United Beverages

Product Development Genius or

One-Hit Wonder?

Introduction

United Beverages first product, GangBusters Interactive

Beverages reached the stage of wide brand recognition

Paul Diaz reviewed the sales data provided by CFO and

over past 12 months the growth had stalled

Could it be that United Beverages was just a one-time hit

wonder?

Several ideas to survive in the market were discussed in

previous meetings like carbonated energy drink for kids
aged 9 to 12

He was not completely sold off to this idea

He had an idea - Flavour mixing as a revolutionary new

interactive beverage

History
Owner of
five of top10 selling
spots in
canned juice
aisle.
No.1 and 3
top selling
spots on
noncarbonated
drink
No. 8
position out
of total 100
juice drink
brands

Full range of houseware

products: cups, mugs,
plates, sports bottles,
bagpacks and lunch kits

The Development Team

Katja von
Robinson

Paul Diaz

Founder
Firm believer of
openness and
flexibility

Luis Hernandez
Production and
packaging expert
Deep contacts
with suppliers
15-year career
with Coca-Cola
Reported to

Marketing guru
Introduction to
branding of
existing products
strategy

Mary Smith

Productionmarketing liaison
Early days at
PepsiCo

Bill McBride

Bob Jones

Head of
Operations
With the company
since early days
and responsible
for success of
GangBusters

Industrial designer
Responsible for
providing
ergonomic designs
for the bottles
United used for its
products

Re-Revolutionizing the
Beverage Industry
Problems
Reaching plateau in terms
of sales

Competitors: Coke and

Pepsi

Strengths
Innovation

Marketing

Dual-drinks

New Products: Next United

Beverages Generation
GangBusters
Expansion
Program

Least cost
Least time
Vulnerable to
substitution

Kid Energy Drink

Project
Comparatively lower
costs
Comparatively lesser
time to develop
Can be capitalised by
the experience from
GangBusters
Encouraging
preliminary market
numbers
Plenty of competition
Easy to produce
Incremental product

Dual-Drink Project
High Cost
Longest time for
development
Unknown territory
Radical product
No real data available
Work required from
scratch
First movers
advantage
Market no well
defined-but potential
is high
Raw material cost high
due to low demand
Patent

Expanding the Portfolio or

Not?
New Drinks
Tremendous Payoff
possible
Highly risky
United still dependent
on existing product for
funding new ventures
However, always
committed 8%-10%
revenue towards R&D

Expansion

Safest option
Subject to decline and
eventual removal from
the market
Short term profits

Strategy
Where we are ?

Mature Market
Sales : Stagnant
Net Profit :
Stable/Declining
Expenses
Stable
Ganfbusters
Contribution to
sales : 100%
Target Base :
Kids

Where we are
going ?

Diversifying
portfolio
Two Alternatives
Enter Dual
Jiuce
Business
Enter Kids
Energy Drink
Business

How do we get
are ?

Internal
Development
Investment vs
Success
Probability vs
Returns
Internal R&D

Competitors

Minute Maid

Gatorade

Snapple

Tang

Fruitopia

Powerade

KOOL AID
Burst

Five Alive ,etc

Perceptual Mapping

Perceptual Mapping

Perceptual Mapping

Results from Market Survey

Assumptions

Continued Growth of Gangbusters in target customer segment

Cross-selling oppertunity due to product familiarity

Preliminary Conclsions for Dual Drinks

Potential Market is 4-5 times current GanagBusters Market in the

long run

Slower Acceptance Rate

25% positive feedback over 50 % not sure

Preliminary Conclusions for Kids- Energy Drink

Potential Market Smaller than GangBusters market

Fast Acceptance Rate

80% Positive Feedback

Product Fit
Sales

Dual Juice

50

Manufacturing

Marketing
0

Quality Control

Customer Feedback

Dual Juice Dirnk is a high risk high return investment

Kids Drink will provide lower return but investment in the same in
the form of commitment of resources is less

Question 1:
What are some of the pros and cons for each
development project?
What should United Beverages take into account
when deciding which products to develop?

Pros

Cons

Projects >

GangBusters Dual Drinks

Kid-Energy
drinks

Growth
Potential

Continued
growth

4 5 times
Smaller than
more than
current
GangBusters GangBuster
market

Market
definition

High

Low

High

Awareness

High

Low.
Approx. 50%
were not
sure of the
idea

High.
Approx. 80%
gave a +ve
feedback

Acceptance

Fast

Slow

Fast

Marketing
requirement

Low

High

Low

Information
availability

High

Low

High

Research
requirement

Low

High

Low
compared to
Dual Drinks

Pros
Projects >

GangBusters

Cons
Dual Drinks

Kid-Energy
drinks

Development Low
cost involved

High.
Everything
will be done
from scratch

Low

Problems
faced by
suppliers

Low

High

Low

Surety of
performance

100% surety

50% surety

80% surety

Patent
opportunity

Not available

Available

Not available

Resource
availability
constraint

Less

High

Less

Other challenges

GangBusters weightage in product portfolio:

It accounts for almost all of the companys revenues.
Heavy dependence on existing product sales to fund
development

Competitive pressure:
Innovative products by Coke : coffee flavoured coke

Issues with Kid Energy drink:

High competition
Not a guaranteed success

Still a growing company:

It does not have enormous financial pockets like its competitors

Question 2:
Assume that the total development cost can
be spread evenly over the development time.
Construct a graph of Development Time as
a function of Monthy Investment for KidEnergy drink and dual-drink projects

United Beverage :- Potential

Development Projects
Expected
Total
Developmen
t Cost

Minimum
Developmen
t Time

Maximum
Developmen
t Time

Kid Energy
Drink

$800,000

4Months

10 Months

Dual-Drink

$1,800,000

6 Months

12 Months

Project

Project

Min.
Develop
Cost for
min time
(monthly)

Max.
Develop
Cost for
max time
(monthly)

Kid Energy
Drink

$200,000

$80000

Dual-Drink

$300,000

$150000

United Beverage :- Potential

Development Projects

Total Operating Income (in thousands) =

(535 + 534 +

534 + 533 + 533 + 533 + 535 + 534 + 534 + 534 + 535 + 534)

$6408

United Beverages spends 8-10% on R & D and new

product development.

