Brand and Snapple - Free Essay Example

Sample details Pages: 25 Words: 7382 Downloads: 5 Date added: 2017/09/14 Category Advertising Essay Did you like this example? 9-599-126 REV: DECEMBER 5, 2003 JOHN DEIGHTON You remember the ‘80s, Philip? – Of course. God hated the ‘80s. – He didn’t like anything? He liked Snapple. Don’t waste time! Our writers will create an original "Brand and Snapple" essay for you Create order – God liked Snapple? Not all the flavors. — From a 1998 episode of â€Å"Chicago Hope,† a network television drama Arnie Greenberg, Leonard Marsh, and Hyman Golden had been friends since high school. In 1972, they went into business selling all-natural apple juice to health food stores in Greenwich Village under the brand name Snapple. By the late 1980s, their brand had achieved near-cult status on both coasts of the United States, with its iced teas particularly in demand. It had taken 15 years, they said, to become an overnight success. In 1994 Quaker bought Snapple for $1. 7 billion. The vision had been to combine Snapple with Gatorade, an earlier and very successful acquisition, to form a powerful beverage business unit. Snapple, however, did not thrive: sales fell in each of the next four years, and in 1997 Quaker despaired and sold the brand to Triarc Beverages for $300 million. In the fallout that followed, both Quaker’s chairman of 16 years and its president resigned. Mike Weinstein, CEO of Triarc Beverage Group, reflected on the acquisition. â€Å"At $300 million, Snapple is not a steal by any means. It’s in decline, and when that happens to a brand it’s seldom that it comes back. We’re in a fashion business here, and when your imagery isn’t fashionable, often that’s the end. But we’ve talked to a lot of consumers and we did a lot of qualitative research, and we’ve decided that in this case the brand still has inherent strength. People feel good about it. It will respond to the right marketing stuff. † ___________________________________________________________ ____________________________________________________ Professor John Deighton prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright  © 1999 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to https://www. bsp. harvard. edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 599-126 Snapple 1972–1986: The Origins of the Brand Arnie Greenberg’s family ran a sardine and pickle store in Ridgewood in Queens, New York. His friends Leonard Marsh and Hyman Golden helped him in the store, and in turn he helped them to manage their window-washing business. In the climate of the 1960s, Arnie encouraged the family to stock health foods. The three saw the popularity of natural no-preservative fruit juices in the store, and teamed up with a California-based juice company to manufacture and distribute a bottled apple drink. Eventually they broke away from the California partner and founded their own company— Unadulterated Food Products—and the Snapple brand. 1 â€Å"100% Natural† became Snapple’s mantra. The business grew slowly using internally generated funds. It outsourced production and product development and built a network of distributors across New York City. Where possible, it sought individual distributors working for their own account, and found as a result that the business needed to broaden the product line to keep distributors occupied. It added carbonated drinks, fruit-flavored iced teas, diet juices, seltzers, an isotonic sports drink, and even a Vitamin Supreme. Some succeeded and many failed, but premium pricing on the successful products covered losses on the failures. Revenues and profits grew with expansion of distribution into New Jersey and Pennsylvania. In 1984 annual turnover was $4 million and it doubled by 1986 to $8 million. In response to pleas from Snapple’s distributors, the founders commissioned advertising. Jonathan Bond and Richard Kirshenbaum, who managed the Snapple account later, described this early advertising as follows: When tennis star Ivan Lendl was featured in several ads, the idea didn’t quite come off. (He) kept mispronouncing the name as â€Å"Shnapple. † Luckily the ads were so bad that they didn’t do the brand any harm. Had those schlocky ads been just a little better, they actually would have been worse for Snapple. The ineptness of the ads actually came off as charming, just like the cluttered packaging. 2 Snapple was just one of many small beverage brands aspiring to appeal to young, healthconscious urban professionals in the 1980s. Napa Naturals, Natural Quencher, SoHo, After the Fall, Ginseng Rush, Elliot’s Amazing, Old Tyme Soft Drink, Manly Sodas, Syfo, and Original New York Seltzer were some of the many contenders in what eventually came to be called the New Age or Alternative beverage category. 987–1993: The Glory Years The vision of many entrepreneurial founders was to exit via acquisition. For example, the founders of SoHo—Connie Best and Sophia Collier—took sales to $25 million and then sold the company to liquor giant Seagram in 1989 for $15 million. They explained that they were handing off to a buyer with deeper pockets. Seagram expanded distribution and ad vertising, dismantling the independent distribution network in favor of its own wine cooler distribution chain. The Snapple founders, however, decided to cope with the next stage of growth by hiring professional management. They turned to Carl Gilman, a beverage industry veteran from Seven-Up, 1 Drawn from Cynthia Riggs, â€Å"Snapple Cracks Tough Pop Market,† Crain’s New York Business, August 14, 1989 and Cara Trager, â€Å"Niche Entrepreneurs,† Beverage World, October 1989. 2 Jonathan Bond and Richard Kirshenbaum, Under the Radar (New York: John Wiley and Sons, 1998). 