Trade of Dr. Pepper From USA to UK

History and Location of the Company

Dr. Pepper/Seven Up, Inc has been in existence for over 200 years and currently, it has more than 50 brands in the market. The company is situated in North America. They replaced an old drink which was founded 200 years ago with current brands due to market changes. The drink was later renamed because the product which Dr. Pepper was producing started using nuts in its recipe had started losing the market. They also changed the trademark into what they are using now. After the change, the success in sales was noted to about 50,000 gallons in 1920. In 1926 another design was adopted which was designed to meet the new other changes.

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Dr. Pepper has managed to become a successful company because of designing a marketing mix that enables them to market the product effectively in the market. They have had a successful product mix that caters to the customer needs. The use of the four P’s in the marketing mix includes the price of the product, the product itself, the place where the product is sold and the communication or promotion of the product are very important were well utilized.

Description and Pricing of the Product

The product is Dr. Pepper manufactured by Seven Up, Inc, it is a uniquely developed product that follows all specified rules and has good labeling. Dr. Pepper mainly develops table products that require extensive use of attractive labeling and presentation. Products are fine-tuned in accordance with the recent consumption pattern of the consumers around the world and in the process, the lands used for vine cultivation are widely developed and management of the natural resources is widely practiced. The company also aims the develop new brands and renew the existing ones in order to flourish in the existing markets. It also set to develop strategies in order to develop competent products.

All brands in a competitive market have various challenges that they have to adhere or adjust to. Just like other products, the major challenge that a product may face is the rise of competition. All companies in a competitive world have to accept real competition unless in a monopolistic type of market. Competition can be defined as a group of firms, that offer a product, or class of products that substitute the products of a company. In 2000 to 203 new drinks were introduced into the market and this was because some people realized that the success of Dr. Pepper meant that there was an opportunity in the soft drinks market.

The introduction of competition to the market meant that Dr. Pepper had to face a number of brands that were trying to initiate similar techniques to get the market share that Dr. Pepper had acquired over the years and marketing techniques. Some of the companies’ brands that posed a challenge in Dr. Pepper included a marketing threat to Dr. Pepper. The second and perhaps the most serious challenge that Dr. Pepper faced was the issue of legislature challenges because most people went to court to challenge the Dr. Pepper business. Other challenges that Dr. Pepper faced were the reduction of the target market because as time went by most of the target market tended to reduce.

Price Policy and Strategy: – From pool man’s study, it would appear that the management of the majority of subsidiaries of multinational enterprises in the UK decides independently on their price policies and strategies. This is also understandable since subsidiaries are better informed in other countries in which they operate, of conditions and factors affecting production and marketing costs, legal requirements, general economic conditions, and competition and distribution structures.

Price Policy and Strategy: -From pool man’s study it would appear that the management of the majority of subsidiaries of multinational enterprise in the UK decides independently on their price policies and strategies. This is also under stand able since subsidiaries are better informed in other countries in which they operate, of conditions and factors affecting production and marketing costs, legal requirements, general economic conditions, and competition and distribution structures.

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Tariffs and Quotas the Company Will Face When Exporting

The following table represents the data of the export of Dr. Pepper from the US to the UK for the time period 1995-2008. Here we find that there is a continuous growth in Dr. Pepper export to the UK.

US $
Year U.S. Export to the UK
1995 110,753.70
1996 112,992.60
1997 121,862.20
1998 143,241.20
1999 132,111.10
2000 161,185.20
2001 191,182.30
2002 223,127.70
2003 281,367.90
2004 341,744.10
2005 411,925.30
2006 550,185.70
2007 652,236.10
2008 721,457.10

Source: US Census Bureau, 2009.

The following diagram is the representation of the above table. The vertical axis measures the monetary value of trade. The line shows the trend of export of Dr. Pepper to the UK.

Dr. Pepper to the UK

The data available are given in the following table. The consumer price index of the UK is obtained from various sources. The data of CPI of UK from 1995-99 are obtained from the UK government department of statistics. The data regarding the CPI of the UK have been obtained from the UK Economic Indicators. From that the CPI of the UK in 2008 has been derived. By dividing the CPI of the USA by the CPI of the UK for each year the relative price has been obtained. Then by multiplying the relative price with the corresponding nominal exchange rate the real exchange rate has been obtained for each year (Finance Department 18).

In the datasheet of Statistical Package for Social Scientists, the data of the real exchange rate have been used as the independent variable as per the theoretical framework used here. On the other hand, the data regarding the balance of payment surplus in different years have been placed as the dependent variable. The regression is run below the 5% level of significance. The value of the standardized coefficient of the regression has been obtained to be.868 which shows a high degree of dependence of the trade balance surplus on the real exchange rate. The value of t statistics is 6.601 (which are greater than 2) that imply that regression is statistically significant (Finance Department 18)

Table 2.

