The International Marketing Mix - Case Study Example

 «The International Marketing Mix» PEPSICO Introduction PepsiCo, a multinational food and beverage manufacturer, maintains business operations all across the globe. From 2006 to 2007, PepsiCo witnessed a growth in annual net income of 38 percent, approaching nearly $1 billion USD at the end of 2007 (Annual Report, 2007). PepsiCo is a large conglomerate with many well-known brands such as Pepsi, Aquafina, Quaker Oats, Gatorade, and Frito Lay. Having such a wide product line variety, for a multinational business, requires differentiating a multitude of products in order to give each brand a competitive edge. However, in order to coordinate brand-building exercises in foreign operating environments, PepsiCo must consider elements of the international marketing mix in order to create consumer connection, add value to the long-term, strategic position at PepsiCo, and assess the impact of many other external forces which can potentially serve to erode profitability (or ensure profit success). The food and beverage industry maintains a wide variety of competition, which also reinforces the importance for companies like PepsiCo to develop a keen awareness of the external environment and create marketing strategies which best befit the foreign consumer. PepsiCo’s current marketing focus maintains significant strengths but also a few noticeable weaknesses would benefit from improvement. This paper highlights the current marketing strategies at PepsiCo for targeting a wide variety of international consumer demographics and assesses the various strengths and weaknesses at the company in its marketing approaches. The PepsiCo environment and strategy Prior to developing an appropriate marketing process which best fits the desired PepsiCo brand image, the company must assess the external operating environment in multinational retail and sales territories. There is evidence that PepsiCo is routinely aware of the external environment and is constantly adjusting marketing practices in the face of various political, economic, technological, social and legal forces. The PESTLE Analysis, which recognises these forces, is a quality marketing management tool. For instance, PepsiCo must continuously work with the regulations provided by the governing council of the World Trade Organization (WTO), which often dictates various rules regarding business operations in foreign regions as well as distribution guidelines. PepsiCo has a considerable opportunity in terms of place, in the international marketing mix, as Denis (2003) identifies that there is no WTO regulation which sets any mandates for marketing consumer products in foreign countries. This provides PepsiCo with less regulatory entities which can potentially erode profitability by complicating the supply chain process or creating barriers to carrying out successful international marketing. PepsiCo also understands the current economic landscape, which in the face of the current, unpredictable global economy is driving new strategies at PepsiCo. The soft drink brand Pepsi, one of the company’s more profitable brands, currently receives 40 percent of its total profit from international consumers (McKay and Cordeiro, 2008). The current global economy has also driven down profit from falling restaurant sales, as Pepsi syrups are common in many fast-food companies (Birchall, 2008). Pepsi has had a consistent, positive cash flow every year since 2004 due to rising demand from developing, international economies until 2008 when sales began to fall. Understanding the current economic landscape and the changing behaviours of consumers who have less disposable income for personal consumption is part of PepsiCo’s successful external forces analysis as a path toward understanding issues of product, distribution, pricing structure and promotion. The international marketing mix In terms of product, PepsiCo utilises a wide variety of different positioning strategies for each product brand. However, as each food and beverage product is being distributed to different multinational consumers and a high volume of competition exists in this market, PepsiCo must use its marketing focus to create a connection with consumers through various branding activities. For example, if the typical Aquafina (bottled water) drinker is the athletic and motivated consumer fitting the psychographic profile of social and recreational enthusiast, PepsiCo must position Aquafina as a brand which befits lifestyle and utilise various marketing communications (as an integrated bundle of marketing messages) to appeal to this demographic. In some developing countries, Aquafina might be more of a staple drink in an environment where clean, city water systems are not common in foreign neighborhoods. This would provide PepsiCo with the opportunity to position Aquafina as a reliant brand such as emphasising its quality or mineral content. For instance, PepsiCo, in an attempt to appeal to the international consumer with a dedication for environmental advocacy, created a partnered marketing strategy with Sam’s Club (a Wal-Mart company) entitled Return the Warmth to promote recycling and other environmental