Marketing Lipton Iced Tea in Brazil Compiled by Tara Badri Steve Gojak Lilly Nicolen Kathleen Gulitus Stephanie Webb Target Market Our target market will include the younger generation ranging from age 18 to 39. This group is the largest segment at 68% of the total population (184 million). The younger generation is our best option for a target market because they are less set in their ways, are more open to trying new things, and are more easily influenced by the media. These characteristics makes them more susceptible to changing their preferences from the common soft drinks, juice, and coffee to a new aged beverage such as iced tea. Product Brazilians enjoy sweeter tasting beverages therefore the products that could be introduced include the Brisk product line or a modified version of regular iced tea in which it would be made sweeter. – Unsweetened iced tea would be unsuccessful. Due to an abundance of oranges in Brazil the development of an orange flavored tea may prove successful by adapting to local taste and showing support for local industry. – Since juices are a large part of the culture, adding orange flavor would increase the chance of success among the Brazilian people. Packaging The label needs to be in Brazil’s official language: Portuguese The national colors are green and yellow and are considered offensive when used together on products so it is necessary to ensure that they do not appear together on the label. National law requires easily readable information about the product’s quality, quantity, composition, price, guarantee, shelf life, origin, and risks to consumers’ health and safety. – The current colors and designs of the label can remain the same if we carry the brisk lime, but if we use regular Lipton iced tea, the colors must change. For both brands, we need to edit the information on the product label to conform to national law. All units should be metric or show a metric equivalent as this is the measurement system that Brazil uses. The refrigerator in the average home in Brazil is standard to US sizes, therefore no change of the shape and size of the bottle is necessary. Packaging Material Presently only 75% of the population has trash collection services. Recycling is found in minimal areas across the country, primarily government buildings. Therefore, choosing recyclable materials is not a concern. The best material to use to package the product is simply the cheapest and most readily available, which narrows our options to plastic or paper cartons. – Plastic and paper cartons are lightweight and cheaper to transport than glass. – Paper cartons are more easily packed into a shipment because of their square shape. – Plastics are more readily available than paper cartons, and most manufacturing firms choose plastic. – Therefore we have decided to use plastic bottles Place: Production Produce product in the United States and export. – Wait for FTAA (Free Trade Association of the Americas), a trade agreement that would make the Western Hemisphere a free trade zone. – Brazil is hesitant to accept the agreement and allow foreign competitors to freely enter the country. The benefit of importing iced tea is the ability to use current production facilities with the possibility of no import tariffs. Drawbacks include high freight expenses(25% Merchant Marine Tax on Ocean Freight), a general lack of knowledge about local practices, and that the FTAA is slow moving and cannot be relied upon. National Production Facility Potential partnership with AmBev, a producer of beer, soft drinks, and iced tea in Latin America, where they benefit from the brand equity of Lipton and we benefit from the use of their distribution channels. – Possibility of using information gained from this partnership to open our production facilities and distribution channels in the future. Place By using AmBev, we would not need to find storage facilities because the entire channel could be outsourced. – This would be ideal because of the limited number of trucks as well as the limitations of Brazil’s infrastructure. – Approximately 20,000 trucks exist, all of which have been in use for an average of 18 years. – Infrastructure is poor with many of the roads being privately owned. Iced tea should be stored at room temperature, therefore refrigerated trucks are not necessary. However it is important to ensure that the product is not allowed to sit in the sun while being transported. Distribution Centers PepsiCo and Unilever recently created a joint venture to expand Lipton into new markets which include Brazil. – Pepsi gains use of Lipton’s R & D expertise along with their health conscience brand image. – Unilever gains use of Pepsi’s distribution network and bottling facilities. This is beneficial because the production facilities and distribution channels are already in place, resulting in lower startup costs. Retail Options Carrefour is the second largest retail outlet in Brazil. – – – – 96 Hypermarkets 122 Supermarkets 100 Discount Stores 7 distribution centers (located in Sao Paulo and Vitoria) The Sao Paulo distribution center reaches half of their stores. Deciding to use Carrefour as a retail outlet would be beneficial because of their expansive distribution network that reaches hypermarkets, supermarkets, and discount stores. The discount stores are ideal because of their appeal to lower income consumers which accounts for 90% of Brazil’s population. Retail Options Advanced technology such as barcode scanners and radio frequency transmitters have resulted in accurate inventory counts and lower costs. Carrefour has begun to outsource to Cotia Penske as a logistics provider to some of its stores. Thus, Carrefour has perfected their distribution channels giving it the ability to reach most of our market through superstores and hypermarkets, and in addition to this, the ability to reach the poor market segments through its discount stores. Retail Options Pao de Acucar is the largest local chain with over 400 outlets nationwide. They have twice as many outlets as Carrefour, but both hold 14% of the market. Their distribution is handled by Brasilia de Distribuicao (also owns the retail chain). Being a Brazilian company, they have the trust of consumers. They also have the most retail outlets, making them a sound option. Retail Options Wal-Mart currently has 2% of the market share but is growing. They also have a distribution center outside of Sao Paulo that has the capacity to reach 100 outlets. Wal-Mart’s discount chain, Toda Dia, appeals to the low income level of the general population. Their many locations make it more convenient for those who cannot travel long distances. Although Wal-Mart is new to the Brazilian market, it is growing rapidly and has strong potential to compete with the other retail outlets in the country. Distribution Cotia Penske, a logistics provider largely developed in Brazil, has distribution centers, warehouses, and transportation (18,000 trucks) available. They have developed the distribution channels for 100 Carrefour outlets. Familiar with Brazilian distribution channels, they can provide the services that would be needed if production were to take place in Brazil. – They have connections with local, third party distributors. Price Currently in Brazil there are 65 million consumers with a disposable income of $14,812 per household annually. 