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XS Energy Marketing Plan Erin Moller Bryant Johnson Sam Kunjummen Megan Victorson
Bryant Johnson
Erin Moller
Sam Kunjummen
Megan Victorson
University of Minnesota-Duluth Marketing Plan 1 University of Minnesota-Duluth
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TABLE OF CONTENTS
EXECUTIVE BUSINESS SUMMARY
1
Mission Statement History of XS Energy Growth of the Business Market Potential PRODUCTS
2
13 Flavors of XS Energy Drinks SITUATIONAL ANALYSIS
3
Internal Strengths and Weaknesses External Opportunities and Threats MARKET ANALYSIS
4
Target Market Identification Market Demographics Product Market Grid MARKETING STRATEGIES Product Strategy Price Strategy Promotion Strategy Distribution Strategy
APPENDIX A Competitor Analysis APPENDIX B Survey Results
5
Executive Business Summary 1 Mission Statement The mission of XS Energy is to market an alternative to high sugar energy drinks. Rather than getting energy from sugar and carbohydrates, it’s packed with B-vitamins and amino acids that are healthier and still give you the boost you need. Currently XS Energy drinks are sold independently in cases, but the objective to our marketing plan is to reach a younger demographic by supplying to college campuses and offices, while still maintaining our private status. History of XS Energy In 2001, XS Energy Drink was launched into the U.S. market. During the first year the drinks were marketed through retail outlets primarily in the Western U.S. Our mission was to find people who could “sample the drink and tell the story, making a personal connection with the business” (David Vanderveen, co-founder of XS Energy Drinks). XS Energy was the first energy drink brand to hit the market with a variety of flavors, now totaling 13 different varieties and releasing a new flavor every year. In September of 2002, XS Energy merged with Quixtar, an Internet e-retailer and network marketing company, and began selling through Independent Business Owners. Over 55,000 cases were sold
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within the first three weeks of distributing through IBO’s. According to BevNET, within the first year of business with Quixtar, XS Energy Drink became the second best selling energy drink in North America. They have shown their potential to make a bold statement in a constantly growing market, not only in the U.S., but also in world markets. January 2003 – XS launches in Canada January 2004 – XS launches in Australia and New Zealand January 2005 – XS launches in United Kingdom Growth of the Business Within the first year, XS Energy did over $51 million in revenue, over $70 million in the second year, and by the third year they had made more than $90 million in revenue. Usually in the growth stage of the business, revenues are fairly low because of production costs, but since this market has such high demand XS Energy had no problem attaining large revenues. According to current reports from the company, IBO’s sell approximately one million cans every six days, which is quite a leap from the 660,000 that were sold in the first three weeks (XSBlast.com). XS Energy understands the need for varying products and tries to keep up with their consumers by creating a new flavor every 6 to 12 months. Their latest flavor is XS Gold, which is not only a new flavor, but also a new category of drinks for XS. Reported
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sales in 2007 were $150 million, and the company expects continual growth as the market expands.
Market Potential Through our marketing plan, we are aiming to expand our sales demographic and get our product name on college campuses throughout the United States. XS Energy is not a household name like Monster and Red Bull, but our goal is to distribute our product in vending machines and school stores, while still keeping the personal touch our IBO’s bring to the business. Vending machines make up 11% of the market segment, which can greatly increase our sales (IBISWorld Industry Report). Our plan is to increase knowledge, but not make the company so large as to distribute to supermarkets and convenience stores, which for another 60% of market sales. Since the release of the first energy drinks nearly a decade ago they have grown popular at an amazing pace in the U.S. According to the Beverage Marketing Corporation, the U.S. Energy Drink market is projected to grow by 12% each year through 2010 (XSBlast.com). One disadvantage XS Energy currently has is the fact their product is not sold in stores and supermarkets, which is where 54% of all Energy Drink sales are made (Beverage World). Creating the opportunity for
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XS Energy Drinks to emerge in stores and become more public will greatly increase sales and increase market knowledge of the product. Energy drinks, as a whole, are predicted to show the strongest growth between 2007 and 2012, rising by 53% in total volume (GMID). Energy drinks remain popular among younger “Generation Y” consumers, for whom the drinks have replaced coffee as the preferred source of caffeine. Part of this appeal is due to the newness of energy drinks, which have only been in the US for a little over a decade, and are unlikely to be used by their parents. Energy drinks are also appearing in more flavors and brands than before, which allow more consumers to find unique brands that appeal to them. With the new release of flavors every 6 months, XS Energy has much potential in a continuously growing market.
Products 2 XS Energy was the first innovator in the market of energy drinks to release multiple different flavors. As of 2007, XS has released 10 energy drink flavors, as well as three caffeine free options. XS Energy uses a blend of Sucralose, Acesulfame Potassium, and fruit essences to give the drinks flavor without the added sugars. In fact, the calories in the drink come from the 2 grams of amino acids. Sucralose and Ace-K
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are used as sweeteners in our beverages because they are high quality, great tasting, and safe FDA approved sweeteners. Energy in the drinks is derived from B-Vitamins, and each can of XS Energy contains a full day’s supply of vitamin B6 and B12 (XSBlast.com). Following their mission of releasing a new flavor every 6 to 12 months, XS Energy is releasing their latest flavor in the fall, titled XS Gold Energy Plus. With the large variety of flavors, our company believes there is a flavor for everyone.
XS Gold: A superfruit flavored energy drink of acai, mangosteen, blueberry, and pomegranate, enhanced with Essentra. This is the latest flavor in the XS Energy Drink collection.
XS Black Cherry Cola: We brought together the classic taste of cola with a vibrant black cherry to give you a powerful infusion of delicious energy. XS Black Cherry Cola Blast packs the punch so you can work all day or play all night without crash and burn.
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XS Cherry Blast: Take whatever curveball life throws at you with Cherry Blast, which combines the sweet tartness of sun-ripened cherries with the natural antioxidant-rich power of pomegranate.
XS give there’s of
Tropical Blast: A powerful swirl of carbonated ion fruit, peach, and pineapple. B vitamins you one long swell of power—and because no sugar, you’ll never wipe out. Plus you’ll get essential amino acids and our proprietary blend herbs.**
XS Citrus Blast: Revs you up and accelerates you through the day. A delicious carbonated infusion of orange, lemon, and lime, Citrus Blast shakes you awake with big taste, B vitamins, and our proprietary blend of herbs like Reishi and Astragalus. Plus, there’s no sugar or carbohydrates, so you can avoid the crash.
