When Snapple first appeared on the ready-to-drink iced tea market in 1988, no one flinched. Now, just five years later, the small business's tremendous entrepreneurial success has drawn soft drink giants Coca-Cola and Pepsi into a heated, multimillion-dollar battle. Media spending for the iced tea market alone is expected to reach $60 million by the end of 1993. The open question for Snapple, a tiny company compared to its competitors, is whether it will have to alter its strategy in order to remain competitive in the ready-to-drink iced tea market. The ready-to-drink iced tea market has been an exciting place for a small company like Snapple. In 1988, when Snapple entered the market, it was wide open. Snapple immediately captured a significant share of the market. Today the company owns 33 percent of it and offers a traditional beverage with a new twist: iced tea, in 11 different flavors, for less than a dollar per 16-ounce bottle; more or less the price of a bottle of imported beer. With an eco-friendly, preservative-free image, Snapple has capitalized on the health consciousness of the 1990s. If you compare the market for ready-to-drink iced tea with the more mature market for soft drinks, its appeal is obvious. Iced tea is already served in nearly 75 percent of US households, and the market appears to be continuing to grow. In 1992, the market for ready-to-drink iced tea grew 50 percent, compared to the market for colas, which only grew 1.5 percent. However, competition is intensifying in the ready-to-drink iced tea market. In 1992, Pepsi, through a joint venture with Unilever, gained entry with the Lipton brand. Coca-Cola, on the other hand, has achieved entry through a joint venture with Nestl, S.A. and its Nestea brand. These competitors introduce a marketing and distribution burden - in terms of resources, finances and scale - that dwarfs smaller marketers, including Cadbury, Schweppes and Perrier, as well as Snapple. Although this may sound alarming to small businesses, Snapple actually benefits from increased competition, because it promises to expand the market as a whole. Also, if the market grows, so could Snapple's profits. "There's no way we can keep up with them," acknowledges the chief operating officer. However, Snapple can leave the expensive advertising and marketing projects in the hands of Coca-Cola and Pepsi and take advantage of the trip. -Perhaps our participation will decrease -says Greenberg-, but this will mean a smaller participation within a much larger market. 44 This is not to say that Snapple's path to greater profitability is without challenges. On the contrary, countless obstacles await in the future. Consumers can make iced tea at home, at a price much lower than what they are charged for the brewed iced tea offered by Snapple. Furthermore, Snapple is only present in 51 of the 278 major supermarket chains. To compete with the nascent teas from Coca-Cola/Nestea and Pepsi!Lipton, Snapple will have to package its iced tea in multipacks and, in all likelihood, lower its price, which its marketers are unwilling to do. . Another obstacle is Snapple's inability to successfully enter the vending machine market. Most of the big bottlers with vending machines have close ties to Coca-Cola and Pepsi and aren't about to give Snapple a chance; Naturally, Coca-Cola and Pepsi are unlikely to have a problem getting their iced teas into the machines. Snapple's relatively small size  just 87 employees  as well as the fact that the company doesn't have its own production facilities have prompted analysts to speculate whether the company will hold up in the next fight against the heavyweights. Lastly, and perhaps most importantly, is the fact that Snapple is not recognized across the country. Coca-Cola and Pepsi are words used almost daily, but Snapple? 

CASE QUESTIONS

What could Snapple managers do to institutionalize the successful strategy? What policies and procedures could Snapple develop to help its brand be recognized across the country?

How should Snapple design a reward system to fit its strategy?

Answer rating: 100% (QA)

Strategies for Snapples Continued Success Snapple needs to adapt its strategy to face the growing competition from CocaCola and Pepsi in the iced tea ... View the full answer