How Pepsi Is Involved with Marketing Environment, Marketing Mix - Case Study Example

A THOROUGH RESEARCH OF PEPSI WITH EXAMPLES OF HOW PEPSI IS INVOLVED WITH MARKETING ENVIRONMENT, MARKETING MIX, AND COMPETITIVE ADVANTAGE By Name Name of the Class Name of the Professor Name of the School City, State 15 September 2014 Executive Summary Pepsi products are produced by PepsiCo Company, which began from humble backgrounds with a refreshing Brad’s drink. Pepsi has managed to curve a niche for itself in the larger global market, emerging as the second best ranking company after Coca Cola. Pepsi comes with a variety of products suitable for consumer’s lifestyle, taste, and health reason. The marketing environment is composed of competitive forces, supply chain and customer base and is affected by macro forces like legal and cultural issues. Market segmentation is based on geographic, demographic, behavioural and psychographic factors. The target market focuses on general consumers with a bias on the young generation and young adults and uses age differences to position itself in the target and general market. PepsiCo controls products, promotions, placement and price to market Pepsi. Coca cola Company, the producer of coke soda is the most direct competitor of Pepsi. Pepsi seeks to successfully compete effectively through relatively lower prices, expanded distribution channels, promotional strategy via campaigns and advertisements, product innovation and further innovation to increase consumer numbers profit margins. Contents Contents 2 1. Introduction to Pepsi The Pepsi product has a long history in the American beverage sector. Pepsi, a soft carbonated drink, is produced by PepsiCo Company. It is a company that has curved its niche in the American market and around the globe, but has diversified into other food items. Pepsi began in North Carolina as Brad’s drink, which was a name after its inventor, Caleb Bradham, but later took Pepsi Cola as its trade name and was awarded the patent in 1903 (PepsiCo, 2005). Mr. Bradham was a pharmacist and had developed Pepsi brand from his own backyard, primarily targeting a small customer base into what came to be one the strongest franchise systems in the USA. Pepsin and cola nuts were remarkably the major components of his product in the syrup mixed with sugar. Bradham’s business grew across many states which embraced the drink as the advertising slogan then firmly sensitized the society of Pepsi Cola drink. Due to the worsening economic conditions during and after WWWI, Bradham’s business had sunk into bankruptcy, primarily caused by sugar pricings. By the 1930s, Pepsi Cola Company had been resold twice, but when it was acquired by Loft Corporation, its sales and production exceeded candy manufacturing that the owner changed the name Loft to Pepsi-Cola Company (PepsiCo, 2005). The company did since expand into Canada, Latin America, Europe and rest of the world. Pepsi drinks come in varieties today to fit the wide range of customer bases across the world. PepsiCo has not only regular Pepsi soda, but also produces Diet Pepsi and recently Pepsi true which is a low calorie drink. This follows the growing concern over high sugar content in soft drinks and manufactured beverages that are unhealthy for the global society. PepsiCo has always embraced innovation for its Pepsi brand to satisfy its customers in the competitive market. Today, consumers have a variety of Pepsi Cola such as diet Pepsi with half calories cola, Pepsi Max with zero sugar cola, Pepsi Twist with lemon flavour, Pepsi Max Ole without sugar but citrus flavour, and Pepsi Light with less caffeine and calorie (PEPSICO-IVI, 2014). Pepsi product has since been innovated, introducing new flavours of its carbonated drinks and seeking alternative Pepsi products that address the market needs. 2. The marketing environment of Pepsi Pepsi products are competitively marketed items in the soft drink industry, which entails non-alcoholic beverages. The soft drink industry has since the mid of the 20th century become a competitive field as leading marketing players emerged strongly. 2.1Competitors in the industry Pepsi drinks compete in the large global market beyond its greater US market. According to Changelab Solutions, PepsiCo products face stiff competition from dominant producing and marketing leaders, especially Coca Cola and Dr Pepper Snapple Group, where all three obtained a 66 percent of the market share in the industry in 2010 (26.8, 28.6 and 8.6 percent, respectively) (2012). There are other competitors like Nestles, Red bull and Suntory among others that have minimal global reach. All these competitors are well established operating as single entities and members of alliances to market their products globally. They have manufacturing plants in diverse regions and have opened tens of branches and distribution points across continents to access their customer base. It is evident Pepsi products compete both with local and international soft drinks from notable companies brands. 