Pepsi-Colas Diversification Strategy of 2008 - Essay Example

?Running head: PepsiCola PepsiCola’s Diversification Strategy of 2008 Central Issue How would PepsiCola improve its international sales and profits? Although the company was able to increase its profitability and diversify its market since its acquisition of Quaker Oats Company, its international sales did not reach an expected increase in returns. It still had low relative profit margins in the international business. This implied a need for a new organizational structure which is expected to better exploit strategic fits between the company’s international operations. Moreover, analysts also set forth a need for company strategy changes to improve the profitability of its international operations and to usher in share price appreciation. Nevertheless, the challenge for PepsiCo is on how to improve its share of the international market, and how it would improve its sales in beverages and food commodities through appropriate market strategies. Recommendations Recommendation 1: Create an online retail market. This retail market can make their markets more accessible to the consumers, regardless of the consumers’ location. Tie-ups with local stores in the major cities and local stores can help direct the consumers towards areas where they can access the products they want. Recommendation 2: Increase accessibility of goods by increasing the number of products in the local stores and shops. More local stores must have their supply of PepsiCo products, from the beverages to their food items. Such goods must reach as many stores in both the cities and the rural areas in as many countries as possible. The company can provide online link-ups to these stores – to give local consumers the opportunity to access these goods through the internet and have them delivered to their homes or be picked up in the stores. Recommendation 3 Take out advertisements and commercials to run in the TV, newspapers, and similar media using the local talents or familiar celebrities in these countries. These advertisements can also run in magazines and in shopping areas, using these familiar and local celebrities. Promotional tours for these celebrities can also be used to assist in establishing the popularity and patronage of the products. Tie-ups with local activities in these countries can also be carried out. Significant factor list: 1. Its rival company Coca-Cola has created a formidable international market with a firm footing on many developing nations. 2. Its Quaker Oats products are not popular brands and products outside the United States. 3. Its recent acquisitions like Quaker Oats and Frito Lay Brands have not been popular brands outside the United States. Product lines like Fritos Corn Chips, Captain Crunch Cereal, and Cracker Jack popcorn, among others are not popular and strong products outside the United States. For the most part, these products are expensive purchases for other states, especially the developing nations. 4. The international crisis has affected sales for most major corporations operating in the local and in the international market. 5. Some of the local stores in countries outside the United States do not carry the PepsiCo and Quaker Oats products. 6. PepsiCo has not reached the local and cultural level of consumer appeal. It lacks a connection with the local people and such disconnect makes it more difficult for the company to be more appealable to the local consumers. 7. Environmental concerns on water consumption have been raised and have called for the company’s participation in conservation efforts. This implies higher production costs for the corporation. Justification of each recommendation Justification for Recommendation 1 Almost everything and everyone these days is online. PepsiCo must take advantage of this new medium in order to ensure that its products would reach the most number of people in the international market. The internet is one of the most convenient, innovative, and time-saving technologies available today. It is a medium which allows users even in the farthest corner of the world to access products which would normally not be available in their market. Many countries in the world have internet connectivity and this connectivity can be used by PepsiCo to gradually get in to the international market. Its online stores can be used by consumers as convenient markets they can easily access in the comfort of their own homes. Once their purchases are made, they can either opt to have these products delivered to their homes or have these be ready for pick-up in their nearest convenient shopping center. It is therefore important for PepsiCo to create tie-ups or arrangements with the stores which hold their products. These tie-ups must include home deliveries or pick-ups. The cost of such deliveries can then be included in the production cost. Arrangements with local couriers can also be made in order to allow for the safe delivery of the ordered products to the consumers. The social networking sites like Facebook and Twitter can also be used as a means of spreading the popularity of the products and the accessibility of these products in as many countries as possible. The internet has a great potential for most businesses. In reviewing most businesses these days, their rise and fall has been dependent to some degree on how they have used or not used the internet. A prime example is the case of Blockbuster which was overtaken by Netflix as a premiere movie rental and DVD sales company. Once Netflix introduced its online option for its consumers, Blockbuster lost more than half of its market. By the time Blockbuster was catching on to the ‘internet market’ trend, it already lost its momentum and its consumers to Netflix. This is a lesson which PepsiCo can use in order to improve its profits in the international market. Justification for Recommendation 2 PepsiCo needs to increase its availability in many local areas in as many countries