Entrepreneurs have been a driving force in the beverage industry for more than a century. In 1886, John Pem- berton began marketing Coca-Cola as an over-the- counter medicine, and in 1929 Charles Grigg developed Bib-Label Lithiated Lemon-Lime Soda, today known as 7UP. The beverage industry has always provided oppor- tunities for entrepreneurs, but in the current market, the cost of purchasing new ingredients and technologies and the intense competition make the odds of a successful new product introduction less likely than in the past.1
New beverages are developed every year. In some years, more than 3,000 new beverage products are brought to the market, but many do not succeed. Entre- preneurs who attempt to succeed in this industry must be aware of the changing consumer tastes and industry trends.

Caffeinated Products: Coffee, Soft Drinks, and Water

Specialty coffee outlets in the United States experienced explosive growth during the 1990s, growing from only 200 in 1989 to approximately 10,000 by 2000.3
The most well-known name in the gourmet coffee in- dustry is Starbucks, but few people realize the company began in 1971. The company was started by three en- trepreneurs in Seattle’s Pike Place Market. The focus was on coffee and equipment, including filters, grinders, and pots—no scones, no cappuccinos. By 1987, there were only six Starbucks outlets, but another entrepreneur, Howard Schultz, saw the potential of Starbucks after traveling to Italy and seeing the many coffee bars there. Schultz raised $3.8 million and bought the company. The company went public in 1992 at $17 per share and within five months the stock price had doubled.4 By 2001, Starbucks had expanded to 3,500 stores in North America and 800 stores overseas.5 By 2004, it had 7,569 stores worldwide.6 Starbucks is also equipping its stores for high-speed wireless Internet access, so customers can surf the Net on their laptops or Palm Pilot. The longer people linger at the stores, the more likely they are to order another latte.7
Many entrepreneurs are not willing to let Starbucks own the coffee market, though. Caribou Coffee Com- pany was started by entrepreneurs after they had climbed mountains in Alaska in 1990 and saw a herd of  caribou in the valley below. By 2004, the company was the nation’s second largest specialty coffee company, em- ploying more than 3,000 people. The Caribou Coffee outlets look like Alaskan lodges with fireplaces and wooden cabinetry.8
A recent trend toward caffeinated soft drinks began with Jolt. Jolt was introduced in 1985 by C. J. Rapp, president of Global Beverages. Jolt became a moderate success and a fixture in the marketplace at a time when most other companies were taking caffeine out of their products. Although similar products entered the mar- ket after Jolt, there were few other successes.9 How- ever, by the late 1990s, caffeinated soft drinks were common and other companies were introducing simi- lar products.10
By the mid-1990s, an entrepreneur had developed another successful idea. A college student, David March- eschi, who used to pull all-nighters cramming for tests, developed the idea for caffeinated water. Although other students drank coffee or soda to stay awake, Marcheschi did not like the taste of either. He wondered why some- one couldn’t caffeinate plain water. A few years later, he mentioned his idea to a friend whose father owned a beverage company and within a few weeks, the formula  beverage company and within a few weeks, the formula for Water Joe was developed. In 1995, Marcheschi formed a partnership with Nicolet Forest Bottling and the product was launched.11 A small article appeared in a local paper, and then the Milwaukee Sentinel ran a front-page story that was picked up by the Associated Press. Articles about Water Joe spread rapidly across the United States.12 By the end of 1996, Water Joe was ship- ping 400,000 bottles each week and annual sales were about $12 million.13 By the year 2000, Water Joe had be- come a subsidiary of Artesian Investments, a 16-year-old company in Green Bay, Wisconsin. The national account manager for Artesian Investments states, “What we’re giving people is a healthier alternative.”14 As of 2003, Water Joe had expanded into Germany and was being introduced in the United Kingdom.15
Other creative entrepreneurs decided to sell similar products over the Internet. The founders of Thinkgeek. Com sell a “Case O’ Buzz Water.” Each bottle of water has the same amount of caffeine as two extra large cups of coffee.16
Herbal Drinks and Green Teas

