Module code and title: BM533 Contemporary Business Economics

Report applying economic theories to a case study organisation

“INNOCENT DRINKS”

Submission time and date: 27th January 2024 before 2 pm.

Word count: 2621

By Ramses Kashoghi H2109312 Bucks ID: 22044596

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Table of Contents

Executive summary ............................................................................................................... 3

Introduction ........................................................................................................................... 4
Background........................................................................................................................... 4
Evaluation of Innocent Drinks for different ways of doing business ....................................... 5
Brand Image and Marketing .............................................................................................. 5
Corporate Social Responsibility (CSR) .............................................................................. 5
Cutting-edge Marketing Tactics: ........................................................................................ 5
Enhancing Employee Engagement and Fostering a Positive Company Culture: ............... 6
Assessment of the pros and cons of unconventional decision-making processes, including
the pricing policy implemented by Innocents Drinks. ............................................................. 6
Advantages ....................................................................................................................... 6
Disadvantages................................................................................................................... 7
How Innocents Drinks determines the price of their products ................................................ 7
Evaluation of the Innocent Drink choice to sell a portion of their company to Coca-Cola,
using a behavioural economics theory ................................................................................ 10
PESTEL Analysis ................................................................................................................ 11
SWOT Analysis: .................................................................................................................. 12
Key risks for Innocent Drink: ............................................................................................... 13
Key Opportunities for Innocent Drinks ................................................................................. 14
Suggestions and Conclusion ............................................................................................... 14
References ......................................................................................................................... 16

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Executive summary

This paper has presented a comprehensive summary of Innocent Drink,

encompassing its historical development and background information. The study has
also conducted a thorough assessment of Innocent Drink's unorthodox business
procedures, analyzing the pros and cons of utilizing non-conventional decision-
making strategies, such as the company's technique of determining product pricing.
This study intended to critically evaluate Innocent Drink's decision to sell a portion of
their business to Coca-Cola using behavioral economic theory, also helped to
identify important risks and opportunities for the organization, with a focus on
aspects that contribute to its competitive edge. Additionally, it has examined areas
that need development and furnished Innocent Beverages with a definitive
assessment of their PESTLE and SWOT analyses, along with recommendations for
their next course of action.

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Introduction

This report will provide an overview of Innocent Drink, including its history and
background. It will also undertake a critical evaluation of Innocent Drink's
unconventional business practices, weighing the advantages and disadvantages of
employing non-traditional decision-making methods, such as the company's
approach to setting product pricing. By employing behavioural economic theory, this
study aims to conduct a critical evaluation of Innocent Drink's decision to sell a
portion of their business to Coca-Cola. It will formulate a business SWOT analysis
and PESTLE analysis, identifying critical risks and opportunities for the company,
emphasizing factors that contribute to its competitive advantage, and assessing
areas requiring improvement. The report should then provide the innocent beverages
with a conclusion regarding their PESTLE and SWOT analyses, as well as
recommendations for their future actions.

Background

Richard Reed, Adam Balon, and Jon Wright started the company in 1999. The three
friends started the business with the goal of making natural fruit drinks that are good
for people. Smoothies made from pure fruit drinks and crushed fruit were the first
thing the company sold. The company's smoothies, often marketed as natural and
healthy drinks, are what most people associate the company with. The company
prioritizes using fresh and high-quality fruit in its products. They added different kinds
of drinks, like coconut water, juice mixes, and dairy-free options, to their product line
over the years. People know that Innocent Drinks is committed to doing business in
an honest and environmentally friendly way. For instance, they have backed projects
that promote fair trade and environmentally friendly ways to get products. The
business has also done good things for the community and the environment. In
2013, Coca-Cola bought a majority stake (about 90%) in Innocent Drinks. Despite
the acquisition, Innocent has maintained its independence, remaining true to its
brand character and commitment to conducting business in an honest way. Innocent
Drinks has built a unique and friendly company image. Their marketing efforts have
been known to get people interested, and their packaging often has fun and silly
messages on it.

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Evaluation of Innocent Drinks for different ways of doing business

In the beverage industry, Innocent Drinks has gained a reputation for its inventive an
d unconventional way of conducting business. Here are a few notable elements that
were significant up until 2022:

Brand Image and Marketing:

Innocent Drinks has established a robust brand identity centred on the idea of
authentic, wholesome, and enjoyable products. Their use of idiosyncratic and
amusing branding, particularly the renowned employment of language on product
packaging, has strongly connected with consumers. The company has consistently
provided clear information regarding the ingredients and origin of its goods,
demonstrating a dedication to utilising superior, ethically sourced fruits (Johnson,
2017).