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XS taste and we've amino
Cola Blast: Offering the traditional refreshing of cola with none of the sugar or carbohydrates only 8 calories! And keeping with the XS trend, put together our blend of herbs, key acids and B Vitamins.
XS Cranberry- Grape Blast: Blast off with a mouth-watering explosion of big grape and cranberry flavors. No sugar, no carbohydrates, just huge taste and an even bigger explosion of energy, without the calories. B vitamins amp you up, while our proprietary blend of herbs power you through your day.**
XS Electric Lemon Blast: Pucker up to Electric Lemon Blast for a sparkling refresher that’ll give you the natural energy surge you need to tackle any task. B vitamins and essential amino acids get your batteries charged—and our proprietary herbal formula keeps you that way.
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XS Rootbeer Blast: Captures the classic flavor pioneered by the same sarsaparilla root that began the popular refreshment of the Old West. With no sugar, no carbohydrates, only 8 calories, and plenty of B vitamins, this is one rootbeer that can take you to the end of the trail with energy to spare.**
XS Tea-Berry Blast: Get a powerful antioxidant boost with our new improved tea, an energy drink without the carbonation. It offers the antioxidant power of green and black teas with energy boosting B vitamins and a unique blend of Adaptogenic herbs.
XS Peach Tea Blast: XS is taking flavor to the next level with an exciting twist on iced tea. We have taken the full-blown intensity of EGCG as well as other mighty antioxidants and combined them with the sweet taste of summer peaches and ice-cold tea.
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** These varieties also offered in Caffeine-Free For more drink information, visit http://www.xsgear.com/info/drink_info.asp
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Situational Analysis 3 Internal Strengths and Weaknesses XS Energy prides itself on working through Independent Business Owners to sell our products to businesses all over the world. We maintain closer business relationships with all distribution areas by using IBO’s rather than distributing from one central unit. Who else can say their energy drinks are delivered right to their door? Not many companies have the personal touch that IBO’s bring to the business. There are many competitors in the market, and any small touches can give us a competitive edge. Along with distribution and flavors, price is also an important factor in gaining profits. When it comes to price, XS Energy has an advantage over the competition. Many energy drinks in the market are almost three dollars a can, and they contain sugars and carbohydrates to give you energy rather than nutrients the body really needs. We may have a smaller can, but what the can contains is the most important part. Our drinks are packed with B-Vitamins and amino acids to give you the energy you need without the added sugars. Many cans currently in the market are around the same price, but consumers may only notice the size of the can. The selling point we try to emphasize is how much healthier
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our drink options can be, and how energy through a small amount of vitamins can be more beneficial than a large amount of sugars and carbohydrates. Since we maintain such close relationships with our customers and choose not to distribute to larger chains, we are not as well known as Red Bull and Monster. Having a private company gives us a disadvantage in market share and restricts potential customers from coming in with our product. We would like to keep the company private, but be able to distribute to larger chains and colleges to get our name better known and recognizable. Another trait some consumers may see as a disadvantage is the smaller size of our cans, being only 8.4 oz. Some energy drinks come in cans nearly twice the size of ours, but don’t contain the same vitamins and amino acids that consumers get from XS Energy Drinks. Lifestyles today seem to be more based on health and nutrition, but many consumers like to see the larger cans rather than the nutrition facts, which give Monster a competitive advantage over XS Energy. Monster and Rockstar use 16 oz cans and bright, flashy colors to attract consumers, which is clearly working for them. XS Energy uses all the bright colors and large icons, but their smaller can size still can’t stand up to larger competitors. External Opportunities and Threats
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When energy drinks emerged into the market nearly a decade ago, there were very few flavor choices. XS Energy has gained a reputation of being innovators, introducing numerous new flavors to the category, including three caffeine free varieties. As a part of our marketing plan to set us apart from competitors, we have made it a mission to release a new flavor every year. This year’s new flavor is XS Gold containing a mix of superfruits such as blueberry and acai. Each year our customers can expect something new and exciting, which also brings potential for new customers. As well as new flavor innovations, XS Energy also offers a healthy alternative to other energy drinks by using vitamins and amino acids to give our consumers the energy they need. In today’s society, there has been a growing emphasis on eating healthy and staying in shape. Energy drinks such as Monster contain about 100 calories, 26 grams of carbohydrates, and 26 grams of sugar in an 8 oz serving (BevNET). XS Energy’s main selling point is being a healthier alternative to other energy drinks in the market. Most drinks in the XS Energy line contain 0 grams of carbohydrates, 0 grams of sugar, and only 8 calories per 8.4 oz can (XS Gear). The major threat we face is not being a public company. Red Bull and Monster have a large advantage over our company by placing their products in convenience stores and vending machines at nearly every corner. They even have stock market share and gain money
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through sponsoring, but XS Energy has stayed lower key. Our marketing plan is not intending to make us as large as other competitors, but we want to get our company known to a younger demographic on college campuses. By placing vending machines on college campuses and by selling single cans in school stores we should be able to boost sales and get our brand name in the heads of our target market consumers.
