Lucozade SWOT and PEST Analysis

 

Introduction:

Lucozade is a recognised brand name known for its energy and sports drinks. The brand is an important product in the portfolio of GlaxoSmithKline PLC’s (GSK), a global pharmaceutical company with sales of £24 billion in 2015 (GSK, 2015, P.1). Lucozade was launched in 1927 as a medicinal syrup, until 1985 (Ward, 2009) when it was marketed as a mainstream drink, differentiating Lucozade as a perfect product to aid customers in their physical activity (Schuna, 2015). Since its launch, the Lucozade formula has been developed into many different forms from gels to edible tablets illustrating the versatility and strength of this brand and developing the brand’s portfolio.

Lucozade has been around since the early 1920s and over the last 90 years has become one of the leading brands in the energy drinks market, however there are other strong energy drinks competitors in the market such as Gatorade by Pepsi and Powerade by Coca-Cola launched in 1965 and 2001 respectively (Zuccaro, 2015). Although these drinks came onto the market at later dates, the companies backing them are giant companies and global brands with a lot of financial strengths including large profits for re-investment, supplier bargaining power, large economies of scale and technological access, all of which allow them to pose a real threat to Lucozade. More recently, there are numerous other companies that have also taken out supplement brands including SIS and Clif that are aimed at smaller, niche markets to capture the lucrative opportunity of the energy market (Hanrahan, 2009). This report will critically examine Lucozade’s micro environment strengths and weaknesses and the macro environment which are the opportunities and threats. A PEST analysis is done as Porter’s five forces analysis.

1.2 SWOT Analysis:

A SWOT analysis is a marketing tool that allows for managers to assess the company’s strengths, weakness, opportunity and threats. Albert Humphrey claims it is a strategic planning technique that organisations can implement for their products and services when deciding on the best way to achieve future growth (Fair, 2005, pp.7-8).

Strengths:

One of the major strengths of Lucozade is that it is a well-known, established sports energy drink within Britain. It is also one of the leaders in the energy drinks market, and has a presence in numerous other international markets as well, including USA where it has sponsored many sports events (Wenner & Jackson, 2009, pp.3-16).

Another strength of Lucozade is its branding, “Consumer brand knowledge can be defined in terms of the personal meaning about a brand stored in consumer memory, that is, all descriptive and evaluative brand-related information.” (Keller, 2003, P.370-371) Lucozade has a very famous and strong brand with high level acceptance among energy drinks consumers’ acceptance since 1920’s. The company is well- recognised for their innovation and consistent development and testing on their products to help consumers with their energy and performance. Lucozade has tried over the years to differentiate itself from other brands as a reliable company in the energy and sports drink market, which resulted in customers acknowledging it as a strong brand. The brand tries to reciprocate this by creating and continuing special relationships with their clients which leads to long term loyalty, making the brand much stronger.

Social factors seem to be more in favour with individuals undertaking more physical exercise for health reasons (Cunningham, 2010). The ultimate goal for the brand Lucozade is to create an actionable audience which is done by developing an online community which can help Lucozade expand their business and sell more products to regain their number one position in the energy drinks market. Lucozade have collaborated with Spotify to allow them to widen their target market to promote and sell their products.

According to Crimson Hexagon’s study in 2013, 15% of Lucozade consumers use it as a cold and hangover remedy. This is a valuable insight for Lucozade as it is trusted to help customers function with their daily lives after drinking too much and being ill. If customers are consuming Lucozade as a cold remedy, then there is a potential for marketing to target new customers through promoting this message in their advertising campaigns, maybe through using some real testimonials.

Over the years Lucozade has expanded their range of flavours, currently offering 12. In 1996 they introduced the orange flavour which become the most popular and has increased revenue to £75 million. They also innovated to create Lucozade energy, which has the same amount of caffeine as a cup of tea (Ward, 2009) targeting the customers that need a short term caffeine boost, without overriding negative effects. David Taylor (2004, p1) thinks expanding products is the cheapest and the least risky strategy compared to making a new brand (differentiating) and can increase the sales of the company’s products. Lucozade’s effective forward planning in its product development was evident when the company introduced Lucozade Zero in 2016 after UK imposed a sugar tax on soft drinks. This product has proven popular as the sales increased by 58%, capturing the market that are looking for sugar-free energy drinks. (Lucozade Ribena Suntory, 2016)

Weaknesses:

Lack of awareness of a brand can cause issues that customers will not recognise the company in the future and move to their competitors.  (Nicholls, 1989, p. 31) The main weakness of Lucozade is the fact that there is not enough advertising in print media and television, especially in the USA comparing to Powerade and Gatorade, (Jarvie,2012). If Lucozade wants to continue grow internationally it needs to invest in marketing efforts to increase the awareness of the brand globally. This will prove useful if the market becomes saturated in the UK, and will help Lucozade become a globally established brand on par with its large competitors.

