PepsiCo Strategic analysis - Term Paper Example

? PepsiCo Strategic Analysis Contents Contents 2 Introduction 4 Company Background 5 Market Overview 5 PepsiCo’s Stakeholders 6 External Environmental Analysis: PEST Analysis 6 Political Factors 6 Economical Factors 7 Social Factors 7 Technological Factors 7 Internal Environmental Audit: SWOT Analysis 8 Strengths 8 Weaknesses 8 Opportunities 9 Threats 9 Porter’s Five Forces Analysis 9 Existing position of Rivals 10 New Entrants 10 Substitute Products 11 Buyer Power 11 Supplier Power 11 Current Strategies of PepsiCo and their Impact on Performance 12 Pricing Strategy 14 Placing Strategy 15 Promotional Strategy 15 Supply Chain Management 17 List of References 18 Executive Summary This research paper looks at dynamics of marketing research and how an organization utilizes its marketing department to create long-term benefits for individual products and for organization itself to maximize shareholders’ wealth. In this regard, PepsiCo has been selected as target organization, which will be utilized as a case study to understand its marketing efforts and the benefits it gains from these marketing efforts. After providing a brief introduction to the organization, author presents the corporate objectives of PepsiCo in UK, market summary, company’s vision and mission, the major stakeholders of the company, internal and external environmental analysis with the help of strategic tools. The strategic analysis of PepsiCo’s position in the market place will enable the researcher to develop strategies like differentiation and the utilization of marketing mix to develop new products and markets for further penetrating into the markets. Introduction In this paper, the researcher will analyze PepsiCo’s strengths and weaknesses and whether the marketing environment within and outside the organization is favoring it or not. This paper fundamentally is a strategic analysis of PepsiCo, by keeping in consideration the internal and external forces and resources that can help the company to become a market leader. In the light of the research conducted on markets, in which PepsiCo is incorporated, the author of this report suggests business and corporate level strategies that can be utilized for succeeding in market place. Company Background Undoubtedly, Pepsi is the largest manufacturer of carbonated drinks around the world. Initially, the company was started by a North Carolina based chemist and pharmacist, Caleb Bradham in 1898. He named his cola drink “Brad’s Drink”. PepsiCo’s presence in UK dates back to 1950s when the company sold its first cola drink in London. Now PepsiCo is present in United Kingdom with a diversified work force of 5,000 individuals (PepsiCo 2011). Market Overview PepsiCo operations can be divided into four regions in the world. These four strategic business units are PepsiCo Americas Beverages (PAB), PepsiCo Europe, PepsiCo Asia, Middle East and Africa (AMEA) and PepsiCo Americas Foods. It is evident from the marketing analysis of the company that it offers world’s largest range of brands in food and beverages industry (Yahoo Finance 2011). PepsiCo’s Vision and Mission PepsiCo’s mission statement states that: “Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce 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” (PepsiCo 2011). PepsiCo’s vision statement is as follows: “PepsiCo's responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic - creating a better tomorrow than today” (PepsiCo 2011). PepsiCo’s Stakeholders In UK, beside general stakeholders, which includes the employees, customers and the public, PepsiCo is working side by side with public service organizations and corporations. For example, PepsiCo is providing assistance and financial support to Ethical Corporation Magazine, The Royal Society of Arts, Manufacture and Commerce, Business4Life, and Consensus Action on Salt and Health (PepsiCo 2011). External Environmental Analysis: PEST Analysis Political Factors 1. PepsiCo have to abide by a number of federal laws, which compels it to make sure that the company’s products are produced, distributed and made ready for utilization after certifying that the food and beverage items of the company are not harmful for consumers’ health. These laws include Food, Cosmetic Act, Occupational Safety and Health Acts (Ahuja, et al. 2010). 1. The business of PepsiCo is also restricted by the federal laws in foreign countries, to invest a certain amount in the research and development and improvement of products. 2. Laws also restrict PepsiCo to not purchase or acquire land beyond certain limits. 3. PepsiCo have to acquire the license from respective governments for the acquisition of water resources (PepsiCo 2011). 4. Pepsi is bound to work for the improvement of environment and not practicing any activity that might cause pollution (IVY Thesis 2008). Economical Factors 1. PepsiCo operates in 200 countries and majority of the countries are facing economic downturn and debacles. 1. Prices of raw materials in international markets are increasing day by day, which is resulting in increased operational costs that trigger a hike in prices of PepsiCo’s products. 2. The value chain activities of PepsiCo are also causing huge burdens on finances as the distribution costs are also triggered due to the hike in fuel prices (PepsiCo 2011). 3. Despite of these economic conditions, PepsiCo can seek number of lucrative opportunities in international markets (Marketing Teacher 2011). Social Factors 1. There are societies in some regions of the world who think that carbonated drinks manufacturers are replenishing the water resources. 1. Carbonated drinks are also considered to be hazardous for the health of youngsters therefore the societal structures in most of the regions in which Pepsi operates does not support the utilization of such drinks (IVY Thesis 2008). 