Case

Look Out Lipton, Here Comes Oolong!

Heating up an old product

Chinese Emperor Shen Nung was boiling water under a Camellia Sinensis tree in 2,737 BC. When some leaves fell into the pot, he found the resulting infusion pleasant. So, the legend has it, tea was born. From this accident flowed the Opium Wars, the annexation of Hong Kong and rituals that have made tea far more than just a drink in the great tea-drinking nations of China, Japan and Britain.

Thomas J. Lipton Company has been in the tea business ever since Cutty Sark and other tea clippers raced Cape Horn and The Cape of Good Hope to be the first to the European and American coffee houses with their crop from the Orient. By the 1990s the excitement had left the declining tea market. To enliven the old-fashioned product market leader, Unilever resorted to selling Lipton, along with its other leading brands, Brook Bond, PG Tips, Red Label and Taaza, using frantic sales promotions and comical eharaeters. Then, the boring business heated up by cooling down.

Chalk up the change to those fickle consumers. Forget soft drinks. They were the rage of the 1980s, as the cola companies added 'diet everything' to their lines and experimented with all sorts of flavours. Forget sports drinks. They became the glamour drinks of the late 1980s and early 1990s as the soft-drink market levelled and the cola companies searched for growth opportunities. Forget those flavoured sparkling waters, like Oasis and Perrier. They had a wild ride in the early 1990s and became a health sensation. Forget coffee. After being battered by soft drinks, the venerable standby has risen as people have begun to turn away from alcoholic drinks and entrepreneurs have rediscovered the coffee house. However, today's hot drink is iced tea. Yes, iced tea. In fact, it's iced tea in a bottle or can, already prepared and ready to drink. No fuss, no boiling and no tea bags.

Iced tea is not new. We can trace iced tea's invention to the 1904 World's Fair in St Louis. Richard Blechynden, a promoter of Indian and Ceylon tea, found it impossible to peddle his hot tea in the stifling Missouri heat. In desperation he dumped some ice cubes into his tea and discovered that the spectators were willing to gulp anything cold. Iced tea in a can isn't new either. That's been around since the early 1970s, but it had never been more than a blip on the beverage market's radar screen.

Adding flavour

Flavour is what's new. In the USA, .Snapple started the trend by building a regional cult following based on bottled iced teas that featured zany flavours like cranberry, peach and raspberry. Snapple's flavoured, hot-filled tea (the manufacturer bottles the tea while it is still warm from brewing) offered consumers a better-tasting tea. Before Snapple, Lipton and others offered iced teas in plain and leraon flavour. Young, trend-setting consumers bought

Case 3: Look Out hipton, Hare Comes Oolong!

Snapple directly from ice cabinets in convenience stores and delicatessens and drank it straight from the bottle.

The flavoured teas hit a bull's-eye with consumers. They were willing to move away from traditional eolas in search of new flavours. Consumers seemed to have a short attention span for new products and were willing to try new drinks. They were interested in so-called 'New Age' beverages -drinks that appealed to their desire for healthier, lighter refreshment. Consumers responded to the all natural, no-calorie, relaxing and refreshing claims that the new-age beverages made. Increasingly on the go, consumers also liked the convenience and availability of ready-to-drink teas.

Forming teams

Despite the small size of the iced tea market, the big players noticed the growth rate and jumped in. Coca-Cola made the first move by teaming up with Nestle to form Coca-Cola Nestle Refreshments, combining Coca-Cola's powerful distribution network with Nestles tea expertise and its Nestea brand. Pepsi-Cola followed by joining forces with Thomas J. Lipton Company. Barq's energized its Luzianne tea brand, A & W announced it would make and distribute Tetley tea, Cadbury uncovered little-known All Seasons to serve -AS its tea partner and Perrier joined forces with Celestial Seasonings.

Lipton was already no. 1 in the tea market, but like Coca-Cola, Pepsi's top management argued that the company's alliance with Lipton would leverage Pepsi's distribution strength with Lipton's leadership in tea to produce a can't-miss proposition. Upton's president observed that the new partnership would make Lipton 'as widely available as Pepsi'.

