Competition in Energy Drinks, Sports Drink, and Vitamin-Enhanced

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1.What are the strategically relevant components of the global and U.S. beverage industry macro-environment? How do the economic characteristics of the alternative beverage segment of the industry differ from that of other beverage categories? Explain.

The strategically relevant components of the global and U.S. beverage industry macro-environment: •Global beverage companies such as Coca Cola and PepsiCo had relied on such beverages to sustain in volume growth in mature markets where consumers were reducing their consumption of carbonated soft drinks. •Coca-Cola, PepsiCo, and other beverage companies were intent on expanding the market for alternative beverages by introducing energy drinks, sports drinks, and vitamin drinks in more and more emerging international markets. •Beverage producers had made various attempts at increasing the size of the market for alternative beverages by extending existing product lines and developing altogether new products. •Expanding the market for alternatives beverages and increasing sales and market share, beverage producers also were forced to content with criticism from some that energy drinks, energy shots, and relaxation drinks presented health risks for consumers and that some producers’ strategies promoted reckless behavior, the primary concern of most producers of energy drinks, sports drinks, and vitamin-enhanced beverages was how to best improve their competitive standing in the market place. •Rapid growth in the category, coupled with premium prices and high profit margins made alternative beverages an important part of beverage companies’ lineup of brands.

The economic characteristic of the alternative beverage segment if the industry is differ from that of other beverage categories. Alternative beverages competed on the basis of differentiation from traditional drinks such as carbonated soft drinks or fruit juices and were also position within their respective segments on the basis of differentiation. All energy drink brands attempted to develop brand loyalty based on taste, the energy-boosting properties of their ingredients, and image. An energy drink’s image was a factor of its brand name and packaging, clever ads, endorsements from celebrities and extreme sports athletes, and sponsorships of extreme sports events and music concerts. Differentiation among vitamin-enhanced beverages tended to center on brand name and packaging, advertising, unique-flavors, and nutritional properties.

The global beverage industry was projected to grow from $1.58 trillion in 2009 to nearly $1.78 trillion in 2014 as beverage producers entered new geographic markets, developed

new types of beverages, and continued to create demand for popular drinks. A great deal of industry growth was expected to result from steady growth in purchasing power of consumers in developing countries, since the saturation rate for all types of beverages

was high in developed countries. Market maturity and poor economic conditions caused the U.S beverage industry to decline by 2.1 percent in 2008 and by 3.1 percent in 2009. The 2.3 percent decline in the volume of carbonated soft drinks marked the fifth consecutive year that U.S. consumers had purchased fewer carbonated soft drinks than the year before.

2.What is competition like in the alternative beverage industry? Which of the five competitive forces is strongest? Which is weakest? What competitive forces seem to have the greatest effect on industry attractiveness and the potential profitability of new entrants?

In the Alternative Beverage Industry competition is intense but not perfect and companies are not unsophisticated passive price takers. Competition for the alternative beverage is all about changing prices. Raising or lowering prices to gain a temporary advantage. Improving product differentiation implements innovations in the manufacturing process and in the product itself. Creatively using channels of...
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