Powerade Case Study
CompanyExecutive Summary POWERade has traditionally focused on targeting bodybuilders and athletes.
However, the target demographic is now shifting to more mainstream athletes and non-athletes; the marketing mix does not reflect these changes. We present a revised marketing plan that should increase revenue by 49% to $250 million a year. The marketing plan addresses the flagship product POWERade and POWERade Zero. Research Through market research, we have discovered two key findings about this target market that will shape a new marketing strategy for POWERade.Our first key finding addresses what factors are important when choosing between sports drinks. Due to its focus on serious athletes, POWERade advertising has focused on the ingredients and benefits of its sports drink, touting itself as superior to rival Gatorade.
This is ineffective for mainstream consumers – the most important factor in the buying decision is taste. This will come into play with promotions for POWERade. The second key finding involves the bottled water market. Bottled water is a $9 billion industry domestically, and expanding into this market could result in substantial financial benefits.However, survey data indicates that over 70% of respondents do not consider sports drinks a substitute for water. Thus, we propose marketing two different products: one aimed at the bottled water market and one at the sports drink market.
Marketing Strategy We present a dual-pronged marketing strategy. POWERade will concentrate on solidifying its position in its current market and aggressively targeting more casual athletes, non-athletes, and women. POWERade Zero will be marketed as a fitness water to the more mainstream health-conscious demographic POWERade. For POWERade, we know that we want to focus on taste.While no changes are needed to the POWERade formula, we propose clearly identifying the flavor on the label of the bottle (Mountain Blast, for example, is ambiguous). Promotions should be restructured to focus on taste rather than the ingredients.
POWERade Zero. At launch, Zero was positioned as a diet sports drink. Instead, we suggest positioning it as a fitness water. By offering it at a price comparable to other bottled water market. The most important part of the Zero marketing share is to vastly expand coverage; take advantage of POWERade distribution channels to allow Zero to permeate the market.
In addition, offer below-the-line advertising programs at health clubs to showcase Zero’s added benefits. Part I Introduction and Objectives Background POWERade was first introduced in 1990 by the Coca-Cola Company. It is a sports drink – designed to rehydrate athletes as well as restore carbohydrates, B vitamins, and electrolytes drained during exercise. Up until 1990 the sports drink market had been dominated by Pepsi’s brand Gatorade, which is still the maket leader with 85% market share. However, POWERade is currently the second largest sports drink brand with 14% of the sports drink market.
More recently (in 2005), Coca-Cola launched POWERade Option – a low calorie version of POWERade. Option contains about a fifth of the calories as its heftier counterpart, while still containing many of the same important nutrients. However, POWERade option ended up failing, most likely due to Gatorade’s introduction of “G2. ” This then led Coca-Cola to develop POWERade Zero, which still remains on the market today. It boasts even less calories than “G2” ounce per ounce, yet seems to lack in overall taste satisfaction.
Coca-Cola also manufactured an energy drink called POWERade Advance, but this is not a focus of this marketing strategy.However, with the popularity of Vitamin Water, there have been ideas to market a new energy-infused flavor of POWERade. This would be a similar concept to the Vitamin Water idea, by adding B6 and B12 to the existing formulas. Problem Identification Core Market Changes. POWERade’s core demographic is shifting.
When POWERade was introduced, its primary customers were professional bodybuilders and athletes. In recent years, however, there has been a shift and the mail consumers of sports drinks are casual athletes and those interested in overall fitness.The marketing mix does not reflect this change. So there now is a new shift that not only markets towards the casual athletes and those interested in overall fitness, but people who consume soft drinks, bottled water, and women. Many people drink a beverage solely for the taste, therefore the soft drink consumers can be viewed as someone new to bring into trying POWERade. Also, the bottled water market is huge, and with the introduction of Vitamin Water and like products, POWERade can have chance to come up with new flavors that mimic this market.