Market Analysis 4 Target Market Identification The current consumption market for XS Energy Drinks are people above the age of 40, mainly “soccer mom” types (Beverage World). These people fit the ideal because they have the money to spend on energy drinks and other luxury items, and may be the ones purchasing groceries for the whole household. They are also more likely to be concerned with health issues such as sugars and calories. According to XS Energy’s previous statistics, only about one can per week per household is currently consumed (XS Gear), which is why we are
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aiming to sell to younger adults to hopefully increase amount of cans consumed per household. The feature that sets our plan apart from the others currently implemented by XS Energy is that we want to get our name known to younger audiences. Trying to sell to a younger, impressionable market will greatly benefit the company’s revenues. The group we plan to market ranges from 16-25; from kids with a new found freedom, to college students, and also reaching young professionals. The sixteen year olds find themselves a new freedom with the ability to drive and get a job, which brings in their own flow of income. They are able to spend more freely because the money is theirs, and they no longer need to rely on their parents for money. For the college students to young professionals, they need energy and it is apparent that they gain habits in college. Whether it is a morning cup of coffee or an energy drink after the first class of the day, this activity will carry through when they get their first jobs. The need for energy is apparent in everyone’s life, and the older you get the more concerned about health you become. This makes the young professionals a good target for our product. If we can get the teenagers and college students used to our product they may find more benefits than just energy as they mature and get into the working world. Market Demographics (Global Market Information Database)
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Market Sizes (per 8 oz. serving size) USA 2002 2003 2004 2005 2006 2007
624,879,136 842, 729, 975 1,278,225,135 2,113,177,208 3,138,856,560 4,157,945,347
34.9% 51.7% 65.3% 48.5% 32.5%
Growth Growth Growth Growth Growth
8 oz. Servings Per Household Per Year 2002 2003 2004 2005 2006 2007
100 132.5 199.6 327.8 481.5 630.6
Product Market Grid Market Segment
Products
General
Group with Need
Caffeinated Drinks
Need Energy 85%
High School Students
Primary
Caffeine-Free Options Secondary
College Students Adults High School Students
Primary Primary Secondary
Secondary Secondary Primary
College Students Adults
Secondary Secondary
Primary Primary
Thirsty 15%
Since we are trying to sell more of our product to a younger age group, we need to understand who they are and what they want. We will separate our target market into three key demographics by age:
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high school students, college students, and adults. Each one of these segments can be looked at individually. Some offer more than others as consumers but each one is key to our product. According to Mintel, “Young adults aged 18-24 are the key consumers in the market with 34% drinking energy drinks in 2008,” this is where we need more s of XS Energy. This should not be that difficult because in 2008, teens ed for around 21% of total energy-drink consumers (Mintel). XS offers the ability to purchase their product online, which will become a key characteristic for purchasing with the computer savvy young adults. However, this may also cause an added inconvenience in attaining the product. Teenagers seem more interested and likely to try new products, and the wide variety of flavors that XS has is a great advantage over its single flavored competitors. College students are notorious for their all night study sessions, and as unnatural as that is, they need a means of getting energy. Students find themselves taking on a full academic load and many of them also working. These qualities make them a top candidate for energy drink s. One key characteristic that sets them apart from the teenagers is their ability and freedom to spend money as they please. Spending habits change drastically when you have more freedom and are living away from home. According to
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Mintel, Parents are the main source of income for 55% of all teens, which changes when they go to college. As the main consumer of XS energy, the 40 plus age group doesn’t fit into the typical energy drink crowd. However, some of the specifications that these adults are looking for are found with this product that many others don’t have. As people get older, health becomes an increasing concern. This is a main selling point for XS Energy; it offers a healthy alternative to its sugar filled competitors. The group above 30 is also great consumer because they are financially independent and may purchase the product for the household. By doing this they will be introducing their kids to the product and encouraging them to use a healthy alternative to other products. Parents can have a strong influence as to what their children will consume in the future.
Marketing Strategies 5 Product Strategy XS Energy is a healthy energy drink, fortified with essential nutrients and herbs that will help boost up anyone with a lull in their energy and focus. XS Energy is a healthy and tasty alternative to a
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high sugar soda or energy drink. Also a good alternative to coffee and expensive espresso drinks. With a proprietary blend of herbs that contain a mix of Gandoderma, Ginseng, Astragalus, Echinacea Purpurea, Reishi mushrooms and Schisandra also amino acids LTaurine and L-Glutamine, that give this healthy energy drink its blast of natural energy needed to keep drinkers gain back their spunk. XS Energy comes in a convenient 8.4-ounce aluminum can, which is the perfect size to throw in a purse, backpack, gym bag, or brief case. Every flavor comes with its own color and design on the can distinguishing it from the other flavors. Price Strategy XS Energy currently provides competitive prices ranging from $23.88 to $34.88 for a 12-pack case of XS Energy drinks. We would like to see the company branch out and start selling single cans in convenience stores, and vending machines. We would like to keep a competitive price of $2.00 a can. Also to offer incentives of buying more than one at a time, and put in place a discount of 2 for $3.50. Promotion Strategy To promote XS Energy to our new target market of teens and young adults, we want to focus to put promotions of schools and campuses. Offer incentives for students to spend their money on XS Energy drinks by offering deals on buying more than one. Currently XS Energy
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targets 35 – 45 year old women, or the main ‘buyer’ of the household. So we want to keep the strategy of buying in bulk through Amway/Quixtar for that demographic. To to the new younger target market we also would like to team up with dance clubs, sports teams, and music producers. With dance clubs we would offer alcoholic and non-alcoholic drinks in the club made with XS Energy. For sports teams we want to sponsor new and edgy sports such as snowboarding, boxing, and lacrosse to get our logo out in the action. Lastly with music producers we hope to help sponsor musical tours and have a booth at concerts to give out samples and also sell XS Energy to consumers. Distribution Strategy As of now XS Energy is only available to customer by buying through either an IBO (Independent Business Owner) or through Amway/Quixtar directly. We want to make XS Energy available to everyday customers in gas stations, grocery stores, convenience stores, and in vending machines. Currently the Amway/Quixtar have an exclusive contract with XS Energy for selling the product in the USA. But our next goal is to have XS Energy available to buy in outlet and retail stores in other countries such as Canada, the UK, Australia, and New Zealand. Currently XS Energy is transported through general
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mailing companies like FedEx. In the next few years we would like XS Energy to have its own distribution center with its own delivery trucks.
Financial Summary 6
Purchases include packaging materials, beverage bases, and beverage ingredients. Distribution costs arise from product delivery to a large number of markets. XS Energy must ship products to Independent Business Owners, who then ship products to their customers. Other costs include depreciation, rent, utilities, interest, and other organizational sustaining costs (IBISWorld Industry Report). These costs consist of estimates throughout the soft drink industry. Life Cycle Analysis Out of the four life cycle stages, Energy Drinks are in the maturation stage. Since energy drinks have been around for many years, they are no longer in the introductory stage. New products and new emerging brands have expanded consumer choice in the energy drink market, which has pushed them past the growth stage. Major mergers among energy drink companies and soft drink companies indicate a shift to a mature life cycle stage. Industry Value Added (IVA) has grown at an estimated rate of 2.1% during 2008, and is expected
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to grow by a further 2.6% per year until 2013 (IBISWorld). Break-Even Analysis Break-Even Analysis Forecast Volume in Units (Cases) Total Sales
5,832,117 $139,270,9 54
Variable Costs Direct Labor
(99,320,95 3)
Total Variable Costs Contributi on Margin Fixed Costs Profit Before Vary-withProfit Costs
(99,320,95 3) 39,950,001 (39,950,00 0)
$1
For our break even analysis we used information from “The Risk Management Association Annual Statement Studies Financial Ratio Benchmarks.” Because XS Energy is a private company, certain numbers were not available for us to take so; we had to use numbers
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from a similar sized in the financial statements to find our break-even point. In order to find the break-even point we took the Net Sales (100%) and subtracted Gross Profit (28.7%), this gave us a Variable Cost of (71.3%). To find our Unit Variable Cost we took that 71.3% multiplied by the cost of a case of XS Energy as $23.88, giving us $17.03. We assumed our fixed costs to be our Operating Expenses in the Financial Ratio Benchmark which came out to be 23.5%. We multiplied this by our $170 million to get 39,995,000. Using the Break-Even Equation of Fixed Cost/ (Unit Price-UVC), we get 39,995,000/(23.8817.03)=5,832,116. This is the number of cases that we will have to sell in order to break even. Based on these numbers, and the 2007 sales of XS Energy of $170 million, they were able to turn a profit. With this information we are able to make projections and goals to sell more cases and estimate what our profits will be.