2.2Supply Chain The production and consumer accessibility of Pepsi drinks involves numerous players and partners from the suppliers end. PepsiCo relies on the syrup producers, which is the core ingredient in CSD or non CSD. PepsiCo has hundreds of suppliers for their raw materials (carbonation, water, sugar, syrup, plastic and equipment among others) across the continents to facilitate swift and smooth production. After mixing of the syrups and distinguishing the diet beverages, bottler companies which put sweeteners, still or carbonated water among other ingredients to make the final product are involved. These could be PepsiCo owned or licensed bottler companies. Bottlers either sell directly to merchants where the retail and end consumers can access or distributors come in as intermediaries to the merchant. Distributors may involve repackaging of the final products for marketing purposes in particular regions. 2.3Customer base There are potential consumers of the Pepsi drinks across the US and the globe, who have been known to comprise of the younger generations. From the past, the product has remained attractive to most youths and the early adult age group, which is evident from such slogans as “choice for new generation, Pepsi for those who think young,” (Muzumdar, 2014, p.1). Apparently, these are the most active and consuming groups in the society who look for products that resonate with their age group and characters. However, Pepsi makes consideration for health concerns to produce low calorie, sports and high energy drinks, allowing the diverse consumer group to make informed choices of the products. Coca cola is the greatest rival company marketing to this vibrant age group. 2.4 Issues with cultural preferences and legal policies Considering that customer tastes vary across continents, PepsiCo operates in international environments where certain respective customer bases within regions opt for home customized products. Since the market is competitive, consumers look for products they are oriented to, some preferring use of local ingredients in the product or seeking a personalized drinks or products that are in line with their culture. Pepsi drinks have made attempts to address the cultural concern through customization of products as packaging to target markets. However, there is much PepsiCo needs to improve to stay competitive. Pepsi drinks operate in food sectors regulated by food and beverage policies which PepsiCo needs to abide to for health purposes of the consumers in respective countries. 3. Segmentation, targeting and positioning 3.1Market segmentation and targeting for Pepsi at the international level Geographically, PepsiCo has divided its market based on global regional areas to reach out to its consumers. Pepsi has wide market reach in its original homeland (USA), Latin America, Canada, Europe and AMEA regions. AMEA entails Asia, Middle East and African markets. From these are specific countries like Pakistan in Asia, South Africa and Kenya in Africa and major urban locations in the specific countries where Pepsi is licensed to sell. By such segmentation, it markets to the hot and dry regions and takes advantage of the summer period across the segmented market to sell its range of Pepsi drinks. PepsiCo has vivid demographic market segmentation across the world that most can claim to concentrate on the younger age group. The Pepsi products are created with either a general or specific preference group. Analysing markets by age, younger generations strive to stay healthy, energetic and lively, which are majority targets when Pepsi produces sports energy drinks, Pepsi light, blue and Pepsi flavours. It accesses the hubs in colleges, universities and recreational centres where the population is greater in number. Pepsi drinks come in a variety of sizes suitable for single intake and family consumption. Across the market, there are outsized packages of 1 to 2 litres appropriate and economical for consuming families with more members. PepsiCo also employs behavioural market segmentation where it distinguishes it market based on customer responses and actual behaviour towards Pepsi products. First are establishments of customer loyalty where specific events prefer Pepsi drinks over other brands. PepsiCo also considers heavy and middle users periods like the summer, locations and events. It also segments the market based on consumers’ readiness to buy by marketing Pepsi to concerts, weddings and other ceremonies and to those who look for taste and quality benefits, especially in higher learning institutions and sports events. The last is the psychographic segmentation where PepsiCo markets Pepsi to consumers of diverse affinity and purchasing power based on their income and social class. Michman and Mazze emphasize on PepsiCo use of psychographic segmentation by “targeting young and consumers with a certain lifestyle and attitude towards life” (1998, p. 227). Today, you find Pepsi in African countries characterized by low income earners, in Asia and Latin America which are middle income and emerging nations, and also in North America and Europe, where member nations are high income earners. 