Snapple Beverage Corporation

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Snapple Beverage Corporation

Hoover, Martin, Baloney, Benham and Grimm
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Outline

• Ceteris Paribus Factors of Demand and Supply
  (Martin)
• Price Elasticity (Martin)
• Income and Substitution Effects (Baloney)
• Implicit and Explicit Costs of Production
  (Baloney)
• Opportunity Cost (Hoover)
• Goals and Constraints of the Firm. (Hoover)

• Snapple facts (Benham)
• Resources land, labor and capital (Benham)
• Advertising Strategies (Benham)
• Perfectly Competitive Markets (Grimm)
• Long run and short run decision-making processes
  (Grimm)

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Snapple Facts

• Originated in 1972 as the Unadulterated Food
  Corporation.
• Marsh, Golden, and Greenberg.
• Pure fruit drinks were the first products sold in
  Greenwich Village, New York.
• Currently there are over 30 different flavors.
• Named after a carbonated apple soda.

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Did you know?

• Consumers drank over a hundred fifty million
  gallons of Snapple in 2000.
• If all the Snapple bottles consumed in a year
  were laid end to end they would circle the world
  four times.
• Snapple trademark was purchased for 500 from a
  farmer in Texas. Today that trademark accounts
  for over 1 billion in retail sales.
• The Snapple trademark is currently owned by
  Cadbury Schweppes.
• Top five selling flavors 1) Lemon Tea 2) Peach
  Tea 3) Diet Peach Tea 4) Kiwi Strawberry 5) Diet
  Lemon Tea

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Resources of the Snapple Corporation
Resources The land, labor and Capital used to
produce goods and services Land The physical
space on which production occurs Labor The time
human beings spend on producing goods and
services Capital long lasting tools used in
producing goods and services Human Capital The
skills and training of the labor force
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Labor

• Snapple employs over 54,000 people
• The average worker spends from 845-445pm Monday
  through Friday

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Land

• Snapples Physical Plant is located in White
  Plains, NY
• Snapples conglomerate, Cadbury has
• locations all over the
• globe.

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Physical Capital/Human Capital

• Physical Capital consists of the actual buildings
  in which Snapple is produced, bottled and
  distributed from.
• Human Capital consists of the training and skills
  workers have.

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Advertising Strategies

• New Ad campaign costs Cadbury 33 million
• Sex Sells Snapples goal to be more appealing
  in the 18-24 age range
• Introduction of new products
• Concert series

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Advertisements

• Mix it up Snapple commercial encourages fruits
  to get naughty, blend and experiment.

• New sports theme appeals to
• pre-teens and make the whole
• family laugh

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The Elements

• all-natural, herbally enhanced fruit drinks
• fruit flavors to help consumers refresh their
  natural resources
• "The success of the Elements line has topped even
  our highest projections, with sales for the first
  twelve months expected to exceed five million
  cases, it is the most successful new product
  launch in the history of premium beverages" Ken
  Gilbert, senior vice president, Snapple
  marketing.
• Newest Additions
• Sky For Stamina
• Attitude Passion Fruit Drink, packed with
• Endurance

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Liquid Action

• Snapple is introducing a new line of 20-ounce
  beverages
• The line of all-natural juice drinks, fruit
  drinks and teas target on-the-go consumers and
  will launch in the spring, a peak period for
  outdoor activity.
• "Putting the best stuff' in plastic opens the
  door to new usage occasions for Snapple," said
  Neil Kimberley, brand director, Snapple.

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Area 2 Concert Series

• Xtreme sports, mountain biking
• Artists Help to Endorse Snapple
• David Bowie (Heathen in stores now)-
• Moby (18 in stores now)-
• Busta Rhymes (Genesis in stores now)-
• Blue Man Group (Blue Man Group in stores now)-
• Ash (Theres a star 2 (X4) in stores now)

Sells Snapple to the more xtreme Crowd
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Is Snapple part of a perfectly competitive market?

• Questions
• How many buyers and sellers are there in the
  beverage market?
• Does Snapple offer standardized products compared
  to the rest of the beverage market?
• Are there barriers to entry or exit? Can
  outsiders easily enter and leave the market?

