1.0 Market Analysis
1.1 Industry
The energy shot industry is relatively new and is experiencing exponential growth. According to bevindustry.com, sales of energy shots have increased by 39 percent to a total of $780.7 million for the 52 weeks ending June 13, 2010. This growth can be attributed to greater product awareness as well as high satisfaction with these shots leading to increased consumption. The growth is expected to continue, as Mintel International forecasts energy shot sales to increase 147 percent in current prices from 2010 through 2015. This swelling growth will push energy shot manufacturers to compete at an even higher level than they are currently operating at. Shots Energy
Energy Drinks
Beverages
Functional Beverages
Figure 1
Prior to 2004, consumers in search of an energy beverage could choose between a few alternatives—soda, coffee and energy drinks. These choices have their drawbacks. The average calorie content in a 12oz can of soda is around 150. Coffee can leave a person jittery as well as stain the teeth. Energy drinks provide a pick-me-up but leave the consumer to crash once the initial effects wear off. When defining the relevant market, figure 1 explains different choices a consumer has the option of purchasing. The top section is beverages. The second relevant section is generic drinks. The third section is energy drinks and the final is energy shots. All these problems led the company, Living Essentials, to introduce a breakthrough energy shot, 5 Hour Energy. As Garima Goel Lal, a senior consumer analyst for Mintel International puts it, “5 Hour Energy actually launched on a marketing platform that competed with energy drinks—that you have all of the energy without the crash.” This platform marketed 5 Hour Energy as an alternative way to get energy as it takes less time to consume while still providing energy benefits without sugar and containing only 4 calories. The success of 5 Hour Energy led many other copycat brands to introduce competing energy shots.
According to Bevnet.com, there are currently around 250 brands of energy shots in the US market. Out of all these brands, 5 Hour Energy is the leader in this niche by commanding a market share of an astonishing 82% as of June 2010 (SymphonyIRI Group). As shown below, figure 2 is an illustration of the market for energy drinks with 5 Hour Energy capturing 86% of the market. To help enlighten this point further, 5 Hour Energy grabs $1 out of every $10 spent on energy drinks in the convenience store channel (Beverage Digest). Energy shot sales increased to $1.5 billion by the end of 2010, according to Consumer Edge Research. Julian Mellantin of beveragedaily.com says, “The energy shot industry is not just growing, but developing at a rate which is exploding annually.”

Figure 2

This industry is still in the early stage of the product life cycle. (See Figure 3) It is still in the introduction-growth stage and is differentiating itself on quality, certainly not price. The illustration below depicts a visual of the product life cycle and the point at which 5 Hour Energy is currently operating under.
Figure 3

5 Hour Energy’s position in the PLC

The energy shot industry has become a major money maker. With prices on energy shots ranging from around $2 to $4, it certainly is not a cheap product; they are uber-premium priced. If one applied the same relative pricing to a 20oz bottle of Coke, the cost to the consumer would be over $30. Quality must emit from the product at every phase of the purchase: initial observation, buying the energy shots and ultimately drinking them. As Living Essentials Creative Director, Carl Sperber, says about pricing “…if you spent $3 and it made you feel good for four to six hours, you wouldn’t feel like you wasted a dime.” Mellentin builds on this premise by saying, “The packaging format conceals the extent of the price premium – and the cost per unit appears to be value-for-money for many consumers….Such products could never and should never be sold in 1-litre packs, because this would then make the extent of the premium very visible and cause consumers to question the value-for-money equation.” Figure 4 represents the most successful energy shot brands’ sales for the 52 weeks ending June 13, 2010, in which category sales for 5 Hour Energy totaled $638.55 million dollars.