3.2Basis of competition Pricing: PepsiCo normally adjusts prices for Pepsi products based on competition in the market. It’s critical in attracting a consumption market, where strong local brands and leading global rivals have already penetrated. Product variety: Pepsi provides a range of alternative innovative products for the consumers’ tastes and preferences, which other rivals products have not matched up with. Quality: Emphasis also lays in products’ quality, which reflects on their originality and differentiated brand that pulls consumers. Distribution: Pepsi seeks to enhance its reach to the wider consumer markets across the globe. Through the flexibility of distribution channels, Pepsi products will be readily available to consumers not only in urban areas, but potential populated rural regions. Distribution and availability of rival coke products is what has contributed to its dominance in the industry. 3.3Competitive advantages of Pepsi PepsiCo brand: The Company has a suitable developed reputation since the mid-20th century, which has been maintained and spread internationally. Most consumers would want to be associated with PepsiCo brand, hence facilitate sales of Pepsi products through the pull demand. Product differentiation: PepsiCo has invested in innovation of its Pepsi brand to create products of unique value to its customers in the market. Through differentiation enabled by technological advancement, consumers acquire a desired taste and feel they cannot access elsewhere, while Pepsi manages to achieve a competitive edge in its target market. Product’s cost: Pepsi products can compete intensively with competitive soft drinks by using a cost competitive advantage to create maximum value to consumers. By minimizing prices slightly than competitors at intervals without compromising quality of Pepsi drinks, this can create a pull demand of products by more consumers. Customer base loyalty: PepsiCo has an established target market concentrated on the young generation among others. By Pepsi products offering an appeal different from competitors, more sales can be achieved. 3.4Pepsi positioning in the market The first opportunity Pepsi has is to come out to the global market and inform the general society on the origin and evolution of Pepsi drink. According to Wong et al., “PepsiCo is using brand portfolio strategy to achieve synergistic benefit through economies of scope and market power, where the product Pepsi is categorized under the Fun-for-You brands portfolio which cater to global and regional flavors” (2014, p.6).This positions Pepsi as a competitive and alternative refreshment in the beverage and specifically soft drink industry suitable for consumptions. Using tailored advertisements that link Pepsi to the broader society, it assists to capture the attention of the greater population in the globe or per continent. Pepsi also seeks to position itself through targeted marketing. For example, to the young generation, Pepsi can manage to attract potential consumers through lively marketing campaigns associated with the energetic youths. Pepsi uses brand positioning as its point of differentiation from other competitors. It has acquired great reputation and is well accepted as one of the best quality drinks across the world. Pepsi also differentiates itself as a drink for people with forward thinking attitudes, hence capturing the majority who are in the less than 35 years age group and anyone old seeking a youthful appeal or to be part of the action oriented altitude. Pepsi also positions itself in the market based on the variety of products it provides that fit the consumers’ lifestyles. 4. Marketing mix PepsiCo like any other competitive businesses relies on the marking mix elements (product, pricing, place and promotion) in order to create value both as returns and to the customers it can control to achieve the desired success. The strategy implemented through manipulation of these elements can either cause its success or poor performance in the soft drink market. 4.1Pepsi product Pepsi product is at the core of the PepsiCo Company. Depending on the market fluctuation at intervals, it’s the production of Pepsi product that is adjusted to control stock and the product’s movement across the regional markets. Pepsi is in the modern markets produced in high volume due to increased demand to target markets. It is often controlled during summer and winter regions depending with a locations’ seasonality ensuring that PepsiCo’s revenues are not held in stock when products massively slow down. Pepsi is marketed as a globally high quality soda beverage. It is carbonated and consumable by both adults and children, and offered in the market to satisfy consumers’ needs. Pepsi product is available in the market under different sub-brands like Miranda, Fountain dew, 7up and Pepsi max. PepsiCo invests heavily in launching and marketing of innovative products that meet consumers’ needs. Muzumdar describes “Pepsi to offers caffeine free Pepsi and diet Pepsi for healthier choices, and also have many different flavours such as original, vanilla, lime, cherry, or mango allowing consumers to enjoy Pepsi with different flavour” (2014, p. 3). 