Grade ID 41311

MBA 6623

Crescent Pure

Case Analysis

Overview

Sarah Ryan, VP of marketing for Portland Drake Beverages (PDB) has a few options on

how to market the new beverage product they acquired, Crescent Pure. With a $750,000 budget

she can position Crescent Pure as an energy drink, sports drink or with a broader view and

position it organically. Since Crescent Pure will be a new product they are wanting to move and

penetrate the market first. With a soft launch looming at the beginning of 2015, Sarah only has 6

weeks to decide how to position the product. Since she has a limited budget, PDB will need to

allocate their resources wisely.

Options

Portland Drake Beverages can position Crescent Pure three ways. The first option they

have is to position Crescent Pure as an energy drink. The second option they have is to position it

as a sports drink. The third option they have is to position it as an organic beverage product. As

with any decision there are many advantages and disadvantages to each option.

Option 1

Crescent Pure Energy Drink, already has the caffeine equivalent of one cup of coffee so

there would be no need to modify the product. With the energy drink market gradually increasing

and projected to hit $13.5 billion by 2018 and already boasting a 34% of the market population

Crescent Pure could have a competitive advantage coming into it now and commanding a spot

early. However, with news stories highlighting health risks they are a position to fail if they don’t

hit the market right. Another concern they may have trying to position into the energy drink

market is that young consumers believed it had less energy then they had hoped.

Option 2

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The second option that PDB has is to position Crescent Pure as a Sports Drink. The

market for sports drinks has only increased 9% in the past years and currently commands a $6.3

billion market. Although, by entering the market as a sports drink, Crescent Pure would need to

modify their product to accommodate the typical price of other sports drinks (see Exhibit 3)

which could cause some strife to current consumers. PDB also needs to keep in mind the

governmental guidelines that have removed many sports drinks from school and since sports

drinks appeal to the younger consumer ages 12 – 17 this could be a cause for concern.

Option 3

The final option that PDB has for Crescent Pure is to position it as an Organic Energy

Drink. The advantages and disadvantages to this is very similar to the Energy drink option 1 and

will have the same Gross Margin (see Exhibit 2). However, by marketing it as an organic option

they’d be able to hit a whole new market population. Crescent Pure is already made up of all

natural, organic ingredients and has much less sugar then other energy drinks such as Monster or

Red Bull. This option they have an overwhelming response from people who described Crescent

Pure as Functional and Natural (see Exhibit 4), as opposed to the descriptors of energy or sports

drinks (see Exhibit 5).

Competitors

In both the energy drink and sport drink options, Crescent Pure would face great

competition. Competition for the energy drink market is dominated by four major producers that

account for 85%. The other 15% being split between 30 other producers. If PDB positioned

Crescent Pure as an energy drink, then they’d have to penetrate the market hard to try and find

their niche. In the sport drink category, the market is mainly controlled by two producers that

account for 94%. The other 6% is split evenly between 20 producers in which each holds about

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$18.9 million market share. If PDB positioned Crescent Pure as a sport drink they could come in

and appeal to the health-conscious consumers due to their low sugar content and all natural

ingredients. If they decided to stick with a broader view of Crescent Pure and position their

product as an organic energy drink they might have a harder time successfully implementing

their position. However, with energy drinks getting a bad rep, PDB could use it towards

positively enhancing their brand, and brand their product as a healthy alternative to their

competitors.

Recommendation

Sarah Ryan should recommend that PDB take the third option and to position Crescent

Pure as an all-natural organic energy drink. They can launch Crescent Pure as a healthier

alternative to energy drinks, but still at a very affordable price of $2.75. With a cost to

wholesalers at $29.76 per case, they will be able to initially gain a greater market share and

create more demand for their product. With an advertising budget of $750,000 the break even

point will have to be 142,046 cases. Since they already have a capacity to produce 144,000 cases

annually then their profit over breakeven is $10,320.02 (see Exhibit 1). Sarah should go ahead

with a soft launch in California, Oregon and Washington and see how they react to the

positioning of Crescent Pure, if the soft launch fails then PDB can take organic off the label and

market it as an energy drink with less sugar. When PDB is ready for a hard launch they will be

able to provide a larger distribution capacity and in return be provided with a higher gross profit.

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Exhibit 1: Crescent Pure First Year Marketing Budget

Advertising Budget $750,000

Cases sold per month 12,000

Cases sold Annually 144,000

Drinks per case 24

Manufacturer's wholesale price to Distributors $29.76

Variable cost to manufacturer per case $24.48

Manufacture Margin $5.28

Manufacture Margin % 18%

Breakeven Cases 142,045.45

Capacity Overage 1,954.55

Profit from Capacity $10,320

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Exhibit 2: Crescent Pure Energy Drink

Sale Price Var. Cost Gross Margin

Manufacture $1.24 $1.02 18%

Distribution $1.65 $1.24 25%

Retail $2.75 $1.65 40%

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Exhibit 3: Crescent Pure Sports Drink

Sale Price Var. Cost Gross Margin

Manufacture $0.90 $0.85 6%

Distribution $1.20 $0.90 25%

Retail $2.00 $1.20 40%

*Sales Price & Variable Cost lowered due to product modification to make MSRP $2.00

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Refreshing Health Afordable Functional Too Sweet Suitable for Teens

Fun Natural Hydrating0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

35%

22%

29%

47%

9% 8%

19%

38%

29%

Exhibit 4: % of respondents who described Crescent

Refreshing Healthy Affordable Functional Too Sweet Suitable for teens

Fun Natural Hydrating None of these

0%

10%

20%

30%

40%

50%

60%

12%

6% 5%

22%

9%7%

9%

4%

11%

52%

34%

16%

11%

28%

8%

22%

11%

6%

49%

27%

Exhbit 5: Respondents % of word association with energy or sport drinks

Energy Drink Sports Drinks

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