20% of the families live on a per capita income that is less than the minimum wage. However with a population of 178.5 million and a per capita income of $4,336, Brazil’s large population leaves them with a high market potential. The gap between the rich and the poor is one of the largest in the world, showing the substantial differences in the different economic classes. Price This leads us to price our item competitively, but on the lower end of the price spectrum. Due to our target market’s wide range of incomes, a price on the lower end will include the lower income individuals of our target market. In addition to our low competitive prices, we will markup our product 60% for retailer and 30% for wholesaler depending on which distribution option is chosen. – For example, if the cost per bottle of iced tea is 40 cents: 40 (cost) + .6(40) (Retailer) + .30(40) (Wholesaler) Then the total price for one bottle would be: 75 cents Economic Conditions The Brazilian economy has proven to be very unstable over the past decade. Inflation rates are volatile. – With the introduction of a new currency in 1990, the annual rate of inflation was 2,947.73% which severely crippled the economy. – In the mid 1990’s as the inflation rate stabilized, many Brazilians moved from the working poor to the lower middle class. – Since 1990, the inflation rate has been stabilizing and is currently at 8.45%. The shaky economy and unstable inflation rates make it risky to enter the country’s market. With fluctuating inflation rates, it is more difficult to predict price changes, which creates the danger of our product becoming too expensive for consumers to purchase. Security Concerns Brazil’s borders with Argentina and Paraguay have problems with money laundering, smuggling, arms and drug trafficking, as well as fundraising for extremist organizations. This raises important security issues of product theft when transporting goods across borders. Even though iced tea is not a precious commodity, it would be a safer alternative to produce the product within the country. We would be affected if the product were to be stolen, or we would have to employ security, price to consumers would have to be increased Promotion-Media Types Newspaper and Billboards – With a literacy rate of 86%, print media is an effective form of advertising in Brazil. Currently 25% of advertising dollars are put into newspaper ads. It is the second largest form of advertising expenditure. – In 1992, the cost for one billboard for one month was $150. – With high literacy rates and a relatively cheap cost of print advertising, this would be an effective way to introduce iced tea. Radio – Advertising on Brazil’s primary radio station, which is already segmented by target market, would make it easier to reach our market. Promotion-Media Types Television – 96% of households in major cities own a television. – Brazil has the 4th largest television broadcasting system in the world. – The cost of 30 seconds on prime time television in 1992 was $34,000. – Though these costs are dated and have most likely increased, it is still necessary to create television ads because most households have a television. Cell Phone Advertisements – 60 million cell phones are expected to be in use by 2005. – SMS(short message service) and short video clips of advertisements have become increasingly popular. This new technology is expensive but the price is decreasing as the number of cell phones increases. This could be an effective way to reach our target market since cell phones are mostly used by younger people. Promotion-Media Types Cinemas – Brazil has 408 cinemas that accept advertising. – Cinema advertisements reach 21% of the adult population within one month. – Restrictions require that 2/3 of foreign advertising material must be produced in Brazil. – In 1992 the cost of a 4 week schedule at approximately 20 theaters was $2800. – This is a good option because it is relatively cheap and reaches our young target market. Internet – Brazil has the most advanced internet industry in Latin America. 61% of Latin American websites are Brazilian. As of 2002, 14.3 million Brazilians have internet access. – On-line ads would be effective with Brazil’s highly accessible internet because most users are from the younger generation that is included in our target market. Sales Promotions Event Sponsoring – Soccer is the most popular sport in Brazil so purchasing ad space in soccer stadiums would quickly and easily reach a large number of people. Celebrity Endorsements – Soccer celebrities could be hired to endorse products in commercials and advertisements. – Use of models in ads to promote beauty and health which are aspects of Brazilian culture. Many of the people who attend sporting events make up a large portion of our target market so this would be a good way to reach them. Message Promotion of the product should emphasize it as a healthier alternative to soft drinks and a sportier alternative to juice due to the growing concern over health and body image in Brazil. Promote the beverage as a youthful drink since the majority of the Brazilian population is younger. Due to the Brazilian desire to be fashionable, promotion of the product as a trendy addition to the new age beverage line could be very effective. Language and Dialect Portuguese is the primary language. Although most people in Brazil are multilingual, with English, French, Italian and Spanish being popular second languages, Portuguese should be used in all ads because it is spoken by the entire population and Brazilians find it offensive to be spoken to in Spanish, which would be our next best alternative. Conclusion With 68% of Brazil’s population being between 18-39 years old, they make up a large target market. The possibilities of joint ventures or partnerships would be an effective way to combat the poor infrastructure in Brazil. The availability of retailers makes it easier to have our product available to consumers. A struggling economy, high inflation rates and a large low income population may make it hard to sell a non-necessity good.