July, 2009

GEORGE R. COOK

JOLT:

AMERICA’S ORIGINAL ENERGY ( PAST & FUTURE ) Company Background

While being a first mover and a major player in the development of a niche market – energy soft , Jolt actually had its roots back in the early 1950s when the Rapp family of Rochester, New York, through the guidance and stewardship of Joseph F. Rapp, Jr. acquired the distribution rights to upstate New York for well known brands such as 7 – Up, Canada Dry, and Dr. Pepper when he operated six different bottling operations to service the franchise rights for several high quality products in the industry. At that time, geographic market coverage was from Jamestown, NY extending east to Albany, NY – strictly a regional operation.

C.J. Rapp, current President and CEO and Son of Joseph F. Rapp, Jr., of (the parent company ) became involved in the beverage industry as a summer employee at the age of 12 and worked in the family bottling operations each summer until graduation from college.

©July, 2009 Executive Professor George R. Cook prepared this case study in conjunction with C.J. Rapp, President and C.E.O. of Wet Planet Beverages ( Jolt ), and Courtney Rapp, Manager of Public Relations at WPB. The author would also like to express his thanks to the Marketing Faculty at the Simon School, University of Rochester and several MBA/MS students at the Simon School who provided valuable input and comments during the preparation of the case study. No part of this publication may be reproduced, stored in a retrieval system, or used in a spreadsheet or transmitted in any form by any means – electronic, mechanical, photocopying, recording, or otherwise without the express written permission of the William Simon Graduate School of Business Administration, University of Rochester, New York.

This case study is solely intended to be utilized as a basis for classroom discussion and does not in any way suggest effective or ineffective management practices nor is it in any way an endorsement for the products discussed within the case study itself.

- 1 - The idea for Jolt first began as a “topic of discussion” within the Rapp family household, involving many discussions about the overall direction of the soft drink industry. There was a relatively strong feeling amongst the family members that the soft drink industry seemed to be abandoning their basic roots and foundation and instead of staying true to their rich heritage of soft drink products that “tasted good”…they were reacting to various new consumer trends in the marketplace that involved the concept of “better for you” products. During the early to mid 1980’s America’s first ever Health Food era developed and the rest is history as we know it today. There were sugar free and free versions being created throughout the soft drink beverage industry and we saw and heard such popular advertising tag lines such as: “ 7-Up’s – Crisp and Clean and NO Caffeine!”

While hard to believe, Jolt is now at the ripe old age of 23 and wants to compete at the highest possible levels in the category. The category experienced growth of 45% or more in both 2006 and 2007 and the future looks bright. Jolt’s main competitors in the energy drink category are: , Monster and Rock Star. While Jolt may not reach the share levels of the “Big Three”, it is not unreasonable at all to think that Jolt can significantly increase share. Jolt’s overall category ranking is less than 1.0%, but currently represents a 10% share in the larger 23.5 oz can size segment.

Jolt has excellent consumer awareness, reputation, brand recognition and significant mind share in the category that it can build upon. With increased media spending and expanded distribution opportunities at hand, Jolt is looking to gain a greater market share in the segment.

In November, 2008 , Wet Planet Beverage’s management team ( CEO, Director of Marketing and Director of Consumer and Public Relations ) along with agency personnel is holding a planning session centered around marketing strategies and the future direction and potential market opportunities for Jolt. Each of the marketing mix elements is up for discussion and revision or modification as deemed appropriate for today’s highly competitive energy drink segment. In the past, the key elements that the company has focused on are: Product, Promotion and Distribution. Pricing strategy on the other hand has remained constant over the life of the product with the company utilizing a premium pricing strategy which is pretty much the standard within the segment. The company has introduced a plethora of innovative products and packaging since its inception with the primary focus, of course, being the Jolt product. The product, innovative packaging and a non traditional distribution system have been instrumental in Jolt’s reputation and success to date.

Since Jolt’s introduction to the marketplace in 1985, competitive entries into this segment of the soft drink industry have been steadily increasing year over year. There is a multitude of energy drink products in the segment today, all vying for a piece of the action. Again, the major players are: Red Bull, Monster, and Rock Star.

The challenge now is to develop a comprehensive marketing strategy that will enable Wet Planet Beverages and Jolt to enjoy a satisfactory growth in share, revenues and profits for the upcoming year and foreseeable future.

“Where Does Jolt Go From Here and How Do They Get There?”