2. Pepsi have to implement a solid waste management program in order to create a positive image in the eye of societies (Marketing Teacher 2011). Technological Factors 1. Pepsi is considered to be the pioneers of bottled water and canned and plastic bottled beverages. 2. Pepsi’s bottle designs and food packaging are innovative, stylish and attractive (Marketing Teacher 2011). 3. Pepsi holds state-of-the-art plants having capacity to produce bulk quantity of products with the help of technologically driven machinery and equipments (Yahoo Finance 2011). Internal Environmental Audit: SWOT Analysis Strengths 1. PepsiCo’s major strength is its brand portfolio. Pepsi, the major brand of the company itself is considered to be the most recognized brands in the world and ranks 26th in the global top 100 brands (Yahoo Finance 2011). 1. Presence in over 200 markets globally and capturing around 32% market share of global beverage and food industry. 2. Diversified strategic business units. Including iced tea, juices, carbonated drinks, bottled water, breakfast cereals, cakes, snacks and energy drinks (PepsiCo 2011). 3. Strong distribution mechanism, which makes the products available directly from manufacturing plan to the retail stores (Yahoo Finance 2011). 4. Holds a stronger market position and an outstanding reputation in terms of its financial and social achievements. 5. Strong focuses on promotion and integrated marketing communication that attracts large masses (Yahoo Finance 2011). 6. Lower operational costs as compare to the revenues generated (Dhar, et al. 2005). Weaknesses 1. Heavy dependence on retailers for the promotion of the products. 1. Sales to its major super markets and hypermarkets have been reduced due to the incumbency of these retailers to cope up with the financial crisis (PepsiCo 2011). 2. Over dependence on US markets, where the changing economic conditions has caused a sharp decline in Pepsi’s sales (Yahoo Finance 2011). 3. Damaged corporate image due to the recalling of few faulty products in 2008. 4. In international markets, the operational costs are slightly high which is overshadowing the revenues generated in USA (PepsiCo 2011). 5. Pepsi has somewhat failed to leave an impact on consumers that its products are health friendly (Yahoo Finance 2011). Opportunities 1. To overcome its dependency on US markets only, Pepsi have the potential and rights to expand its product base in foreign markets to generate more revenues (PepsiCo 2011). 1. Pepsi can acquire leading beverages and food manufacturing companies in foreign markets to expand the scope of the business (Yahoo Finance 2011). 2. Pepsi is making huge investments in markets that were never explored by others, i.e. it invested $ 1,000 million in China and $ 500 million in India. 3. The market base for snack and bottled water is increasing globally (PepsiCo 2011). 4. Pepsi can make the non-carbonated segment of its products more profitable by investing in research and development of those products (Yahoo Finance 2011). Threats 1. Pepsi’s sales in carbonated drink segment are declining, and expected to continue the trend by 2.7% reduction by 2012. 2. Government regulations globally for health concerns of their citizens might also put an adverse affect on the sales of Pepsi’s sales of carbonated drinks and snacks (PepsiCo 2011). 3. Coca-Cola, Nestle, Groupe DANONE and Kraft Foods are giving tough competition to PepsiCo in international markets (Yahoo Finance 2011). 4. The economic and recessionary trends globally have put an adverse impact on people’s ability to spend money on carbonated drinks and snacks (PEPSICO 2011). 5. Consumers are now more aware of the adverse effects of utilizing carbonated drinks and snacks on their health. Increasing rates of deaths because of obesity is also becoming a problem for the company (Stepheny 2010). Porter’s Five Forces Analysis The analysis of Michel Porter’s five forces helps to identify and improve the market value of the firm. These five forces would enable the company to have the insight of the competitors, and how the suppliers and rivals would affect the company to establish itself in the UK’s soft drink industry (Hill and Jones 2010). Existing position of Rivals There is intense competition in the soft drink industry of UK. Coca Cola is considered to be the core competitor of the company and is considered as the market leader. The customers in UK especially the elite class are highly brand conscious people. Although these rivals have a market share in the soft drink industry, but PepsiCo have the potential to become one of the most preferred soft drink brand all around the UK. Moreover, there are a number of quality carbonated beverage producers in UK, which provides a saturated market competition environment to the competitors. The presence of Maaza, Healthy People and Milani will provide a tough competition to Tropicana. New Entrants Not only in UK but also all over the world, it is evident that PepsiCo and Coca Cola shares the market position. A number of international soft drink manufacturing companies are entering in the UK’s industry, as a huge potential has been seen in this country, but PepsiCo does not have to take them as a potential threat due to its global presence and established corporate image. Although the machinery and resources required to produce cola drinks and snacks is expensive, but the barriers for new entrants are low. Therefore; there exists a chance that someone with better technology, product and resources might enter into the industry and swap market shares of Tropicana, as well as other brands available in the market. Substitute Products This is the most imperative force that is usually overlooked by the multinationals. While establishing a soft drink business in UK is quite