Strategic Issues of Fit Juice Company

This is a preliminary strategy audit report of Fit Juice company, a startup business entity that is planning to commence its business operations in the energy drink industry. The report is written from a consultative point of view with the company’s executive management being the target audience. It covers a wide range analysis of various company perspectives such as value proposition, market position, competitive advantage, a scan of external environment including the five forces analysis as well as relevant factors in the current environment. External factors are assessed with the application of Porter’s five forces. From the analysis and assessment of these perspectives, strategic issues are outlined with an evaluation of how these issues may impact and influence the strategic formulation to maximize the utilization of the available opportunities by the business and minimize threats in the sector. The report ends with a summary of key findings and recommendations to the management on how to improve the company’s operational performance.

Key terms: value proposition, market position, environmental factors, five forces analysis, strategic issues.

Table of Contents

Introduction to the Company. 4

Value Proposition. 4

Market Position. 4

Competitive Advantage. 5

External Environmental Scan. 6

Current Environment 6

Assessment of External Factors. 7

Strategic Issues. 8

Building Brand Loyalty. 8

Creating Reliable Alliances. 8

Huge Capital Requirement 9

Sustaining Profits with Low Prices. 9

Product Line Diversification. 9

Summary and Recommendations. 10

References. 11

Introduction to the Company

Value Proposition

Fit Juice’s value proposition will focus on the health benefits which the drink offers to consumers in a simple statement, “a revolutionary drink that exceeds the refreshment and energy boost purposes to add value on your mental health with natural ingredients and taste”. This value proposition statement highlights Fit Juice’s key product features. The mental boost capability of the drink makes it a revolutionary product in the industry since the existing competitor products in the market do not have this feature. Nevertheless, the drink meets the essential customer needs from an ideal energy drink such as boosting physical body energy content to enhance physical fitness, refreshment needs especially during fun and relaxation times and in social meetings. The aspect of natural ingredients and taste is meant to assure customers that despite the products having gone through an industrial process, the naturality of the ingredients and taste have been maintained with minimal addition of food additives such as sugar that may render the product relatively unsafe for human consumption. The statement is marketable enough to attract even customers who are loyal to the existing brands because this new product offers them more health benefits than what they get from the competing products.

Market Position

Since Fit Juice is a startup company, the decision to focus on a smaller geographical market is a brilliant strategy. Texas and its environs seem an ideal market for the business. The level of poverty in Texas stands at 16% and the average annual income is $39,552 (“Austin, Texas Population 2018,” 2018). Considering the expensive nature of energy drinks, this level of income can sustain regular consumption of the drink by customers. The company is also targeting a wide range of customers based on the aspects of age and financial status. All people from the age of 10 and above are potential customers and they include students, the working class, the middle class as well as the upper class. Despite Fit Juice being a new brand in the market, it stands a chance to overcome the barriers of brand loyalty characteristic of the energy drink industry. The product’s capability to attract customers including those loyal to competing brands lies in the unique feature of boosting consumer’s mental fitness and the natural ingredients and taste. The company can focus and tailor its marketing efforts on Texas region and fully exploit the market as competitors continue with their blanket global marketing strategies.

Competitive Advantage

Fit Juice has two main sources of competitive advantage; the drinks capability to boost consumers’ mental fitness and low price. The first source offers customers positive health impacts especially with the rising health concerns from both the government and consumers who are sensitive to the health side effects of the foods and beverages they consume. It is an advantage that would potentially attract a large market share of customers who lead healthy living lifestyles. On the other hand, the price that is planned to be set for the product would offer some relieve to low income earners who are sensitive to price changes. The low-price advantage is also meant to address the issue of economic insurgencies that tend to lower customers’ purchasing power. The price will potentially attract customers loyal to other brands to switch to Fit Juice especially if they are pushed by economic hardships or they are sensitive to prices changes in a way that they prefer less costly products. Furthermore, Fit Juice is strategically tailored to cater for a market niche in which consumers need energy drinks with more health benefits than the existing ones in the market. Such customers tend to keep away from non-alcoholic beverages that may increase health-related issues like obesity.

External Environmental Scan

This section of the report analyzes the industry based on the five forces perspective. The section also assesses the relevant external factors affecting the market with an application of the five forces.

Current Environment

There is high level of competitive rivalry in the non-alcoholic beverage industry as there many competing producers led by Red Bull which commands the largest market share (Dudovskiy, 2016). However, the industry is experiencing a promising growth rate which offers opportunities for other players to grow. Entry in this industry is not easy due to the problem of high brand loyalty and little product differentiation among competitors. Entry barriers are high since the existing players have heavily invested in different aspects of their operations to reach the current status. A new entrant would need an innovative idea to stand out from the rest and enable it to penetrate the market (Shakarishvili, 2016). It is tough for a new business to acquire a sustainable market share as the existing companies have strong brand images thus making it difficult to sway loyal customers to switch brands. Another potential entry barrier is concerned with developing and sustaining a national distribution.

Suppliers have a low bargaining power in the industry because few raw materials are required to produce an energy drink. A producer can acquire these materials in large quantities from any company that has the capacity to sustain the business. Furthermore, it is inexpensive to switch suppliers. Buyers in the market seem to have a moderate bargaining power due to the issue of brand loyalty. A brand which has higher market share and brand loyalty has the ability to command a certain bargaining power over its customers as it can slightly increase its price and not lose customers. The threat of substitutes in the industry is moderately low as most substitute products like coffee and carbonated drinks do not offer exactly the same benefits as energy drinks.

