Category: Pepsi

Pepsi’s advertising campaign for its Mountain Dew is directed at the right market segment. The company uses new campaigns in order to attract new consumers. Most of the targeted consumers include young African Americans and Latinos (Stanford, 2012). Pepsi Company appears to attract more consumers in Dakota and Nebraska. The product’s advertising campaign does not define its marketing objectives.

The marketing strategy appears to “attract every racially diverse group in urban regions such as New York City” (Stanford, 2012, p. 1). The decision to identify and target this market segment can be profitable for Pepsi Company (Finch, 2012). The use of celebrities such as Lil Wayne, Paul Rodriquez, and Jason Aldean also supports the company’s marketing strategy for Mountain Dew.

The biggest concern is whether the company differentiates its product from its competitors. The current level of competition arises from leading companies such as Coca Cola. The advertising campaign does not consider the best strategies in order to differentiate its product from the competition (Stanford, 2012).

The advertising strategy identifies the targeted consumer. The company uses the best distribution networks and campaigns in order to promote the product. This strategy attracts more customers from the targeted locations. The advertising campaign for Mountain Dew should also consider the level of competition. The company should also use the best practices (Finch, 2012).

The other subject is communicating the benefits of the products to the customers. Pepsi Company utilizes the best advertising campaign for Mountain Dew. This campaign informs every potential customer about the availability of the drink. The marketing strategy also identifies new market segments where the level of consumption is low for the product.

The advertising campaign also includes several celebrities in order to attract every targeted African American and Latino youth (Stanford, 2012). The company has also included new distribution channels in order to supply the product in different urban centers.

The company will also use different gas stations and convenience stores to market this product. This strategy explains why the company’s advertising strategy will attract more customers. The weakness of this advertising campaign is that it does inform the consumers about the unique benefits of the product. This approach might affect the marketing strategy for Mountain Dew.

The above discussion explains why the company should redesign its advertising campaign for Mountain Dew in order to have a universal appeal. The first strategy is using the best communication channels and strategies in order to attract a wide range of consumers. The company should ensure the advertising campaign uses different channels such as televisions, videos, and e-mails.

The marketing plan should consider the needs of every potential consumer (Wood, 2010). This process will create an advert that appeals to every global consumer. The company should also use social media such as Facebook and Twitter. The practice will attract many consumers in every racially diverse society.

The proposed design of the campaign will also communicate the benefits of the product. These benefits will help more customers understand the health benefits of the product. The use of celebrities will also support the advertising campaign. The company should use the best communication channels such as televisions, e-mails, and social networks in order to inform more customers about the product (Finch, 2012).

Pepsi Company should support this advertising strategy using proper pricing approaches and distribution practices. The marketer should also update every consumer about the available flavors for the product. The company should also distribute the product to every market segment. This approach will create a successful advertising campaign.

Reference List

Finch, J. (2012). Managerial Marketing. New York: Bridgepoint Education.

Stanford, D. (2012). Mountain Dew Wants Some Street Cred. Web.

Wood, M. (2010). Marketing Planning: Principles into Practice. New Jersey: Prentice Hall.

The most important aspect of a vision statement is its ability to explain the company’s goals or desired status. Thus, it should be not only convincing but also inspiring or inspired. On the other hand, a mission statement is a short but comprehensive definition of what an organization does or is doing to achieve the desired status. It tells the people the business that it carries out or the industry of its specialization. In this paper, an inspiring vision is chosen from Pepsi Inc. It seeks to explain the contents of the vision statement and why it is inspiring. In addition, the paper will make a comparison between an inspiring vision statement and a non-inspiring vision statement from another company (Coca Cola Company) to show the need for an inspiring or inspired statement.

The vision statement developed by Pepsi, one of the largest soft drink and beverage conglomerates in the world, is an example of the most inspiring statements in the corporate world. It states that the responsibility of the company is to ensure that it continually improves all the aspects of the world. It states that the company has a major responsibility in improving the social, economic and environmental aspects of the world. It says that the reason for doing this is to “create a better tomorrow than today” (The Pepsi Inc., 2014). It also aims at building shareholder value by making the company a sustainable organization.

There are three aspects that make this vision statement both inspiring and inspired. First, it is worth noting that the statement informs the public that the company is concerned with social welfare- it wants to improve the world. It mentions the environment, social and economic aspects of the world. In fact, these are some of the major issues facing the modern world. For instance, environmental concerns and global warming are some of the major issues that are facing society.

Various societies believe that the corporate world should be the most actively involved in the process of resolving environmental problems. Secondly, the statement argues that the company seeks to benefit society in general through its business culture. In fact, this is an indication that the company is committed to involving itself in corporate social responsibility. The statement ends with the recognition of the importance of its shareholders (the owners). The arrangement of this statement is inspiring because it starts with an assurance of the society that the company is part of their society. It also indicates that it is a part of the solution to the social, economic and environmental problems. It ends with by recognizing its business. Although the company aims at making profits, it also seeks to improve the social welfare of the people.

On the other hand, the vision statement developed and used by Coca Cola Company, Pepsi’s major business rival, is less inspired and less inspiring. Unlike Pepsi’s statement that starts with recognizing the society and the world, Coca Cola’s vision statement begins with an explanation of its business intention “our vision describes what we need to accomplish … in order to achieve growth and sustainability”. It then proceeds to recognize the major factors that contribute to organizational business achievement. Here, it starts with “the people”, arguing that it wants to achieve a good place to inspire more workers (The Coca Cola Company, 2014).

