Analytical Essay on Market Environment of PepsiCo Inc.

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Analytical Essay on Market Environment of PepsiCo Inc.

Executive Summary

This study is done to examine the market environment of PepsiCo Inc. PepsiCo is one of the world’s leading food and beverage brand. It’s a renowned brand and a very well organized multinational Company operating in more than 200 countries. PepsiCo Inc. was formed in 1965 as a result of the merger of two established companies including Pepsi Cola Company and Frito Lay, Inc. The multinational giant has a great interest in manufacturing, distributing and marketing of beverages, grain-based snack foods and many other products. In 1941 the brand was rebranded and from that to onward Pepsi Cola has successfully expanded its areas of production via mergers and acquisitions with other companies. In 1905 Caleb purchased two bottling franchises and just after the short period of five years, there were 250 bottling franchises spanning around 40 states. From that to up until now different bottling groups are acquired by the organization including Pepsi Bottling group, Pepsi Americas Inc. Pepsi Bottling Group Inc. and Pepsi Americas.

Currently, the company is comprised of six main division including North America Beverages, Frito Lay North America, Quaker Foods North America, Latin America, Europe, and Sub-Saharan Africa, Asia Middle East and North Africa.

The report provides analysis and evaluation of PepsiCo’s market segmentation as well as the marketing mix of the organization. SWOT analysis and BCG Matrix analysis is done in the reporting providing different PepsiCo products current performances and their market share.

2. Introduction

PepsiCo Inc. headquartered in Purchase, Harrison of New York is American multinational food, snack, and beverages giant formed in 1965 with as a result of merger of two established companies including Pepsi Cola Company and Frito Lay, Inc. the multinational giant has a great interest in manufacturing, distributing and marketing of beverages, grain-based snack foods, and many other products. The snack and soda company now has transformed into a collection of global brands including Pepsi, Quaker Oats, Tropicana, Gatorade, and Frito Lay. This transformation has made the organization of the world’s most respectable organization serving more than 200 countries and territories with twenty-two billion dollars brands. The company is comprised of six main division including North America Beverages, Frito Lay North America, Quaker Foods North America, Latin America, Europe, and Sub-Saharan Africa, Asia Middle East and North Africa (PepsiCo, 2019).

A pharmacist and industrialist, Caleb Bradham, for the very first time developed the recipe for Pepsi in the 1880s in New Bern, North Carolina. Later in 1898, it was renamed to Pepsi Cola. With the development and popularity in the Cola industry, Caleb founded the Pepsi Cola Company in 1902 and the first patent for the recipe was registered in 1903. In 1905 Caleb purchased two bottling franchises and just after the short period of five years, there were 250 bottling franchises spanning around 40 states. However, in 1931, Pepsi Cola Company went bankrupt and Charles Guft acquired the trademark and recipe to the Loft Inc. Pepsi was formally acquired to Loft, and Loft Inc. and was rebranded to its original name the Pepsi Cola Company in 1941. From that to up until today Pepsi Cola has successfully expanded its areas of production via mergers and acquisitions with other companies mentioned above.

For the sake of improving, financial returns and restaurant operations company took up aggressive re-franchising. In 1990, with total revenue of $17.8 billion, the organization was ranked at 25th among the fortune 500 companies. By the end of 1995, the organization sales touched $30.40 billion with 480000 employees working at different places. This made the organization the world’s 3rd largest employer after Wal-Mart and General Motors. PepsiCo’s market share lags behind the Coca Cola share with maximum margins. This happened once when the Coca Cola’s Sprite left behind the Diet Pepsi which dropped from the world’s 6th largest selling product to 7th (ICMR Centre for Management Research, 2014).

2.1. Vision and Mission Statements

2.1.1. Vision Statement

Performance with Purpose via integrating sustainability into a business strategy for delivering top tier financial performance for the long term, leaving a positive impact over society and environment.

2.1.2. Mission Statement

To provide customers around the globe with convenient, affordable and delicious beverages and foods from wholesome breakfasts to healthy and fun daytime snacks and beverages to evening treats.

Pepsi is committed to the company, with the people and communities where the business is conducted in order to stay in the business for the long term with sustainable growth. (PepsiCo, 2019).

3. Current Market Analysis:

Competition is getting intense day by day in the carbonated beverage industry. In order to stay in the business companies face intense competition against global, regional and local manufacturers on the basis of several factors including quantity, distribution, variety, and the most important price. In the beverage industry, PepsiCo major competitor is the Coca Cola Company and this competition negatively impact PepsiCo sales. Coca Cola enjoys larger market shares not only in the U.S but also in the other markets such as Asia and Africa. Coca Cola has been listed at number 1 in the Interbrand’s Best Global Brands (UK Essays, 2016). From many years Coca Cola has actively dominated the world soft drink market and this dominance has always been considered an important factor for PepsiCo Management.

