to: john doe
FROM: PINK CHAVES
SUBJECT: SNAPPLE REVITALIZATION
In response to Triarc’s purchase of Snapple, changes need to be immediately implemented to stop the declining revenue trend. Revenues have declined from $674M in 1994 to $440M in 1997. In order to make an immediate impact I recommend 3 steps be taken; a price increase, channel modification, and a product differentiation campaign. Implementation gives Snapple the ability to climb back towards the $600M mark.
Snapple took a turn for the worse under Quaker management. Quaker attempted to dismantle the distribution network by trying to “ship direct from the factory to supermarket warehouses.” Distributors worked years to gain entrance into those accounts; channel erosion. Quaker cut advertising with shock radio. This led to blow back by Howard Stern referring to it as “Crapple”; brand erosion. Plus, Quaker tried to model Snapple as Gatorade by having larger sizes available. This did not sell in the cold channel (Snapple’s strength); profit erosion. This brings us to now. We must make changes to fix Quaker’s three year debacle.
First, I recommend an immediate price increase. According to published author Philip Kotler, “If we assume our current profit margin is 3 percent of sales, a 1 percent increase will increase profits by 33 percent if sales volume does not drop.” Applying this concept of a price increase will prevent profit erosion and the increased revenue will help fund the product differentiation campaign. I recommend an increase of 5 percent resulting in $22M of additional profit (See Exhibit 1). Any price increase always has the potential for blow back. However, ultimately we answer to our stakeholders and need to stop the declining profits.
Second, I recommend channel modification. The first part of the channel modification is to repair the broken relationship. Quaker once tried to go direct from the factory to store shelf...