Question

Outline and answer all discussion questions following case description in details. (Do not attempt to solve if you can not fulfill all the requirements!!!!)

THE ENERGY BAR INDUSTRY

In 1986, PowerBar, a firm in Berkeley, California, single-handedly created the energy bar category. Positioned as an athletic energy food, it was distributed at bike shops and events that usually involved running or biking. The target segment was the athlete who needed an efficient, effective energy source.

Six years later, seeking to provide an alternative to the sticky, dry nature of the PowerBar, a competitor, also located in Berkeley, developed an energy bar with superior taste and texture and branded it the Clif bar. About the same time, another competitor introduced the Balance bar, which offered a blend of protein, fat, and carbohydrates based on the nutrition formula associated with the “Zone diet.” Faced with these challengers, PowerBar responded with Harvest (a bar with a much more accessible taste and texture) and ProteinPlus (an entry into the high-protein subcategory closely related to that defined by Balance).

The makers of the Clif bar observed that many women were athletes and many more were involved in fitness. They further observed that this half of the population had unique needs in terms of vitamins and supplements and that the energy bar industry had yet to recognize or fill them—a classic case of unmet needs. As a result, they introduced Luna as the first nutritional (not energy) bar for women, using media and promotions targeting active females. The bar had a light, crunchy texture; came in flavors like “lemon zest” and chai tea; and contained nearly two dozen vitamins, minerals, and nutrients. The target market consisted of time-strapped women who wanted both taste and nutrition and would appreciate a bar tailored to their needs.

Both in reaction to Luna’s success and to expand the segments for which the category was relevant, PowerBar studied why women did not buy its products, which the firm considered to be nutritious, convenient, tasty, and able to provide a quick pick-me-up in mid-morning or mid-afternoon. One answer was that the calorie hit from any member of the PowerBar family was simply too great. In response, the firm created the almost indulgent PowerBar-endorsed Pria. With only 110 calories, Pria was designed to respond to Luna while attracting new users into the category.

The Balance strategy was to introduce a series of products, all of which stuck to the original bar’s 40/30/30 nutritional formula but had different taste and textures. These spinoffs included Balance Plus, Balance Outdoor (with no chocolate coating to melt), Balance Gold, Balance Satisfaction, and the Balance-endorsed Oasis, a bar designed for women. The big success was Balance Gold, which was positioned close to the candy bar category (indeed, its tagline was “like a candy bar”) by containing ingredients such as nuts and caramel. Such a bar probably risked some of Balance’s perceived authenticity as being an energy bar. However, because Balance entered the category from the diet perspective anyway and probably was never considered in the center of the energy bar world, the risk may have been acceptable.

In addition to the major brands, challengers from a variety of small and large firms advanced subcategories by positioning themselves around such factors as age (bars for seniors and kids) and health (products to fit dairy-free, diabetic, and heart-conscious diets), to say nothing of numerous textures, flavors, sizes, and coatings. Over a 10-year period, some 450 products were introduced. For example, the popularity of low-carbohydrate diets has prompted a host of entries, including Atkins Advantage, developed by the Atkins organization, which gained a substantial market share that peaked in 2003 and fell off sharply thereafter. Other participating brands include Zone- Perfect, Met-Rx, GeniSoy, EAS, CarboLite, Carb Solutions, and Gatorade energy bars. Masterfoods’ Snickers Marathon—a candy bar with a blend of vitamins, minerals, and protein— has blurred the division between candy and energy bars by seeking to gain share in the latter market. One concern of the energy bar industry is the skepticism among some quarters as to how qualitatively different its products are from candy bars in the first place.

The motivation for using an energy bar is primarily to provide a convenient energy boost. The original heritage of being a product to enhance the performance of top athletes engaged in demanding physical activities (like Lance Armstrong, a PowerBar endorser) created credibility and self-expressive benefits in the category’s early years. Because household penetration was still under 20 percent, however, the major firms worked to generalize “performance” to be relevant to anyone who needs to perform well during the day. In fact, the industry dream is to get people to label the category “performance nutrition” and think of it as enhancing one’s ability to complete any task.

New products in the category are going in several directions. A trend toward indulgent icings, coatings, and coverings has led some to morph toward candy bars. Others go the opposite way, using whole-grain ingredients for products somewhat like the original Clif bar and Quaker’s Oatmeal Squares for women. The makers of the Clif bar also have introduced a Mojo line of salty snack bars to provide alternatives to sweet-tasting bars and the Clif Nectar bar, an entirely organic nut and fruit bar. PowerBar introduced Nut Naturals, a low glycemic index bar. There are bars positioned around ingredients such as protein or soy bars. A major Japanese brand of soy bars, SoyJoy is now in the market with a dry bar that will not be confused with a candy bar.

The energy bar category has gone mainstream, moving from the bike shops to the grocery stores and exploding from just over $100 million in revenue in 1996 to an estimated $2 billion or more a decade later, with expected future growth exceeding 10 percent per year. It is fueled both by the confluence of trends toward low-carb, portable, nutritious snacks and meal replacements (along with a general concern for health and weight control) and by the introduction of new products. Along the way, it became large enough to attract the attention of major packaged-goods firms. In 2000, Nestle purchased PowerBar, which has remained the leading player, with the Clif bar (which has remained independent) emerging as its most formidable competitor. The Balance line of products was bought by Kraft, also in 2000. Energy bars can be considered a part of a larger food bar category which is also growing rapidly. The market is divided fairly equally between granola bars (positioned as a snack food that is healthier than candy bars), breakfast/cereal/snack bars (used as a meal replacement), and energy bars. Energy bars have a far lower household penetration than the other food bar forms. The top marketers of food bars are Kellogg’s (Nutri-Grain), Quaker Oats, General Mills, and Slim-Fast.

