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Sports Drinks Industry Analysis

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Executive Summary We have noticed an increasing number of businesses catering to the recent rise of a new target market: the health-conscious consumer. At Nike, our goal has always been to give consumers what they want now, as well as to anticipate their future tastes, and to thus tailor our strategy to accommodate those tastes. We have recognized an unfilled market potential in the non-carbonated energizing sports drink arena, thus developing an entirely new product category.

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Our branding strategy is to enter the market by carving a new niche of protein-enriched energizing sports drinks.

Our objective is to educate consumers about the new drink, as well as to make a profit and gain market share in the industry. We hope that by being market leaders, our name will become synonymous with the new drink category, and will aid in our sustaining a competitive advantage over the copy-cats that are sure to flock the market after the new products’ introduction and subsequent success. Our primary target market is 18-34 year old females who will use our sports drink whenever they needed a boost: at work, in the gym, or just when they felt like it.

The secondary target market is 18-34 year old males who fall into much the same socio-cultural and economic category as the primary target market. The Nike Motion energy drink will be positioned as a high-end item, costing $2 per environmentally-friendly can. It will come in a variety of fruit flavors and will boast the replenishment of electrolytes and other essential vitamins and minerals. We hope that high-frequency mass market penetration using multi-media advertisements will spread the word and raise awareness about Nike Motion. National distribution will follow in supermarkets, pharmacies, health food stores, and gourmet retailers.

The Nike brand name, accompanied by its strong brand image, will differentiate the product and maintain its popularity via the market leader and differentiation strategy the company has chosen. [2. 0] Environmental Analysis Economic Trends: The X and Y generations, our target markets, comprise about 110 million people of the United States population. They are, generally speaking, well-educated, and earn relatively higher incomes, thus allowing for much of their disposable income to be spent on health-oriented products, such as the new beverage we are planning to launch, Nike Motion.

Neither positive, nor negative economic trends, such as changes in interest rates, inflation, DGP, etc. are not likely to have a significant impact on our product, since it’s not a high priced luxury item whose demand would be affected by theses factors. The quality of sports drinks consumed doesn’t really depend on the income of the consumers, since these are relatively inexpensive, everyday products. As a general trend however it is worth mentioning that the economy as a whole is growing in the United States as well as in other parts of the world, allowing for an ever increasing standard of living.

Cultural and Demographic Trends: Socio-culturally, our target market is health-conscious and youth-oriented. The individuals comprising our target market of 18-34 year old men and women, are generally perceived as individualistic, with a focus on making healthy decisions via food choices (salad bars and the organics market have boomed), and exercise (from going on athletics-oriented vacations, to spending lunch hours in the gym). There is also a change in the lifestyle of Americans, and people around the world: fast paced, always on the go, eating out and socializing more.

These people rarely have the time to cook at home, decreasing the regularity of consuming healthy meals. One of the best alternatives of getting the needed vitamins and nutrition is via healthy beverages, such as Nike Motion. The U. S. population’s general aversion to high calorie, high sugar, and high carbohydrate beverages will likely be beneficial to our new product. Demographically, a traditional family structure is becoming less typical, with an increasing number of couples co-habitating without being married, lower birth-rates, and a greater concentration on health and weight maintenance.

As a result of these trends, consumption of youth-oriented products has grown as people strive to be in good shape. The Nike Motion energizing sports drink will provide the energy these people need to accomplish their objectives. Ethnic trends are likewise changing, with baby boomers retiring, and an increasing young Latino population emerging, along with an influx of Asians. The Hispanic population, becoming the largest minority segment in 2002, has grown 70 percent over the past decade to approximately 37 million (14. 1 percent of the U. S. population). These youths lead fast-paced lifestyles, frequently juggling school, work, and personal lives. For the younger generation, regardless of ethnic background, feeling tired is not an option. The popularity of the sports and energy drinks has proven this fact. We at Nike thus believe that Nike Motion will be a tremendous success, appealing to a health-conscious population with our alluring natural ingredients, while simultaneously satisfying the increasing need for energizing products. Political and Legal Environment: The political environment could have a significant effect on us if we were to market Nike Motion in foreign countries.

Constant changes in exchange rates and political systems are important to keep in mind. As to the legal environment, each and every firm operates in nations of laws and rules that have to be obeyed. Coca Cola recently got into trouble due to an advertising message in which they, allegedly, portrayed Gatorade in an unfavorable light. The case was settled outside of court, but has cost millions of dollars for Coke. 2 Physical Environment and Technological Trends: The current physical environment, especially in metropolitan areas such as large cities, is very much conducive to the use of our product.