4.2Pepsi promotions Pepsi products have performed well before because of the company’s core promotion strategy in both low and high performance market segments. PepsiCo has learned to use tactical and sensitive promotion methods for its brand, ranging from massive investment in advertisements to campaigns. PepsiCo has flourished through advertisement slogans that have been used since the mid-20th century, enabling it to attract a large portion of young people and likeminded consumers to purchase the product. By monitoring and analysing the target market behaviour, PepsiCo gets to understand where its customer loyalty lies, what drives people in the market to use Pepsi products and what they can do to push the product further to the market. Celebrity as endorsers and spokesmen The young generation market is associated with the music culture because majority of youths are crazy with performing arts, which form part of their daily activities. Pepsi needs to continue utilizing celebrity endorsements of Pepsi products because it has often translated to increased sales in strategized markets. From an early Pepsi Cola commercial of 1980s, the likes of Billie Jean and late Michael Jackson among other celebrities did endorse Pepsi in one of the greatest campaigns of the time that merged entertainment and Pepsi business (PepsiCo, 2005). Pepsi can hire classic and modern celebrities who connect with the older and young generation to Pepsi sponsored musical concerts, and country tours and road shows to endorse the Pepsi brand across. Events sponsorship Pepsi’s association with big events, clubs and sports inculcates huge consumer purchases, taking advantage of the wide population consisting of heavy users and introducing it to first time and potential users. Pepsi can sponsor existing games and emerging promising players and games. PepsiCo can also use celebrities as spokesmen, actors and testimonials to represent Pepsi brand in personal appearance on media and events, to present Pepsi drinks as part of their character enactment, and attest to the quality of Pepsi product citing its benefits upon consumption, respectively (Khatri, 2006). Direct sales promotions Pepsi can continually create advertisement slogans that standout among competitors and that connect with the consumers so that they act like the brand and own it. Use of official or local country language and creative expressions draws consumers due to the personalization of the product. There are also sales promotions steered with repackaging of Pepsi drinks in newly sized litre bottles. It entails lowered prices for large size purchases and acquisition of free Pepsi drinks where one purchases specific litres of Pepsi products. 4.3Placement of Pepsi Pepsi epitomizes use of loyal bottler companies and distributors for successful Pepsi availability in the market. Without sufficient distribution channels of Pepsi products, movement of products is slowed down. Once Pepsi is out of manufacturing, bottling companies perform the final mixing, pack Pepsi drinks in required cans and bottles and distributes them. Bottles are either owned by PepsiCo, joint ventures or separate entities hired by PepsiCo to finish and distribute the products. Pepsi products are stocked in warehouses, where either foreign or company owned distributors ship the products to the retail level. Unlike direct distribution channels, where PepsiCo uses its vehicles to distribute Pepsi from warehouses after bottling directly to retailers, indirect distribution involves distributing companies, agency holders and wholesales as intermediaries to the retail customer. Pepsi is distributed to restaurants, gas stations, malls, further warehouses for closer restocking and grocery shops where consumers have fast access. 4.4 Pricing Pepsi Pepsi is a mature brand in the global market capable of competing effectively through price strategy. Pepsi products have struggled before to improve sales and attract consumers in the last century. Pricing and amount of drinks offered were the major factors adjusted to bring PepsiCo running and profitable. Due to the fierce competition in the market, Pepsi sets its products prices lower, but closely related to its rival products. The risk involved is that too low prices can be interpreted as low quality products, while high costs tend to scare consumers away to Pepsi rival products. Pepsi seeks to obtain maximum value from its pricing strategy set based on public demand of Pepsi products, with the target market, competitor and location in mind. Price charges vary for individual countries Pepsi operates in, considering the respective currency used. This is the product price discrimination that ensures the product’s affordability to the local resident of a region. The company sets reasonable prices for the target consumer market, which is also differentiated across the range of bottle sizes. For example, a 2 litre Pepsi soda costs on average $1.3 in the USA, while it goes for Rs. 120. Below is a price structure of Pepsi products in Pakistan: Bottles Rupees Regular bottle rupees 18   Non-Returnable/disposable rupees 45   Liter Bottle rupees 70   1.5 Liter Bottle rupees 90   2 Liter Bottle rupees 105 (Khan, n.d, p.7). In addition, Pepsi has learnt to employ discount items to indirectly discriminate on prices, which aggressively boosts sales through customer attraction. Pepsi has improved customer relations with its loyal customers through use of discounts for high sales of Pepsi products on the retail level. Examples are use of snack and specified packages for 330 ml Pepsi drinks as discounts, which come as special offers during campaign periods or high demand seasons. By use of recyclable plastic bottles, Pepsi prices have been kept relatively low while also ensuring environmental sustainability. 