Dr Pepper Case Analysis

Assignment Cover Sheet for Students An assignment cover sheet needs to be included with each assignment. Please complete all detail clearly. If you are submitting the assignment on paper, please staple this sheet to the front of each assignment. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. (This is preferable to a separate attachment.) The submission method should be done according to the instructor’s instructions. Name Habiburachman Student ID 29111388

Mobile phone 081321850144

Course code and title Businees Strategy Course time and place Thursday/ 08.00 – 13.30/ R1 Lecturer

Program Young Professional

Harimukti Wandebori

Assignment number Assignment title/topic/case

Due date March 6th 2013 Dr Pepper Snapple Group 2011: Fighting to Prosper in Highly Competitive Market

Assignment type (choose one) ( √ ) Midterm Exam ( ) Final Exam ( ) Individual Assignment ( ) Group Assignment ( ) Other Further information (e.g. state if extension was granted and attach evidence of approval, revised submission date)

I declare that the work contained in this assignment is my own, except where acknowledgement of source is made. I authorize SBM ITB to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand that this will involve the SBM ITB or its contractor copying my work and storing it on a database to be used in future test work submitted by others. Note: The attachment of this statement on any electronically submitted assignments will deemed to have the same authority as a signed statement.

Signed

Date

6 March 2012

Filled out by lecturer/tutor Date received from student Recorded

Assessment/grade Dispatched (if applicable)

Assessed by

Dr Pepper Snapple Group 2011: Fighting to Prosper in Highly Competitive Market

To achieve their objective company used their own strategy that should be hard to imitate by competitors. Based on reference book by Ireland “The Management of Strategy” strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Company used strategic management process as a tool to achieve competitive advantage and know core competencies as we can see on figure 1.

Since DPS spun off with Cadbury, DPS focused on their own strategic development. Management has sought to establish the firm as leader in the higher margin segments of the non alcoholic beverage industry. There are six specific strategies that established by company: build and enhance leading brands, focus on opportunities in high-growth highmargin categories, increase presence in high-margin channels and packages, leverage the firms integrated business model, strengthen the firms distribution channels through acquisition and improve operating efficiency. In arrange their strategies DPS are focused on internal development and broaden their market share by acquisition and contractual agreement.

The first step in strategic management process is strategic input that consists of external analysis and internal analysis. A firm strategic actions are influenced by the conditions in the three parts (general, industry, and competitor) of its external environment as we can see on figure 2. General environment composed of dimensions in the broader society that influence an industry and firms within it. The general environment segments are includes: demographic, economic, political, socio cultural, technological, global and physical environment. In beverage manufacturing and bottling industry economic and other market condition are really influenced their business. Like on crisis between 2008 and 2010, total consumer spending in United States decreased until 16% it makes consumers turned from flavored drinks and colas to less expensive alternative.

Besides influenced consumer spending budget, recession significantly increase commodity prices its press the company margin. The others general environment segment also influenced the beverage industry like: changing demographic; beverage sales are higher during summer months and holiday and become slower during winter. Changes in socio cultural trends are one of the most affecting beverage industries. As consumers continue to reduce caloric intake and look for products richer vitamins, the less-healthy sectors of the beverage are expected to shrink. Soft drink sales will be decline however demand for healthier beverage is projected to grow.

Industry environment has more direct effect on firms strategic actions. Company can use five Porter forces model as a tool. By studying these forces, the firm finds a position in an industry where it can influenced the forces in its favor or where it buffer itself from the power of the forces in order to achieve strategic competitiveness and earn above-average return. I try to make the porter five forces analysis of beverage industry like on table 1.

Threat of new entrants High entry costs

High risk for entrants due to diversified nature of Coke and Pepsi.

Existing Loyal customer base.

Threat of substitutes Non-CSD drinks like milk, alcoholic beverages, juices, sports drinks, teabased, dairy-based drinks Threat of saturation of consumption in US market thereby leading to increase in the consumption of on-Cola beverages.

Bargaining power of supplier Low switching costs.

Huge number of suppliers.