competitive various companies are introducing innovative ways to attract customers within their price range. The switching cost among the soft drink customers in UK is relatively low as the substitutes are present in the form of soda drinks, snacks and food supplements. PepsiCo should provide favorable prices to consumers in UK, and should meet the user’s demands in order to reduce the switching cost. A number of viable substitutes are available to the consumers in market. These substitutes include iced tea, cold coffee, soft drinks or fresh juices. Pricing strategies, marketing strategies and making product widely available will help PepsiCo to counter the adverse impacts of availability of substitute products. Buyer Power It is essential to provide product differentiation in the UK’s soft drink market in order to increase the buying power among its competitors. The customer’s are price sensitive, so it is necessary to provide reasonable prices and diverse collection of products, which would help to attract more customers. The current situation of UK’s soft drink industry shows an impressive growth, which is 17% and is higher than the previous year. The vital reason for this growth is the emergence of number of soft drink manufacturing companies; consumers are willing to spend more on purchasing of soft drinks, juices and snacks. Supplier Power The suppliers of UK’s soft drink industry are enjoying strong power over the customers. They play a vital role in convincing the customers to switch from one brand to another. These suppliers have created brand awareness among the UK’s customers. Majority of the local and international suppliers are targeting the customers by visiting market areas and getting information about products and services from them, which have eventually helped the soft drink manufacturing companies to generate revenues. The key suppliers of soft drink industry in UK are nowadays looking forward of introducing intimate products and services made up of world’s finest ingredients and raw material. Current Strategies of PepsiCo and their Impact on Performance The present form of PepsiCo came into being in 1965, when snack giant, Frito-Lay joined hands with Pepsi-Cola and started producing a range of cola drinks and snacks. The corporate structure of PepsiCo expanded as a result of increased sales and popularity of the dink in other regions of the world. Up to this date, PepsiCo generates around $ 60 billion a year, out of which, beverages generate 51% revenues and 49% are generated by the sales of snacks. The company has a diversified work force of around 300,000 employees and operates in 175 countries on the map. All these achievements have been the resultant of set of strategies implemented by the management of the company. While exploring new avenues to expand the business and returns, PepsiCo keeps firm control on existing markets and penetrate further with the help of efficient marketing mix and effective utilization of available resources (PepsiCo 2011). In the marketplace, PepsiCo’s only close rival is Coca-Cola, yet it has been declared as the most dominant organization to keep a firm hold on its market share and keep on attracting more and more consumers. The diversified workforce of 300,000 employees is responsible to cater markets’ needs by producing, distributing and promoting PepsiCo’s products. As a classic cola producer, Pepsi believes on focusing the younger generation and supplement the product line by producing products that have the ability to attract other demographic segments of the market. This is the reason that the company has managed to generate $ 60 billion annually by catering the needs and wants of a customer base of around 100 billion individuals (PepsiCo 2011). The five forces analysis of PepsiCo in UK reveals that there are still opportunities for the company to further strengthen its roots in the saturated environment of soft drink industry of the country. For example, PepsiCo can develop new products to tap new and unique segments of the market and increase its customer base. Changes in favor of customers, in its pricing strategies would further increase the number of customers and profits due to increased demand and production of products at economies of scales. Moreover, Proposed Strategies Cost Leader VS Differentiation (Change at Business Level Strategies) Cost leadership allows an organization to become a price setter in the market. Usually organizations win this place by minimizing the costs involved in producing goods and services, and than shifting the advantages of minimized cost of production to the customers, by offering products at lower costs as compare to competitors. On the other hand, differentiation allows an organization to bring slight changes in its operational activities or products and services in order to attract more customers and providing innovative products to the existing customers. Keeping in view the opportunities available to PepsiCo in UK, creating difference between the products of their own with the products offered by rivals such as Coca-Cola, Pepsi can make fortune in the markets in which it is already present. It can simple be done by introducing new flavors in cola drinks like carbonated and fizzy drinks with strawberry or lime flavor. Moreover, Pepsi can also integrate further in the distribution network and setup cafes and KIOSKS, where Pepsi’s beverages and snacks are served to the customers. Therefore, it is recommended that Pepsi focuses on differentiation strategy. ANSOFF Matrix (Change in Corporate Level Strategy) In this section of the report, marketing mix strategies adapted by PepsiCo to flourish in the soft drink market of UK is provided. The Ansoff Growth Matrix helps organizations to make vital decisions regarding their products and market growth strategies. Ansoff’s