If company spend 12.5% of operating income on

R&D they can go for Kids Energy drink and they can
also continue gangbuster expansion program

Best Case Scenario :

Worst Case Scenario :

Overview
Expected Total
Worst Case Result
Development Cost

Best Case Result

Kids- Energy Drink

$800,000

Moderately
Successful
Monthly sales
($500,000)

Very Successful
Monthly sales
($1,000,000)

Dual Drink
$1,8000,000

Market Failure
Monthly Sales
Negligible

Market Success
Monthly Sales
($4,000,000) pm

Marginal Impact
Gangbusters
Sales decline @ 6%
Expansion Program
High Competition

Positive Impact
Competition Low
Sales - Constant

Recommendation
United Beverages

Possible Scenarios

Previous Year Income

Statement
2002 ('000)
Particulars
Net
Revenue
Cost of
Revenue
Gross
Margin
Operating
Expenses

Operating
Income

(Month End)

Jan

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

410 411
411 411 410
4015 4108
2
4
0
4
9
274 275
275 275 275
2756 2750 2754 2748 2748
2750 2752
8
6
4
6
3
135 135
135 135 135
1358 1354 1356 1353 1354
1265 1356
4
8
6
8
6
4114 4104 4110 4101 4102

S, G & A

494

492 493 492 492 492 494 493 493 493 494 493

NPD

329

328 329 328 328 328 329 328 329 329 329 329

Total
Operating
Expenses

823

820 822 820 820 820 823 821 822 822 823 822

535

534 534 533 534 534 535 444 534 534 535 534

Previous Year Income

Statement
600

500

400

300

200

100

0
0

10

Operating Income ($ 000) Vs. No. of

Months

12

14

Assumptions
Net Revenue is equal to the average of the previous
years Net Revenue unless mentioned otherwise.
The Cost of Revenue and the S, G & A remain almost
constant and equal to the previous years averages.
After the development period is over there is still an
increase in the NPD expenses due to the extension in
the product line.
This expense is a bit more for the first 6 months and
then reduces.
The Net Revenue increment has been taken with
reference to the previous years Net Revenue.
The growth in Net Revenue has been shown as a
gradual one which reaches its peak in about 6-12
months depending upon the novelty of the product.

Scenario 1: GangBusters
Expansion Program
Operating Income ($ 000) Vs. No. of
Months
230

1000

229.5
500

229
228.5

0
-500

10

15

20

-1000
-1500
-2000

25

30

228
227.5
227
226.5
226
225.5

-2500

225

-3000

224.5
1 2 3 4 5 6 7 8 9 101112131415161718192021222324

Worst Case Scenario:

Development Cost of
$100,000 p.m.
6 % decline in Sales

Best Case Scenario:

Development Cost of
$100,000 p.m.
Constant Sales

Scenario 1: Kid Energy Drink

Project
Operating Income ($ 000) Vs. No. of
Months

1000

1400
1200

800

1000
600

800

400

600

200

400
200

0
0

10

15

20

25

30

-200

-200

-400

-400

Worst Case Scenario:

Development Cost of
$800,000 p.m. for 10 months
Monthly Sales of $500,000

10

15

20

25

Best Case Scenario:

Development Cost of
$800,000 p.m. for 4 months
Monthly sales of $1,000,000

30

Scenario 1: Dual Drink Project

Operating Income ($ 000) Vs. No. of
Months
400

5000

200

4000

0
-200

10

15

20

-400
-600
-800

25

30

3000
2000
1000
0

-1000
-1200
-1400

Worst Case Scenario:

Development Cost of
$1,800,000 p.m. for 12
months
Negligible Sales

10

15

20

25

30

-1000
-2000

Best Case Scenario:

Development Cost of
$1,800,000 p.m. for 6 months
Monthly sales of $4,000,000

Recommendation
Novelty of
Market
GangBust
ers
Expansion

Safe but
Limited
Profits and
Mature
Market

Moderately
Risky but
Limited
Profits and
Threat of
Competition

Kid
Energy
Drink
Highly Risky but
High Profit
Prospects and
Long Term
Sustainability
Novelty of
Market &
Product

Novelty of
Product

Recommendation
On the basis of the Income Statements and looking at the
risk associated with each project and their profit prospects
we recommend that United Beverages must go forward with
the KID ENERGY DRINK Project.
This is because:
It is Less risky than the Dual Drink Project
Decent Profit Prospects
Market Data is available

First Mover Advantage can be obtained

Competition can be stalled by Entry Barriers

Capitalizing on Brand Image

The Dual Drink Project must be taken up once the company

is more mature and has more resources in hand.

Submitted By:
Prachi Agarwal (103)

Arushi Joshi (121)

Mehak Jain (117)

Ansh Nandwani (125)

Panili Jain (118)

Shachi Sayata (132