A Marketing Plan1

A MARKETING PLANPRESENTED TO

THE VIRGIN GROUP

Bob DeckAngelike GauntTracy Walker

May 5, 2005

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Section 1Situation Analysis

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I. Market Analysis

A. Industry Value and Volume

Although they are a relatively small player in a large market, energy drinks aregaining ground against other non-alcoholic beverages. Energy drink sales in theUnited States currently account for less than 2 percent of the larger carbonatedsoft drink market, which is valued at $60 billion dollars (Roberts, 2004).

Energy drink sales in the United States reached nearly $1 billion in 2003 (CokeAccelerates, 2004; Day, 2005) and account for approximately 20 percent of globalenergy drink sales, which currently exceed $5 billion (2004 State of the Industry).

Energy drinks are often included within the functional drink category, which in2004 was valued at $20.6 billion globally (2004 State of the Industry).

According to Catherine Penn of Beverage Industry Magazine, “Energy drinksrepresent the most aggressive new product development segment in the beverageindustry” (January, 2005).

Indeed, the relatively new market segment appears to have potential:

• 2004 energy drink revenues were up 54.29 percent from 2003 (2004 State ofthe Industry).

• Unit sales increased 31 percent from 2003 (2004 State of the Industry).• Top-selling Red Bull’s sales increased approximately 60 percent from 2002 to

2003 (Hoovers, 2005).• The number-two selling Rockstar Energy, boasted an increase of

approximately 125 percent in sales from 2003 (2004 State of the Industry).

Because energy drinks are relatively new in the market, a clearly-definedclassification has not yet been formed. Generally, energy drinks contain caffeine,sweeteners, various herbs (such as ginseng and kava), and nutrients (Kelly, 2004).The combined ingredients claim to increase physical, sexual or mental energy(Brandt, 2001). Red Bull in particular claims that it improves endurance,alertness, concentration and reaction speed (Todd, 2003).

Although there are a variety of energy drinks available most will follow the trendsnoted below:

• The target market is generally males between the ages of 18 and 25 years old(Roberts, 2004).

• Drink containers revolve around imagery and size. For example, Red Bull ispackaged in a slim, 8.3 ounce silver can which most competitors have copied(Todd, 2003).

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• Energy drinks are marketed toward consumers through a variety of“alternative” mediums:

o Sports - Red Bull is a sponsor in numerous extreme-sport events fromskateboarding to surfing (Todd, 2003).

o Video games – Bawls Guarana sponsors gaming tournaments (Helm,2005).

o Music – Rapper Nelly has his own signature energy drink called PimpJuice (Helm, 2005).

o Drugs – There is a brand of energy drink called Bong Water (Helm, 2005).

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B. Revenue and Profit Patterns

According to Sherri Day, in an article published in the business section of theNew York Times, energy drinks are now the fastest-growing segment of thebeverage industry, replacing bottled water (Day, 2004). The growth of thesegment is indicated in the table below, which was created using data provided byMintel (as cited by Roberts, 2004). As indicated in the table, U.S. energy drinksales have increased from $157.6 million in 1998 to $890.5 million in 2003, anincrease of $732.9 million in only five years.

Since Red Bull was introduced in 1997, it has remained the leader in the energydrink market. The company controls more than 50 percent of the U.S. energydrink market and claims to hold 70 to 90 percent of the global market share (Day,2004).

Due to a shift towards a more health-conscious consumer base, sales of sugary,carbonated beverages have declined, while sales in categories such as energydrinks, sports drinks, and bottled water have increased (Coke Accelerates, 2004;Penn, 2005). In fact, of seven categories that experienced double-digit growthbetween July 2003 and July 2004, five claimed health or weight loss benefits(O’Leary, 2005).

The chart below shows sales for the top performers in each segment according toBeverage Industry information. As indicated below, sales of energy drinks arequickly outpacing those of other beverage segments including sports drinks whichare often grouped with energy drinks in the functional drinks category.

U.S. Energy Drink Sales 1998-2003 (in millions)

$204.90

$306.20

$890.50

$731.90

$157.60

$545.49

1998 1999 2000 2001 2002 2003

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2003-2004 Sales Trends for Top Performers in Each Segment

55.10%

-0.50% -2.27%

11.51%12.10%

5.34%

EnergyDrinks

SportsDrinks

BottledJuices

Canned /BottledTeas

BottledWater

SoftDrinks

Segment

Incr

ease

Source: Information Resources, Inc. Total food, drug and mass merchandise excluding (Wal-Mart) for the 52 weeks ending June 13, 2004 as cited by 2004 State of the Industry.

In addition to increased sales, energy drink manufactures are also enjoying muchhigher profit margins than their soft drink competitors. Individual energy drinksare sold for around US $1.99 each at grocery stores (Sanger, 2005). According toJohn D. Sicher, editor and publisher of Beverage Digest, “In convenience stores, acase of Red Bull sells for about six time the amount of a case of Coke or Pepsi”(Day, 2004). In addition, bars and nightclubs may charge as much as $7 to $8 foran eight-ounce can of Red Bull (Day, 2004).

According to Tom Fox, a partner with CM Profit Group (a category managementconsulting firm), energy drink users tend to be younger and may have moredisposable income to spend on superfluous purchases (Mastroberte, 2005).

While still increasing, the sales growth of energy drinks appear to be slowing asindicated in the table below, which is based on data provided by Mintel.

Energy Drink Sales ProjectionsSales (current prices) Sales (2003 prices)

Year Millions % Change Millions % Change2005 $1,523.2 27.3% $1,455.2 24.4%2006 $1,833.4 20.4% $1,711.9 17.6%2007 $2,270.6 23.8% $2,072.3 21.1%2008 $2,764.3 21.7% $2,465.9 19.0%

Source: Mintel, based on IRI Infoscan Reviews Information as cited byRoberts, 2004.

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C. Current and Future Products

To understand the current state of the energy drink category, it may be helpful tonote the evolution of energy drinks within the non-alcoholic drink category. Theenergy drink segment evolved from soft drinks, which were created during themid-1880s. During its early years, soft drinks were only sold in stores withfountain service; however, the introduction of large-scale bottling machinery in1895 dramatically increased the production and distribution of soft drinks (Bottledand Canned, 2004).

During the twentieth century, soft drink sales rose along with the disposableincomes of industrialized nations (Soft Drinks, 2004). During the 1980s,consumers were demanding low-calorie alternatives, and began consuming morebottled water. This prompted the development of reduced-calorie sodas such asDiet Coke and Diet Pepsi. “New Age” drinks such as ready-to-drink teas, fruitjuices, and flavored waters gained popularity in the early 1990s (Bottled andCanned, 2004).

Sales of soft drinks reached a peak in 1998. Global sales declined from 4.3percent in 1998 to 1.4 percent in 1999 (Soft Drinks, 2004). Health-consciousconsumers began demanding alternatives to soft drinks in the early 2000s, andenergy drinks, fortified fruit juices, bottled water, sports drinks, and iced teasgained market share (Soft Drinks, 2004).

Currently, large, multinational corporations dominate production for most non-alcoholic beverage categories; however, the energy drinks market is led bysmaller companies (Soft Drinks, 2004). The market leader, Austria’s Red Bull,controls 60-70 percent of global energy drink sales and sells more than 1 billioncans a year and sells in 70 countries worldwide (Soft Drinks, 2004; Todd, 2003).Inspired by the success of this market leader, more than 1,000 smaller playershave entered the market, according to BevNet (as cited by Helm, 2005).

However, larger corporations are now rushing to gain market share in the energydrink industry:

• Hansen Beverage, once a producer only of juice, now produces a full line ofenergy drinks:

o Energade – a sports/energy drinko Rumba – a 100 percent fruit juice drink spiked with caffeine and energy

enhancerso E20 - an energy water (E20)o Monster - a traditional energy drink (Gondo, 2005).

• In an effort to become profitable in the energy drink market, Coca-Colaintroduced its Full Throttle energy drink in January 2004. The “lightly-

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carbonated, citrus-flavored drink with extracts of ginseng and guarana,caffeine and B-vitamins” is available in 16-ounce cans at a cost ofapproximately $2 (Coke Accelerates, 2004).

