Java Fit Extreme: Marketing Strategy in Australia Essay

Background of the product

The consumers in Australia have become extremely health conscious. According to the Australian Beverage Council there has been an increase of 13 percent in beverage sales between 2000 and 2006 which is the result of consumers becoming conscious of health concerns (Merett, 2007). Obesity is a major concern in the country. Due to the health concerns the soft drinks market has come under pressure from energy drinks especially successful drinks like Powerade and Gatorade (Halliday, 2006). Keeping these factors in mind, it has been decided to launch Java Fit Extreme – a gourmet coffee which gives an energy boost prior to an exercise session. Additionally, it contains ingredients such as green tea extracts which assist in the burning of body fat. The marketing strategy for this product has been devised taking into account the business environment in Australia.

Description of the market

Australia is world’s smallest continent but sixth-largest country; with a population of 20,434,176. The median age of an Australian is male: 36.3 years female: 38 years (2007 est.). The demographic characteristics further suggest that its ethnic population comprises of 92% white people and the official language of the country is English. Australia’s literacy rate is 99%. The target audience include both men and women from ages 18 till 55. The goal is to reach everyone who is looking forward to adapt a healthy lifestyle and make exercise part of their daily regimen. I believe we can reach a large part of the population because the median age in Australia is 36.9 years. The Life expectancy at birth for male is 78.5 years whereas for the female it is 83.5 years. The energy drink is consumed in Australia by different categories of people which include athletes, drivers, office workers, shift workers, partygoers, young parents and university students (Ozbevnet, 2007).

As far as the psychographic characteristics are concerned, lifestyle changes have posed a challenge to retailers to address the ever changing trends. Today the society is driven by growing health awareness and anxiety about physical appearance. The trend is to have better control over nutrient intake. A report by WHO suggests that more than 1.3B people are overweight or obese around the world (Buisson, 2006). The ACNielsen study worldwide shows that the fastest growing food products are those that support healthy diet, weight loss and on-the-go lifestyles. The 18-24 year olds purchase the energy drinks from immediate consumption outlets (Ozbevnet, 2007). Lifestyles have become faster and people have become time-poor while they tend to work harder and play harder (The Age, 2001). Concern about the body looks is the biggest worry for the nation’s 11 to 24 year olds, male and female (Lunn, 2007). Thirty-two percent of the respondents put body image as the third most pressing issue, ahead of family conflict and coping with stress. Young women’s level of concern about body image has increased from 28.5 per cent in 2006 to 34.9 per cent in 2007.

Geographic Description of Market

Australia has a population about 20 million people. The demographics of Australia show it to be one of the most urbanized populations in the world; the majority of Australians live on the coast with the outback being sparsely populated.

Sydney is the largest city in Australia; it has over 3,935,000 people. Other large cities include Melbourne, Brisbane, Perth, Adelaide, and Newcastle.

Demand Estimation

The food and drinks manufacturing (F&D) industry is one of the largest industrial sectors and makes the largest contribution to the regional and national economies through out the world. This industry worldwide is stable and highly competitive. In Australia the F&D sector is the largest manufacturing sector, representing 18.1% of manufacturing output and 2.4% of GDP as of 2002 (CIAA, 2002). This has been represented in Appendix A.

In Australia the energy and sports drinks are both enjoying a growth in excess of 20% as on-the-go consumers are becoming health conscious especially as they are also time-pressured (Ozbevnet, 2007). Sometimes referred to as ‘smart drinks’ in Australasia, the energy and sports drinks market will experience a surge in growth to 2012 following a relatively slow start compared to more established regions such as North America.

Huge consumption growth is on the horizon for energy drinks in Australasia at a forecast rate of 196.08% between 2007 and 2012, according to Just-drinks’ estimates. By 2012, consumption is predicted to reach 566.1m liters, which is low in relation to more established markets including North America, Asia Pacific and the Middle East and Africa. The sports drinks market will reach a total consumption of 271m liters in 2012 following growth of 171% from 2007, although Just-drinks believes there will be further room for stronger growth from 2012 onwards.

The sports drinks market will still be overshadowed by energy drinks to 2012 but with lower growth between 2007 and 2012 in consumption. Energy and sports drinks were introduced into Australasia in the mid-1990s, which is much later than in North America, Western Europe and parts of Asia Pacific. Their late arrival meant consumption levels are much lower than in the more developed markets. Until 2001, it was actually illegal in Australia to manufacture drinks with high concentrations of caffeine. However, in August 2001, the Food Standards Australia New Zealand (or FSANZ, which was known as Australia New Zealand Food Authority at the time) approved the manufacture of energy drinks along with strict labeling rules, which included mandatory reference to the caffeine content, which is “not recommended for children, pregnant or lactating women and individuals sensitive to caffeine”.