2 Snapple 599-126 to run sales and marketing. Gilman used focus groups to tell him how to improve Snapple’s label design. He increased the advertising budget to $1 million and intensified the independent distributor system throughout the East Coast. He viewed expansion to the West Coast as premature and a dilution of effort. â€Å"The stronger we build the East Coast, the more the West Coast will want us. †3 The distribution system grew until Snapple had a network of 300 small, predominantly familyowned distributors servicing convenience chains, pizza stores, food service vendors, gasoline stations, and so-called mom-and-pop stores. A press story described the work as â€Å"salesman, truck loader, driver, heavy lifter and bill collector, all in one. 4 Distribution in Boston was in the hands of Ted Landers, who had married into a Boston beer distribution company and now employed 11 people and several trucks to serve what he called the up-and-down-the-street business in soft drinks: In 1985 we were distributing several brands of single-serve beverage, SoHo and others. We saw lots of excitement around Snapple, and Snapple was doing its own distribution in Boston—about 250,000 cases a year—so we went to them an d offered to grow their volume, which we did, up to a million cases a year. We invested in coolers and vending machines for convenience stores, and talked up the product. We visited supermarkets, but they wanted slotting allowances and service calls, which can put a strain on my pocket book, so we stayed away from them in the main. Supermarkets were no more than 10% of my volume in 1994. Nationally, supermarkets accounted for about 20% of Snapple’s sales. Snapple’s promotion was an offbeat blend of public relations and advertising. The story of the three founders’ success in an industry dominated by multinational behemoths was told many times in many media. Advertising agency Kirshenbaum, Bond Partners created a spokesmodel for the brand in the form of Wendy Kaufman, a former truck dispatcher with a brash New York attitude. Wendy received paid exposure in the brand’s advertising, but her eccentric personality also attracted unpaid media attention. She appeared on television shows such as Oprah and David Letterman, where she read Letterman’s â€Å"Top 10 Least Favorite Snapple Drinks,† and was interviewed by USA TODAY. At times she attracted 2,000 letters a week. She made appearances at retail stores, and accepted invitations to sleepovers, Bar Mitzvahs, and prom dates. In a similar vein, the brand sponsored the radio programs of two very popular 1980s exponents of shock radio. Howard Stern specialized in tasteless and often outrageously sexist humor, and Rush Limbaugh built a following as an advocate of right wing political and social ideas delivered in a style that combined protracted ranting with acid sarcasm. In exchange for sponsorships on both shows, the brand received on-air endorsement and sometimes became the subject of Stern’s banter and Limbaugh’s rants. Stern got to know the founders of the business personally and conveyed to his listeners a genuine and infectious regard for the products and the people behind them. Kirshenbaum, Bond adopted â€Å"100% Natural† not only as an advertising line, but as the test which all marketing actions had to pass: 3 Trager, op cit. 4 Glen Collins, â€Å"On the Front Lines of the Beverage Wars: The Life of a Snapple Distributor, Surviving Robbers, Illegal Parkers and the Usual Cutthroat Competition,† The New York Times, December 3, 1997. 3 599-126 Snapple Everything should and would be natural and real. We would use real people in real circumstances. Everything that happened on a Snapple shoot was real. And we would run on air only what really happened, even if it didn’t turn out the way we scripted it. We got a letter from a woman who claimed that her dog Shane came running every time he heard a Snapple cap being opened. We called him â€Å"Shane, the wonder dog. † But when we got there and tried it, nothing happened. The dog just sat there. So we ran the spot with the dog just lying there. 5 On a summer day in Hempstead, Long Island, Snapple invited consumers to a Snapple Convention. Over 5,000 people sent the required $5 and 20 Snapple labels, and participated in a day of Snapple-themed fun and games. A Snapple fashion show was won by a woman in a dress made of Snapple caps. Growth in the Alternative beverage category was explosive, with Snapple leading the way. Snapple sales grew from $80 million in 1989 to $231 million in 1992 and $516 million in 1993. Competition grew commensurately, though Snapple’s share remained steady at about 30%–40% of the rather hard-to-define category. (See Exhibits 1, 2, 3, 4, and 5 for estimates of the growth and structure of the market and brand. Brands like Clearly Canadian and Mistic appeared and Coke and Pepsi were rumored to be entering. Seagram, however, failed to benefit from the market’s expansion, and sold SoHo for an estimated $1 million in 1992. Efforts to replicate its wine cooler success in the Alternative category had been unsuccessful. Industry observers attributed its difficulties to raising pric e, to tampering with flavors, and to dropping the patchwork of small distributors in favor of large liquor wholesalers. Seagram’s president explained, â€Å"We are a large company and we should be operating large businesses. 6 In 1992, the three Snapple founders sold control of the company to a Boston private investment bank—the Thomas H. Lee Company—in a leveraged buyout and subsequent public offering. In 1994 with sales running at $674 million, Lee sold it to Quaker Oats for $1. 7 billion in cash. 1994–1997: Quaker Takes Command Quaker in 1994 was a food company with four main areas of business: grain-based foods, beanbased foods, pet foods, and beverages. The first three were relatively mature, while the beverage business, consisting entirely of the Gatorade brand, had been growing vigorously. Gatorade contributed $1. 