initiatives (Annual Report, 2007). This indicates how the company utilises various social trends and a desire to make brands appeal to different demographic segments as a means to give PepsiCo brands competitive advantage and boost international profitability. The company also utilises creative marketing practices, such as new logo design and product packaging visuals, to appeal to the diverse multinational consumer. With the recent decline in global demand for PepsiCo products, the company is attempting to reinvigorate the Pepsi brand by changing cans. In an attempt to appeal to the foreign, contemporary U.S. consumer, the Pepsi brand designed the cans to reflect various emoticons which are used in countries where text messaging is popular (Birchall, 2008). PepsiCo’s PEST analysis likely uncovered the growing trend of consumers who are now switching from carbonated soft drinks to juices, teas and various bottled water varieties, driving the company to create a new product focus which caters to lifestyle. This represents, in the United States, a shift in brand positioning as a means to boost sales in yet another international sales environment. Outside of the product focus in the international marketing mix is pricing, which is a significant factor in the many different marketing regions where PepsiCo operates. For example, the company spent $2.9 billion in 2007 on marketing for all its brands (Annual Report). The costs of this marketing must be recaptured and it is logical to blend this cost into different products which will not be rejected by the consumer for a marginal price increase. One marketing expert offered that Pepsi has “failed to build real equity and value into their brands, turning instead to massive price-cutting backed by enormous advertising budgets” (Marconi, 2005: 27). However, why is PepsiCo performing large-scale price cutting? This is likely due to the marketing research which has uncovered changing consumer behaviours in foreign markets. For instance, the company’s annual report identifies that sales in Russia have been explosive and have changed their manufacturing and distribution efforts to meet with this rising demand. However, in other developed countries, concerns over snack foods linked to obesity are changing buying behaviours (Wiggins, 2008). As a very diversified company, even more so than one of its largest competitor, Coca-Cola, the company must consider whether various social attitudes will change the scope of allowable pricing which will not deter consumers from buying PepsiCo products. This would be especially difficult for companies like PepsiCo which must create such a multitude of different brand strategies and target them at a widely-different consumer profiles. However, the company appears to set a pricing structure for international sales which is designed to recover the manufacturing and labour costs without striving for too high of a profit margin which will cause consumer discontent. PepsiCo appears to have a sound distribution strategy and focus regarding the most appropriate markets for the sale of PepsiCo products. Sometimes, when global economic conditions are unfavourable for high profitability, a business must consider slashing excess labour in distribution in order to save costs. This is evident at PepsiCo which recently let go of 3,300 employees in one division due to rising supply chain costs, weak sales and increases in overall distribution activities (Birchall). International distribution costs are also affected by different currency exchange rates. When one operating environment has favourable exchanges rates, it makes business considerably profitable for companies like PepsiCo. However, recently the company has been getting much less return on foreign investment with a strengthening U.S. dollar leading to diminished international profitability when foreign consumer payments are worth considerably less than before. In this conglomerate of situations regarding costs of distribution, it is a practical and logical decision to cut excess labour and save costs when profitability for the future is uncertain. Research did not uncover the actual mechanics of PepsiCo’s distribution and supply chain strategy, which might suggest that the company does not publicise many of its internal, organisational practices. However, no research evidence could be uncovered which illustrated that any measurable deficiencies exist in the PepsiCo distribution and supply chain strategy. This could be due to the aforementioned lack of WTO restrictions and regulations or simply because the business understands how to maximise distribution networks to achieve place value in the international marketing mix. Clearly, PepsiCo understands which international consumers would add profit value to the firm’s many brands and can get product to the international buyer efficiently. These changing, international consumer values also require the company to take a more strategic approach to promotion by creating advertising which is cost-effective and will bring the most value to the consumer and to the long-term profitability of PepsiCo. Developed countries have recently been creating promotional literature which describes