with new levels of convenience and flexibility" (Consumers years for better packaging 2004, p. 37). Although the Gangbusters' package may "delight the eye" (as demonstrated by the collector following that has emerged in recent years), the Consumer Network survey of 1,600 respondents also found that consumers were interested in other aspects of their beverage packaging, including:

1. Twist-off closures on juice cartons were the most widely noted improvement, followed by personal-size milk bottles, zipper closures, and no-spill (sports-cap) water bottles.

2. Consumers appreciate ergonomic packages shaped to fit the hand (to date, this has been evident primarily in cleaning and dishwashing products) and eye-pleasing graphics.