Adding A Little Strategy to the Juice: The Quaker-Snapple Debacle Revisited

Even given today’s disastrous mergers and acquisitions environment, Quaker’s handling of its 1993 acquisition of Snapple remains the quintessence of what not to do. While acquisitions frequently fail to bring the acquiring company the projected or hoped for returns, the sheer magnitude of Quaker’s failure is remarkable, especially, given Quaker’s financial resources, marketing know-how, and success in the beverage category. Without minimizing the problem, had Quaker done a few things differently, the company might have saved, at a minimum, the $1.4 billion it subsequently lost and the CEO his job. While Quaker’s deficiencies in its management of Snapple were numerous, perhaps most egregious was its failure to maintain Snapple’s unique strategic position—that is, as a quirky, upstart little brand that appealed to health-conscious young people and was as unconventional in its promotions as in its distribution. Pushed by an imperative to expand its beverage portfolio and thereby capture economies of scale, Quaker’s handling of Snapple not only blurred the brand’s uniqueness but, ultimately, created compromises and inconsistencies, reduced fit, and undermined Snapple’s competitive advantage. Indeed, Snapple’s sales plunged nearly 35% during the four years Quaker owned it.

From the beginning, Quaker’s attitude toward Snapple was problematic and, viewed from another perspective, its failure the result of nothing less than a “fatal mismatch between brand challenge and managerial temperament.” Had we been advising Quaker, we would have attempted to frame the purchase decision and subsequent management initiatives within a substantially broader perspective than it seems to have had, moving beyond Quaker’s obviously narrow approach. We would have focused on how and why Snapple achieved its success, and especially, on customer identification, purchase and use behavior, and competitors. In sum, prior to making any decisions regarding acquisition or management, we would have broadened the conceptual frame beyond mere considerations of operational effectiveness. Had this been done, we might then have advised Quaker against purchase, concluding that Snapple would have fit better into another company’s portfolio given Quaker’s “buttoned-down, coolly professional culture,” its desire to replicate the marketing-textbook kind of success it had achieved with Gatorade, and Snapple’s obvious brand and cultural differences.

Initially, we would have undertaken a structural analysis of the beverage industry to determine whether, given the intensity of competition and the particular character of Snapple, Quaker could realize an acceptable rate of return while finding a position where it could defend itself against competitors. We would also have performed an in-depth analysis of market and competitive forces, focusing on the bargaining power of buyers, suppliers, substitutes, current and potential competitors. In particular, we would have attempted to determine where power resided—with the supplier or with the channel—and how much value the channel added for the customer. Unfortunately, from the start, improper disposition of channel issues doomed Quaker’s Snapple strategy. While Quaker’s Gatorade strategy centered on achieving strength in the warm channel, Snapple’s strength had developed in the cold channel, something Quaker hoped to reverse. Sadly, Quaker’s disregard for Snapple’s established channel structure injured the brand, causing channel conflict that finished by depressing Snapple sales. Had Quaker’s marketing executives been more scrupulous and less biased, they might have devised a more effective and appropriate channel strategy for Snapple.

Even Quaker’s advertising and communications strategy for Snapple revealed some very obvious and profound differences between the Mars-like Quaker and the Venus-like Snapple. For Quaker, customers were targeted and marketing activities took on a warlike image. But was this the appropriate frame of reference for the fun-loving, whimsical Snapple? If Quaker hoped to sell Snapple, it should have thought and spoken in the frame and language of its customers. Had Quaker understood this, it might have more perceptively evaluated the acquisition decision and/or better determined how to manage it.

Finally, borrowing from game theory, Quaker should have known that success in business isn’t about winning or losing but, rather, “in making sure you’re playing the right game.” To assure it was playing the right game; Quaker should have shifted its perspective and put itself in the shoes of the other players—namely, competitors, substitutors, customers, complementors. It might thus have better understood how Snapple’s distributors and customers would have reacted to the changes it had implemented in channel strategy, product, advertising, and promotion—all of which proved to be so misguided. Game theory might have enabled Quaker to more effectively shape strategy by exploring all the interdependencies and traps in the game. Indeed, failure to see the whole game and to think methodically about changing the game are probably the biggest traps a company can encounter. In this, Quaker was no exception.

Some companies succeed with a weak hand while others, like Quaker, fail with a strong hand. Quaker failed due to its inability to perceive it was playing the wrong game. As a consequence, it treated two very dissimilar brands in a similar manner and lost a lot of money and, ultimately, the company so doing. A broader perspective and less risk aversion might have saved Quaker from financial disaster.

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References

1. For a discussion of sustainable competitive advantage, see Michael Porter, “What Is Strategy,” HBR (Nov-Dec 1996), pp. 61-78.
2. “How Snapple Got Its Juice Back,” HBR 02016 (January 2002), p.7. Ibid., p. 6.
3. Michael Porter, “The Structural Analysis of Industries,” in Competitive Strategy (1980), p.16.
4. Bruce Bendix, John Goodman, and Paul Nunes, “Strategic Options for Overcoming Channel Conflict.” From Forum (Sept. 1, 2000).
5. Adam Brandenberger and Barry Nalebuff, “The Right Game: Use Game Theory to Shape Strategy,” HBR 95402, July-August 1995), p.57.