Please answer the DISCUSSION questions below:

1. Conduct a thorough analysis of this category’s customers, competitors, market, and environment from the perspective of PowerBar. What are the key strategic questions? What additional information would you like to obtain? How would you obtain it? What are the threats and opportunities? In particular, address the following issues:

a. How is the market segmented? What are the key customer motivations and unmet needs? What are the similarities and differences among the segments? How might a company link customer motivations to value propositions?

b. Identify the competitors. Who are the most direct competitors? The indirect competitors? Substitute products? What are the strategic groups?

c. What are the market trends? The growth submarkets? The key success factors?

d. What are the environmental trends that will affect the industry? Generate two or three viable future scenarios.

2. How would you go about evaluating emerging submarkets? What criteria would you use to enter each? Consider PowerBar’s reaction to the Clif organic bar.

Answer 1

1.Power bar had initially launched it's energy bar for the athletic people and thus these bars were made available at bike points where the product could be easily marketed to the bikers. So power bar launched it as an energy bar for more muscle involving athletes so the customer segment was athletes who consumed energy bars to enhance their body BMR. When the energy bar industry saw more scope then taste and texture of the bars were enhanced and nutritional values were improved by improving protein, carbohydrate concern.

Market environment analysis of Power Bar comprises two main factors I.e internal and external environment.

Internal factor is the companies own organisational structure related factors which are:-

Various departments of the company like sales , finance, hr etc and how synchronised these are with the company's target. Capital is the most important internal factor to implement/adapt swiftly. PowerBar being an established brand in ENERGY BAR INDUSTRY had capital to bring technology to adapt.

External environment is the the economy and market at large which are not in the company's hand but which influence the company's profitability immensely. In this case the external environment was the growing energy bar culture of the country which led company's to invent new composition from energy bar to tasty energy bar to healthy protein/carbohydrate energy bars to flavoured energy bars for women athletes to completely nutritious bars.

The competitors of PowerBar were all granola bars, candy bars and energy bars making companies.However the main competitors were Cliff bar and Balanced bar manufacturing companies which actually started the energy bar substitute trend. Competitors of PowerBar can be analysed through SWOT analysis .

Strengths were: an established brand of being pioneer in the energy bar segment. Economies of scale and more efficient processes since the company was in growing phase of business cycle. With little innovations in composition, flavour and nutritional values from the existing resources more profitability could be achieved.

Weakness: several players and lots of variations were launched so Power/Bar lacked the tact to adapt swiftly and thus new entrants with healthier flavourful versions of the energy bars took a fair share of PowerBar's market share. Energy Bar's peneteation in regular household is less as compared to other food bars and thus it had to compete with giant well established food bar brands.

Opportunity was being acquired by brand like Nestle and thus harnessing Nestle's bigger channels would provide better penetration in the households of the country.

Threats were the larger retail giants who were already household names and their food bars. These companies with their huge research processes and resources were capable of innovating much better that PowerBar.

2. Energy bar market can be segmented into just energy bar/nutritious energy bar/tasty energy bar/fibrous energy bar/flavoured energy bar especially for athletic women. It is a fragmented market.

Key customer motivations are concentrating on the nutritional values of the products. Also vitamin packed bars found attraction amongst athletic women. The idea was to boost ones athletic credentials body systems by consuming power packed bars. Customers were motivated towards these bars which promised their bodies would be fully fit internally even after the physical exercise.

Unmet needs were certain market segments like athletic women which were unfulfilled and then Luna was the energy bar which was made specifically for women athletes with power packed nutrition and flavour.

Competitors:

Most direct competition was from cliff bar and Balanced bar manufacturing companies who took the idea of PoweeBar and provided it with nutrition annd flavour components which were the demand trend of consumption. Indirect competition was granola bar and other snack bar manufacturing companies or retail giants which were more accessible to the households than energy bars which were deemed only for the specific athletic community.

Strategic groups would be classifying/grouping companies strategically within an industry with similar business models. Strategic groups would be energy bar makers, granola bar makers and other snack bar makers.

Market trends were growing energy bar industry and direct competition with granola bars, candy bars and other snack bars. More inclination of customers towards nutritional bars associated with established brands.

Key success factors would be pricing and innovation. A healthier and more nutritional bar were finding attraction with consumers at more competitive prices would help them reach households.

Environmental trends in future:- merger and acquisitions I.e giant retail brands like Kellogs, Quaker oats, Nestle etc would acquired small er energy bar companies and thus marketing channels of these bigger players would be utilised.

Another option would be fragmentation of the snack bar industry with several small er players delivering niche products.

2. Emerging sub markets such as organic energy bars, soy energy bars, flavoured energy bars, grain energy bars etc could be penetration by PowerBar by conducting a consumer survey to discover inclination of customers towards energy bar option type and then innovating the most demanding category as per the survey. This should be done by PowerBar on a regular basis to always understand the changing food trends of consumers and thus be a market leader in the energy bar industry.