- 2 - The Jolt Product

Jolt ( now Wet Planet Beverages ), was incorporated in November, 1985 and the original Jolt product was first sold in March, 1986. The first retail customer was Wegmans a renowned grocery retailer headquartered in Rochester, New York. Initially introduced to the market in a standard 12oz can size with the promotional tag line, “All the sugar and twice the caffeine and Dare to Want it All!” ( See Exhibit 1 ) The product was an immediate with the targeted audience. Wet Planet Beverages originally offered only a cola but has since extended their product offering to seven (7) in an attempt to broaden the market and spark growth. The more recent flavors are: Blue Raspberry; Wild Grape, Cherry Bomb and Orange Blast. ( See Exhibit 2 for past and current Jolt product offerings )

Among independent mid-sized energy brands, Jolt is the longest lived, preeminent brand in the $4.9B energy drink category. Within this category, the Jolt brand is distinct for an approachable taste profile, breakthrough packaging and a consumer base that represents a demographically broad segment.

Over time the Jolt product has gone through a series of product packaging innovations: 12 oz can; 12oz glass bottle; 20 oz plastic bottle and in 2005 the 23.5 oz battery bottle.( See Exhibit 3 ) More recently the 16 oz resealable cap can ( August, 2008 ) has been added to the list and should dramatically improve the marketability and product reach, in particular within the convenience and grocery store outlets. The 16oz product will provide greater portability and customer convenience, and is a much more approachable package size for consumer trial. Also, the company will benefit from the “optimal eye level” shelf space that the 16 oz can brings as it will have a broader market appeal. This package size, according to industry experts, accounts for over 55% of total category sales. Also, the 16 oz. size segment is expected to grow by 36% or nearly twice the rate of the overall energy market. Jolt is also developing a 4-pack of the 16 oz can size which should further penetrate the “at home” consumption market. In terms of share of volume by size of can, the 16 oz. can continues to take a larger and larger share of the volume. ( See Exhibit 3a ) (Source: Beverage Marketing Corporation)

Wet Planet Beverages has always provided an energy drink with a pleasant taste in contrast to so called “functional” energy drinks which tend to emphasize energy at the expense of a pleasing taste. Jolt is positioned as a refreshment energy beverage which offers both – energy and a pleasing taste. Red Bull tends to be the top “ functional energy” drink while Monster tends to lead the way in terms of the refreshing energy drink. It would appear that this puts Jolt in a very promising position – a very approachable taste profile with a diversified portfolio of refreshing energy flavors which should put the company in a position to capture market share in the highest growth sub category of the overall energy drink market.

Another recent product announcement by the company was the 2 oz Jolt Endurance Shot. (See Exhibit 4 ) The product is currently available in a grape flavor and offers an extended energy buzz. In 2007, the energy shot category generated approximately $ 275.0M in sales

- 3 - and is projected to grow to $500.0M in 2008, a very healthy CAGR! It is typically sold by retailers near the check out aisle for easy access and to stimulate impulse purchase.

The company has also created a partnership to launch a line of Jolt branded energy gum and mints as well. Further expansion of certain third party relationships to develop non beverage related products ( energy candy, energy powders, and energy strips ) will potentially add additional licensing revenues and expand the reach of the Jolt brand and further enhance the company’s position as – “ Jolt All Things Energy!” ( Exhibit 5 ) (Source: Wet Planet Beverages)

In terms of product content, Jolt energy beverages maintain a relatively consistent amount of energizing additives ( 5 ) specifically: , , , vitamin B complex, and caffeine. The use of these multiple additives creates the synergistic effect that boosts energy levels for the individual. The combination of these ingredients benefits one’s health by boosting metabolism, enhancing the immune system, stimulating the central nervous system, increasing resistance to stress, increasing memory capacity and functioning, alertness and overall mood. (Source: PDR for Herbs, 2006 )

Wet Planet Beverages has had a long and successful track record over a 20 year time span of developing a successful flow of new products for the market and the company will continue to drive growth through new product innovations and product line extensions. There are obviously additional opportunities to extend the Jolt brand equity that has been established over several years.

Another interesting topic with regard to the energy drink category that seems to eventually come up will all consumer products at some point in time is – private label offerings. Thus far, however, it does not seem that the possiblity of private label energy drinks has gotten much traction within the energy segment. That may be because the current energy drink offerings are still enjoying rather healthy profit margins and it may be a bit early to introduce the private brand offering. At a later date, however, we might see both a “Premium and a Private Label” brand offering from the segment. But the right answer at the moment seems to be “too soon to tell!” ( Convenience Store News, Daily News, March 17, 2009 )

A word about profitability of the energy drink category in contrast to regular carbonated soda and other beverage categories – regular soda tends to sell for around $12.00 per case to the trade while energy beverages are in the area of $32.00 per case to the trade, even though the overall costs tend to be very similar for both, ie a very healthy profit margin for the energy drink category!

Industry Background and Characteristics

Jolt was one of the very first energy drinks available in North America in the 1980’s with a high level of caffeine aimed at professionals, college students and individuals “on the go” so to speak. Energy drinks are also targeted at and associated with PC hackers and IT professional internet junkies who are up very late at night at the computer and need that extra energy push to finish out the night.