Figure 4

According to Guy Montague-Jones, senior editor of foodanddrinkeurope.com, “European energy shot sales for the 12 months to August 2010 added up to just €200m. That is not much more than a fifth of the sales earned on the other side of the Atlantic in the US.” This emerging market is clearly underdeveloped and could lead to greater sales if approached in the right way. There are obstacles to entering this international market however. One impediment to this potential market is the conception among Europeans on the dangers of energy drinks and shots. As The Federal Institute of Risk Assessment, based in Germany, quotes, “In the case of ‘energy shot’ products, such consumer behavior (considerably excessive intake) cannot be avoided by manufacturer’s advice for intended use,” the BfR said. “BfR thus recommends that ‘energy shots’ are prohibited from being placed on the market.” Although there are obvious obstacles to overcome, the potential for great success is an opportunity which should be explored. Another economic opportunity for the energy shot industry is in expanding the domestic customer base. According to Shane Sterling, of nutraingredients-usa.com, “90 percent of energy drinks are consumed by men.” This means that of the $1.5 billion spent on energy shots by the end of 2010 only $150 million was spent by women. This underserved market is huge and presents probably one of the best alternatives for growth. Energy shots could be more appealing to weight-conscious women because it delivers the same energy boost via the ingredients, but without the sugar and calories. One of the barriers preventing women from accepting energy shots is the perception that they are only for younger males. Some of the names of these energy shots don’t portray a sense of functional purpose, for example, Monster Hitman, Nos, Rockstar, etc. In this spectrum 5 Hour Energy holds an upper hand. The name is functional, simple and gets the point across. Overall, the energy shot industry is quickly becoming a star segment in the beverage industry as a whole. Wider distribution channels have enabled energy shot manufacturers to get their product in every possible venue. Marketing of these energy drinks comes fairly easy as usually they are positioned right by a cash register enabling impulse purchases. These companies also have the benefit of being able to serve several different channels at once, i.e. health and fitness sector, working professionals, students and anyone wanting some energy without having to drink a full 8oz or 16oz can. Energy shots are relatively inelastic in that they can charge super premium prices and consumers will still purchase their products. The future looks bright for these companies and 5 Hour Energy is in position to continue its championing of this industry. 1.2 Competitive Analysis
5-Hour Energy’s main competitors consist of Red Bull Energy Shot, Stacker2 6 Hour Power, WORX, and Rockstar Energy Shot.

Exhibit 1
In April 2009, Red Bull produced an energy shot perfect for on-the-go consumption. According to the Red Bull’s official website, Red Bull offers two different energy drinks, one that contains sugar and another that is sugar free. The sugarfree shot comes in the light blue bottle pictured in Exhibit 1 while the regular Red Bull shot is pictured in the dark blue bottle. Table 1 rates Red Bull’s line extension at a three due to a larger variety found in other competitors, such as Five Hour Energy and Stacker2 6 Hour Power. Red Bull energy shot is a 2-ounce (60 ml) energy shot that contains the equivalent functional ingredients as the Red Bull Energy Drink (250 ml can). With 27 calories, Red Bull’s product label should be dragged down to a one on the table below; although, the product that saves Red Bull’s product label rating is their sugar free shot. The Red Bull sugar free shot (60 ml) which is the same as the Red Bull sugar free energy drink (250 ml) contains two calories. The two calorie shot helps Red Bull provide a shot for consumers who are calorie conscious; therefore, the table 1 rates Red Bull’s product label at a three.

Table 1 | Weight | 5 Hour Energy | Weighted Score 5 Hour Energy | Red Bull Shot | Weighted Score Red Bull | Stacker2 6 Hour Power | Weighted Score Stacker2 6 Hour Power | Worx | Weighted Score Worx | Rockstar | Weighted Score Rockstar | Market Label | 9 | 4 | 36 | 4 | 36 | 2 | 18 | 4 | 36 | 3 | 27 | Product Label | 9 | 4 | 36 | 3 | 27 | 5 | 45 | 5 | 45 | 3 | 27 | Line extension | 8 | 5 | 40 | 3 | 24 | 5 | 40 | 3 | 24 | 1 | 8 | Advertising | 10 | 3 | 30 | 2 | 20 | 1 | 10 | 4 | 40 | 2 | 20 | Packaging | 9 | 5 | 45 | 3 | 27 | 3 | 27 | 1 | 9 | 1 | 9 | Price | | | | | | | | | | | | Combined Score | | | 187 | | 134 | | 140 | | 154 | | 91 | Weight rated on a scale of 1 to 10; 10 being the highest and 1 the lowest | Weighted Score rated on a scale of 1 to 5; 5 the highest and 1 the lowest | *Prices for energy shots are comparable; therefore, attribute is important but not rated |

Exhibit 2
Red Bull packages its product individually and as a twin pack; therefore, table 1 the rating for packages is a three. Exhibit 2 illustrates the shelf space of Red Bull’s sugar free energy shot as a twin pack in Wal-mart in Norfolk, NE located in the pharmaceutical department. The exhibit also depicts 5 Hour Energy shelved right next to the Red Bull competitor. 5 Hour Energy also packages its product individually and as a twin pack; although, the advantage is there packaging of a six pack. The six packs especially give 5 Hour Energy a competitive edge over the market of heavy users of energy shots.
Pepsi is the parent company of Red Bull energy shot. Red Bull has an aggressive marketing campaign for its 250 ml energy drink. The drink has earned its name through its slogan “it gives you wings”. With an established name from the 250 ml can, the energy shot has power behind its brand name. Advertisements for the shot can be found on YouTube and have been ran on television, although, the quantity of the advertisements are not as high compared to other competitors such as 5 Hour Energy. Also, consumers can find information on the shots on Facebook and Red Bull’s official website under products about the Red Bull energy shot.

