Bsiness Strategy of Pepsico
PROJECT REPORT FOR BUSINESS STRATEGY-1 EVOLUTION OF BUSINESS STRATEGIES AT PEPSICO Submitted to:Submitted By: Prof. Sanjany SharanPrashant Sharma Parul Kapoor Mohit Madan Prerna Gupta Murali Krishna (Section-A) (Group – 10) ACKNOWLEDGEMENT We take this opportunity to express our gratitude towards Mr. Sanjay Sharan, Department of Marketing, IBS, Hyderabad. We are indebted to him for the expertise and invaluable guidance we have received while working on this project. Contents Introduction ………………………………………………………………………………. PESTEL Analysis …………………………………………………………………………..
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6 SWOT Analysis……………………………………………………………………………10 PORTER Analysis…………………………………………………………………………. 14 4P @ Pepsi …………………………………………………………………………………. 18 Competitive Strategy………………………………………………………………….. 20 Recommendations………………………………………………………………………25 New Product Launch………………………………………………………………….. 27 Advertisement Strategy………………………………………………………………34 Market Diversification Strategy………………………………………………….. 36 HR Strategy…………………………………………………………………………………39 Bottling Strategy…………………………………………………………………………45
INTRODUCTION OF PEPSICO Pepsi is one of the most well-known brands in the world today available in over 160 countries. The company has an extremely positive outlook for India. This reflects that India holds a central position in Pepsi’s corporate strategy. India is a key market for Pepsi co, and at the same time the company has added value to Indian agriculture and industry. PepsiCo entered India in 1989 and is concentrating in three focus areas – Soft drink concentrate, snack foods and vegetable and food processing.
Faced with the existing policy framework at the time, the company entered the Indian market through a joint venture with Volta’s and Punjab Agro Industries. With the introduction of the liberalization policies since 1991, Pepsi took complete control of its operations. The government has approved more than US$ 400 million worth of investments of which over US$ 330 million have already flown in. One of PepsiCo’s key strategies was to develop a completely local management team.
Pepsi has 19 company owned factories while their Indian bottling partners own 21. The company has set up 8 Greenfield sites in backward regions of different states. PepsiCo intends to expand its operations and is planning an investment of approximately US$ 150 million in the next two-three years. PESTEL ANALYSIS PESTLE analysis stands for “Political, Economic, Social, Technological, Legal and Environmental/Ecological analysis” and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management.
It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. PESTEL ANALYSIS FOR SOFT DRINK INDUSTRY Political – * Non-alcoholic beverages fall within the food category under the FDA. The government plays a role within the operation of manufacturing these products n terms of regulations. * There are potential fines set by the government on companies if they do not meet a standard of laws. * The following are some of the factors that could cause Pepsi’s actual results to differ materially from the expected results described in their underlying company’s forward statement:- * Changes in laws and regulations, including changes in accounting standards, taxation requirements, (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign jurisdictions. Changes in the non-alcoholic business environment. These include, without limitation, competitive product and pricing pressures and their ability to gain or maintain share of sales in the global market as a result of action by competitors. * Political conditions, especially in international markets, including civil unrest, government changes and restrictions on the ability to transfer capital across borders. Their ability to penetrate developing and emerging markets, which also depends on economic and political conditions, and how well they are able to acquire or form strategic business alliances with local bottlers and make necessary infrastructure enhancements to production facilities, distribution networks, sales equipment and technology Economic- * The companies are subject to the harvest of the raw material that they use in their snack foods, soft drink and juice, like corn, oranges, grapefruit, vegetables, potatoes, etc. Because of they rely on trucks to move and distribute many of their products, fuel is also an important subject, so they are subject to the fuel price fluctuation, and to possible fuel crisis. * Operating in International Markets involves exposure to volatile movements in foreign exchange rates. The economic impact of foreign exchange rates movements on them is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. * PepsiCo is also subject to other economic factors like money supply, energy availability and cost, business cycles, etc.
Sociocultural influences: – * PepsiCo and moreover Pepsi is subject to the lifestyle changes, because of it bases her advertising campaigns in a concrete kind of people with an special lifestyle, it is for that PepsiCo has to pay a special attention on the lifestyle changes. * Particularly in the United States Pepsi drinkers are very defined, there is a kind of people who drinks Pepsi another kind who drinks Coca-Cola, it is for that they have to pay attention to the social mobility for not losing a possible market. Taking into account that PepsiCo is trying to introduce itself in underdeveloped markets, they have to be careful with the possible problems with the governments of this countries, and with the problems could rise from PepsiCo act with the people of this countries. Technological – * PepsiCo is subject to new techniques of manufacturing, for their three business sectors, snack food, juices and soft drinks. * It has to pay attention to the new distribution techniques. – And they have to fix their attention in the competence developed, to know about the new products. Even though, we have to take into account that specialized factors involve a heavy and sustained investment, we have to know that if we are able to achieve them, we could generate a competitive advantage. * Some of the factor conditions PepsiCo has to take into account, in each country where they want to introduce are – Unemployment. – Interest rate. (Short term, long term). – Labour legislation. Environment Aspect: * There are many aspects when it comes to the environmental concerns. * For Example the presence of Pesticides in the Pepsi content causes health hazards. Also the wastes generated in the manufacturing of Pepsi are left out without treatment which causes hazardous effects to the surrounding and the water table. * The plastic used for bottling is harmful for the environment. Moreover, the waste generated by the industries producing soft drinks also affects the environment. Legal Aspect: * The production distribution and use of many of PepsiCo product are subject to various federal laws, such as the Food, Drug and Cosmetic Act, the Occupational Safety and Health Act ad the Americans with Disabilities. * The businesses are also subject to state, local and foreign laws. The international businesses are subject to the Government stability in the countries where PepsiCo is trying get into (underdeveloped markets). * The federal, state, local and foreign environmental laws and regulations. * The businesses are also subject to de taxation policy in each country they are operating. * They also have to comply with federal, state, local and foreign environmental laws and regulations SWOT ANALYSIS It is the study of factors that affects the organization or the industry in both positive and negative ways. Strength: Strength is defined as any internal asset, technology, motivation, finance, business links, etc. hat can help to exploit opportunities and to fight off threats. Weakness: It is an internal condition which hampers the competitive position or exploitation of opportunities. Opportunity: It is any external circumstance or characteristic which favours the demand of the system or where the system is enjoying a competitive advantage. Threat: It is a challenge of an unfavourable trend or of any external circumstance which will unfavourably influence the position of the system. SWOT ANALYSIS PEPSICO Strengths Branding – One of PepsiCo’s top brands is of course Pepsi, one of the most recognized brands of the world, ranked according to Interbrand.
