During the research we gathered secondary data published by US and Brazilian government agencies, US Commercial Service, marketing research agencies, as well as information from business news and private companies web sites (such as Coca-Cola, Red Bull, etc). Based on gathered information, we concluded that although there is a number of challenges in the Brazilian market that create complex business environment and obstacles for US exporters, energy drink industry in Brazil is in inception stage and thus offers a good growth potential.
After selecting and defining the target market, we were able to develop proposals for international promotional strategy, to describe business and marketing challenges and to provide detailed solution alternatives. INTRODUCTION V-Fusion+Energy® is a new energy drink made with fruit and vegetable juice and green tea extract. It is a healthy alternative to high-caffeine and high-sugar energy drinks because it contains one combined serving of vegetables and fruit, is an excellent source of B vitamins, has only 50 calories and no added sugar or artificial colors, flavors or preservatives.
The product currently distributed in United States (Wal-Mart and other grocery and retail stores). The purpose of this research is to explore opportunities of distributing V-Fusion+Energy® in Brazil. We selected Brazil as a potential market because it is Latin Americas biggest economy accounting for 60% of its GDP and seventh largest economy in the world with population of about 200 million, strong domestic demand for American goods and growing middle class.
With GDP growth of nearly $2. 5 trillion in 2011 according to The White House (2012), we believe this market offers excellent growth opportunities for US companies. Its middle class and consumption has grown tremendously in past decade as per Searchlight Process (2012) 40 million people has joined middle class between 2003 and 2011 and 20 million are expected to be included by 2014.
In addition, there is a clear preference for American-produced goods to domestic goods in Brazil they demand brands for all products from high tech and apparel products of Apple and Nike to beverages of Coca Cola. The improvement in infrastructure is expected in the next 2 years as Brazil prepares for the World Cup in 2014 and the Olympics in 2016 it will spend billions in infrastructure development of its roads, railroads, ports, and airports.
According to US Commercial Service (2011), despite signs of improvement there are a number of challenges in the Brazilian market create complex business environment and create obstacles for US exporters, such as uneven income distribution, problems in public education, disproportion of market concentration, and grey economy that hinders tax collection and keeps economic growth from reaching its full potential.
In addition, doing business in Brazil requires understanding of local business practices such as implicit costs of doing business referred to as Custo Brasil costs related to distribution, government procedures, employee benefits, and complex tax structure. Complex customs system along with high tariff barriers that increase consumer prices up to 100%, and overloaded legal system with lengthy processes is another challenge US companies are facing. As per US Commercial Service (2011), The World Bank ranks Brazil 127 out of 183 economies in the world in terms of ease of doing business.
Nevertheless, if these challenges are accounted and approached with proper solutions, we believe entrance in Brazil market may be extremely profitable and beneficial for US companies in general and Campbell with its innovative product V-Fusion+Energy® in particular. CURRENT ECONOMIC, POLITICAL, CULTURAL, SOCIAL AND LEGAL ENVIRONMENT IN BRAZIL Economic Environment. Brazil is Latin Americas most influential country and one of the rising economic powers together with Russia, China and India (also known as BRIC nations). Almost double size the European Union (8.
5 million square kilometers), with rich in reserves of natural resources (iron ore, manganese, bauxite, nickel, uranium, gemstones, oil, wood, and aluminum, and 14% of the worlds renewable fresh water), and with over 300 million hectares of agricultural land in favorable climate conditions, Brazil takes a relevant position in global market. According to Bureau of Western Hemisphere Affairs (2011), Brazils consistent growth from 2002 to 2009 when its real GDP almost doubled (from US$ 724 billion to US$ 1. 5 trillion), and economys solid performance during 2008 financial crisis followed by strong recovery (including 2010 growth of 7.
5%) contributed to countries transition from a regional to global power. Although GDP growth in Brazil slowed down (2. 7 % in 2011 vs. 7. 5% in 2010) and according to the Colitt (2012) its industrial output has contracted 3. 4 % from last year, the economy is the worlds seventh-largest and is expected to rise to fifth within the next several years. As noted by Bureau of Western Hemisphere Affairs (2011), during the administration of former President Lula, surging exports, economic growth, and social programs helped lift tens of millions of Brazilians out of poverty.