Implementation Plan 7 XS Energy Drinks are currently marketed as just that, “Energy Drinks”. Through our marketing plan, we are aiming to launch our product to a younger audience as a “Health Drink that Promotes Energy”. Since our product contains B-Vitamins and Amino Acids that
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are healthy for the body and promote brain function, we would like our drink to be associated with health drinks rather than energy drinks. The current market captured by the company is the over 35 crowd, or “Generation X” (Mintel). Our plan is to market to an audience of young adults, mainly 16-23 year olds. We are hoping since the drink contains vitamins and nutrients healthy for the body, parents will find it to be a good alternative to the other sugar filled energy drinks currently in stores. Vending machines throughout college campuses and high schools, and selling our products individually through school stores will help increase awareness among younger consumers. Vending machines create impulse buys when placed in high traffic areas, which is an area where XS Energy is currently lacking. They have remained a private company and strictly provide their product through IBO’s, but we are hoping to get the name well known among a younger crowd through wider distribution channels. We are going to market the product as a health drink that promotes energy. When people think of energy drinks they automatically think of high sugar and high carbohydrates, which is the exact opposite of our product. Our main emphasis will be getting our consumers the energy they need without all the added sugars and carbohydrates that no one needs to add to their diet. Health has been an increasing trend in
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today’s society and XS Energy Drinks can be a positive addition to your daily diet. In order to get our name in the schools, we need to put vending machines in places that students can easily access on-the-go. Students are living in a fast paced world, and our product needs to keep up with them. Giving them the option of buying it in school gives an alternative source of attaining the product. Fliers will also be placed throughout the school in high traffic areas so students are aware of our name and the healthier options that are available. For our implementation into schools and universities, it will not be easy to get our product into these resources. Schools like the University of Minnesota and satellite campuses put out RFP or requests for proposal which is basically an open bidding for companies who want to get involved to put a bid in for a contract. These contracts can be for just the solar campuses like the University of Minnesota-Duluth or for the whole campus so its product goes out to every school. The school sets out a list of criteria that they are looking for so they can find the company to best suit their needs. This would be difficult for XS Energy because they would be competing against large companies like Coca-Cola and Pepsi. It would be hard for us to compete financially against these power houses of the soda and energy drink industry. There would need to be a large amount of research done to determine
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whether putting a bid into these would be worth the cost and time for XS Energy. This information was given by Penny Graskey of Coca-Cola. She is the On Premise Customer Development Manager for the Duluth Area. While no numbers were available, the cost for a home school and sister schools like the University of Minnesota would be great. I think the best suggestion would be to start with smaller schools and build report and eventually get into the larger schools. By doing this we would still be getting our name out while spending a significant less amount of money trying to compete against the larger companies. These smaller facilities would be a good test for how our product fairs in schools. Sporting events and entertainment are very popular on college campuses, so we would like to use banners of our product during basketball games or even during student concerts to get our names in the mainstream of students. Athletes and nutrition-conscious students will notice our “Health drinks that promote energy” signs, and realize they can get energy without adding sugars that can ruin their workout and performance. When students see our signs promoting healthy energy, they will be eager to try the new product that not only tastes good, but also is good for them.
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All in all, our main goal is to be seen as a healthy alternative to the other high sugar energy drinks in the market. Vending machine sales are constantly increasing, and edging XS Energy into that market will continually increase revenues. Through product placement in high traffic areas and fliers throughout the school, we are hoping students will notice our diverse product and boost sales in a new market for XS Energy.
http://www.franchiseonline.com/cgibin/folpages/xynergy2.gif
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APPENDIX A
Competitor Analysis
Even though energy drinks are fairly new to the United States, their popularity has grown at a remarkable pace. The energy drink market has grown from $100 million to more than $250 million in just two years (XSGear.com). Red Bull, the most widely d energy drink, claims to sell over one billion cans every year. Fast growth in the specialized coffee market has also made a great contribution to the growth of energy drinks. People in today’s market want things fast, and expanding energizing coffee into can form is a great idea for people on-the-go. This is a great advantage for people who want more options for energy, rather than picking up their every day coffee. The average American family drinks several gallons of liquid every day, and everyone loves having options. Many of the drinks consumed are soda or other forms of sugared and caffeinated drinks to provide energy for the day. Since there are so many new energy drinks brands emerging in the market, companies need to have a competitive edge to get their name in the minds of consumers.
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APPENDIX B
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Survey Results
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Sources
"XSGEAR.COM: FAQ." XSGEAR.COM. Jan. 2007. 01 Dec. 2008
.
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1. "XSGEAR.COM: FAQ." XSGEAR.COM. Jan. 2007. 01 Dec. 2008
. 2. "BevNET.com Media for XS Energy Drink." BevNET.com. BevNET.com, Inc. 01 Dec. 2008
. 3. Global Market International Database 4. Energy unleashed: a unique distribution model for XS Energy Drink proves a winner. Beverage World, 127. March 15, 2008. RDS Business Suite, UMD Library. 5. Soft Drink Production in the U.S: 31211. IBISWorld Industry Report. October 10, 2008. 6. "Official Website of XS Energy Drink." XSBlast.com. 01 Dec. 2008
. 7. Financial Ratio Benchmarks: Annual Statement Studies. Philadelphia, PA: The Risk Management Association, 2007. 284-85. 8. Cirillo, Jennifer. "Energy Drinks Are On A Steady Track." Beverage World Apr. 2008: S15-17. 9. Kleiner, Adam. "XS Worldwide: With a Unique Distribution Model, XS Energy Drink is Unleashed." Beverage World. 11 Mar. 2008. Ideal Media. 18 Nov. 2008
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10.Solman, Gregory. "Strategic Smarts Pay Off." Ad Week. 8 Aug. 2007. Nielsen Business Media, Inc. 18 Nov. 2008
. 11.“Market Size and Forecast.” Mintel/ based on information Resources, Inc. InfoScan. Energy Drinks June 2008. 15 Nov. 2008. University of Minnesota Duluth. Mintel Reports.