As of 2008 it ranked 26th amongst top 100 global brands. Pepsi generates more than $15,000 million of annual sales. Pepsi is joined in broad recognition by such PepsiCo brands as Diet Pepsi, Gatorade Mountain Dew, Thirst Quencher, Lay’s Potato Chips, Lipton Teas (PepsiCo/Unilever Partnership), Tropicana Beverages, Fritos Corn, Tostitos Tortilla Chips, Doritos Tortilla Chips, Aquafina Bottled Water, Cheetos Cheese Flavoured Snacks, Quaker Foods and Snacks, Ruffles Potato Chips, Mirinda, Tostitos Tortilla Chips, and Sierra Mist.
The strength of these brands is evident in PepsiCo’s presence in over 200 countries. The company has the largest market share in the US beverage at 39%, and snack food market at 25%. Such brand dominance insures loyalty and repetitive sales which contributes to over $15 million in annual sales for the company Diversification – PepsiCo’s diversification is obvious in that the fact that each of its top 18 brands generates annual sales of over $1,000 million. PepsiCo’s arsenal also includes ready-to-drink teas, juice drinks, bottled water, as well as breakfast cereals, cakes and cake mixes.
This broad product base plus a multi-channel distribution system serve to help insulate PepsiCo from shifting business climates. Distribution – The company delivers its products directly from manufacturing plants and warehouses to customer warehouses and retail stores. This is part of a three pronged approach which also includes employees making direct store deliveries of snacks and beverages and the use of third party distribution services. Weaknesses Overdependence on Wal-Mart – Sales to Wal-Mart represent approximately 12% of PepsiCo’s total net revenue.
Wal-Mart is PepsiCo’s largest customer. As a result PepsiCo’s fortunes are influenced by the business strategy of Wal-Mart specifically its emphasis on private-label sales which produce a higher profit margin than national brands. Wal-Mart’s low price themes put pressure on PepsiCo to hold down prices. Overdependence on US Markets – Despite its international presence, 52% of its revenues originate in the US. This concentration does leave PepsiCo somewhat vulnerable to the impact of changing economic conditions, and labour strikes.
Large US customers could exploit PepsiCo’s lack of bargaining power and negatively impact its revenues. Low Productivity – In 2008 PepsiCo had approximately 198,000 employees. Its revenue per employee was $219,439, which was lower than its competitors. This may indicate comparatively low productivity on the part of PepsiCo employees. Image Damage Due to Product Recall – Recently (2008) salmonella contamination forced PepsiCo to pull Aunt Jemima pancake and waffle mix from retail shelves. This followed incidents of exploding Diet Pepsi cans in 2007.
Such occurrences damage company image and reduce consumer confidence in PepsiCo products. Opportunities Broadening of Product Base – PepsiCo is seeking to address one of its potential weaknesses; dependency on US markets by acquiring Russia’s leading Juice Company, Lebedyansky, and V Wwater in the United Kingdom. It continues to broaden its product base by introducing TrueNorth Nut Snacks and increasing its Lipton Tea venture with Unilever. These recent initiatives will enable PepsiCo to adjust to the changing lifestyles of its consumers.
International Expansion – PepsiCo is in the midst of making a $1, 000 million investment in China, and a $500 million investment in India. Both initiatives are part of its expansion into international markets and a lessening of its dependence on US sales. In addition the company plans on major capital initiatives in Brazil and Mexico. Growing Savory Snack and Bottled Water market in US – PepsiCo is positioned well to capitalize on the growing bottle water market which is projected to be worth over $24 million by 2012.
Products such as Aquafina, and Propel are well established products and in a position to ride the upward crest. PepsiCo products such as, Doritos tortilla chips, Cheetos cheese flavored snacks, Tostitos tortilla chips, Fritos corn chips, Ruffles potato chips, Sun Chips multigrain snacks, Rold Gold pretzels, Santitas are also benefiting from a growing savory snack market which is projected to grow as much as 27% by 2013, representing an increase of $28 million. Threats Decline in Carbonated Drink Sales – Soft drink sales are projected to decline by as much as 2. 7% by 2012, down $ 63,459 million in value.
PepsiCo is in the process of diversification, but is likely to feel the impact of the projected decline. Potential Negative Impact of Government Regulations – It is anticipated that government initiatives related to environmental, health and safety may have the potential to negatively impact PepsiCo. For example, manufacturing, marketing, and distribution of food products may be altered as a result of state, federal or local dictates. Preliminary studies on acrylamide seem to suggest that it may cause cancer in laboratory animals when consumed in significant amounts.
If the company has to comply with a related regulation and add warning labels or place warnings in certain locations where its products are sold, a negative impact may result for PepsiCo. Intense Competition – The Coca-Cola Company is PepsiCo’s primary competitors. But others include Nestle, Groupe Danone and Kraft Foods. Intense competition may influence pricing, advertising, sales promotion initiatives undertaken by PepsiCo. Resently Coca-Cola passed PepsiCo in Juice sales. Potential Disruption Due to Labor Unrest – Based upon recent history, PepsiCo may be vulnerable to strikes and other labor disputes.