Available in a large number of various retailers, our goal is to be the Starbucks of sports drinks – on every corner, there when you need it. Retailers stocking our product will be dispersed throughout the city, with a significant concentration in areas of business and entertainment (for example, in the downtown financial district, as well as near the Broadway theaters), as well as near learning centers and gyms. We want to make sure that Nike Motion is widely distributed and readily available, both to impulse shoppers, as well as for the more traditional type of buyer.

Changes in technology may lower entry barriers and create new product processes. To enter the sports drink industry, large capital investments are required for production facilities, marketing, and etcetera. Technological changes, such as the internet, can create additional possibilities for promotion, via viral campaigns via the internet and emails that are so popular with our target market. Global Trends: Due to advances in technology and communication, we can safely say that the world has never been as united as it is currently.

The internet, along with television, and to a lesser degree, radio, have served as outlets for disseminating cultural views, and incorporating adaptations of traditional ethnic ideas and beliefs into the mainstream, both within a country and internationally. Products ranging from clothing to music to the culinary arts have become widely accepted. We feel that sports drinks fall into this global category as well. From Europe to Latin America to the United States, lifestyles are becoming faster-paced (though to varying degrees) and are influencing the demand for products that will accommodate such consumer choices.

In the last year alone, sales of sports drinks have increased by 10%. 3 [3. 0] Mission Statement Nike’s mission states: “If you have a body, you are an athlete. ” Nike Motion, the new protein infused energy drink brought to you by Nike, targets the athlete in us all, whether you are on the track or on the couch, by providing hydration and energy with essential vitamins, minerals, and exotic herbs, proven to enhance performance, raise energy levels, as well as enhance mental agility. Nike motion is crucial for both body and mind. [4. 0] Market / Industry / Competition Analysis

Competition Analysis of Sports Drink Industry Sports drinks experienced a remarkable growth in the late 1990s and early 2000s, growing almost 56 percent between 1997 and 2002. As a result of this increase in demand for sports drinks, a large number of products started flooding the market. This influx, however, is controlled by a limited number of established and powerful companies, namely Gatorade and Powerade. Gatorade, produced by PepsiCo, is a market leader, boasting 80 percent market share. Its chief competitor, Powerade (produced by Coca Cola), accounts for 19 percent of the remaining sports drink market.

PepsiCo’s market share however is not safe. Since 2002, its share declined by 4 percent, while Coke’s Powerade grew by nearly 30 percent. 4 Most of the industry’s growth is driven by reaching new demographics, including ethnic groups, children and more serious exercisers. Attempts by other companies to market sports drinks have often failed, or achieved considerably less success than the existing players. Nike, in an attempt to avoid territorial battles, plans to carve a new niche, the energizing sports drinks with various essential nutrients, thus emerging as a market leader in this new category.

As mentioned previously, given its established, strong brand image, and its association with everything healthy, such a move should not prove impossible. Porter’s Competitive Forces According to Porter’s Five Competitive Forces, the power of suppliers is low because the ingredients used, as well as the packaging, are commodities that can be easily substituted, and therefore do not involve high switching costs. The market is not dominated by a few large suppliers, but is rather fragmented, allowing for price competition. The power of buyers is medium, because even though there are many buyers, some of them are rather powerful.

There is little chance that existing customers would integrate backwards. Sports drinks are differentiated products but can be replaced by a limited number of substitutes, water being the biggest threat. The consumers, according to trends in the macro environment will increasingly search for sports drinks on the store shelves. The small number of firms makes for a high degree of rivalry, with a few large companies competing amongst themselves, as well as vying to establish a significant foothold in order to prevent smaller firms from entering the market.

The energy and sports drink products are thus differentiated, and vary in more than just price. The threat of new entrants is low to medium due to the fact that the attractive high-growth industry of sports drinks has very high barriers to entry; namely, it is capital intensive, requiring a lot of marketing and advertising of these products, discussing their benefits, as well as positioning them apart from the rest. Likewise, it necessitates large economies of scale in production.

Such resources are difficult to achieve, and if marketing to the masses, it is something only large, wealthy companies can achieve. The threat of substitutes in this arena is quite high, in that the products currently on the market often differ in little other than brand and consumer perception. The switching costs from one brand to another are virtually zero, but companies can succeed if they’re able to retain their loyal customer bases. [4. 0] Summary of marketing activity in the industry Pricing strategy

It is safe to state that there are no significant pricing differences among the brands, they are competitively priced. Both Gatorade and Powerade sell at about $1. 50-2. 00 for a 32 oz. bottle, depending on the location and on the type of retailer. There are really no pricing wars in this industry, since consumers are very brand loyal. Looking at the distribution channels, we can see that these sports drinks are sold at most retailers that sell groceries and other beverages. Retailers include: supermarkets, delis, vending machines, street vendors, cafeterias at gyms, etcetera.