1 billion of the company’s $5. 95 billion turnover in that year. Gatorade’s origins were in a research project at the University of Florida in the early 1960s to find a way to replenish fluids lost during exercise. The product, an uncarbonated orange-flavored mix of water, salts and sugars, was tested on the school’s football team, the Gators. It came to the notice of the sports world when the Gators beat Georgia Tech in the 1969 Orange Bowl and Bobby Dodd, the losing coach, explained to Sports Illustrated: â€Å"We didn’t have Gatorade. That made the difference. † A small packaged goods marketing firm, Stokely-Van Camp, acquired the brand, took sales to nearly $100 million, and sold it to Quaker in 1983. Quaker took its sales to $1 billion in a decade. 5 Bond and Kirshenbaum, op. cit. 6 Eben Shapiro, â€Å"A Soda Seagram Didn’t Swallow,† The New York Times, March 21, 1992, p. 37. 4 Snapple 599-126 Within the company, management attributed this growth to three main factors. 7 First, Quaker expanded the line. When Quaker bought the business, Gatorade was sold in 32-ounce bottles. Quaker added a 16-ounce glass bottle for the convenience store trade and 64-ounce and gallon plastic bottles for sale in supermarkets, and expanded from three to eight flavors. Second, Quaker increased promotional support. The brand became more visible in the major sports leagues, with Michael Jordan of the Chicago Bulls basketball team as a spokesman, and touchline visibility in the National Football League’s televised games. Third, Quaker improved Gatorade’s distribution significantly. Internationally, it entered 26 foreign markets. Domestically, it improved coverage of the market and lowered its cost-to-serve by using the same logistics system that distributed Quaker’s breakfast cereals and snacks. It shipped Gatorade in full truckloads from Quaker-owned manufacturing plants to the warehouses of the larger supermarket chains and the wholesalers who serviced smaller retail chains and independent supermarkets. From these warehouses Gatorade was combined with other grocery products to make up full truckload deliveries direct to retail stores. Despite its success, some speculated that Gatorade could be an even larger brand in the hands of a company with more scale in beverages. Indeed there was speculation that Quaker, no stranger to takeover rumors, might be acquired for the Gatorade asset. In 1993 Quaker had explored a joint venture with Coca-Cola to develop overseas sales, but talks had broken down. Domestically, Quaker felt that Gatorade was weak in what it called the cold channel, comprising street vendors, delicatessens, restaurants, recreation areas and so on, and distinguished from the so-called warm channel omprising mainly supermarkets. About 60% of Gatorade’s sales moved through the warm channel. Quaker believed that there were two million points of availability for soft drinks in the United States, and Gatorade was represented in 200,000. 8 The president of Quaker’s beverage division explained the decision to acquire Snapple: â€Å"Gatorade put Quaker in the beverage business; this substantially broadens our position. Quaker has the vision of becoming a very large beverage company. 9 Quaker’s chairman and CEO declared, â€Å"We expect to create the most innovative distribution system in the beverage industry, one which combines the very best of the two organizations and enhances the value to our trade customers through more merchandising, more points of sale, and more in-store refrigeration equipment. The great advantage to consumers is that you will be able to buy Snapple and Gatorade in many more locations than you can today. †10 Leonard Marsh of Snapple agreed, â€Å"Quaker has the resources and management skills to take Snapple to the next level of success. 11 Snapple was expected to benefit from Quaker’s packaging experience, supply chain expertise, and modern information systems capabilities. For example, Quaker sought to eliminate the substantial cost of middlemen in Snapple’s warm channel by shipping direct from factory to supermarket wa rehouses, while at the same time using Snapple’s middlemen to take Gatorade to the cold channel. 7 Kevin Francella, â€Å"Gatorade Takes the Heat: Interview with Quaker Oats Co. Gatorade Vice President for Sales, U. S. and Canada, David Williams,† ASAP, January 15, 1994. Ibid. 9 Donald Uzzi quoted in Juline Liesse, â€Å"Quaker Ups the Ante by Buying Snapple but Food Giant Denies Move was Antitakeover,† Advertising Age, November 7, 1994. 10 William D. Smithburg quoted in Andrew Kaplan, â€Å"Distribution Shifts Ahead for Gatorade/Snapple,† U. S. Distribution Journal, December 15, 1994. 11 Kaplan, ibid. 5 599-126 Snapple Gatorade’s market strengths in the U. S. South seemed to complement Snapple’s strengths in the Northeast and West Coast. It was clear to Quaker executives that Snapple’s imagery was different from Gatorade’s. Management talked of Gatorade as a â€Å"lifestyle† brand and Snapple as a â€Å"fashion† brand. They knew that consumers pictured Gatorade as a beverage for those who worked out or played vigorous sports, and such lifestyles were a relatively stable factor in the culture. The imagery of the Snapple brand was more fashion-sensitive, quirky and on the edge. But Snapple was now a brand with annual sales of $674 million, and the task of transitioning it from the edge to the mainstream, from fashion to lifestyle, seemed within reach. Quaker recognized the need to integrate Snapple’s entrepreneurial culture with its own. They retained Gilman and other Snapple senior management on short-term contracts. However, as a large corporation, Quaker