Hawaiian Punch

Hawaiian Punch is a well-known brand of fruit punch drinks owned by Dr. Pepper Snapple Group, Inc. (DPS). The company experienced several ownership handovers and some of the most recent ones include Procter & Gamble sold Hawaiian Punch to Cadbury Schweppes in 1999, and Dr. Pepper Snapple was spun off from Cadbury Schweppes in 2008. The Current Situation of the Company:

The main source of our study comes from an intensive case study that illustrates Hawaiian Punch’s “Go-to-Market Strategy” decision option, faced by the company’s Marketing Director Kate Hoedebeck during the time span from year 2004 to 2005. As the number one fruit punch drink sold in the United States, Hawaiian punch enjoyed its continuous success. Its goals are very much aligned with the customers’ needs, in the long-term it aims to maintain its competitiveness through high customer satisfaction, extensive product development, easy accessibility and better profits attainable for retailers to stock and sell. In terms of its strengths, it has already become Cadbury Schweppes’ fourth largest brand by volume. Since the acquisition of Hawaiian Punch by Cadbury Schweppes from Procter & Gamble in 1999, the company had employed two distinct and separate manufacturing, sales and distribution networks to stock and serve identical or similar beverages for the same retail customer.

This dual distribution strategy by many has been seen as one of Hawaiian Punch’s strength, leading it towards diverse product lines with intensive product depth. However, there are also many weaknesses that need to be addressed as if not taken care of they might turn into severe obstacles preventing the company from a healthy and steady growth. In terms of its offerings, case sales were modest for the new flavors, this has resulted from multiple factors including but not limited to weak positioning of the 5 new added flavors as of 2002, which led to little awareness of them; limited budget available etc. Additionally, while the two way distribution has brought up new opportunities, it can also create dilemma affects because of confusion in which one to use or combination of the two. Externally, opportunities come into place as carbonated soft drink is the most popular consumer beverages in the United States; bottlers, food brokers & retailers believe growth potential in juice drink category; soft drink aisles awareness can be increased for promoting any product; and also trends are showing that consumers want a variety of flavor extensions. However, back in that time span, 100% juice ice companies still command over half the market share and competitors in juice market spend more on media advertising than Hawaiian Punch. Hawaiian Punch’s Two Distribution Systems:

Finished Goods Distribution:
The operation of finished goods manufacturing, sales, and distribution network starts from Cadbury Schweppes Americas Beverages manufacturing the Hawaiian Punch juice drink. The drink is packaged in containers at one of the three facilities: Aspers, Pennsylvania; Williamson, New York; and Tecate, Mexico. After that, it is shipped to distribution centers for delivery to retail outlets. Independent food brokers and company sales representatives are responsible for boosting the sales of Hawaiian Punch. The drink is shelved in the juice and juice drink aisle, and not in the soft drink aisle. There are seven Hawaiian Punch flavors being sold through the finished goods network. These flavors include Fruit Juicy Red, Orange Ocean, Grape Geyser, Berry Blue Typhoon, Green Berry Rush, Strawberry Surfin’, and Lemonade. Finished goods network only sell bottles in one gallon, half gallon, and 6.75 ounce standup pouch. Light Fruit Juicy Red, the recently introduced flavor, is sold only in the gallon bottle. Direct-Store Delivery Distribution (DSD):

The operation of direct-store delivery (DSD) manufacturing, sales, and distribution network starts from Cadbury Schweppes Americas Beverages manufacturing the Hawaiian Punch juice drink. Unlike the finished goods, DSD sells Hawaiian Punch concentrate to bottlers who are licensed. The concentrate is a combination of sweeteners and water. Bottlers get the concentrate, package it in bottles or cans, and sell them to retailers. Licensed bottlers of Hawaiian Punch include Coca-Cola bottlers, Pepsi-Cola bottlers, Dr Pepper/Seven Up bottlers, and independent bottlers. With DSD network, there is no need for warehouses or distribution centers. The bottlers deliver the products to retail outlets and supermarkets, and shelve them in the soft drink aisle. Bottlers do not shelve Hawaiian Punch juice in juice or juice drink aisle. There are six Hawaiian Punch flavors being sold through the DSD network. These flavors include Fruit Juicy Red (Light version included), Green Berry Rush, Bodacious Berry, Mazin’ Melon Mix, Tropical Vibe, and Wild Purple Smash. DSD network packages these flavors in the 2-liter bottle, 20-ounce bottle, and 12-ounce can. Target Market:

