Mission Statement: by F8bZ59


									                                 Case Study: Honest Tea Case

Mission Statement:

Honest Tea creates and promotes delicious, truly healthy, organic beverages. We strive to grow
with the same honesty we use to craft our products, with sustainability and great taste for all.

Seth Goldman likes to say that his business got started because he was thirsty. A natural-born
athlete, Seth was always searching for a satisfying drink to quench his thirst after a tough
workout. While there were plenty of sports drinks and sodas he could buy, not to mention
water, none of these options ever appealed to him. So he started to experiment.

A Hobby Evolves Into a Business Idea

    After he graduated with his MBA from Yale, Seth began concocting fruity beverages in his
kitchen as a hobby. But he still was not satisfied. One day he decided to call his old business
school professors to discuss the problem. Seth’s professor Barry Nalebuff, had just returned
from India where he had been studying the country’s tea industry. Barry explained that
beverage companies who purchased their raw materials from Indian tea plantations did not use
whole tea leaves in their manufacturing. Instead they took whatever tea leaves were left over
after the quality leaves had been packaged and used for other products, such as tea bags.
Seth and Barry had a hunch that they were circling in on an opportunity. Even better, Barry had
already come up with a name for a company that would make beverages using top of the line
tea leaves. The company would be called Honest Tea. Seth loved the name and what it
represented. He hung up the phone and resolved to continue his liquid experiments by brewing
tea leaves in his kitchen until he came up with the perfect product.
         That was seven years ago. Today Honest Tea sells twelve different kinds of bottled
iced teas as well as a growing line of bagged and loose teas. In 2001 the company generated
1.9 million dollars in sales; in 2002 this increased to 3.2 million. Seth is aiming for a 75% growth
rate each year and at this point, the company seems to be on track with achieving this goal. So
how did Seth do it? How did this drink hobbyist succeed in competing with big time beverage

Honest Tea’s Competitive Advantages
       The Honest Tea team has worked hard to define the company around the features that
make Honest Tea stand out from its competitors. In Seth’s own words “given that this is a highly
competitive market, the most important factor in our favor is that we offer a differentiated
product.” A company like Coca-Cola is 1000 times our size. What we are offering is a very
strong brand that is consistent with what is in the package and very meaningful to customers.”
       For example, Honest Tea was the first brand to make a certified-organic bottled tea.
What does this mean and why does it matter? Well when a product is labeled “USDA organic” it
confirms that harmful pesticides and other toxic chemicals have not been used in growing or
producing the product. Increasingly, consumers, particularly the health-conscious, are seeking
out organic goods in the marketplace.
       Honest Tea also uses up to two/thirds less sugar in its teas compared to its competitors
such as Snapple and Arizona iced teas. Seth likes to say that his teas are “lightly sweetened.”
This feature appeals to consumers who care about their health and diet.

Socially Responsible Business
        The ‘honest’ part of Honest Tea extends beyond using organic ingredients. Seth goes to
great lengths to educate customers about the company’s ethical and socially responsible
business practices. For example, Honest Tea purchases peppermint leaves for its “First Nation
Peppermint” ice tea from a woman-owned herb company on the Crow Indian reservation in
Montana where the unemployment rate is a staggering 67%. By purchasing his peppermint
leaves from this Crow supplier, Honest Tea is promoting economic activity in a place where
many people suffer from poverty and joblessness. A percentage of the revenue from the sale of
this product is donated to non-profit organizations that help at-risk Native American youth.
        Seth wants customers to know that when they buy an Honest Tea beverage, they are
also doing something good for the community. As Seth puts it “A commitment to social
responsibility is central to Honest Tea’s identity and purpose. The company strives for
authenticity, integrity, and purity in our products and in the way we do business.”

Staying in the Game
        The beverage market is highly competitive but Honest Tea appears to be thriving
because it is delivering a differentiated product that customers feel good about buying and uses
organic ingredients. Comparable brands like Snapple, Lipton, and Arizona Iced Teas may be
25 – 50 cents less expensive per bottle but do not offer the same quality and health benefits.
However some high end tea purveyors such as Tazo iced and loose teas, sold exclusively at
Starbucks and other retail locations, may pose a threat to Honest Tea in the long run. In order
to stay in the game, Seth needs to continue to enhance and market the features that make
Honest Tea a specialty product. In February 2008, Honest Tea celebrated its tenth anniversary
and accepted an investment from Coca-Cola to expand their production and distribution.
Case Analysis

   1.    Complete the competitive matrix below for Honest Tea and two competitors. Think
        about direct competitors and indirect competitors. Are there any other factors to

2. Look at the competitive matrix, what are the competitive advantages? Which advantage is
most important to you as a consumer and why?

3. Given what you already know about Honest Tea’s business philosophy and practices, if you
were Seth’s business advisor, what additional competitive advantages would you encourage
him to develop?

4. In your opinion, what does it mean for a company to engage in ‘socially responsible business

5. Assume the following. An 8 oz bottle of the following iced tea products costs:
Snapple: $1.25
Arizona Iced Tea: $1.50
Honest Tea: $1.75
Would you be willing to pay between .25 - .50 cents more to purchase an Honest Tea beverage
because you know that the company engages in socially responsible business practices and
uses organic ingredients? How much are these features worth to you and why?
6. What are Honest Tea’s competitive advantages?

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