Corporate Social Responsibility (CSR):

Refers to the ethical and moral obligations that corporations have towards society
and the environment. Innocent Drinks has exhibited a steadfast dedication to
corporate social responsibility. For example, their use of sustainably procured
components and endeavours to diminish their ecological footprint via
environmentally conscious packaging. The company's participation in philanthropic
endeavours, such as the Innocent Foundation, which provides assistance to many
social and environmental issues, enhances its favourable brand perception (Smith,
2018)..

Cutting-edge Marketing Tactics:

Innocent has implemented nontraditional marketing strategies, exemplified by the

"Big Knit" campaign, which involved motivating customers to knit miniature woollen
hats for their smoothie bottles. This not only captivated shoppers but also bolstered
philanthropic endeavours. The user's text is a bullet point symbol.The company's
emphasis on actively connecting with its audience via social media and other
interactive platforms is a break from conventional marketing strategies (Anderson,
2019).

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Enhancing Employee Engagement and Fostering a Positive Company Culture:

Innocent Drinks is renowned for its distinctive corporate culture, characterised by the
promotion of innovation and a laid-back work atmosphere. The influence of this
culture is frequently acknowledged as a contributing reason to the company's
success.
The company's dedication to the welfare and contentment of its employees is evident
through a range of workplace activities (Brown, 2020).

Ultimately, Innocent Drinks has purposefully used unconventional methods in

branding, marketing, CSR, and business culture, which have played a significant role
in its achievements and favourable brand reputation.

Assessment of the pros and cons of unconventional decision-making

processes, including the pricing policy implemented by Innocents Drinks.

Advantages

 Differentiation of Brands

Alternative pricing strategies may assist in distinguishing one brand from its
rivals. By implementing novel pricing strategies, Innocent Drinks has the
potential to differentiate itself in a saturated market and appeal to customers
who value distinctive approaches (Porter, 1985).

 Customer Devotement

An unexpected approach to pricing has the potential to cultivate consumer

loyalty. A more robust bond between a brand and its consumers can be
established if the pricing strategy is consistent with the brand's values and
appeals to the target demographic.

 The quality of adaptability

Non-traditional methodologies enable enhanced flexibility in response to shifts

in the market. This adaptability may confer benefits in rapidly changing

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 sectors, facilitating the organisation to promptly address changes in consumer
inclinations or market circumstances (Teece, 2018).

Disadvantages

 Market Perplexity:

Customers may become perplexed by non-traditional pricing, particularly if the

pricing strategy is not effectively communicated. It may cause consumers to
doubt the product's worth and make price comparisons with other products on
the market more difficult.

 Peril of Misinterpretation:

Pricing outside of the norm could be considered gimmicky or hazardous.

Failure to provide consumers with an explanation regarding the pricing
strategy carries the potential to detrimentally affect the brand's reputation and
trustworthiness (Simonson, 2005).

 Profitability Difficulties:

Although unconventional pricing may appeal to consumers, it is imperative to

ascertain the economic feasibility of the selected strategy. Incorporating
intricate structures or setting prices too low without a firm basis in cost and
value may result in difficulties with profitability (Monroe, 2003).

In essence, the advantages of employing unconventional approaches to product

pricing determination, including customer loyalty and differentiation, must be
carefully considered in light of potential disadvantages such as market disruption and
difficulties in achieving profitability.

How Innocents Drinks determines the price of their products

When determining the prices of their products, Innocent Drinks took into
consideration and integrated a number of different factors such as production costs,
market demand, pricing strategies employed by competitors, the perceived value of

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the product to the client, and an overall business strategy based on market
conditions and product qualities.

Among the prevalent pricing strategies considered by Innocent Drinks are the
following:

Cost-Plus Method of Pricing:

Assigning a mark-up to the cost of production (including packaging, distribution, and

manufacturing) in order to establish the ultimate price constitutes this strategy. It is
typical for the pricing of commodities and fundamental products to be predominantly
determined by production costs.

Price based on value:

Pricing in accordance with the customer's perception of the product's value. This
takes brand image, quality, and distinct selling propositions into consideration.
Frequently applied to specialty or premium beverages that provide distinctive
qualities or advantages.

Pheromone Pricing:

A reduced initial price is utilised to acquire market share rapidly. Establishing brand
loyalty and attracting consumers are the respective objectives. This is typical for the
introduction of new products to the market or when a business seeks to establish
itself rapidly.

