4. Bottled Water

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WWW.SBS.OXFORD.EDU

EDUCATING LEADERS FOR 800 YEARSWater Wars

DipSI

Dr Pegram Harrison

University of Oxford

27 Jan 2011


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Dr Pegram Harrison DipSI 2


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Exercise 20 minutes

Gather data on bottled water business Danone (one half of room) Nestl (other half)

Revenues 09 Market Share (Bottled Water) general

indication

Product Characteristics Process of Production Supply Chain Cost to bring to customer



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Danone - Evian

http://www.youtube.com/watch?v=IGv3lZciiCQ&NR=1


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Danone - Evian

Revenues 09: 20 billionShare: Leader for decadesProduct: Purity: utterly untreatedProcess: Natural: mountain springs

Supply: Unique, defensible comparative advantageCost: Production and distribution

You have to believe that water from France is better than

what youve got in Kentucky.

Purity with a cost

Strategy: demand advantage



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Nestl Pure Life

Revenues 09: 100 billion - Worlds largest food companyShare: Entered market in mid-1990sProduct: Technology: totally treatedProcess: Industrial: reverse osmosis

Supply: Produced around the worldCost: Minimal production and distribution

7 to 8years after introduction, Pure Life became the #1

global brand in any established category.

Purity at a great price

Strategy: cost advantage



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Perrier Defining the Industry



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How did this all start?

Perrier: first entrant, defined industryBreaking into Britain: eau advertising campaign + privitization of water

utilities

price difference between tap water and bottled waterwas narrowed

price sensitivity for a premium-ised commodity eroded (note: not a resource element, a positioning element) Age of the Foodie UN report recommending 2 litres per day (8 glasses) That story about tap water going through 7 people

prior to you



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Bump in Road 10 Feb 1990

Benzene Crisis

w/in 48 hours, 78% of all bottled water disappearedfor 8 weeks2 month window for competitors to enter market

Strength (purity) flipped into weakness (poison)

Live by sword, die by sword.



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Ach, eh'd link tae bevvy a bottle ay Heelain Sprin'

Local British product, with ready market demand

Gained 20% share in first year on Buy Britishpolicy from Thatcher govt

Marketing strategy. Product placement along withBritish icons (BA, F1, etc)



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Dynamics of Competition

Product? No real difference

Price? Yes and no

Positioning? Yes

People? Sort of

Packaging! Almost entirely!



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Strategic response

How do incumbents react to new entrants?

Pepsi: Aquafina http://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-

baseball.html All-American product + formidable distribution Became US #1 brand rapidly

Coke: Dasani Busy, 29-35 y/o urban women What life takes out, Dasani puts back UK strategy backfires

http://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.htmlhttp://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.htmlhttp://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.htmlhttp://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.htmlhttp://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.htmlhttp://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.htmlhttp://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.htmlhttp://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.htmlhttp://www.tvclip.biz/video/vNhP6007UUI/aquafina-commercial-baseball.html


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The real competition?

Tap Water?

Why? Why not?



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Dasani Whoops!


Bad press about tap water- from Sidcup!- 3,000% mark-up

Bromate in bottles, a by-product of the added minerals

500 million bottles yanked off market 5 weeks after launch


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One Water

Same price - No shares - No dividends

Less than 5m (vs Danone 13b)

100% profits to African water projects water to 10 African school kids per day Play Pumps: powered by kids playing Clean water to over 1.4 million people When you drink One, Africa drinks two

Positive brand choice

Provides British retailers with CSR stories, at no costAffecting industry. Volvic 1 for10



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Strategic System

Youre not really buying water; youre buying oil!poly(ethylene terephthalate) PET

In 1980s, PET bottled water jumped from 7th place inbeverage industry to 2nd (after carbonated soft drinks).

Growth of $2-3 billion annually.

This innovation came from bottled water industry.Now its everywhere.

PET platform: without it, bottled water would be lesswidespread.



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Water and Oil do mix

Bottled Water = Water + Oil

In 1980s, a revolution. The worlds two most preciouscommodities in one neat package. But

In 1990s, a backlashwith the green movement. The oil equates to 20% volume of water. It takes 3 litres of water to make 1 litre of bottled water.

In response: Reducing weight of bottles Make over 40% of bottles with recycled PET Millions mangroves planted for CO2 credit



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Future Strategic Landscape of Bottled Water

Who is best positioned?

Who has best resources?

Who can access optimal value?

Who controls the system best?

Why?



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Whats next?

Sales dropping in WestBut news of its demise is prematurely exaggeratedCompetition moving East and South

Pure Life well adapted to any territoryMore people, less clean water, bigger markets

Danone has created new brandsAqua in Far East, BonaFont in Latin America60% of volume in high growth countries>50% of margin in developing world



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Whats the lesson?

The positional & resource-based views of strategydont fully describe whats going on in bottled

water industry.

There is a whole system of value being added andallocated.

How does this work?How can you control your part in it?


4. Bottled Water

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