Value-volume driven strategies in the beverage industry
What is a value-volume driven strategy in beverages?
A value-volume driven strategy blends two complementary approaches:
- Volume-driven strategy seeks to increase the quantity of products sold, typically by making the product accessible to a larger number of consumers or expanding to new markets.
- Value-driven strategy, on the other hand, aims to increase the revenue per unit sold. This might involve premium products, higher pricing, or value-added offerings.
For beverage companies, the challenge is to grow the volume of their sales (expanding customer reach) while also focusing on the value of each sale (increasing profitability through premium pricing, innovation, or branding). Globalpraxis has faced both challenges simultaneously and separately. Heaven is the capacity to drive both.
When balancing volume and value is crucial for beverages
Beverage companies are uniquely positioned between two extremes – affordable mass-market products and high-end, luxury drinks. Finding the right mix between driving volume (reaching as many customers as possible) and driving value (increasing the price per unit or consumer spend) is key to sustainable growth.
Key benefits of combining value and volume in beverages:
- Expanding reach: A focus on volume ensures broader distribution, which is crucial in the beverage market where competition is fierce.
- Higher profit margins: A value-driven strategy allows beverage companies to boost their profit margins by offering premium drinks or special editions.
- Brand differentiation: A well-managed portfolio, with both mass-market and premium products, allows brands to appeal to a wider range of consumers, from budget-conscious buyers to affluent ones.
- Resilience in changing markets: Beverage companies that leverage both volume and value can more easily adapt to shifting market dynamics, like changing consumer tastes or economic conditions.
Key drivers of value-volume strategy in beverages
Several factors influence how beverage companies implement value-volume strategies:
1. Consumer preferences and market trends
Understanding evolving consumer preferences is critical. Tastes shift quickly in the beverage industry, often influenced by health trends, lifestyle choices, or emerging preferences for premium products.
- Health-conscious consumers might be more inclined to pay a premium for sugar-free, organic, or functional beverages, driving value.
- Mainstream customers, however, tend to be more price-sensitive, preferring bulk purchases or discounts which drive volume.
2. Brand positioning
A brand's positioning greatly impacts whether to prioritize volume or value. A luxury brand like Chivas Regal (whisky) would focus more on value, offering premium pricing. Alternatively, brands like Coca-Cola or Pepsi typically emphasize volume, targeting a larger consumer base through affordability and reach.
3. Distribution and market reach
A strong distribution network helps beverage companies increase volume by making their products available in more locations. This includes traditional retail, convenience stores, vending machines, and increasingly, online channels. The ability to expand reach rapidly is crucial for volume growth.
4. Innovation and product diversification
Innovation drives value in the beverage industry. New flavors, packaging, or functional ingredients (like vitamins or adaptogens) can justify higher pricing. Companies can also launch limited-edition or seasonal products to create a sense of exclusivity, which can drive up value without necessarily impacting volume.
5. Economic conditions and pricing strategy
Economic factors, like inflation or changes in consumer spending, can influence whether a company should focus more on volume or value. During economic downturns, consumers might lean towards affordable products, whereas in boom periods, they may be more willing to pay a premium for unique or high-quality drinks.
Real-world examples of value-volume driven strategies in beverages
Let’s take a look at some real-world examples from the beverage industry to understand how companies have successfully implemented both value and volume-driven strategies.
1. Coca-Cola: Volume growth with premium options
Coca-Cola is a prime example of a company that has successfully balanced volume and value.
Coca-Cola’s core products, like Coca-Cola Classic, Diet Coke, and Sprite, are sold globally in a variety of pack sizes – from cans to bottles. These mass-market products cater to a broad consumer base, focusing on volume through affordability and wide availability. Coca-Cola also runs frequent promotions and discounts to stimulate sales volume.
Coca-Cola has also ventured into premium offerings, such as Coca-Cola Zero Sugar and Coca-Cola Life, designed for health-conscious consumers. These premium products demand a higher price, tapping into a more affluent customer base willing to pay more for a perceived healthier or higher-quality product.
2. PepsiCo: Leveraging both volume and value
PepsiCo, similar to Coca-Cola, has an effective strategy for driving both volume and value through its diverse portfolio.
PepsiCo’s flagship drinks, like Pepsi and Mountain Dew, are available in various sizes and often feature price promotions or multi-pack discounts, which increase volume. These products have strong mass-market appeal, ensuring extensive distribution.
At the same time, the company has successfully introduced premium beverages, like Naked Juice and Aquafina, in larger health-oriented markets. These products cater to consumers looking for natural ingredients or premium water, positioning them as higher-value offerings compared to standard soft drinks.
3. Nestlé Waters: Premium bottled water and mass appeal
Nestlé Waters is a strong example of balancing volume and value in the bottled water sector.
Nestlé's mass-market bottled water brands, like Poland Spring and Pure Life, are widely available and sold at low price points, making them accessible to a broad consumer audience. These products drive significant sales volume in supermarkets, convenience stores, and large retailers.
On the premium side, Nestlé offers brands like San Pellegrino and Perrier, which are priced significantly higher. These premium bottled waters appeal to a more affluent customer who values taste and quality, as well as the brand's luxury image.
4. Starbucks: Premiumization in the beverage category
Starbucks is an iconic example of a brand that has expertly used value-driven strategies to position itself as a premium coffeehouse while also driving volume.
Starbucks offers coffee beverages in different sizes at varying price points, making it accessible to a large audience. The brand has also expanded its reach through retail products like bottled Frappuccinos, instant coffee, and coffee pods.
The company further maintains its premium image with specialty drinks, seasonal offerings (like Pumpkin Spice Lattes), and high-end packaged coffee beans. These products have higher margins, and the exclusivity of limited-time drinks drives both consumer interest and higher pricing.
The beverage industry presents a unique opportunity for companies to leverage both volume and value to drive sustainable growth. By balancing the two strategies, beverage brands can expand their reach to new customers while ensuring that they maximize profitability through premium offerings and innovations.
Successful beverage companies know how to create mass-market products that drive high volume while offering premium, differentiated products that allow them to charge higher prices and enhance brand loyalty. This value-volume driven strategy enables them to thrive in a highly competitive marketplace, ensuring long-term success.