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Year Relative Price of US against UK real exchange rate of UK Export by Dr Pepper to UK
1995 1.327526 1.20711 45,543.20
1996 1.478794 1.35014 51,512.80
1997 1.592262 1.25669 62,557.70
1998 1.673511 1.19985 71,168.60
1999 1.717526 1.21974 81,788.20
2000 1.715139 1.21974 100,018.20
2001 1.758689 1.55685 102,278.40
2002 1.813508 1.41077 125,192.60
2003 1.818182 1.4945 152,436.10
2004 1.818094 1.4818 196,682.00
2005 1.918468 1.58782 243,470.10
2006 1.986207 1.59806 287,774.40
2007 1.978454 1.58297 321,442.90
2009 1.93813 1.37174 337,789.80
  1. * Statistics: Government of UK, n.d.
  2. ** UK Economic Indicators, 2008
  3. *** Finance Department, Seattle Govt, 2009
  4. **** Economic Time Series Page, n.d.

Policies and International Trade

The UK erects trade barriers on imported goods especially on manufactured imports and this is the reason why the amount of UK’s manufactured imports is very less. According to the trade barriers erected by the UK, foreign suppliers have very limited access to manufactured goods. The Government policies are favoring foreign investment. Thus the UK has appreciated the importance of foreign direct investment for economic growth.

Along with the liberalization policies, UK has also done measures for globalization. After the liberalization policies, it has become much easier to do business with the UK. The country has a democratic setup in the Government and a good legal system. This will be an additional encouragement for the aspiring business people wanted to do business with the UK. The stability of the government and its policies is also promising for new businesses. The liberalization measures are still continuing and the world business community could expect more in their favor for investing in the UK. Dr. Pepper needs to know the host country’s culture and try and get information about the perceptions and cultural differences of the people and design their policies accordingly.

Means of Transportation When Exporting

The transport system plays an important role in the delivery of products into markets; this is because of the need to move goods from one place to the other in the course of distribution. Goods from the headquarters are shipped to the UK before they are taken to various points using rail or road. Rail transport has for long been a popular mode of transportation in various parts of the world due to its relative reliability and efficiency especially in the movement of bulky goods within the UK.

This is used to transport in the country. There are however differences in the way in which it has developed for instance in the case of Europe and the United States. Although faced by almost similar circumstances the development of the transport system has been more noticeable in the UK than it has been in the United States.

The UK transportation network is reputably the most advanced of all. It has a massive usage as it serves more than 80 million people. The UK has an impressive railroad system, one that is counted as being among the world’s seven wonders. The system comprises a number of motorways which cover most countries and also subways. The rise of high-speed trains is a popular move all over the continent attaining this because of its efficiency. There was the building of the first-ever speed railroads during the 1980s and 90s, a move that considerably lowered the amount of time spent internationally within Europe. From that time, various countries have come up with large high-speed rail networks. At the moment, there are several rail links that extend beyond national boundaries (Stevens, 2004).

The cost of transporting a ton of product from the USA to the UK stands at $ 400 which is far cheap as compared to transporting FROM UK.

Advertising and Marketing Strategies

Marketing Strategies

The UK soft drinks market has been undergoing several changes and modifications in their roles so as to grab better market share. The soft drinks that undergo scrutiny need to fulfill specific criteria. They are needed to delimit themselves in various ventures of production, different varieties of drinks, and yielding to maximum returns. They were also subjected to various analytical tests that are meant in order to assess the physical as well as the chemical compositions.

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Again in the year 1997, the UK Regional Scheme was introduced. According to this scheme soft drinks were subjected to meeting several analytical as well as organoleptic criteria. This scheme however allows moderate rules for the use of varieties of drinks. In short, the soft drink with the help of the government focus on increased global competitiveness and improved profitability.

General Consumer Behavior

The UK beverage industry has long been driven by innovatory practices. It is also directed towards various market practices to insure regular renewal and capacity to continue sustained customer as well as consumer satisfaction almost in all the products and services that are provided. Supported by the increase in the competition within the wine industry this has led the companies to focus on consumer behavioral patterns.

Off late due to the recessionary pressure on different economies the overall consumption patterns of the consumers have to some extent changed. Consumers are now somewhat reluctant to spend money on costly soft drink products. But on the other hand consumers, themselves do admit that there have been the least differences in the consumption pattern (Economic Time Series Page, 12)

Issues concerning the wine industry

It is no surprise that the soft drink industries all over the world are continuously facing new and improved challenges both from the demand side and the supply side. Though UK soft drink industries are somewhat smaller in size in terms of production but are one of the largest importers of value-based drinks. One of the main fundamental issues for the UK beverage is the sustainable practices in terms of soft drink production that changes with technology, consumption pattern, and subsequently market competition. The UK has more to depend upon international imports, hence there is enough money going out of the economy.