For the first time, a majority of Brazilians are now middle-class, and domestic consumption has become an important driver of Brazilian growth. President Dilma Rousseff, who took office in January 2011, has indicated her intention to continue the former presidents economic policies, including sound fiscal management, inflation control, and a floating exchange rate. Colitt (2012) states that Brazilian President Dilma Rousseff is implementing policies aimed to protect Brazilian industry increasing duties on imported goods like shoes, textiles, and electronics, but not putting enough effort into fixing local infrastructure.
The financial sector is secure and provides local firms with a wide range of financial products, yet interest rates remain among the highest in the world. Due to high interest rates investors that have been buying Brazilian high-yielding bonds have driven up the Real making it a very strong. This in turn, has made imports more favorable for US companies and exports more expensive for Brazil, which increased Brazils trade deficit to $92. 5 billion in 2011. As per The White House (2012), U. S. goods exports to Brazil have more than tripled since 2002, growing from $12. 4 billion in 2002 to $42.
9 billion in 2011 (largest categories are machinery, aircraft, and plastics). As noted by Bureau of Western Hemisphere Affairs (2011), Brazil has one of the most advanced industrial sectors in Latin America. Accounting for roughly one-third of the GDP, Brazils diverse industries include automobiles and parts, machinery and equipment, textiles, shoes, cement, computers, aircraft, and consumer durables. Brazil continues to be a major world supplier of commodities and natural resources, with significant operations in lumber, iron ore, tin, other minerals, and petrochemicals.
However, high inflation (7. 3% in October 2011 above the upper limit of the governments target of 2. 5%-6. 5%) is a cause of extremely high cost of operating the manufacturing (due to high prices of energy, raw materials and wages), which makes it very hard for Brazilian industries to be competitive in the world markets. According to Alberto Ramos, chief Latin America economist at GS, manufacturing industry is not a competitive advantage of Brazil and it should redirect its resources into fields where it is competitive, like services, agribusiness and commodities.
Brazil has a diverse and sophisticated services industry, including developed telecommunications, banking, energy, commerce, and computing sectors. And most importantly, Brazil is generally open to and encourages foreign investment -it is the largest recipient of foreign direct investment (FDI) in Latin America, and the United States is traditionally the top foreign investor in Brazil United States is a major supplier with over 15% of Brazils imports. Political Environment.
The current structure of the Brazilian government is a Federative republic with 26 states and feral district, governed by a presidential system in which the president is both head of state and head of government (elections are based on a four-year term). Brazil has become independent in September 7, 1822 and promulgated its constitution in October 5, 1988. The 1988 constitution grants broad powers to the federal government, made up of executive, legislative, and judicial branches.
As summarized by Bureau of Western Hemisphere Affairs (2011), there are 81 senators, three for each state and the Federal District, and 513 deputies. Senate terms are 8 years, staggered so that two-thirds of the upper house is up for election at one time and one-third 4 years later. Chamber terms are 4 years, with elections based on a complex system of proportional representation by states. Each state is eligible for a minimum of eight seats; the largest state delegation (Sao Paulos) is capped at 70 seats.
This system is weighted in favor of geographically large but sparsely populated states. In Congress, fifteen political parties are represented making it common for politicians to switch parties. The largest political parties are the Workers party (PT), Democrats (DEM), Brazilian Democratic Movement Party (PMDB-center), Brazilian Social Democratic Party (PSDB), Progressive Party (PP), Brazilian Labor Party (PTB), Liberal Party (PL), Brazilian Socialist Party (PSB), Popular Socialist Party (PPS), Democratic Labor Party (PDT), and the Communist Party of Brazil (PCdoB).
Major labor union federations include the Workers Unitary Central, the Workers General Confederation (CGT), and the Forca Sindical (FS). As listed in World Guide (1997), there is a variety of labor unions and national, religious and professional associations that people in Brazil belong to: Brazil is one of the founding members of the United Nations, the G20, CPLP, Latin Union, the Organization of Ibero-American States, and Union of South American Nations. One of its main goals is to provide aid to developing countries and is estimated to be $1 Billion per year.