Lucozade has 0.1% of ethyl (alcohol) which has ruined the image of Lucozade among certain groups of people who consume it as it is an energy drink not an alcoholic drink (BBC, 2004). In order to overcome this, Lucozade should look to develop an ethyl-free version to ensure that customers are not put-off the benefits of drinking Lucozade. Although this will require further capital to be invested in lab work and development of the formula, in the long term if it captures the market it can be a worthwhile investment into product development.

Another weakness can be seen through the fact that the company has a relatively low number of followers for their Twitter and Facebook accounts of just over 58,000 and 600,000 respectively. Having a low presence on social media can be worrying in this day and age, as other top companies have moved to advertise themselves on social media since the number of Facebook users has reached two billion and Twitter has four hundred million users (Statista, 2016).

Although expanding the product range can be advantageous, it can be a disaster for some companies as Aaker claims (2004, p211-214) products expansion can weaken the existing product which means the new items sale is increasing while the older products are outdated and have less demand for the original product. This cannibalising impact on sales of original products can end their life cycles and can reduce customer loyalty if new products are constantly added to the range.

Opportunities:

In USA people tend to attend sports events and there are various sports activities that people get involved in, therefore, many people consume energy drinks to gain strength, and boost their energy (Shilbury, Westerbeek, and Quick, 2014, p. 7). Lucozade has the opportunity to expand its market and can take advantage of this growing market to show the brand’s strength by offering its different varieties of energy drinks. Lucozade can use their established brand name as a strength to capture the opportunities available in the US market through the marketing budget offered by their parent company GSK (GlaxoSmithKline A. Report, 2010, p.6-11) which should be able to offer a large advertising budget and produce effective promotional campaigns to establish a strong presence in USA.

There is an increased awareness of the economic potential of sport which results in an increase in activity levels around the world. China, an emerging country has a large portion of the younger generation which make it ideal expansion opportunity for Lucozade.  The Chinese market are apt users of social media, which if Lucozade can tap into, could prove to be a valuable opportunity. Hanrahan (2009) states that due to technological advancements being high in contemporary time, Lucozade has the opportunity to access the technologies with ease, following on from effective market research and investment into their social media platforms.

If Lucozade want to pursue Ansoff’s market penetration growth strategy instead of market development, UK is still presenting them with good opportunities. According to research performed by Mintel Group (2016), in the last three months of 2015 showed that one in four Britons have used sports nutrition products, which means 42% of men aged between 16 and 24 have used sports nutrition spending £66 million. Lucozade should take this into account by increasing their products and marketing approach to target the consumers to use their drinks by introducing healthy ingredients. Their marketing message need to incorporate the idea that the drinks can be used as medicine to keep hydrated as it helps to replace electrolytes (Lucozade Ribena Suntory, 2016). Their message can focus on urging consumers to drink more energy drinks instead of alcohol, by increasing the awareness of the dangers of alcohol on their body, to avoid liver damage, hangover- free and the dangers of drinking and driving. Thus there is a potential for Lucozade to enter new markets like bars and night clubs, especially after introducing Lucozade zero which has no calorie and comes in different social flavours.

Another opportunity for Lucozade is to capture the caffeine beverage market and become a substitute for drinkers of tea and coffee. As mentioned above, a 380 ml bottle of Lucozade has the same amount of caffeine, so it can be a replacement for tea and coffee, while Lucozade can advertise themselves as a better replacement because of the nutrition that the drink has in it.

The price of Lucozade is “too expensive” based on survey made by Mintel group (2016), this is important as pricing strategies are internal decisions that Lucozade can control. Decreasing the price can help the company to attract more customers, but this has to be done in way that explains to people that the effectiveness of the drink has not changed, but the price has dropped down. This could compromise their profit margins, but can be a benefit in the long term if demand for their products increase.

Threats:

Lucozade faces fierce competition from three major energy drinks companies which are Powerade, Gatorade and Red bull. These energy drinks products mainly rely on young male customers, that have come to rely on these drinks. If the energy drinks market is seen as targeting just the younger male market segment, it could potentially put off the older lucrative market from purchasing these products. Lucozade can address this problem through their marketing campaigns.