The economy has to balance between domestic demand and its imports. Though the economy has been supplied by increased numbers of suppliers and at lower prices still UK needs to find a solution so as to develop its own market for greater export. The industry is reported to be highly fragmented and the soft drink producers aim at yielding the highest return from the market.

Ansoff Strategies

The Ansoff matrix main banks on four strategies namely – market penetration, product development, market development, and diversification. Dr. Pepper with its huge reputation in the soft drink industry has also settled as a household name in the UK market too through its market penetration capabilities. It was a growth strategy followed by the company in order to have access to the UK market. With its successful brand promotion activities, it has been able to form a strong brand and exports millions of cases to the UK market. In developing the market the company is benefited from governmental support in order to extend and secure markets domestically as well as internationally ( Fondul Monetary International 71).

Marketing tactics

The brand has already made a significant reputation in soft drinks and other functional aspects. The product maintains its quality that upholds the commitments made by the company. It promises to offer the product of the highest quality. Moreover, the products are produced in such a way that they satisfy the environmental obligations and apply to health and hygiene factors.

In the UK the brand has been able to settle its foot in spite of high prices because the consumers are helping the companies. They think it is worth the price. Different regions experience different price ranges. It has made people understand the value of Dr. Pepper brands in the UK market. Discounting strategies have also been followed among the supermarkets and it has thus helped the company to focus on more availability of offers to the consumers. Moreover, such strategies have uplifted the growth of the company to a certain extent in times of recession too.

The place/distribution channel of wine mainly relies on the convenience of the consumers. It is therefore handled by a middleman or might be sold directly to the consumers. The retailers are the main distribution source for the company to the consumers. Even developments of supermarkets have also added benefit to the customers to get access to their favorite brands. Middlemen are also required to distribute to the retailers from there the customers can call up over the phone or can submit the order online. The brand has been successful in import of the products and develops strategies in order to distribute through their channel partners so as to reach a mass customer base. This has been possible through their improved inventory management, established retail network, and reduction in transportation costs (Wood 17)

The brand has also been successful in its promotional activities. Poster advertisement, press releases, and online advertisement have supported their market growth greatly. The promotional activities have been developed in order to keep it away from old fashioned image persisting in the markets of the UK for a long time. So targets are made to focus on the younger generation and female drinkers who have somewhat reduced their level of consumption greatly due to the economic downturn.

Also, the brand has been long targeting some of the grocers in the country in order to make them partners in the long run so as to make wine an everyday consumption drink rather than occasionally. Moreover, the discounting procedures applied by the brand have helped the retailers or the supermarkets to sell more than 10+ bottles a day. In the process, more customers are getting attracted and within a minimum price range.

Market share and size

The overall soft drink market, for the first time, experienced a decline of 2% in volume during 2008. Also, the economy had been hitting hard on the overall demand of the brand as there has been oversupply but low demand. In fact, the soft drink market is currently valued at 200 billion. With respect to Dr. Pepper, current researches have found that Dr. Pepper has the highest brand value in terms of awareness among UK consumers. The brand focuses on the production and preservation of a maximum number of flavors with maintaining a balance in the natural sugars. The brand during 2007-08 has registered a growth of 9%. The success pillars for the brand mainly depend upon premium, overall connection, and persistent innovation (NET MBA 14).

The primary motivation for internalization is to exploit market opportunities outside the domestic market. This objective may be achieved through many different types of entry strategies into a foreign market.

Marketing Communication Policy and Strategy

Overseas businesses operating in the UK are better placed to communicate with local consumers than are their competitors in other countries. It even happens that the subsidiary of a multinational enterprise operating in the UK uses the services of an advertising practitioner which is also a subsidiary of that multinational enterprise.

Cost of production and packages in USA

The biggest advantage that the USA has is the low cost of production of soft drinks in comparison with the UK because of economies. Rising prices of raw materials are the biggest problem for the company hence this has to deal with immediate seriousness. Demand and supply interaction demands the production capacities be kept at a tighter level. In the UK the cost of production comes around $2 per liter while in the USA it takes less than $1.5 per liter. Another advantage that can be stated is the cost related to the packaging. The cost of packaging of the product is cheaper in the USA than in the UK as there are many companies producing packaging materials. The production of spare capacity and maintaining it does incur a cost. The company’s ability to manage these costs gives a strong idea about its financial strength.