saw risks to being associated with people who made a living cultivating controversy, as Howard Stern and Rush Limbaugh did, and terminated both relationships along with Wendy Kaufman’s role. Terminating Stern was not a simple matter. For many months after he had been dropped he railed against Quaker, urging listeners to stay away from â€Å"Crapple. † Quaker charged Gilman to work with Quaker executives to rationalize distribution of Gatorade and Snapple. Teams went out to the 300 distributors to propose that they cede Snapple’s supermarket accounts to Quaker in exchange for the right to distribute Gatorade to the rest of their accounts. In meeting after meeting, however, distributors resisted Quaker’s proposals. They had worked for years to get into the blue-chip supermarket accounts, and were disinclined to give them up. Most distributors held contracts into perpetuity. Despite protracted negotiations with individual distributors and with distributor councils, no channel rationalization was achieved. As Quaker introduced Snapple in larger pack sizes and in greater assortments, they met limitations on distributor trucks and retail display space in the cold channel. In addition, it appeared that Snapple played a less utilitarian role in consumers’ lives than Gatorade, which lent itself to largepack sizes because when people drank it they were thirsty and were looking to be rehydrated, often in team settings. Snapple, on the other hand, sold best in 16-ounce single-serve containers. Snapple sales peaked in 1994 at $674 million, and declined each year until by 1997 sales were $440 million. Several changes in management did not help to reverse the trend. In the latter years Quaker hired Mike Schott, Harvard MBA of 1972 who had been the executive who had built Poland Spring bottled water to national prominence, but to no avail. Quaker was rumored to have discussed the sale of Snapple with Procter and Gamble, Pepsi, and Cadbury Schweppes, but in March 1997, Triarc came forward to buy the brand. 1997: Triarc Acquires Snapple Triarc Companies was an investment company with a long history of buying and selling troubled assets. Its controlling shareholders were Nelson Peltz, a member of Forbes list of 500 richest Americans since 1989, and Peter May, his long-time partner. Their beverage assets at the time were Mistic Brands, a fruit juice and tea business acquired in 1995 for $97 million, and Royal Crown Cola (RC). Mistic’s sales at the time were $140 million. Managing the Triarc beverage brands was Mike Weinstein, who by coincidence had been a 1972 Harvard Business School sectionmate of Mike Schott. Weinstein explained how he came to be working at Triarc and charged with trying to salvage Snapple: Snapple 599-126 I graduated from Lafayette College in 1970 and applied to a couple of business schools including Harvard. Much to my surprise they accepted me. I went there with no particular goal other than to improve my general business skills. In my first year I was interviewing for summer jobs, not doing particularly well, and my marketing prof called me in and asked how the hunt was going. I said â₠¬Å"not real well. † He told me he had a friend at Pepsi who was looking for an intern. I interviewed and got an offer. Since that was my only job offer, I ended up in beverages. I liked the industry a lot so when I got my MBA, I joined Pepsi. I worked in their bottling operation, so while my classmates were going to work in a jacket and tie, there was I in a pair of jeans going out on a merchandising crew. But I thought it would be good to learn the business from the bottom up. After three years in bottling I spent some time in brand management. It wasn’t classic PG stuff, but more focused on distribution and promotion— key drivers in the beverage business. In 1981 an opportunity came along to join a small beverage company called AW Root Beer, part of United Brands, as VP Marketing. I jumped at it. After a few years, AW went through a leveraged buyout in which I was a participant. Back in those days you could do highly leveraged deals. We had a million dollars in equity and a hundred million in debt. Luckily the business was really strong, the company went public and we paid down all the debt in a few years. I eventually got promoted to president and in 1993 the company was sold to Cadbury for over $300 million, generating a really nice return for us all. When that happened I was 45 and decided to go home. I knew I’d eventually go back to work but wanted to enjoy life for a while. One morning while I was doing laps at a pool I decided to write down everything I knew about the soft drink industry. So I wrote a manual I later named â€Å"The Complete Insiders Guide to the U. S. Soft Drink Industry. † It started as a small pamphlet but later turned out to be 280 pages of how the business works. That led me into beverage consulting and I started a one-person consulting business called Liquid Logic. I used the manual in seminars for people who wanted to know more about the industry— suppliers, ad agencies, promotion companies, etc. I was hired to do due diligence on a small company—Mistic Beverages—a premium beverage company that competed with Snapple. When that deal fell through, we put our own deal together. We wrote a business plan and went out to raise money. We found Triarc, who already owned RC and was interested in expanding their beverage holdings. The deal closed in August 1995 and I stayed with Triarc to get Mistic back on a growth path. I remember distinctly Peltz talking about buying Snapple during that time period. I didn’t think a lot about it because I was sure Quaker wouldn’t sell at a reasonable price. I always thought Snapple was a great brand because we’d met it as a competitor of Mistic. Right before Christmas in 1996 I was on a plane with Peltz and he said, â€Å"You know, we’re going to get Snapple. † I told him it was a great brand and he’d have to find someone to run it. He goes â€Å"What are you talking about, you’re going to run it. † I said â€Å"I don’t do that, I’m a smallcompany guy. † After all, Snapple was over twice the size of Mistic and RC combined, and taking on something that big worried me a lot. Plus the brand was in a tailspin. We were just in the rocess of absorbing RC and here it was just a few months later and I was going to be asked to take on the beast that beat Quaker. 