The fear of recession is one of the main threats that all companies are scared of as it affects all types of businesses. According to economists the UK economy is yet to recover from the 2008 financial crisis and yet the economy is further set for uncertainty following the 2016 Brexit decision. Uncertainty reduces customer’s purchasing confidence and inflation is set to increase over the upcoming years. This will reduce customers’ disposable income which could lead to the sales of energy drinks to decrease.

Since Lucozade has been late on to the social media promoting platform, it may be too late for it to capture the opportunities its competitors have established through their large marketing budgets..

PEST Analysis:

“A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm’s control and sometimes present themselves as threats.”   (NetMBA, 2002)

Since it is an analysis of the external environment, thus it is “broader forces affecting all organisations in a market” (Chaffey et al., 2008, p. 49).

These aspects need to be examined in order to analyse Lucozade’s environmental market situation.

Political environment:

National and international rules and regulation have an impact on how companies run. To apply that the EU has forced Lucozade to warn families that their product may contain artificial colouring and additives which are linked to behavioural issues in children which can cause hyperactivity. Lucozade has labelled this warning on their packaging to avoid the legal issues than can ruin their image. (Hickman, 2010)

The UK has imposed tax on sugar in soft/energy drinks which is set to come into effect in 2018, this was the reason why Lucozade introduced Lucozade Zero in March 2016, it is a sugar-free and calorie-free version that will avoid this tax and attract a new market segment. However, the old products will still get taxed, which can cause the price to increase, reducing the demand for the products depending on its price elasticity (Matthews, 2016).

The main political criticism of Lucozade is that it contains an unhealthy amount of sugar and caffeine. This has caused trouble to one of its main competitor Redbull, which led to it getting banned in Norway and Denmark. Lucozade has addressed this by introducing “healthier” versions in to their product portfolio.

Lucozade has suffered some legal issues, one of which was the banning their 2014 TV advert. Lucozade’s multimillion advertisement which presented Real Madrid and Wales player Gareth Bale was banned from the EU after claiming hydrates is better than water: “Lucozade Sport gives you the electrolytes and carbohydrates you need, hydrating you, fuelling you better than water,” according to the advertisement. (BBC, 2014) The wording of their claim was criticised, and ruled that it was an unclear message to the audience. This financial loss was significant, making customers question the validity of their claims.

There are other political factors that can affect Lucozade such as the obesity law in the UK which the government blames on the inclusion of additives, artificial colouring and sugar, all these can cause problems for some of Lucozade’s products.

Climate protection laws and controlling the amount of water that Lucozade can use, according to environment agency (2016, p.14) Lucozade’s sustainable policy the company is regulating their usage of water to reduce wastage. They claim to be investing in pumps and other machinery to enhance their production process and have committed to increase their CSR activity to enhance the impact they make on the community.

Although Lucozade’s target market is aged between 16 and 24, there are some children under 16 who have been buying energy drinks from supermarkets. Gavin Partington, director general at the British Soft Drinks Association (BSDA) says the energy drinks companies are failing to protect young people and they have been drawn into energy drinks. Thus there are many debates to set age-restriction on energy drinks too as they might affect the behaviour of children (Qvist, 2016).

Economic environment:

Lucozade is affected by a set of factors that are out of the company’s control. Those factors include tax rates policies like imposing tax on sugar in energy drinks. Many of Lucozade energy drinks have a high amount of sugar this will, have a negative impact on the company.

Another impact is the economic growth of countries where Lucozade is being sold, as the increase of the GDP can lead to the increase of employment and increase of the income and expenditure of people, this helps businesses to produce more products, services and better standards. According to Focus economics (2016) the British economy is going well although it stopped growing well in the third quarter, based on this prediction Lucozade can take the advantage by increasing its products and focusing on what people would rather have. After leaving the European Union, Britain will be more open to the world’s investment as it will be free from EU’s restrictions. This is an opportunity for Lucozade to open to more to the coming investors from all around the world. (Bourne, 2016).

Also exchange rate has an impact on businesses, the exchange rate means the price of one pound can buy foreign currency, therefore it has an effect on importing and exporting products.  Since the pound dropped after leaving the European Union in 2016, the prices of the imported products have gone up. However, Lucozade suppliers are mainly in the United Kingdom, this can be good for exporting, as the price of the products that get exported has decreased. Thus price of Lucozade has dropped for those who buy it from the UK, thus more products of Lucozade will be required from abroad, this can help to penetrate the market. (campaign Magazine, 2016).

