PepsiCo Business Level and Corporate Level Strategies - Research Paper Example

Introduction In the soft drinks industry competition between the Coca Cola and Pepsi is cut throat. With the advent of globalization, it is necessary to come up with appropriate strategies so as to acquire a competitive advantage over rivals. Furthermore, the emergence of the rising markets in former developing countries presents an opportunity for expansion into these countries and also developing nations. Companies mainly employ strategies at the functional, business and corporate levels in order to stay ahead in business. The popularity of soft drinks is evident given the fact that they can be found in virtually all corners of the globe. Soft drinks are mainly targeted for the youth; thus, Pepsi ought to integrate its strategies with the prevailing trends of the youth without forgetting that there are more youths in the world than there are older people. This assignment delves into a brief description of the company, business and corporate level strategies of Pepsi and how the company can enhance its competitiveness. A brief overview of PepsiCo PepsiCo emerged in 1965 as a business union between Fritto- Lay and Pepsi- Cola. Later on, the company acquired Tropicana in 1998. Additionally, in 1998 it merged with Quaker Oats and later with Gatorade in 2001. PepsiCo mainly deals with beverages, snacks and foods with revenues over $ 65 million dollars. The company aims to be a global leader in the production of convenient beverages and foods. In addition, it aims to increase shareholder’s wealth, empower employees, business associates and communities in which they conduct business (PepsiCo, 2012). The company is divided into PepsiCo Americas Foods, PepsiCo Europe, PepsiCo Americas Beverages and PepsiCo Middle East and Africa. Business and Corporate Levels of Strategy Under the business strategy, corporations with various businesses treat each as a separate strategic business unit. Essentially, in each unit there are independent markets or products served by organizations with each serving diverse environments. For each market (or product segment), there is a unique environment suitable for that division. In order to attain competitive advantage then the organization ought to satisfy the needs of customers with a focus on youth. The essence of the business level strategy is the customers; the young people. The unique taste and features of the customers are a critical factor in ensuring that the strategy works properly. In addition, the consumption patterns of the youth should be taken into account when implementing the business level strategy. Market research on the customer’s preferences helps to gain a competitive advantage over Coca Cola, which is more recognized globally in the beverages sector than Pepsi Cola. Maintaining a good relationship with customers has been effective by providing superior products to customers. The massive investment in market research and R&D is a testament to this. The Company focuses on brand loyalty particularly in America. This loyalty translates to value creation and increase in profitability for the company. Business strategy also tries to reach more global customers given that international business is more globalized than ever before. The business level strategy is also related to the generic five forces of competition. Thus, the strategies aim to gain a competitive edge over similar companies (Porter, 1997). One of the forces is the threat of new entrants. Given the popularity of soft drinks and the vast revenues among beverage companies, new entrants pose a huge threat. The emergence of new entrants is likely to come from emerging countries due to the low cost of production. In spite of the threat posed by new entrants, the industry is capital intensive with research and development a necessity for the companies. PepsiCo has tackled this with the creation of a global brand name recognizable and visible to many people. New entrants face a daunting task when competing with PepsiCo. Thus, the marketing plans have been effective in crafting strategies. The threat of new substitutes is also effective in analyzing the strategic decisions adopted to achieve the goals of the company. There are similar products offered at a lower price likely to cause competition as customers look for these cheaper alternatives. The creation of a global brand and the value attached to PepsiCo means that substitutes may not instantly compete with PepsiCo. The superior brand PepsiCo has a competitive edge over cheaper substitutes. Customers have consistently agreed to pay a premium on PepsiCo’s products without complaining about the higher prices imposed on the products. Another factor to consider is that buyers have bargaining power when faced with products with differential prices. The buyers can decide to choose cheaper options; thus, leading to a decline in the revenue flow for the company. PepsiCo charges higher prices owing to the fact that there is heavy investment in research. To cut on costs, the company has a strategy of outsourcing the lowest priced raw materials especially those involved in packaging. Additionally, large scale production reduces the cost per unit of the products and there are other economies of large scale production involved like marketing. PepsiCo engages various suppliers as it is able to negotiate better