Competition

Since 1999, more than 250 energy drinks have been launched in Australia but Red Bull and V have dominated the market. Currently the most popular energy drink in Australia is Powerade and Gatorade in the sports drinks market while Red Bull and V dominate the energy drinks market (Ozbevnet, 2007). The chart is represented in Appendix B (ACSN, 2007). These four players account for 94% of the sports drinks and the energy drinks markets.

Despite the big players dominating the market, several small players have made in-roads and have captured significant amount of market in the ever-growing energy market. Coca-Cola has recently stepped in with its Mother energy drink supported by a multi-million dollar market campaign. They justify the rationale for their launch because of the growth in energy drink consumption and consumer demand for a new and improved energy drink. They are targeting the males aged between 18 and 24 years.

Marketing investments by all of these players is increasing as the market grows. Red Bull’s marketing investment in 2007 will be increased to $33 million which is an increase of 38% from 2006. Red Bull has also launched a 355ml can which is further expected to increase sales. Powerade’s improved product has boosted its sales. There are several other products as consumers seek healthier and energy enhanced version of the energy drinks.

However, I believe Java Fit is likely to have a competitive advantage over these products because it is a gourmet coffee which provides a great boost of energy without providing any sugars. Fitness Expert Bill Phillips recommends exercising first thing in the morning on empty stomach burns more body fat. The reason he gives is because after seven to eight hours of sleep, the human body is in a fasting state and when an individual wakes up and performs exercises on empty stomach his glycogen levels are low and hence he is likely to use stored body fat to fuel his or her workout. Besides, Australia’s per capita consumption of both energy drinks and sports drink is still lower than similar markets around the world and getting a foothold will not be a problem for Java Fit.

Legal Environment

On January 1, 2005, Australia entered into the Free Trade Agreement with the United States (AUSFTA), which has provided immediate major benefits for both countries through the removal of tariffs, and longer-term benefits, through the phased opening of markets. It is Australia’s first trade agreement with a major economy, and the first agreement that the U.S. has entered with a major economy since 1988. Duties on more than 99 percent of U.S. manufactured goods exports to Australia were eliminated as soon as the Agreement was put into force on January 01, 2005. Manufactured goods account for 93 percent of U.S. exports to Australia. Australia is a key export market for important U.S. manufacturing sectors such as aircraft, autos and auto parts, machinery, computers and electronic products, chemicals, and wood and paper products. All U.S. farms export amounting to nearly $700 million last year – are now duty-free to Australia, benefiting many sectors such as processed foods, fruits and vegetables, corn, and soybeans.

The Agreement also requires the elimination of a variety of non-tariff barriers. The FTA will open markets and streamline mutual access in intellectual property, services, government procurement, e-commerce, and investment.

Each of the 50 U.S. states exports to Australia, and Australia is among the top 25 export destinations for 48 of the 50 states.

Among other benefits from the elimination of non-tariff barriers, the FTA allows the U.S. supplier to be more price-competitive in the Australian market simply due to duty reduction. A U.S. exporter that is able to prove that its goods qualify under the Agreement may afford its buyer considerable savings. U.S. exporters will also be more competitive in Australia against competing third country products that do not have the duty benefit.

Economic Environment

Australia has an enviable Western-style capitalist economy. According to International Monetary Fund report the country’s per capita GDP as of 2007 is $34,943.

Robust business, consumer confidence and high export prices for raw materials and agricultural products are fueling the economy. Australia’s emphasis on reforms, low inflation, and growing ties with China are other key factors behind the economy’s strength. Drought and strong import demand pushed the trade deficit up in recent years, although the trade balance improved in 2006. Housing prices probably peaked in 2005, diminishing the prospect that interest rates would be raised to prevent a speculative bubble. Conservative fiscal policies have kept Australia’s budget in surplus since 2002.

The total export of Australia was of $124.8 billion (2006 est.). Export Commodities in Australia include coal, gold, meat, wool, alumina, iron ore, wheat, machinery and transport equipment.

The total imports of Australia were $134.5 billion (2006 est.).The import commodities included machinery and transport equipment, computers and office machines, telecommunication equipment and parts; crude oil and petroleum products.

The currency used in Australia is the Australian Dollar.

Australian dollars per US dollar – 1.3285 (2006), 1.3095 (2005), 1.3598 (2004), 1.5419 (2003), 1.8406 (2002) e Australian Dollar (AUD).

Unemployment Rate

The unemployment rate in Australia is significantly lower than most countries. It is 4.9% (2006 Estd). The F&D sector is also one of the largest employers worldwide employing one in five of the manufacturing workforce. Each job in this sector generates an additional ten jobs (CIAA, 2002).