- 4 -

The energy drink category’s overall success has been strongly driven by the introduction of currently the top energy drink – Red Bull, which was introduced to the North American market in the mid to late 1990’s. According to some industry experts, the segment has quickly exploded from an estimated $200M to a projected $ 1.0B + and beyond. According to Global Industry Analysts, Inc, the overall energy drink market is expected to experience continued growth at a rate of approximately 33.0%+ for some time.

Energy drinks are sometimes used as mixers with alcoholic beverages but one must remember that energy drinks are primarily a stimulant while alcohol is primarily viewed as a depressant so mixing the two could be dangerous.

Today the primary market for energy drinks seems to be male teenagers and younger people, mostly in the 20’s. This is certainly a small segment of society ( a niche market obviously ) but a segment that has indicated their wide receptivity to the energy drinks. In an effort to grow the segment, energy drink companies are responding to flavor preferences by women to incorporate key words and ingredients like: sugar-free, light, low carbs etc. in their advertising and promotional efforts. All expectations are that the energy drink segment will continue to grow in the foreseeable future and at a very attractive rate.

The energy drink segment is unique in that it is not dominated by the soft drink giants like Coke and , quite the contrary, it is served by a multitude of smaller firms all fighting for customers and share (Coke and Pepsi do have products in this segment). Having stated that, Red Bull is currently the energy drink segment leader and maintains a significant market share. ( see the competitive profile and competitive landscape of the industry – Exhibit 6a and 6b )

Based on industry data ( 2007 Gale Group, Inc. ) the world and energy drink markets should reach approximately $39.2B by the year 2010 according to Global Industrial Analysts, Inc. The US market at this time represents the largest piece of this huge and growing market worth an estimated $12.5B followed by Europe and . It can be said that the US so called sports drink (, etc. ) market has reached maturity, while the energy drink market segment is still in the growth stage of the P.L.C. and is expected to grow at a most attractive rate of 33.7%. (Sports & Energy Drinks Energize Growth in $12.5B Beverage Market – Report by Global Industry Analysts, Inc, June, 19, 2007)

In general the overall soft drinks category, performance wise, has remained relatively flat over the past 4 years or so. Consumers are drinking about the same amount of soft drinks as they did some ten years ago. In 2008 ( based on figures released recently by Beverage Digest, April 1, 2009 ), the soft drink category volume based on cases sold, declined by about 3%. Carbonated soft drinks account for 47.5% of the beverage category’s volume. The next largest segment is bottled at 29%. At the same time, Flavored and enhanced water gained 8.3% in volume while energy drinks gained a healthy 9.0% in volume. ( Advertising Age, April 1, 2009 ).

Most of the energy drink firms have a battle on their hands fighting for share without a nationwide distribution system and therefore have to rely mainly on their advertising strategies and marketing tactics that tend to be more targeted and specific vs general and

- 5 - broad based. ( See Jolt’s distribution system information and description in another section of this case study ). Gaining adequate distribution of the product and shelf space at the retailer’s location is a significant challenge with the current product proliferation within the massive soft drink industry today. Obtaining a preferred shelf space in the retail store is both a challenge and very expensive.

Due to the nature of the industry and the specific target audiences involved, very little TV advertising is utilized in the energy drink segment due to the prohibitive costs involved. A lot of the companies utilize what is referred to as extreme events & publicity stunts to create and promote the awareness of their brands. Extreme sporting contests and . or video game championships have also been utilized to reach the target audience(s). Viral Marketing is one of the primary methods to generate brand awareness.( Viral Marketing refers to marketing and promotional techniques that utilize pre existing social networks to increase brand awareness by way of effective word of mouth or sporting events and games as previously mentioned).

Wet Planet Beverages Marketing and PR Teams recently created a fun and absurd campaign to gain media exposure. Jolt Energy was the official energy drink of the “Longest Day of the Year”. Wet Planet Beverages flew cases of Jolt Energy to the northern most city in the US, Barrow, Alaska. The event took place during the Summer Solstice ( longest day of the year ) on June 20, 2008 ( See Exhibit 7 )

The Competitive Landscape

There is no lack of competition within the energy drink segment and new competitors are entering the market frequently. Jolt has enjoyed a “First Mover Advantage” as one of the earliest brands in the relatively new energy drink segment and this serves as somewhat of a competitive advantage to Jolt.

The energy drink industry, contrary to the soft drink market, is not dominated by large corporate giants ( Pepsi, Coke and Anheuser-Busch ) as mentioned previously , instead it is characterized by intense competition between an ever increasing number of smaller and mostly independent companies from a number of players standpoint…..all targeting a very select consumer base. Examples of some of the significant independent energy drink brands are Red Bull and Monster as previously mentioned.