the impact of a sedentary lifestyle on today’s youths, leading to unparalleled youth obesity. PepsiCo recognises that only one percent of total advertising is focused on international school-aged youths, however for a conglomerate company with revenues measured in billions of dollars, even one percent of profitability represents a significant revenue stream. PepsiCo must recognise the importance of youth perception and attitude regarding snack foods and beverages as the company publicises all of its youth-oriented activities as a means of creating a positive consumer connection with this age group. These are value-added activities which, despite the costs of supporting promotional campaigns such as these, allow PepsiCo to utilise in-school marketing literature as well as other various print and on-air media campaigns to promote healthy eating and PepsiCo’s ability to deliver on this new youth consumer focus. This is true in many international sales and marketing environments. PepsiCo is also a modernised company which makes full use of the Internet-minded consumer to appeal to the specific international brand audience. In Asia, for example, Internet demand has grown significantly in just a few short years which allows PepsiCo to utilise online advertising content to appeal to the Asian consumer. Promotional materials used at PepsiCo include various animations which direct the consumer through a series of interactive web pages which play out various brand-related stories and concepts. Additionally, PepsiCo utilises online contests and prize-winning sweepstakes to lure the international consumer to discover the many benefits and advantages of PepsiCo products and differentiate PepsiCo products from other food and beverage competitors. Siegel (2006) offers that a large majority of consumers are compelled to make purchases from the use of incentives and PepsiCo appears to recognise this by creating motivation to buy products with contest-oriented, interactive online marketing. PepsiCo recognises this type of incentive and bonus to consumers as being a sizeable expenditure in the billions. Clearly, PepsiCo understands the psychological and sociological aspects of consumer behaviour which drive purchase decisions and are willing to invest significant organisational labour and expertise as well as financial investment for promotional purposes. The international marketing mix is not only about the product, distribution, price and promotion, it is about combining all of the business functions together and delivering both quality service provision and satisfying the end consumer. PepsiCo has recently adopted a new software programme, SAP, which is an integrated computer system which consolidates the entire business into a single software unit (Middlewood, 2004). SAP will link purchasing, shipping and receiving, manufacturing, marketing and even the executive-level job function. The new software is designed to streamline the entire business and enhance the supply chain to ensure that a low cost product can be delivered and various costs can be saved for PepsiCo in the process. Paul Greenberg, author of CRM at the Speed of Light, believes that multinational companies like PepsiCo are so strongly driven by the customer that multiple systems must be designed to support them (Middlewood). The integration of SAP is a process which will not only enhance the international marketing mix in terms of distribution and pricing, but serves to create added value to the consumer as well making this a good promotional tool for enhancing the firm’s image and making it more attractive to the shareholder and new investor as well. PepsiCo appears to believe that SAP will so strongly enhance its total marketing position that by 2008 it had implemented SAP in China, Mexico, Egypt and Saudi Arabia (Annual Report). From a strategic standpoint, this represents significant marketing opportunity for the company, despite being a short-term expense which will likely take years of efficiency value to recover the costs of buying SAP. Technological changes to PepsiCo provide new opportunities in terms of cost reduction and the enhancement of the overall marketing focus. New technologies allow PepsiCo to expand its multinational reach by utilising new web-based software as well as creating the potential for a customer relationship-focused business and the databases necessary to store this information for the purpose of promotional activities. Mailings which represent a discount for signing up to receive marketing literature from various PepsiCo brands is yet another example of how the company continuously streamlines marketing to appeal to the international consumer and achieve the perception of quality at the same time. From both a product and promotional perspective, PepsiCo manages to create unique consumer messages on all of its brands. Product positioning can be illustrated at PepsiCo such as stating that various Quaker Oats products will reduce cholesterol in one nation whilst using an identifiable character as a means to create a consumer connection of home and family in another. This appears to be one of the key success factors for PepsiCo and how the company is able to build