The two distribution networks target different types of consumers. Finished goods network targets mothers who are mostly African American and Hispanic. DSD network targets urban and multicultural teens, and emphasizes on the action-oriented appeal. According to the ACNielsen Homescan study, 58.1% of Hawaiian buyers shopped from the juice aisle exclusively, 27.7% of Hawaiian buyers shopped from the soft drink aisle exclusively, and 14.2% shopped from both aisles. These numbers show that there is a gap between the number of buyers who shopped at the juice aisle and soft drink aisle. From this study, we also learn about the demographic of buyers. Both aisles attract customers who have children under 18 years old.

Shoppers with children in the under 6 to 12-year-old range group tend to shop at the juice aisle. Shoppers with children in the 6 to 17-year-old range group tend to shop at the soft drink aisle. Also, the soft drink aisle is more popular in western and central states, while the juice aisle is more popular in eastern and southern states. The study also provided an insight to the relationship between customers’ purchasing habits and Hawaiian Punch package size. 77% of Hawaiian Punch shoppers bought the drink in one package size. The majority of them purchased a gallon and half-gallon package size. 68% of buyers shopped for the gallon size, while 53% of them shopped for the half-gallon size. Only 35% of Hawaiian Punch buyers shopped for 2-liter bottle, and 38% shopped for 20-ounce bottle. These buyers did not shop for other size other than the one they usually purchased. Market share and profit margin:

Before our analyses, we did some calculations and compared share and contribution margin of two distribution channels. In 2004, Juice and juice drinks has 4.7% market share of beverage market. In the juice and juice drinks category. Juice drinks are second with a 33.7%. According to the calculation, we can see in 2004 case volume of finished goods was 49,267,000, which made up 63.7% market share of Hawaiian Punch. Case volume of DSD was 28,024,366, which made up 36.3% market share of Hawaiian Punch. The gross contribution of finished goods was $39,198,000. So its gross margin was $39,198,000/ $184,196,000= 21.3%. The gross contribution of DSD was $27,064,410. So its gross margin was $27,064,410/ $38,502,414= 70.3%. It was obvious that gross margin of DSD was much higher but its share was much lower! The reason was that with finished goods, the Hawaiian Punch cost of goods sold expense represented about 78% of net dollar sales volume. The DSD’s cost of goods sold expense was about 19% of net dollar sales volume. Bottlers incurred the cost of bottling and distribution. So in the following analyses we will discuss whether the Hawaiian Punch should shift share from finished goods to DSD or not. SOD — SOS Analyses:

SOD – customer needs analysis
In order to identify the gaps that needs of channel services demanded by end users not covered in the current channels, we did the customer need analysis. We segmented the customer base into juice shoppers, soft drink shoppers, and both juice and soft drink shoppers. In the information part, firstly, juice shoppers’ needs of primary information should be high, because generally juice shoppers care more about their health and always pay more attention to percentage, component and freshness of juice. Compared to juice shoppers, soft drink shoppers care less about percentage and freshness. Soft drink is more like a convenience good, such as coke and sprite. So their needs of primary information should be medium. Both juice and soft drink shoppers’ needs of primary information should be high/medium. Secondly, juice shoppers, soft drink shoppers, and both juice and soft drink shoppers’ needs of comparative information should be all high, because both juice and soft drink have a lot of flavors, brands. Customer’s flavor is different from person to person.