Two distinct sub categories have emerged in the energy drink beverages market, as mentioned earlier: refreshment energy and functional energy. The functional energy category ( ie Red Bull ) sparked the growth of the overall category but today there appears to be a definite shift in consumer preferences in favor of good tasting refreshment energy.

Red Bull has captured the “top spot” in the energy beverage segment but their rate of growth is declining as new entrants come into the market. While Red Bull seems to be the undisputed market leader in the segment, the more recent broadening of the category and overall brand proliferation would seem to indicate that over time, Red Bull’s market share will gradually erode. Some of the entrants into this segment are: Monster, , PepsiCo (So.Be and , AMP ), Coco Cola

- 6 - ( , and Energy). For the most part, these new entrants have focused on the “refreshing energy” aspect to differentiate themselves from the chief competitor, Red Bull.

(From a market results picture, refer to Exhibit 8a )

From a competitive positioning standpoint, you can see by examining Exhibit 10 positioning map, that Jolt is in the Male / Adults 20+ quadrant of the positioning map, pretty much by themselves signifying a broader reach in the market and as the market continues to grow, Jolt should stand to benefit from the market expansion.

Competitive positioning platforms in this highly competitive industry have been for the most part – packaging, taste, functional energy, life style, etc – and will probably continue to be in the near term. One noticeable absence here in competitive positioning platforms is Price which is commonplace in the regular soft drink category. Premium pricing is the industry’s standard pricing strategy.

Segmenting the Energy Drink Market

In particular with an energy drink product, precise segmentation and product positioning is a key to eventual marketing success. The various marketing segmentation strategies that we typically deal with and utilize in marketing consumer products are – Mass Marketing ( Undifferentiated Marketing ), Differentiated Marketing ( Multiple Segmentation ) and Concentrated Marketing. Today, typically, most consumer goods firms utilize some form of Differentiated ( Multiple Segmentation ) marketing strategy. We further break down this segmentation strategy into Niche Marketing and then further into Micromarketing which is divided between what we refer to as Local Marketing or Individual Marketing. ( P. Kotler / Kevin Lane, Marketing Management, Pearson: Prentice Hall, 13th Edition ).

Niche Marketing Segmentation Strategy is evident within the Energy Drink Market. Each product is searching for the “right niche” within the vast soft drink industry. The soft drink industry contains products that address and are targeted at multiple consumer segments based on a multitude of attribute ( taste, flavor, price, life style, price, packaging etc ).

In the energy drink segment, consumers have a very distinct set of needs and requirements that they want addressed. Typically, these consumers will pay a “price premium” for the brand that more nearly addresses their specific needs and requirements. The niche segment tends to very small in terms of the overall number of prospective customers but has an attractive profit potential and growth rate over time. However, if the niche segment is successful it is likely to attract competitive entrants into the market. Barriers to entry are not significant.

Coke and Pepsi quickly saw the profit potential in the energy drink segment and have recently developed and launched energy related drinks of their own. Obviously, they are quick to grab share due to their powerful “route to market systems.” They also already

- 7 - control the majority of shelf space at retail, so they can carve out the needed space to launch a new product very quickly.

This, of course, creates instant visibility. Then their vast financial resources kick- in and they begin to “pull” the product by advertising and promoting to final consumers. Pepsi launched AMP under the popular Mountain Dew product line. Coke created Full Throttle and launched it with TV ads during the 2005 Super Bowl, and they also acquired the distribution rights to Rock Star.

But for the most part, successful energy drink entrants who move into the market place early ( First Movers ) and establish themselves through quality of product, price, and value, are able to gain a reasonable and profitable share and maintain a loyal customer base over time. Sometimes the small niche firms will be purchased by larger soft drink firms and added to their overall product portfolio. Such was the case with Rock Star and Coke as mentioned above.. Also, Pepsi acquired the rights to Sobe No Fear.

While there are various well known bases for segmenting consumer markets – geographic, demographic, psychographic and behavioral – the energy drink firms ( including Jolt ) would typically utilize some form(s) of: demographic ( age ), psychographic ( personality, life style, etc ) and/or behavioral ( occasions, benefits, loyalty, status and attitude ) to more effectively reach their target customer.

From a demographics point of view, Jolt has tried to develop segmentation loyalty among persons who “work longer and play harder!”. This segment includes truck drivers, college students, computer programmers and anyone who is in need of extra stimulation in the late evening and early morning hours.

A demographic profile of the average consumer in the energy drink industry would likely involve the following individual characteristics – work hard, play hard; possess a high demand for energy stimulation due in response to physical exhaustion and mental fatigue; and those who positively respond to the products that promote a bit of devilishness, irreverence and certainly non conformity. Certainly life style and attitude are key elements for the segmentation and positioning of energy drinks like Jolt. ( See Exhibit 9 for energy drink demographic profile information )

The key is whether or not the segment will continue to grow and expand over time and certainly this has happened within the energy drink industry with new entrants coming into the market place every year and the expansion of the customer base from year to year as well. Over the past 5 years, the energy drink segment has grown by at least 45%.(IRI Energy Drinks is the US, 2007) Energy drinks have been the fastest growing beverage segment for five consecutive years. The rate of growth will no doubt level off and decline eventually. This is largely due to a bigger base as the market continues to expand.