In 2008 a strike in India shut down production for nearly an entire month. This disrupted both manufacturing and distribution. MICHAEL PORTER’S 5 FORCES MODEL: MICHAEL PORTER’S 5 FORCES ANALYSIS: Porter’s five forces is a framework for the industry analysis and business strategy development developed by Michael. E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Barriers to Entry: * Bottling Network:
Both Coke and PepsiCo have franchisee agreements with their existing bottlers who have rights in a certain geographic area in perpetuity. These agreements prohibit bottler’s from taking on new competing brands for similar products. Also with the recent consolidation among the bottler’s and the backward integration with both Coke and Pepsi buying significant per cent of bottling companies, it is very difficult for a firm entering to find bottler’s willing to distribute their product. * Advertising Spend: The advertising and marketing spend in the industry is in 2009 was around $ 2. billion (0. 40 per case * 6. 6 billion cases) mainly by Coke, Pepsi and their bottler’s. The average advertisement spending per point of market share in 2000 was 8. 3 million . This makes it extremely difficult for an entrant to compete with the incumbents and gain any visibility. * Brand Image / Loyalty: Coke and Pepsi have a long history of heavy advertising and this has earned them huge amount of brand equity and loyal customer’s all over the world. This makes it virtually impossible for a new entrant to match this scale in this market place. * Retailer Shelf Space (Retail Distribution):
Retailers enjoy significant margins of 15-20% on these soft drinks for the shelf space they offer. These margins are quite significant for their bottom-line. This makes it tough for the new entrants to convince retailers to carry/substitute their new products for Coke and Pepsi. * Fear of Retaliation: To enter into a market with entrenched rival behemoths like Pepsi and Coke is not easy as it could lead to price wars which affect the new comer. So, it is explicit from these factors that entry to this industry for new player is tough as the existing brands are pretty strong. Bargaining Power of Buyers:
The major channels for the Soft Drink industry are food stores, Fast food fountain, vending, convenience stores and others in the order of market share. The profitability in each of these segments clearly illustrate the buyer power and how different buyers pay different prices based on their power to negotiate. * Food Stores: These buyers in this segment are somewhat consolidated with several chain stores and few local supermarkets, since they offer premium shelf space they command lower prices, the net operating profit before tax (NOPBT) for concentrate producer’s in this segment is $0. 23/case Convenience Stores: This segment of buyer’s is extremely fragmented and hence has to pay higher prices; NOPBT here is $0. 69 /case. * Fountain: This segment of buyer’s are the least profitable because of their large amount of purchases hey make, it allows them to have freedom to negotiate. Coke and Pepsi primarily consider this segment “Paid Sampling” with low margins. NOPBT in this segment is $0. 09 /case. * Vending: This channel serves the customer’s directly with absolutely no power with the buyer, hence NOPBT of $0. 97/case. The level of bargaining power differs among groups of buyers.
Therefore, buying power of buyers is moderate. Threat of Substitutes: * There are a large number of substitutes available for the carbonated beverages like juices, water, alcoholic drinks, tea, coffee etc. However, each company has a significant presence in the substitute market so that they can leverage upon the sales of these drinks. Because the substitute products are mostly included in each manufacturer’s product portfolio, the threat of substitutes is low. Internal Rivalry: * The Concentrate Producer industry can be classified as a Duopoly with Pepsi and Coke as the firms competing.
The market share of the rest of the competition is too small to cause any upheaval of pricing or industry structure. Pepsi and Coke mainly over the years competed on differentiation and advertising rather than on pricing except for a period in the 1990’s. This prevented a huge dent in profits. Pricing wars are however a feature in their international expansion strategies. * In a maturing market such as the domestic carbonated sodas, the only way to gain market share is to steal from one’s rivals. Thus, Pepsi and Coke fight heatedly over prices, suppliers, spokespeople, retail space and most importantly, the taste buds of consumers.
So, the internal rivalry is quite cut-throat. Bargaining Power of Suppliers: * Most of the raw materials needed to produce concentrate are basic commodities like Colour, flavour, caffeine or additives, sugar, packaging. Essentially these are basic commodities. The producers of these products have no power over the pricing hence the suppliers in this industry are weak. 4P STRATEGY OF PEPSICO PRODUCT: The main product of PepsiCo in the beverages market is the flagship soft drink ‘Pepsi’. The aerated drink is a widely accepted and popular thirst quencher around the world.
The Pepsi-Cola drink contains basic ingredients found in most other similar drinks including carbonated water, high fructose corn syrup, sugar, colourings, phosphoric acid, caffeine, citric acid and natural flavours. Some other popular products by Pepsi are: 1. Diet Pepsi 2. Aquafina 3. Gatorade 4. Mirinda 5. Mountain Dew 6. Slice 7. Tropicana Juices Both the companies Coke and Pepsi have a number of products. Many of these products are innovations but there are also many products which are brought out just as a competitive product for the other companies.
These products are merely launched as a result of the ’cola wars’. Ex: 1. Diet Coke V Diet Pepsi 2. Maaza V Slice 3. Sprite V 7Up 4. Fanta V Mirinda 5. Minute Maid V Tropicana [Strategy being used: Envelopment Strategy (also called encirclement strategy) – This is a much broader but subtle offensive strategy. It involves encircling the target competitor. This can be done in two ways. You could introduce a range of products that are similar to the target product. Each product will liberate some market share from the target competitor’s product, leaving it weakened, demoralized, and in a state of siege.