as possible. To some extent, its rival company Coca-Cola has reached a more international market by being available to more local markets and retail stores. In fact, Coca-Cola seems to be synonymous to carbonated drinks in the international market. Where US consumers may find the Pepsi brand to be their preferred beverage, the international consumers prefer and have more access to Coca-Cola products. PepsiCo needs to increase its tie-ups with the local supermarkets and stores, and for these stores to carry more of their products – from its PepsiCo products, to its Frito Lay and Quaker Oats products. Consumers can be enticed to try eating Quaker Oats when they are able to easily access these in their local stores at affordable prices. Since PepsiCo products have been marketed to be healthier alternatives, such health attributes can be used in order to entice more consumers. In order to increase its gains in the international market, PepsiCo needs to improve and increase accessibility in the smallest and even the remotest areas. Once the consumers know that their population can be reached by PepsiCo products, then they would be enticed to increase their patronage of their products. Much profit can be gained by increased visibility in any area and for any product. Consumers would gladly patronize products if they see the popularity of its usage in the international market and if they see these products as healthier alternatives. However, even if these products offer better and enticing alternatives but are not available in local stores, the people would not have any choice but to patronize other companies. It is therefore important for PepsiCo to increase its reach in these local stores and to give the people better food and beverage options. Justification for Recommendation 3 Taking out advertisements is still one of the best options for any company trying to market their products. In order to appeal to the international market, advertisements and commercial time in local TV and radio stations can be bought. The images and product endorsers which can be recruited for these commercials and advertisements must be, as much as possible, their very own local celebrities. This makes the product more relatable to the consumers. Knowing that their local celebrities patronize these products can help draw in these consumers. Somehow the product becomes less obscure – not so much a product from the United States, but one which can be considered a local product. Buying advertisement space in local papers and magazines can also help reach the older demographic through lengthy explanations about the health benefits of oatmeal products. Advertising through the internet and through social networking sites is also an important marketing option because it helps draw in the younger demographic. These advertisements must be made available at the local levels for each state using the popular celebrities for each state or locality. Celebrities who have somehow made an international name for themselves can also be drawn in. For example: Yao Ming for China, Manu Ginobili for Argentina, Manny Pacquiao for the Philippines, David Beckham for the UK, and similar celebrities can be recruited in order to endorse the product and to endorse it in their countries. For most of the products in the United States and even in other countries, all it takes is the endorsement of a major celebrity and a product can successfully take off in the market. Along with a cleverly laid out marketing plan, such marketability can be utilized in order to make the most profit for the company. It is also important for such advertisements to be taken out in as many countries as possible. Coca-Cola was able to gain much dominance in the international market because its images and its advertisements are almost seen in all corners of the globe. In the end, such visibility, by itself, helps simplify consumer choices. This approach can still be applied by PepsiCo because it gives the consumers more options in their Coca-Cola-dominated market. Factor Discussion 1. Its rival company Coca-Cola has created a formidable international market with a firm footing on many developing nations. The international market is the main driver of Coke’s growth in revenue. About 72% of Coke beverages are available outside North America. Its annual growth was at 4% worldwide since 2005, and this was fuelled by its 5% growth in its international sales (Workman, 2006). Its case volume sales indicates double-digit increases in Pakistan, China, Egypt, and Russia; its operations in North Asia, Eurasia, and Middle East was set at a 15% increase in sales from 2004 – this represents about 22% of the company’s revenues. The EU registers profits for Coke are 19%, followed by Latin America at 12.5%, Africa at 5.5% and East Asia at 4%. There is a need for PepsiCo to find ways to overcome Coke’s dominance in the international market. Such barriers would be difficult for the company to overcome; however, without considering better international market options, it would not be able to gain more strength in the international market. 2. Its Quaker Oats products are not popular brands and products outside the United States. Although Quaker Oats are a popular breakfast food option in the US, such is not the case in the international scene. In Asia, for example, oatmeal and cereals are not a popular food choice among consumers. For the most part, cereals are considered a Western commodity. For which reason, it is difficult to sell the product outside the US and to make that sale significantly lead to profits (Harman, 2001). In order to get past this barrier, the healthy food choice ‘ticket’ can be used to infiltrate the market. Quaker Oats are popular in the US, especially among those opting for a healthy lifestyle. In recent years, its sales have increased because its health benefits have been supported by the medical community. This can be used as a sales pitch for the company in marketing the product in the international scene. 