• Pepsi Co. has begun targeting male consumers ages 30 to 45 and femalesbetween 18 and 45 years of age with its Sugar-Free SoBe Adrenaline energydrink (Kirsche, 2004).

• Anheuser-Busch recently introduced a beer and energy drink combination, Be

(pronounced “B to the E”), that is targeted toward men and women ages 21 to27 mix alcohol with liquid stimulants such as energy drinks.

• Anheuser-Busch also introduced 180 in January 2001. According to thecompany’s Web site, “the name ‘180’ communicates the ‘turnaround’ or‘energetic lift’ people look for in an energy drink” (http://www.anheuser-busch.com).

While smaller companies currently control the energy drink market, many predictfuture growth will be by large corporations (Helm, 2005). According to JohnCraven, editor-in-chief of BevNet.com, due to a lack of distribution channels,many of the smaller energy drink producers will not be able to compete on alarger scale. According to Craven, in order to compete nationwide and distributein all 50 states, a company would need between 250 and 300 distributors (Helm,2005).

In addition, while the energy drink category is now growing quickly, manyexperts believe it will remain a niche market and account for only a smallpercentage of beverage industry sales (Lewandowski, 2002, Roberts, 2004).

The future of the category may be influenced by concerns on potential healthconsequences associated with energy drinks.

• In 2004, the World Health Organization issued a warning about herbalmedicines and alternative ingredients such as those found in energy drinks(O’Flaherty, 2004).

• Research done at the Medical College in Georgia, indicated that the amount ofcaffeine found in energy drinks may increase blood pressure enough to causehypertension in teens that were predisposed to the condition (Kelly, 2004).

• In a study conducted at Johns Hopkins University, it was found that energydrinks could become addictive due the excess amount of caffeine they contain(Kelly, 2004).

• In Norway, energy drinks have been classified as a medicine; therefore, salesof energy drinks have been banned in retail outlets (Roberts, 2004).

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• Energy drinks have been blamed for three deaths in Sweden (Roberts, 2004).

Another concern for the energy drink segment is that too many competitors arenow entering the market. According to Burt Helm, author of Energy Drinks BuildTheir Buzz, more than 1,000 new energy drinks have entered the market since RedBull was first introduced in 1987 (Helm, 2005).

However, this concern is disputed by David Rohdy, vice president of Red BullAmerica; he claims, “We welcome new entrants. Competition is good, and it onlyserves to validate that the energy drink category is legitimate” (Todd, 2003.

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D. Marketing Trends

Target MarketThe target market for energy drinks has generally been men between the ages of18 and 25 (Day, 2004). Initially, energy drinks were marketed to 20-somethingsin bars and nightclubs (Karp, 2004) and toward a young, “suburban, extreme-skateboarder crowd” (Schmelzer, 2004).

With so many competitors entering the market, however, companies have recentlybegun expanding their target audiences:

• Brands such as Nelly’s Pimp Juice, Russell Simmons’s DefCon3, Ice-T’sLiquid Ice, and Lil Jon’s Crunk!!! are targeting the hip-hop audience (Helm,2005; Day, 2004; Schmelzer, 2004).

• Bawls Guarana targets video gamers by sponsoring video game tournaments(Roberts, Jr., 2005).

• The manufacturers of Gay Fuel donate five percent of sales to local AIDScharities as a way to target the gay party circuit (Tale of the Tape, 2005).

• Bong Water’s marketers target the marijuana sub-culture (Helm, 2005).

• Reduced-calorie and sugar-free brands are targeted towards adults andathletes.

BOMBAenergy line’s Solution is non-carbonated and geared towardsadults (Guerrero, 2004).

Red Bull recently launched a new campaign targeting golfers in an attemptto expand its market share (Karp, 2004).

Pit Bull was named the official energy drink of the American BasketballAssociation (Schmelzer, 2004).

• Red Bull has started to market its brand as a functional product to workers,students, and drivers. Marketers have begun offering free cans to commuters,cab drivers, and car rental agencies in an attempt to market it as a way to stayalert while driving (Karp, 2004).

While marketing to a new target audience may open up doors and expand marketshare, there is a risk. According to Alfredo Marcantonio, founder of theadvertising consulting firm MPH, “There is a risk if [an energy drink] startsgetting too acceptable. You don’t want to wear the brand of jeans your dad wears”(Karp, 2004).

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TacticsGuerilla and grassroots marketing tactics have been used time and again bymarketers to attract the young, male crowd:

• Red Bull positions student brand managers on college campuses in order toestablish word-of-mouth advertising. The student brand managers introducethe drink to friends and provide insight to Red Bull’s marketing managersregarding the trends among their peers. (Beverage World information as citedby Todd, 2003).

• Go Fast! sponsors an annual skydiving event in Colorado and is nowdeveloping a winged jumpsuit which will allow the wearer to jump out of aplane without a parachute (Helm, 2005).

• Go Fast! also contributed to the development and launch of the first unmannedcivilian rocket, which was launched in May, 2004 (Helm, 2005).

• Hansen’s Monster energy drink is promoted at extreme sporting events androck concerts in an attempt to be more cutting-edge and risqué (Hansen,2004).

• Monster also advertises on the Las Vegas monorail. The entire train is paintedblack with the trademark claw logo. Monster also secured vending rights atmonorail stations and shows Monster promotions on video screens mountedinside the monorail cars (Hansen, 2004).

As noted above, the marketing tactics used by energy drink companies currentlydo not include traditional television commercials. An article published by theBuffalo News notes the similarities between energy drink’s current marketingstrategies and those used by tobacco companies in the past. Energy drinkcompanies advertise sponsorships at clubs and bars and provide heavy samplingto consumers (Kwiatkowski, 2005).

However, as the market matures, some expect the category to turn to moretraditional forms of promotion such as print and other media (Roberts, 2004). Thisis due to the expertise and advertising budgets large manufacturers will bring tothe market (Roberts, 2004). Coca-Cola has already demonstrated this, as it hasbudgeted between $5 and $10 million for print and outdoor ads to advertise itsnew Full Throttle energy drink (Coca-Cola to Unveil New Flavors, 2005).

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II. Competitive Landscape

A. Structure of the Category

Red Bull, the industry market-share leader, currently controls 60-70 percent ofglobal energy drink sales (Soft Drinks, 2004). However, more than 1,000 smallerplayers have entered the market (Helm, 2005) and are trying to compete with RedBull.

Other beverage companies are desperate to grab market share from the industryleader, Red Bull. Challengers to Red Bull’s success include Coca-Cola, PepsiCo,and Anheuser-Busch (Day, 2004). Strategies to compete with Red Bull includemarketing less expensive products and increasing the number of ounces in a can.For example, Rockstar Energy Drink and Coca-Cola’s Full Throttle are twice thesize of a can of Red Bull and retail for the same price (Day, 2004; CokeAccelerates, 2004, Howard, 2005).

According to Information Resources Inc., as cited by 2004 State of the Industry,current industry leaders and their corresponding market shares are listed in thechart below.

As indicated by the chart, Red Bull is the clear market share leader. However,there is no clear second-place in the race for market share. Rockstar, SoBeAdrenaline Rush, and Amp are all within 1.3 percentage points from each other.

Source: Information Resources Inc., Total food, drug and mass merchandise (excludingWal-Mart) for the 52 weeks ending July 11, 2004 as cited by 2004 State of the Industry.