Cultural Environment

Culture has a significant impact on perception, problem-solving and cognition and often leads to differences in satisfaction levels on the same product between global customers. Expectations differ. Levels of literacy differ and so do performance evaluation standards (Pizam & Eliss, 1999).According to Hofstede (1984), different cultures imply different mental programming, which governs activities, motivation and values (cited by Gilbert & Tsao).

The modern culture of Australia is a Western culture and draws from many sources, primarily from the Anglo-Celtic cultures, but also from Aboriginal cultures, the multi-ethnic immigration associated with the Australian gold rushes of the 1850s, and post-World War II immigrants from all over the world. Mainstream Australian culture has been strongly influenced by British culture and European culture and more recently the culture of the United States of America. As stated by Hofstede, there are distinctive influences from the Australian natural environment, the country’s settler history, indigenous Australians, geographical isolation from other Western nations and proximity to Asia.

The demographics of Australia show it to be one of the most urbanized populations in the world; the majority of Australians live on the coast with the outback being sparsely populated. Australia’s cities are melting pots of different cultures and the influence of the longer-established southern European communities in particular has been pervasive. The great post-World War II influx of both English and non English-speaking migrants from England, Scotland, Ireland, Italy, Greece, Germany, the Netherlands, Malta, Eastern Europe, the Middle East, East Asia and South-East Asia has had a significant impact.

Political Risks

In my opinion Java Fit may not be facing any social or political risks because the social and culture environment in Australia is similar to America. The product which we want to launch in Australia does not contain ephedra or any ingredients which would lead to any controversy or prevent Java Fit to enter the Australian market. Besides, trade between the two nations takes place regularly. The local government in Australia is stable and hence no political risks arising out of an unstable government is foreseen.

Channels of Distribution within Foreign Market

The Australian consumer looks for immediate consumption outlets hence convenience is the key channel which most energy drinks are using to reach the consumers. Thus the C-stores should be the prime channel. Besides, there are localized health food retailers in Australia. The product of Java Fit is made for any consumer who is health conscious and is exercising. Some well known health food retailers in Australia are Vitamin King, Woolworths, Vitamin Café, Thexton and Australian Sports Nutrition. Put together, the C-stores and the health food retailers would be a good idea to launch the product and create awareness initially.

Marketing Strategy

Internationalization and globalization have led the multinational companies to adjust to an entirely different marketing strategy. Globalization views the world as a uniform market like Levi’s jeans and Coca-Cola. In internationalization marketing strategies have to be customized according to cultural, regional and national differences. As far as Java Fit is concerned, the advertising and packaging of the product would be the same as in the United States. No translations would be needed because English is the official language in Australia.

Marketing Mix

Of late, the utility of the four Ps of the marketing mix as a general marketing theory for practical purposes has become questionable. There is a shift towards relationship marketing and just approaching the C-stores or the health retailers is not sufficient. Various marketing tasks, such as market analysis, marketing planning, advertising, sales promotion, sales, pricing, distribution and product packaging have to be worked out (Grönroos).

The concept of marketing mix emerged from the notion of the marketer as a ‘mixer of ingredients’. The marketer blends the elements of the marketing mix to optimize profits. The product (which includes services) is priced according to the buyer’s ability, made available to the customer (place) and is promoted to make the customer gather as much information as required before the purchase takes place (Bennett, 1997). Thus the marketing mix of any product would include the right product at the right time in the right place with the right sales and promotion strategy and at the right price.

In the case of launching Java Fit, the demand for the product has already been assessed and will be priced according to the market trends and buyer’s ability. The channels of distribution would be the C-stores and the retailers but in addition it would be available at the gym because this is where the bulk of the sales are expected to take place. The right promotional strategy would have to be worked taking into account the marketing communication mix.

Marketing communication mix

Packaging is an important tool for branding and communication, especially in packaged food market. Competition in the food industry is very intense and packaging is an essential part of the selling process. Self-service counters in retail marketing further add to the importance of packaging where the packaging serves the role of the salesperson. As there is an influx of foreign retailers, packaging plays a critical role for marketing communications (Silayoi & Speece, 2004). Half the consumers who enter the stores have not made brand choices, as several brands are all acceptable to them. For such shoppers, packaging communicates the advantages of the food products inside. Visual image on packaging include graphics, product photography, color combinations and the layout. Australia is an educated market and awareness of energy drinks exists and hence packaging holds even greater significance. Rundh (2006) asserts that innovative packaging can change the product perception and create a new market position. Companies have to adopt the local culture for effective communication. Brand differentiation is the critical factor. The services of a local advertising agency would be used in promoting brand differentiation.

Products life cycles are shorter and innovation is a necessity in the turbulent market rather than a strategic option. Hence word-of-mouth publicity (WOD) is an uncontrolled form of communication and has a stronger influence on brand attitudes. WOM communications are important source of information for service consumers before they start patronizing the brand. At the same time, negative WOM and publicity can also adversely affect the brand (Grace & O’Cass, 2005). Thus we would have to ensure the no negative WOM publicity takes place. Advertising should reflect the changing needs which would immediately be effective in creating demand for the new product. Hence all advertising would carry the importance of a healthy body and body image as these are what attract the consumers in Australia today.