consumer brand preference in different international markets. The key to a quality positioning strategy is to identify what appeals to the consumer profile and attempt to create a customised message which places the specific brand into a specific category. PepsiCo invests significant financial resources into marketing research regarding the consumer such as lifestyle preferences in different regions and home/family elements as a means to create product packaging or promotion which will make the product appear most useful and beneficial to the international consumer. Seeing that many foreign business divisions are bringing high sales revenue to the company, it would seem that PepsiCo’s many product positioning strategies speak for themselves in terms of effectiveness. Conclusion PepsiCo understands the importance of the international marketing mix and consistently works toward creating a quality differentiation strategy which appeals to different target consumers across the world. Simply because, as one example, Gatorade is not selling in Egypt does not necessarily mean that demand will fall in China as well. It might simply be that Egyptian consumers are no longer focused on the importance of a high-electrolyte diet and have moved toward a more simpler connection with various teas and supplemented waters. It is at this point in understanding the customer that companies like PepsiCo must redevelop the brand image and change the marketing content (messages, promotion, etc.) to again make Gatorade a high selling product for the new Egyptian mindset and social expectation. PepsiCo appears to recognise the importance of changing brand images in the event of changing consumer behaviours and applies both the staff expertise and budget necessary to accomplish this effectively. PepsiCo also performs well in terms of pricing by reducing costs in the entire manufacturing chain so that products will not be set at a price where consumers begin searching for alternative products. The high volume of competition in the foods and beverages market require the company to constantly look at price structures and compare it to the costs of manufacture, to ensure that prices are both competitive and linked with the true quality of the product being marketed. Subtle changes in pricing might be the deterrent that some international consumers need to reach for other brand names than PepsiCo products. Promotion appears to be the strong point for PepsiCo with its array of contests, sweepstakes and online, interactive animation which is customised for different international audiences and brand varieties. Allowing consumers to find entertainment will likely lead to long-term value for PepsiCo and create brand preference over competing food and beverage products. The firm’s diversified product line gives foreign consumers, even those in newly-developing countries, the opportunity to build a relationship with PepsiCo products and build a cross-cultural connection with other PepsiCo product consumers via interactive web-based technologies. All of these promotional efforts and technological improvements in the business are providing consumers with increased brand value and, to PepsiCo, added profitability. Despite any difficult economic conditions, PepsiCo appears to have a very flexible marketing focus and is willing to adapt marketing practices in the event of any noticeable shift in buying behaviour from region to region. The company has clearly invested a great deal of business resources to the marketing function and has won many awards for the firm’s dedication to marketing success and excellence. PepsiCo seeks to understand its customers and provide them with a quality product, at a great price, in a means that is accessible in many different lifestyle options from the vending environment to the retail seller. PepsiCo is a leader in the international marketing mix and should be acknowledged for creating increased value for consumers, communities, and private investors across the globe as a competent marketing-focused company. Bibliography Annual Report. (2007). “PepsiCo: Performance with Purpose”. Accessed 7 Dec 2008 http://media.corporate-ir.net/media_files/irol/78/78265/2007_AR.pdf Birchall, Jonathan. (2008). “PepsiCo cuts jobs amid uncertain demand outlook”, Financial Times, London. 15 Oct: 29. Denis, Jean-Emile. (2003). “Making international marketing decisions under WTO rules”, Thunderbird International Business Review, Hoboken. 45(2): 185. Marconi, Joe. (2005). The Brand Marketing Book: Creating, Managing, and Extending the Value of Your Brand. Lincolnwood, NJ Lawrence Erlbaum Associates, Inc. McKay, Betsy and Cordeiro, Anjali. (2008). “Corporate News: Coke Overcomes Weak U.S. Results; Beverage Giant Posts Better-than-Expected Profit as International Sales Continue to Drive Growth”, Wall Street Journal, 16 Oct: B.3. Middlewood, Martin. (2004). “PepsiCo drinks up MySAP”, CRM Buyer. Accessed 6 Dec 2008 http://www.crmbuyer.com/story/34379.html Siegel, Carolyn F. (2006). Internet Marketing: Foundations and Applications, 2nd ed. Houghton Mifflin: 305. Wiggins, Jenny. (2008). “Cheaper food buying raises obesity fears”, Financial Times, London. 21 Nov: 4. Read More