Figure 1 (BrandWatch, 2016)

3.1. SWOT Analysis

3.1.1. Strengths

Strong Leadership. With a strong leadership of Indra Nooyi Pepsi has been doing well and managed to stay at the number two position in the complete food and beverage industry.
Loyal Customers: Pepsi through its ads and advertising campaigns actively targets youth with its products providing it with the more loyal customers.
Brand Equity: Pepsi is a worldwide established brand with its presence in more than 200 nations enjoying a high brand recognition and reputation comprised of a large product portfolio.
Strong Distribution: the company holds a strong distribution channel with an effective distribution strategy that helps it with on-time delivery to its customers.
More motivated employees
Attractive price.

3.1.2. Weaknesses

Intense competition from its biggest rival Coca Cola.
Pepsi suffers from its dependence over the U.S markets for its revenue. Any impact at U.S market directly affects Pepsi sales.
Pepsi does not provide any incentive or discounts to its retailers.
The tin pack is not available in most rural areas.
Pepsi lacks the innovation and popularity of its most brands.
Health issues related to carbonated drinks.
Pepsi advertisements only target youngsters that do not display value advertising.

3.1.3. Opportunities

Presence in more than one industry including the fastest growing industry (noncarbonated drinks).
Media promotions
Innovations
Partnerships with well-established brands including Starbucks.
New product penetration in markets.
More CSR activities.
Focusing more on the R&D sector

3.1.4. Threats

Changes in consumer taste.
Strong competition from rivals including Coca Cola and Dr. Pepper.
Entry of new Rivals.
Entry to barriers.
Water scarcity.
Strong U.S Dollar.
Changes in consumer taste.

3.2. BCG Matrix

For multi-category/multi-product companies Boston Consulting Group (BCG) matrix is used. BCG matrix helps in understanding different products performance. It helps in determining which product in the organization is profitable and which one needs more investment and attraction and which one can provide competitive advantages (Hitesh Bhasin, 2019).

3.2.1. Cash Cows:

Cash cows are products that enjoy a higher market share in low-growth markets. Cash cows yield maximum revenues because of their higher market share and therefore provide with maximum advantages. In PepsiCo’s case, Pepsi Cola falls in Cash Cows category because among all of PepsiCo products Pepsi Cola generates higher market shares.

3.2.2. Question Marks:

Question marks are the products that provide higher returns but at the same time there are risks associated with question marks and they can be taken out of the market if they don’t get the attention of the organization. However, if a substantial investment is made on question marks they have the chances to grow rapidly in the market and to become a Star that results in producing higher outputs. Diet Pepsi and 7up Nimbooz and Mirinda are the question marks for PepsiCo.

3.2.3. Stars:

Stars are the products that generate higher market shares in high-growth markets. Products that are expected to grow and hold higher market shares fall into the star category. Because of stars strong relative market shares, they produce a large amount of cash and if special attention is paid to stars they have the potential to become cash cows in long run. In case of PepsiCo, Aquafina, Pepsi, and Mountain Dew can be placed into the star category.

3.2.4. Dogs:

Dogs are the cash traps and even in mature industries they produce smaller market shares and because of their smaller market share dogs don’t need enough cash. Dogs are more likely to be taken out of the markets. Pepsi Max is considered as the dog product of PepsiCo.

Cash Cows

Pepsi Cola, Frito Lay

Question Marks

Diet Pepsi, 7up Nimbooz, Mirinda

Stars

Pepsi, Mountain Dew, Aquafina

Dog

Pepsi Max

Table 1

4. Marketing objectives for PepsiCo

PepsiCo currently holds at least 50% market share in the snacks and beverage industry because of Frito Lay and Pepsi-Cola, therefore, the company’s first and foremost marketing objective should be to lower the product prices Frito Lay and Pepsi Cola as because they are the cash cows for the company and can yield more even higher market share for the company. In order to achieve this, the price marketing objective should be focused with a help of cost reduction strategy that will help in keeping the product’s prices lower as compared to its biggest rivals Coca Cola and Dr. Pepper.

In this intensely competitive environment, customers need and want very rapidly. They want change and innovation in products. As innovation is one of PepsiCo’s opportunities its marketing objective should be to introduce innovative and new products for its customer to keep them attached with their brand and to satisfy their varying needs and wants.

Customers are becoming more conscious about their health and they consider carbonated drinks unhealthy for themselves so there is some health issue related to PepsiCo carbonated drinks. Therefore the company should set an objective of refining its carbonated drinks by reducing the amount of sugar added that will result in a reduction of calorie intake.