7 599-126 Snapple A Strategy for Snapple In late 1997 Weinstein sat down with Ken Gilbert, recently recruited from a major advertising agency to the position of senior vice president of marketing at Triarc, to assess Snappleà ¢â‚¬â„¢s situation and to set priorities for reversing the brand’s slide. On the table in front of Gilbert was a study written by a New Jersey group that specialized in the application of anthropological methods to marketing problems (excerpted in Exhibit 6). The study was recommended by Snapple’s advertising agency, Deutsch, Inc. , to help develop an overall communications strategy to revitalize the brand. Specifically, the study investigated Snapple’s consumers, the culture they live in, and the dynamics of the ready-to-drink beverage category. The strategic team at Deutsch felt that the research provided Triarc with some solid direction. The study had uncovered enough evidence to show that the brand had connected strongly with consumers in its early years because it had done things differently by being real, human, and avoiding the expected marketing slickness consumers had grown suspicious of. As they saw it, the research showed that the many changes Quaker had instituted went directly against these principles. Consumers had felt betrayed, because Snapple had â€Å"sold-out. † Weinstein seemed more reserved in his attitude to the study. â€Å"Don’t get me wrong, I’m not against research, but there are many things in the fashion world that you can’t research. Consumers have a hard time telling you what they want, and sometimes you have to look at what’s working in the category. The big thing in this industry is what’s new, what’s moving, what’s hot. If someone comes out with an urn-shaped product, it’s not that I want to copy it, but I might say what’s the bigger picture here? Is it about size, or color, or just what is it? Here’s something new from AriZona. † He pointed to a bottle of AriZona Iced Tea whose top-to-bottom shrink-wrapped label with a willow motif gave it the appearance of a hand-painted Chinese ceramic container. â€Å"This packaging has impact. It will be noticed by anyone who looks at the beverage display. † Weinstein continued, â€Å"This category has so many segments—teas, fruit drinks, diets, water. Could we get into water, without being the cheapest water? Could we be in the sports drink business without competing head-to-head with Gatorade? I’d love to be in the chocolate beverage business. â€Å"We know that we can sell around 200,000 cases of just about anything. We talk to key distributors and see whether they think we have a good idea. If they take it, we know within the first month based on reorders whether we have a product that’s selling or not. If we don’t do consumer research, if we do product development in-house, if we do our own label design, we can be in the market with a new concept for $50,000 to $75,000 investment plus working capital for ingredients. Gilbert defended the usefulness of the study. â€Å"Ask anyone what Snapple stands for and you’ll hear the same words: quirky, offbeat. That’s ok as far as it goes, but it’s hardly satisfying as the endpoint. It’s superficial. This study gives me a richer sense of what we have to work with. Granted, it does not narrow the field of play. It does not exactly make my job easy. But that’s the nature of the brand. People make Snapple their own, so it ends up meaning lots of different things to lots of different people. Snapple users are really very average, normal people but the brand helps them to think of themselves as offbeat. Weinstein smiled. â€Å"I like to think that a Snapple drinker is anyone with lips. How would it be if we developed products first and then found out which segment they appealed to? The main thing is to keep moving the ball forward. We can’t get mired in the mud. † 8 Snapple 599-126 Exhibit 1 Annual Sales Revenue of Snapple, 1972–1997 Growth of Snapple 700 600 500 $ Millions 400 300 200 100 0 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 9 Source: Various published sources. 599-126 Snapple Exhibit 2 â€Å"Alternative† Beverage Category, 1997 Sports Drink 16% Bottled Water 19% 00%Juice 17% Non-Premium (e. g. , Lipton, Ocean Sp ray) 24% Premium (e. g. , Snapple) 24% Total Alternative Beverage Category: $5 Billion at Wholesale The Alternative category represents 10% of the non-alcoholic beverage industry. Source: Triarc Company estimates. Exhibit 3 Supermarket Brand Shares, 1997 Snapple 35% Ocean Spray 12% Nestea 4% Lipton 9% All Others 29% Arizona 11% Total Supermarket Alternative Beverage Category: $0. 3 Billion at Wholesale Source: Triarc Company estimates. 