Since product positioning and segmentation go hand in hand, the issue of re positioning comes to the forefront at some point in time. Jolt over time has in fact had to re position the product as the initial appeal of Jolt wore off after approximately two years and sales began a significant decline. By the early 1990’s, Jolt was re positioned as a “thirst – quenching

- 8 - alternative to .” Jolt positioned itself as a “high octane” soft drink and was successful in turning around the declining sales picture for the product.

In 2006, Jolt added active ingredients to become an energy drink. In an effort to stay a player in the energy industry, it became important to change the formula. While Jolt is true to its roots – keeping the caffeine content high – it had to change with the times. Armed with a new 23.5 oz re sealable aluminum can, Jolt was “reintroduced” as an Energy Drink. Jolt utilized the slogan “ Re Charge” to go along with the battery graphics on the can. This re launch was very successful and Jolt started yet another phase in its 23 year existence.

Attempts have / are being made to broaden the customer base for the energy drink segment but it seems that the core customer profile has tended to remain much the same (even thought the absolute number of customers within the segment has and continues to grow ), young and male in the 18- 24 year old category. Industry research h as indicated that about 35% or so of teenagers consumer energy drink products which is up from about 19% in the 2003 time frame. The 18 – 24 year old category consumption is also up about 20% compared to about 5 years ago. In total about 20% of men say that have tried energy drinks while only 10% of women have done so. This would indicate that there is perhaps significant opportunity in the female category for energy drinks. Their consumption has increased over recent years but has not yet caught up to the male consumption rates. According to the energy research, about 67% of American consumers are not “even interested” in energy drinks due at least partially to what they have heard about the bad taste of the product. The newer energy shots ( 2, 3, 4 ozs ), based on industry research, seem to appeal to older consumers, mostly males and also to truckers who often need that “quick boost” over long hauls. ( 2008 Beverage Marketing Corporation, New York, November, 2008 ) We do know, that manufactures of the energy drink product have tried to combat this negative word of mouth by introducing new energy drink products – no calories, low calories, natural or healthier agents and other enticing flavors. Recent introductions of Arizona Green Tea Energy and Glaceau Vitamin Energy could help change the non positive word of mouth and help grow the segment. Only time will tell. ( Convenience Store News, March 17, 2009 )

Positioning & Repositioning The Product

Positioning an energy drink can be quite tricky. Positioning is among the more important nuances that contribute to consumer appeal. Positioning requires flexibility that takes into consideration the current market conditions. The core positioning concept can be consistent, but there could be subtle differences in the message itself.

At the time of launch, Jolt’s positioning was contrary to the current industry trends in the marketplace. Jolt was the first to introduce the idea of value-added, ie more instead of less. Jolt’s high caffeine content effectively made Jolt the first ever energy drink. One could say that stimulation became the primary product benefit. The brand’s founder and current CEO, C.J. Rapp, would describe Jolt’s personality as carefree and irreverent. Jolt gained appeal by playing to the consumer’s sense of non conformity. Jolt made use of “shock value” to create initial appeal and excitement. By using contrary product positioning – Jolt zigged when everyone else zagged !

- 9 - It is very common for the initial appeal of the product to wear off and the original positioning platform is no longer effective. Such was the case with Jolt when the product benefits were not being properly communicated to the target audience. Sales began to decline and it became clear action had to be taken.

In the early 1990’s, the product was repositioned as a thirst – quenching alternative to coffee. Taste testing was brought to the forefront by Pepsi with their infamous “Pepsi Challenge”…..asking customers to blind taste a small amount of both Pepsi and Coke…and asking the participants to select which beverage they preferred. What Pepsi already understood was that prior research already verified that most consumers select the sweeter of two beverages when they consume a small quantity. So the results therefore heavily favored the sweeter Pepsi beverage. It was at this time Jolt launched a campaign referred to as “Taste Test, High Test!” Instead of competing in the taste test, Jolt chose to play off of the “high test” theme….which was then a common term that referred to high octane fuel. In addition, non conformity became a part of Jolt’s DNA. Jolt is / was all about the buzz and being different. Jolt was both fun and a means to an end. Together these two tactical executions successfully repositioned Jolt. In successfully completing the repositioning effort, Jolt restored sales growth for the product.

