The Academy of Economic Studies Bucharest

The Faculty of Business AdministrationThe Business Administration Master Program – English Section

Year 2, Semester 1Course Title: Entrepreneurship

Feasibility study

Introduction Of A New Coca Cola Product On The Romanian Market : Bubble Buzz

Professor: Prof. Dr. Carmen Păunescu

Student:Dragan Eleonora Andreea

daely2007@yahoo.com

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Table of Contents

Chapter 1 Product Feasibility

1.1 Brief description of the company 3

1.2 Brief description of the new product, & strategic role in the

future position of the company 3

1.3 Intended Target Market 3

1.4 Description of the Positioning 6

Chapter 2 Industry Feasibility

2. 1 Industry Analysis 8

2.2 SWOT ANALYSIS (Strengths and weaknesses, opportunities and threats) 9

2.3 Customer demand 12

Chapter 3 Financial Feasibility

3.1 Projected Financial Performance 13

References 14

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Executive summary

The following feasibility analysis is taking into consideration the introduction of an innovative new product by the Coca-Cola Company. The analysis allows us to outline the best strategies to follow for the achievement of the company’s strategic goals. “Bubble Buzz” will be marketed as a unique functional drink while striving to reinforce the company’s status as the leader in innovation and successful product launches. The marketing strategies will enable to reach a market size of an estimated 8,688,300 people (targeted) with a forecasted sales growth prospect of 7.3% over the next 4 years ($243,029.47 profits), while satisfying the needs of the still-unserved market for ready-to-drink bubble tea. Success will be reflected by a sizeable capture of market shares within this market, while strategically carrying the company up to the top spot as the market leader in the functional drinks segment of soft drinks.

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Chapter 1 Product Feasibility

1.1 Brief description of the company

The Coca-Cola Company’s core undertaking is to benefit and refresh everyone it reaches. Founded in 1886, they are the world’s leading manufacturer, marketer, and distributor of non-alcoholic beverage

concentrates and syrups, which are used to produce nearly 400 beverage brands that make up for their wide portfolio. The corporate headquarters are established in Atlanta, and they are holding local operations in over 200 countries around the world. The activities cover all sectors of the beverage industry.

1.2 Brief description of the new product, & strategic role in the future position of the company

“Bubble Buzz” will be a bottled beverage and will be positioned as the only ready-to-drink Bubble

Tea product available on the market. The beverage will have a green tea base with enhanced fruit flavors (passion fruit, strawberry and lime) as well as tapioca pearls. It will bring an entirely unique drinking experience to its consumers. It will present itself as a funky and unusual alternative to traditional tea while providing the great taste of authentic fruit juice in an attractive and convenient packaging. The strategic role of Bubble Buzz for The Coca-Cola Company is centered around three objectives:

• To stay at the forefront as the market leader in innovative product introductions and successful product launches;• To strengthen and satisfy the needs of the more adventurous Generation Y consumers with a new eye-catching and FUNctional product;• To become the market leader in the functional drinks segment with increased market shares.

1.3 Intended Target Market

Segment identification: RTD (Ready-to-drink) bottled Bubble Tea, to be established within the Functional Drinks sector

Segment needs: The product will cater to both physiological needs (hydrating and nutritional value) and social needs (perception of a social, fun drink with a sense of belonging within peer consumer groups)

Segment trends: The current trends include a shift away from junk foods and carbonated drinks, a growing interest for healthier / beneficial products for the “mind and body” , the trend towards the availability of on-the-go products for those with an active lifestyle, as well as the trend for

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personalization through customization (or for beverages, through variety-seeking in a wide introduction of flavours).

Segment growth potential: Statistical reports anticipate a segment growth of 1.72% over the next 5 years (2015) for the 10-29 years old subsets .

Size of the segment (population): 8,688,300 (329,600 L)

Positioning strategy: The only RTD bottled bubble tea available. Funky & eye-catching bottle, functional packaging, premium-priced, cool, new and unusual, unique drinking experience, aspects of play (tapioca pearls, oversized colored straw), variety of flavors, sweet, refreshing, for hip & young people, healthier alternative to heavy-sugar drinks.