Bargaining power of buyer Higher buying power – large grocers, discount stores and restaurants buy large volumes demanding a lower price. Choice of customers is high due to competition and variety in the market.

Rivalry among competing firms Highly competitive and constantly shifting to respond to changes in consumer tastes and preferences

Maintaining the quality and flexibility of supply chain through backward integration i.e. acquiring bottling plants.

Acquisition of major bottling units by existing firms increases the entry barriers.

After scanning the external environment we can move to strategic input by internal environment. Internal environment is analyzing firm internal organization, in analyzing process we should use global mid set. Global mind set is the ability to analyze, understand and manage an internal organization in ways that are not dependent on the assumption of a single country, culture or context. Components of internal analysis we can see on figure 3 below

Resources are consisting of tangible and intangible. We start to analyze tangible resources of DPS: Overall DPS financial performance since spin off in 2008 are outside the expectations, DPS sales increase and measures the company took increase efficiency, profits were down approximately 5% from previous year. DPS is major beverage company that was spin off from Cadbury and in time DPS do agreement with Pepsi bottling group in Minnesota. DPS management seasoned professionals with decades experienced in food and beverages. DPS always innovate their product followed the costumer trends. DPS also has a creative marketing and operation team. DPS has their own factory and applied Direct-Store-Delivery (DSD) distribution networks and third party distribution. DSD distribution is carried out by railroad and truck.

Based on strategic input data we can formulate strategic business level strategy. Business level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific markets. The purpose of business level strategy is to create differences between the firms’ position and those of its competitors. To establish and defend their desired strategic position against competitors firms choose five business level strategies (figure 4)

Cost leadership, differentiation, focused cost leadership, focused on differentiation and integrated cost leadership/differentiation are five desired strategic position againts competitor. Cost leadership is an integrated set of actions taken to produce goods or services with features that are acceptable to customer at the lower cost, relative to its competitors. Effective use of cost leadership strategy allows a firm to earn above-average returns in spite of strong competitive forces. Differentiation strategy is an integrated set of actions taken to produce goods or services at an acceptable cost that costumers perceive as being different in that are important for them.

In terms of business level strategy DPS use differentiation strategy. DPS always made an innovation in their products followed customer trends. DPS make healthier beverages to faced customer needs. Besides healthier beverages DPS also make differentiation in their products like new green tea ginger ale in Canada Dry Line.

The last chapter is Strategic Acquisition and restructuring. Acquisition and restructuring is alliance strategy to increase their market share and hopefully above average returns. Merger is strategy through which two firms agree to integrate their operations on relatively coequal basis. An acquisition is a strategy through which one firm buys a controlling or 100 percent, interest in another firm with the intent of making the acquired firm subsidiary business within its portfolio. DPS right now is the result of spin off between Dr Pepper Snapple Group, Inc and Cadbury in 2008. Cadbury Schweppes emerged in 1969 from the merger of Cadbury Plc, a British confectionary and Soft Drink Company and Schweppes, an international beverage brand. In

time Cadbury Schweppes become third largest share of the beverage market in North America by its strategic acquisition like: Duffy-Mot, Canada Dry, Sunkist, Crush, A&W and Sun Drop. In 1995 Cadbury buy Dr Pepper/Seven UP and in 2000 Cadbury Schweppes acquired Snapple Beverage Group. Three years after acquiring Snapple Cadbury Schweppes combined its four North America beverage companies into Cadbury Schweppes Americas Beverages (CSAB). In May 2008, CSAB officially spun off from Cadburys confectionary manufacturing division and became known as Dr Pepper/Snapple Group, Inc. Based on “Dr Pepper Snapple Group 2011: Fighting to Prosper in Highly Competitive Market” case we can learn that a company should has a Strategic Competitiveness that makes them different with their Competitor. One of Strategic Competitiveness of DPS is DPS are focused in their internal development to increase their high profit margin and strengthen their market by Acquisition. Focus on internal development and acquisition DPS success to survive in beverage industry. I think acquisition and merger is one of the best strategic formulations that can take by company to increase their market share.