(See Exhibit 10 on Jolt’s Positioning Strategy & Platform)

The Distribution System

With an abundance of soft drinks in the industry today, and more being added every year, it is no small challenge to create an effective distribution system. The energy drink segment alone has several hundred players and each controls such a very small percentage of the overall energy market. Red Bull and Monster, according to recent industry reports, are the major players. Combined, they account for roughly a 60% market share position with annual revenues in the $1.0B range. It is important to note the profit margins are very attractive and even a small slice of the market can be very profitable. One of Jolt’s major achievements in moving the product through the channel to retailer shelves was the unique channel system it developed.

Establishing a national distribution system has proven to be a challenging task for the vast majority of the energy drink firms. It is nearly impossible to establish a national distribution system like Pepsi or Coke has. Energy drinks have therefore, engaged the use of alternative distribution methods and channels.

Jolt was the first beverage to use a non traditional route to market system. Traditional soft drink distributors were not interested in adding a competitive product to their product portfolio. In the final analysis, the company decided to utilize beer distributors by persuading them to diversify into non alcoholic beverages – a never before utilized idea that has worked for Jolt! The product would provide the beer distributors with incremental sales and profits. Within two years of Jolt’s initial launch, the company had lined up 400 beer distributors to formulate a substantial distribution network for the product.

- 10 - As is the case with any niche product getting it to market and on the shelves is the primary function of the distribution network. It is always difficult to gain space in the coolers in convenience stores, so the company had to begin utilizing sizeable trade incentives to the retailers.The first type of trade incentive is referred to as slotting allowances. This includes a monetary incentive to retailers in return for space in the coolers and on the shelves. Another type of retailer incentive involves rebate dollars in the form of volume incentives. They are sometimes referred to as CMAs ( calendar monthly allowance). It is also important to energize and motivate the distributor sales personnel in the form of sales spiffs. This includes a monetary bonus paid to sale personnel in return for securing new shelf ( or cooler ) space for Jolt. Gaining retail penetration through the use of incentives is commonly referred to as “push marketing.” Creating awareness of a niche product on the retailer’s shelves is yet another challenge for the advertising and promotion strategies of a company. Jolt was very creative in their promotions which helped improve consumer awareness to a 91% level. With Wet Planet Beverages obtaining only 30% of its YTD sales volume from their current customer base, there remains a significant opportunity for the company and in the 2007-08 time frame the company added 10 sales people in major cities and in 2009 plan to add another 9 salespeople to exclusively service other areas where Jolt distribution is minimal.

There is an indication that many retailers have been searching for alternative brands of energy drinks and with the strong Jolt brand awareness and broad consumer appeal it makes Jolt an attractive choice!! During the 2007 timeframe, the company added some key national accounts: Walgreen’s, Rite Aid, Sheetz and Cumberland Farms. The company has also seen nice volume increases in some current national accounts – Speedway and 7 Eleven. (Source: Wet Planet Beverages)

One of the very strong distribution outlets for energy drink has been the convenience stores according to a A.C. Nielsen Company data, where the energy drink category accounts for about 18% of total convenience store sales. The sales of energy drinks in the convenience stores in general have increased about 40% in 2006 and grew another almost 30% in 2007. According to the report, while 2008 was down a bit, growth was still at a healthy 19.9% in the convenience store and a 15% growth projection for 2009. The convenience store is likely to remain a major outlet for the energy drink segment. ( Convenience Store News, March 17, 2009 )

JOLT’s Advertising, Promotion & Packaging

Advertising

From an advertising and promotional perspective, Jolt’s size and overall resources make it next to impossible to compete with Coke and Pepsi in the basic soft drink market and now with Red Bull in the energy drink segment of the market. Red Bull, for instance, was launched in the with an initial advertising budget of $300 million, while Jolt’s annual total marketing spend is approximately $ 1.2 million. The limited financial resources creates a unique challenge for Jolt. So Jolt continuously searches for cost effective ways in which to generate consumer awareness and strengthen brand allegiance. Jolt makes use of

- 11 - point-of-sale materials that are utilized at the retail level. They included eye catching visuals and creative copy.

Jolt has been very effective in terms of developing and launching catchy promotional slogans such as: “Jolt. Dare to want it all!”; “Taste Test, High Test!”; “Liquidz You can Feel!”; and “Sip Jolt, Chug Life!’ ( See Exhibit 11 )

Jolt has had several common threads in its overall product personality and its advertising approaches. Among them are fun, humor, candor and taste.

Jolt during the 1980-90 era drew some high profile attention from the press and the media. This included some satirical comments and general conversation from some well know talk show hosts – David Letterman, Howard Stern and Rush Limbaugh. The product has also received some high level visibility in the past in several major motion pictures shows including: Wayne’s World and Jurassic Park. The product has also been referred to in several novels, including those written by the well known author – Stephen King. There were also featured articles in most every popular culture periodical such as: People; Rolling Stone; Playboy; Newsweek; Time; Life; and virtually every major newspaper. While the story is unique to each, it was always about the sense of thrill that Jolt delivered. Jolt became a so called “rite of passage”. Most everyone remembers their first Jolt, not unlike their first kiss, first beer, or their first car.