If it is done stealthily, a full scale confrontation can be avoided. ] PRICE: Pepsi has always had to price its product according to the trend in the industry. Since aerated drinks are often homogenous, Pepsi and Coke alike have had to indulge in a strategy of ‘competitive pricing’. However, the two companies have also tried to make changes in these patterns as Coke introduced Rs. 5 bottle for rural markets. Pepsi has also never been shy of reducing its price to match the competition and has been flexible in lowering its price to match competition. STRATEGY: COMPETITIVE PRICING: Setting the price of a product or service based on what the competition is charging. . This type of pricing strategy is generally used once a price for a product or service has reached a level of equilibrium, which often occurs when a product has been on the market for a long time and there are many substitutes for the product. ] PLACE: Pepsi has spread its reach worldwide and into all possible channels. Pepsi products are commonly available at supermarkets, vending machines, mom-&-pop stores, department stores, general stores and convenience stores.
Pepsi is also available at many restaurants and cafes through exclusive contracts and deals with these restaurant owners. Coke’s channel also is based on similar lines, to penetrate the market to the maximum extent and increase the availability and points of purchase for consumers. PROMOTION: The promotional strategies of Pepsi are very aggressive especially in the advertising domain. Pepsi has taken Coke head on, in all areas such as Personal Selling, Sales Promotion and Public relations. Scores of legendary slogans, high-profile celebrity endorsements have marked a very public promotional tussle between cola giants Pepsi & Coke.
One popular example is the “There’s nothing official about it” campaign in 1996-97 (During the Wills World Cup (cricket) held in India/Pakistan/Sri Lanka) when Coke had won the official sponsorship of the world cup. PEPSI’s COMPETITIVE STRATEGY WITH RESPECT TO COKE: Pepsi & Coke have been involved a legendary struggle for capturing market share worldwide. They have been competing with the strengths of one another and targeting the weaknesses. They have been involved in many marketing warfare strategies to gain an edge over each other & as a follower; Pepsi has given a great challenge to Coke in all aspects of the business.
Let alone leaving the corporate strategies, Pepsi and Coke have even competed in Outer Space by trying to launch aboard the Space Shuttle Challenger on STS-51-F. The companies had designed special cans (officially the Carbonated Beverage Dispenser Evaluation payload or CBDE) to test packaging and dispensing techniques for use in zero G conditions. The experiment was classified a failure by the shuttle crew, primarily due to the lack of both refrigeration and gravity. Some of Pepsi’s strategies include: BYPASS ATTACK:
Here marketing takes a Machiavellian turns where you pretend to neglect the direct competitor and instead work on expanding your resource base. Key considerations are consolidating your base and building up to a frontal or flank attack. * Summer of 98? – Pepsi buys Tropicana for $3. 3billion. buying the market leader in the OJ space helps it compete directly against Coke’s Minute Maid. * 2000 – Pepsi buys Quaker Oats, the owner of Gatorade another dominant player in the sports drink market (80% market share as opposed to Coke’s Powerade) for $14 billion. Earlier in the program, Pepsi develops its bottled water brand Aquafina which now commands a 14% market share as opposed to Coke at 11% and Poland springs at 10%. * Moral of this story: You may lose the brand war with your flagship product but could win the overall EBIT war with your family of brands. FLANK ATTACK: 1. Avoid areas of likely confrontation. A flanking move always occurs in an uncontested area. 2. Make your move quickly and stealthily. The element of surprise is worth more than a thousand tanks. 3. Make moves that the target will not find threatening enough to respond decisively to. In 1915, Coke announced a 6. ounce bottle in an innovative style. Pepsi introduced a bigger bottle for the same price and did not leave Coke with many options to retaliate because Coke could not change its bottle since that was the innovation & the vending machines for these bottles could also not fit a nickel coin, which was the competitive price at which Pepsi was selling its bigger bottle. This strategy was a successful flank attack by Pepsi as it is designed to pressure the flank of the enemy line so the flank turns inward. You make gains while the enemy line is in chaos. In doing so, you avoid a head-on confrontation with the main force.
The disadvantage with a flanking attack is that it can draw resources away from your centre defence, making you vulnerable to a head-on attack. GUERRILLA MARKETING: Aggressive marketing techniques are used more covertly by large organisations to improve advertising impact and reduce the likelihood of competitors’ retaliation. Pepsi’s “There’s nothing official about it” campaign in 1996-97 (During the Wills World Cup (cricket) held in India/Pakistan/Sri Lanka) when Coke had won the official sponsorship of the world cup was a great example of Guerrilla Marketing where they leveraged upon Coke’s sponsorship with a great slogan and a lower cost.
FRONTAL ATTACK: in India, Coca-cola continually launches against its customary rival Pepsi. Of course, Coke in India attacks Pepsi because not only can it match up with Pepsi, which still is the market leader in India, but also gives it a severe psychological trouble with its dominant flanking brand, Thums Up. According to statistics, Thums Up is the number 2 brand in the Indian soft drink industry, third being Coke itself. Coke’s inexorable attack on Pepsi on the too sweet taste of the latter (Offensive Principle 2: Find a weakness in the leader’s strength and attack at that point), also creates a huge psychosomatic incongruity.
Coke being worldwide superior to Pepsi is trying to create a battlefield positioning where the ultimate supremacy of the cola war in India goes to Coca-Cola. This is a direct head-on assault. It usually involves marshalling all your resources including a substantial financial commitment. All parts of your company must be geared up for the assault from marketing to production. It usually involves intensive advertising assaults and often entails developing a new product that is able to attack the target competitors’ line where it is strong.