SEGMENTATION VARIABLES AND BREAKDOWNS FOR ROMANIAN CONSUMER MARKET OF BUBBLE TEA

MAIN DIMENSIONS

VARIABLES BREAKDOWNS

Geographic segmentation Region

Nationwide (all provinces and territories) with emphasis on urban / metropolitan areas, and adapted strategies for all geographical groups

Area size 5000-19,999 to 1,000,000+

Density Urban, suburban

Climate All (East, West)

Demographic segmentation

Age 10-29 years old (teenagers, studying age and young adults)

Gender Male and Female

Income All under RON 1800

Occupation Students; new graduated; new workers; young professionals

Education Elementary 4th grade, High school, University

Race All: Black, White, Native; other; with adapted strategy for Romanian consumers already familiar with Bubble Tea

Home ownership

Renting apartment/condo, living with parents

(Highly discretionary in personal spending)

Psychographic segmentation Personality

Brand conscious, anchored in popular culture, inclined for differentiation and sophistication, very tolerant towards multiculturalism and internationalism (open-minded),

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quick maturation with modern products

Lifestyle Most of them dependent on parents, no major responsibilities, highly influenced by peer groups, active life, importance of school, work and social life

Behavioral segmentation Benefits

sought

COMMUNICATION BENEFITS-Nutritional information-Informational text on history of product

FUNCTIONAL BENEFITS-Healthier than soft drinks

-Convenient, easy to take out

PERCEPTUAL BENEFITS-Quality/Premium price

-Social standing/good-looking

Usage rate Seasonal (peak in summer), daily-basis, weekly basis

User status Non-user, regular user (current user through existing bar-shops)

Loyalty status

None, medium, strong

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1.4 Description of the Positioning

The objectives of the marketing plan are strategically centered around 3 criteria: to create a strong consumer awareness towards a completely new bubble tea product from Coca-Cola, to establish a wide brand recognition through the capture of market shares in the functional drinks segment, and to become the top market leader in that particular segment within the forecasted sales figures.

PRODUCT STRATEGY

The core

o Bubble Tea beverage in a pre-bottled, ready-to-drink format.The actual product

o Packaging and labeling: see figure belowo Branding: colorful, aspect of play, round shaped, prominent Bubble Buzz logo written in

modern font, catchphrases such as “Think outside the Bubble” and “Get Your Buzz”.o Trade name: Bubble Buzz™, a Coca-Cola producto Brand personality: energy, funky, cool, functional, original, funny, healthy, etc.o Brand equity: Coca-Cola provides a quality, consistent, innovative and accessible soft drink

reputation.Augmented product

o Nutritional information, Status (social drink), Features promoting the website, Health benefit of a green tea base

Marketing considerations

o Product life cycle: Bubble Buzz is a low-learning product. With a strong marketing campaign, “sales [will] begin immediately and the benefits of the purchase are readily understood”. Since Bubble Buzz is prone to product imitation, Coca-Cola’s strategy is to broaden distribution quickly, which is currently feasible thanks to the company’s high manufacturing capacity.o Product class: Food & beverage Soft Drinks Functional Drinks Bubble Buzz follows the practice of product modification: Coca-Cola is introducing an existing beverage (bubble tea) but redefines the drink with a new, more convenient package. Bubble Tea will now become a widely available drink in multiple retailing (distribution) channels.

Promotional Mix:

Consumer oriented:

• Contests: “Win another Bubble Buzz flavour”, “Uncover a secret code underneath the bottle cap and win sporting goods and electronics by logging on the website. (Arguments: It will increase consumer purchases and encourage consumer involvement with the product).• Samples: distributed in supermarkets, school/universities. Samples are a way to avoid product resistance since people are not used to find bubbles in their drinks. Arguments: It

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will encourage new product purchases and it represents low risk for consumers since they get it for free. They have nothing to loose by trying it.• Point-of-purchase: in supermarkets (to reach the parents of generation Y). Arguments: It is also a mean to increase product trial and provides a good product visibility.• Others: In subsequent years, engage in product placement in TV shows or movies.

Trade oriented:

• Allowances and discounts: case allowance (Arguments: The “free goods” approach will be used so it can encourage retailers to buy more of the product to get a certain amount for free).• Cooperative advertising: to encourage retailers to buy our product and to maintain our high level of advertisement that consumers expect from Coca-Cola.

Other considerations:

• Scheduling of the advertising: Pulse scheduling (promotional presence year-round, but emphasized and intensified before and during summer).• IMC (integrated marketing communication)

Target Audience:

• Intermediary: personal selling will be more often used• Ultimate consumer: Coca-Cola will use more of mass media because the amount of potential buyers is large.

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Chapter 2 Industry Feasibility

2. 1 Industry Analysis

The Romanian soft drink market (including mineral water) is estimated to be worth €850 million, for a production amounting to 2.2 billion liters, according to major companies on the market. The main producers are Coca-Cola HBC; PepsiCo, European Drinks, Romaqua and Parmalat.

The growth rates in 2008 in both volume and value terms were the result of improving purchasing power and rising disposable incomes in Romania, which contributed to diminished seasonality of consumption. New launches and heavy advertising campaigns contributed also to increase the demand already driven by longer hot periods across the whole year.