Sociocultural environment:

Sociocultural examines the progress and improvement in a whole society, the effect of the population’s structure and demographic, attitudes, life style, people tastes and demand, and the problem that the society face privately and publicly (Brassington and Pettitt, 2006, p. 850).

Lucozade is influenced by the socio-cultural environment, as most of its consumers are male aged 16-24 and the life style of those men is heavily influenced by the media according to Mintel group (2016) research. This research showed that people tend to look after their body more due to the effect of media which shows healthy, toned bodies of celebrities which has made society become more conscious about the way they look and has led to nutritional and fitness trends. Lucozade did not ignore the fact that people’s life styles have changed and the new trends that have emerged. The company believes that Lucozade’s largest strength will be to use celebrity endorsements to exploit these opportunities mentioned above and make it an even stronger brand. Lucozade’s brand endorsers include sports personalities such as Gareth Bale and Ashley Young, who have participated in campaigns. The IBF Heavyweight World Champion boxer, Anthony Joshua is their most recent celebrity endorser, promoting the brand to the keen, fitness market (Celebrity Group, 2016), showing Lucozade’s response to the trends.

According to Ferrel et al (2016, p220) Lucozade is taking advantage of using the current trends and lifestyle which has targeted those who are enthusiastic about sports and fitness. This has helped to split the market into different groups and found more about what the different groups’ needs. Latest study from Mintel group (2016) shows that men are more interested in taking up sport activities than women. Also 72% of men aged between 16 – 24 and 54% aged 29 – 45 consume energy drinks, which shows that energy drinks are more popular among young men, in attempt to attract female market Lucozade launched an advert in 2014 the iconic figure of a female at a party and keeps on moving drinks Lucozade to gain more energy – WHAT? Were they trying to attract the female market? (Argyle Green, 2014). Lucozade introduced Lucozade zero which is calorie free (Lucozade, 2016) aimed at people that tend to have a healthy lifestyle especially women according to Rodrick (2016). Besides that, diabetes and obesity have become common in the world, as USA has the highest level of obesity in the world, thus energy drinks companies have focused on making a strategic decision to make drinks that are suitable for overweight people (Winograd, 2014).

The population of people aged between 10-25 is increasing according to the latest statistics (Statistics, 2016), which presents an opportunity for Lucozade, however, China has a large portion of young people which is ideal for Lucozade to expand in if it wants to pursue a market development growth strategy.

Technological environment:

Due to technological advancements being high in contemporary time, Lucozade has the opportunity to access the technologies with ease, following on from effective market research and investment into their social media platforms (Hnarhan, 2009).

Technology has helped Lucozade to improve the design of the new caps. According to the social media director of Lucozade Ireland, the latest caps are designed so consumers can have an easier drinking experience, it allows them “to get just the right amount of liquid from the bottle and is easier to drink without having to pause. It is designed to work better during sport” (Healy, 2015). Innovations such as these will give Lucozade a USP improving their brand loyalty.

Technology has an impact on advertising products, especially since the number of social media users is increasing. According to Lee Odden (2008) CEO of TopRank Marketing, social media should dictate strategy as well as tactics used for reaching the desired goals, instead of implying it as a “tactic du jour”. This shows that social media should be incorporated in Lucozade’s long term media activity and used for short term advertising purposes such as their partnership with Spotify.

In 2015 Lucozade launched their “biggest ever” marketing drive for the Lucozade Energy product, primarily advertising on TV, radio and various digital advertising media, with limited focus on the social media outlets. This weakness is illustrated through the relatively low number of followers for their Twitter and Facebook accounts of just over 58,000 and 600,000 respectively. Although there are numerous social media applications that Lucozade use to promote their products, Spotify, seems to work in harmony with Lucozade to not only bring more awareness to the numerous products but to promote the products as well.  As previously mentioned even though most brands use Facebook to endorse their products, Lucozade have used Spotify to give them more of a stronger start to promote and sell their products. For this collaboration both companies were promoting one another, for example, Spotify offered users the opportunity to win Lucozade merchandise when they selected their favourite song from the website (Smith and Mae, 2011).

Porter’s five forces:

“Competitive Strategy offered a rich framework for understanding the underlying forces of competition in industries, captured in the “five forces.” The framework reveals the important differences among industries, how industries evolve, and helps companies find a unique position.” (Porter, 2008, p.xi).