Ineffective Advertising.Although POWERade has gained LeBron James as a spokesperson, their advertisements do not seem to be effective at showing the benefits of POWERade compared to Gatorade. Also, with recent negative press surrounding LeBron James, there was a need to replace him, and possibly take an entirely new approach. Since it still is a sports drink, we have chosen Venus and Serena Williams, they keep a positive light in the media and they will also target the women audience. Financial and Marketing Objectives POWERade’s domestic sales for the previous year were $169,898,770.
After carefully considering the impact of our proposed marketing changes, our financial objective is to increase annual revenue by 49% to $250 million per year. While this may seem ambitious, we can do this by vastly increasing the target market segment and forging a new advertising campaign. To establish a benchmark, one can calculate the expected revenue increase without any marketing strategy changes. Coca-Cola revenue has typically risen by 5% every year, and from this we anticipate POWERade to enjoy increased revenues of $7. 7-$15. 4 million due to natural growth.
We expect to be able to generate $45 million in revenue by tapping into the growing bottled water market. We make the conservatibe estimate that increased marketing of PWERade Option, now POWERade Zero, can capture at least 0. 5% of market share. Note also that Option is backed by Coca-Cola, which allows for access to an extensive distribution intrastructure. We also expect the updated marketing mix for POWERade to perform well. By launching an advertising campaign targeted at the major factors involved in the buying decision, we hope to gain groiund quickly.
Conservatively, if we capture just 3% of the sports drink market, we will earn $30 million in revenue. Part II: Market Analysis Market Situation and macroenvironment The market for sports drinks in the U. S. is strong, with sales in the category exceding $1. 5 billion.
The sports drink market has been increasing in recent years due to the increase of new products offering lower calorie substitutes to the traditional sports drinks, but is believed to have come to the mature stage in its product life cycle Typically the position of all sports drinks has been that it is for serious atheletes, body builders, and is for males.The new target audience will include women, casual athletes, and the everyday working class. The normal patterns for buying sports drink are “on the go”, after working out, and at work. That is one of the reasons it is suggested that POWERade maintain its base of serious athletes but also expand outward to more casual athletes The bottled water market is larger than the sports drink market, selling $9. 4 billion in product. Bottled water is considered a healthy alternative to carbonated soft drinks which has led to steadily increasing sales over the last decade.
Consumers do not consider sports drink as an alternate to water. POWERade Zero could compete in the bottled water market if it were repositioned properly. When selected a bottled water to drink, customers cite price as the most important factor in purchasing, meaning that they are not brand loyal and are not as biased when selecting. POWERade Zero is not considered purely a bottled water but an “enhanced” water. People who want a healthy alternative to carbonated soft drinks with the benefits of sports drink and would be enticed by this product.
Part III: Primary Market Research Research Objectives In order to reach our final financial and marketing objectives, it is of utmost importance to research the attitudes and preferences of POWERade consumers. Through our survey, we aimed to gather data regarding: When do consumers drink sports drinks? What are consumers’ purchasing habits for sports dinks? How do consumers compare POWERade to other brands? What factors are most important in choosing a sports drink? In addition, recall that we also considered bottled water a competitor to sports drinks.We wanted to use this survey to determine the feasibility of entering this market, as well as any expansion potential. Most important is the following question: Are sports drinks a substitute for water? For example, if it is found that sports drinks are significantly perceived as a substitute for water, a more aggressive approach could be taken to the water-drinking market segment. Altogether, this data will help us to understand – among other things – how POWERade’s marketing mix needs to be altered to meet the wants and needs of consumers.
Methodology The data collection method we chose to use was an Internet survey.Surveys are well suited for collecting descriptive research, which was our main goal. Due to time and budget constraints we chose to conduct our survey over the Internet. Also, we decided to post a survey on our own web page as opposed to using a “survey website”. This allowed us more control over the format of the survey and the umber of questions asked. In order to achieve a large sample size, we administered the survey through email.