Improved offers aim to meet lifestyle changes

The dynamics of soft drinks in Romania was sustained by higher incomes, which in turn produced radical changes in lifestyle and consumption habits. The Romanian lifestyle is increasingly characterised by concepts such as health and wellbeing, diet, energy and physical activities, all of which are satisfied by quality and more sophisticated soft drinks. In order to satisfy more exigent consumers and take advantage of the reduction in consumption seasonality, manufacturers are endeavouring to meet the new lifestyle and purchasing habits with new offers and expanded distribution.

Coca-Cola HBC Romania retained leadership

Coca-Cola HBC Romania SRL maintained its leading position in 2008. However, in the same year the multinational registered a slight value share loss due to the efforts made by domestic producers of bottled water, which proved innovative in terms of communication and invested heavily in advertising. Most of the strong domestic manufactures retained good positions in soft drinks as a consequence of their intense activity in bottled water, the increasing interest in carbonates and the fast expansion in the smaller sectors across soft drinks as a whole. Quadrant-Amroq Beverages SA (PepsiCo brands), Romaqua Group and European Drinks were the main competitors for Coca-Cola HBC Romania. The top four leading manufacturers accounted together for over two-thirds of total soft drinks sales in 2008.

Distribution marked by the strong expansion of multinational retailers

The expansion of large multinational retailers was one of the most important factors behind the dynamic performance of soft drinks in 2008. Nevertheless, traditional small grocery retailers remained the dominant distribution channel, thanks to strong penetration in the majority of cities, as well as in rural areas where large chains are absent. In these areas, small grocery retailers are unlikely to lose their overall supremacy during the forecast period, despite the excellent growth of supermarkets/hypermarkets in large urban areas.

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Improved purchasing power contributes to intensified competition

The improved purchasing power as well as the increasing demand for premium, more sophisticated soft drinks, is expected to lead to a more intense competition between multinationals and domestic producers, all prepared to meet the increasing demand for healthy products. The expansion of sugar-free lines and the elimination of preservatives and colourants will, in the view of the main producers, satisfy more conscious consumers. In fact, the battle will be carried on in new launches, with healthy attributes. The strong position of multinationals and domestic producers, which control advertising and distribution, will not leave too much room for imports, which have more prominent presence in the small functional drinks and RTD coffee, but also in fruit juice.

2.2 SWOT ANALYSIS (Strengths and weaknesses, opportunities and threats)

Strengths Weaknesses

Brand strength

Effective stride in new markets

Results of operations

Strong existing distribution channels

Reliant upon line extensions

Reliant upon particular carbonated drinks

Brand dilution

Entrance into difficult non-core categories

Saturation of carbonated soft drink segment

Opportunities Threats

New product introductions

Brand is attractive to global partners

Strong competition

Potential health issues

Free trade

STRENGHTS

Brand

The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world. The Coca-Cola brand is unarguably one of the most recognizable brands in the 200 countries where it sells its products. The strong brand name is one of the basis for the company’s competitive advantage on several of its core markets.

Effective strides in new markets

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Coca-Cola has partnered with several companies (such as the joint venture with Nestlé) in order to increase the ability to react to demands and changes in the markets of iced tea, coffee and juices. The developing markets are more complex than the carbonated soft drinks.

Strong existing distribution channels

Coca-Cola has operations worldwide and is well established in its distribution channels (such as store retailers or vending machines). Therefore, a new product launch can typically rely on the existing distribution system in order to reach the majority of its target market while requiring no major supply / delivery developments.

WEAKNESSES

Relying upon line extensions

Coca-Cola is relying on brand extensions increase sales in specific lines, particularly its long-time carbonated soft drink products (i.e. the introduction of Vanilla Coke helped maintain sales for the core Cola beverages). However, there is a strong risk of cannibalizing existing sales in the long term (for example, Bubble Tea might deter on sales for iced tea).

Reliant upon particular carbonated drinks

The long-time presence of Coca-Cola’s Coke beverage has established this particular line as a flagship product. While the core Coke products bring a solid base of sales and loyalty to the company, consumers’ expectations also become more and more anchored and single-lined, taking away freedom in the areas of line diversification and product modifications (taste, packaging, price).

Brand dilution

The tremendous amount of existing brands and new product being introduced by the company could diminish the value and differentiating strength of each product that is being manufactured.

Entrance into difficult non-core categories

The Coca-Cola Company is a truly global multinational business giant. While some categories of products are distributed in many areas of the globe (Coke, Powerade, etc.), geographical needs already require that these global brands are heavily adapted to their target region. Furthermore, many smaller and diversified product lines are more or less popular in one particular region over another. Therefore, the process of diversifying the production and marketing each product involves costly investments. These capital requirements typically increase as the product becomes heavily focused (for example, since the Coca-Cola brand is highly recognizable worldwide).