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Bryant Johnson
Erin Moller
Sam Kunjummen
Megan Victorson
University of Minnesota-Duluth Marketing Plan 1 University of Minnesota-Duluth
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TABLE OF CONTENTS
EXECUTIVE BUSINESS SUMMARY
1
Mission Statement History of XS Energy Growth of the Business Market Potential PRODUCTS
2
13 Flavors of XS Energy Drinks SITUATIONAL ANALYSIS
3
Internal Strengths and Weaknesses External Opportunities and Threats MARKET ANALYSIS
4
Target Market Identification Market Demographics Product Market Grid MARKETING STRATEGIES Product Strategy Price Strategy Promotion Strategy Distribution Strategy
APPENDIX A Competitor Analysis APPENDIX B Survey Results
5
Executive Business Summary 1 Mission Statement The mission of XS Energy is to market an alternative to high sugar energy drinks. Rather than getting energy from sugar and carbohydrates, it’s packed with B-vitamins and amino acids that are healthier and still give you the boost you need. Currently XS Energy drinks are sold independently in cases, but the objective to our marketing plan is to reach a younger demographic by supplying to college campuses and offices, while still maintaining our private status. History of XS Energy In 2001, XS Energy Drink was launched into the U.S. market. During the first year the drinks were marketed through retail outlets primarily in the Western U.S. Our mission was to find people who could “sample the drink and tell the story, making a personal connection with the business” (David Vanderveen, co-founder of XS Energy Drinks). XS Energy was the first energy drink brand to hit the market with a variety of flavors, now totaling 13 different varieties and releasing a new flavor every year. In September of 2002, XS Energy merged with Quixtar, an Internet e-retailer and network marketing company, and began selling through Independent Business Owners. Over 55,000 cases were sold
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within the first three weeks of distributing through IBO’s. According to BevNET, within the first year of business with Quixtar, XS Energy Drink became the second best selling energy drink in North America. They have shown their potential to make a bold statement in a constantly growing market, not only in the U.S., but also in world markets. January 2003 – XS launches in Canada January 2004 – XS launches in Australia and New Zealand January 2005 – XS launches in United Kingdom Growth of the Business Within the first year, XS Energy did over $51 million in revenue, over $70 million in the second year, and by the third year they had made more than $90 million in revenue. Usually in the growth stage of the business, revenues are fairly low because of production costs, but since this market has such high demand XS Energy had no problem attaining large revenues. According to current reports from the company, IBO’s sell approximately one million cans every six days, which is quite a leap from the 660,000 that were sold in the first three weeks (XSBlast.com). XS Energy understands the need for varying products and tries to keep up with their consumers by creating a new flavor every 6 to 12 months. Their latest flavor is XS Gold, which is not only a new flavor, but also a new category of drinks for XS. Reported
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sales in 2007 were $150 million, and the company expects continual growth as the market expands.
Market Potential Through our marketing plan, we are aiming to expand our sales demographic and get our product name on college campuses throughout the United States. XS Energy is not a household name like Monster and Red Bull, but our goal is to distribute our product in vending machines and school stores, while still keeping the personal touch our IBO’s bring to the business. Vending machines make up 11% of the market segment, which can greatly increase our sales (IBISWorld Industry Report). Our plan is to increase knowledge, but not make the company so large as to distribute to supermarkets and convenience stores, which for another 60% of market sales. Since the release of the first energy drinks nearly a decade ago they have grown popular at an amazing pace in the U.S. According to the Beverage Marketing Corporation, the U.S. Energy Drink market is projected to grow by 12% each year through 2010 (XSBlast.com). One disadvantage XS Energy currently has is the fact their product is not sold in stores and supermarkets, which is where 54% of all Energy Drink sales are made (Beverage World). Creating the opportunity for
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XS Energy Drinks to emerge in stores and become more public will greatly increase sales and increase market knowledge of the product. Energy drinks, as a whole, are predicted to show the strongest growth between 2007 and 2012, rising by 53% in total volume (GMID). Energy drinks remain popular among younger “Generation Y” consumers, for whom the drinks have replaced coffee as the preferred source of caffeine. Part of this appeal is due to the newness of energy drinks, which have only been in the US for a little over a decade, and are unlikely to be used by their parents. Energy drinks are also appearing in more flavors and brands than before, which allow more consumers to find unique brands that appeal to them. With the new release of flavors every 6 months, XS Energy has much potential in a continuously growing market.
Products 2 XS Energy was the first innovator in the market of energy drinks to release multiple different flavors. As of 2007, XS has released 10 energy drink flavors, as well as three caffeine free options. XS Energy uses a blend of Sucralose, Acesulfame Potassium, and fruit essences to give the drinks flavor without the added sugars. In fact, the calories in the drink come from the 2 grams of amino acids. Sucralose and Ace-K
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are used as sweeteners in our beverages because they are high quality, great tasting, and safe FDA approved sweeteners. Energy in the drinks is derived from B-Vitamins, and each can of XS Energy contains a full day’s supply of vitamin B6 and B12 (XSBlast.com). Following their mission of releasing a new flavor every 6 to 12 months, XS Energy is releasing their latest flavor in the fall, titled XS Gold Energy Plus. With the large variety of flavors, our company believes there is a flavor for everyone.
XS Gold: A superfruit flavored energy drink of acai, mangosteen, blueberry, and pomegranate, enhanced with Essentra. This is the latest flavor in the XS Energy Drink collection.
XS Black Cherry Cola: We brought together the classic taste of cola with a vibrant black cherry to give you a powerful infusion of delicious energy. XS Black Cherry Cola Blast packs the punch so you can work all day or play all night without crash and burn.
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XS Cherry Blast: Take whatever curveball life throws at you with Cherry Blast, which combines the sweet tartness of sun-ripened cherries with the natural antioxidant-rich power of pomegranate.