It often involves an attempt to “liberate” a sizable portion of the target’s customer base. In actuality, frontal attacks are rare. There are two reasons for this: * Firstly, they are expensive. Many valuable resources will be used and lost in the assault. * Secondly, frontal attacks are often unsuccessful. If defenders are able to re-deploy their resources in time, the attacker’s strategic advantage is lost. The strategy is suitable when * the market is relatively homogeneous * brand equity is low * customer loyalty is low * products are poorly differentiated the target competitor has relatively limited resources * the attacker has relatively strong resources Elsewhere in the world, Pepsi is the one who takes Coke head-on in terms of advertisements, sponsorships, exclusive deals, product line etc. ENCIRCLEMENT STRATEGY: Pepsi has taken Coke up not only on the Cola beverage front but also tackles its many variants and product lines. This is a much broader but subtle offensive strategy. It involves encircling the target competitor. This can be done in two ways. You could introduce a range of products that are similar to the target product.
Each product will liberate some market share from the target competitor’s product, leaving it weakened, demoralized, and in a state of siege. If it is done stealthily, a full scale confrontation can be avoided. Alternatively, the encirclement can be based on market niches rather than products. The attacker expands the market niches that surround and encroach on the target competitor’s market. This encroachment liberates market share from the target. Pepsi has launched many competitive products to match Coke and has not shied away from investing in innovative products and fighting for market share.
Some of these competitive products are: 6. Diet Coke V Diet Pepsi 7. Maaza V Slice 8. Sprite V 7Up 9. Fanta V Mirinda 10. Minute Maid V Tropicana PRICING WARS: As far as pricing is concerned, Pepsi has always been the follower since Coke was the first brand to enter the market. Coke had recently trumped Pepsi with the introduction of its Rs. 5 bottle to penetrate rural markets. This strategy had been fairly successful and Pepsi had to lower its price to compete with the innovative pricing. Since both products are homogeneous in nature, the nature of pricing has to become cooperative and similar.
DISTRIBUTION STRATEGY: Pepsi ; Coke are not only infiltrating markets by putting their bottles in general stores, supermarkets, mom ; pop stores, convenience stores, fountain sodas ; vending machines but they are also snagging exclusive deals with global and local food chains. Pizza Hut which is run by Pepsico’s Yum! Brands Inc. only serves Pepsi on its menu. Coke, meanwhile, just scored a big coup by winning the soft-drink business at Subway, a fast-food chain now bigger than McDonald’s, which had previously served only Pepsi.
In Conclusion, we see that Pepsi ; Coke have been involved in a long and bitter battle as they exist in hyper markets and battle out an oligopolistic market situation. This condition has forced advertising costs to sky-rocket and employment of various tactics and strategies to gain market share across the globe. RECOMMENDATIONS ANSOFF’S MATRIX The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy. Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.
The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for the business strategy. These are described below: Market penetration Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets. Market penetration seeks to achieve four main objectives: • Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling • Secure dominance of growth markets Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors • Increase usage by existing customers – for example by introducing loyalty schemes A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.
Market development Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. There are many possible ways of approaching this strategy, including: • New geographical markets; for example exporting the product to a new country Product development Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.
Diversification Diversification is the name given to the growth strategy where a business markets new products in new markets. Having analysed the various aspects of soft drinks industry in India and with reference to Ansoff’s model, Pepsi could launch a new product in the existing Indian market. This new product will be vitamin and nutrients enriched water. The new product will be called as PEPSI FRESH. STP ANALYSIS Segmentation: Target: Our main target is the affluent society in India where there has been no product ever launched by Pepsi in this category.
We also target the Old Aged People for coming into the age bracket from 35 + and the health conscious people. Positioning: It is a highly differentiated product as no product has been introduced by pepsi or its competitors in this category. This would target the health conscious and the affluent. Marketing Mix: 4P Strategy Marketing mix is the process of designing and integrating various elements of marketing in such a way as to ensure the achievement of enterprise objectives. Marketing mix is a combination of marketing tools that are used to satisfy customers and company objectives.
Creating a successful marketing mix that will increase results often takes experimenting and market research. The constituents of marketing mix are given below: PRODUCT Product refers to a physical product or a service or an idea which a consumer needs and for which he is ready to pay. Physical products include tangible goods like grocery items, garments etc. Services are intangible products which are offered and purchased by consumers. Services may involve also an innovative idea on any aspect of operation. A product is the key element of any marketing mix. The decisions concerning product may relate to – Product attributes * Branding * Packaging and labelling * Product support service * Product mix. Pepsi can launch this new product, called PEPSI FRESH, a vitamin and nutrient enriched water as India is a huge market for beverage industry with its population size of 1. 2 billion. This product is a product related to the health of the people and also the basic need i. e. , water. U. S. Consumption of carbonated soft drinks has steadily declined in the past decade. Part of that comes down to the array of alternative beverages the market now offers. Part of it comes down to health concerns in a nation with an obesity problem.
In that spirit, Pepsi is focusing more on water, juices, teas and sports drinks. Pepsi’s top brands in those areas include Aquafina and Gatorade. And while it trails in soft drink sales, it leads the world in ready-to-drink teas through Lipton, while its Tropicana wins out in juices/nectars. The company is betting big on creating healthy foods through its Quaker Oats, Gatorade and Tropicana divisions. And it just began the Global Nutrition Group to deliver breakthrough products. As Caroline Levy, a CLSA analyst, noted, “PepsiCo is currently focused on better-for-you” products. So, our product will perfectly fit in their strategy. Attributes: * Flavours: Pepsi could provide 5-6 good flavours in this product. * Benefits: Vitamin water does feature multiple vitamins that are good for the body. One bottle of “FRESH” has 40 per cent of your daily value of vitamin C, and 20 per cent of your daily value of vitamins B3, B5, B6 and B12. * Branding: Pepsi has the advantage of number 1 player in the Indian beverages market. It is having huge capital reserves to fund its new product. The logo used for this could be PRICING Price is the amount charged for a product or service. It is the consideration paid by consumers for the benefit of using any product or service.
Price fixation is an important aspect of marketing. There may be two types of Price fixation: * Cost based approach: This is the simplest method of pricing. Generally companies add a certain percentage of Profit, to the total cost of the product. The total cost of the product is calculated after taking all types of costs into consideration. While following this approach, no other factors e. g. prices of substitute goods, nature of demand, etc. are considered. * Competition-based approach : The prices are determined on the basis of conditions in the market.