matrix suggests that the growth of the organization depends upon the products that are being offered, i.e. new or existing products in market places, no matter a new or existing market. Based on the analysis of this matrix, it is imperative that the market opportunities in UK provides fair chances to PepsiCo to further develop new products and market places in order to maximize the returns. Following marketing mix is presented in this regard, in which all four Ps of marketing helps Pepsi to develop business and broaden the scope of the organization. Pricing Strategy Based on the competitive environment of soft drink industry in UK which provides numerous chances to competitors to have slight edge over their competitors, lowering the prices and providing discounts entails greater opportunities for the company. PepsiCo conducts its business activities in an industry, where customers are highly-price-sensitive due to the reason that there exist a number of substitutes to what PepsiCo offers (Paley 2005). Therefore; it is necessary for Pepsi to adapt a suitable pricing strategy that helps it to retain customer base and attract new customers. In such scenario, value addition becomes important, which requires Pepsi to offer quality soft drinks, snacks, food supplements and juices, made from quality raw material (Lynch 2008). But before adapting any pricing strategy, Pepsi is advised to adapt penetration strategy, which would help to build confidence in the market place and capture market share by attracting more customers (Ferrell and Michael 2008). The implementation of revised pricing strategies would help the company to penetrate further in the market, develop and innovate new products. Placing Strategy As Porter’s five forces analysis shows that the intensity of competition is expected to increase, PepsiCo should strive for making its product available at every possible meeting point with the customers. PepsiCo’s products are considered to be lying in the bracket of fast moving consumer good, so the products should be made available at most of the shopping malls, restaurants, highways and residential blocks, by PepsiCo. For consumption at retail outlets, stop and shops, canteens, hotels, restaurants, clubs, casinos and other places where customers have regular interaction with the product (Kaynak 1993). Promotional Strategy The most appropriate alteration in marketing strategy is to revitalize the marketing communication methodologies (Hauser and Steven 1983). As majority of the customers of PepsiCo are expected to belong to younger generation, it is necessary to design marketing strategies that are colorful and funky. Online marketing and personal selling will be the most suitable strategies to be proposed to PepsiCo (Kotler 2009). Online marketing has emerged as the most efficient source of promoting products. People are now using Internet more, which requires a brand to vigorously promote its offerings to the customers. It also provides the benefits in the form of enabling marketers to customize marketing messages whenever and wherever they want (McDaniel and Roger 1998). The implication of new promotional strategies would help PepsiCo to develop new markets and penetrate into market by further diversification in the products offered to the customers as prescribed in Ansoff’s Matrix. To further explain the implementation of Ansoff’s business matrix for bringing changes in Pepsi’s strategic management, a diagram is provided as: Supply Chain Management Keeping in view the changing market trend and demand from the consumers’ side identified in Porter’s five forces analysis, Pepsi need to raise the efficiency level of each member of the supply chain. The proposed supply chain framework for PepsiCo in UK entails that the company should acquire best possible raw material from nearly located farms and factories in UK and from international vendors who have good reputation. This raw material will be moved to the factory where the quality material will be picked by workers to put it in production process according to the instructions (Jespersen and Larsen 2005). Distributors will take the products and deliver them to the above mentioned placement points. Distributors will also be responsible to handle the online orders. The stock information resource will handle the flow of data regarding the products available, what products are need to be manufactured and predict the most demanded products (Blanchard 2007). Conclusion This report overviewed the strategic position of global soft drink leader, i.e. PepsiCo along with the strategic options that are available for the company to avail, in order to succeed in the highly diversified soft drink market of UK. Moreover, a set of recommendations is also presented for controlling and management of the operations. To conclude the report, it is imperative that the extensive research work would facilitate the management of PepsiCo to understand the consumer dynamics and market conditions in the country. List of References Ahuja, A. et al., 2010. SWOT and PEST Analysis of Pepsi. [Online] Available at: [Accessed 14 February 2012]. Ansoff, H. Igor. 2007. Strategic Management. New York: Palgrave MacMillan. Blanchard, D., 2007. Chain Management: best practices. NJ: John Wiley and Sons, Inc. Dhar, T., Chavas, J., Cotterill, R. and Gould, B., 2005. An economic analysis of brand-level strategic pricing between Coca-Cola and PepsiCo. Journal of Economics and Management Strategy, 14(4), pp.905-31. Ferrell, O. and Michael, H., 2008. Marketing Strategy. OH: Cengage Learning. Hauser, J. and Steven, S., 1983. Defensive Marketing Strategies. Marketing Science, 2(4), pp.319-60. Hill, C. and Jones, G., 2010. Strategic Management Theory: An Integrated Approach. NY: Cengage Learning. IVY Thesis, 2008. 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