Exhibit 3
According to Stacker2 6 Hour Power’s website, Stacker2 6 Hour Power is a 2-ounce shots that give consumers fast energy that lasts with no crash. There is no sugar and no calories in this energy shot which earns a high five on table 1 above under product label. Stacker2 6 Hour Power is made out of vitamin B, enzymes, and caffeine. Exhibit 3 illustrates five of the six different flavors offered by 6 Hour Power. The table rates 6 Hour Power’s line extension at a high five due to the six different flavors which are lemon lime, orange, grape, watermelon, punch, very berry and the two different extra strength flavors which are extra strength grape, and extra strength pomegranate.

When it comes to the packaging for 6 Hour Power, Table 1 shows a rating of a three due to the fact that the shot is sold as a twin pack online at Wal-Mart. Also, Exhibit 4 shows the shelf space of 6 Hour Power’s at Hy-vee in Norfolk, NE in the pharmaceutical department. The black bottle of 6 Hour Power in exhibit 4 is sold in a twin pack, while the purple bottle of 6 Hour Power is sold individually.
The parent company for Stacker2 6 Hour Power is NVE Pharmaceuticals Inc. 6 Hour Power does have an official website and can be found on Facebook. A huge weakness for 6 Hour Power is seen in table 1 above under advertising with a rating of a low one. On 6 Hour Power’s website there are three commercials that can be viewed; although, overall 6 Hour Power has a lack in communication effectiveness due to the very low quantity of advertisements and the lack of quality of the advertisements. Also, 6 Hour Power’s weakness is that it has not made a name of itself which has helped 5 Hour Power to maintain its market share.
6 Hour Power’s weighted score in Table 1 is 140. 6 Hour Power has many great advantages such as line extension, product label, and packages; although, the advertising drags down 6 Hour Power in comparison to 5 Hour Energy.

Exhibit 5 Exhibit 6
Worx is the zero calories, zero sugar energy shot that rates on Table 1 above with a high five in the product label category due to the zero calories. Worx’s 2-ounce energy shot is made out of vitamin B and folic acid. Worx’s line extension which rates at a three can be seen in exhibit 3 which illustrates the original Worx and extra strength Worx.
Exhibit 6 shows the shelf space of Worx’s at Hy-vee in Norfolk, NE where the shot was found in the beverage isle. Worx is sold individually which is reflects the rating of a one on the table for packaging.
Hansen Beverage Company is the parent company for Worx Energy. Worx can be found on facebook and they do have their own official website; although, the web page is nothing special and doesn’t give out too much information on the product itself. Since Worx’s was founded in 2010, the energy shot has maintained a competitive edge over 5 Hour energy with the quality of their advertisements. Worx commercial have better quality and the boom factor leaves consumer wanting to find out if “it will worx for them” Exhibit 7 Rockstar Energy Shot is a 2.5 ounce shot that puts a boost into individual’s active lifestyles. Out of all of the competitors, Rockstar’s shot has the largest size available with .5 ounces more than all other shots. According to Rockstar’s website, you can grab it, shoot it, and rock ON! Rockstar Energy Shots line extension offers two flavors which are wild berry and tropical punch. Exhibit 7 shows the wild berry shot. There is 200 mg of caffeine, no sugar, no carbs, and contains vitamin B, ginseng, guarana, and taurine. Also, Rockstar Energy Shot is only 10 calories which gives the shot a rating of a three on the table. The parent company for Rockstar is Pepsi. The Rockstar energy drinks have helped the Rockstar drink shot established a well-known name. Information on the shot can be found on Rockstar’s official website under products and on Facebook under the Rockstar energy drink’s page.

