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An attempt has been made through this paper to analyze the marketing strategy employed by the cola giant PepsiCo

Home, - Pepsico Strategy Analysis

 

History

 

The organization was founded in the year 1904 by the inventor of the carbonated drink Caleb Bradham. Just after six years into operation the organization had almost three hundred bottlers in three states. After the company went bankrupt in the year 1923 was acquired by Charles Guth’s Loft Candy Company in the year 1931. After the acquisition the new owners changed the bottle size to double the previous size for the same price which resulted in astounding profits for the organization. The company doubled its efficiency in just a matter of twenty years. (Bellis 2006)

By the use of efficient technologies the organization found ways to reap more profits. All the different bottlers were merged in the year 1997 and were segregated into marketing and bottling units. The group earned the rights to sell and manufacture their product across the globe in the year 1998.

Mission Statement

“To be the world’s premier consumer products company focused on convenient foods and beverages. We seek to produce healthy financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.” (About 2002)

SWOT Analysis PepsiCo

The Swot analysis of an organization helps to understand the micro elements affecting the environment. A Swot analysis of the organization has been done to depict its the strengths, weaknesses, threats and opportunities.

Strengths

Branding - Branding has always been the strength of the organization since its inception in the year 1904. Pepsi is the top brands of the organization. As per Interbrand it is the 22nd best brand in the world. (Interbrand 2013) 

In the year 2012 it recorded an annual sale of $ 65.492 billion and a profit of $ 6.178 billion. The organization currently employees 297,000 across the globe and operates in two industries (Food and Beverage). The company has many other brands like the Mountain Dew, Lay’s Potato Chips, Gatorade and many others. The presence of the organization in over 200 countries across the world shows the strength of these brands. The company enjoys a share of almost 33% in the USA in the beverage segment and 25% in the snack segment. (Palumbo 2013)

The company also won over the Uk market in the year 2012, “Coca-Cola lost UK volume share in 2012, while Pepsi grew both its volume and value share and Lucozade and Red Bull’s success reflected growing consumer interest in functional drinks.”  (Bouckley 2013)


Diversification – Diversification has been the key for the company. The new C.E.O of the company has focused more on diversification as a result of which each of its top 18 brands generate an annual sales of approximately $1,000 million. It also has ready to drink teas, bottled water, cereals, cakes, juice drinks and cake mixes. Its range of products supported by the efficient multi-channel distribution system enables the organization to fight against the changing economic climates. (Anon 2012)


Distribution – The Company delivers its product directly to the retail stores and warehouses of the customers from its manufacturing plants. It also makes direct sales though its employees and third parties. Together this forms the three pronged approach.

Weaknesses


Overdependence on Wal-Mart – The sales to Wal-Mart account for about 12% of the company’s revenue. The largest consumer of PepsiCo is Wal-Mart. As a consequence of this dependence the sales of the company are affected by the strategies adopted by the latter. Also the low prices theme followed by Wal-Mart puts added pressure on the Cola Giant.


Overdependence on US Markets – Although the organization operates in more than 200 countries across the globe a major share of its revenue comes from the US operations. This leaves the organization open to changing economic, social, political and other changes in the USA. The PepsiCo’s bargaining power can be affected by the large buyers in the US.

Low Productivity – The Company had low productivity in the year 2008, i.e. $219,439 per employee (Approx). This was way lower than that of its competitors. This indicates the low productivity per employee of the organization.


Image Damage Due to Product Recall – In the year 2008 the organization had to recall Aunt Jemima pancake and waffle mix from retail shelves owing to the salmonella contamination. This was a year after it had to recall its Diet Pepsi cans in the year 2007. These events have to a certain extent damaged the image of the organization.

Opportunities


Broadening of Product Base – By acquiring companies like Lebedyansky (A leading Russian juice company) and V Water in UK PepsiCo has been trying to address its problem of over dependence on the United States market. The company is constantly trying to broaden its product base which shows out of its continued venture with Unilever. All these steps will allow the organization to be resistant to the changing environment.


International Expansion – The Company has been investing heavily in countries like China and India. These investments are being made with an attempt to reducing its dependency on the USA market and expanding in the international market. The organization also has been planning on major investments in countries like Mexico and Brazil.


 


 


 


Growing Bottled Water market in US – The organization is well suited to capture the growing water market which expected to grow in the future. Its products like Aquafina and Propel which are well established brands give the organization an upper hand as compared to its competitors.

Threats


Decline in Carbonated Drink Sales – A decline has been projected in the sales of carbonated drinks in the year 2013 which is likely to result in a loss of revenue to the organization. Although the company is in the process of diversifying its product base it is bound to feel the pinch of this decline.


 Potential Negative Impact of Government Regulations – It has been estimated that the government regulations related to safety, health and environment might impact the organization in a negative way. As a result of these changes the marketing, manufacturing and distribution of these products may be changed. It is estimated that government proposals related to environmental, health & safety may have the prospective to negatively affect PepsiCo. For instance marketing, manufacturing & distribution of food products may be changed on account of state, federal or local dictates. “Preliminary studies on acrylamide seem to suggest that it may cause cancer in laboratory animals when consumed in significant amounts.” (Anon 2012)


As a result the company might have to add warning symbols on its products which might affect the image of the company.