As per Bureau of Western Hemisphere Affairs (2011), to further increase its international profile (both politically and economically), the Rousseff administration is also seeking expanded trade ties with developing countries, as well as a strengthening of the Mercosul (Mercosur in Spanish) customs union with Uruguay, Paraguay, and Argentina. Brazil is a charter member of the United Nations and participates in its specialized agencies. Cultural and Social Environments.
The official language of Brazil is Portuguese and it is most widely used language. However you may find less common languages like Spanish, German, Italian, and Japanese. But many Brazilian executives speak English, since many of them have studied abroad in the United States or Europe. Understanding Brazilian culture, social environment and business etiquette is essential for successfully doing business in Brazil. Anybody who is doing business with Brazilians should be aware of the various cultural and structural barriers which might confront them.
According to study made by University of Illinois (2010), concepts of class and status are very strong in Brazil and can determine the position a person may take in the company, which implies that Brazilians allow inequality in their companies. Although communication between high and low level employees is often informal, everyone is aware of social hierarchies. When conducting business it is important to remember that the Brazilian family (often family members working for the same company) is the foundation of their social structure and it forms the basic stability for most Brazilian people.
Because of this, Brazilians need to know whom they are doing business with before they can effectively work together, so questions about persons personal life, family, and company should be expected. Relationships are extremely important to Brazilians, by building close personnel relationships and building trust, foreign businessmen and investors will have a greater chance of success in doing business in Brazil. According to the information gathered and provided by Kwitessential (2010), although the communication is very informal, some simple rules of etiquette must be followed.
Although business appointments can be scheduled on the short notice, it is best to schedule them two to three weeks in advance and confirm them in writing since it is not uncommon for appointments to be cancelled or changed at the last minute. It is important to appear on time for meeting in Sao Paulo, however, in Rio de Janeiro and other cities it is acceptable to arrive a few minutes late for a meeting. During introduction it is very important to be prepared for a lot of handshakes when saying hi and bye or a kiss in the cheeks between men and women.
It is important to note that since business in Brazil is hierarchical, so decisions are made by highest ranking person which may not be always present senior managers usually attend only initial meetings (and expect to meet someone higher ranked as well). According to study in Ethisphere (2008), people in US and Brazil differ in ethical orientation and therefore, before entering Brazil we should be aware of ethically challenging situations and establish strategies on how to deal with potential corruption ahead of time.
It is important to understand Brazillian Jeitinhio Brasileiro way of thinking their tendency to look for alternatives to do something that in our eyes seems improper, which rarely require bribes and is not considered corruption, but more like an alternative way of accomplishing objectives when confronting overly rigid rules. Legal Environment. Brazil is organized as a Federal Republic and its legal system is based on Roman civil code, which implies that all laws that discipline all kinds of situations are previously written and made public.
Besides the Federal Constitutions, which consists of 250 articles that outline citizens fundamental rights and guarantees, the political and administrative organization of the Federal Republic of Brazil, the individual spheres of authority of the Executive, Legislative and Judicial branches, tax system and the fundamental labor rights, there main legal documents are the Codes: Civil Code, the Tax Code, the Penal Code and the Civil Procedure Code.
The Civil Code comprises over 2000 articles regulating matters such as Obligations and Contracts, Businesses and Corporations, Real Estate and related property rights, and many others. The Tax Code defines the main Brazilian tax regulations, which are complemented by many Federal, State and Municipal laws. The Penal Code brings the definitions of conducts considered crimes and the punishments for anyone fitting the respective legal descriptions.
Finally, the Civil Procedure Code regulates the due process of law. There is a variety of legal restrictions for foreign companies conducting business in Brazil, which pushed many companies towards partnerships with qualified agents or distributors when entering the Brazilian. First, a foreign company must obtain written permission to operate a branch in Brazil, thus joint ventures are usually more popular than independent entities. To avoid potential legal problems, US Commercial Service (2011) recommends U.
S. companies have a written agreement to help exporters limit liability for product defects, protect a trademark, better ensure payments, and define warranty terms, and consult with a Brazilian law firm before signing any agreement. Taxes in Brazil are actually favorable compared to the U. S. The current corporate income tax rate is 15% regardless of the corporations business but with a 10% supplementary tax on the portion of net profits that exceeds R$ 20. 000,00 per month.