Exhibit 8
Introduced in 2004, 5 Hour Energy has given individuals an easy, quick, and effective way to find the energy one needs to power through their day. Exhibit 8 illustrates the orange flavor that 5 Hour Energy offers. The long line extension gives 5 Hour Energy a rating of a five on the table above. The flavors available are grape, pomegranate, berry, lemon-lime, and orange along with decaf citrus and extra strength berry. 5 Hour Energy has zero sugar and four calories. Two of the competitors, Worx and 6 Hour Power, have zero calories; although, four calories is a very low number which gives 5 Hour Energy a rating of a four for the product label. 5 Hour Energy is made up of vitamin B, amino acids, and contains as much caffeine as a cup of leading coffee.
Table 2 shows that 5 Hour Energy’s major strengths are reputation/image, and market share. When an individual thinks about energy shots, 5 Hour Energy is the first that comes to mind. 5 Hour Energy has placed a picture in the consumer’s mind of what an energy shot is suppose to be. The high importance and the maintaining of this imagine has created a large market for 5 Hour Energy.
Living Essentials is the parent company of 5 Hour Energy. 5 Hour Energy has an official website and has established a presence on Facebook. The advantage 5 Hour Energy has on its competitors is the quantity of their advertisements. 5 Hour Energy runs more advertisements than any other competitor; although, the quality of their ads lack in creativity strategy in comparison to other competitors, such as Worx.
5 Hour Energy packages its product as an individual shot, a twin pack, and a six pack. 5 Hour Energy is the only energy shot that packages six packs; therefore, 5 Hour Energy earned a five on packaging in table 1.
Table 2 Organizational Level Matrix | | | Major Strength | Minor Strength | Neutral | Minor Weakness | Major Weakness | Importance | | | | | | | High | Medium | Low | Reputation/Image | x | | | | | x | | | Market Share | x | | | | | x | | | Product Development | | x | | | | | x | | Market Coverage | | x | | | | | x | | Communication Effectiveness | | | x | | | x | | | | | | | | | | | |

1.3 Internal Analysis
5 Hour Energy was created by a company called Living Essentials in 2004. The founder of Living Essentials, Manoj Bhargava, stated in the article 5 Hour Energy Powered Up “When it came to naming the product, the company didn’t come up with anything clever or sexy: They called it “5-Hour Energy.” “You can tell from the name, we didn’t hire consultants to come up with it. For us, anyway, the product is everything.” “Living Essentials first tested 5 Hour Energy at GNC, a chain of health stores that specializes in vitamin supplements. When the brand proved popular there, the company decided to move into more traditional retailers.” 5 Hour Energy can now be found anywhere from convenient and grocery stores to Wal-Mart and Shopko.
5 Hour Energy has become the most popular energy shot on the market today. By being the first energy shot in the market they were able to take over the category. Their strong techniques of branding through heavy advertising and saturating the market have given them control of nearly 90% of the market share. In the exhibits 9 through 11 below you can see how their bright flashy packaging has given them a huge advantage. Exhibit 9
As seen in Exhibit 9, 5 Hour Energy comes in five great tasting flavors; pomegranate, grape, berry, orange and lemon-lime. According to 5 Hour Energy’s website it’s packed with b-vitamins and amino acids. It has zero sugar, zero herbal stimulants and four calories.

Exhibit 10
For those who need a lot of energy there’s also Extra Strength 5 Hour Energy, as seen in Exhibit 10. According to 5 Hour Energy’s website, it’s the energy shot for extra busy, extra hard working people that need a big boost of extra energy. It contains as much caffeine as 12 ounces of premium coffee and comes in berry flavor. Exhibit 11
As shown in Exhibit 11, 5 Hour Energy also comes in decaf for those sensitive to caffeine. According to 5 Hour Energy’s website, it works gently- with only as much caffeine as a half cup of decaffeinated coffee, and no Niacin. And it has pleasant citrus taste. It contains B-vitamins and amino acids plus Choline. It is vital to the production of neurotransmitters in the brain that effect memory, intelligence and mood. Choline is present in eggs, soy, and meats.