5. Segmentation:

Segmentation is the process of dividing the broad potential customers’ markets into smaller groups or segments that exhibit the same or different characteristics. Segmentation helps in understanding customers’ need and want more accurately and make it easier for marketers to personalize their offerings and marketing campaigns (TrackMaven, 2019). The primary target groups of PepsiCo are those people with an age limit of between18-40. With a huge product portfolio, PepsiCo targets different cultural and regional aspects of different countries (UK Essays, 2016).

As PepsiCo has a large product portfolio it, targets more than one customer segments with its products and services at the same time. Pepsi Cola is positioned as the soft drink and actively target the young consumer. However, Pepsi Cola has a high amount of sugar in it and most customers because of their health consciousness they don’t consider it good for their health. PepsiCo targets such customers with its Diet Pepsi that has less amount of sugar and therefore fewer calories intake as compared to Pepsi Cola.
Another main important market segment of PepsiCo are that customer who are athletic and adventurous. For such customer, PepsiCo has its Mountain Dew. All of Mountain Dew ads are designed in such a way that they actively target the customers seeking for adventures. Mountain Dew further has more flavor under it such as Mountain Dew Voltage, Mountain Dew Baja Blast etc. actively targeting different specific groups of customers. However, in most countries, these products are banned but there PepsiCo targets its customer with it Sting Energy drink to keep its customer attached with its brand.
In India and Pakistan PepsiCo targets a broad market segment with its 7Up Lemonade targeting those who like traditional lemon drinks.

5.1. Segmentation at a Glance

Graph 1

6. Marketing Mix of PepsiCo

Marketing mix or 4Ps are strategy and tactics combinations used by the organization to implement their marketing plan. The marketing mix is a dynamic process and keeps changing with respect to market variations (The Marketing Mix, 2018).

Figure 2 (The Marketing Mix, 2018)

PepsiCo marketing mix addresses a wide range of products. In this regard, PepsiCo adopts various strategies and tactics based on its products and different brands.

6.1. Product

A product is any tangible item that can be offered to a market for satisfying customer needs and wants.

PepsiCo product mix includes the following product:

Beverages
Pepsi-Cola, Mirinda, Mountain Dew, 7 up, Slice, Tropicana, Aquafina
Food Products
Snacks-Cheetos, Kurkury, Lays, Uncle Chips, Breakfast Quaker Oats.

Most of these products were added into its product mix after various acquisitions. For example, after the acquisition of PepsiCo with Frito Lay, snacks products were added into its product mix.

6.2. Place

With a wide distribution network, PepsiCo products are easily accessible everywhere. A global distribution network is used by the organization to make sure that its all products are reached to its target customers. Products are places at both retailer’s shops and online merchandisers. Most products are available at retailer shops, supermarkets, grocery shops.

6.3. Promotion

Because of the intense competition with Coca-Cola, a huge annual budget is spent on promotional activities to attract and retain the target customers. The following tactics are used for the promotional mix by PepsiCo.

Advertising
Sponsorships
Sales Promotions
Public Relations
Direct Marketing

All of these major expenditures are done at Advertising. The advertising is done using different media including T.Vs, Radio, Print Media and especially the most effective social media while endorsing famous celebrities. Different sports and adventurous events are sponsored by Mountain Dew because a huge target audience is available there.

6.4. Price

The amount of money that customer pay for a specific product or service. Price is a very important element of the marketing mix and considers a lot for any organization for its success.

Following pricing strategies are adopted from PepsiCo:

Market-Oriented Pricing Strategy
Hybrid Everyday Value Pricing Strategy

Most products are priced based on the market-oriented pricing strategy. The main reason for using this strategy is to make sure that the prices are competitive based on prevailing market conditions. The latter strategy is used especially for the soft drink products to close the gap between the regular prices and discounted holidays prices (Justin Young, 2017).

7. Conclusion

After carefully examining the areas the positive and negative aspect of PepsiCo’s market situation is visible. PepsiCo does not hold a strong market position because of the intense competition from the Coca-Cola company and because most of its products are considered unhealthy from customers which greatly affects its sales volume. However, there are products that are widely used by the customers as compared to competitor’s products such as Aquafina as compared to Coca Cola’s Dasani. Another major factor that affects PepsiCo is its dependency over the U.S, half of PepsiCo sales are observed only in the U.S. There is a great need for PepsiCo to take steps to cope up with this dependency. Any impact over the U.S economy directly affects Pepsi sales. There are investment and innovation opportunities available for PepsiCo. PepsiCo needs to invest more in its products especially in BRIC countries because these markets are rapidly growing in the beverage and foods industries. This step will help the organization to take advantage and increase market share as well as to lower its dependency over the U.S market. As the major target audience of PepsiCo is the youngsters. There are several opportunities associated with youngsters. PepsiCo should know the importance of advertising targeting youngsters and should increase its advertising budget a bit more than before.

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