Thirdly, Juice shoppers have higher needs of quality assurance, because whether juice is 100% and whether it is fresh is really important to juice shoppers. Soft drink shoppers also need quality of soft drink but maybe a little bit lower than juice drink shoppers, so their needs of quality assurance should be medium. Both juice and soft drink shoppers’ need of customization should be high/ medium. Fourthly, soft drink shoppers consider soft drink as commodity. They have soft drink for thirsty instead of health. So their needs of customization should be low. However, juice shoppers have high need of customization, for example, some juice shoppers like mix of apple juice and carrot juice because in that way, they can get enough nutrition, which help them to keep healthy. Both juice and soft drink shoppers’ need of customization should be medium. In the logistics part, firstly, in order to keep healthy, juice shoppers like as many fruits and vegetables as possible. Also they like different mix of fruits and vegetables.

So their needs of product variety should be high. Soft drink shoppers just need soft drink to be tasty, so their needs are limited. So soft drink shoppers’ needs of product variety should be medium. Both juice and soft drink shoppers’ needs of product variety should be high/ medium. Secondly, soft drink shoppers’ needs of convenience and immediacy of availability should be high because they want to have soft drink for thirsty. Moreover, soft drink is more like a commodity and customers buy it almost every week. Juice is more like a special good, so juice shoppers’ needs of convenience and immediacy of availability should be medium when compared to soft drink shoppers’ needs. Both juice and soft drink shoppers’ needs of convenience and immediacy of availability should be medium/ high. Thirdly, freshness is really important to a juice shopper. He or she will seldom buy a large bottle of juice because if he or she cannot have it in one or two days, freshness will decrease. So juice shoppers’ need of lot size flexibility should be medium. Soft drink shoppers’ need of lot size flexibility should be high. Both juice and soft drink shoppers’ needs of lot size flexibility should be high/ medium. SOS—supply of channel services

Finished goods are packaged in ready-to-serve containers and located in the juice and juice drink aisle in supermarkets. It usually attracts households with children under 6-year-old or above 12-year-old. The juice drinks sold by DSD are classified to shelve drinks that mainly located in the soft drink aisle in supermarkets and other retail outlets. As beverages supplier, both finished goods and DSD channels provide enough primary information such as ingredients, flavors, prices or package size to their consumers. In this way, consumers can access to detailed information about the product directly and then make a purchase on what fit their needs. In the beverage market, wide variety of flavors and tens of brands give customers a great deal of choices. When purchasing in the supermarket or other retail outlets, consumers are willing to compare products according to their labels, flavors, prices, sizes and even their advertisements. Under these circumstances, both channels supply competitive information to customers with a superior level. Since the juice drinks are associated to everyone’s daily life. No matter what the percentage of fruit content is in the beverage, no matter what size of the package is, the quality assurance that finished goods and DSD channels supplies should with extremely high level.

Furthermore, as for customization, various flavors and different size of package indicates that both distribution channels make their product highly customization for customers. Although finished goods and DSD are two distinct and separate distributions, they supply superior level of logistics service to their customers. High product variety gives customers a lot of choice during their shopping time. Different categories of drinks are located in different aisles make it easier for customers to access the product. Moreover, supermarkets, trade and convenience stores, the three biggest outlets that sold fruit juices and juice drinks, enhance the convenience of purchasing and make Hawaiian Punch available in both urban and suburban. In addition, the beverage industry is in a fast logistic, therefore the probability of out of stock becomes comparatively small, so that leads to a relatively high level in immediacy of availability that provided by both channels. Indication of the SOD-SOS Analyses:

From the above two analyses, it obviously shows that both channels could provide high service outputs, however, soft drink shoppers’ needs were lower than those of juice shoppers on average. In our opinion, DSD should capture more customers because its service outputs exceeded its customers’ needs. We believe that Hawaiian Punch should shift some shares from finished goods to DSD since its profit margin was much higher than that of finished goods. Our Recommendations and Implementations:

In the Short-term:
One of the short-term recommendations that we believe would help Hawaiian Punch could make adjustments in is to create more health conscious flavors that could appeal to both Hispanic and non-Hispanic families. As many moms are purchasing such products for the use of their children, whether or not the beverage provides vital nutrients become a priority concern. Most importantly, how will the beverage outrage other soft drinks becomes an important decision making factor as many of them are harmful to children’s health if consumed regularly on a long time basis. Implementation of such strategy requires Hawaiian Punch to come up with tactics in all three aspects regarding to positioning, innovation and promotion. New product lines with new packages using health conscious labels would one preferred option. Right now the fruit juice percent for most of its products is only 5%; Hawaiian Punch could either raise the percentage of juice contents to its drinks or add more nutrition elements such as different vitamins or antioxidants. Another recommendation is to close the gap between buyers who purchased different sizes of the bottle.

The 2-liter bottle and 20-ounce bottle sizes are the least popular. There is a gap of about 30% between consumers who purchased a gallon bottle and 20-ounce bottle. Thus, we recommend a short-term solution to increase sales in the 2-liter and 20-ounce bottles. To increase the sales of the 2-liter bottle, there should be a promotion. We propose that consumers who purchase a gallon or half gallon bottle may receive a discount coupon for 2-liter bottle of Hawaiian Punch. The indication of the discount will be located inside the cap, and it will not be present in every gallon or half-gallon bottle. The second option is to lower the price of 2-liter bottle Hawaiian Punch when bought in decent quantities. We decided that with this option, buyers get one free if they buy three 2-liter bottles. To increase the sales of the 20-ounce bottle, there should be more Hawaiian Punch available in vending machines. 20-ounce bottle fits perfectly in the vending machine, and vending machine allows sales to charge a premium price compared to supermarkets. Also, a 20-ounce bottle from the vending machine attracts on-the-go consumers, which fits perfectly well with the action-oriented appeal of the DSD network. Currently, vending machine only contributes to 0.2% of sales volume. This is very low and there is definitely room for growth. In the long-term:

One of long-term recommendation is to expand their market share by repositioning themselves (capture more customers). We also recommend that Hawaiian Punch should expand their market share to capture more customers by repositioning themselves in the long run. Hawaiian Punch positioning in the DSD network focused on urban, multicultural teens and featured flavor variety and action- oriented appeals. Actually this customer base is really a large proportion; however, share of DSD was really low, therefore it’s hard to capture all of these customers. In our opinion, a better choice is to reposition itself by capturing customers who cannot by covered by DSD channel through finished goods channels, which means finished goods can sell more soft drinks that focused on urban, multicultural teens and featured flavor variety and action- oriented appeals.

In the innovation part, Hawaiian Punch sold new flavors through the finished goods channel, but the new flavors registered little awareness among households with children under 18 years of age. We also suggest that Hawaiian Punch should shift some new flavors to DSD channels to capture other customers. Another long-term solution is to close the gap between the juice aisle buyers and the soft drink aisle buyers. As previously mentioned, 58.1% of buyers shop at the juice aisle exclusively, while only 27.7% shop at the soft drink aisle exclusively, with the gap of 30.4%, we believe that there is an opportunity for growth in the segment of soft drink aisle buyers. To increase the profit growth from the soft drink aisle, we must focus on teens and buyers from western and central states. We propose that the company increases its DSD manufacturing, sales, and distributing activities in the western and central states. It is possible that there are less supply and high demand in those regions, and we are trying to capture the stranded customers. This solution is also to take advantage of the market research previously conducted that suggested where we can grow our chosen business.

Bibliography

Kerin, R., & Peterson, R., (2007). Strategic Marketing Problems, Cases and Comments. New Jersey: Pearson Prentice Hall. P.365-376 Hawaiian Punch, Go-to-Market Strategy Hawaiian Punch on Wikipedia: http://en.wikipedia.org/wiki/Hawaiian_Punch “Go To Market Strategy PowerPoint Presentation” : http://www.authorstream.com/Presentation/intan.kya-1269207-go-to-market-strategy/