Assessment of External Factors

There is a social trend of high consumption of energy drink in workplaces as compared with other places. Furthermore, consumption of energy drinks is currently viewed as fashionable. Since there is highly competitive rivalry in the industry and barriers to entry are also high, Fit Juice can focus on maximum utilization of these trends by strategically locating its company stores in crowded workplaces to target the working-class people. The fashionable dimension has resulted in an increased consumption of energy drinks. This trend implies an opportunity for the company to create a strong brand image and acquire a substantial market share especially new customers who are not loyal to the existing brands. Consumers are also increasingly getting concerned with the health issues associated with energy drinks. There is a rising fear among consumers that energy drinks are not safe because the industrial process which is assumed to entail addition of chemical additives to the raw materials. Fit Juice should capitalize on making its drinks maintain the taste of natural ingredients. This strategy would help in resolving the health concerns and see the company stand out from its competitors. The innovate idea for entry into the industry would enable Fit Juice to compete favorably.

Instances of economic recessions tend to reduce consumers’ purchasing power because of the high energy drinks’ prices. By setting prices lower than other brands, Fit Juice can attract a market segment that is sensitive to prices. Substitute products like carbonated drinks are a big threat to any player in the industry. However, since Fit Juice plans to use the lowest sugar content in its drinks as compared to other manufacturers, competition from these substitutes can be reduced (Kowalski, 2017). Restrictive laws on foods and beverages as well as legal pressure on substances such as caffeine and taurine can favor the company since Fit Juice is meant to meet the highest level of health standards. Since suppliers have a low bargaining power in influencing product prices, it would be easy for the company to stabilize its prices as suppliers do not have a big impact in setting prices. The low price will enable the company to expand its market share considering that marketing is set to concentrate only on Texas. The market size is small enough to maximize marketing efforts of building a strong brand image and loyalty.

Strategic Issues

The strategic issues facing Fit Juice include; building brand loyalty, creating reliable alliances, huge capital requirement, sustaining profits with low prices and product line diversification.

I. Building Brand Loyalty

The level of brand loyalty is high in this industry. For Fit Juice to succeed, the company will need to build a strong brand image that would attract and retain customers. However, building brand loyalty is a gradual process that may take a long time and resources to achieve. Brand loyalty is needed in this industry to acquire a sustainable market share for the business otherwise it would be hard to achieve reasonable sales volumes. An appealing product value and intensive marketing are needed over a prolonged period to create loyal customers.

II. Creating Reliable Alliances

Fit Juice needs to form alliances and partnerships with other businesses to help in developing a distribution channel. These alliances are not easy to form especially for a startup company. Most businesses are usually reluctant to form alliances with new brands because of fear of low sales. They prefer dealing in established brands that sell quickly with little marketing efforts on their part. Fit Juice may be forced to entice other businesses into these alliances with lucrative terms such as high sales commission which will definitely reduce the company’s profitability index. Even with lucrative sales commission, Fit Juice cannot be certain that partner businesses will contribute in marketing the brand.

III. Huge Capital Requirement

As already mentioned in this report, the existing brands have invested heavily in their operations to attain their current status. This fact implies that for Fit Juice to reach such status of the competitors, the company needs huge capital investments in different areas of operations to strengthen its brand. One of the key areas that require huge capital is marketing as it defines brand building by creating awareness among customers and convincing them to consider the product over those of competitors. For a startup business, such huge capital may be problematic to acquire especially with low sales that are experienced in new ventures.

IV. Sustaining Profits with Low Prices

Offering low prices is one of the strategies that Fit Juice has adopted to compete with the existing brands in the industry. If the high prices charged by other firms are due to high production costs and Fit Juice lacks suitable means of reducing its production costs in relation to what its competitors incur, then it might be difficult for the company to earn sustainable profits from low prices. Low profits which cannot sustain the business will probably bring the company to a halt. To ensure that low prices do not negatively affect the company, all costs should be maintained at their lowest level possible.

V. Product Line Diversification

Diversification is an essential aspect that contributes to the continuity, prosperity and sustainability of many businesses. Fit Juice is likely to face a challenge of diversifying its product especially if the company heavily relies on a single innovative idea.

Summary and Recommendations

Fit Juice’s value proposition carries the essential features of the company’s product in a convincing way to attract potential customers. The geographical target market of Fit Juice has population characteristics which can largely contribute to the success of the company. From the assessment of the environmental factors, the current trends in the industry such as health concerns about energy drinks and the growing market are favorable for Fit Juice to succeed. The company has an innovative idea of producing a sugar-free drink that boosts mental fitness. This idea is satisfactory to break the entry barrier into the industry as it offers the company a competitive advantage over the existing players in the sector. The following are recommendations that may help the business to solve of its some strategic issues.

i. Marketing should focus on market segments with little brand loyalty such as among students and in places where competing products are not easily available.

ii. Cheaper marketing tools such as the use of social media, sampling, shows and exhibitions should be used to reduce the burden of huge capital requirements needed for advertising on television and radio.

iii. All operational costs should be as minimum as possible to ensure the low-price strategy succeeds in sustaining the business.

iv. The company should invest substantially in research and development to find more competitive advantages which can be used to diversify its product line.

v. Intensive marketing efforts conducted as combined efforts with partner business entities will reduce marketing expenses through cost-sharing and improve the reliability of business alliances.

References

Austin, Texas Population 2018. (2018). Retrieved from http://worldpopulationreview.com/us-cities/austin-population/

Dudovskiy, J. (2016). Red Bull Porter’s Five Forces Analysis - Research-Methodology. Retrieved from https://research-methodology.net/red-bull-porters-five-forces-analysis/

Kowalski, J. (2017). Brand Strategies in the Energy Drinks Market. Marketing I Zarządzanie, 48, 357-371. doi: 10.18276/miz.2017.48-33

Shakarishvili, S. (2016). RedBull Analysis. Retrieved from https://www.slideshare.net/shotashakarishvili/redbullanalysis419