Herbal drinks first become popular in 1970 when Mor- ris J. Siegel founded Celestial Seasonings, Inc., which markets herbal teas.17 Siegel has been described as a hip- pie with a penchant for herbs, and this persona has had a positive effect on the company. The culture of non- conformity led to a great deal of creativity, and by the mid-1990s, Celestial Seasonings was the leading spe- cialty tea maker in the United States.18 By 1998, Celes- tial Seasonings had jumped into the fastest growing segment in the tea industry—the green tea category. The market for green tea increased 53 percent in 1997 and showed no signs of slowing. Much of the growth in sales was attributed to research reports indicating that green tea may lower the risk of certain types of cancer and bal- ance cholesterol.19 By the end of the decade, Celestial Seasonings had teamed up with the company that intro- duced Arizona Iced Tea and launched a line of ready-to- drink teas in a smart retro bottle that looks like the melding of a glass bottle and a tin can.20
In 2000, Celestial Seasonings merged with the Hain Food Group. As of 2004, Celestial Seasonings was sell- ing 1.2 billion cups of tea per year. Morris (Mo) Siegel retired to climb the last section of the Colorado moun- tains he had not yet climbed.21
John Bello, cofounder of SoBe Beverage Co., says his company is “taking the concept of herbal remedies to the mass market.” SoBe’s products include a variety of teas containing plant extracts that improve alertness. One of the company’s “energy tonics” allows drinkers “to perform all day and all night.” Other teas include echi- nacea, selenium, or bee pollen for additional therapeutic purposes.22 A new marketing approach was imple- mented for some of its products in 2000. Six of its products—Energy, Lizard Fuel, Lizard Lightning, Elixir, Green Tea, and Lemon Tea—were marketed in paper cans. Each octagonal paper can was adorned with the radical SoBe lizard. The colorful labels come in pink, or- ange, tan and bright yellow.23 As of 2004, SoBe bever- ages were available internationally. The company was selling its product in Canada, Mexico, the Bahamas, the United Kingdom, Barbados, and Guam.24
Richard Keer, president of The Natural Group, an im- porter of all-natural nonalcoholic beverages, has re- cently begun to market a product called Ame, a drink made with fruit juices, eastern herbs, and spring water. It is available in red, white, and rose and is packaged in 250-ml and 750-ml bottles. The company also sells Nor- folk Punch, a nonalcoholic beverage based on an ancient monastic recipe of 35 different herbal extracts like fennel, rosemary, and peppermint.25

Juice Bars and Smoothies
Proponents of smoothies contend that the beverage is one of the most promising new beverage items since spe- cialty coffees. The term smoothie is a generic term for a blender-made concoction typically made from fresh fruit, fruit juices, ice, and sherbet or yogurt. Optional add-ons include calcium, protein powder, bee pollen, or the herb gingko biloba. Smoothies are often sold at juice bars and are marketed as a lowfat, high-nutrition meal in a cup.26
One company, Smoothie King, has been in existence for 24 years, since long before the great demand for the product developed. Richard Leveille, vice president of franchise development, calls Smoothie King’s products the first and best available. Its product is not yogurt- or sherbert-based, but primarily fruit-based. Smoothie King makes daily deliveries to the Dallas Cowboys camp, and during spring training it delivers 200 to 300 smoothies a day to the New York Yankees in Tampa.27 By 2004, Smoothie King had 340 units in 34 states and also had three international units.28
Another company, Jamba Juice Co., was establishing itself as a leader in the juice bar segment. Founder, Kirk Perron, established his first juice bar when he was 26 years old. Perron states that his company did not “invent smoothies or squeeze-to-order juices,” but his company was the first to “unlock the code and create a sensory ex- perience in those products.” Jamba Juice sells its prod- ucts in an atmosphere of hot pinks, purples, greens, oranges, and natural woods.29 By December 2004, the company had 430 units, with locations in airports and  oranges, and natural woods.29 By December 2004, the company had 430 units, with locations in airports and on college campuses.30

Duiscussion Questions

Using demographic segmentation, segment the market for

a. Water Joe

b. Celestial Seasonings tea

c. Smoothies

d. the green tea industry

Using benefit segmentation, segment the market for

a. Water Joe

b. Koppla

c. Smoothies

d. the green tea industry

The rapid growth of Water Joe fueled the creation    of the caffeinated water industry in 1996. How long do you expect the rapid growth of this industry to continue?

Identify potential market segments for Ame and the energy tonic, the products of SoBe Beverage Co.

What impact do entrepreneurs have on the beverage industry?

What national trend would be beneficial for Celestial Seasonings but detrimental for Water Joe?