Intense Competition – The top competitor of PepsiCo is Coca-Cola. Other competitors include organizations like Kraft Foods, Groupe Danone and Nestle. As a consequence of the intense competition the various factors like sales, pricing, advertising and product initiatives might be affected. The company was surpassed in the juice segment by Coco-Cola. (Jurevicius 2013)


Potential Disruption Due to Labor Unrest – The Company is vulnerable to strikes and labor unrest. The productions were closed for an entire month in 2008 in India owing to a strike. This obviously affected the distribution and manufacturing.

Marketing Mix


Product: Bottled Drinks and Snacks


Price: Bottled drinks and convenience food


• Bottled drinks: These products are priced between the ranges of $1.50-$6.99. These figures are based on the advertisements released recently. The drinks are primarily sold in twelve packs, twenty four and twenty ounce bottles packs.


• Foods:; Family size: about $3; Cereals-about $3-6; Bagged Snacks-snack size: about $1, Dips-about $4 and Rice and side dishes-about $2-5


Place: Stores, grocery, restaurants, concession and vending machines stands throughout the nation.


Promotion: The products are advertised in commercials, shows, magazines and newspapers coupons and advertisements. The company has used the services of stars like Michael Jackson, Britney Spears and David Beckham to advertise their products. Food chains like Taco Bell and Kings serve Pepsi in their vending machines.

Marketing environment

The Five Forces of Competitive Position and Microenvironment

Threat of New Entrants – The new entrants would definitely have an impact on the company as the consumers would be presented with more options. RC Cola and Faygo Pop are a few examples.


Bargaining Power of Suppliers – The Company can push to be the number one bottling company in the world. Currently it stands second.


Bargaining Power of Customers – The presence of numerous buyers does not affect the organization. (Businessballs 2006)


Threat of Substitute Products – This aspect does not bother the organization much as currently it is the send bottling company in the world. It needs the worry only if the substitute product comes from the number one bottling company.

Nature of Rivalry –The number one competitors of Pepsi is Coco-Cola which is currently the number one bottling company in the world.

Macro Environment that affect companies

Economic: The current economic scenario is not too good. The entire world is going through a phase of recession. This implies that the consumers are left with less disposable income which ultimately results in the decrease in sales of almost every product. This situation has mainly aroused because of the increase in the rate of unemployment and reduction in income.

 

Social and cultural: This does not affect the organization so much as the drink is still loved by millions of people regardless of their age or social stature.


Competitive: Its top competitor is Coco-Cola.


Legal: The organization has to abide by the FDA (Food and Drug Administration) regulations.


Political: The organization has been adversely affected by this factor. It is possible that the government might set regulations of financial nature on the organization.


Technological: The organization is affected by the concept of “going green”. The use of more efficient machineries affects the costs of the organization. Increase in capital expenditure results in reduced profits.


The Swot and Lvcp analysis provides us with the following insights:


• The recession has been hurting the organization. Though the company is making considerable profits, the pre recession profits were huge and no comparison can be drawn between them. The prices of raw materials have risen as a result of the increase in the prices of gas. This has affected the cost of revenue. Though the revenue has decreased from the year 2011 by 2% the cost has decreased only by 1% (Figure.1, refer appendices). As a consequence their expansion has been limited for the time being.


• The second notable fact is that the increasing awareness in matter of health has affected the sales. The health campaigns have made the consumers more aware about their health. People are reluctant to buy Pepsi products as many of them are not healthy and are capable of causing various diseases. Though some of its other products like juice and bottled water are selling, but the profits are nowhere close to those of the unhealthy drinks.


• On the whole, the increased awareness about health has been hurting the company and that the organization needs to improve its international sales. The organization in the year 2012 recorded 51% revenue from the USA and 49% from outside USA. This shows its dependency on the USA. (Figure.2, refer appendices)

Overall Effectiveness


The organization employs a terrific marketing strategy. All of the parts related to the strategy have been listed below:


Mission Statement: The organization has a very to the point and firm mission statement. It lays equal stress on the focus of the company, its consumers, employees and business partners.


Target Markets: The organization possesses five target markets. This allows the company to sell its products to a wide range of consumers.


Marketing Mix: It has a wide variety of products which are marketed at endless number of places ensuring their sales.

Recommendations for Pepsi

The organization has been doing great at running a business of this magnitude. The company has been excellent in promoting their products and creating brand awareness. They have also been very effective internationally. There are a few things that are worth being recommended to the organization;

 

•         The recession has definitely affected the purchasing power of the consumers. The organization should look towards the employment of better and cutting edge technologies that can reduce the cost of manufacturing. The organization is the second bottling organization in the world. It should strive to be the number one organization. To be the number one, it has to spend more on advertising its products.


•         Although the concept of going green is very helpful for the organization, it has been hurting the organization as the employment of efficient machineries (green machineries) increase the capital expenditure of the organization. This definitely results in the loss of revenue to the organization. However, it is recommended that the company purchase such equipments as it would not result in outflow of money in respect to legal charges but also because these machineries are more efficient.


•         The prime weakness of the organization as depicted by the Swot analysis is the overdependence on US markets. It is recommended to the organization that it focuses on its international sales as it would result in a lower dependency on the home market. The organization should also strive to create more healthy products that would appeal to the general mass.


·          As a result of the rising prices of raw materials the costs have increased for PepsiCo. The organization has to be able to find ways of controlling this cost and ensuring higher profits. (Anon 2013a)

 

 

 


 

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