Profitability and Risk

Qualitative Criteria and Evaluations

Profitability and Risk
Alternative one offers the highest profitability. The net income after taxes for alternative two is $104,996,299 compared to $160,658,065 for alternative one. Alternative two also offers a high profitability, but not as much as the first alternative. The risk for alternative one is very high. The risk for the second alternative two is average. Purchasing Nestea is risky because the alternative beverage industry is declining. Coca-Cola?s dissolution of their alliance with Nestea also raises some concerns of risk and profitability. The additional profits received from alternative one are not a large enough amount to consider taking this high of a risk.

Competitor?s Reaction
Competitor?s reactions were thought to be more prevalent in alternative two. The repackaging and offering the non-tea products in cans would cause an immediate reaction. The expected increase in sales would cut into the competitor?s share of the market. When Snapple refocuses itself in the international market, the other alternative beverage companies will also enter the market. Competitor?s reactions for alternative one are expected to be low. The main competitor left after the purchase of the alternative beverage division of Nestea from Nestle would be Pepsi?s Lipton product. There are no clear strategic actions to counteract this movement from Pepsi Lipton.

Society?s Reaction
Society?s reactions for both alternatives would be high. Buying Nestea, alternative one, would give Snapple the profits they would receive from loyal Nestea customers. This brand loyalty might also help the image of Snapple?s drinks. The convenience of having Snapple in a can, included in alternative two, should have a positive reaction. The slightly lower price of Snapple, for both alternatives, should create increased sales because consumers always appreciate being able to purchase goods at a lower price.

Timing
The timing of both alternatives is crucial because of Snapple?s declining market share and the slowing growth of the industry. It may also be a good idea to wait a while to purchase Nestea because of its declining sales, which could lower the purchase price. This is the right time for Snapple to enter the international market due to the industry?s growth decline in the alternative beverage market in the United States. Entering the international market should increase Snapple?s sales in a market that is not yet overcrowded.

Feasibility
Purchasing the Nestea division of Nestle could be difficult to accomplish. It is unknown if Nestle is willing to sell Nestea. Also, acquiring the amount of capital needed to purchase Nestea would be complex. Alternative two is more feasible. There are some promising prospects for international trade markets. It should be easy to offer Snapple in cans because the costs are lower and the company does not produce its own bottles. However, Snapple would be forced to find companies that produce cans and will be willing to bottle the product in cans.

Effectiveness
Both of the alternatives address the problem that Snapple is facing. Alternative one solves the problem of Snapple?s declining market share by purchasing the Nestea division of Nestle. Alternative two solves this problem by entering the international market. The key success factor of maintaining and improving the image of the company is included in alternative two. Both suggested methods of cutting costs, that would lower the price to the consumer, would also help to improve Snapple?s image Lowering the amount of flavors offered would make it easier to obtain shelf space for Snapple?s products.

Choice
Alternative two is the chosen solution. This decision was based on its strong numerical rating as well as its strengths. Alternative two was rated at 3.9 compared to 3.05 for alternative one. Entering the international market will increase the sales at less of a risk than alternative one. Alternative two also requires a considerably lessor amount to invest than the other alternative.
Alternative One Description
As the sales in the alternative beverage industry have slowed, Snapple has to figure out new ways to survive. Snapple needs to look at cutting prices, varieties, and acquiring other investments. These suggestions lead to an alternative which will help Snapple survive and grow in the industry.
Snapple needs to cut their prices to some extent, since they have a profit margin of 42.11% according to 1993 standings. They can cut this to 30 percent and still make a great return without starting a big price war. By doing this, Snapple will gain an increase in sales and possibly hurt other firms in the industry.