Mountain Dew Price Component of Marketing Mix

November 20, 2011

The market for Carbonated Soft Drinks (CSD) as a whole has long achieved its maturity. Therefore the price, as one of the available components of the marketing mix, is not playing significant role in driving up revenue or increasing the market share. As has been discussed throughout the paper the brand differentiation through promotion, placement and product development are the real drivers for continuous growth.

In fact, any attempts to increase the market share and penetration through price manipulation would most definitely trigger the price wars in the industry, because all other main players in the CSD market – Coca Cola and Schweppes- have sufficient margins to match competitors’ price challenges, and ability to respond quickly. The result of the price reduction would be industry-wide shrinking of the profit margins and decrease in revenues without any significant effect on the market share.

The increase in prices in the attempt to drive higher the profits would most likely be a suicidal step for Mountain Dew brand, because the price elasticity of demand for the whole soft drinks segment is estimated to be around 0.8 to 1 [1]. Therefore the price elasticity for a single specific brand will be significantly higher, given the availability of substitute products both from the competitors and within the PepsiCo. The evidence of this high elasticity was demonstrated in 1999 when all CSD sales suffered as a result of a category-wide 5% retail price increase.

As a matter of fact, in today’s market (2010) there is another potential threat to the whole soft drinks industry with the possibility of introduction of the so-called “Soda Tax” on the State and local levels. If this tax is implemented in the form proposed by its most radical supporters, the excise tax will be equivalent of about 15-20% increase of the existing sales prices. The effect of this fiscal measure could be really very damaging for the whole CSD industry, including Mountain Dew. Under these circumstances the importance of fully engaging other available means for brand expansion or even survival becomes paramount.

This brief analysis of the price component in the marketing mix brings us back to the main premises of the Mountain Dew situation, that we need to focus on the brand differentiation through new creative promotion and by creating customer bonding via added value and strong customer association with the brand.

———————————————

[1] Andreyeva T, Long MW, Brownell KD. The impact of food prices on consumption: a systematic review of research on price elasticity of demand for food. Am J Public Health (in press)