1.4 Customer Analysis
5 Hour Energy’s primary target market is working adults between the ages of 30-45. According to the article Pure Performance by Beverageworld.com “From what we’ve seen, the energy shot user is definitely slightly different from an energy drink user. They tend to be a little bit older…even a white-collar audience. One of the handful of reasons for this is the distinction between some energy shots that are labeled as dietary supplements-for example, 5 Hour Energy, 6 Hour Power, and Redline Power Rush and Meltdown fat-burning shot from VPX/Redline-which might appeal more to an older consumer.” The older consumers of 5 Hour Energy is in need of a quick jolt of energy without having to consume an entire cup of coffee or a 12oz energy drink.
5 Hour Energy’s secondary target is the college market between the ages of 20-29. According to the article 5 Hour Energy Powered Up, “The opportunity for energy drinks in the college market is driven by students who want to stay alert when writing papers or studying for exams. 5 Hour Energy’s well-targeted “final exam” contest is more evidence that Living Essentials understands its potential audiences–and knows how to reach them.” The college market tends to purchase 5 Hour Energy at convenient stores on their way back to their dorm to cram for an exam. These individuals tend to purchase single units unless they become more adequate users then they too will purchase the double and 6 pack.
Energy shot users start by consuming 5 Hour Energy because they see it on counters everywhere so they decide to give it a shot, literally. These individuals are described as being light users. They tend to be impulse buyers who have the mentality of “I’ll try it once, twice if I like it.” Once they begin purchasing 5 Hour more frequently, once or twice a week, they become medium users. These individuals are always on the go so they consume 5 Hour Energy to give them that extra boost on the really hectic days. Once an individual’s body gets use to consuming 5 Hour Energy on a daily basis and they feel as though they can’t function without it, they become heavy users. These individuals tend to start purchasing their favorite flavors in larger quantities such as the double or 6 packs. The larger quantities can be found on 5 Hour Energy’s website, Wal-Mart, or Amazon.com.
2.0 Marketing
2.1 Positioning
5 Hour Energy is the premium energy shot that is quick, simple, and effective. For those hard working individuals that need a boost, 5 Hour Energy is fast, easy to drink while containing caffeine equal to a leading cup of coffee. To top it off, 5 Hour Energy has zero calories, zero herbal stimulants, and only four calories. As the product category creator, 5 Hour Energy has produced an energy shot that is made for everyone from the original shots to the decaf shots to the extra strength shots.

2.2 Marketing Objectives A primary marketing objective of 5 Hour Energy is to increase sales in the Nebraska region by 10% in the year ending 2011. In order to reach this goal, 5 Hour Energy’s marketing campaign will utilize several different methods of getting their brand into consumers’ mindsets. Additionally, 5 Hour Energy would also like to increase usage rates of current user’s by 25%. This is will be more difficult to measure than just an increase in sales. One way of determining if 5 Hour Energy met this goal in the geographic region is to look at the sales of bulk packs of 5 Hour Energy. If the company sells more of its twin packs and other bulk packs, that will be a good measurable factor. The 2011 sales of these bulk packs will be compared to the sales in 2010 of bulk packs and that should be a good indication of whether 5 Hour Energy met this objective. Lastly another objective 5 Hour Energy would like to accomplish in the 2011 marketing campaign is increasing the marketing impact of our commercials. One way of measuring this objective is to show a code during the commercials. The code will be different for every channel advertised on. Furthermore, there will be an 800 number to call to receive one free sample of 5 Hour Energy. When viewers call this number, a representative of 5 Hour Energy will ask for a promotional code. That will allow 5 Hour Energy to see which channels are producing more potential users thus eliminating the unproductive channels.

2.3 Product Strategy 5 Hour Energy hit the market in 2004 creating the energy shot category. 5 Hour Energy has been the most popular brand and has stimulated creation of other energy shots such as competitors, Red Bull, Stacker2 6 Hour Power, Worx, and Rockstar. 5 Hour Energy has stood out from their competition in the aspects of their product label, line extension, and packaging. Table 3 compares each competitor on the aspect of the product label, line extension, packaging, and product recognition. When it comes to the product label, the only reason why the Red Bull shot rates slightly below 5 Hour Energy is because they offer a sugar free shot that is two calories which is two calories less than 5 Hour Energy’s four calorie shot. Although, the Red Bull shot that does contain sugar is 27 calories which is a huge pull down, but the sugar free shot is what keeps Red Bull afloat. The advantage that 5 Hour Energy has on all of its competitors is that the original, decaf, and extra strength shot all contain four calories. The huge competitive advantage 5 Hour Energy has is their line extension. 5 Hour Energy offers the largest variety of flavors out of its competitors with seven different options to pick from! Stacker3 6 Hour Power is the closest competitor with six different flavors; although, their weakness is the low product recognition among consumers.