Red Bull

Rockstar

Sobe Adrenaline Rush

Amp

Red Bull - 59.2

Rockstar - 7.7

Sobe Adrenaline Rush - 6.9

Amp - 6.4

Monster Energy - 4.6

Sobe No Fear - 3.7

Hansen's Energy - 1.7

KMX - 1.7

Blue Ox - 0.7

Eas Pirahna - 0.6

Bawls - 0.5

Other - 5.6

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B. Competitive Trends

According to 2004 State of the Industry, there are many new competitors enteringthe energy drink segment. Each of these is striving to differentiate themselves inthe marketplace by using varying marketing tactics and strategies. For example:

• Impulse Energy Drink is sugar-free.• US Energy Drink is low in carbohydrates.• Wired is packaged in larger containers.• YET (Your Energy Tonic) and Jugular are marketed toward extreme sports

fans.• Airforce Nutrisoda is targeted toward frequent flyers and is a mid-calorie

option (2004 State of the Industry).• Anheuser-Bush’s Be (“B” to the “e”) is the first alcoholic energy drink and

combines beer, caffeine, fruit flavoring, ginseng, and guarana (Washington,2005).

Coca-Cola, which has been struggling in the energy drink market, hopes to turnthings around with its introduction of its new Full Throttle which is marketed tomen between the ages of 20 and 30 (Kirsche, 2004).

The entrance of new competitors into the market has taken market share awayfrom the market leader, Red Bull. While Red Bull has continued to dominatemarket share, its control has slipped in recent years from 80.8 percent in 2000 to51.4 percent in 2005 (Roberts Jr., 2004).

Although many competitors are entering the market, some experts believe thatfewer than 10 brands are likely to survive (Lewandowski, 2002). As largercompanies move into the market, they will begin to acquire some of the strongerbrands (Helm, 2005). According to Burt Helm in Energy Drinks Build their Buzz,“Now is the time for the edgiest of startups to make their money or positionthemselves for an eventual buyout” (2005).

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III. Consumer Analysis

A. Primary Target Markets

GeographicsThe global energy drink market is dominated by Asia and North America. Thesemarkets account for more than 80 percent of consumption. Many countries inAsia have a very weak demand; however, the volume of energy drinks consumedin Japan is only exceeded by the United States (Coke Accelerates, 2004).

DemographicsThe primary target market for energy drink manufacturers has traditionally beenmales between the ages of 18 and 25 (Day, 2004). Initially, these drinks weremarketed toward 20-somethings in bars and nightclubs and toward the young,“suburban, extreme-skateboarder crowd” (Karp, 2004; Schmelzer, 2004).According the Sherri Day a reporter for the New York Times, “Energy drinkshave quickly become the elixirs of choice for teenagers and young adults too hipfor espresso, colas and fancy teas” (Day, 2004).

However, with so many competitors entering the market, companies quicklyexpanded their target niches within the primary target market:

• Brands such as Nelly’s Pimp Juice, Russell Simmon’s DefCon3, Ice-T’sLiquid Ice, and Lil Jon’s Crunk!!! target the young, male hip-hip audience(Helm, 2005; Day, 2004; Schmelzer, 2004).

• Red Bull has started to market its brand as a functional product to workers,students, and drivers. It has begun offering free cans to commuters, cabdrivers, and car rental agencies in an attempt to market it as a way to stay alertwhile driving (Karp, 2004).

PsychographicsThe typical consumer targeted by energy drink manufacturers is younger than 30,has an active lifestyle, and is looking for a beverage that provides increasedenergy for working, partying, or studying (Balfour, 2005).

This consumer also tends to have excess disposable income and values brands thatreinforce their self-image. For this segment, the perceived benefits associated withpurchasing energy drinks include an increased identification with the “in” crowd,as well as increased energy to participate in activities such as extreme sports,video games, and late-night partying (Helm, 2005).

According to R.Bird & Company, an identity and design consulting firm, “Energydrinks are not for your grandparents. Rather, they’re often geared towards a thrill-craved, hyperactive youth culture whose primary mission is to ‘get their rocks off’legally” (Patterns, 2004).

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BehaviorsTraditionally, energy drinks have been associated with young, thrill-seekers.Marketers have found a willing target audience in groups that purchase energydrinks to go along with their lifestyle. Typical groups that have been targetedinclude extreme sports fanatics, video game enthusiasts, and nightclub regulars(Helm, 2005).

According to the Lifestyle Market Analyst, males between the ages of 18 and 34rank much above the general population for lifestyle category interests such as:

• Automotive work• Science fiction• Home video games• Electronics• New technology• Snow skiing• Hunting/shooting• Boating/sailing• Camping/hiking (SRDS Lifestyle Market Analysis, males age 18-24)

In addition to being a prime target market, these interest groups create an occasionfor energy drink consumption. Perhaps then, it is no surprise that marketerstargeting them have designed ads and packaging to coincide with their interests.

An obvious indicator of which market a manufacturer is targeting is its use of adsand packaging to coincide with the segment’s behaviors and interests. Thegraphics below were provided by R. Bird in “Patterns in Consumer ProductPackaging: Energy Drinks” (Patterns, 2004) and give us a clue aboutmanufacturers’ target markets.

• Auto shop influence – The packaging below promotes a “power surge” and“super concentrated fuel injector cleaner” for the concentrated boost of energyit provides. The colors are similar to those used on Nascars.

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• Science fiction/monsters and aliens – These cans use images to attract theinterests of science fiction fans.

• Electronics – This packaging closely resembles batteries and may appeal tothe market that is interested in electronics.

• Skateboarders/extreme sports – The author of “Patterns in ConsumerProduct Packaging: Energy Drinks” ponders, “If you ride the deck on theright, what would you drink?”

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• Extreme sports/dangerous things – The packaging below may be attractiveto those who are interested in taking a chance.

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B. Secondary Target Markets

Increased competition within the energy drink segment has forced manufacturersto expand into new markets, beyond males ages 18 to 25. Red Bull, the marketshare leader, has lost ground recently due to new energy drink competitorsentering the market. From 2000 to 2005, Red Bull’s U.S. market share droppedfrom 80.8 percent to 51.4 percent (Roberts Jr., 2004). Mintel International Group,a media, product, and consumer intelligence and analysis company, suggests theenergy drink market should expand to include Hispanics, African Americans, andwomen in order to grab more market share (Roberts Jr., 2004).

In order to expand market share, energy drink manufactures are attempting tofollow this suggested route and have begun to take interest in the followingmarkets:

• Health-conscious consumers• Women• Hispanics• Seniors

In the United States, the market share leader, Red Bull, first became popular inhealth clubs in Santa Cruz, California. It soon expanded to extreme-sportsenthusiasts, and as the beverage built a nationwide distribution network, it becamepopular in bars and clubs as a mixer used with vodka (Day, 2004).

Health-conscious consumersFor the last several years, low-carbohydrate, sugar-free, and low-calorie productsare starting to play a major role in the growing energy drinks market (2004 Stateof the Industry). Several new products entered the market in 2004, which placedan emphasis on consumers who need an energy boost and also want to stay fit.Mintel expects the energy drink market to continue to experience growth in thelow-calorie sector (Roberts Jr., 2004).

According to Jane Perrin, Nielsen’s managing director of global services, “Salesof sugary substitutes are outgrowing those of sugar” (as cited in Adweek.com,O’Leary 2005). She explains that people are watching more carefully what theyeat because they want to live longer. This is a result of media reports thatemphasize problems such as obesity and diabetes.

The National Marketing Institute estimates that more than 25 million Americanshave tried low-carbohydrate diets. In addition, there are approximately 16 milliondiabetics in the United States who watch the number of carbohydrates theyconsume and desire sugar-free products (http://www.bevnet.com, February 1,2004). Many energy drink manufactures are now hoping to tap in to the low-carbohydrate, low-sugar trend.

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Energy drink companies are formulating products to attract sales from the health-conscious segment:

• Sugar-Free Red Bull was launched in 2003 and now represents 15 percent ofthe company’s business (Mastroberte, 2005). “Almost a third [of all soft drinkproducts] are sugar-free or of the diet variety,” notes David Rohdy, vicepresident of marketing for Red Bull North America, “We saw this as anopportunity” (as cited in Beverage World, Todd, 2003).

• PepsiCo has launched its Sugar-Free SoBe in an effort to target womenbetween the ages of 18 and 45 and men ages 30 to 45 (Kirsche, 2004).

• In an attempt to target older adults and athletes, some energy drink companies,such as Rockstar, Monster and Impulse, have begun offering sugar-free, low-carbohydrate, and low-calorie versions of their beverages.