5. Competitor analysis Coca cola is known to be the most direct competitive company for PepsiCo. Comparing their products and the business operations, the two demonstrate close resemblance but make distinguished points of differentiation. One, Coke from Coca Cola has the largest market share of CSD in the USA and commands a wider global presence than Pepsi (Muzumdar, 2014). It has grown smoothly spreading into most economies and into the rural areas of both developed and Least Developed Countries (LDC). This results from its extensive investment in bottling companies, owned and joint distributors (limited in PepsiCo), which enhance product convenience to the high proportion of retail consumers. Second, despite the existing power struggle between Coke and Pepsi, Deichert et al., state that both “have begun relying on new product flavors and looking to noncarbonated beverages for growth” (2006, p.1). Just like Pepsi, it has A variety OF products like diet coke and coke zero laying emphasis on health concerns. Coke does attract a cross range of consumers both youths and older adults and has continuously outsmarted its competitors through promotional sponsorship of football games creating a name for itself in Latin America, USA and Africa among others. It sells at affordable prices relatively similar to those of Pepsi and has worked tirelessly to build and market its brand. The emerging trend for consumers searching non-CSD exposes weaknesses in Coca Cola’s Coke soda. Heavy reliance on high performing carbonate drinks to generate sales volumes could be heavily affected were its loyal customers’ taste to change to non-CSD and sugar free. The company has hundreds of products, but very few are known and accessible to the global market. Most criticism for Coke product is based on health concerns, specifically over its effects on consumers’ teeth and nutritional value. Coca Cola Company suffers from negative publicity in consumption of scarce resources like water and energy, threatened by water scarcity and legal requirements, lawsuits and high competition. Though it still collects the largest revenue share in the soft drink industry, a poor marketing strategy can trigger decline in sales, which translates increases for Pepsi products. 6. Competitive advantage PepsiCo needs to enhance and improve its placement in continents like Africa that have not enjoyed Pepsi’s accessibility in the interiors. Most potential consumers in the rural areas of developing countries continue to only access Coca Cola products because of the widespread branches, warehouses, distribution points and established merchants whom all enable quicker and grassroots reach of the company’s product. Pepsi products can improve products availability through better control of bottlers and diverse distribution channels through a push marketing of the product into previously unreached areas. Promotion of Pepsi products is very critical in the modern age. With the advanced technology, Pepsi will continue to market online and through social networks to develop the desired effects and sell its brand. Adverts will not only be limited to TV, Radios, internet, but extent to road shows, events and sports sponsorship, corporate social responsibility and valuable partnerships with communities and organizations. Pepsi will support progressive innovation of a variety of drinks to further differentiate its brand and stay abreast and in line with the cultures to capture consumers’ needs. From this, it can be the first to reap benefits for producing desired taste, look and feel products for consumers before other competitors catch up. Pepsi has however continued to keep prices low, but can use discount strategy for entrants into new markets. 7. Recommendations and conclusion 7.1 PepsiCo needs to invest further and expand its distribution channels to ensure Pepsi is accessible by even by those in the grass root levels. 7.2 Own and ensure greater control of the bottler companies to support expansive PepsiCo managed distribution. 7.3 Pepsi needs to continuously innovate products that create more customer appeal and widely promote its brand especially in developing countries. 7.4 Pepsi needs to shift from CSD to non-CSD Pepsi product has been in the market for over a hundred years since its creation. At such a moment when the products sales are the best in PepsiCo Company, the product has achieved maturation, yet has not captured its competitor’s market share. Both Pepsi and Coke share diverse similarities in pricing range, target markets, have strong marketing teams and skill, which facilitates their good performances in the global market. Pepsi has however a long way to to go catch up with Coke product. It has to strategically rely on its marketing mix and further differentiate the product and counter competitors’ posed threats, while taking advantage of existing opportunities. References Changelab Solutions, 2012. Breaking Down the Chain: A Guide to the Soft Drink Industry. [pdf] Available at :< http://changelabsolutions.org/sites/default/files/ChangeLab-Beverage_Industry_Report-FINAL_%28CLS-20120530%29_201109.pdf> [Accessed 2 April 2015]. Deichert, M., Ellenbecker, M., Klehr, E.,Pesarchick, L. and Ziegler, K., 2006. Industry Analysis: Soft Drink. [online] Available at :< http:// www.csbsju.edu/documents/.../zeigler_paper.pd...> [Accessed 2 April 2015]. Khan, A., n.d. Pepsi Marketing Report. 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