A Glance at Pricing:

Initialising with a high price and reducing it progressively as time passes. This
approach is frequently applied to premium or innovative products. This approach is
well-suited for products that possess a substantial perceived value, enabling the
organisation to attract early adopters who are prepared to pay an additional amount.

Price Competitiveness:

Establishing prices in accordance with what rivals are charging for comparable
products. Businesses monitor the prices of their competitors and adjust them

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correspondingly. Frequent in mature markets characterised by intense competition
and similar products.

Variable Pricing:

Making price adjustments in response to competitor pricing, real-time market

demand, or other external factors. This can be accomplished via data analytics and
technological means. Especially beneficial for e-commerce and online sales, where
rapid price adjustments are possible in response to fluctuations in demand.

Bundle Costs:

Presenting multiple products collectively at a reduced cost in comparison to the

individual purchase of each item. Promotes consumer retention by instilling a sense
of value via bulk purchasing.

Discounted Pricing:

Immediate price reductions in an effort to increase sales. This may consist of

seasonal pricing, discounts, or buy-one-get-one-free promotions. Utilised for
promotional purposes, holiday preparations, or to dispose of surplus stock.

The concept of psychological pricing:

Setting prices with the intention of influencing consumers' emotions. For instance,
reducing the price of a product from £5.00 to £4.99. Leverages consumer
perceptions and inclinations to consider prices marginally below a round number to
be more affordable.

Geographical Costs:

Price adjustments predicated on the customer's geographic location. This takes into
account variables such as regional economic conditions and shipping expenses.

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Evaluation of the Innocent Drink choice to sell a portion of their company to
Coca-Cola, using a behavioural economics theory

Prospect Theory, formulated by Daniel Kahneman and Amos Tversky, is a plausible

behavioural economic theory that can be utilised to analyse this decision. Prospect
Theory posits that humans assess possible results by comparing them to a reference
point, and they are more responsive to perceived losses than gains.

Utilising Prospect Theory in the Decision:

Perceived Benefits:

Evaluate the perceived advantages that Innocent Drinks has gained in terms of
monetary profits, market entry opportunities, and possibilities for expansion as a
result of their agreement with Coca-Cola.

Perceived losses:

Assess the perceived negative outcomes, taking into account issues such as
potential alterations in business culture, loss of autonomy, and any threats to the
distinctive brand identity that Innocent Drinks has established.

The Endowment Effect:

The user's text is a bullet point symbol. The endowment effect posits that individuals
have a tendency to attribute greater value to possessions they own. Assess whether
stakeholders at Innocent Drinks may have developed a sense of loyalty and
autonomy, which could have influenced their perspective on the decision.

Status quo bias

The status quo bias refers to the tendency for individuals to prefer the current state
of affairs and resist change. Analyze the status quo bias, which is the inclination to
favour the existing state of affairs rather than change. Evaluate whether stakeholders
may have demonstrated a prejudice towards the change in ownership and any
disruptions to the current structure.

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If the monetary benefits, market prospects, and possibility for expansion surpass the
anticipated drawbacks, the decision might be deemed logical from a Prospect
Theory standpoint. If stakeholders prioritise the current state of independence and
brand identity and perceive the potential losses as substantial, the choice may be
regarded less positively.

PESTEL Analysis

Political

Political factors affecting Innocent Drinks include Department of Health, Advertising

Standards Authority, Trading Standards, and Office of Fair Trading rulings and
guidelines. According to The Telegraph (2009), the Department of Health now allows
smoothies with all edible fruit components or 100% pure juice to count as two
servings of the 5-a-day. Guidelines from these bodes impact even minor aspects.
For example, Innocent Drinks faced challenges in changing ‘use by’ to ‘enjoy by’ on
their products to align with their desired image (Gubbay, 2011).

Economical

There are various economic issues that impact Innocent Drinks. The company's
operations are influenced by economic conditions in the UK and Europe, tax
legislation, and other market and industry considerations. According to Levy (2011),
smoothie sales dropped by a third due to being too pricey for credit-strapped Brits.
Food and Drink Innovation Network (FDIN) (2010) reports that Innocent Drinks'
smoothie sales dropped by 29% in 2008 and 2009 due to the recession.

Social

Social variables impact Innocent Drinks, including customer behavior, demographic

expansion, and health programs like the 5-a-day. Innocent Drinks has opportunity in
the UK and Europe due to the increased interest in healthy eating and expected
growth trends for its key audience.