WomenMany marketers recognize that women may represent the future growth of theenergy drink category. Kantha Shelke, a reporter for Food Processing magazine,believes that because more and more women are attempting to lose weightthrough physical activity, their consumption of sports and energy drinks is likelyto increase. Consumers are progressively more interested in a healthier lifestyle,and with a greater focus on health and wellness, the sports and energy drinkssegment should continue to grow (Shelke, 2005).

As noted in The Power of Power Beverages, “Female teens reportedly have one ofthe highest rates of consumption of sports and energy drinks” (Shelke, 2005), andas the focus on weight-loss remains at the forefront, it does not appear that thisrate will decrease. According to Rich Gray, a health and physical educationteacher, more than half of 72 health students, both male and female, whoparticipated in an unofficial survey, said they had tried an energy drink(Kwiatkowski, 2005). A fall 2002 Simmons (New York) teen survey also showedthat 18 percent of teenagers, in general, consume energy drinks (Roberts Jr.,2004). As teenagers become familiar with the taste of energy drinks, they arelikely to continue to drink them as they grow older.

Energy drink manufacturers may also want to consider mothers as potentialconsumers. In 2003, there were 141.6 million mothers in the United States,according to BS Media (as cited in ewowfacts.com, 2004). An article publishedby Beverage Industry notes that the alternative drinks category, which includesherbal iced teas, premium sodas, nutritionally enhanced beverages and someenergy drinks, attract mothers who are shopping for a healthy beverage option fortheir children (Beverage Industry, 2003). In addition, energy drinks are focusingmore and more on their functionality and physical and mental benefits.

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Women ages 45 and older are also prime candidates to become energy drinkconsumers. In her book, Marketing to Women, Martha Barletta notes that in thepast, grandmothers would sit and drink tea, whereas today, women age 45 andolder are going through a “second youth.” These women have the desire and thefinancial resources to reinvent themselves and to live healthy, active, empty-nester years of freedom. She also states that they are “looking for adventure,change, and new things” (Barletta, 2003). Because they tend to have moredisposable income, they may become a desirable target for energy drinkmarketers.

In addition, according to Barletta, “Between the years 2000 and 2010, the 55-64[age] population will grow an astounding 48 percent.” Because women generallylive longer than men, the American population will become proportionally morefemale (Barletta, 2003).

HispanicsThe Hispanic population also presents a growth opportunity for energy drinkmarketers. Consumer research conducted by Mintel shows that males ages 18 to24 and Hispanics have the highest rates of consumption of energy drinks (RobertsJr., 2004). In addition, according to the U.S. Census Bureau, the population ofHispanics reached 39.9 million in July 2003, making them the largest minoritygroup in the country (U.S. Census Bureau, 2004). In another report, the U.S.Census Bureau stated that more than one in eight people in the United States wereof Hispanic origin in 2002 (U.S. Census Bureau, 2003).

As noted in the following map, much of the Hispanic market resides in thesouthwest United States. Marketing and product development to target thissegment may be most effective if focused in Puerto Rico, California, Arizona,New Mexico, and Texas. Other geographic targets may be Nevada, Colorado,Illinois, New York, and Florida.

Percent of Persons Who Are Hispanic or Latino (of any race): 2000

Source: U.S. Census Bureau 2000 Summary File 1, Matrices P1, P8

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Companies looking to target this demographic are betting on Spanish-languageadvertising and promotions. Stamford, a Connecticut-based product line, hasacquired the energy drink Clamato Energia, which focuses on Hispanicconsumers in the United States. Omar Garcia, vice president of marketing forClamato, explains: “In 2000, the marketing team responsible for Clamatointroduced a new advertising campaign that offered tailor-made promotions suchas phone cards for Hispanics. The product has experienced 40 percent growthbecause of the Hispanic-targeted campaign.”

Examples of functional drinks that have been marketed to the Hispanic segmentare as follows:

• Clamato’s Web site, which is offered in English and Spanish, claims theproduct reenergizes the body and mind. The basic ingredients in Clamato aresimilar to other energy drinks (taurine, guarana, and ginseng).

• Another example is Gatorade’s Xtremo, which is available in flavors such asMango Electrico and Tropical Intenso and targets the growing Hispanicmarket. Xtremo claims to have been formulated especially for the Latinoathlete (Shelke, 2005).

SeniorsSeniors may also be an important target market for the energy drink categorybecause the American population is aging. The majority of Baby-Boomers areentering their 50s, and the mature market controls much of the disposablespending in the United States. According to Martha Barletta in her bookMarketing to Women, “From 1992 to 2020, the number of people age 50 or olderis expected to increase 76 percent, while the number of people under age 50 willdecrease one percent.” She notes that although American ages 50 and olderrepresent only 27 percent of the population, they control 50 percent of thedisposable spending. “Per capita, they spend 2.5 times as much as youngerconsumers” (Barletta, 2003).

Energy drinks could be the solution for this audience, which is increasinglyseeking anti-aging antidotes and natural energy sources. Mintel believes thatfuture products for this market segment could include antioxidants and skincareingredients (Roberts Jr., 2004).

Some companies have already begun launching functional drinks with energyclaims to reach this segment:

• Ensure Energy Drinks• Met-Rx Protein Shake• Boost Breeze Nutritional Energy Drink Juice

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In addition, Red Bull recently began targeting golfers by sponsoring the PGAEuropean Tour in an attempt to attract new customers and broaden its image.According to the National Golf Foundation, one-third of U.S. golfers are over age50 and golf fans tend to be even older (as cited by Karp, 2004).

There is an ongoing debate about how much caffeine is regarded as safe, andthere is concern about its interaction with other ingredients such as taurine.According to consumer research conducted by Mintel, respondents age 45-64were the most likely to express health concerns related to energy drinks (RobertsJr., 2004). The downside of marketing energy drinks to this segment is theirconcern about the ingredients present in most energy drinks. In addition, asgovernment warnings that taking herbs and vitamins may affect the effectivenessof prescription drugs become more prevalent, warnings may begin to appear onlabels that would discourage this segment from buying energy drinks (Todd,2003).

Another challenge in expanding a target market is to not alienate currentcustomers. Alfredo Marcantonio, founder of the London-based advertisingconsulting firm, MPH, “There is a risk if it starts getting too acceptable. Youdon’t want to wear the brand of jeans your dad wears” (Karp, 2004).

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C. Consumption Patterns

Knowing how many people have tried energy drinks and which groups consumethem most often can help marketers target specific sectors and tailor theirmessages more effectively. This kind of information may also help withidentifying emerging target markets. In order to better understand energy drinkconsumers, it is important to look at where the drinks are purchased and wherethey are used.

According to a 2004 report by Mintel, the penetration rate for energy drinks hasreached 11 percent in the United States. Even more revealing, in a survey done in2002 in Simmons, New York, 18 percent of teenagers polled reported that theyconsume energy drinks. (Roberts, Jr., June 2004)

Currently, energy drinks are predominately sold in convenience stores. Datashows that 60 percent of all energy drinks are sold in grocery stores, conveniencestores, or similar outlets (Day, 2005). According to the Natural Grocery Buyer,convenience stores, liquor stores, and bars will continue to be the primary sourcesfor energy drink sales as impulse buys. The National Grocery Buyer also statesthat although grocery stores stock energy drinks, they will not become grocerystaples such as soft drinks (Lewandowski 2002).

While energy drinks are sold primarily in convenience stores, much of themarketing for energy drinks in the United States is done at clubs, bars and sportsevents. However, marketers have begun expanding the availability of theirproducts to other locations:

• Beverage Marketing found that 85 percent of consumption of energy drinkswas done off premise in 2002 (Phillips).

• Many smaller companies have figured out that they can get their cans in handsby distributing to their target markets where they will most likely use theproducts. For example, Skaterade is distributed in skateboard shops(www.skaterade.com).

• With the introduction of Budweiser’s Be, an energy drink/beer combination,the drinks are now sold in liquor stores as packaged liquor, not just as a mixerfor alcohol (in states that allow non-liquor products in liquor stores) (Sanger,2005).