The strategy would be to contact the director of operations for all the retail stores and get appointments with them. After that a team of experienced marketing professionals should go and give presentations to the local health food retailers as to why our product would be saleable in their geographic region. They would be given handouts with product details and details of success in other countries.

Additionally, free samples would be distributed at gym chains which are located all over Australia, such as Zest Health Clubs which right now have 28 chains in Queensland and South and Western Australia. Another popular gym chain in Australia is Beach House Health and Fitness which is located all over Australia as well. We would also tie up with some gym chains to promote or sponsor some shows to create awareness of the product before it is formally launched. Bonus drinks would be offered to those who attend the gym regularly, which would improve the attendance at the gym.

Innovation is essential to convert the dream to into a marketable product. Innovation directs the leader to set challenging targets (Zien & Buckler, 1997). Marketing communication should reach a range of stakeholders and other players peripheral to the target market and which influence the business success (Clulow, 2006). As such, we would introduce scratch card which would carry special offers. The retailer in question would also be granted extra margin, which would attract the retailers to stock our product.

After the initial launch of the product, we would like to interact directly with the consumers as a follow-up measure. We would interact with them at the gym itself where they would be willing to participate in focus group discussions. Focus-groups are effective in providing information on why people think the way they do. This has certain advantages even over the personal interviews as participants tend to be more comfortable and natural. Besides, they influence and are influenced by others just as they are in real life (Redmond & Griffith, 2003). This would generate data from different groups of people which would help us in further streamlining our marketing strategy.

Once we are able to get some deals/ contracts with the local retailers it would be a good idea to open a big warehouse in Sydney because it is the biggest city in Australia.

Additionally, we may need to make arrangements to buy a truck and hire staff members for delivery to the local retail shops and the gyms. For retailers located outside Sydney we would ship the cases to them and hopefully be able to convince them to give us discount rates on the basis of the bulk of shipment we would be sending every week by contacting the local shipping agents.

Initially we would send some expatriates from the US for a few months to help the local managers understand the product. Nevertheless, the local managers would be essential as it is important to understand local culture despite Australia being a westernized society.

Evaluate Measures

Firstly I think our product will have a large customer base in Australia because of the age group we are targeting. This apart, energy drink is consumed in Australia by different categories of people. Lifestyle changes have increased the market for energy drinks. Additionally, like so many other countries in the world Australia has people who are inspired by Hip Hop/Hollywood culture to look fit and attractive. Obesity is a major concern and besides, there is no product as of now which concentrates on consumption before an exercise session. Body image has increased importance as per the survey detailed above. Our Product would certainly assist them in both improving their athletic performance and achieve weight loss goals.

As per the statistics available, there has been a consistent growth in the energy drinks market in Australia and despite the big players holding the large market share there is room for new entrants. While Mother Energy drink is investing heavily, even with lesser investment, it is possible to make an entry and create awareness through innovative strategies.

The business environment in Australia is congenial as we do not foresee any legal or political problems and risks. Besides, the food and drink industry helps alleviate unemployment and the introduction of Java Fit too would generate employment to some extent. The legal environment poses no problems and the cultural differences have been considered to suit local adaptation.

I firmly believe in direct marketing and having a face to face interaction with the customer. Not many people respond to advertising for a product through a pop up on the internet, flyer or even in a newspaper. Australia is a country which is very competitive in sports and involved in athletic activities. Simultaneously, by giving out free samples to our potential buyers and consumers will certainly be a great idea because they will find out how good of a product Java Fit Extreme when they get a great buzz of energy for their next workout. By using the product consumers will also realize that our coffee does increase their metabolic rate without giving them any dangerous side effects compared to other thermogenics they have tried before in the market.

Overall, we feel there is a great demand for the product and if the logistics are worked out right, we see the product capturing a major share of the market soon; it could even attract the segment that does not visit the gym regularly.

References

1. ACSN (2007), Vive la difference.
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8. Grönroos, C., (1997), From marketing mix to relationship marketing – towards a paradigm shift in marketing, Management Decision 35/4 [1997] 322–339
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15. Rundh Bo (2006), The multi-faceted dimension of packaging, British Food Journal, Vol. 107 No. 9, 2006 pp. 670-684
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Appendix A

Food and industry production value by country

Appendix B

ACNielsen CLOSEUP MAT 31/12/2006 ACNielsen C*Track

Category Market Breakup Sport Drinks $ Millions

Grocery $219.4

Major Convenience $46.7

Energy Drinks $ Millions

Grocery $308.7

Major Convenience $96.4