Current Market Conditions Competitive Analysis
ECO/365
May 13, 2014
Fariba Kheradmand Current Market Conditions Competitive Analysis
Due to the widespread general appeal of Alcohol, our team has selected to break into the adult beverage market and compete with major brewing and distilling companies such as Suntory and Beam Inc. Mainly we want to focus on alcoholic beverages that appeal to the female clientele such as flavored Margaritas. These drinks are sweeter in taste, colorful to the eye and less expensive than “top shelf” alcohol drinks. Below you will find the results of our findings.
Suntory Holding is a brewing and distillery company that was originally formed in 1899 in Osaka Japan. Originally Suntory only sold alcoholic beverages such as Japanese whisky but has expanded into everything from sandwiches to soft drinks. In January, 2014, Suntory made an agreement with American producers Jim Beam Inc. to buy their company for $13.6 billion dollars. Suntory’s total annual revenue is $4.3 billion dollars and once this acquisition goes through, it will make Suntory the world’s third largest maker of spirits.
The alcohol market is an enormous market. In the following two paragraphs Team C will provide an overview of the market for our product, “Sauza Sparkling Margarita Watermelon”, include an analysis of its competitors, and define our product’s potential customers. The best definition found for defining a market is “A market is the set of all actual and potential buyers of a product or service,” according to ("Tutor 2 U", 2014). Team C will define our products market as the “Alcoholic Beverage Market” and focus on the US. The US beverage market is a $331 billion industry with alcoholic beverages making up over 50% of the revenue in sales which is $189 billion ("Park Street", 2007-2013). We have a huge market as the total in alcoholic beverage sales includes malts, wines, and spirits. Our product being a spirit also gets broken down into categories: vodka (33%), whisky (23%), rum (13%), tequila (6%), gin (5%), brandy (5%), and all other (15%) ("Park Street", 2007-2013).
Sauza Tequila Import Company, like all corporations, operates according to supply and demand that is affected by different factors. Sauza ideally would like to create products based on their customers’ demand for the product, or the lack thereof, and impact supply outcome. Customer preference is a factor to be acknowledged when considering supply and demand and how supply and demand affects the equilibrium price. Sauza Tequila’s potential customers include consumers over the age of 21 years of age, and cannot research the people that will be of age soon. Justin Timberlake is now in a deal with Beam to rebrand Sauza Tequila with a purely digital campaign ("Chief Marketer", 2014). Sauza Tequila Sparkling Margarita Watermelon is marketed at events and parties because of its sweet taste and bubbly composition.
Sauza Tequila, the world’s #2 premium tequila, announces the launch of Sauza Sparkling Margarita Watermelon, its newest innovation offering authentic margarita taste with the unique addition of watermelon and effervescent bubbles. With our reputation, and being one of the best in spirits and tequila, we will have a lot of issues dealing with competitors in the fruity and sweet flavoring alcoholic beverages. This new product appeals to women and promotes a fun time due to its sweet taste and aroma and is bound to catch on quick, making competition fierce. This is why price elasticity of demand formula come into play, with competition growing, trying to mimic our product, we will need to either raise or lower our prices of this margarita, as of now we have it at $12.99. We will see how it sells and assess the quantity demanded and adjust accordingly after analyzing the sales data.
Technological innovations to this tequila and spirits market will definitely shift us to constantly improve on our products and competitors will do the same. However, we gladly accept the challenge from our competitors. Without companies challenging each other, we would not advance towards making great products for consumers. Also, making and producing these products have become a cleaner, greener and overall more eco-friendly way of producing spirits and tequila because of innovations from other competitors. We will continue to be in the leading edge of technological innovation and use them to our advantage thus challenging our competition to keep up or get left behind.
The cost structure of this margarita will not change dramatically and will be on average just like our other products; we are predicting high sales and high demands for this product and have high hopes for this sparkling watermelon margarita. Types of cost structures include transaction costs, sunk costs, marginal costs and fixed costs. The cost structure of the firm is the ratio of fixed costs to variable costs.