• Fitness clubs and gyms are entering the energy drink market by creatingtargeted functional energy and sports drinks that claim to provide fitnessbenefits for their members (Shelke, 2005).

• Strong sales have begun to occur at mass merchandisers as well, withheavyweights such as Pepsi entering the market (Roberts Jr., 2004).

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• According to Vencoa Vending Machines, 2 percent of beverages sold invending machines in 2003 were energy drinks. They also report that 75percent of all cold beverage sales in vending machines were packaged in 11.5to 12 oz cans. (http://www.vencoa.com/vending_trends.html)

The type of retailer also helps define potential target markets. Convenience storesand grocery stores are accessible to a wide range of consumer sectors; therefore,future energy drink customers might end up being mothers, tired office workersand health-conscious consumers (Russo, 2004). Red Bull has started to market itsbrand as a functional product to workers, students, and drivers. It has begunoffering free cans to commuters, cab drivers, and car rental agencies in an attemptto market it as a way to stay alert while driving (Karp, 2004). This trend showsthat companies may be looking for a way to get their products to commuters andthose who work in the transportation field. Hansen’s Monster energy drinkadvertises on the Las Vegas monorail. The entire train is painted black with thetrademark claw logo. Monster also secured vending rights at monorail stationsand shows Monster promotions on video screens mounted inside the monorailcars (Hansen, 2004).

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IV. Company Profile

Virgin is a global brand, made up of more than 200 companies. Despite theextraordinary diversity of the Virgin Group, all of the Virgin companies have anentrepreneurial culture and a strategy based upon original approaches to creatingvalue for customers. According to Courtney Reeser, managing director of thebranding firm Landor, “The Virgin brand is built around an idea, and in general,[includes] brands that have a strong idea” (de Mesa, 2004).

History

In 1970, Richard Branson began his Virgin Empire with a mail order record retailerwhich developed into a record shop named Virgin. It was located on Oxford Street inLondon (www.virgin.com). The first artist that recorded in his studio was MikeOldfield, whose recording of “Tubular Bells” sold 5 million copies. Richard beganVirgin Records in 1973 and in 1992, sold the Virgin Music Group to THORN EMIfor one billion dollars (www.virgin.com).

Following years of success, Richard Branson began expanding his empire into newfields.

• 1984 - Virgin Atlantic Airways was born• 1987 - Virgin Records in America was founded• 1988 - Virgin Hotels was launched• 1991 - Virgin Publishing (Virgin Books) was formed• 1994 - Virgin Cola Ltd. Company was announced• 1996 - Virgin.net and Virgin Trains were launched• 1998 - Virgin Cola was launched in the United States• 2000 -Virgin Cars, Virgin Wines and Virgin Travelstores were launched• 2002 - Virgin Credit Card was launched• 2004 - Virgin Galactic was launched (developing space tourism for everybody).

The Virgin group employees 35,000 people, had $8.1 billion in sales in 2004 andconducts worldwide operations.

Structure

The Virgin Group is comprised of more than 200 operating companies and severalholding companies, most of which are located in Britain. The common threads thatlink these companies are the use of the Virgin trademark and Richard Branson actingas shareholder, chairman, public relations guru and in a management role. (Grant,2004).

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A high-level organizational chart is provided below:

Virgin Group’s financial and legal structure is influenced by Branson’sunconventional ides regarding business as well as his wary approach in dealing withthe financial community. Branson strives for an organizational structure that isconsistent with his vision of “people-oriented capitalism.” Will Whitehorn,Branson’s strategist and business developer, thinks of Virgin as a “branded venturecapital organization” (Grant 2004).

In Branson’s own words, as quoted by Grant “We’re structured as if we are 150 smallcompanies. Each has to stand on its own two feet, as if they are their own companies.Employees have a stake in their success. They feel – and are – crucial to theircompany because they are one-in-fifty or one-in-a-hundred instead of one-in-tens-of-thousands…Some chairmen want [to structure their own companies] so that onedivision’s loss can make up for another’s profit, but we’d rather have a lot of excitingcompanies that are all making profits- as are all of ours” (Grant, 2004).

The organizational structure of the Virgin companies involves very little hierarchy,which means short lines of communication and flexibility within the organization.Employees are encouraged to generate ideas, take initiative, and have fun. Inaddition, Virgin lacks a corporate headquarters which, along with the small size of theoperating companies, fosters teamwork and entrepreneurship (Grant, 2004).

The Virgin brand is the group’s most valuable asset. It communicates value for thecustomers and is also linked with concepts of style. According to Branson, “One ofthe reasons for our success is the core values which Virgin aspires to…like providing

Virgin Group Investments Ltd.

RetailEntertainment

Victory

MobileVirgin Mobile(UK, Aus, and

USA)

FinancialVirgin Money

Air TravelVirgin AtlanticVirgin Express

Virgin Blue

MusicV2

Internetdot.comVirgin Cars

Virgin WinesVirgin Net

Virgin Student

Hotels &Leisure

Virgin HotelGroup

Virgin Active

RailVirgin Rail

Groupthetrainline.com

DrinksVirgin Drinks

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quality service. However, we also promise value for money, and we try to do thingsin an innovative way” (www.virgin.com).

Virgin Strategies

Each of the markets in which Virgin operates have several features in common: theyare typically markets where the customer has been over-charged or under-served andwhere there is confusion or where the competition is complacent (www.virgin.com).

According to the Virgin Web site, the company enjoys breaking into markets andshaking things up. It does this by embracing the following values which carry acrossall Virgin brands:

• Value for Money – Simple and honest pricing• Good Quality – High standards and attention to detail• Brilliant Customer Service – Professional but un-corporate• Innovation – Challenging convention with modern and stylish designs• Competitively Challenging – Challenging major establishments• Fun – Providing the public and customers a bit of entertainment

(www.virgin.com)

In addition, the Virgin brand is not associated with any specific product or markets,which is what has allowed the group to expand to a wide range of businesses (Grant,2004).

Virgin Drinks

Virgin Drinks was founded in the United Kingdom 1994 as the Virgin ColaCompany, and launched Virgin Cola. The drink found moderate success in the U.K.,and Richard Branson decided to tackle a larger market, the United States. In 1994,Branson entered New York’s Time Square in an army tank ready to “crush” the colacompetition. Branson was determined to take on the two leading U.S. competitors,Coke and Pepsi, despite great concerns from his Investment Advisory Committee(Hall, 2004).

Branson believed that consumers were being forced to pay inflated prices for brandname colas and he wanted to be the one to tackle the market with a unique cola at areasonable price (Agence France-Presse, 1994). However, Virgin Cola soondisappeared from the United States and is considered a flop in the Virgin history. In1994, Virgin did not offer the consumer much other than a brand. It was said to bejust another sugary drink in a red can (Hall, 2004).

Once again, in 2004, Virgin Drinks decided to tackle the United States’ soft drinkmarket. Virgin was approached by a Southern California company, the Firm, toinitiate a 50-50 partnership to re-release Virgin Cola (Schiller, 2004).

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Section 2Energy Drink Proposal

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I. Target Market and Sectors

Based on our situation analysis, we, as Virgin’s consultant, propose that the primarytarget market for the Virgin Vibe energy drink be women with active lifestyles whoare looking for a healthy beverage alternative to soft drinks and coffee to provide anextra boost of energy and an appealing taste. The company’s brand will be positionedat the low-price, high-quality end of the energy drink category.

Many marketers recognize that women may represent the future growth of the energydrink category, but few have yet tapped into this market. Tom Peters, author of TheCircle of Innovation notes, “It is a ridiculously rare corporation that takes advantageof the women’s opportunity. What a costly mistake” (as cited by Barletta, 2003).According to Martha Barletta, author of Marketing to Women, the women’s consumergroup in the United States has greater spending power than the entire economy ofJapan (Barletta, 2003).

Market StrategyWe recommend that Virgin pursue segment marketing to create a unique andappropriate energy drink product and price it according to the target segment. Thiswill provide Virgin with the clearest and most efficient communication anddistribution channels.