Companies may follow any one of the following three approaches. a) Price-in-line b) Market-plus c) Market-minus Price-in-line means prices fixed nearly equal to the prices of close alternatives. Generally this happens under free market conditions i. e. when the number of buyers and sellers is so large that they cannot affect the prices. When companies charge (fix up) a price which is more than the price of existing substitutes, it is called market plus pricing. This approach is adopted when the quality of a product is better, or it has a popular brand name, or its packaging is attractive and useful.
Consumers will pay more only when they find distinctive differences in the product and its substitutes. Sometimes business enterprises get ready to supply products at a price lower than the market price. It may be adopted to grab a larger market share or to make a newly introduced product more popular. This approach is called market-minus approach. Companies having shorter channels of distributions or direct selling facilities can afford to fix a price lower than the prevailing market price. We will price the product in a higher segment above the normal mineral water.
We will do some cost-revenue analysis to come up with the price. Basis and Assumptions: Total Fixed Cost Total (Rs. in lakhs) * Land & Building 50. 00 * Plant & Machinery 40. 00 * Other fixed assets10. 00 Total 100. 00 Cost of Production (Per annum) Total (Rs. in lakhs) * Working capital 350. 00 * Depreciation on building1. 50 @ 5% per annum. * Depreciation on plant & 3. 50 Machinery @ 10% per annum * Interest @ 15%18. 00 Total 373. 00 Sales Forecast = 45 lakh bottles Now, Total cost = Total fixed cost + Cost of Production = 100 + 373 = Rs. 473. 00 lakhs.
Cost per bottle = 473/45 = Rs. 10. 5 Now, Price per bottle = 10. 5 + 138% mark-up = Rs. 25 per bottle. PLACE Place is another important aspect of 4P strategy. This refers to how an organization will distribute the product or service they are offering to the end user. The organization must distribute the product to the user at the right place at the right time. Efficient and effective distribution is important if the organization is to meet its overall marketing objectives. If an organization underestimates demand and customers cannot purchase products because of it, profitability will be affected.
Pepsi can distribute this product through following channels: * Supermarkets. * Hypermarkets. * Convenience stores. * Institutional Tie-ups. * Public places like airports, multiplexes etc. PROMOTION Promotion refers to using methods of communication with two objectives: (i) informing the existing and potential consumers about a product, and (2) to persuade consumers to buy the product. It is an important element of marketing mix. In the absence of communication, consumers may not be aware of the product and its potential to satisfy their needs and desires.
Techniques used in the promotion of project: * Advertising: * Advertising budget will be huge. * Advertising will be continued the entire year round. * Media Classes to be used: TV, Magazines and Radio. * Channel Genres: Entertainment, English Movies, Hindi movies, Music and Sports. * Day-Parts: All the day with heavy advertising in Prime time. * Sales Promotion: * Discounts will be given for the first month to entice the customers to use the product. * Extra incentives will be given to heavy selling retailers. * Free gifts can be given to the lucky customers. * Events:
The Product will be launched with inauguration of Champions League T 20 Cricket tournament. Pepsi Fresh will be the main sponsor of the event. The promotional banners will look like this: ADVERTISING STRATEGY: After the liberalization policy in 1991 when Coke re-entered India, it found Pepsi had already established itself in the soft drinks market. The global advertisement wars between the cola giants quickly spread to India as well. Internationally, Pepsi had always been seen as the more aggressive and offensive of the two, and its advertisements the world over were believed to be more popular than Coke’s.
It was rumoured that at any given point of time, both the companies had their spies in the other camp. The advertising agencies of both the companies (Leo Burnett for Coke and HTA for Pepsi) were also reported to have insiders in each other’s offices who reported to their respective heads on a daily basis. Pepsi has focused on ‘Youth’ centric values by using young celebrities such as Ranbir Kapoor and cricketers for its advertisements, also incorporating taglines such as ‘Yeh hai youngistaan meri jaan’. Internationally too, Pepsi has always had a young target audience.
Many of their ads were historically targeted at teens and even pre-teens and are injected with fun, sports and most often, music. Pepsi has leveraged all manner of musical celebrities over the years, from Ray Charles to Britney Spears. Coca-Cola ads depict human experience in two primary ways. First, long before global branding was the trend it is today, Coca-Cola was embracing diversity. This can be clearly seen in its long-running “I’d like to buy the world a Coke” series of ads, depicting people from all over the globe joining together in Coke and song. Further, Coca-Cola has long been vailable in one form or another in countries all across the world and it’s even rumoured to be the most recognizable brand, logo and even word on the planet (the latter with the possible exception of “ok”). When Coca-Cola ads aren’t targeting worldwide diversity, they still possess a strong sense of community and overcoming differences and hardship through universal similarities such as a love for Coke. P P Pepsi has also paid close attention to its Packaging and always comes up with innovative cans, bottling and frequently changes it logo. However, Coke is not similar in this respect and only makes minor changes in its logos and cans.
Coke has so far indulged in emotional marketing and tried to tap into the sentiment of Indian values by focusing on family packs, diwali advertisements and rural markets. Some legendary campaigns include: * The Pepsi Challenge ads showing people doing blind taste tests kicked off the fun in 1975. * In 1985 both were launched into space aboard the Space Shuttle Challenger with specially designed cans, although the crew considered both failures. * Over the years the formula was tweaked so that Pepsi ads featured celebrities stressing the drink was the “The Choice of a New Generation”.