The main stock exchange in Brazil is the Sao Paulo Stock Exchange (Bovespa). Securities, such as shares, commercial papers, debentures, investment fund quotas and derivatives, are traded on Bovespa. Also, it is important to note that, according to a business survey conducted by PriceWaterhouse Coopers (2009), 70 percent of firms in Brazil report having spent at least 3 percent of revenues on bribes. Most of these bribes are to expedite procedures, special treatment or access to traditional transactions.
Although nowadays many companies in Brazil, especially those that operate internationally, are fighting against corruption (for ex: companies signing Brazilian Pact for Integrity and against Corruption), and Federal agents have been effective in policing illegal behavior (which helped Brazil achieve moderate rating in 2009 Global Integrity Report), corruption, governmental inefficiency, legal and bureaucratic complications remain real and very sensitive issues in Brazil that cause a great frustration to the international business people. INDUSTRY AND COMPETITORS OVERVIEW.
Energy Drink industry in Brazil is in inception stage and thus offers a good growth potential for a company distributing new energy drink products like V-Fusion+Energy®. According to Russell (2012), energy drinks was the fastest growing soft drinks category in Brazil in 2010, with 33 percent growth in value term. Moreover, Brazil is still a small market for energy drinks with off-trade volume sales of 31 million liters in 2010, which corresponds to 1% of global volume. As Russell (2012) points out, new product launches with new positionings and lower price points, and increased availability, mean that the market is tipped for growth.
Although some health concerns have been voiced regarding energy drink consumption, particularly when associated with alcohol, there is no indication that the category is acquiring a negative image in Brazil, Russell (2012) explains. There new trends in Brazils population proportion and its consumption patterns also create opportunity in energy drink industry: middle class and consumption has grown tremendously in past decade as per Searchlight Process (2012) 40 million people has joined middle class between 2003 and 2011 and 20 million are expected to be included by 2014.
As of today, out of 200 million Brazilians over 52 percent are a part of middle class, whose combined monthly family income ranges between US$600 (R$1,000) and US$2,400 (R$4,000). Moreover, according to Secretariat of Strategic Affairs of the Presidency of Brazil (SAE) middle class is predominantly comprised of young people less than 30 years old, with formal employment and disposable income, mostly residing in urban areas and expressing strong preference for American brands.
With this in mind, according to Russel (2012), Euromonitor predicts that multinational manufacturers will start to invest more in the country to offset sluggishness in other markets. Brazil could be one of the top five markets worldwide for energy drinks, according to Euromonitor. Sales of energy drinks are predicted to grow in total volume at 14% per year on average between 2010 and 2015. The biggest challenge in energy drink industry for US exporter is the price structure due to complex customs system along with high tariff barriers that increase consumer prices up to 100%.
As per US Commercial Service (2011), in some cases costs are so high that a simple calculation may indicate that US exporters margin will not allow them to compete with local products. Thus, some US companies work on low margins and implement efficient supply chain systems aimed to lower operation costs. Red Bull, for example, whose drink already holds lead position in Brazils energy drink market with 59. 6 percent volume share, is building a production plant in Brazil to remove high tariffs from its price structure and be able to increase its profit margins while lowering retail prices and increasing sales volumes.
Besides Red Bull, who dominates Brazils energy drink market with 59. 6 percent volume share, the main competitors are US based multinational giant The Coca-Cola Co. with its product Burn Energy taking 11. 7% share and German Lizur Tradings Flash Power energy taking 4. 8% share, and new Gladiator with no sales figures available but with promising results. According to Euromonitor International (2010), the newer brand Gladiator is one of the fastest growing soft drinks brands. As the company has massive distribution infrastructure, it can become the toughest rival in the industry in the medium term.
Marketing activity and optimization of logistics and distribution channels are likely to be explored by the main players in energy drink industry over the next few years. Austrian company Red Bull has created the global market for energy drinks, and the pioneering Red Bull brand became synonymous with energy drinks for a large number of consumers, including Brazilians. According to Euromonitor International (2010), despite rising competition, Red Bull GmbH continues to comfortably lead the global energy drinks market by both volume and value.