We estimate that 120 surveys were sent. The final sample size was 86. Due to our contact plan, our survey may not be highly representative of the market as a whole.The main issue is that we sent surveys to people we know, who are presumably similar to us. We were careful not to just send our survey to a single, closed social group; given the diversity among our group members, we believe that this bias is reduced.
Regarding the reliability of our survey, a sample size of 86 is small in comparison to the size of the market. Increasing the number of respondents would improve reliability, but given the time constraints we feel that we achieved a sufficient level of reliability for our purposes. Though careful construction of the survey we believe we achieved a high level of validity.Each question and the provided answer choices were written to ascertain the necessary data. The questions were ordered in a particular way as to not compromise the validity of the survey.
The distribution questionnaire is included in Appendix B. Results Results are included in Appendix C. There are two key findings that merit attention. Our first finding is that ingredients are not a major factor for people choosing a sports drink (Q4). POWERade has relied on advertising that touts its higher nutrient content over Gatorade, which our survey shows is ineffective.Instead, taste is the most important factor – something that needs to be addressed in advertising.
This result may seem surprising. The entire advantage of sports drinks over bottled water is the enhanced ingredients they contain, and this is not a major factor in buying decisions. The rationale is that rather than looking for the sports drink that provides the highest benefit, consumers look for drinks that satisfy some minimum level of enhancement. The second key finding is that over 70% of the target market does not consider sports drink a substitute for bottled water (Q6).This is not a surprising discovery, but it does have immediate implications for developing a marketing strategy. There is also a lot of useful information on attitudes towards bottled water: the most important factor for people drinking bottled water is price (Q9) and while sports drinks tend to be bought by the bottle, water tends to be bought by the case.
Part IV: Marketing Strategy Introduction POWERade’s target market in the past has been bodybuilders and serious athletes. The sales in these segments have declined by over 50 percent since the 1980s.POWERade will need to expand its target audience in order to survive in this market. There has been an increased health awareness in recent years; this should help POWERade in their expansion. POWERade should concentrate on solidifying its position in the current market and aggressively targeting more casual athletes, women, and non-athletes.
POWERade Zero will be marketed as fitness water to the more mainstream health-conscious demographics. Target Markets POWERade’s target market is serious athletes, casual athletes, and carbonated beverage drinkers.The target age demographic is between the ages of 13 and 40, keying in on those who are in college. It is also important to target females, as a sports drinks are generally considered a masculine product; casual athletes and carbonated beverage drinkers are not as skewed in terms of gender. POWERade Zero is being positioned within the bottled water market.
We expect the greatest amount of success with consumers who drink bottled water during exercise, consumers who are health-conscious and those who desire weight loss, thus these groups comprise the target market. Positioning POWERadePOWERade has previously positioned itself as a sports drink with more beneficial and effective ingredients. This is ineffective, from the survey results, the most important factor when choosing ports drink is taste, not ingredients. Hence, POWERade should reposition itself to emphasize its wide range of flavors and their appealing tastes. We suggest the following positioning statement: POWERade offers a wide range of great tasting flavors for everyday consumption.
Positioning POWERade Zero POWERade Zero was positioned as a diet sports drink, a calorie-free alternative to POWERade.The best option for positioning this product is as a flavored water product. Since the target market should be people who currently drink bottled water, it is important for them to view this product as flavored water rather than a sports drink. The following positioning statement would work well: POWERade Zero offers great tasting flavored water with all the nutrients and electrolytes for great lifetime health for any individual. Marketing Mix POWERade Price. POWERade’s price is lower than those of competitors like Gatorade.
Price was the most important factor for only about 10% of those surveyed, it is best for POWERade to keep its current prices unchanged. Product. In order to uphold its new position focused on taste, POWERade must provide consumers with labels identifying distinct tastes describing the flavor it sells. POWERade bottles clearly identify each flavor’s name; these names do not identify what fruits or flavoring the drink actually tastes like. This is compared to Gatorade, which states the actual tastes on the bottles. Thus, the labels on the bottles should clearly state what the drink tastes like in addition to its trendier POWERade flavor name.
