MARKETINGSTRATEGY

Betts, Olivia - 10053249Bogdashkin, Vladimir - 06243650 Down, Eric - 10051686 Seston, Duncan - 10063411 Sudeyko, Lauren - 10045834

ROCKETS - BUFFALO - 001

ENVIRONMENT/MARKET SodaStream International Limited is an innovative brand that dates back over a century, and has been widely recognized as a global leader in home carbonated beverage systems. However, as of July 2013 US shares began to drop drastically, indicating that the company’s current leading position was in serious jeopardy. Prior to SodaStream, the home carbonation system market was virtually untapped, but with new competition entering in the near future the company must determine how to not only maintain their current market share, but to steadily keep

it growing so as to hit their $1 billion revenue target by 2016. The US beverage market is the biggest in the world, with its most influential players being The Coca-Cola Company, PepsiCo and Dr. Pepper Snapple Company. The market research firm Euromonitor estimates that the total volume demand for carbonated beverages is 251 billion liters, 220 billion of which are soft drinks and 31 billion of which is sparkling water. The US beverage market is the biggest in the world, with its most influential players being The Coca-Cola Company, PepsiCo and

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EXECUTIVE SUMMARY

Initially, we recognized the issues with SodaStream to be in five broad categories. We knew that it would struggle as Green Mountain Coffee Roasters and Primo Water Corporation entered the market. SodaStream lacked economies of scale despite having been a pioneer for approximately six years. It failed to drive sufficient volumes in the environmentally friendly segment to meet its initial goals. It faced a challenge with the juxtaposition of carbonated beverages and health conscious consumers. All of these

challenges would need to be addressed if SodaStream would hope to have any chance to surviving in its new found market.To address these issues, we began by refocusing our efforts. We felt that SodaStream was perfectly suited to cater to the young professional market. Young professionals age 20 to 35 who work during the week, are health conscious, respect the environment, often caught on-the-go and who search for products at the corner of convenience and reasonable price fit perfectly with the attributes SodaStream offered. This meant that through the use of a more appropriate advertising campaign and alterations to our distribution

strategy, SodaStream could unlock a substantial consumer base. In all, our proposed solution to the five major issues facing SodaStream will allow the firm to refocus and compete against its fast followers. The appropriate repositioning of SodaStream will redirect it to, ultimately move to become a star in its market. We are

excited for what lies ahead for SodaStream as it changes its target audience – we know it has the tools to succeed.

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Dr. Pepper Snapple Company. The market research firm Euromonitor estimates that the total volume demand for carbonated beverages is 251 billion liters, 220 billion of which are soft drinks and 31 billion of which is sparkling water.

The beverage industry as a whole is facing several challenges with regards to current consumer trends. Carbonated soft drink revenues have declined steadily since 2005 and in 2012 were approximately $77.1 billion. This is primarily due to growing health and obesity concerns among US consumers, many of whom have abandoned generic carbonated beverages in favor of organic, all natural and sugar-free beverage options. The objective for beverage companies in the market is how to

meet current customer demand for healthier alternatives. With the impending threat of competitors in this highly aggressive industry it is crucial that all companies establish a differentiation factor in their product offering. Sodastream has always had to compete against the dominant brands in the carbonated soft drink industry, but they have maintained a valuable competitive advantage in being the only home carbonation system in the market, thus providing consumers with a cheaper, more convenient, and more environmentally friendly alternative to their favorite store-bought carbonated beverages. In the near future, not only will SodaStream have to compete against store-bought beverage companies, but they will also face direct competition from Green Mountain Coffee Roasters and Primo Water Corporation, both of which are planning to launch their own brands of home carbonation

machines. With so many competitors in the market, achieving widespread brand awareness is very challenging. The most profitable consumable is undoubtedly the carbonation cylinder refills, which is their proprietary design and thus enables them to price the cylinders at 10 to 20 times the prevailing rate, with a 90% gross margin. However, SodaStream estimates that its U.S customer purchases on average only 3.5 carbonator refills per year. Additionally, the other consumables (the bottles and the flavor packages) are repurchased far less often than the cylinders, because the SodaStream bottles are not a necessary repurchase once one already has a standard number, and because many consumers enjoy the SodaStream exclusively for its ability to provide sparkling water and are not interested in the flavor packages. SodaStream’s lack of

repurchases contributes to the company’s inability to generate the revenues they are hoping for by 2016.