10 Snapple 599-126 Exhibit 4 Snapple Flavors % of Cases in 1996 1) 2) 3) 6) 5) 4) 7) 8) 9) 10) Lemon Tea Kiwi Strawberry Mango Madness Peach Tea Pink Lemonade Diet Peach Tea Fruit Punch Raspberry Tea Diet Lemon Tea Diet Raspberry Tea 15% 7 5 5 5 4 4 4 3 3 55% Top 10 of 50 Flavors Source: Triarc Company estimates. Exhibit 5 Snapple Pro Forma Income Statement Per 24-bottle Case Retailer’s price to consumer Distributor’s selling price to retailer Manufacturer’s selling price to distributor Cost of goods (contract manufacturing) Advertising and promotion Profit before general and administrative costs $19 in supermarket, $24 on street $15 to supermarket, $19 to street $10 $ 6 $ 2 $ 2 Source: Triarc Company estimates. By â€Å"street† is meant street vendors, delicatessens, restaurants, recreation areas, etc. 11 599-126 Snapple Exhibit 6 Analysis of the Snapple Brand The Cultural Logic of the Snapple Brand Extracts from a report prepared by the Cultural Analysis Group for Deutsch, Inc. November 1997 Objectives †¢ †¢ †¢ †¢ †¢ Who are core users of Snapple, and how the Snapple brand is expressed in their lives? How does Snapple intersect with key trends and values in contemporary life? What binds consumers to the brand? Why do formerly heavy users step away from Snapple, reduce their consumption? Ultimately, what is the meaning of Snapple in people’s lives? How can we develop a positioning that transcends demography and geography? Method †¢ 72 in-home interviews in 4 markets 2 developed markets: 2 undeveloped markets: †¢ New York †¢ Dallas †¢ St. Louis †¢ Seattle Divided evenly by age: ? were with ages 18–29 ? were with ages 30–44 Divided into three groups: 1. Long-time loyalists (3+ years), heavy users (4+ times/wk. ) 2. New to franchise heavy users (where Snapple has become their favorite non-carbonated beverage in the last year) 3. Lapsed users, former heavy users who continue to drink it (1–4 times/mo. ) †¢ The Meaning of Snapple †¢ Snapple defined by what it is not. It is suspended between: depravity Snapple deprivation (colas) (water, carrot juice, etc. ) It may substitute for cola, but is by no means conceptually equivalent. Snapple use is driven, and defined in large part, by a reaction against colas: Cola s = modernity: unnatural artificial image impersonal uniformity, exclusion mass production authority Snapple = reaction to modernity: natural real personal diversity, inclusiveness variety, individualism anti-authority, irreverence It is not necessarily new age, nor a return to the past, but a bit of both. By â€Å"alternative,† users do not mean drop-outs, sullen and alienated. Snapple is not like water. Snapple is a treat: Unlike water, â€Å"You can’t carry it around without drinking it. † 12 Snapple 599-126 Water should drink it good for you empty â€Å"tasteless†/†dull† Snapple want to drink it fun full vivid sensory experience †¢ Snapple is seen in experiential terms. There is something essentially sensual about Snapple: it tickles, rouses, lingers, wakes up the mouth, reminds one of the beach, or of walking barefoot in the grass. It is full of variety, full of imagination, full of flavor, more variety than any competitor, more new combinations. The packaging (complexity of the label, stippling on bottle) plays out the taste experience. Drinking a Snapple is engaging, not something you do on autopilot. †¢ Snapple has in-betweenity. Snapple drinkers inhabit the vast middle ground between: Don’t care Really serious what I put Snapple drinkers into my body about health There’s a Goldilocks quality: â€Å"Not too thick, not too thin, not too sweet, not too tart. † Not a child’s drink, but not middle-aged either. It is middle class. Colas = inner city, ghetto, and Evian, Perrier = jet set. Every Snapple drink is a blend. Snapple reaches across beverage categories. It’s for when you’re on the go = in-between activities. Snapple ratifies and intensifies transitional periods. Pivotal Characteristics †¢ Authentic The brand pivots on trust. It makes implicit health claims. Its name conveys healthiness: snap active, healthy apple healthy The fruitiness claim works on the same level as the vegetable content of V8 juice. Fruit is healthy, Snapple is fruity, so Snapple is healthy. If it is seen as faux fruit juice (e. g. , Sunny Delight, Kool-Aid, etc. ), then its claims (All natural ingredients, Made from the best stuff on earth) become just so much hype and Snapple drinkers are chumps. As a brand there is a Johnnie Walker character to Snapple. It can flicker from optimum and premium to impure and inauthentic. †¢ Fun It’s irreverent. Serious and Snapple go together like oil and water. To some extent fun is a category characteristic, differentiating all such beverages from serious health drinks, but Snapple is fun in a way unduplicated by any other brand of soft drink. It is informal, natural, personal, and playful. That partly derives from full taste, and partly because it represents a break from mundane roles and responsibilities. It is not â€Å"a pure escape† but of a circumscribed and portable sort, one which is easily resealed and apportioned. The playfulness is reinforced by imaginative use of names, e. g. , Melon Berry, Kiwi Strawberry, Mango Madness. †¢ Personal There’s so much variety to choose from. You can find yourself within the brand. The diversity within Snapple Brand makes it a model for a multicultural society. There’s a creative dimension that enhances and enlarges who you are. The logic of Snapple is very like the logic of contemporary music, a creative fusion of styles and genres. Snapple as a brand is constantly revising what it is. There is the image of a small, caring company. It is almost too individualistic. It is not a family drink. Snapple in the refrigerator increases family tension. †¢ Vividly Sensual Snapple tastes good or it is nothing. Luxury today is being redefined. It need not be a big purchase. 