From a general promotional point of view, the many small energy drink firms are very aggressively pursuing all sorts of non traditional marketing tactics and promotions such as: bridge jumping, skydiving ( sometimes without a traditional parachute! ), rocket launches and other somewhat unusual marketing activities in what many are calling “guerilla war fare.” Firms in the industry are trying anything and everything to gain the consumer’s attention and a “piece of the action” – revenue and market share. Very little has been utilized in what we know as traditional advertising and promotional techniques in the industry. Red Bull, as mentioned earlier, is the strong market share leader in the segment and has been very involved in sporting events such as NASCAR sponsorship and others.

Sales Promotion Requirements

Another important area in the soft drink industry is the requirement of slotting and promotional allowances to gain shelf space in the retailer’s store, as, mentioned earlier. Many soft drinks and various energy related product vie for valuable shelf space ( which is always limited ) in the store to create awareness and maintain visibility over time. These so called slotting allowances can be very expensive but necessary to gain product visibility. As previously mentioned in the Distribution section of this case study, slotting allowances, CMA’s and sales personnel monetary bonuses are key to assuring maximum shelf space, visibility and sales personnel motivation.

Packaging Innovations

- 12 - Packaging has been a tremendous opportunity for Jolt in the energy drink industry and Jolt has taken full advantage of it! These products had to look different than the norm. Originally at the time of launch, in the 1985 time frame, Jolt could be only purchased in the basic 12 oz can.( See Exhibit 3 ) However, as we know, over time, soft drink bottlers have utilized a myriad of types, sizes and shapes to contain their product. Packaging can be a differentiator in the consumer goods industry and the soft drink industry is no exception. Red Bull has clearly focused on the 8 oz can and due to its growth and success to date, has become the de facto “industry standard” in terms of packaging, for the segment. A standardized package tends to very important to the retailer in terms of shelf display purposes, which is always at a premium, and getting the product on the retailer’s shelf is a number one objective for all producers of consumer goods. Jolt, however, saw an opportunity in the late 2005 time frame for a bit of creative innovation and launched the “Battery Bottle”, a 23.5 oz can with some very distinct features.

The Jolt 23.5 oz battery bottle is surely unique. It begins with a user-friendly re-sealable cap. This feature promotes higher quality consumption over a longer period of time and more effectively retains carbonation. The graphic design, carries a battery theme which reinforces the stimulating ingredients in Jolt. More recently the company has added a 16 oz can with a re sealable cap which should capture a broader section of the market and provide a more attractive size. Yet another packaging innovation was the recently introduced 2 oz Jolt Endurance Shot in a grape flavor which would typically be displayed in the retail store at the check out counter. Additional details on this and the 16 oz packages are contained in the Product Section of this case study. ( See Exhibit 12 – Battery Bottle and Exhibit 4 – Endurance Shot)

Unique packaging enhances spontaneous consumer purchases. It is important to remember that approximately 80% of persons entering a convenience store know they want to buy a beverage but don’t make up their mind in many cases as to which beverage until they scan the array of choices offered in the cooler – which may lead to a spontaneous purchase based on package design, shape and color.

Packaging has been and will likely continue to be a tremendous opportunity for Jolt.

Market Share / Revenue Trends and Current State

The Energy drink industry sector has experienced fast growth. The growth rate over the past 5 years has been 45% or greater. ( See Exhibit 6b )

As more and more energy brands are introduced to the industry by new firms, the size of the overall sector expands and stimulates segment growth and the original energy drink companies are hoping for higher revenues.

(In Exhibit 6b we show the annual sales volume growth in wholesale dollar sales share by brand during the time period 2001 – 07 at an astonishing CAGR of 50.3% ! )

According to (IRI Energy Drinks in the US, 2007 ), 2007 US energy drink beverage sales totaled some $4.9B which represented an increase of 45% year over year. In 2008 industry

- 13 - experts predict the growth in the segment will continue at weekly year over year growth rate of some 15–20%. This growth has been fueled, according to industry experts, by consumer demand for a more refreshing energy drink which offers a better taste than the functional energy drinks. A recent energy drink forecast for 2009 was $5.0B (Convenience Store News, June 15, 2009).

Red Bull is the present market share leader in overall energy drinks and offers a regular and sugar free version to the market. Red Bull’s share, in the larger size cans, that are deemed more value oriented, is quite smaller. And Red Bull is not in the refreshing energy category which seems to be a category on the rise. From a longer term perspective, this may create overall share problems for Red Bull and opportunities for Jolt ( Exhibit 8a).