XS give there’s of
Tropical Blast: A powerful swirl of carbonated ion fruit, peach, and pineapple. B vitamins you one long swell of power—and because no sugar, you’ll never wipe out. Plus you’ll get essential amino acids and our proprietary blend herbs.**
XS Citrus Blast: Revs you up and accelerates you through the day. A delicious carbonated infusion of orange, lemon, and lime, Citrus Blast shakes you awake with big taste, B vitamins, and our proprietary blend of herbs like Reishi and Astragalus. Plus, there’s no sugar or carbohydrates, so you can avoid the crash.
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XS taste and we've amino
Cola Blast: Offering the traditional refreshing of cola with none of the sugar or carbohydrates only 8 calories! And keeping with the XS trend, put together our blend of herbs, key acids and B Vitamins.
XS Cranberry- Grape Blast: Blast off with a mouth-watering explosion of big grape and cranberry flavors. No sugar, no carbohydrates, just huge taste and an even bigger explosion of energy, without the calories. B vitamins amp you up, while our proprietary blend of herbs power you through your day.**
XS Electric Lemon Blast: Pucker up to Electric Lemon Blast for a sparkling refresher that’ll give you the natural energy surge you need to tackle any task. B vitamins and essential amino acids get your batteries charged—and our proprietary herbal formula keeps you that way.
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XS Rootbeer Blast: Captures the classic flavor pioneered by the same sarsaparilla root that began the popular refreshment of the Old West. With no sugar, no carbohydrates, only 8 calories, and plenty of B vitamins, this is one rootbeer that can take you to the end of the trail with energy to spare.**
XS Tea-Berry Blast: Get a powerful antioxidant boost with our new improved tea, an energy drink without the carbonation. It offers the antioxidant power of green and black teas with energy boosting B vitamins and a unique blend of Adaptogenic herbs.
XS Peach Tea Blast: XS is taking flavor to the next level with an exciting twist on iced tea. We have taken the full-blown intensity of EGCG as well as other mighty antioxidants and combined them with the sweet taste of summer peaches and ice-cold tea.
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** These varieties also offered in Caffeine-Free For more drink information, visit http://www.xsgear.com/info/drink_info.asp
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Situational Analysis 3 Internal Strengths and Weaknesses XS Energy prides itself on working through Independent Business Owners to sell our products to businesses all over the world. We maintain closer business relationships with all distribution areas by using IBO’s rather than distributing from one central unit. Who else can say their energy drinks are delivered right to their door? Not many companies have the personal touch that IBO’s bring to the business. There are many competitors in the market, and any small touches can give us a competitive edge. Along with distribution and flavors, price is also an important factor in gaining profits. When it comes to price, XS Energy has an advantage over the competition. Many energy drinks in the market are almost three dollars a can, and they contain sugars and carbohydrates to give you energy rather than nutrients the body really needs. We may have a smaller can, but what the can contains is the most important part. Our drinks are packed with B-Vitamins and amino acids to give you the energy you need without the added sugars. Many cans currently in the market are around the same price, but consumers may only notice the size of the can. The selling point we try to emphasize is how much healthier
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our drink options can be, and how energy through a small amount of vitamins can be more beneficial than a large amount of sugars and carbohydrates. Since we maintain such close relationships with our customers and choose not to distribute to larger chains, we are not as well known as Red Bull and Monster. Having a private company gives us a disadvantage in market share and restricts potential customers from coming in with our product. We would like to keep the company private, but be able to distribute to larger chains and colleges to get our name better known and recognizable. Another trait some consumers may see as a disadvantage is the smaller size of our cans, being only 8.4 oz. Some energy drinks come in cans nearly twice the size of ours, but don’t contain the same vitamins and amino acids that consumers get from XS Energy Drinks. Lifestyles today seem to be more based on health and nutrition, but many consumers like to see the larger cans rather than the nutrition facts, which give Monster a competitive advantage over XS Energy. Monster and Rockstar use 16 oz cans and bright, flashy colors to attract consumers, which is clearly working for them. XS Energy uses all the bright colors and large icons, but their smaller can size still can’t stand up to larger competitors. External Opportunities and Threats
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When energy drinks emerged into the market nearly a decade ago, there were very few flavor choices. XS Energy has gained a reputation of being innovators, introducing numerous new flavors to the category, including three caffeine free varieties. As a part of our marketing plan to set us apart from competitors, we have made it a mission to release a new flavor every year. This year’s new flavor is XS Gold containing a mix of superfruits such as blueberry and acai. Each year our customers can expect something new and exciting, which also brings potential for new customers. As well as new flavor innovations, XS Energy also offers a healthy alternative to other energy drinks by using vitamins and amino acids to give our consumers the energy they need. In today’s society, there has been a growing emphasis on eating healthy and staying in shape. Energy drinks such as Monster contain about 100 calories, 26 grams of carbohydrates, and 26 grams of sugar in an 8 oz serving (BevNET). XS Energy’s main selling point is being a healthier alternative to other energy drinks in the market. Most drinks in the XS Energy line contain 0 grams of carbohydrates, 0 grams of sugar, and only 8 calories per 8.4 oz can (XS Gear). The major threat we face is not being a public company. Red Bull and Monster have a large advantage over our company by placing their products in convenience stores and vending machines at nearly every corner. They even have stock market share and gain money
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through sponsoring, but XS Energy has stayed lower key. Our marketing plan is not intending to make us as large as other competitors, but we want to get our company known to a younger demographic on college campuses. By placing vending machines on college campuses and by selling single cans in school stores we should be able to boost sales and get our brand name in the heads of our target market consumers.