On a trip home during the summer break, you pay your Uncle Dave a visit at his record store. When you walk in, you notice there is not one single customer. “I have run this store since the 1980s,” Uncle Dave says with a sigh. “We were the first store in this whole town to sell compact discs! But now, it feels like we’re at least a decade or two behind the times. No one buys records anymore—or even CDs! I have thought about just closing down the store and retiring a little early. But I can’t stand the thought of doing that just yet. I wish there was some sort of new direction I could take things in.”

You explain to Uncle Dave that the best idea would be retooling his marketing plan. “Now, you know I don’t know anything about doing that,” he replies. “My business had always sold itself until just a few years ago. I had no need for marketing.” Suddenly, a light bulb goes off in your head. Since you’re studying business in school, why not put the skills you have learned to work by helping out Uncle Dave?

Before leaving, you tell Uncle Dave you will be working on a marketing plan for him. Write a professional 1-page (300-500 word) plan that addresses all four elements of the marketing mix:

• Product: What new products and/or services might Uncle Dave start to offer at his store, since—in his own words—no one buys records or CDs anymore?
• Price: Would lowering his prices help Uncle Dave? Or, for that matter, would raising them give him a slight boost?
• Place: Should he start using other channels for distribution, or positioning his products differently?
• Promotion: Are there any new IMS techniques that Uncle Dave might not be using, but should use? What target audiences may be unaware of his store and its offerings?

1. Use the following information for the next four problems. A researcher is interested in estimating the mean salary of public school teachers in a particular region. A random sample of 9 teachers is selected and the salary of each one is recorded. The researcher calculates a sample mean of $45,000 and a sample standard deviation of $1,600. Assume that the salaries in the population vary according to a normal distribution.

   The mean salary of all public school teachers in the region is a __________ while the sample mean $45,000 is a __________.

   	a.	statistic, parameter
   	b.	parameter, parameter
   	c.	statistic, statistic
   	d.	parameter, statistic

2. Calculate a 95% confidence interval to estimate the mean salary.

   	a.	$45,000  $1,045.33
   	b.	$45,000  $348.44
   	c.	$45,000  $1,206.40
   	d.	$45,000  $1,229.87

3. Suppose, instead, that a larger sample of teachers had been selected while still using the 95% confidence level. The new confidence interval, based on the larger sample, would be __________ the interval in the previous problem.

   	a.	the same length as
   	b.	longer than
   	c.	shorter than

4. For this problem only, suppose that the confidence interval above had ranged from $43,500 to $46,500. Which one of the following would give a correct interpretation of the confidence interval?

   	a.	95% of all public school teachers in the region earn between $43,500 and $46,500.
   	b.	95% of the public school teachers in the sample earn between $43,500 and $46,500.
   	c.	We are 95% confident that the mean salary of the public school teachers in the sample is between $43,500 and $46,500.
   	d.	We are 95% confident that the mean salary of all public school teachers in the region is between $43,500 and $46,500.

Shamrock Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor’s punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be $950 per year for the first 5 years, $1,950 per year for the next 10 years, and $2,950 per year for the last 5 years. Following is each vendor’s sales package. Vendor A: $53,020 cash at time of delivery and 10 year-end payments of $16,890 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of $10,500. Vendor B: Forty semiannual payments of $8,730 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge. Vendor C: Full cash price of $152,200 will be due upon delivery. Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Shamrock’s cost of funds is 10%, and the machine will be purchased on January 1, compute the following: The present value of the cash flows for vendor A. The present value of the cash outflows for this option is $ The present value of the cash flows for vendor B. The present value of the cash outflows for this option is $ The present value of the cash flows for vendor C. The present value of the cash outflows for this option is $ From which vendor should the press be purchased? The press should be purchased from?