The entrance of Pepsi, Coea-Cola and their competitors should invigorate the ready-to-drink tea market. One observer noted that the iced-tea market was still a small market despite growing 50 per cent between 1990 and 1991. And it was getting very overcrowded. Indeed, all this attention produced almost 200 new ready-to-drink teas during 1991 and 1992. The tea category leaped another 50 per cent in 1992 and the same again in 1993. The competitors generated this growth by dusting off tea's boring image and recasting it as a natural, better-for-you beverage. Further, scientific evidence emerged that tea inhibited certain types of cancer in laboratory mice and seemed to be linked to lower cholesterol rates. Lipton, Nestea and Snapple lured customers with new flavours and pointed out that lack of carbonation makes iced tea easier to drink rapidly and in quantity.

Although Coca-Cola/Nestles Nestea sales soared, Snapple's and Lip ton's grew even faster. As a result, Nestea narrowed its promotion to target 18- to 29-year-olds witb a promotional blitz consisting of sponsorships and sampling. It dispatched five 18-wheeler demonstration trucks, which it called its 'Cool Out Caravans' to sporting events, theme parks and beaches in 60 markets,

Pepsi continued its cola-style marketing for Lipton teas. Its radio ads argued that Snapple is 'mixed up from a powder', but Lipton is 'real brewed'. Pepsi also promoted Lipton in supermarkets by offering customers 'value packs' that contained one bottle each of three new drinks: Lipton Original, Ocean Spray Lemonade and AllSport sports drink. Pepsi also pur-sued sponsorship of a Rolling Stones concert tour, to which it would link a massive sampling programme.

Because of its efforts, Lip ton's teas seemed ready to unseat Coca-Cola/ Nestle, despite its early market entry, was falling behind in the iced-tea wars. Lipton was taking market share from both Snapple and Nestea. One

Case 3: Look Out Lipton, Here Come* Oolong! 129

selling hot tea. Having spent £10 million developing hot cans to be sold In convenience stores and petrol stations, it was ready to test market the product in Manchester, England. Brooks Bond's PG Tips will be sold in ringpull tins kept at 56'C in a heated cabinet on shop counters. On sale alongside PG Tips, with or without sugar, will he Red Mountain coffee, sweetened or unsweetened, and Choky, the leading Freneh hot chocolate brand. Watch out Oolong, Rrook Bond's waiting!

QUESTIONS

1. What bases can companies use to segment the iced-tea market?

2. What potential market segments can you identify?

3. How would you go about forecasting demand in the iced-tea market and in any given segment?

4. Which type of market coverage strategy should Pepsi/I.ipton adopt? Why? How should they position Lipton iced teas and Brook Bond canned teas?

5. If you were advising Shin Shii, what marketing strategy recommendations would you make concerning its entry into the market?

6. How should it position Kai Shii?

SOURCES: Sally D. Goll, 'Taiwan soft drink sales break for tea'. Wall Street Journal (29 July 1994), p. A7B, used with permission of Wall Street Joumrd. See also: Laurie M Grossman, 'Coca-Cola, Nestle" arc ending venture in tea and coffee but plan other ties', Wall .Slrt'et Journal (30 August 1994), p. B3; Laura Bird, "Trouble is brewing for Snapple as rivals fight for iced rea sales', Wall tiered Journal (9 June 19*14), p. B4; Eric Hfiligoj, 'Ladies and gentlemen and beverages of all ages', Ke-oerages World (April 1994), pp. 42-7; Gerry Khermoueh, 'Xcstea iced tea plans summer push'. Ad-meek (21 March 1994), p. 13; Michael J. McCarthy, 'Competition heats up iced-tea industry', Wall Street Journal (15 June 1993), p. Bl; Kevin Goldman, 'Snapple goes big time for new age drink', Wall Street Journal (21) April 1993), p. B6; Greg W. Prince, Tea for all', Beverage World (April 1992), pp. 24-32; Maggie Urry, 'Tea in a can is hot tip from Brook Bond,' Financial Times (13 December 1997), p. 4; Gary Mead, 'Brewing a heakhier im;ige for tea'. Financial Times, 1 April 1997 (FT web archives); 'Twinings'. http://www.cuttsark.org.uk/twining; 'Lipton', httpi/Avww.lipton.eom; 'Tea Council1, h ttp:// www. teaco u nc il. co.. u k

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