Crescent Pure Case Summary

MEMO

To: Dr. Barksdale

From: Nancy Kim

Date: 28 November 2017

Re: Crescent Pure Case Exam

Recommendation

 Portland Drake Beverages (PDB) should position Crescent Pure as an energy drink with focus of its organic attributes priced at $2.75 that will attract more consumers and maximize Crescent’s revenues during their soft launch in the three western states, California, Oregon, and Washington.

Rationale

1. The energy drink category has grown 40% during 2010-2012 and was estimated to be $8.5 billion in the United States in 2013 and projected to reach $13.5 billion by 2018. In contrast, the sport drinks category increased only 9% and was projected to reach $9.58 billion in 2017. The market size for energy drinks is rising at a faster rate

The increasing market for health, wellness, and natural products create a higher demand for the product thus providing the opportunity to gain a greater market share. Appx. 1-A

3. Launching the product as a healthier option by promoting its organic attributes at the affordable price of $2.75 will entice consumers to try the product at least once. The average price for an 8-oz. energy drink is currently $2.99.

4. Crescent’s organic certification and minimal caffeine content differentiates them from competitors who use artificial sweeteners and excessive levels of stimulants as a source of energy.

5. The $750,000 advertising budget will increase brand awareness and the establishment of Crescent Pure as an organic energy drink thus encouraging enough demand for the product to sell its capacity.

6. According to Appendix 3, Retailers would be more inclined to push this product since their gross margins almost double the amount the manufacturers make per can. Thus, creating an incentive for retailers to sell more of the product. Appx. 3

7. Crescent’s current 8 oz. size is one of the three popular sizes for energy drinks where as popular sport drinks’ sizes ranges from 12 oz. – 24

Wholesale Cost to Distributors per Can – Variable Costs per Can = Profit per Can

2. Profit per Can * 24 Cans per Case = Contribution Margin per Case

3. Advertising Budget (Fixed Costs) / Contribution Margin per Case = Breakeven Quantity in Cases / Year

4. Factory Capacity / year – Breakeven Quantity in Cases / year = # of Cases after Breakeven

5. # of Cases after Breakeven * Contribution Margin per Case = Profit after Breakeven

In order to breakeven with an advertising budget of $750,000, PDB will need to sell 142,046 cases in one year. The factory has the capabilities to produce 144,000 cases per year. On a monthly basis, PDB needs to sell 11,838 cases and has the capability to produce 12,000 per month.

Appendix 3 – Crescent Pure Energy Drink Margins per Can 1. Manuf. Selling Price – Manuf. Cost of Goods Sold = Manuf. Margin = $0.22

2. (Manuf. Margin / Manuf. Selling Price) * 100% = Manuf. Gross Margin % = 18%

3. Dist. Selling Price – Dist. Cost of Goods Sold = Dist. Margin = $0.41

4. (Dist. Margin /Dist. Selling Price) * 100% = Dist. Gross Margin % = 25%

5. Retail Selling Price – Retail Cost of Goods Sold = Retail Margin =