As he returned from a natural products trade show, Manoj Bhargava wondered to himself, “If I’m tired, do I also have to be thirsty?” As he contemplated this realization, he began to process it as a comparison of treatment of both a stomachache and a headache. Six months later he was entering one of the most saturated markets in the country, with a revolutionary product and a marketing plan that evolved from the placeholder name it still bears on the 3.5 million units sold each year. 5-Hour Energy grossed north of $600 million last year and currently holds a 90% market share in the energy-shot business. Much of the company’s success can be attributed to a stringent customer-focused marketing plan, intent on distinguishing themselves in a competitive market by sharply reacting to customer focus groups. In dissecting the marketing strategy of Living Essential LLC’s 5-Hour Energy, I will detail how the company was able to successfully target a market and position its’ product for sustained, long-run profitability.
“Market segmentation” is described as dividing a market into distinct segments that have similar needs or behaviors and behave in similar ways. Living Essential’s Bhargava had a product he believed could compete in the rapidly expanding energy drink market. The focus now shifted to identifying target groups of individuals that could be pulled away from the major players, such as Red Bull and Monster. With a goal to ambush the energy drink market with a customer-responsive product, Living Essential began laying out a $60 million research plan to identify a target market and develop a solid positioning strategy. The team of statisticians and psychologists embarked on a 36 month, nationwide research quest, utilizing focus groups, behavioral data collection, survey research and cross-sectional market analysis. At the core of this effort was a belief that in a monopolistically competitive market, the product needed to differentiate itself by directly fulfilling customer demands.
The most glaring result of the company’s massive marketing research was that creating a profitable position in the energy drink market was only going to be possible by differentiating 5-Hour Energy from much larger conglomerate distributers. The product, in and of itself, possessed a points of parity laundry list when compared to other energy promoting soft drinks. Research showed that consumers were virtually indifferent as to the flavor, content and end-results of popular brands. The data did, however, produce several key areas where the potential for product differentiation shown out like a beacon of light in a cavernous black hole. Living Essential’s marketing team began swiftly developing a plan based on these very points of differentiation, which would slingshot the company into the market leader in only three short months.
Equipped with the knowledge about the target market they wanted to reach and the competitive advantage opportunities within the market, Living Essential began to refine its’ product. The marketing research results were at the forefront of product development. The decision was made that the company would not compete in refrigerated coolers with larger producers. One of the many customer complaints about energy drinks is that they need to consume nearly 12 ounces of a highly caffeinated, sugary beverage in order to get the jolt for which they were looking. From this data, 5-Hour Energy’s most important product concept was born: two-ounce bottles. Living Essential founder Manaj Bhargava had unknowingly identified one of the products biggest points of differentiation nearly a year prior on his return flight from the natural products conference: Must you be thirsty, because you’re tired? The answer from product focus groups was a resounding: “No!” Purchasers of energy drinks simply wanted energy. They were not engrossed in the requisite consumption of needless sugar...