Sodastream’s primary strength is its entry into the home carbonation system market as a first mover. It made its IPO in the NASDAQ in 2010, when the concept of homemade sparkling beverages was novel and intriguing for consumers. SodaStream has been able to create a distinct competitive advantage in differentiating their product as more convenient, more cost effective, more environmentally friendly and simply more fun due to its interactive capabilities than the store-bought beverage experience. As innovators, SodaStream has established brand recognition and brand loyalty within the US market over the last 5 years, which will serve to their benefit as new entrants join the market in the near future. In terms of the Miles and Snow PDAR typology, SodaStream is a prospector in that their greatest value comes from being a first mover in terms of their product, and also a first mover geographically in their entry into the United States market. As a product, SodaStream’s strengths stem from its environmental and health benefits. A US survey indicated that SodaStream is competitive against brands such as Coke in terms of health and environmental factors, primarily due to the fact that their system does not require

disposable containers and is therefore far more sustainable than the alternative. In terms of weaknesses, SodaStream simply does not have the global brand awareness or brand loyalty that the powerhouses of Coke and Pepsi do. While their product has unaided awareness of 68% among consumers in Sweden, they have only achieved 38% awareness in the US market. Part of the issue is their advertising budget, which in 2012 was only about $75 million, relative to the budgets of Coke and Pepsi of $3.3 billion and $2.2 billion, respectively. The same US survey mentioned above indicates that as far as taste and emotional connection, SodaStream simply does not measure up. Coke and Pepsi both have such distinct, recognizable and high quality flavors in their primary beverages (Coke and Diet Coke, Pepsi, Sprite, etc.), causing SodaStream’s pale cola and lemon-lime imitations to be far less desirable. The functionality of the product also has weaknesses in that the consumer simply pours the flavoring from the container into their water bottle, which

often results in over- and under- flavored beverages. Sodastream has several opportunities in moving forward. They are currently stronger in the sparkling water market globally with 2% of the market, whereas they have only captured 0.2% of the global carbonated beverage market. This is indicative of their consumers’ preference towards sparkling water as opposed to their flavored soda options, and SodaStream could potentially shift its focus to primarily marketing their soda machine as a sparkling water system. While still providing the flavor options, they would have far more validity in the health segment as sparkling water producers rather than carbonated beverage producers. Referencing the Ansoff Matrix, SodaStream’s greatest opportunities are either in market development or product development. They must either make alterations to their product in order to create a valuable competitive advantage against new entrants, or they must successfully capture brand loyalty within a new market with their existing SodaStream

product (such as families or young professionals). The greatest impending threats to SodaStream are the upcoming new entrants to the market, Green Mountain Coffee Roasters and Primo Water Corporation. Both companies are planning to launch machines that make carbonated beverages at home using the Leapfrog strategy. Green Mountain Coffee Roasters has an established brand platform with its Keurig

PROBLEMS OPPORTUNITIES

MARKET PENETRATION

FRANCEUSA FINLAND SWEDEN

1.1%3%

13%

25%

69%

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coffee maker, the home coffee machine that uses single-serve pods to make its beverages. Keurig has already been recognized for its partnerships with well-known brands such as Starbucks and Dunkin Donuts, and is likely to attempt similar powerful partnerships with its cold beverage machine. The lack of significant brand awareness will make it much easier for the competitors entering the market to steal share from SodaStream, as they will enjoy the benefits of being a fast follower in the market without facing the challenge of overtaking an established, dominant leader. Although not explicitly stated, SodaStream can assume that these competitors will leverage certain competitive advantages to offer a differentiated product to consumers. For Green Mountain Coffee Roasters, being able to offer many of Coca-Cola’s brands including Diet Coke, Sprite, Fanta and many others will allow GMCR to leverage established, popular drinks to create quick brand awareness and clout from the overall trust in the company among consumers. They are also likely to make use of the same single pod technology for their cold drinks, which are only compatible with their Keurig machines and thus lock in the buyer to repeat purchases, something SodaStream has not been able to effectively achieve. Similarly, Primo Water Corporation has previously founded Blue Rhino, a propane gas exchange service, which creates a network of retailers to exchange empty propane cylinders for filled ones, and they are likely to have a similar system for carbonator exchanges in order to ensure an efficient, streamlined supply chain in