3. Its recent acquisitions like Quaker Oats and Frito Lay Brands have not been popular brands outside the United States. Product lines like Fritos Corn Chips, Captain Crunch Cereal, and Cracker Jack popcorn, among others, are not popular and strong products outside the United States. For the most part, these products are expensive purchases for other states, especially the developing nations. Upon entering local supermarkets and grocery stores outside the US, the popular American products as mentioned above seem to be absent from the store display racks. This is a sign of the decreased popularity of these products in the international scene. In order for the people to access these products, some consumers have to visit specific stores; and even if they can get these products in their local supermarket, their choices are not as extensive. They can mostly get the more popular choices and nothing else. This implies a weak market for these popular American products. It implies a need for the company to expand its market and to increase the availability of its products in these local stores. 4. The international crisis has affected sales for most major corporations operating in the local and in the international market. The economic crisis has affected sales for most multinational corporations. This economic crisis has made it more difficult for the company to reach a wider economic market. Higher production costs, as well as higher cost of transport due to increased oil prices have prompted the company to increase its prices. However, in doing this, it has decreased its availability and affordability to the general public. Nevertheless, price increases are an inevitable part of the production and marketing process in order to prevent financial losses. Many consumers in the international scene have decided to do away with their beverage and other food purchases which are not considered necessities. This is part of the economic crisis – lesser purchases from consumers who cannot afford to make luxury purchases. Many corporations around the world have been affected by this international economic crisis. Some of these businesses have even gone bankrupt. The economic crisis is a barrier which PepsiCo is also faced with because it is challenged to come up with a way to prompt the consumers to buy their products despite their financial difficulties. 5. Some countries are not welcoming of or encouraging to international corporations seeking entry into their countries. Entering the market for some countries can be considered a complicated process because many countries consider this a loss in profit for their own products. Closing their market to foreign companies is very much a prerogative for most countries; however, those seeking to attract foreign investors are willing to welcome these companies into their territories. Nevertheless, other countries may opt to protect their local industries and prevent the entry of the international-based corporations like PepsiCo. In areas where the corporation has been able to gain access, it has been forced to contend with higher tax rates. This again cuts into the overall profitability of the corporation. It is then forced to pass such higher costs to the consumers. Understandably, that is the only way they can even out their market competence. 6. PepsiCo has not reached the local and cultural level of consumer appeal. It lacks a connection with the local people and such disconnect makes it more difficult for the company to be more appealable to the local consumers. In order to gain a local audience and consumer-base, most international corporations are often prompted to take on a more local appeal. This helps them reach local consumers. It helps the consumer relate to the product and its benefit to the community and to the general population. PepsiCo has not yet reached such level of appeal among consumers. It has yet to initiate activities which are set in line with local cultural activities or local philanthropic activities. In this case, the people see the corporation as one which only seeks to profit from them; the people do not see the corporation as one which would care if they are celebrating their annual festival or suffering from a flood or a drought. Other international corporations have been able to gain local appeal by being more involved with the culture and with the local happenings. In so doing, they have been able to gain access to the market and maintain strong patronage and support from the local consumers. 7. Environmental concerns on water consumption have been raised and have called for the company’s participation in conservation efforts. This implies higher production costs for the corporation. In the current age where environmental concerns have been considered a major factor in any marketing plan and management, PepsiCo also needs to consider such concerns in order to ensure long term gains for the company and for our environment. The company’s water consumption is a major environmental concern which the company needs to look into. Such concerns will definitely imply higher costs for the production, and this would imply higher prices for its products. In order for it to enter a large international market, its marketability must be dynamic. It must be affordable to the local consumers; it must relate well to the local regions; and it must do its part in protecting the environment. We are in an age where environmental concerns have to be made a priority for corporations. PepsiCo must be one of these corporations. Works Cited Harman, C. (2001) Getting the best of both worlds: Selling breakfast cereal across the Pacific. Just Food. Retrieved 03 March 2011 from http://www.just-food.com/analysis/selling-breakfast-cereal-across-the-pacific_id93715.aspx Workman, D. (2006) Coca-Cola Global Sales India Most Promising International Market. Suite 101. Retrieved 03 March 2011 from http://www.suite101.com/content/coca-cola-global-sales-a8625 Read More