Red Bull is produced at a single facility in Austria and then distributed around the world via a network of local subsidiaries and external importers and distributors. Thus, Red Bull imports its product to Brazil through a distributor and adds high costs of duties, energy and logistics cost to its prices, which makes it unaffordable for some low-income consumers in Brazil. Also, Euromonitor International (2010) advises that the company aims to capitalize on the current consumer trend towards natural ingredients, and targets an older consumer group that is typically more interested in product ingredients than younger consumers.
Thus, it is clear that industry leader sees opportunity in expanding its product portfolio to target health conscious consumers, which means that V-Fusion+Energy® has a great opportunity in this market if introduced first. Coca Cola competes on Brazils energy drink market with Burn Energy a new Swedish high-energy drink oriented on young population (20-24) with its stylish design and promotion associated with famous djs, parties in famous clubs in Brazil and music festivals. Besides the attractive image, added native Brazilian high caffeine guarana extract appeals to Brazilians.
Coca Cola has very efficient distribution network in Brazil and 46 manufacturers strategically located in all regions of the country ensuring the supply of about one million points of sale. To summarize information provided on official web site of Coca-Cola in Brazil, Division Brazil is one of the four major operations of Coca-Cola performing in Brazil since 1942. Besides Coca-Cola, there are 16 independent business groups, called authorized manufacturers, in addition to the Junior Lion and Del Valle, who draw up the final product in its 46 plants and distribute them to retail outlets.
This structure allows Coca-Cola to gain efficiency in manufacturing and distribution, avoid high tariffs and bureaucratic import barriers, thus minimizing costs and consumers retail prices. SELECTION AND ANALYSIS OF TARGET MARKET As we mentioned earlier, health and energy segment of beverage market has been growing strongly in Latin American countries including Brazil. Studies have shown that the change in consumer wealth and behavior has driven the health and energy markets to be viewed as the most promising segment of the beverages industry.
More than two-thirds of Brazilians are concerned with their energy levels and try to manage tiredness. With the new V8+Energy people can look forward to enjoying a combined serving of vegetables and fruit with the amount of caffeine that is comparable to the leading energy drink or a cup of coffee. By targeting upper and middle class we will be able reach out to over 80 million of people living in Brazil. Huge difference between rich and poor is the direct reason why social classes have such relevance for segmenting demography in Brazil.
Novias (2011) classified contemporary Brazilian society from letters A-E, as follows: 1. Educational Level ¢ Classes A and B: usually composed by those who completed higher education. The younger generations of these classes tend to be fluent in several languages. ¢ Class C: most people in this class have finished high school and there is also a significant quantity of people who completed higher education or at least have a technical level degree. ¢ Class D: people who have not finished high school. ¢ Class E: people who have not finished elementary school and illiterate people. 2. Occupation.
The educational levels previously presented support the level of submission among five different classes. This employment relationship is presented as: ¢ Class A: composed by bankers, investors, business owners, major landowners and people with extraordinary skills for the industry they operate in. ¢ Class B: composed by directors and managers, politicians, judges, justices, prosecutors, well graduated professors, doctors, well qualified engineers and lawyers, etc. ¢ Class C: composed by those who provide services directly to the wealthier groups, such as teachers, managers, mechanics, electricians, nurses, etc.
¢ Class D: composed by people who provide services to Class C, such as housemaids, bartenders, bricklayers, people who work for the civil construction companies, small stores sellers, low-paid drivers, etc. ¢ Class E: composed by people who earn minimum salaries, such as cleaners, street sweepers, and also by unemployed people. Our primary target is classes A-C. Consumers in these classes are hardworking people (ages 18-35) that have proper education to know the benefits of drinking V-Fusion+Energy® and want a smart, healthy, and effective way to gain their energy back.
In terms of the geographic locations there are some regions where there is a strong dominance of classes D and E like the North, Northeast and Central-West regions in which we will not focus on. However, it is the larger cities such as Sao Paulo in which social differences are mostly visible and is where many of the upper classes are found, as well as Brasilia, capital of Brazil. Our age segmentation can vary mostly because the V-Fusion+Energy® drink can be consumed by almost anyone at any age.