According to Porter the five forces are new entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry. (Porter, 2008, p.6)

Lucozade has a strong distribution network since GSK has expanded their range of products to cater for consumers with specific needs. Compared to other competitors, Lucozade has a dedicated website which delivers a strong online presence with plenty of engaging content intended to their target group including videos, colourful content and social media details. However, there are other strong energy drinks competitors in the market such as Redbull, Gatorade by Pepsi and Powerade by Coca-Cola.

1. New Entrants: New entrants are the new competitors who enter the market and have the desire to gain market share, and often significant resources. As the energy drinks market is growing there is a possibility to see new competitors trying to enter this market, however, consumers tend to choose the healthier products. To reduce the threat of increased competition from new market players that are attracted through the potential of high profits, Lucozade should try to increase barriers to entry into the market. A method of doing this is by a high production-profitability, gained through economies of scale, such as purchasing and marketing. Through achieving cheaper unit costs and highly differentiated products which Lucozade has been developing through creating a variety of flavours catering for the needs of the different market, barriers to entry can be raised.
2. Threat of substitution: Big firms may also face a stiff competition from substitute products, this happens when the product range is targeted on different customers or services (Porter, 2008, p.137). Although Lucozade is the leading energy drink, it still has to take into account the alternatives competing for this energy drink, before Lucozade introduced-zero, however, Powerade-zero and Gatorade-Zero had been introduced, those two companies are the main competitors to Lucozade.  Lucozade should take into consideration the groups of consumers and what their needs are and try to compete and stay ahead of competition instead of following them.
3. Bargaining power of buyers: buyers play the competitors against each other by demanding high level quality of products or services at low prices (Porter, 2008, p.24). However, the consumer of this market are not sensitive to prices, those who are targeted are those who exercise and need to be hydrated. The level of buyers’ power is different, as it relies on the suppliers’ channel such as Sainsbury’s and Morison’s that have a huge number of consumers. A problem facing Lucozade is the brand loyalty customers have to their competition. These customers are difficult to poach no matter how aggressive Lucozade’s marketing campaign is. Lucozade could try and buy out the smaller competitors if they want their brand to be promoted. By doing this they would also take over their competitor’s market shares, thus increasing their own, leading to increased profitability (Keegan and Green, 2014). Thus, Lucozade has to get the campaign execution absolutely right to avoid disgruntled customers.
4. Bargaining Power of suppliers: the suppliers can control the buyers purchases by raising the price, reducing the quantity and especially, those who supply unique materials. This can cause loss or decreasing in profitability. (Porter, 2008, P.27). According to environment agency (2016, p.14), Lucozade owns some land to supply them with ground water, so the supplier power is low on Lucozade in this respect. However in regards to being able to purchase raw materials and packaging materials, if Lucozade buy their supplies from one main supplier then they are vulnerable to price increases which the supplier can choose. If they are buying from several suppliers, they may be missing out on opportunities to benefit from purchasing economies of scale.
5. Rivalry: it refers to when there is another company or group who offer the same products and compete on a similar price, quality and advertisement basis as your company. (Porter, 2008, P.138) Lucozade has strong competitors which are PowerAde by Coca-Cola and Gatorade by Pepsi. These products have well known parent companies that have large budgets and industry expertise. Lucozade is less popular, as there is a lack of awareness and knowledge about it in the USA compared to Gatorade and Powerade. However, Lucozade can use their established brand name as a strength to capture the opportunities available in the US market through the marketing budget offered by their parent company GSK (GlaxoSmithKline A. Report, 2010, p.6-11) which should be able to match their advertising budget and produce effective promotional campaigns to establish a strong presence in US. Lucozade are also facing competition from companies that are bringing out energy supplement products which have a strong position within specific regions and groups. However, these companies are small and are susceptible to be taken over, which Lucozade may want to consider if they begin to pose a serious threat.

Conclusion:

To conclude, Lucozade is a market leader in the energy and sports drinks market. It is well established in the domestic market and has a strong brand developed over the last 90 years. It has many strengths including the company’s large product portfolio and its innovative use of technology to enhance its products. The weaknesses highlighted in the report suggest that Lucozade need to enhance their marketing campaigns to increase their social media campaigns and be more careful with the claims they make in their advertisements, these are also presented as their opportunities. Further opportunities include developing products to attract the female market segment as the male one may soon be saturated and to develop in to emerging economies (China and India) that have a potential large young market. Lucozade are susceptible to a lot of economic changes in the economy, which they need to monitor and respond through effective forecasting and planning as these will also be problematic for their competitors. Lucozade are in a good position but cannot afford to become complacent in this highly competitive environment and have a lot of strategies they can explore to maintain their strong brand image.