The Global

Refreshment Beverages:
A Case Study in Managerial
Economics
Syndicate #2
Kongsi Kamar Dagang 18
Introduction - Market Overview:
• 100 Billion USD worth of market of “REFRESHMENT BEVERAGES” in
United States alone
• Types of bottled water:
• Carbonated Soft Drinks (CSD)
• Bottled Water
• Fruit Beverages
• Sports Drink
• Energy Drinks
• Ready to Drink (RTD) Coffee and Tea
• Mature Industry (g : ½ US GDP growth rate)
Introduction – Strategy for Mature Industry:
• In such mature industry, companies have to grow by
INTRODUCING NEW PRODUCTS or by ACQUISITION
• The game is ZERO-SUM GAME (one company growth will be
another’s company lose)
• “SHARE OF STOMACH” is another terms in the Refreshment
Beverages industry, because the terms of maximum amount of
milk, tea, soft drinks that someone can take into their stomach
Refreshment Beverages Market Share
Top-Down List of
Segmented
Refreshment
Beverages:
1. CSD
2. Bottled Water
3. Fruit Beverages
4. Sports Drink
5. RTD Tea
6. Energy Drinks
7. RTD Coffee
Carbonated Soft Drinks (CSD) (1) • From 1998 to 2005
the market change
for CSD is relatively
same.
• Even in 2005
consumption of CSD
has declining than
1998
• This shows two:
1. Mature Market
2. Shifting in
Consumers
Demand
CSD (2) – Cont’d • Picture of Leading Brand
in CSD Market
• With ratio of 3.78 liter
equivalent to 1 gallon,
Avg. American drinks
CSD equal to 200 liters
per year
• Soft drinks is the most
important segment with
1/3 of market (CSD also
included fruit-flavored
soft drinks and else)
• Group of Pepsi &
CocaCola hold 50 % of
the market share
 • Shifting to more demand on
bottled water, considered as
Bottled Water “healthier” product
• From 2001 to 2005, 41 %
increase consumption, 101
liter equivalen per American
drinks per year
• Nestle “Poland Spring” and
Danone “Evian” first help to
built the market in US and
make it trend
• Pepsi and CocaCola later
joined the competition with
“Aquafina” and “Dasani”
• Extended market: Highly
filtered water, flavored
water, enhanched water,
vitamin-enhanched water,
etc.
• Tends to Price-War in Market
Top 5 Sales Manufacturers • 5 Top sellers only
accounts for 28 billion
USD Marketshare out of
100 Billion market share
(28% for Bottled water)
• Easy Entry to Market
• These has led to
conclusion of the
Market :
MONOPOLISTIC
MARKET
Manufacturing & Distribution
Manufacturing
1. Concentrates : flavoring
ingredients prepared to finished
syrups or beverages
2. Syrups : Concentrates mixed
with water and possibly
sweetener, ready to cup or glass,
usually in restaurant or chain-
market
3. Finished Products: packaged
products that are ready for
immediate consumption
Distribution
1. Manufacturers
2. Bottlers (Distributors)
3. Chain-Market and Restaturant
4. Own Manufacturers and
Distributors
For CSD, they own number 1 through 4,
for NON-CSD they only have NUMBER 4
(Usually).
Relationship between manufacturers
and Bottlers must be MAINTAIN SOLID
Market Type – Monopolistic Competition
Factors and Trends Influencing Price
•Many Competitors
•Easy entry to market
•Non-Price competition allowed
•Open for Price-War
•Top 5 players only account 28% of market
100 bn USD
•Setting price in around Competitor
market is a good idea (matching price or Maximum Output at MR = MC, Margin
slightly below) area under AC times Output
 However . . . D1 - CC

• CSD Market is 1.50 1.50

Oligopoly
• In the CSD Market the D1 - PC
players lead to duo
oligopoly, or simply we 15M 20M 5M 15M
said DUOPOLY
• Pepsi Cola and Coca COCA COLA -CC PEPSI COLA -PC
Shifting in Coca-Cola Demand will Cause
Cola are the only Decreasing in Pepsi-Cola Demand, Vice Versa…
considerable main rivals (Upper Picture)
in the market
While total demand for Carbonated Soft Drinks
1.50
(CSD) Stills the same as shown on picture on left

TOTAL MARKET OF CSD

30 M
Consumers Demand
• Consumers “Demand” (Demand Curve), Producers “Supply’ (Supply
Curve). The interaction will be Equilibrium Point
• In marketing, this is also the case. Except that skilled marketers
should also able to figure out what consumers want or need, even if
consumer themselves may not really know what they want/need
• Still on-going debate : Consumers first decided their demand, or
Producers supply than create its own debate (further research
needed to conclude this)
• Shifting in consumers preferences to more “healthier” products
• MOST benefited from shifting on consumers Demand : ENERGY
DRINK. Market Leader? Red Bull
Summary
• The principles of managerial economics are integral to the decision
making process within business.
• Managerial economics provides information on consumers, prices,
costs, quantities, competition and business strategy.
• A major contribution of managerial economics is the estimation of
risk.