We see a potential advantage in selling Nike Motion at existing Nike outlets, such as sporting goods stores, and in Nike’s flagship stores, Niketowns, that are located in major cities around the world. Advertising and Promotions When discussing advertising and promotional strategies, we have to note that even the most successful companies need advertising and other promotional vehicles to further the success of their brands. Sports drink makers, given the degree of competition in the industry are doing just this. Gatorade spent $180 million on advertisements last year while Powerade spent less than $20 million, per Nielsen Monitor-Plus. Since these sports drinks primarily target health-conscious consumers and athletes, some of the most important promotional vehicles include sponsorship of sporting events, and signing of top athletes for promotional deals. Coca Cola was, for example, the official sponsor of the summer Olympic Games in Athens with its Powerade Drink. “We focus on niche audiences of top athletes, either through major events such as the Olympics, close relationships with sporting bodies, or by working with sports experts to produce targeted advertorial,’ says a Coca-Cola spokeswoman. ‘Consumer education is key,’ she adds. 6 Powerade earlier launched an online version of its LeBron James comic in its quest to position the brand as the sports drink for the next generation. A first for Coke and its partner DC Comics, the interactive site included flash technology and voice-overs by Mr. James across 12 Webisodes, as well as an instant win component and video games. 7 Gatorade on the other hand is the official sponsor of the National Football League, the official sports drink of the National Basketball Association, WNBA, Major League Baseball, Major League Soccer and a host of others around the world.

In all, Gatorade has struck roughly 900 sponsorship deals with sports events over time, according to tracking by the IEG Sponsorship Report. Gatorade also will sponsor branded content during the National Basketball Association’s playoffs on ESPN, TNT and FSN networks. On TNT, broadcast personalities will air live sideline segments dubbed “Heard Around the Cooler” about game strategy, injuries, statistics and other insights, while ESPN will air branded “Cooler Talk” segments on its “Sports Center. ” Challenges

One of the biggest challenges these companies face is the problem of attracting more female consumers. According to the Mintel International Group, an industry observer, consumption patterns always leaned heavily toward males, but the trend showed signs of changing as more female teens reportedly were drinking more and more sports drinks. This reflected female teens’ ongoing interest in losing weight and increasing interest in exercise. 8 Sports beverage producers also began targeting the fast-growing Hispanic population.

Gatorade’s Xtremo! was the first to appeal to this potential market with a line of more exotic and tropical flavors including mango and tropical. The effort was supported by bilingual packaging and Spanish-language advertising. Coca-Cola’s Powerade brand also began using Spanish-language advertising to tap into this market. We think that the most important industry factors that will be influential in our planning is the degree of competition that we’re hoping to offset with powerful and wide-reaching marketing campaigns.

As I’ve mentioned earlier, there is a very high level of competition especially between Gatorade and Powerade. Both these companies spend millions of dollars on building their brands and their loyal customer base. We can see, however, a slight difference between the promotional techniques of the two. Gatorade is more centered on the top-athlete, while Powerade tries to depict a more cutting-edge picture that appeals primarily to the iPod generation. There might be another niche that is underserved, and that could be just what Nike Motion needs.

An underserved niche, such as women and men of Generation X and Generation Y, might have a need for nutritious, on-the-go beverages that fit into their busy life-styles. Nike could target these niches successfully due to its existing brand image. [5. 0] Marketing Objective The Nike brand is a well known brand, its swoosh is one of the most recognizable signs out there, having established brand loyalty among many. Based on our market research, the brand extension of Nike Motion would have great potential for being the next great beverage among athletes and non-athletes.

We would pursue a mass market penetration strategy for a saturated market, while still allowing for a vast opportunity in high profits and gaining market share due to Nike’s brand recognition. Our primary objective is to create product awareness among the target audience by 30 percent in one year and our secondary objective would be to increase market share. We would also want to inform our target audience about the features and benefits of our product and its competitive advantage, leading to a 10 percent increase in sales in one year.

Many individuals are unaware of Nike’s new brand extension of a sports drink. Therefore we would pursue a high reach and high frequency strategy in our advertising in order to have maximum exposure. In order to accomplish this we would conduct a SWOT analysis to gain a better understanding of our target market and market segment. We want to achieve this objective by using secondary and primary research to get an in depth understanding of our target and to formulate a strategy to develop our campaign. Based on our research, trends and attitudes are moving toward health conscious products.

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