By the 1990s the Pepsi strategy revolved around consumers being invited to “Drink Pepsi, Get Stuff” by collecting Pepsi Points on packages and cups which they could redeem for lifestyle merchandise. Millions took part and the Pepsi Stuff campaign was considered a huge success. MARKET SEGMENTATION AND DIVERSIFICATION STRATEGY OF PEPSICO CURRENT SITUATION: * PepsiCo has ample opportunities to increase their market share and to grow if they concentrate on market diversification. * Pepsi and coke both have almost the same market share, but the markets where their strengths lie are different. The general market is dominated by Pepsi whereas restaurants, colleges, cinema halls are dominated by coke. * In Pakistan where PepsiCo has nearly 60% market share and its nearest competitor is coke. Coke is already devising strategies to become the market leader from follower in Pakistan. * Loyalty toward the brand “Pepsi” is relatively low in the Indian market. * Their market share in the Indian rural segment is low compared to coke. * Low productivity. WHAT PEPSICO CAN DO? * Pepsi’s primary consumers are teenagers, young and adults.
So Pepsi can diversify their target market a bit and target these teenagers at clubs, restaurants, cinema halls etc, where coke has substantial share. * Concentrate more on the rural markets which has a lot of potential. Widen their distribution network; know what the consumers in that market want. Already coke presence in rural market through it’s “thanda matlab coca-cola” ad campaign. Through proper promotion and distribution channels Pepsi can catch up with coke in the fast-growing rural market. * Pepsi has a loyal customer base in Pakistan. It should not lose out this segment to coke.
People who are already brand conscious use Pepsi. Hence they should concentrate on reinforcing their brand image and maintain the loyalty towards their brand. By doing so they can easily penetrate the other near-by markets, which will be a huge advantage. * Pepsi depends a lot on the US market. Hence it should diversify its market on a large scale and allocate necessary budgets for achieving desired results. Even though it’s long-term, strategies regarding which markets to enter and necessary budget allocations must be made now and must be implemented at the right time. Different growth strategies are appropriate for companies operating in different types of markets and Pepsi should decide on different strategic options according to the stage they are in their organizations life cycle. * Despite efforts made by PepsiCo to retain its customers through extensive marketing strategies and consumer loyalty programs, consumers are not loyal. Hence they should turn their strategies towards building loyalty among consumers by affecting their purchasing decisions and at the same time diversify to other markets.
Relying solely on one consumer market may prove harmful in the long-run and also it will be in line with other strategic decisions as discussed above. * PepsiCo’s diversification is obvious in that the fact that each of its top 18 brands generates annual sales of over $1,000 million. But having said that PepsiCo has approximately 198,000 employees and its revenue per employee is $219,439, which is lower than that of its competitors. This may indicate comparatively low productivity on the part of PepsiCo employees. To achieve strategic goals like market diversification, budget allocation plays a very important role and is crucial for success.
Hence cutting down on costs and improving productivity must also be taken care of. * PepsiCo has been using all four marketing strategies from Ansoff’s matrix. Each strategy contributed to the company’s overall success but the diversification strategy seems to be the most favorable strategy for Pepsi, given the present market conditions. * By capturing various markets one at a time using different but appropriate strategies, Pepsi can become the market leader in the long run. HUMAN RESOURCES STRATEGIES OF PEPSICO LEADERSHIP AT PEPSICO INSIDERS AT PEPSICO INC (PEP)
Name (Connections)| | Title| Type of Board Member| Age| Indra Nooyi | | | Chairman and Chief Executive Officer| –| 55| Eric Foss | | | Chairman of Pepsi Bottling Group, Chief Executive Officer of Pepsi Bottling Group and Chief Executive Officer of Pepsi Beverages Company| –| 52| Robert Pohlad | | | Chairman of PepsiAmericas and Chief Executive Officer of PepsiAmericas| –| 56| Irene Rosenfeld | | | Chairman of Frito-Lay North America Division and Chief Executive Officer of Frito-Lay North America Division| –| 57| Other Board Members on Board*
Name (Connections)| | | Primary Company| Age| Ray Hunt | | | | Hunt Consolidated, Inc. | 67| Arthur Martinez | | | | Sears Investment Management Company| 72| Dina Dublon | | | | Microsoft Corporation| 57| James Schiro | | | | Zurich International (Bermuda) Ltd. | 65| Sharon Rockefeller | | | | Pepsico, Inc. | 66| Daniel Vasella M. D. | | | | Novartis AG| 57| Victor Dzau M. D. | | | | Kearny Venture Partners| 65| Alberto Ibarguen | | | | John S. & James L. Knight Foundation| 67| Ian Cook | | | | Colgate-Palmolive Co. | 58| Lloyd Trotter Ph. D. | | | GenNx360 Capital Partners| 65| Shona Brown | | | | Google In| | Human Resource Planning In Pepsi For Human resource planning the strategic goals and objectives are the key activities. Same is the case in the Pepsi. With the start of the season the goals and objectives are set. The goals of the organization are * To provide quality product by meeting customer demands. * To remain market leader and provide continuous improvement in its brand quality. * To provide good services to customers, employees, communities, and the environment. Human Resource Planning Process in Pepsi
In Pepsi managerial estimates are used to determine the total future need of Human Resources in the organization. Than human resource department take actions to fulfill these needs. The employees hired both on permanent basis and temporary basis. After the season the temporary employees are layoffs. Normally the temporary employees are hired in production department. Tools and Techniques of Human Resource Planning Many tools are available to assist in human resource planning. In Pepsi the most commonly used tools are 1) Succession Planning. (Managerial employees) 2) HRIS (non managerial employees) Recruitment in Pepsi
In Pepsi the issue of employees hiring is more critical as compare to other organizations because there is cyclical demand for employees. Pepsi uses both methods internal and external for recruitment depending upon the number of the employees required. Internal Recruitment Methods External recruitment is necessary for the organizations like Pepsi that are rapidly growing because there are large demand of people and internal sources are not sufficient to fulfill this demand. Pepsi use following methods of internal recruitment to attract their existing employees to apply for jobs available in Pepsi 1) Job Posting and Biddings ) Memos to Supervisors External Recruitment Methods Pepsi also use external recruitment methods to recruit a pool a qualified employees so that the most suitable persons can be hired for the job vacancies available in organization. Pepsi use the following external methods of recruitment 1) Job advertisement 2) Employees referrals and walk-ins 3) Campus recruiting Who Is Responsible For Recruitment In Pepsi assistant Human Resource Manager Miss Parsa Habib is responsible for both external and internal recruitment. Selection in Pepsi
There are two different process of selection in this company for non-managerial and managerial employees Selection process for non-managerial employee Selection process for Managerial employees First the candidate applies or sends their resumes than an entry test is conducted by the organization. If the candidate is successful in this test than he move towards the next step of initial interview and then final selection is conducted by the manager of concern department and he makes the final decision about selection. Orientation in Pepsi
Orientation is the process of introducing of new employees to the organization, their work units, and jobs. In Pepsi there are two types of orientation exist. In Pepsi there are two types of orientation exist 1) Official orientation provided by the organization. 2) Unofficial orientation provided by the co-workers. Official orientation is for the managerial employees and unofficial orientations are for the non-managerial employees. Length and Time of Orientation In Pepsi, the length and timing period of the orientation program is very short usually from 1 to 2 hours.