Survey data shows nutritional content is not of high importance for most consumers, because of this POWERade should keep the formulation the same with the exception of an added flavor that includes added B12 vitamins to include consumers of energy drinks. This will prevent us from alienating athletic customers who choose POWERade for its ingredients. Place. POWERade has high coverage in retail stores and convenience stores. They should continue distributing through their supermarket channel as well as a large-scale retailers like Wal-Mart, but should also focus on wholesale clubs and health and fitness clubs.Selling at health and fitness clubs, like the YMCA, helps POWERade increase its awareness and in turn, its market share.
Further, POWERade should continue to make deals with college campuses and restaurant chains across the US to key in on their target demographic markets. Promotion. POWERade must restructure its advertising campaigns to highlight a new position on appealing taste rather than beneficial ingredients. Television advertisements should identify the benefits of the drink but the emphasis should be on showing how appealing the taste of POWERade is.In addition, to attract more females to drink POWERade, contracts should be made with female icons.
This can all be used to target every-day people. POWERade sales tend to be seasonal. Because sales are lower during the winter season when compared to the summer season, POWERade should look into offering sales promotions such as coupons or rebates for mulit-packs bought during the slow seasons. Another way to counteract this problem is to increase POWERade’s visibility at restaurants, concert venues, and National Hockey League games.POWERade already holds an exclusive contract with the NHL, and should use the Stanley Cup Playoffs to boost consumer awareness of the product just before the prime summer selling season.
Marketing Mix POWERade Zero Price. Survey results suggest that price is the deciding factor when buying bottled water; this is mainly due to the fact that there is no product differentiation in the bottled water market. POWERade Zero should be offered at a price comparable to other bottled water brands. Zero has additional appeal over traditional bottled water market and by eliminating price differentials, share should rise dramatically. Product.
Like POWERade, Zero should clearly identify its taste on bottle labels. Otherwise, the product needs no further adjustments. Place. The most obvious distribution channel to discuss is retail venues like supermarkets. Zero has poorly developed coverage. A major priority should be to offer Zero at most retail venues where water is sold.
It is also important to have Zero displayed in the bottled water section rather than the sports drink section in order to support our positioning of the product. From the survey data, Zero should be offered by the case (at supermarkets and similar venues) since bottled water consumers tend to buy in bulk.Also, selling the drink through wholesale clubs such as Sam’s Club or Costco will allow people to purchase large quantities of the product at relatively low prices – this will help attract price-sensitive consumers that would have normally bough bottled water because of its lower price. As another major distribution channel, Zero should be aggressively marketed in health clubs, as this is the best place to encounter our target demographics. Promotion. Standard advertising should be handled similarly to POWERade, although care should be taken to ensure that people don’t confuse the two brands.
This confusion is unlikely due to the different tones of the advertising campaigns: While POWERade already has good market exposure and will focus on marketing its great taste, POWERade Zero will be billed as a great solution for those trying to lose weight or those interested in lifetime health. For POWERade Zero, free samples at health clubs are essential to showcase the added benefits of Zero over standard bottled water. This is the main thrust of Zero promotion – by convincing people to switch to Zero, we can build brand loyalty to a product new in the water market.Research and Development and Future Market Research Positioning itself around its appealing taste, POWERade should develop new flavors, including a B12 infused flavor, according to future market research. Surveys should be conducted to determine which flavors each target segment would like to see.
POWERade should try to reveal a new flavor every four months to reinforce the taste-focused position. In addition, POWERade should consider dropping flavors that show weak sales in order to accommodate new flavors. This will ensure that ‘Shelf space” will not become a problem. Budget and Action PlanThe budget is included as Appendix D. The action plan can be best viewed as a timeline, which has been included as Appendix E.