terms with any of the suppliers while the lack of raw materials from one supplier does not lead to business losses in PepsiCo. Ultimately, each of the strategies adopted ought to be aligned to the extent that lower costs are visible in the supply chain distribution and pricing of goods (Barca, 2003). Corporate Level Strategy This mainly deals with the top decision making process with regards to the overall strategies to be adopted by the organization in order to achieve their goals in the markets. There is a need for innovation in organizations necessitating the need for corporate level strategies to ensure the continuity and growth of firms. Diversification is a pillar for the corporate level strategy (Harrison & St. John, 2009). Besides carbonated beverages, PepsiCo has diversified into fast foods, snacks, water, sports drinks and juice. In foods and beverages industry, PepsiCo has global products in almost 200 nations. In addition, there are up to 22 brands with annual sales of more than $ 1 billion (PepsiCo, 2012). Diversification can either be unrelated or related; PepsiCo exhibits both of these features. After venturing into sports drinks and water, there is value addition since some of the production processes are shared. Equally, marketing and the distribution channels tend to be the same for related diversification. PepsiCo has mainly concentrated on related diversification since there is synergy due to the interrelation and shared resources from the similar industries like the Tropicana brand juice and Pepsi; both use a similar process in their production procedures. Vertical integration is also another form of diversification that relates to the number of times in which firms are involved in the value chain. PepsiCo bought two bottlers PepsiAmericas and Pepsi Bottling Group in 2009. This strategy aimed at franchised bottlers gained a good reputation after Coca Cola also adopted the strategy after initially rebuffing the strategy as a non starter. PepsiCo became more vertically integrated giving it more negotiating power with bottlers. Additionally, the company gained more control over its business operations that could reduce distribution costs in the future. The biggest threat to PepsiCo is the Coca- Cola Company particularly in the beverage division where Coca Cola is the leading manufacturer world wide. The Coca Cola brand name is well established and known across the world. This has not always been the case whereby PepsiCo had an upper hand in the 1970’s and 80’s through aggressive advertising, branding and a wide geographical reach. Coca-Cola was able to overtake PepsiCo (Data monitor, 2011). In a Globalized world, PepsiCo has recognized the value sustaining the environment through innovative ways of production and the efficient use of natural resources through incorporation of differentiation and low cost strategy. With an emphasis on research and innovation, both PepsiCo and Coca Cola focus on production of new products as differentiated products. Branding is the main focus of this with the Coca Cola beverage brands being popular. A creation of various market niches is employed properly by both companies whereby they have an equal chance depending on their geographical reach and brand appeal. Under the corporate level, the wide geographical network of Coca-Cola is essential to maintain its brand. PepsiCo did not take advantage of expanding business operations world wide but with the advent of globalization, it is easier to market products than ever before. The purchase of anchor bottlers by the two companies helps in reducing distribution and acquisition costs. Through exclusive arrangements with food chains, Coca Cola is able to diversify their market. In a similar move, by PepsiCo, the acquisition of Taco bell sought to increase its visibility into the food market. Coca Cola is likely to do well in the beverage industry given the number of agreements signed with numerous food chains (Barca, 2003). In conclusion, the competition between PepsiCo and Coca –Cola is healthy as it ensures that there is innovation in foods and beverages industry. Pepsi has a different approach as seen in its success in the foods sector while Coca Cola is more successful in the beverages sector. For PepsiCo to fully take advantage of the global economy, there is a need for more joint venture and mergers in the emerging markets and developing countries. The share of revenues from outside America is on the rise giving credence for the need to create global brands priced lower than that of competitors. Focusing on young people as the main potential customers is undeniable. However, it overlooks the fact that demographics of the developed countries are likely to have older citizens with more economic clout than the younger generation. Differentiation should also be relied upon to increase the visibility of PepsiCo brands and also to achieve competitive advantage. References Barca, M. (2003). Economic Foundations of Strategic Management. New York: Ashgate Publishing. Data Monitor, (2011). PepsiCo, Inc: Company Profile and SWOT Analysis. Datamonitor Harrison, J. S., & St. John, C. (2009). Foundations of Strategic Management. Connecticut: Cengage Learning. Pepsico (2012). PepsiCo. Retrieved August 9, 2012, from http://www.PepsiCo.com. Porter, M.E. (1997). How Competitive Forces Shape Strategy, Harvard Business Review p. 137-145. Read More