Segmentation VariablesWe recommend that Virgin use a needs-based segmentation approach to segment itsconsumer markets based on gender and activity level. We propose that the primarytarget market for Virgin Vibe’s energy drink be women with active lifestyles whoparticipate in physical activities and exercise. These women may be identified by thefact that they belong to gyms or fitness centers, participate in sponsored walks orruns, belong to sports teams, subscribe to fitness magazines, or purchase exerciseequipment or clothing.

As a secondary market, we recommend that Virgin focus on other active women. Thissegment may include such women as working mothers, busy office workers, andstudents who are active in school and social activities. They may be identified by thefact that they subscribe to parenting or professional magazines, enroll their children indaycare, or attend classes at a university or community college.

Segment SizeThe size of the proposed primary target market provides significant opportunity forsales. According to health club and exercise industry data provided bywww.fitnessmanagement.com, approximately 33.5% of women exercise (2005).Based on 2000 census data, there are approximately 143.4 million women in theUnited States. (www.census.gov, 2000). Therefore, we estimate our target market isapproximately 48 million women.

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The following statistics, provided by The Business Women’s Network, indicate thenumber of females over the age of six, who participated in fitness activities 100 ormore times in 2002 and provides additional insight into the behaviors of this segment:

• 6.1 million worked out using free weights• 6 million used the treadmill• 4.7 million jogged or ran• 3.3 million rode stationary cycles• 3.2 million used resistance machines• 1.4 million used stair-climbing machines• 1.1 million swam• 500,000 used home gyms. (Women’s Sports Foundation, 2003, as cited by

www.ewowfacts.com)

In addition, we believe this segment has potential for future growth. For example, thenumber of participants in Women's collegiate sports at NCAA member colleges anduniversities increased 15.5 percent from the 1995-96 school year to the 200-01 schoolyear. As of 2000, there are 150,916 female NCAA athletes. Also, female athletesrepresent 43 percent of total university athletes (NCAA, 2000, as cited bywww.ewowfacts.com). Eighty percent of women who were athletes in college duringthe late 1960s and early 1970s still engage in moderate or strenuous physical activityat least three times a week (Women’s Sports Foundation, as cited bywww.ewowfacts.com); therefore, we would expect the target market include a wideage range.

According to the Nutrition Business Journal, the functional foods category, whichincludes nutrition bars as well as sports and energy drinks, made up 34 percent of theentire U.S. nutrition industries $50 billion in sales in 2001 (as cited by Shelley, 2002).In addition, sales of weight-loss supplements reached $3.9 billion in 2001. And, thefastest moving segment within the functional foods category is the energy segment(Shelley, 2002).

Segment AttractivenessThere are several factors that contribute to our assessment that Virgin would be wiseto market their energy drink to women: they carry the greatest purchasing power, theyare generating more income than ever before, and many are actively trying tomaintain a healthy lifestyle.

• Purchasing PowerWomen have generally been recognized as the primary purchasers of householdproducts, but their influence on purchasing reaches much further than clothing,toiletries, and cleaning products.

o Women are buying a large portion of cars, computers, insurance policies, andhome improvement services and supplies (Barletta, 2003).

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o According to Martha Barletta, women carry more purchasing power than mendue to two main factors: loyalty and referrals. “Because women are moredemanding in making the initial purchase in a category, they recoup their timeinvestment by staying more loyal to the brand they’ve chosen in subsequentpurchase cycles” (Barletta, 2003). In addition, women are more likely torecommend a product to other consumers, therefore providing free publicityfor the products women find desirable (Barletta, 2003).

o Another important factor to consider is that effectively targeting women alsogenerates higher satisfaction among men. Barletta notes that women generallyvalue the same things as men, and then some. When the higher demands ofwomen are met, the demands of men are generally met or exceeded as well(Barletta, 2003).

• IncomeWhile still trailing men’s average salaries, women’s salaries are steadilyincreasing. The following points illustrate why women’s earning and spendingpower should not be overlooked:

o Women comprise 47 percent of individuals with assets over $500,000o Between 1996 and 1998, the number of women with greater than $500,000 in

assets grew 68 percent. The number of men with greater than $500,000 inassets grew only 38 percent.

o Females carry less debt than men.o Women bring in half or more of the household income in the majority of U.S.

households.o The number of women who out-earn their husbands has increased from 25

percent in 1997 to 30 percent in 1999 (Barletta, 2003).

• LifestyleMany women are becoming increasingly health-conscious. Concerns such asobesity and diabetes are prompting women to look for healthy foods andbeverages for themselves and their families.

o According to the National Marketing Institute, more than 25 millionAmericans have tried-low carbohydrate diets.

o There are approximately 16 million diabetics in the United States who watchthe number of carbohydrates they consume and desire sugar-free products(http://www.bevnet.com, February 1, 2004).

Because more and more women are attempting to lose weight through physicalexercise, we see it as appropriate to position an energy drink to meet the growingdemand for an energy supplement.

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II. Product Concept

The energy drink we have developed to reach the desired target market is calledVirgin Vibe. We have checked the trademark availability with the United StatesPatent and Trademark office and found that there are no other products in thebeverage category with this name.

Product Description and BrandingWe propose positioning this new product as a healthy beverage alternative to softdrinks and coffee that provides an extra boost of energy and an appealing taste. Thecompany’s brand will be positioned at the low-price, high-quality end of the energydrinks category. We view the major competitors to this brand as not only other energydrinks but also diet soft drinks and coffee, and will therefore price the product tocompete at this level.

We will market the brand as one that is healthy, and we will provide consumers withvaluable information regarding health issues via an informative Virgin Vibe Web siteand through sponsorships of health-related events. Virgin Vibe is the brand of energydrink for health-conscious women that seek not only a healthy and deliciousbeverage, but also a smart value.

Because we know that the number of women who are concerned about their health isincreasing, this product will contain no sugar, will be free of carbohydrates, and willhave only 10 calories. It will contain a moderate amount of caffeine to provide aboost of physical and mental energy.

We propose developing three unique flavors, which will be named after the benefitthey provide. Each of the flavors will contain different herbs and nutrients to enhanceperformance. The flavors are as follows:

• Clarity, containing ginkgo biloba and ginseng, will promote clear thinking.• Balance, with an infusion of guarana and soy, will reduce menopausal symptoms

and lower the risk of heart disease and breast cancer.• Endurance will utilize taurine and phosphorus to promote healthy bones,

increase strength, and prevent osteoporosis (Matises, 2004).

Because we are positioning the beverage as an alternative to diet soft drinks andcoffee, we recommend that Virgin Vibe energy drink be sold in 12-ounce cans.According to an article published by BevNet, sales of 16-ounce energy drinks grewthree times faster than those of 8-ounce energy drinks during 2004 (BevNet, 2005).These statistics reveal a need to cater to customers who feel that the smaller-sizedenergy drinks are not a great bargain. The 12-ounce packaging would allow VirginVibe to compete not only with other energy drinks, usually sold in 8-ounce cans, butalso with soft drinks in general, reinforcing Virgin’s “value for money” brandpositioning. This size will also allow the drink to be sold in a large majority ofexisting vending machines without retrofitting them for a different sized can.

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The Virgin name will appear prominently on the product’s can and in marketingmaterials to take advantage of Virgin’s positive brand equity. The colors of the VirginVibe cans will allude to the flavors of this new energy drink:

• Clarity, packaged in an orange can, will have an orange flavor.• Balance’s green can alludes to its lime flavor.• Endurance, in a lavender can, will provide a fruity, grape flavor.

We anticipate the color and design of the cans will be especially appealing to women.We also anticipate that the bold design of the can will attract attention in stores andwill be consistently used in all marketing materials.

A sample of our proposed packaging is provided in the following pages.