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Buyers and Sellers

• In a perfectly competitive market, the number of
  buyers and sellers is so large that no individual
  decision maker can significantly affect the price
  of the product by changing the quantity it buys
  or sells (pg. 216)

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Buyers and Sellers (contd)

• Snapple makes up 15 of the market (Snapple
  Website)
• A change in output would only make a small
  difference in the total market output

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• Lipton (Pepsi-Cola)
• Nestea (Coca-Cola)
• Arizona Teas
• Gatorade
• SoBe
• Mad River
• Local
• Turners
• Schneiders

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Standardized Product

• Do buyers perceive a difference between Snapple
  products and other beverages in the market?
• YES!
• Snapple fails this test
• Most consumers do notice a significant difference
  between brands of beverages

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The Beverage Market Easy Entry

• Can businesses enter on the same terms as firms
  already present?
• No government restrictions
• One of the fastest growing segments and many
  companies want a stake in this market
• Snapple is part of a market that is easily
  duplicated

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The Beverage MarketEasy Exit

• Plant equipment is not highly specialized
• However, problems may occur since the market
  employs a large amount of labor

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• Finally, remember that perfect competition is
  only a model that economists use to make
  predictions about consumer tastes, technology,
  and government policies.
• Many economists believe that some markets come
  reasonably close to perfect competition. (pg. 217)

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Short Run Decision Making

• Firm has fixed costs
• Q is when MRMC
• Then, in the short run
• If Total Revenue Total Variable Costs, the firm
  should keep producing
• If TR
• If TR TVC, the firm should be indifferent

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Long Run Decision Making

• Shutdown rule applies only in short run
• In the long run, it exits the industry
• Now there are NO fixed costs
• If the firm shuts down, its costs will be zero
• So...in the long run, a firm should exit the
  industry if it has ANY loss at all.

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Price Elasticity

• Elasticity is a measure of responsiveness.
• It is how responsive a dependent variable is to
  changes in a independent variable.
• Ex. Quantity Demanded vs. Price
• ? Quantity Demanded? Price

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Estimates of Elasticity

• The Number and Closeness of Substitutes.
• The Fraction of the Budget.
• The Time Period.

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In a perfectly competitive Market

• There are a large number of substitutes.
• The market would be perfectly elastic.
• If you raised the price a penny, no would buy it

• Snapple would not want to raise prices because
  consumers will choose a cheaper substitute.
• Snapple would not want to lower prices because
  they would not be able to cover their operating
  expenses.
• Snapple must take the price as given.

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Snapple as a Price Taker

• Snapples demand curve would be the same as the
  market demand curve.
• Snapple would be a price taker.

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What Snapple really is

• Relatively competitive product.
• Relatively elastic.

• Absolute value of E is greater than one.

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Ceteris Paribus Factors of Supply and Demand

• Factors for Demand
• Income
• Prices of related goods
• Tastes
• Number of consumers in market
• Expectations of consumers

• Factors for Supply
• Input prices
• Prices of alternative goods
• Technology
• Number of suppliers in the market
• Expectation of sellers

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Income and Substitution Effects

• When the price of a good changes two things can
  happen
• 
  

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The Substitution Effect a normal good
Substitution Effect
P
Q d

• The Substitution Effect
  when the
  consumer substitutes towards a good which has had
  a price decrease and away from goods in which the
  price hasnt changed.

Q d
Purchasing Power
Leads to Increased Q d
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Income effect

• As the price of a good decreases, the consumers
  purchasing power increases, causing a change in
  quantity demanded for the good
• Therefore, if the price of Snapple were to
  decrease then people would be more willing and
  able to purchase more Snapple.

P
Q d
Q d
Purchasing Power
Leads to greater purchasing power
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The Explicit and Implicit cost of production

• Explicit
• Interest on loans
• Rent paid out
• Managers Salaries
• Hourly Wages of Workers
• Cost of raw materials

• Implicit
• Opportunity cost of production
• Owners land
• Owners money
• Owners time

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Oppurtunity Cost
The opportunity cost for buying Snapple is higher
than the cost for its substitutes.
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Even though the opportunity cost is higher
people still choose Snapple

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Goals and Constraints

• 1 goal MAXIMIZE PROFIT
• Constraints
• Because of a relatively perfectly elastic demand
  curve
• 1. If price increases goals wouldnt be met
• 2. If price decreases operating costs wouldnt
  be covered

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Constraints

• Because of a relatively elastic demand curve
• 1. If price increases goals wouldnt be met
• 2. If price decreases operating costs wouldnt
  be covered

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Win A Snapple!!!!

• What conglomerate is the Snapple corporation a
  part of?
• Where is Snapples production plant located?
• Name a constraint to the Snapple corporation
• Who are the men in
• the picture drinking
• Snapple?
• (this is a free bee)

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Questions
? ? ? ? ? ?