Table 3 | Weight | 5 Hour Energy | Weighted Score 5 Hour Energy | Red Bull Shot | Weighted Score Red Bull | Stacker2 6 Hour Power | Weighted Score Stacker2 6 Hour Power | Worx | Weighted Score Worx | Rockstar | Weighted Score Rockstar | Product Label | 5 | 4 | 20 | 3 | 15 | 5 | 25 | 5 | 25 | 3 | 15 | Line extension | 3 | 5 | 15 | 3 | 9 | 5 | 15 | 3 | 9 | 1 | 3 | Packaging | 4 | 5 | 20 | 3 | 12 | 3 | 12 | 1 | 4 | 1 | 4 | Product Recognition | 4 | 5 | 20 | 2 | 8 | 2 | 8 | 5 | 20 | 2 | 8 | Combined Score | | | 75 | | 44 | | 60 | | 58 | | 30 | Weight rated on a scale of 1 to 5; 5 being the highest and 1 the lowest | Weighted Score rated on a scale of 1 to 5; 5 the highest and 1 the lowest |

Exhibit 12
Original 5 Hour Energy contains four calories and has no sugar and no herbal stimulants! It is available in five delicious flavors which include grape, pomegranate, berry, lemon-lime, and orange. Exhibit 12 illustrates the product label and the nutritional substances that 5 Hour Energy contains. The serving size found in each 5 Hour Energy bottle is 1.93 fluid ounces. The energy shot is packed with Vitamin B6 (40 mg), an important factor in the production of amino acids which are the building blocks of protein. Niacin (30mg) is also found in the Original 5 Hour Energy shot which is an essential ingredient that helps with the energy boost by converting fats, proteins, carbohydrates, and starches into working energy. There is also 400 mcg of folic acid or vitamin B9 which assists in the production and preservation of new cells in our bodies. There is also an energy blend (1870 mg) found in the Original 5 Hour Energy shot. Within the energy blend, the energy booster is found-caffeine. According to 5 Hour Energy’s website, the Original flavors contain caffeine comparable to a cup of leading premium coffee (roughly 8 ounces).

Exhibit 13

5 Hour Energy’s Decaf shot are for individuals that need a little boost without all the caffeine that is four calories. The decaf shot has just enough caffeine to get you going and alert without the “caffeine feeling”. According to 5 Hour Energy’s website and the product label seen in Exhibit 13, the 5 Hour Energy’s decaf shot contains 6 mg of caffeine which is approximately a half cup of decaf coffee. Another difference seen between the original and decaf nutritional labels is that the decaf shot does not have Nicacin. An ingredient found in the decaf that is not found in the original shot is choline in the energy blend.

Exhibit 14

For those individuals that need a really big boost of energy, 5 Hour Energy offers an extra strength shot that are only four calories. The Extra Strength 5 Hour Energy shot contains caffeine that is comparable to 12 ounces of the leading premium coffee. Exhibit 14 shows the product label for the extra strength shot. There is 40 mg of nicacin in the extra strength shot in comparison to the 30 mg of nicacin in the original shot.

Figure 5 places 5 Hour Energy high in the aspect of visual impact of the package due to the fact that 5 Hour Energy has established its name as the market leader. Looking at the quality of the product label, the attribute is based on the calorie count and other beneficial ingredients. 5 Hour Energy contains four calories which rates well; although, the map shows that Worx and Stacker2 6 Hour Power rate higher on the map due to the zero calories found in each drink. Worx rates on the higher end of visual impact of the package but not as high as 5 Hour Energy. Stacker2 6 Hour Power is located in the low spectrum of the map for visual impact of the package because Stacker2 6 Hour Power does not have a well established name in the market. Figure 5

2.4 Pricing Strategy
As the high quality, best selling energy booster, 5 Hour Energy has created the product category for energy shots. When 5 Hour Energy hit the market, a price was established that the industry followed. 5 Hour Energy’s pricing strategy is a premium price, with 5 Hour Energy as the price leader.
With the assumption of the average retail price of one unit of 5 Hour Energy at $2.99 and the cost of goods sold being 60%, the gross margin comes to $1.19. (See Table 4) The average price to resellers is $1.80 with a 30% cost of goods sold-$0.54. 5 Hour Energy’s gross margin is $1.26.

Table 4

$2.99 100% Average Price of One Unit
-$1.80 60% Cost of Goods Sold $1.19 40% Gross Margin

$1.80 Average price to resellers x $0.30 Cost of Goods Sold $0.54

$1.80
-$0.54
$1.26 5 Hour’s Gross Margin

2.5 Promotional Strategy
2.51 Goals As stated before, 5 Hour Energy holds an incredible 82% market share of the energy shot industry as of June 2010 (Symphony IRI Group). This is going to require Living Essentials to continuously invest in advertising through several media channels to defend their market position. According to CBS News, the advertising budget for 5 Hour Energy for the 2011 fiscal year is 90 million dollars. To consistently defend their position and expose the product more, 5 Hour Energy will increase awareness, product recognition, product loyalty and eventually that will lead to even more sales. Our promotional objective is:

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To achieve gross impressions of 1,000,000 through several media channels.

