Electro-light Case Interview | Case Studies - Interview Preparation PDF Download

Client Goal

Our client is SuperSoda, a top-three beverage producer in the United States that has approached McKinsey for help designing its product launch strategy.

Situation Description

As an integrated beverage company, SuperSoda leads its own brand design, marketing, and sales efforts. The company also owns its entire beverage supply chain, including production of concentrates, bottling and packaging, and distribution to retail outlets. SuperSoda has a considerable number of brands across carbonated and noncarbonated drinks, five large bottling plants throughout the country, and distribution agreements with most major retailers.

SuperSoda is evaluating the launch of a new product, a flavored sports drink called “Electro-Light.” Sports drinks are usually designed to replenish energy, with sugars, and electrolytes, or salts, in the body. However, Electro-Light has been formulated to focus more on the replenishment of electrolytes and has a lower sugar content compared to most other sports drinks. The company expects this new beverage to capitalize on the recent trend away from high-sugar products.

McKinsey Study

SuperSoda’s vice president of marketing has asked McKinsey to help analyze key factors surrounding the launch of Electro-Light and its own internal capabilities to support that effort.

Helpful hints

• Write down important information.
• Feel free to ask the interviewer to explain anything that is not clear to you.

Q.1. What key factors should SuperSoda consider when deciding whether or not to launch Electro-Light?

Consumers

(i) It is essential to understand the target audience of Electro-Light sports drink. Factors to consider include age, gender, lifestyle, and preferences. Is there a specific segment of the market that prefers sports drinks over other beverages? Are they health-conscious, fitness enthusiasts, or athletes?

(ii) Identifying the target market will help to tailor the marketing strategy, product positioning, and packaging design to appeal to the right audience.

Cost and price

(i) Electro-Light should be priced competitively with similar products in the sports-drinks market.

(ii) It is necessary to determine if Electro-Light's market is more profitable than SuperSoda's current products. This would involve calculating the costs involved in producing Electro-Light, including raw materials, production, marketing, and distribution expenses.

(iii) It's also important to determine the break-even point for Electro-Light, the point at which total revenue equals total costs. This will help to determine the minimum price at which Electro-Light needs to sell to make a profit.

Competitors

(i) The sports-drinks market is highly competitive, with several established brands already present.

(ii) Identifying key competitors and understanding their strengths and weaknesses can help to develop a competitive strategy.

(iii) It's important to determine how these competitors will react to Electro-Light's entry into the market. Will they lower their prices or launch a new product to compete?

Capabilities and capacity

(i) SuperSoda's current production, packaging, and distribution capabilities should be assessed to determine if they are adequate for Electro-Light.

(ii) If specialized production or packaging is required, SuperSoda should assess if they have the necessary expertise or should consider partnering with another company to fill the gap.

(iii) Geography should also be considered when deciding on the plant location, as it can affect the transportation cost and the product's shelf life.

Channels

(i) The ideal distribution channels for Electro-Light should be identified.

(ii) SuperSoda should assess if current retail outlets are willing to add Electro-Light to their product catalogs.

(iii) Additionally, online sales channels should be considered, such as e-commerce platforms and social media.

Q.2. After reviewing the key factors that SuperSoda should consider when deciding whether to launch Electro-Light, your team wants to understand the beverage market and consumer preferences to gauge the potential success of Electro-Light.

Your team has gathered the following information about the US sports drink market. The information shows an estimated share of electrolyte drinks, as well as the current share for the two main electrolyte products: CoolSweat and RecoverPlus.

Based on the target price and upfront fixed costs, what share of the electrolyte drink market would Electro-Light need to capture to break even? Here is some additional information for you to consider as you form your response:

• Electro-Light would launch in a 16-ounce format—or one-eighth of a gallon—at a price of $2 to retailers
• To be able to launch Electro-Light, SuperSoda needs to bear $40 million in total fixed costs, including marketing expenses and increased costs across its production and distribution network
• The vice president of operations estimates that each bottle would cost $1.90 to produce and deliver in the new process

To break even, Electro-Light would need to capture a 12.5% market share of the electrolyte drinks market, which means it would need to become the second-best-selling product in the market. Let's take a closer look at the numbers that support this conclusion:

Breakeven units: Electro-Light would need to sell 400 million units to cover both its variable profit per unit and fixed costs. To calculate this number, the variable profit per unit ($2 - $1.90 = $0.10) is divided into the total fixed costs of approximately $40 million, resulting in 400 million units.

Market share: The electrolyte drinks market currently represents 5% of 8,000 million gallons, which equals 400 million gallons. If Electro-Light sells 400 million units, which translates to 50 million gallons, its market share would be 12.5%.

These numbers highlight the significant challenge that Electro-Light would face in becoming a successful product. It would need to sell a substantial number of units and capture a significant market share, all while competing with established products in the market.

Q.3. SuperSoda executives believe that the company's position as a top-three beverage company gives it strategic impetus toward achieving the desired market share. However, they ask the team to outline what would be needed to achieve the target 12.5 percent share of the electrolyte-drinks market. What would SuperSoda need to do to gain the required market share for Electro-Light following its launch?

To successfully launch Electro-Light and gain market share, the following factors should be considered:

(i) Consumer preferences: It is crucial to match the product image, attributes, and quality with the needs and expectations of consumers. Conduct market research to identify the target audience and ensure that the product is priced competitively and consistent with other similar products in the market.

(ii) Strong branding/marketing: Develop a comprehensive marketing campaign that includes advertising, promotional pricing, and bundling options. Use SuperSoda's established reputation as a top producer in the industry to create brand awareness and position Electro-Light as a top-three product in the market segment. Anticipate competitors' reactions and ensure that product positioning does not cannibalize existing profitable products.

(iii) Operational capabilities: Secure access to preferred distribution channels, and ensure that the sales force has the required skills and knowledge to sell the new product effectively. Develop a production ramp-up plan that can accommodate increased demand and ensures timely delivery to customers.

By considering these factors, SuperSoda can increase the chances of Electro-Light's success in the market and achieve the desired market share.