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Pricing

There is no question that the high price of energy drinks contributes to the large profitmargins of the category’s manufactures. According to an article published by theAtlanta Journal and Constitution, although the energy drink segment accounted foronly 2.3 percent of the United State’s $64 billion soft drinks sales in 2004, profitmargins were strong (Leith, 2004). According to our primary research, energy drinkssold in supermarkets and convenience stores are priced much higher than othercarbonated drinks:

• Energy drinks sold in individual cans or bottles are priced at approximately $1.99in supermarkets and convenience stores. This means that, on average, an eight-ounce energy drink costs twice as much as a 12-ounce regular soft drink.

• At supermarkets, a package containing four cans of an energy drink costs, onaverage, $6.99. A 12-can case of Coca-Cola or Pepsi costs around $5.99.

• In convenience stores, a 24-can case of any energy drink sells for about six timesthe amount of a case of coke or Pepsi.

• Bars and nightclubs may charge as much as $8 for an eight-ounce Red Bull can(Day, 2004).

However, the Virgin brand stands for quality and “value for money”(www.virginusa.com). Therefore, in spite of the energy drink category’s higher pricetrend, we recommend that Virgin introduce the Virgin Vibe energy drink using asuper-value pricing strategy. The new Virgin energy drink should be a high-qualitybeverage, offered at a suggested low retail price between $.50 and $1.00. This lowerprice would be comparable to prices charged for soft drinks, allowing Virgin’s Vibeto compete in this category.

According to our primary research, our target market’s demand is elastic. In general,the people interviewed were price sensitive. Most people who participated in oursurvey stated that price is an important consideration when shopping for beverages. Inaddition, a survey conducted by Mintel, as cited in an article published by PreparedFoods, shows respondents who do not consume energy drinks listed price as one ofthe main deterrents (Roberts Jr., 2004).

Our market penetration pricing strategy is likely to stimulate market growth. Theincreased consumption of Virgin’s energy drink, resulting from a more affordableprice, would make up for the lower price charged for it in comparison to other energydrinks. We recommend that Virgin use a perceived-value pricing strategy, making useof several marketing mix elements, such as advertising and sales promotions, tocommunicate and enhance the perceived value of the product.

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III. Distribution

We recommend using Virgin existing U.S. distribution channels to produce anddistribute the new product. Using the existing channels will help minimize costs andwill allow Virgin to make good on its promise of “value for money.” We alsorecommend implementing a strategy to get the product into the hands of our active,healthy target market in areas where they will most likely consume the product.

Virgin Drinks currently operates production facilities in the United States on both theEast and West coasts where it produces four flavors of Virgin Cola (Leith, 2004). Werecommend using the existing facilities to produce and distribute Virgin Vibe. Bykeeping the production in-house, Virgin will retain control of the product’s qualityand can better monitor the costs of production.

Virgin Drinks also utilizes an extensive network of beer and new age drinkdistributors throughout the United States (Leith, 2004). We propose using thesedistributors to target our primary market for the first stage of distribution. Werecommend beginning with limited distribution in markets containing a largepercentage of healthy, active people, as this is our target market.

The table below, as cited in Men’s Health Magazine, provides a list of cities thatmight be likely primary distribution areas.

Men’s Fitness Top Fittest Cities 2005

Source: Men’s Fitness Magazine, 2005

As noted in the table above, the fittest cities tend to be on the West coast. Therefore,we recommend that Virgin Vibe be launched primarily on the West coast, focusing onCalifornia and the Northwest where people lead active, healthy lifestyles. We wouldalso recommend an initial rollout in the state of Colorado, where two of the top tencities, as well as many ski resorts, are located.

It is our recommendation that Virgin Vibe begin with selective distribution inconvenience stores, vending machines, and health clubs in these areas. In order toguarantee distribution in convenience stores, we suggest following in the footsteps of

1 Seattle2 Honolulu3 Colorado Springs4 San Francisco5 Denver6 Portland7 Sacramento8 Tucson9 San Diego

10 Albuquerque

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Virgin Cola by contracting with 7-11 stores. This would guarantee a product rolloutinto 5,800 7-11 stores when launching nationally (Schiller, 2004).

We also recommend seeking distribution opportunities in fitness clubs such as 24-Hour Fitness, which has facilities primarily on the West coast and in Midwesterncities. We also believe that Virgin seek a partnership with Curves Fitness. Accordingto their Web site, www.curves.com, they are currently the largest franchise in theworld with over 8,000 locations. Curves offers membership to women only, whichwould help to attract members of our primary target market.

In order to attract busy shoppers and other members of our secondary target market,we recommend distribution in the Virgin Megastores located in our primarydistribution areas. Vending machines located just inside the doors will provideshoppers with an energy boost to continue with their shopping.

After a year of limited distribution in the geographic locations listed above, webelieve Virgin Vibe will be able to begin expanding successfully across the entireUnited States adding more convenience store locations.

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V. Promotion

Our main objective in the promotion of the Virgin Vibe energy drink will be to createawareness of the product and encourage trial. To do so, we will use the “do-feel-learn” model of consumer-response. We feel that this is the most appropriate modelbecause the audience has low involvement and generally perceives littledifferentiation within the energy drink product category (Kotler, 2004).

We will start by providing free samples at health clubs and sponsored events, such ascharity walks. By sampling the product, we hope consumers will feel that it is a good-tasting beverage that provides a boost of energy and is available at a reasonable price.Once consumers have developed a feeling about the product, we plan to educate themon the health benefits through our packaging, print advertisements, and via the VirginVibe Web site.

We recommend launching an informational, health-oriented Web site to promote theproduct. Using this Web site, we will educate our target audience about the nutrientscontained in the beverage. In addition, we will include other health-relatedinformation such as weight-loss and exercise tips, information about the best ways toprevent osteoporosis, and links to other Web sites, such as WebMD.

We believe the most opportune time to launch Virgin Vibe would be January 1, 2007.Because health clubs generally experience increased activity due to people who madea New Year’s resolution to exercise, the energy drink will achieve increased exposurein this environment. In addition, the product launch will have occurred in time tosponsor such events as the AIDS walk, and the Breast Cancer Society’s Race for theCure.

Sample Web site homepage provided on the following page.

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BudgetThere are several factors that would lead us to expect that the promotional budget forthe first several years will be substantially higher than in subsequent years when theproduct is established in the market:

• Because this is an initial product launch, we will need to create brand awarenessand trial among our target market.

• Because Virgin currently does not hold U.S. market share in the energy drinkscategory, we will need to build this share.

• Because there are many competitors in this segment, we will need to differentiatethe brand.

To mitigate the above factors, we suggest the following:

• Leverage Virgin’s existing brand recognition as much as possible in packaging,advertisements, sales promotions, and sponsored events to promote awareness.

• Concentrate on targeting the primary target market, as we believe this is a sectorthat has not yet been tapped into by energy drink manufacturers. This willdecrease the number of direct energy drink competitors.

• Create differentiation by promoting the health benefits of the brand and by usingunique, educational sales material and advertisements.

We recommend using the objective-and-task method of setting a promotional budget.

Objective Task RationaleMarket share goal Attract 7.2 million consumers The estimated size of our

target market is 48 millionwomen who exercise. Ourgoal is to attract 15% of themarket.

Percent of market to reach Reach 60% of target market Approximately 28.8 millionPercent of aware prospectsthat try the brand

21.6% trial of those who areaware

We estimate that one in threewho try the brand will becomeusers. Because our target is 7.2million consumers, we willaim to have a 21.6% trial rateof those who are aware of thebrand.

Number of impressions per1% trial rate

N/A We estimate that there will be35 exposures for every 1% ofthe population will result in a21.6% trial rate.

Rating points to purchase Purchase 2,100 gross ratingpoints

Because we aim to achieve 35exposures to 60% of the targetmarket, we estimate Virginwill want to purchase 2,100gross rating points.

Based upon the objective-and-task method referenced by Kotler, 2004.

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Based upon the model above, we will work with Virgin to estimate the cost per onegross rating point. We suggest the majority of the promotional budget be used towardadvertising in magazines, sponsoring sales promotions and health-related events, andcreating a comprehensive public relations strategy.