this market. SodaStream’s main issues are its focus on environmental benefits, the threat of new entrants, its lack of validity in the health market, its lack of substantial partnerships in comparison to Coke, and its lack of economies of scale. SodaStream is trying to play up the environmental benefits of their product when the unfortunate reality is that US consumers simply don’t value environmental sustainability as a primary factor. Studies have indicated that Sodastream’s biggest market, Western Europe, is far more environmentally conscious that the US, which correlates with Sodastream’s successful penetration into Western Europe versus the United States. SodaStream achieved 25% penetration in Sweden, 13% in Finland and 3% in France, but has only achieved a 1.1%

penetration rate in the US thus far.

SodaStream has been fairly dominant in the home carbonation industry, but the competitors entering the market are a huge threat to SodaStream’s current market share and their ability to generate future sales. SodaStream’s attempt to focus on the health and wellness market is ineffective because they are selling syrupy, chemical-filled soda beverages, and the majority of health-savvy consumers are not interested. Although SodaStream has several meaningful partnerships with Kool-Aid and Crystal Light, their partnerships have nowhere near the variety, quality and brand power of Coke and Pepsi. Finally, SodaStream lacks economies of

scale, as they have not achieved the global output and operation figures of competitors.

As mentioned, SodaStream’s main objective is to achieve $1 billion in revenues by 2016. In terms of marketing objectives, they aim to achieve 2% household penetration in the US in the near term, and for the company as a whole to move towards achieving a 10% average rate. They intend to capture significant market share based on convenience, sustainability, health and wellness, value for money and personalization. They also intend to increase US market awareness of their product figure that is similar to their Swedish and Western European brand awareness of 68%. Another objective for SodaStream is to create a sustainable competitive advantage

with their next marketing initiatives, so as to be able to successfully compete against the new entrants.

After analyzing the main problems facing SodaStream, it is clear that the company will have to refocus its marketing efforts in order to reach its lofty goal of $1 Billion in revenues by 2016. The company currently does not have a specific segment of the population that it wished to target, rather focusing on overall “household penetration”. Although this broad strategy has resulted in 109% growth in global revenues from 2010-2012, with new competitors Green Mountain Coffee Roasters and Primo Water Corporation entering the market as followers, SodaStream will have to solidify their value proposition and target audience in order to maintain the required growth to hit their goal. SodaStream is positioned in the minds of US consumers as an environmentally-friendly, healthy alternative to bottled or canned soft drinks, as evidenced by a consumer survey showing a relative strength compared to Coca-Cola in “health” and “good for the environment” parameters. However, SodaStream is currently not targeting a specific segment of the population and are rather focusing on a broad strategy to go after every type of customer. Given that SodaStream has enjoyed a monopoly in the admittedly small “home-made carbonated beverage” market for the past 8 years, there was never a need to specifically target a segment of the population. It is safe to assume that the market will become much more competitive with these two entrants, and it

will no longer be enough to position SodaStream as a product for everyone.Currently, SodaStream’s only perceived competitive advantage consists of being environmentally friendly compared to contemporary offerings such as canned Coke and Pepsi. In order to compete with these entrants into the market that offer similar advantages, as well as other more tangible benefits as mentioned in the above sections, SodaStream should re-position itself toward higher-

earning, young professionals who are focused on healthy living.

OBJECTIVES

CORE STRATEGY RECOMMENDATIONS

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GOALSALLOCATION OF RESOURCESSYNERGIESSOURCES OF CASCOPE

MARKETING MIX

Our team’s decision to attack the young professional consumer means that the current SodaStream marketing mix will require alteration. Our current mix is designed to attack two segments: those consumers who are environmentally friendly and those consumers who are health conscious. While we do see these being relevant segments for SodaStream’s long-term growth, we do not believe that these segments can propel SodaStream to its aspirations of having $1 billion in sales by 2016. We will begin by outlining the GASSS framework we have created

to guide SodaStream:

Goals – SodaStream entered the United States market as a pioneer, and as Green Mountain Coffee Roasters and Primo Water Corporation enter as fast followers, it’s important for SodaStream to mount an appropriate defense. SodaStream’s goal should remain the same: they should focus on generating sales for their company. $1 billion in sales seems largely unrealistic at the current juncture, given that 2012 represented an all-time high at $436 million. We have chosen $800 million as a goal for SodaStream for the end of 2016. We believe that while this number does represent a growth of approximately 83% over current sales, it is feasible given our new

strategic direction and focus on a larger more established market.Allocation of Resources – As competition in the market increases, SodaStream’s allocation of resources will become increasingly important. Looking at a category such as advertising spend alone, SodaStream has a budget of only 2% of Coke’s and 3% of Pepsi’s – this is just a sample of the lack of scale SodaStream must deal with if it wishes to grow in the market. We believe that SodaStream must

allocate its resources in four key areas:1. Strategic Partnerships – In order to obtain the range of flavors that will appeal to the young professional demographic, SodaStream must seek to create new strategic partnerships. While Green Mountain Coffee Roasters may have already won Coca-Cola, there’s no reason new avenues could not be explored. For instance, creating a partnership with Pepsi for use of its Gatorade brand could add a

new dimension to SodaStream’s offerings that Green Mountain Coffee Roasters may not be able to match.2. Increasing Distribution Coverage – Access will be important for SodaStream. As more competitors enter the market, consumers will not want to be inconvenienced by owning SodaStream. Adding more distribution channels will be paramount to sustainable long-

term success for SodaStream.3. Advertising – We see a large amount of both dollar resources and human capital being required to leverage our advertising budget to drive purchase behavior. As we seek to reposition the product to young professionals, we acknowledge that the nature of our advertisements will need to change. That being said, we feel that our new target market is far more engaged with lower cost types of advertising. We see our new strategy focusing on using lots of volume in channels such as social media and search engine optimization.4. High Quality Experience – This high quality experience should begin at purchase (with high end packaging and advertising), continue through product use (by ensuring that the product is consistent, durable and visually appealing) and finally with overall service throughout (life-time warranties, shipping carbonation refills as opposed to forcing consumers to drive to the store). This high quality experience will not only differentiate SodaStream from their competitors in the market, but it will allow them to price their products higher to drive higher margins. This high quality experience will resonate with their target market of high-earning young professionals, who are looking for a more sophisticated way of enjoying their carbonated beverages. In order to align with the overall high-end strategy, the company should refocus its product offerings to ensure that everything offered is the same high quality, as

opposed to many offerings differing in quality.Synergies – We break our synergies into two categories: those with our flavors and those with our distribution. We analyze them as

follows:1. Flavors – As SodaStream seeks to grow and develop itself into a legitimate alternative to purchasing canned or bottled soft drinks, it must without question be able to offer the same flavors that can be bought through those mediums. Thus, as we mentioned above, we see strategic partnerships being an important area of growth for SodaStream. It must seek to create synergies between the consumption of carbonated soft drinks in pre-bottled form and those available to be self-made at home. The wide array of untapped carbonated soft drink brands means that SodaStream has plenty of opportunity

to capitalize by creating new synergies with established carbonated soft drink names.2. Distribution – Synergies in distribution are inevitable for SodaStream. As a multi-dimensional product, it can be distributed through a number of channels. More importantly, it can offer retailers the opportunity something consumers will need. The cycle is simple: as soon as Soda Stream creates the demand for its product and a unit is bought, those consumers will be forced to return to a retailer of some form to buy more carbon dioxide at some point in time. Retailers will be able to

capitalize on this natural repeat purchase behavior by partnering with SodaStream.Sources of Competitive Advantage – As a small pioneer, SodaStream’s competitive advantages are handicapped. It must compete with fast followers that have already competed in a similar market in the hot beverage category. Despite this, we

see a few notable competitive advantages:

Scope –As we have mentioned above, we see SodaStream competing in the young professional market. Relative to the environmentalist and health conscious markets that are currently being targeted, this market is far more lucrative. We also believe that the current attributes of the product such as the on-the-go bottle, health emphasis and augmented flavor

offerings will best serve this customer type.Given the growth potential of the Americas market, SodaStream will clearly have to focus on this geographic area in order to hit their new goal of $800MM in revenues by 2016. SodaStream had revenues of $157K in 2012 – 386% of 2010 revenue number ($41K). With the new competitive entrants into the US, the market for in-home beverages will continue to expand at a rapid pace, making it ever more important to capture a substantial market share in this region. Although the Americas have had the highest overall growth rate in the past two years, Western Europe still held the highest total revenue at $205K in 2012. Therefore, it will be essential to maintain market share in this region, and look to induce higher usage rates among existing customers to drive more carbonation purchases. As mentioned previously, SodaStream will have to refocus its product line to align with their high quality brand shift, and attack the “Young Professional” segment of the market, a lucrative segment in both the US and Western Europe. With a refocused strategy, the company will be able to dominate one segment and build

towards their overall goal.