A school psychologist believes that a popular new hypnosis technique reduces depression. The psychologist collects a sample of 20 students and gives them the hypnosis once a week for two months. Afterwards the students fill out a depression inventory in which their mean score was 54.5. Normal individuals in the population have a depression inventory mean of 50 with a standard deviation of 3.5. What can be concluded with an α of 0.01?

a) What is the appropriate test statistic?
---Select--- na z-test one-sample t-test independent-samples t-test related-samples t-test

b)
Population:
---Select--- normal individuals Kyolic Pills two months students receiving hypnosis new hypnosis technique
Sample:
---Select--- normal individuals Kyolic Pills two months students receiving hypnosis new hypnosis technique

c) Obtain/compute the appropriate values to make a decision about H₀.
(Hint: Make sure to write down the null and alternative hypotheses to help solve the problem.)
critical value =  ; test statistic =
Decision:  ---Select--- Reject H0 Fail to reject H0

d) If appropriate, compute the CI. If not appropriate, input "na" for both spaces below.
[  ,  ]

e) Compute the corresponding effect size(s) and indicate magnitude(s).
If not appropriate, input and select "na" below.
d =  ;   ---Select--- na trivial effect small effect medium effect large effect
r² =  ;   ---Select--- na trivial effect small effect medium effect large effect

f) Make an interpretation based on the results.

The depression of students that underwent hypnosis is significantly higher than the population.The depression of students that underwent hypnosis is significantly lower than the population.    The new hypnosis technique does not significantly impact depression.

Splish Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor’s punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be $940 per year for the first 5 years, $1940 per year for the next 10 years, and $2940 per year for the last 5 years. Following is each vendor’s sales package.

Vendor A: $53190 cash at time of delivery and 10 year-end payments of $18220 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of $9300.

Vendor B: Forty semiannual payments of $8920 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge.

Vendor C: Full cash price of $135400 will be due upon delivery.

Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Splish’s cost of funds is 10%, and the machine will be purchased on January 1, compute the following:

Click here to view factor tables

The present value of the cash flows for vendor A. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

The present value of the cash flows for vendor B. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

The present value of the cash flows for vendor C. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

From which vendor should the press be purchased?

Tamarisk Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor’s punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be $1,100 per year for the first 5 years, $2,100 per year for the next 10 years, and $3,100 per year for the last 5 years. Following is each vendor’s sales package. Vendor A: $60,060 cash at time of delivery and 10 year-end payments of $18,850 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of $9,500. Vendor B: Forty semiannual payments of $10,280 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge. Vendor C: Full cash price of $159,600 will be due upon delivery. Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Tamarisk’s cost of funds is 10%, and the machine will be purchased on January 1, compute the following:

A school psychologist believes that a popular new hypnosis technique increases depression. The psychologist collects a sample of 25 students and gives them the hypnosis once a week for two months. Afterwards the students fill out a depression inventory in which their average score was 53.88. Normal individuals in the population have a depression inventory average of 50 with a variance of 100.00. What can the psychologist conclude with α = 0.01?

a) What is the appropriate test statistic?
---Select--- na ,z-test ,One-Sample t-test ,Independent-Samples t-test ,Related-Samples t-test

b)
Population:
---Select--- students receiving hypnosis ,normal individuals, two months ,new hypnosis ,technique depression
Sample:
---Select--- students receiving hypnosis ,normal individuals ,two months, new hypnosis ,technique depression

c) Compute the appropriate test statistic(s) to make a decision about H₀.
(Hint: Make sure to write down the null and alternative hypotheses to help solve the problem.)
critical value = ; test statistic =  
Decision: ---Select--- Reject H0 or Fail to reject H0

d) If appropriate, compute the CI. If not appropriate, input "na" for both spaces below.
[ , ]

e) Compute the corresponding effect size(s) and indicate magnitude(s).
If not appropriate, input and select "na" below.
d =   ;   ---Select--- na trivial effect small effect medium effect large effect
r² = ;   ---Select--- na trivial effect small effect medium effect large effect

f) Make an interpretation based on the results.

A.The depression of students that underwent hypnosis is significantly higher than the population.

B.The depression of students that underwent hypnosis is significantly lower than the population.    

C.The depression of students that underwent hypnosis is not significantly different than the population.

Riverbed Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor’s punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be $940 per year for the first 5 years, $1,940 per year for the next 10 years, and $2,940 per year for the last 5 years. Following is each vendor’s sales package.

Vendor A: $53,000 cash at time of delivery and 10 year-end payments of $17,520 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of $10,000.

Vendor B: Forty semiannual payments of $8,980 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge.

Vendor C: Full cash price of $164,000 will be due upon delivery.

Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Riverbed’s cost of funds is 10%, and the machine will be purchased on January 1, compute the following:

Click here to view factor tables

The present value of the cash flows for vendor A. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

The present value of the cash flows for vendor B. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

The present value of the cash flows for vendor C. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)