Market Analysis 4 Target Market Identification The current consumption market for XS Energy Drinks are people above the age of 40, mainly “soccer mom” types (Beverage World). These people fit the ideal because they have the money to spend on energy drinks and other luxury items, and may be the ones purchasing groceries for the whole household. They are also more likely to be concerned with health issues such as sugars and calories. According to XS Energy’s previous statistics, only about one can per week per household is currently consumed (XS Gear), which is why we are
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aiming to sell to younger adults to hopefully increase amount of cans consumed per household. The feature that sets our plan apart from the others currently implemented by XS Energy is that we want to get our name known to younger audiences. Trying to sell to a younger, impressionable market will greatly benefit the company’s revenues. The group we plan to market ranges from 16-25; from kids with a new found freedom, to college students, and also reaching young professionals. The sixteen year olds find themselves a new freedom with the ability to drive and get a job, which brings in their own flow of income. They are able to spend more freely because the money is theirs, and they no longer need to rely on their parents for money. For the college students to young professionals, they need energy and it is apparent that they gain habits in college. Whether it is a morning cup of coffee or an energy drink after the first class of the day, this activity will carry through when they get their first jobs. The need for energy is apparent in everyone’s life, and the older you get the more concerned about health you become. This makes the young professionals a good target for our product. If we can get the teenagers and college students used to our product they may find more benefits than just energy as they mature and get into the working world. Market Demographics (Global Market Information Database)
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Market Sizes (per 8 oz. serving size) USA 2002 2003 2004 2005 2006 2007
624,879,136 842, 729, 975 1,278,225,135 2,113,177,208 3,138,856,560 4,157,945,347
34.9% 51.7% 65.3% 48.5% 32.5%
Growth Growth Growth Growth Growth
8 oz. Servings Per Household Per Year 2002 2003 2004 2005 2006 2007
100 132.5 199.6 327.8 481.5 630.6
Product Market Grid Market Segment
Products
General
Group with Need
Caffeinated Drinks
Need Energy 85%
High School Students
Primary
Caffeine-Free Options Secondary
College Students Adults High School Students
Primary Primary Secondary
Secondary Secondary Primary
College Students Adults
Secondary Secondary
Primary Primary
Thirsty 15%
Since we are trying to sell more of our product to a younger age group, we need to understand who they are and what they want. We will separate our target market into three key demographics by age:
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high school students, college students, and adults. Each one of these segments can be looked at individually. Some offer more than others as consumers but each one is key to our product. According to Mintel, “Young adults aged 18-24 are the key consumers in the market with 34% drinking energy drinks in 2008,” this is where we need more s of XS Energy. This should not be that difficult because in 2008, teens ed for around 21% of total energy-drink consumers (Mintel). XS offers the ability to purchase their product online, which will become a key characteristic for purchasing with the computer savvy young adults. However, this may also cause an added inconvenience in attaining the product. Teenagers seem more interested and likely to try new products, and the wide variety of flavors that XS has is a great advantage over its single flavored competitors. College students are notorious for their all night study sessions, and as unnatural as that is, they need a means of getting energy. Students find themselves taking on a full academic load and many of them also working. These qualities make them a top candidate for energy drink s. One key characteristic that sets them apart from the teenagers is their ability and freedom to spend money as they please. Spending habits change drastically when you have more freedom and are living away from home. According to
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Mintel, Parents are the main source of income for 55% of all teens, which changes when they go to college. As the main consumer of XS energy, the 40 plus age group doesn’t fit into the typical energy drink crowd. However, some of the specifications that these adults are looking for are found with this product that many others don’t have. As people get older, health becomes an increasing concern. This is a main selling point for XS Energy; it offers a healthy alternative to its sugar filled competitors. The group above 30 is also great consumer because they are financially independent and may purchase the product for the household. By doing this they will be introducing their kids to the product and encouraging them to use a healthy alternative to other products. Parents can have a strong influence as to what their children will consume in the future.
Marketing Strategies 5 Product Strategy XS Energy is a healthy energy drink, fortified with essential nutrients and herbs that will help boost up anyone with a lull in their energy and focus. XS Energy is a healthy and tasty alternative to a
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high sugar soda or energy drink. Also a good alternative to coffee and expensive espresso drinks. With a proprietary blend of herbs that contain a mix of Gandoderma, Ginseng, Astragalus, Echinacea Purpurea, Reishi mushrooms and Schisandra also amino acids LTaurine and L-Glutamine, that give this healthy energy drink its blast of natural energy needed to keep drinkers gain back their spunk. XS Energy comes in a convenient 8.4-ounce aluminum can, which is the perfect size to throw in a purse, backpack, gym bag, or brief case. Every flavor comes with its own color and design on the can distinguishing it from the other flavors. Price Strategy XS Energy currently provides competitive prices ranging from $23.88 to $34.88 for a 12-pack case of XS Energy drinks. We would like to see the company branch out and start selling single cans in convenience stores, and vending machines. We would like to keep a competitive price of $2.00 a can. Also to offer incentives of buying more than one at a time, and put in place a discount of 2 for $3.50. Promotion Strategy To promote XS Energy to our new target market of teens and young adults, we want to focus to put promotions of schools and campuses. Offer incentives for students to spend their money on XS Energy drinks by offering deals on buying more than one. Currently XS Energy
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targets 35 – 45 year old women, or the main ‘buyer’ of the household. So we want to keep the strategy of buying in bulk through Amway/Quixtar for that demographic. To to the new younger target market we also would like to team up with dance clubs, sports teams, and music producers. With dance clubs we would offer alcoholic and non-alcoholic drinks in the club made with XS Energy. For sports teams we want to sponsor new and edgy sports such as snowboarding, boxing, and lacrosse to get our logo out in the action. Lastly with music producers we hope to help sponsor musical tours and have a booth at concerts to give out samples and also sell XS Energy to consumers. Distribution Strategy As of now XS Energy is only available to customer by buying through either an IBO (Independent Business Owner) or through Amway/Quixtar directly. We want to make XS Energy available to everyday customers in gas stations, grocery stores, convenience stores, and in vending machines. Currently the Amway/Quixtar have an exclusive contract with XS Energy for selling the product in the USA. But our next goal is to have XS Energy available to buy in outlet and retail stores in other countries such as Canada, the UK, Australia, and New Zealand. Currently XS Energy is transported through general
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mailing companies like FedEx. In the next few years we would like XS Energy to have its own distribution center with its own delivery trucks.