Orientation Kit There is no concept of orientation kit in Pepsi. They are not providing their employees orientation Kit. Training in Pepsi Training for new employees is very necessary because without the proper training of employees no organization can achieve maximum output from their employees. Every organization offers their employees training so that they can sharp their skills and perform their jobs well. Pepsi is also offer to their employees training. They are doing both off the job and on the job training. 75% on the job training and remaining is classroom training.
Following are the commonly used methods of training in Pepsi * Understudy assignment. * Coaching. * Classrooms training. * University and professional associations. Off the job training methods are used by the non-managerial employees or technical staff. Classrooms training and university and professional association are generally used for managerial employees. Who Train the Employees? In case of non-managerial employees training the immediate manager train the employees. This is for 3 days to 1 Month. For managerial employees Pepsi hire professional trainer.
This training is held Hotels. This training is for 3 days to 15 days. Training Evaluation In Pepsi, there are no proper training evaluation system exists. Career Planning In Pepsi Pepsi provide career development opportunity only for managerial employee. . In Pepsi there is no concept of career development for the non-managerial employees because of this there is a very high employee turnover rate in Pepsi. Performance management system in Pepsi Performance management system is the important components of human resource management.
Through this the organization identifies the strong and weak points of their employees and tries to rectify them. In Pepsi they have no proper way of evaluating the performance of their employees. Compensation and Benefits in Pepsi Compensation and Benefits motivates the employees and these must be offer by the organization. In Pepsi there is no concept of compensation and benefits for the non-managerial employees but Pepsi offer benefits and incentives to the managerial employees. These includes * Medical allowances * House rent * Education allowances * Convince allowances Recommendation Increase compensation and benefits to retain their existing employees also should have a better career development strategy to make it happen for their employees to go up the organizational hierarchy. * A better orientation strategy should be adopted to socialize their employees with the organizational rules and regulation also they should provide orientation kit to its employees * Career development is necessary in every organization. Because it something that makes employees satisfied and increase their performances level ultimately this increase organization productivity.
This is also helpful in achieving organization objectives. * Training Evaluation is very necessary because there are a lot of benefits of training Evaluation. We come to know our strengths and weaknesses through training evaluation, thus PepsiCo should have a mechanism to evaluate it. BOTTLING STRATEGY The Pepsi Bottling Group, Inc. was the world’s largest bottler of Pepsi-Cola beverages. PBG sales of Pepsi-Cola beverages accounted for more than one-half of the Pepsi-Cola beverages sold in the United States and Canada and about 40 per cent worldwide.
PBG had the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of 43 states, the District of Columbia, nine Canadian provinces, Spain, Greece, Russia, Turkey and Mexico. Approximately 70 per cent of PBG’s volume was sold in the United States and Canada. Pepsi Bottling Group was based in Somers, New York. On August 4, 2009 The Pepsi Bottling Group and another major Pepsi bottler, PepsiAmericas, were purchased by PepsiCo, headquartered in Purchase, New York. The purchases were completed on February 26, 2010, forming a wholly owned PepsiCo subsidiary, the Pepsi Beverages Company (PBC).
PBG’s largest operations are in its North American and Western European markets, which have recently been hit by declining consumption of carbonated soft drinks. Consumer preferences have been shifting away from carbonated soft drinks, which accounted for around two-thirds of PBG’s 2006 units, to healthier alternatives. The prices of production inputs, especially aluminium and corn, have been rising as well, putting additional pressure on PBG’s profits. Despite these difficulties, PBG has performed relatively well.
The Pepsi brands are very well known and enjoy significant brand loyalty. PBG’s international markets have seen steady growth, helping to offset the sluggish domestic market. Also, PBG’s performance is inherently tied to that of PEP, providing PBG with a certain degree of security in the highly competitive non-alcoholic beverage market. STATISTICS We see that the profit for the year 2006 was 5,830 million. When pepsi overtook 2 bottling plants it resulted in saving of 15 cense per bottle manufactured. It increased the gross profits to 6,210 million by the end of 2008.
Pepsi already owns 33. 1 per cent of PBG stock and 43 per cent of PAS and since both bottlers have reported good FQ results and have increased their earnings forecast for the year, analysts believe that it is highly likely that even PAS will reject Pepsi’s offer. While making the offer, Pepsi had said that the consolidation of its bottlers would bring in a saving at least $600 million a year, but PBG believes that the synergies would bring in savings in multiples of $600 million, based on its own internal analysis. This brings the profit statistics to