Saturation of carbonated soft drink segment

Due to the countless number of brands available on the market, it becomes increasingly difficult in the soft drinks segment to innovate and create new products that genuinely stand out from their competition. And as we have seen, an analysis of the industry has shown that growth in the

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soft drinks market becomes difficult and challenging when the conditions and consumer trends cause a market demand that stays stagnant.

OPPORTUNITIES

New product introductions

The functional drinks market is one that particularly allows more innovation opportunities and gives greater freedom for creativity in the design, production, manufacturing, distribution, promotion and retailing choices and processes.

Brand is attractive to global partners

Because of the company’s size (including value, brand name and operating revenues) and wide portfolio base, Coca-Cola enjoys a strong purchasing power over its suppliers, and also attracts large partnerships with various levels of consumer reach (e.g. Burger King, movie studio promotions, sponsorship agreements, etc.). Existing brand awareness also provides an international playing field for powerful marketing strategies.

THREATS

Strong competition

Coca-Cola is competing in a global market that is characterized by an oligopoly between several (but few in numbers) competitors. The fight for market shares and sales in crowded markets becomes a complex one.

Potential health issues

The current trend of consumer and consumers groups’ awareness towards goods and services is both beneficial and threatening for companies in the food and beverages industry. Over the last few years, concerns over health issues have risen in the media through an expanded and ever-growing network of “knowledge outputs” (journals, TV channels, internet and so on). The move of the younger generation towards a healthier lifestyle call for careful planning and decision-making in new product developments. Large companies can also easily become the target of consumers’ apprehension.

Free trade

In an era of globalization, large international competitors can come out with comparative advantages (the constant fight to remain the first mover and market leader in a long-term spectrum). Issues arise when dealing with price competition and economic growth. Trade organizations are also faced with public pressure which can disrupt operations in one or more areas of the company.

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2.3 Customer demand

Customer demand is a crucial factor which is driven by tastes, income and availability of others similar products at a different price (mentioned later in the potential substitutes section). For a lot of consumers, value and price are highly related: ‘’the higher the price, the higher the value’’. Consequently, Coca-Cola’s intention to position Bubble Buzz as a unique, innovative and attractive product gives it a certain control over Bubble Buzz price. To be able to implement higher pricing though, the minimization of the non-monetary costs to customers should also be include along with awareness of the product (notably by advertising) and value (benefits) .

The product lifecycle

The company should take advantage also to the fact that the newer the product and the earlier in its lifecycle the higher the price can usually be. It ensures a high profit margin as the early

adopters buy the product and the firm seeks to recoup development costs quickly and it also brings a certain prestige to the product.

Potential substitutes

Coca-Cola is constrained by the monopolistic market in which it competes. The main characteristic however is product differentiation.

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Chapter 3 Financial Feasibility

3.1 Projected Financial Performance

Revenues $ 597,124.00 Based on sales @ different channel’s price

COGS 214,964.64 Based on weighted average percentage in past data

C.M. 382,159.36 Revenues - COGS

Fixed Costs :

SG&A cost : 113,453.56 Half of the O/H costs estimated, based on past data

Capital expenditures : 25,676.33 4.3% of revenue, based on past data

Profits 243,029.47 CM – SG&A – Capital expenditures

Requirement for success analysis:

C.M. per bottle = 382,159.36 / 328,000 = $1.17

Break-even: (113,453.56+25,676.33) / 1.17 = 118,914 (bottles)

Market share: 118,914 / 1,000,000 = 11.9%

In one year, if Coca-cola can sell 118,914 bottles of Bubble Buzz, or in other words achieve 11.9% of the functional drink market share, it will break even.

After this point, every bottle Coca cola sells will generate average $1.17 towards the profits. The potential profits can up to $1,030,770.001 based on our target market.

Expected Costs:

COGS: $597,124 * 36% = $214,964.64

O/H: $597,124* 38% = $226,907.12

Expected Revenues (total) = $597,124

The prices are computed in USD dollars at an exchange rate of 1 USD=4.2 RON.

1 $1.17*(1-11.9%)*1,000,000 = $1,030,770

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References

- Bruce R. Barringer, R. Duane Ireland,: Entrepreneurship: Successfully Launching New Ventures, Prentice Hall, 2nd Edition, 2008

- Business Superbrands – An insight into some of Romania’s strongest superbrands, 2007/2008 Edition

- The Coca-Cola Company. (Company Profile). Datamonitor. Jun 2005.

Accessed Feb 08, 2006.

- THEODORE, Sarah. Surprising suggestions from teens. Beverage Industry. Vol.96, no 7. Jul 2005.

- http://www.coca-cola.ro/

- http://www.businessmagazin.ro/actualitate/afaceri/vanzarile-coca-cola-romania-si-au- mai-pierdut-din-efervescenta-in-t2-4728655

- http://www.businessmagazin.ro/actualitate/afaceri/2-mil-euro-pentru-un-nou- sortiment-de-cola-4619943

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