Made with natural ingredients, it is healthy for any age group to drink including young teens from ages 12-19 as well as for seniors. However, our primary target is working social classes A-C that belong to 18-35 age group and teenagers who are following newest trends , interest and youthful lifestyle. PROMOTIONAL STRATEGY Introducing Acai Berry Flavor. In order to localize the product to the Brazilian people, we will introduce a new flavor of V8 Fusion Energy: Acai Berry. Acai is the most popular fruit in Brazil, and it is enjoyed throughout the year by both young and old.
By creating an acai flavor, we will be able to expand our market, because our product will appeal to all Brazilians. We will also attract more customers to our target market, mostly healthy individuals who exercise regularly. Acai is one of the healthiest fruits in the world: it contains powerful antioxidants that can help defend the body against lifes stressors. It also contains anthocyanin and flavonoids, which play a key role in the bodys cell protection system, help slow down the aging process, and may promote fat loss.
All these health benefits are the reason why acai is often referred to as a super fruit by nutritionists. Processing the acai fruit into an energy drink does require time and resources, but considering that Brazil is an upper-middle-income country with a newly, rapid industrializing economy (Keegan), we have determined that the acai strategy will be successful. Localizing our product by including something that everyone in Brazil is familiar with and enjoys will be a successful initial promotional strategy.
It will define our target market, because of acais health benefits. It will also expand the market, since many people will buy and drink our product, simply because they enjoy the flavor of acai berry. Carnival. The Rio Carnival is the perfect place to market out V-8 Fusion Energy drink. We will be considering a couple of strategies at the Rio Carnival: 1) we will have our sales employees offer people the drink for free, and 2) we will occupy small vendors, located around the carnival and sell our product there. Free sampling will initiate the promotion of our drink.
We have strong belief in the quality and taste of our product, which is why we believe that once people try it, they will be returning customers. The second strategy will be used for customers wanting to try the other great flavors of our product: Peach Mango, and Pomegranate Blueberry. This strategy will also be used as primary research. We will be closely monitoring our sales, considering factors such as: location of vendor and flavor of drink. Employees will collect the data electronically, which will be used to determine which flavor is more popular in which area.
We will also have employees conduct observational surveys. They will be writing down data of approximate age of customers, as well as their facial expressions after drinking, to help determine if customers enjoyed our product. Soccer Campeonato Brasileiro. The most popular sport in Brazil is soccer. It is so popular, that it is not even considered a sport; its a way of life for most Brazilians. Soccer is played everywhere: on the streets, on the beach, in parks, and in professional soccer clubs. Professional soccer players in Brazil are the most famous and recognized people in the country.
This is why we plan to promote V8 Fusion Energy through professional soccer teams We will offer a contract to the professional team Santos to place our product name on the front of their uniforms. Santos is currently the team with the best-selling jerseys and apparel in Brazil, and we would like to be associated with a popular, winning team. Research has showed that when a product is associated with a successful team, sales increase as well. We will also offer personal contracts to one or two star players from the team. They will play a key part in our advertising commercials and promotional campaigns throughout the country.
Our vision is to promote V-Fusion+Energy® as a healthy source of energy and gain strong position on energy drink market in the country, thus we see tremendous potential to market our product in the professional soccer league. Brazil does not have a specific drink associated with sports (such as Gatorade in the United States). We will use an aggressive market strategy and make our V8 Energy Fusion the official drink of Brazilian soccer possibly sports in general. Our product will be placed on the sidelines of all games. Players coming in and out of the game will drink our product for energy and hydration.
Our goal is for people to associate our product with energy, success, and health, which is exactly what V8 Fusion Energy is a healthy energy drink for success!
BUSINESS AND MARKETING CHALLENGES AND SOLUTIONS To achieve a successful outcome in launching the V-Fusion+Energy® product in Brazil, it is essential to highlight the barriers to entry and marketing challenges. We have identified three key areas that present a challenge; un-even income distribution, public perception and consumer education, and a foreign judicial system that includes a complex tax system and testing custom laws.
First, un-even income distribution in society refers to the possession of the production factors and the price the owners get in the market. Focusing on this issue results beneficial considering we cant put our product out there if the consumer population does not have a stable income in the different cities or areas, and the production cost are unknown . Therefore, in order to reduce production costs we can create a joint venture with a pre-existing Brazilian beverage companies. furthermore, we will focus on the local agriculture; I. e invest in local agriculture.