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Technological

Technological considerations encompass creative production methods, product

packaging, recycling, and manufacturing trends. Innocent Drinks aims to employ
more recycled plastic in their bottle production, since it was previously created from
50% recycled plastic. This was raised to 100% in 2007, and the company is
constantly exploring ways to reduce its environmental impact through packaging
technology (Innocent Drinks, 2007).

Environmental

Innocent Drinks is subject to environmental rules, including those governing

packaging carbon footprint and recyclable/renewable material usage. Innocent
Drinks aims to reduce waste and carbon emissions by optimizing packaging and
transportation. Despite hurdles, the company strives to minimize environmental
impact, as stated by Phelvin and Wallop (2008) and addressed below under cultural
analysis.

In 2013, Innocent Drinks reduced almost 1000 tonnes of plastic by reducing their
juice carafes and using 100% Forest Stewardship Council-certified cartons (Innocent
Drinks, 2014f).

Legal

Legal Innocent Drinks must follow laws and regulations, including consumer
protection and industry standards. Legal considerations including competition rules
impact mergers and acquisitions, as seen in Innocent Drinks' agreement with Coca-
Cola (Macalister and Teather, 2010).

SWOT Analysis

Strengths:

 Strong brand reputation for natural and healthy products.

 Innovative and unique marketing strategies.
 Established distribution channels and partnerships.

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Weaknesses:

 Dependency on specific suppliers for natural ingredients.

 Vulnerability to fluctuations in commodity prices.
 Limited product diversification.

Opportunities:

 Growing demand for healthy and sustainable products.

 Expansion into new markets or product categories.
 Collaborations with other eco-friendly and health-focused brands.

Threats:

 Intense competition in the beverage industry.

 Economic downturn affecting consumer spending.
 Regulatory changes impacting the industry.

Key risks for Innocent Drink

Market Competition:

The beverage sector is highly competitive, and new entrants or aggressive

maneuvers from established competitors may threaten market share (Porter, 1980).

Supply Chain Disruptions:

Innocent Drinks' supply chain is sensitive to disruptions from weather, disease

outbreaks, and geopolitical reasons due to its reliance on natural ingredients
(Chopra, 2004).

Changing Consumer Preferences:

Changing consumer preferences or trends towards alternative beverages may affect

Innocent Drinks' sales and market position (Dholakia, 2004).

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Regulatory Compliance:

Failure to comply with food safety, labelling, and advertising rules can lead to legal
concerns and reputational damage (Vogel, 2008).

Key Opportunities for Innocent Drinks

Growing Health and Wellness Trends

Due to customer attention on health and wellness, Innocent Drinks can leverage on
demand for natural and nutritious beverages (Chandon, 2012).

Sustainability Initiatives

Innocent Drinks can enhance its brand image by adopting eco-friendly methods to
meet consumer demand for sustainable products (Kiron, 2012).

Expand into New Markets

Exploring untapped domestic and international markets leads to growth and market
share (Cavusgil, 1994).

Innovation and Product Diversification

Innocent Drinks can adapt to changing consumer tastes by continuously innovating

and diversifying into related product categories (Christensen, 2003).

Suggestions and Conclusion

After analyzing Innocent Drinks from numerous angles, this section will make
recommendations. The SWOT analysis shows that Innocent Drinks needs to change
its sourcing strategy, especially from weather-affected locations. Innocent Drinks
should collaborate with its suppliers to implement farm practices like reforestation,
mulching, shade control, and enhanced drainage to mitigate these situations
(Barron, 2009).

Innocent Drinks' cooperation with Coca-Cola was effective in coping with competition
from PepsiCo and enhancing marketing to increase brand visibility and market

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share. It must maintain its core ideals, which have won its customers, and its
reputation as an ethical, ecologically friendly, social company. Customers are
worried about Innocent Drinks' brand values since Coca-Cola bought it (Cohen,
2011; Macalister and Teather, 2010). They must convince stakeholders that they will
uphold their ideals.

To offset potential market challenges in Europe, Innocent Drinks may consider

expanding into Asia and Africa. To evaluate feasibility, a full cost-benefit analysis
must be done. In conclusion, Innocent Drinks has great potential to grow and lead
the sector. However, some flaws and threats must be addressed and maybe
overcome. While not exhaustive, the preceding tips may help Innocent Drinks
decision makers improve its client base, market position, and profitability.

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