We recommend a first quarter budget of no more than $3 million for advertising, andwill spend half of that on media buys (magazine ads and outdoor). The remainder willbe spent on sampling at and sponsorship of health-related charity events such aswalks/runs. This figure is only a fraction of the $5-10 million Coke spent to introducetheir KMX energy drink in just one month in 2001 (Hein, 2001).

AdvertisingWe do not recommend television advertising for the initial product launch due to costconsiderations. Instead, we recommend placing advertisements in women’s healthmagazines, such as Shape and Self, and other publications for women, such as Oprahand In Style.

It was discovered by the marketing research company AnswerStream that customersresponded favorably to advertisements that promoted a benefit (such as low-carbohydrate) and elicited an emotional response to the ad (Elliot, 2005). Therefore,we recommend promoting the health benefits of Virgin Vibe in advertisingcommunications.

In addition, AnswerStream found that 56 percent of those surveyed avoided productsthat overwhelmed them with advertising (Elliot, 2005). Therefore, it is ourrecommendation that Virgin produce a total of three print advertisements, one foreach style of Virgin Vibe. The advertisements should remain simple, and shouldgraphically convey the benefit of each of the three styles.

The ads will also introduce the “Win a Spa Weekend in England” contest. The contestwill drive traffic to the Web site, where participants can check codes found inside thecans to see if they have won. While there, visitors will learn about the value of ourproduct and recognize the site as a place to go for information about nutrients and tofind answers to other health questions.

Sample print advertisement provided on the following page.

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Sales PromotionWe recommend Virgin use sales promotion in the launch of its new energy drink, assales promotion offers an incentive for consumers to buy the product. For the initialproduct launch, we recommend the following sales promotions:

• Free product samples – We would recommend providing samples at sponsoredevents such as charity walks to increase consumer trial.

• Incentive promotions – Virgin may leverage its existing brands by handing outcoupons for Virgin Vibe in its retail record stores. Another recommendationwould be to create a points program where each energy drink can is worth acertain number of points, and the points may be used towards other Virginmerchandise such as discounts on CDs or frequent flyer miles on Virgin Airways.

• Giveaways – Virgin may also leverage its existing brands by providing adestination giveaway. We recommend a spa getaway via Virgin Airlines to Bath,England. We believe this would be a desirable destination to Virgin Vibe’s targetaudience and will increase purchasing frequency.

The benefit of a sales promotion for the initial product launch is that that it providesan incentive for new consumers to try a product. It may also help differentiate thebrand in the minds of consumers. However, sales promotions generally do notprovide a substantial gain in market share. For this, we recommend implementing along-term public relations campaign.

Public RelationsOur recommended public relations campaign will emphasize the health benefitsprovided to our target market by the Virgin Vibe energy drink. According to anarticle published by Prepared Foods, “By 2025, female baby boomers will reachretirement age and swell the older population ranks” (Matises, 2003). Osteoporosis,menopause, heart disease and cancer are some of the concerns of this marketsegment. “Women are looking for help in the foods they eat” (Matises, 2003). Theyare attempting to get as many needed nutrients and vitamins as they can from thefoods they consume.

We recommend Virgin Vibe implement a Web site that will feature articles aboutcommon concerns and conditions among women. The Web site will periodicallyfeature one women’s health-related topic at a time, such as breast cancer, providinginformation about the disease and prevention methods. The featured topic will changeon a regular basis. The site will also highlight the benefits provided by ingredientsfound in Virgin Vibe energy drink, such as soy, which reportedly “lowers breastcancer risk” (Matises, 2003).

In an article about marketing products to women, Matises notes that successfulproducts tend to “Satisfy more than one need or wish for today’s time-pressuredwomen” (Matises, 2003). Therefore, the Virgin Vibe energy drink will be promotedas a beverage that tastes great and provides an energy boost from nutrients that arespecifically suited to women’s needs.

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The Web site will also promote health related events sponsored by Virgin Vibeenergy drink, such as the Breast Cancer 3-Day Walk. The sponsored event should beone that specifically relates to women and may be coordinated with the featured topicon Virgin Vibe Web site. During the sponsored events, Virgin Vibe energy drinkssamples will be distributed to participants.

Virgin may also want to promote certain health topics during certain months. Forexample, May is Osteoporosis Awareness Month, which means this topic willprobably be in the media. By monitoring health publications, Virgin can strategicallyplace its ads, emphasizing the benefits of phosphorus found in its Virgin Vibe“Endurance” energy drink.

Personal SellingWe recommend invoking guerilla marketing techniques and extensive sampling topromote the launch of Virgin Vibe.

In order to create a buzz in cities across the United States, we recommend positioningVirgin Vibe as the sponsor of charitable, fitness-related events. There are many suchevents occurring nationwide, so Virgin will be able to select the ones that wouldprovide the most brand exposure. For example, the Portland, Oregon, Race for theCure drew 38,000 runners in 2004, and sold in-kind sponsorships for $1,000 to$30,000 (www.raceforthecure-pdx.org). If Virgin Vibe were to sponsor an event suchas this, its logo would be included on banners and in promotional materials. Inaddition, samples of Virgin Vibe could be distributed to participants to increase trialand familiarity with the brand.

We also recommend creating a Virgin Vibe tour bus. The bus would travel todifferent Virgin-sponsored events, providing free samples to event participants. Itwould also allow Virgin Vibe representatives to engage in personal selling withpotential consumers.

We recommend the bus include the following:

• Samples of all three Virgin Vibe flavors• Interactive computer kiosks to browse the Virgin Vibe Web site• An opportunity to enter the Virgin Vibe Spa Weekend in England Giveaway• A place for racers to relax before and after the race• Oversized, inflatable Virgin Vibe cans to draw attention

The Virgin bus could also park in front of local health clubs between race events andpass out samples to customers.

Finally, we recommend that Virgin Vibe be given to health club employees as freesamples so they may promote the product while they are on the job. With the beliefthat people emulate those who teach them, we believe that if we can get our product

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into the hands of those who are epitomized as healthy, more will flock to buy theproduct.

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VI. Conclusion and Sales Objectives

In conclusion, the target market for the Virgin Vibe energy drink will be women withactive lifestyles who are looking for a healthy beverage alternative to soft drinks andcoffee to provide an extra boost of energy and an appealing taste. The company’sbrand will be positioned at the low-price, high-quality end of the energy drinkcategory.

Based on total market potential, the company will aim to for a 15% penetration ratewithin the target market during the first year. We would estimate that the 15% ofconsumers would consume, on average, one of our energy drinks per month. At anaverage suggested retail price of $.75 per can, we will aim to sell $64.8 million in thefirst year (48 million consumers in the target market x 15% of market x $.75 averageretail cost x 12 energy drinks per consumer per year = $68.8 million).

Based on the information provided in the Market Analysis Section, the total 2005projected sales for the category is $1.5 billion; therefore, we will aim for a 4.5%market share in the first year ($68.8 million/$1.5 billion).

During the second year, we will aim for a 12% increase in sales, to $77.1 million.

The product will be offered in Clarity, Balance, and Endurance in individual canswith a suggested retail price between $.50 and $1.00 and multi-packs at pricescomparable to soft drinks. Free samples will be distributed at health clubs andsponsored events. Sales promotions will include a reward points program, couponsdistributed in Virgin’s retail stores, and a destination giveaway. Personal selling willtake place at the sponsored events and health clubs where free samples are available.The total promotion budget will be created with the objective of obtaining, 2,100gross basis points and will include advertising, sales promotion, and personal sellingexpenses. Advertising copy will feature simple, clean text that emphasizes thebenefits of the product and leverages the Virgin brand. The colors used will beappealing to women and will differentiate the advertisements from other energy drinkadvertisements.

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We would like to thank the Virgin Group for allowing us the opportunity tocollaborate with you on energy drink market research and the Virgin Vibe newproduct plan. We believe there is significant opportunity for Virgin Vibe within theenergy drink category, and we look forward to continuing to work with yourorganization through the product’s launch and through succeeding stages of theproduct lifestyle. Should you have additional questions, please do not hesitate tocontact us.

Sincerely,

Your marketing plan consultant team:

Bob Deck

Angelike Gaunt

Tracy Walker

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