The resources of Coca-Cola are substantial enough that these measures can be implemented by the company without outside assistance. It is of utmost importance that new television commercials are released on time (Early August). This will increase POWERade’s brand awareness before the National Football League season starts and Gatorade becomes more visible. It would be ideal to start this campaign in early June to capitalize on the seasonality of the product.However, we do not recommend this because television commercial quality would be sacrificed and higher costs would be incurred if the process were rushed. Beginning the free sample promotion in October will allow adequate tie to obtain a contract with health club chains.
This is the time of the year that people who tend to exercise outdoors during the summer will be heading back to the gym. After the one-month promotion, the sales of POWERade and Zero in health clubs should begin immediately. The rebate promotion is set to start in January and run through mid-February.This coincides with the slow winter period caused by the seasonality of the product. Finally, an evaluation of the overall progress and success of the campaign should take place in May.
The details of this evaluation will be explained in the Monitoring and Controls section. At this time a decision should be made whether further contracts with health clubs are advisable. Monitoring and Controls The primary way to monitor the effectiveness of the new marketing strategies will be to examine the revenue of POWERade and Zero separately. Compare the sales figures from six months prior to the debut of the new ad campaign and ix months that follow. Market share for POWERade and Zero should be measured as well. The health club contract and promotion will not begin until October, so this should be evaluated in May.
It should be examined whether cannibalism of Dasani, Dannon, and Sparkletts (other brands of Coca-Cola water) has taken place due to the repositioning of Zero. Although the positioning of Zero was designed to minimize cannibalization while making substantial gains in market share from competitors, it is recommended to do a full analysis of the cannibalization rate.Finally, a survey should be conducted to ensure there is no confusion among consumers regarding the differences between traditional POWERade and Zero. These products target different segments and it is important that consumers are able to differentiate them. If this proves to be an issue, the television ad campaign should be revamped to more heavily differentiate the two products. Appendix A: Nutritional Comparison This is a side-by-side comparison of the nutritional value of Gatorade and POWERade.
Note that POWERade fares better in this comparison, despite its lagging market share. POWERade| Gatorade| % Carbohydrates| 8%| 6%| Carbohydrates| 19 g| 14 g| Calories per 8-oz serving| 70| 50|Sodium per 8-oz serving| 55 mg| 110 mg| Potassium per 8-oz serving| 30 mg| 30 mg| Appendix D: Marketing Budget Cost Advertising Television$12,000,000. 00 Contract with male Icon$1,500,000. 00 Contract with Female Icon$1,500,000. 00 Upgrading NHL contract$1,500,000.
00 Sales Promotion Rebates$500,000. 00 Free samples$1,000,000. 00 Contract with Health Club$3,000,000. 00 (Including product distribution to members) Contract with restaurant chains$500,000. 0 Bottle label changes$1,500,000. 00 New flavor development$2,000,000.
00 Total$25,000,000. 00 Increase over previous marketing budget$1,268,000. 00 Projected Revenues Expected revenue$254,898,770. 00 Previous years revenue$169,898,770. 00 Expected revenue increase$85,000,000.
00 Appendix E: Timeline This is a timeline of the proposed action program for POWERade marketing. Consider expanding to other health club and restaurant chains Consider expanding to other health club and restaurant chains Begin free sample promotion in health club chainBegin free sample promotion in health club chain Debut updated TV ads Debut updated TV ads Begin to negotiate contract with health club and restaurant chains Begin to negotiate contract with health club and restaurant chains May| June| July| Aug. | Sept. | Oct. | Nov.
| Dec. | Jan. | Feb. | Mar. | Apr.
| May| Evaluate success of marketing campaign Evaluate success of marketing campaign Rebate sales promotion begins Rebate sales promotion begins Begin sales in health clubs Begin sales in health clubs Label upgrade complete Label upgrade complete