Gross impressions are the sum of audiences, in terms of people or households viewing where there is exposure to the same commercial of other available media channel on multiple occasions. Although we would love to reach every potential consumer in Nebraska over age 18, we realize that some people will see our advertisements several times while others will never see it depending on the geography and demographics in the area. By achieving gross impressions of 1,000,000 we believe 5 Hour Energy will greatly enhance the awareness for the product. Reaching a known audience several times will prove more effective than just reaching it once. According to Thomas Smith, a 19th century London businessman, it will take up to twenty times for a consumer to see the ad initially to actually purchasing a product. There are other predictions as to how many times a consumer should see a product before they buy such as the “3rd trick pony” and the “seven times factor”. We believe a frequency of between 3 and 7 times will help reach our goal.

2.52 Creative Strategy 5 Hour Energy will derive its creative strategy by establishing itself as the premium energy shot in the category. 5 Hour Energy delivers the boost of a cup of coffee or energy drink without the time, calories or harmful chemicals. 5 Hour Energy will capitalize on the fact that they are already the market leader by a considerable margin. Furthermore, they will not have to work on growing their market share but defend their market share.
2.53 Media Strategy 5 Hour Energy’s media strategy will consist of several different media channels: social media, television, billboards, sponsoring of events and causes and coupons. Social networks are a great way for advertising as they are national and even world wide. Television is also a good vehicle because 5 Hour Energy can advertise during different shows and events that align with their product’s uses. Billboards can also be very effective because a consumer traveling to work might see that billboard ten times in one week. Sponsorship could prove to be one the most beneficial promotional activities as it can target events that coincide with leading a healthy and active lifestyle. Lastly, coupons are an obvious way to get the public to initially commit to trying a product.
Figure 6
307,006,550 100% Pop. of United States
1,796,619 .006% Pop. of Nebraska
$90,000,000 x .006 = $531,000 Ad Budget

As stated before, 5 Hour Energy will spend $90 million on advertising in 2011. Assuming 5 Hour Energy wants to spend the same amount per capita, the advertising budget for Nebraska in 2011 will be $531,000. Figure 6 shows how we came to this conclusion. That amount will be divided up between the different media vehicles 5 Hour Energy will use in the state of Nebraska.

Social Media Social networks are a web based community of people often grouped into common interests. This is very nice for 5 Hour Energy because they can advertise to whatever niche they are trying to reach. Facebook has numerous classifications for its users; age, sex, hobbies, likes, dislikes, the list goes on and on. As a result, Facebook will be the primary vehicle for social media advertising.

Facebook According to Facebook, they now have over 500 million users as of 2010 and 50% of them are logging on each day. To put that in perspective, if Facebook were a country, it would be the third largest country in the world behind India and ahead of the United States. That is astonishing. Facebook also claims to have over 900 million objects that users interact with daily. These objects could be pages, groups, events or advertisements. That is an enormous amount of available objects and 5 Hour Energy will capitalize on advertising on Facebook. 5 Hour Energy will greatly enhance its advertising effect by targeting certain demographics, ages and interests. Table 5 lists the U.S. Facebook users by age. Since 5 Hour Energy doesn’t want to target consumers under the age of 18, this chart helps narrow down the available consumers available for 5 Hour Energy to target. Table 6 below breaks it down even further. Nebraskans using Facebook is broken down into age groups totaling 976,700 (Socialbakers). This will help 5 Hour Energy better advertise through Facebook. Table 5 Table 6