Financial Summary 6
Purchases include packaging materials, beverage bases, and beverage ingredients. Distribution costs arise from product delivery to a large number of markets. XS Energy must ship products to Independent Business Owners, who then ship products to their customers. Other costs include depreciation, rent, utilities, interest, and other organizational sustaining costs (IBISWorld Industry Report). These costs consist of estimates throughout the soft drink industry. Life Cycle Analysis Out of the four life cycle stages, Energy Drinks are in the maturation stage. Since energy drinks have been around for many years, they are no longer in the introductory stage. New products and new emerging brands have expanded consumer choice in the energy drink market, which has pushed them past the growth stage. Major mergers among energy drink companies and soft drink companies indicate a shift to a mature life cycle stage. Industry Value Added (IVA) has grown at an estimated rate of 2.1% during 2008, and is expected
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to grow by a further 2.6% per year until 2013 (IBISWorld). Break-Even Analysis Break-Even Analysis Forecast Volume in Units (Cases) Total Sales
5,832,117 $139,270,9 54
Variable Costs Direct Labor
(99,320,95 3)
Total Variable Costs Contributi on Margin Fixed Costs Profit Before Vary-withProfit Costs
(99,320,95 3) 39,950,001 (39,950,00 0)
$1
For our break even analysis we used information from “The Risk Management Association Annual Statement Studies Financial Ratio Benchmarks.” Because XS Energy is a private company, certain numbers were not available for us to take so; we had to use numbers
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from a similar sized in the financial statements to find our break-even point. In order to find the break-even point we took the Net Sales (100%) and subtracted Gross Profit (28.7%), this gave us a Variable Cost of (71.3%). To find our Unit Variable Cost we took that 71.3% multiplied by the cost of a case of XS Energy as $23.88, giving us $17.03. We assumed our fixed costs to be our Operating Expenses in the Financial Ratio Benchmark which came out to be 23.5%. We multiplied this by our $170 million to get 39,995,000. Using the Break-Even Equation of Fixed Cost/ (Unit Price-UVC), we get 39,995,000/(23.8817.03)=5,832,116. This is the number of cases that we will have to sell in order to break even. Based on these numbers, and the 2007 sales of XS Energy of $170 million, they were able to turn a profit. With this information we are able to make projections and goals to sell more cases and estimate what our profits will be.
Implementation Plan 7 XS Energy Drinks are currently marketed as just that, “Energy Drinks”. Through our marketing plan, we are aiming to launch our product to a younger audience as a “Health Drink that Promotes Energy”. Since our product contains B-Vitamins and Amino Acids that
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are healthy for the body and promote brain function, we would like our drink to be associated with health drinks rather than energy drinks. The current market captured by the company is the over 35 crowd, or “Generation X” (Mintel). Our plan is to market to an audience of young adults, mainly 16-23 year olds. We are hoping since the drink contains vitamins and nutrients healthy for the body, parents will find it to be a good alternative to the other sugar filled energy drinks currently in stores. Vending machines throughout college campuses and high schools, and selling our products individually through school stores will help increase awareness among younger consumers. Vending machines create impulse buys when placed in high traffic areas, which is an area where XS Energy is currently lacking. They have remained a private company and strictly provide their product through IBO’s, but we are hoping to get the name well known among a younger crowd through wider distribution channels. We are going to market the product as a health drink that promotes energy. When people think of energy drinks they automatically think of high sugar and high carbohydrates, which is the exact opposite of our product. Our main emphasis will be getting our consumers the energy they need without all the added sugars and carbohydrates that no one needs to add to their diet. Health has been an increasing trend in
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today’s society and XS Energy Drinks can be a positive addition to your daily diet. In order to get our name in the schools, we need to put vending machines in places that students can easily access on-the-go. Students are living in a fast paced world, and our product needs to keep up with them. Giving them the option of buying it in school gives an alternative source of attaining the product. Fliers will also be placed throughout the school in high traffic areas so students are aware of our name and the healthier options that are available. For our implementation into schools and universities, it will not be easy to get our product into these resources. Schools like the University of Minnesota and satellite campuses put out RFP or requests for proposal which is basically an open bidding for companies who want to get involved to put a bid in for a contract. These contracts can be for just the solar campuses like the University of Minnesota-Duluth or for the whole campus so its product goes out to every school. The school sets out a list of criteria that they are looking for so they can find the company to best suit their needs. This would be difficult for XS Energy because they would be competing against large companies like Coca-Cola and Pepsi. It would be hard for us to compete financially against these power houses of the soda and energy drink industry. There would need to be a large amount of research done to determine
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whether putting a bid into these would be worth the cost and time for XS Energy. This information was given by Penny Graskey of Coca-Cola. She is the On Premise Customer Development Manager for the Duluth Area. While no numbers were available, the cost for a home school and sister schools like the University of Minnesota would be great. I think the best suggestion would be to start with smaller schools and build report and eventually get into the larger schools. By doing this we would still be getting our name out while spending a significant less amount of money trying to compete against the larger companies. These smaller facilities would be a good test for how our product fairs in schools. Sporting events and entertainment are very popular on college campuses, so we would like to use banners of our product during basketball games or even during student concerts to get our names in the mainstream of students. Athletes and nutrition-conscious students will notice our “Health drinks that promote energy” signs, and realize they can get energy without adding sugars that can ruin their workout and performance. When students see our signs promoting healthy energy, they will be eager to try the new product that not only tastes good, but also is good for them.
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All in all, our main goal is to be seen as a healthy alternative to the other high sugar energy drinks in the market. Vending machine sales are constantly increasing, and edging XS Energy into that market will continually increase revenues. Through product placement in high traffic areas and fliers throughout the school, we are hoping students will notice our diverse product and boost sales in a new market for XS Energy.
http://www.franchiseonline.com/cgibin/folpages/xynergy2.gif
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APPENDIX A
Competitor Analysis
Even though energy drinks are fairly new to the United States, their popularity has grown at a remarkable pace. The energy drink market has grown from $100 million to more than $250 million in just two years (XSGear.com). Red Bull, the most widely d energy drink, claims to sell over one billion cans every year. Fast growth in the specialized coffee market has also made a great contribution to the growth of energy drinks. People in today’s market want things fast, and expanding energizing coffee into can form is a great idea for people on-the-go. This is a great advantage for people who want more options for energy, rather than picking up their every day coffee. The average American family drinks several gallons of liquid every day, and everyone loves having options. Many of the drinks consumed are soda or other forms of sugared and caffeinated drinks to provide energy for the day. Since there are so many new energy drinks brands emerging in the market, companies need to have a competitive edge to get their name in the minds of consumers.
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APPENDIX B
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Sources
"XSGEAR.COM: FAQ." XSGEAR.COM. Jan. 2007. 01 Dec. 2008
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1. "XSGEAR.COM: FAQ." XSGEAR.COM. Jan. 2007. 01 Dec. 2008
University of Minnesota-Duluth Marketing Plan 1
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10.Solman, Gregory. "Strategic Smarts Pay Off." Ad Week. 8 Aug. 2007. Nielsen Business Media, Inc. 18 Nov. 2008
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