Red Bull’s key competitor is Monster which keys on the refreshing drink category. But they also offer the functional offering as well, therefore appealing to a broader section of the market than Red Bull. (Exhibit 8a)

In the 24 oz can category, Monster leads the way from a share perspective (See Exhibit 8b). Monster has a 41% share in this category with Rockstar in second place with 30%. JOLT has a sizeable piece of this segment with a 10% share.

Relative market share is depicted in Exhibit 6b indicating the energy drink wholesale dollar sales share by brand with the key competitors being: Red Bull, Monster, Rockstar and others.

Jolt, as stated previously, was created in 1985 and was introduced as the soft drink with “twice the caffeine.” Remember, the mid 1980’s included America’s first – ever infatuation with health food. Like most consumer movements, the pendulum often takes extreme swings. So Jolt was very timely in the sense that it became a rebel cola and took pride in being “non –healthy!” Initially Jolt was able to avoid the so called “” and was able to maintain substantial margins but now Jolt has to fight with other “high octane” entrants for share and profits.

Creating and maintaining share in this particular segment is by no means an easy task. The overall soft drink industry is controlled by the two well known giants – Pepsi and Coke – with their enormous advertising budget and trade support dollars. In 2007 alone, Coke’s advertising spend was $2.17B worldwide while PepsiCo was not far behind with a spend of $1.55B.( Ad Age: December 8, 2008 ) They are able to effectively grab the average consumer’s attention with major, multimillion dollar advertising and promotion campaigns and secure substantial shelf and exhibit space within the major retailer’s stores. Interestingly enough, the Western Region of the country is the “Energy Drink Consumption Leader” consuming 43.3% of total energy drink consumption based on 2007 statistics. ( See Exhibit 8c: 2008 Beverage Marketing Corporation, November, 2008. IRI )

Most energy drink firms do not have substantial advertising and promotion budgets. Instead these firms identify: events sponsorships public relations, web videos, the creation of on-line communities and other alternative, non traditional means that can help create the needed buzz to grab the attention of the targeted audience.

- 14 - In sharp contrast to the huge sums spent by the cola conglomerates, Jolt’s average year ad and promotion budget runs in the neighborhood of $1.2M as previously stated.

We discuss in detail in another section of this case study the specifics of the energy drink industry’s ad and promotion campaign and provide specifics on Jolt’s programs and strategies in this key area of the Marketing effort.

Looking to the Future: “Where Do We Go From Here?”

As the CEO and the Jolt Marketing Team review the past and look to the future in terms of continued growth in share, revenue and profits, what are the key issues and opportunities they must look at in making the critical decisions in terms of developing a successful Marketing Strategy & Promotional Programs for the future? They believe that significant opportunity lies in the areas of: Product, Positioning, Segmentation, and Diversification (other types of products). Are they correct in their assumptions?

If you were a Marketing Consultant, what would be your analysis and recommendation(s) to the Jolt Marketing Team?

- 15 -

Exhibit 1 Jolt Original Products & Theme

- 16 -

Exhibit 1 Jolt Original Products & Theme

- 17 -

Exhibit 2 Jolt Past & Current Products

- 18 -

Exhibit 2 Jolt Past & Current Products

- 19 -

Exhibit 3 Jolt Products & Packaging Over Time

Exhibit 3a Volume Share by Size Can

- 20 -

Exhibit 4 Jolt 2 oz Endurance Shot

- 21 -

Exhibit 5 JOLT: All Things Energy

- 22 -

Exhibit 6a Energy Drink Market Share

- 23 -

Exhibit 6b Market Share - Energy Drink Segment Wholesale Dollar Sales

Exhibit 6b Market Share - Energy Drink Segment Annual Sales Volume

- 24 -

Exhibit 7 Jolt Alaska Promotion: Longest Day of the Year

- 25 -

Exhibit 7 Jolt Alaska Promotion: Longest Day of the Year

- 26 -

Source: “Jolt Wakes Up to Keyed-Up Category:” Ad Age, April 16, 2007 Exhibit 8a Non-Alcohol Energy Sales Volume in Millions

- 27 -

Source: IRI InfoScanData, 52 weeks ending November 4, 2007. Total U.S. FDMX for energy drinks 23.5 oz. to 25.4 oz Exhibit 8b Jolt 24 oz Energy Drink - Sales & Share

- 28 -

Exhibit 8c Energy Drink Market Share

Exhibit 9 Energy Drink Demographic Profile

- 29 -

Exhibit 10 Energy Drink Segment - Positioning Map

- 30 -

Exhibit 11 Jolt Advertising: Promotional Themes & Slogans

- 31 -

Exhibit 11 Jolt Advertising: Promotional Themes & Slogans

- 32 -

Exhibit 11 Jolt Advertising: Promotional Themes & Slogans

- 33 -

Exhibit 12 Jolt: Resealable 16 oz Battery Can

- 34 -