IMPLEMENTATIONIn terms of implementation, we will need to reposition the SodaStream brand in order to properly target the 20-35 year old young professional market. For starters, the entire SodaStream Company will need to be on board to work together cohesively. This could include listening to the employee’s thoughts and recommendations on the repositioning strategy, in order to ensure internal support. From there, SodaStream would need to create an ad campaign to reach this consumer segment. This would include briefing a media agency, and completing in-depth research on the best way to reach the 20-35 year old young professional market. This advertising campaign could include a variety of different outlets such as social media marketing,

guerilla marketing and television commercials.

In the future, SodaStream will also need to look into possible product line extensions, or variations that could take place in order to best fit the needs of this new target market. This could including adapting the product to fit the specific needs to the target

market, such as faster carbonation, or different portable sizes of carbonated water bottles

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Unlike other competitors, SodaStream has proven that it can make a highly complex system work.

SodaStream owns the early adopters of this technology, giving it advantages in scale and through the transition to the innovator category.

SodaStream now has the infrastructure in place in terms of distribution and manufacturing to allow for future growth

PROOF OF CONCEPT EARLY ADOPTERS DEVELOPMENT OF INFRASTRUCTURE

6%32%15%

19%Makers + Refills 14.5%Consumables

Other

Sales + Marketing

2010 2011 2012 2013 2014 2015 2016Soda Makers + Refills $87,177.00 $125,595.00 $185,875.00 $221,191.25 $263,217.59 $313,228.93 $372,742.43Consumables $113,352.00 $156,959.00 $241,922.00 $277,000.69 $317,165.79 $363,154.83 $415,812.28Other $7,885.00 $6,399.00 $8,519.00 $9,030.14 $9,571.95 $10,146.27 $10,755.04Total $208,414.00 $288,953.00 $436,316.00 $507,222.08 $589,955.33 $686,530.02 $799,309.75

Revenues $208,414.00 $288,953.00 $436,316.00 $507,222.08 $589,955.33 $686,530.02 $799,309.75Cost of Revenues $96,077.00 $131,405.00 $200,491.00 $228,249.94 $265,479.90 $308,938.51 $359,689.39

Gross Profit $112,337.00 $157,548.00 $235,825.00 $278,972.14 $324,475.43 $377,591.51 $439,620.36Operating Expenses:

Sales and Marketing $74,020.00 $99,170.00 $153,009.00 $201,971.88 $266,602.88 $306,593.31 $346,582.31General + Admin. $24,047.00 $29,829.00 $37,767.00 $44,267.67 $51,127.67 $57,987.67 $66,847.70Other Income, net $257.00 $158.00 $484.00 $810.00 $1,136.00 $1,462.00 $1,853.00

Total Operating Expenses $97,810.00 $128,841.00 $190,292.00 $245,429.55 $316,594.55 $363,118.98 $411,577.01Operating Income $14,257.00 $28,707.00 $45,533.00 $33,542.60 $7,880.88 $14,472.53 $28,043.35

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GROWTH 2015/20162013/2014

FINANCIAL OUTCOME

Our repositioning strategy will enable SodaStream to capture new and untapped consumers. We assume a 19% growth in soda

makers and refills, a 14.5% growth in consumables, and other sources of revenue to grow at 6%. With these growth projections

we will just fall short of our $800MM target in 2016. To drive this growth, we will increase our marketing expenditures by 32% for

the first 2 years of our repositioning campaign, and a 15% for the following 2 years. This ad spend is a vital expenditure as it will

convert non-users into users, and will build our brand awareness in US.

Although this ad spend will cut our profit by almost a quarter, it is crucial for our company to be sustainable in the long-term, and

to successfully defend ourselves against the new entrants. By 2016, we expect our profits to reach the same level as in 2011, and

will almost double in 2017, reaching an all-time high of $47,976.

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Marketing Strategy