Facebook charges $.50 per click per advertisement. We have decided to allot $50,000 for Facebook advertising. This will allow for 100,000 clicks total, an amount we feel comfortable with.
Television
Advertising on television is the most obvious and used vehicle for big companies. Although it is hard to realistically get a price on how much a 30 second commercial would be, a typical 30 second ad on a nighttime show averages $7,500. Therefore we will allot roughly $150,000 for this budget. That means we will be able to buy about 20 commercials throughout the advertising period. There will be a few local television stations which will be used with most of the stations located either in the Omaha or Lincoln area. Reasoning for this is because of the sheer population relative to the rest of the state.
Billboards
There are several advantages of using billboards as an advertising tool. Compared to other media channels, billboards are relatively cheap and reach a very diverse pool of consumers. People are also more likely to see these billboards several times which are key for 5 Hour Energy to get their product in consumers’ mindsets. Strategic positioning of these billboards will greatly help the frequency it takes for a consumer to consciously remember a product and ultimately purchase that product. Figure 3 on the right would be an excellent example of the way 5 Hour Energy could utilize billboards. The costs of billboard advertising vary greatly with different locations, what material is used and the gross rating points associated with each billboard. The average cost per week in Nebraska is $550 per week when 4 weeks are purchased. However, on routes which are very heavily traveled, costs skyrocket. We looked at putting a billboard up on Highway 81 outside of Norfolk, which includes a GRP of 100, was $2,300 per week. Furthermore, renting a billboard along U.S. 680 in downtown Omaha with a GRP of 100 costs $17,985 per week. As one can see the rates aren’t set in stone. Despite the costs of renting a billboard along a heavily traveled thoroughfare, the potential to reach tens of thousands consumer’s daily must be acknowledged. We have decided to allot $125,000 for billboards. That should allow 5 Hour Energy to rent roughly 10-15 billboards. These won’t all be purchased at once but pulse throughout the year.

Sponsorship Sponsoring events and activities throughout the state will enhance 5 Hour Energy’s presence in several areas not already under their marketing efforts. Some of these events could be as big as annual marathons in Lincoln and Omaha to as small as a youth football league in Alliance. All the events will advertise 5 Hour Energy whether on the radio promoting the event, during the event through banners, flyers and handouts and by word of mouth. Sponsorship is a very versatile marketing tactic which can be used throughout the year After considering our advertising budget and what we have allotted for the earlier channels, we feel 5 Hour Energy should devote roughly $100,000 for sponsoring events. These events are far ranging and will be very diverse. The budget will not be set in stone as to this is how much must be spent monthly. If there is money leftover at years end, it may be used the following year.

Coupons Coupons are probably the most widely used tactic to get consumer’s to purchase a product. 5 Hour Energy will use these coupons to get people who aren’t users of energy shots to try the product out. 5 Hour Energy coupons should be given out to people who haven’t tried it rather than people who already use it. These coupons could also be distributed at events 5 Hour Energy is sponsoring. Exhibit 15 below is an example of a coupon 5 Hour Energy could hand out.
Exhibit 15

2.54 Budget
Figure 7 Below in figure 7 is the budget of $531,000 and a media schedule to follow. Social media, sponsorships and coupons will be used throughout the year. Television and billboards will be used during and closer to summer months as people generally become more active during that season. Month | Jan | Feb | Mar | Apr | May | June | July | Aug | Sep | Oct | Nov | Dec | | Week | | | | | | | | | | | | | Cost | Social Media | | | | | | | | | | | | | $100,000 | Television | | | | | | | | | | | | | 150,000 | Billboards | | | | | | | | | | | | | 125,000 | Sponsorship | | | | | | | | | | | | | 100,000 | Coupons | | | | | | | | | | | | | 56,000 | Total Cost | 16,667 | 24,667 | 32,292 | 40,291 | 90,291 | 90,291 | 90,291 | 32,291 | 40,291 | 32,291 | 24,667 | 16,667 | $531,000 |

2.6 Sales and Distribution Strategy
2.61 Goals

3.0 Finance
3.1 Sales Forecast
The Sales Forecast can be found in the Appendix. Based on the United States population of 308,745,538 from the US Census for 2010, along with the 2009 5 Hour Energy Sales of $638,545,100, we discovered that the national per capita came to $2.07. Taking this per capita figure, we multiplied it by the Nebraska population to come up with Nebraska’s 2009 sales. With the growth rate of 129.4% we were able to find out that the projected 2011 sales for Nebraska will be $6,324,720.07. We were then able to find out the wholesale price, the cost of goods sold, and the gross margin. The gross margin ended up being $2,656,382.43. The sales forecast also shows the net sales and gross margin broken down monthly.

3.2 Marketing Budget
The full discussion of the marketing expenditures can be found in the media strategy. 5 Hour Energy’s twelve month advertising campaign totals $531,000. Please refer to Sales Forecast for the detailed twelve month marketing budget.
4.0 Implementation and Control
To make sure our goals are on the right track and that they are being enforced, we will monitor and track the progress of our sales. We will also monitor how many single unit and multiple packs are being bought.

We also strive to reach a large audience through our marketing efforts. We will be tracking how effectively our television advertisements are by putting a code at the end of the commercial that will be used for viewers to call in to a representative. This will allow 5 Hour Energy to see which channels are producing more potential users thus eliminating the unproductive channels.