Sauza's variety of fruit flavored margaritas primary ingredient is tequila. Interestingly tequila is derived from Agave plants and is specific to Tequila Mexico. James (2001), "In bilateral and multilateral negotiations, including those leading to the North American Free Trade Agreement (NAFTA), Mexican trade officials have demanded Tequila be protected as a "geographically indicated product" under intellectual property rights law ” (Identification). Considering that this policy places Mexico at an unfair advantage with the most popular selling spirit, one can assume this variable has a tremendous effect on the production of Suaza's fruit flavored drinks. For example if Mexico did not reserve intellectual rights over the tequila product, its quality would depreciate. Tequilas quality is directly correlated with its cultural essence and geographic location of Tequila, Mexico and the altering of its growth could potentially affect quality. Subsequently the depreciation of quality and overproduction could lead to price depreciation. When there is a surplus of goods, prices are lowered to increase demand. Additionally, when prices drop, revenue drops. Hence organizations suffer decreases in revenue and reduce the labor force to reduce overhead operational costs. As it relates to Suaza's fruit flavored drinks, one can suggest that the best recommendation to sustain the product quality, pricing, demand, and quality supplied is to continue the current tequila production strategy.
The fixed cost of the Suntory Holding can change from macroeconomic standpoint but as of now everything is as any other company. The fixed costs that will be affected in this new line of margaritas are the cost of advertising activities, technology applied, and the use of new equipment. Also if the company plans to expand to a new location due to the line of sprits, the rent would be added on to the costs as well. Of course the company would want the best advertisement team to be on the job so the cost of advertising activities would increase as well as salaries of the new hires if any. As the company competes against new and upcoming products, Suntory Holding would have to remain in the race by acquiring new technology. Also, to meet new deadlines for the launch, the company would have to get new equipment. All of the elements listed above will be key factors affecting the success of the company with the new flavors.
Because of our prominence in the marketplace, it is important that we are diligent in our analysis of the data with respect to the launch of this new beverage. There is a reason we have amassed an abundance of resources throughout our history. We have done a great job analyzing data, implementing policies, and allocating resources effectively and efficiently. To sustain our position in the marketplace, we have to continue getting better and looking for ways to improve. We need to embrace our diversity, encourage collaboration, organize our collective efforts, and utilize technology appropriately.
We are at a point in our existence where we need to place a priority on maximizing our profit-making potential. The goal in business is to maximize profits by minimizing waste. To do so, we should begin by conducting a thorough analysis of our marginal cost (MC) as it relates to our marginal revenue (MR). We have conducted research that has revealed fluctuations in MC depending on output levels. Our focus needs to be centered on determining what level of output will allow us to maximize our profit-making potential.
In conclusion, a thorough analysis of the relationship between MC, MR, and output has revealed that profit maximization is achieved when MC = MR (Colander, 2010). While conducting the analysis that produced this revelation, it was also discovered that profit maximization is not necessarily achieved by output levels that produce the most profit per unit. It is possible to produce at an output level that generates more profit per unit and not maximize total overall profit. We understand the importance of profit per unit and are not attempting to diminish the importance of it. However, we now understand the distinction between profit maximization and profit per unit and how profit maximization is achieved by appropriate output levels that may not achieve maximum profit per unit. This is a very important concept to grasp and understand to increase our chances of achieving our objective. With this newly discovered information, technological advances, and the data mining experts we have on our team, we can put ourselves in position to successfully compete in the new market of today and continue to grow our business and increase our presence in the marketplace.

References Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill.
James, J. (2001). Tequila. Retrieved from http://www1.american.edu
Tutor 2 U. (2014). Retrieved from http://www.tutor2u.net/business/marketing/market_analysis_defining.asp
Park Street. (2007-2013). Retrieved from http://www.parkstreet.com/industry/alcoholic-beverage-market-overview/
Chief Marketer. (2014). Retrieved from http://www.chiefmarketer.com/digital-marketing/justin-timberlake-sauza-tequilasales-06052014#_