The Effects of Exchange Rates & Currency Fluctuations on the Process of Exporting

When there is an inter country transaction of the commodities money is used as a medium of exchange. So whenever we consider the import and export of the commodities we have to consider the conversion of currencies. In that case the concept of exchange rate is concerned. In general the US $ is most accepted global currency for transaction so whenever we consider the Dr Pepper trading pattern the transaction should take place by the exchange of commodities for the US $. Hence we have to consider the terms nominal and real exchange rates (9414.net 2)

Nominal exchange rate is the amount of domestic currency that is required to exchange with one unit of foreign currency. In case of UK the exchange rate is expressed as sterling pound/ $ (e). The real exchange rate of UK is expressed as  while the term e expresses the nominal exchange rate and  price level in US and  price level of UK. That implies the amount of UK good that one unit of US product commands.

The concept of trade balance can be given as   while the X refers to the export and M refers to the import. On the other hand T can be expressed as a positive function of q. So trade balance can be reformulated as 

I.e. a rise in the nominal exchange rate makes the domestic commodity cheaper in the global market. Hence there would be a high demand for the product of domestic country in foreign country. Domestic exports would rise causing a favorable movement of the balance of trade.

Now, the change in the real exchange rate depends upon three factors; first is the change in the exchange rate second is the change in the foreign price rate and the third is the change in the price of domestic commodity. So by the help of hat exercise we can say that for UK the rate change in real exchange rate would be represented as:

 While ,  

To be more precise we can say that the rate of real exchange rate depends upon the rate of change in the nominal exchange rate and the rate of change in relative price p,   and moreover,

 or  

Hence we can say that the rate of change in the real exchange rate is the sum of rate of change in nominal exchange rate and the rate of change in the relative price. Hence if there is a fall in the nominal exchange rate a higher rise in the relative price would cause a rise in the real exchange rate (Ram and Terry 73).

Now we can consider the Dr Pepper trading pattern, UK is a member of WTO and initiated the trade liberalization process abiding by the WTO charter (WTO 29

Whenever an economy is liberalized the domestic market of that economy is integrated to the global market and the citizens get easy access to the foreign products without paying any extra charge for that. According to the theory of demand we know that other things remaining unchanged the demand for any commodity is dependent upon the price of it, to be precise, the demand for any commodity is negatively related to its price. If we consider Dr Pepper, the price of product in the US $ would be measured as while is the price of the Dr Pepper commodity at sterling pound and e represents the sterling pound /$. What happened in the course the price level of UK has declined. In due course the UK currency has faced a continuous appreciation vis-a-vis the US $. However, the rate of decline in the price level of UK was so strong that it offset the effect of the appreciation of sterling pound against US $ and the demand for Dr. Pepper export has gradually mounted.

Currency Fluctuations

The firm is exposed to currency fluctuation and unpredictability since more than 90% of its billing is in foreign currency. A reasonable appreciation in the UK sterling pound would imply a loss to the firm although the firm has benefited from the current decrease in the value of the UK sterling pound.

Dr. Pepper has a very high sensitivity on currency depreciation since its UK proportion of revenue lies at 19%. The earnings from offshore trading are expected to increase in the financial years FY09E and FY10E by a walloping 8%. This will be translated to $ 4.6 and $ 3.2 in FY09/FY10 compared to $ 2.9 and $ 2.8 in the previous financial year. The firm states that the challenging environment would not affect offshore transactions. The revenues increased by more than three times in the quarter that ended in June’09. Since Dr. Pepper derives more than 70% of its revenues from offshore business, it has been able to enjoy the benefits of suitable currency fluctuations over the last few quarters.

Conclusion

There has been a considerable decline in the adult drinking pattern. Various healths related messages have been forwarded to the consumers through British media and other advertisements towards soft drinks drinking. However, with respect to the company, Dr. Pepper a brand owned by Seven-up incorporated; the primary focus has been to build up an internationally acclaimed group. The business runs on the basis of four success factors namely decentralization, initiatives, efficiency, and success.

Works Cited

9414. Managing in Emerging Markets. 2007. Web.

Economic Time Series Page (n.d.). Web.

Finance Department. Seattle Govt. 2010. Web.

Fondul Monetar International. Running the IMF. 2005. Web.

NET MBA. PEST Analysis. 2002. Web.

Ram Ganeshan & Terry, Harrison. An Introduction to Supply Chain Management. 1995. Web.

The Commercial Database (n.d). The Grape Press. Web.

US Census Bureau. Foreign Trade Statistics. 2010. Web.

Wood, Laura. “Research and Markets: Drinks – United Kingdom Industry Guide – See Inside for Comprehensive Data and Analysis.” Reuters. 2009. Web.

WTO. Members and Observers. World Trade Organizaton, 2008. Web.

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