13 599-126 Snapple Conspicuous consumption understated functional luxury â€Å"luxury that does† personally real, sensation- saturated experiences Sensuality is based on contrast and Snapple is replete with contrast. It is smooth but complex, with blend of different flavors and tastes both exotic and immediate, stimulating and soothing. Rumors There is a disproportionate number of rumors about Snapple, initially fueled by Snapple’s mysterious and unsettling florescence. They typically start with GenXs studying the label and detecting a slave ship or the letters KKK, combined with a cynical worldview where conspiracies are rampant, and a taste for celebrating the down and out. Rumors have suggested that Snapple is anti-abortion, anti-gay, donating money to Jesse Helms, and that Rush Limbaugh has major investment with Snapple. The rumors vary but the themes are remarkably consistent. They are not about the product, but about the company, the â€Å"owners. Snapple is in an analogous situation to the Body Shop, which is also the subject of a disproportionate number of rumors. The issue is not the truth or falsity, or even impact on sales, but rather the underlying message, which is one of a deep sense of betrayal, perhaps over implicit health claims, or a fear that Snapple is not alternative but rather reactionary. Wha t Is Driving Decreased Consumption? There appears to be no â€Å"Great Attractor† sucking consumers away from the brand, rather a drift away in all directions, toward water, back to sodas, to other competitors in the category, e. g. , AriZona, Fruitopia. No competing brand stands out. Most competitors within the category were seen as inferior, even by lapsers, e. g. , â€Å"too sweet. † Some drink less Snapple juice and add ice tea. There is also natural attrition, caused by problems of distribution: â€Å"I can’t find my flavor anymore,† or â€Å"My grocery store has only peach diet tea and kiwi strawberry and I’m getting tired of kiwi strawberry† or â€Å"Coke made them take the Snapple coolers out at high school. † There are health issues, especially with 30–44 age group, a wake-up call from the doctor, increasing health sophistication. Non-lapsers often were not label readers. Authenticity was a concern, especially with 18–29 age group, who are very sensitive to being tricked: â€Å"It even costs more than real juice,† or the contrast between Snapple’s small company image and the size of the company. Fashionability and negative social pressure were sometimes explicit: A young male in SL, â€Å"I used to drink a lot of Snapple, AriZona is newer† or a 40-year-old artist in NY, â€Å"It’s no longer avant guarde. † More often they were implicit, a feeling you get carrying or drinking Snapple in public, often expressed as a lack of presence, â€Å"You just don’t see it anymore,† â€Å"What happened to Wendy? there was a feeling that Snapple has lost its focus and no longer appeals to imagination. â€Å"I heard they fired Wendy. † Fashion Established brands may wax and wane, but do not follow a fashion trajectory (even fashion labels—Ralph Lauren, Calvin Klein, etc. ). Established brands are like animal species—each has its own niche, and as its environment changes, the brand either evolves or becomes extinct. New age concepts and health behaviors are often more like hula-hoops (e. g. , TM, The Water Diet, Ab Roller, etc. ). Desirability increases or decreases with perceived popularity. Fashion is fueled by 14 Snapple 599-126 social competition. Much of Snapple’s problem is that it behaves more like a â€Å"fashion water† than an established brand. Its product differentiation is weak. It lacks a compelling reason for use. It is not embedded in daily rituals and routines. Social Reinforcement The amount of Snapple consumed is highly correlated with intensity of Snapple use in the respondent’s immediate social environment. It’s not that Snapple is a social beverage—it is rarely shared, and it is not true that those who drink Snapple with others (e. g. , lunch with colleagues) are more likely to be a loyalist. Rather Snapple use needs to be socially reinforced. It is not physiologically addictive, and it lacks the conceptual coherence that drives bottled water (good for you, purifying, intimations of working out) or Gatorade (replenishment, intensity, etc. ). Adoption Process Adoption, becoming a heavy user, is typically extended over several years. Most â€Å"new† drinkers had been aware of Snapple as far back in time as long-term loyalists. Many have been drinking Snapple for years. Conversion to heavy use is typically no sudden revelation, but an extended process. Snapple drinking flows through friendship networks. Significant others† stand out as a key influence. Flow tends to be from female to male. Among females, â€Å"we talk about everything. † Among guys, it typically works differently. It is based on observing what friends order, how much they wanted it, etc. But generally adopters try not to imitate immediately. If it comes from Mom, becomes sacred. Usage A h igh percentage of purchases are single bottles for immediate consumption, â€Å"I could save money by buying in bulk, but I don’t. † Snapple fits with sandwiches and delis, not fast food. Usage fluctuates seasonally, diurnally, and cyclically: â€Å"I drink Snapple when I drive on long trips. It’s an individualistic, atomistic experience, normally not social or familial. Snapple moments tend to be on the go, between here and there, yet for many loyalists it’s not truly an impulse buy: â€Å"That first 15 minutes when I get home from work . . . I don’t answer the phone, sit down and have a Snapple. † It is part of a salesman’s routine stop for gas, part of taking baby for a morning stroll, a way to get through early morning class, â€Å"breakfast at Dunkin’ Donuts, then home with a Snapple while I do the crossword in the morning newspaper. † Regional Differences New York The Region: â€Å"The Big Apple† Active to the point of frenetic Seattle Apples grow here High employment mobility and diversity (people exploring different career options) Dallas Gatorade huge here Ambitious, dynamic, materialistic, engaged economically robust, open to change, gregarious, entrepreneurial St. Louis Little in-migration 15 599-126 Snapple New York NY has always been characterized by immigrant mindset, a sense of renewal and starting afresh Individualism run amok Seattle Like New York, Seattle has a fairly large and influential gay population Mix and match— innovation, growth, vitality based on ecombination, fusion of diverse elements Active, outdoors, health-oriented Strong artistic community, spiritually conscious, exploratory, embrace of the exotic Dallas Janus faced—forward looking combined with a certain reverence for the past, a search for tradition Individualist in a characteristically Texas, â€Å"do things my way,† but tempe red by tremendous enthusiasm for team sports St. Louis If Dallas is searching for tradition, St. Louis has found it—much more traditional, stable, centered Individualism is attenuated, emphasis on what connects friends, family, community, more of adaptive, defensive stance toward life Health conscious Strong artistic community The Brand in the Region: Snapple has gone from being fashion forward to mainstream Most supermarkets have a juice bar, more sophisticated competition, e. g. Odwalla, Sobe The brand’s presence feeds on itself Snapple has gone from being fashion forward to being peripheral Less health sophistication, Snapple more likely to be seen as â€Å"healthy† Little or no knowledge of the company, almost no rumors Profile of Snapple Drinkers Active approach to life, suffused with youthful attitude, outdoors. Snapple is not for the idle. But Snapple is not the drink of the really serious athlete. Snapple drinker is open to new experiences, not particularly suspicious. Looking for things to help them step back from life. Tendency for best friends to be less stable, more â€Å"alternative,† and looking for some of that in their own life. Sense of being on the way somewhere, interested in improving themselves, moving up. Snapple itself was a model of come-from-nowhere, make-it-big-time, success. They are in control, not on a power trip, it is control of themselves. The reaction against colas is a matter of taking back control of their lives. The bottle plays directly to this sense of control: â€Å"Just fits in your hand,† the screw-on lid. Snapple is a way to â€Å"seize the moment. † There is an individualistic ethos and it resonates to individuals (or entities) making a comeback. Drinkers fit a fairly narrow taste profile, like sweet things, often dislike carbonation (â€Å"Makes me burp,† â€Å"It burns†). The drinker is not attracted to pure juice: â€Å"too citrusy,† â€Å"too acidic,† â€Å"too thick. † It’s not for health nuts, but for people who cleave toward fulsome and flavorful foods like Tex-Mex, lobster/shrimp, chocolate. Meaning of Wendy Wendy embodies the essential Snapple qualities. A low-level employee in customer relations, a nobody, who’s now a celebrity, she exemplifies the entrepreneurial story that endears many ambitious individuals to Snapple. She and the original set of commercials personify the fun, genuine, 16 Snapple 599-126 personal, whimsical, and creative dimensions of the brand, the bottom-up popularity. She’s like one of their friends, a little odd but all the more endearing. Wendy reaches all Snapple drinkers but not with equal efficacy. In New York and Seattle, people are more likely to read Wendy on multiple levels. In New York individuals tend to be much more familiar with the Snapple story, and Wendy Kaufman is familiar in terms of lived experience, â€Å"I know people like that. † Wendy plays least well in heartland, where she seems more â€Å"exotic† than â€Å"could be anyone. † In Dallas and St. Louis respondents see Wendy as â€Å"funny,† â€Å"friendly,† â€Å"full of life,† â€Å"energetic, not Madison Avenue slick. † Conclusions and Implications †¢ Regional ethos. Areas that are most â€Å"settled,† self-satisfied, are least susceptible to Snapple’s â€Å"subversive† appeal. Areas with a postmodern mindset—a playful exuberance, expression of vivid sensuality (personal uthenticity), and mix and match ethos—are Snapple territory. †¢ Authenticity is pivotal. Overstating or misrepresenting Snapple’s health benefits does more harm than good. Snapple needs to be just healthy enough. Feeling b etter about yourself is an integral part of the Snapple experience, but it need not be the most important part. †¢ Corporate image influences brand image. It need not be a small company, but should be a caring company. Like social reinforcement, corporate image provides justification for use. Snapple needs to stand for something. †¢ Intermediate/interstitial character of Snapple is both strength and weakness. As a strength, it broadens the customer base and market niche and is a source of symbolic power. As a weakness, the brand can move quickly from hero to villain. (In mythology, interstitial figures frequently play the role of â€Å"trickster. †) †¢ Social influence. Intensity of Snapple use is closely correlated with social presence. (Serious Snapple drinkers far more likely to be surrounded by other Snapple drinkers. ) †¢ Become more established. Must move Snapple from a â€Å"fashion water† to a staple brand like Pepsi, Coke, Sprite with well-defined benefits and image. †¢ Develop sensuality of the Snapple experience. As with apples, there is an emphasis on mouth feel. Consumption is not a rational act, as water consumption is. Unlike sodas, Snapple is both soothing and stimulating. †¢ Snapple moments. Fold Snapple into personal, daily rituals—time out from the mundane, transitional moments, sense of â€Å"letting go,† both restorative and sensual. Link to trend away from a mechanistic vision of health toward a more holistic, â€Å"good for you,† being good to yourself, getting back in touch, de-stressing vision. †¢ Community marketing strategies. Build on brand’s personal, local character. 17