Thirdly, it recognizes its partners, where it mentions customers and suppliers. Then, the statement recognizes the social and environmental problems facing the modern world. It argues that the organization wants to be a responsible citizen by providing support to the global society. The statement also states its major aim of making profits, which says that the need of the company is to ensure that it achieves long-term returns to its shareholders. It ends with a statement on productivity, which says that the company wants to be effective, lean and fast-moving towards achieving productivity.

I find this mission, not inspiring or inspired. This is not because of its meaning, but because of its arrangement. The statement starts by recognizing its needs instead of the needs of the people or society. It fails to convince the readers and the world in general that it is part of society. It goes directly to show the world that it is only interested in making profits rather than being part of society. It should inform the public that it is an active member of the society and an employer of an effective strategy for corporate social responsibility. In the beginning, it fails to show the public that it is part of the solution to the major social, cultural and environmental problems facing its customers. These issues are only mentioned after the company has expressed its interest to make profits.

References

The Coca Cola Company. (2014). Our company: Our vision, mission and values. Web.

The Pepsi Inc. (2014). Our mission and vision. Web.

Introduction

Pepsi Cola was first made by a pharmacist known as Caleb Bradham, and like other pharmacists during this time Caleb established a soda fountain in his drug store. His most favourite beverage was something he called ‘Brads drink’. This is what was produced in the summer of 1893, and afterwards was re-labelled to a new brand Pepsi Cola in 1898. He cleverly purchased the trademark ‘Pep Cola’ for $100 from a rival company in New York. (Katz, 2008)

However, after he enjoyed seventeen years of success, Caleb sadly lost the product due to gambling on the price fluctuation of sugar during World War I. This happened because of his believe that sugar price would rise as demand increased, unfortunately this never happened. Such outcome left him with a lot of sugar but there was no place for its selling. Sadly, his company faced bankruptcy in 1923.

New Pepsi Cola Owners

In 1931, the company was bought by the lofty candy company. The president immediately started to reformulate the Pepsi Drink. One of the remarkable things he did was changing the image of the product. (Katz, 2008)

Strategies used by the company

One of the challenges with Pepsi was to make sure that the new company gave a new brand of the soft drink. Looking back, it is fair to state that the foremost iteration of the Pepsi logo was a somehow odd, however, afterwards, it evolved into something we are familiar with now. In the 1940s, for example, a person could easily realize the similarity between the Pepsi logo and the Coca Cola. The branding helped in making people and consumers identify themselves with the Coke brand.

However, the brand has evolved since then. In 1942, World War II brought a little loyalty in the Pepsi Company, which began using the simplified type of the product. It had a combination of red and white strips to symbolize love and admiration for the much-loved country.

Success with consumers

When it came to the audience of Pepsi, the new branding was also meant to enable the company to have a specific type of audience that would help the product become popular. For example, one method was to utilize the young audience. Several of the Pepsi ads were in the past targeted at the young people who were thrilled with entertainment, games and most popular music. During branding, Pepsi was brilliant to persuade all categories of celebrities to take part in advertising. The company managed to retract such musician as Ray Charles and various singers, including Britney Spears and the most famous slain songster Michael Jackson. This enabled the product to become more popular all around the world. From this moment, Pepsi has been changing its style and design. Every style has been simultaneously accepted and rejected by the modern consumers.

Although, the product has seen its brand’s popularity grow and even today we still can observe how this brand keeps on changing and evolving. The product continues to face more new life stages in product designs and sponsorship programs. At times, the product has also suffered rejection of the customers. This often has required the company’s management to make a decision for going back to the old design.

Consistency of change

However, with the new change in management and marketing structures, it can be seen that Pepsi is able to recover from the public’s rejection of their new brand by never giving up on new ways. The redesign of Pepsi’s drinks has remained almost the unchanged except for Sierra Mist, which odd and foggy design has been forgotten by now and substituted for a latest one that is fairly eye-catching by comparison. In general, the basic motivation of Pepsi has stayed more principally the same with the use of comedy and music in its commercials. For instance, this year, most American football competitions have been extremely featured with Pepsi commercials and website.

On the other hand, the most significant modification of the product became the branding campaign called the Pepsi Refresh Project that keeps on running currently. During this time, the company has been seen to work with the community as a way of creating consumer relations and raise awareness about the product. Pepsi gives donation to people with immense ideas as long they improve their society. The project provides a great direction for the product. For example, there was its recent work in Egyptian revolution, where the company played a great part in fighting for change. This in turn enables the product to become more popular in the Arab countries and in the African continent. (Stoddard, B 2007).

Conclusion

As it has been discovered from the history of the Pepsi brand, re-introducing or re-defining a company or a product is one of the best strategies. The example of Pepsi Company forces to wonder how one can make a better and bigger product. If the company is a few years old and the brand or product is poorly defined or marketed, there is a question on how one reinvents it, and perhaps the mistakes and the success of Pepsi have been able to give an answer.

References

Katz, A. (2008). Celebrating a century of refreshment: Peps – the First 100 Years, New York: Macfadden Communications.

Stoddard, B. (2007). Pepsi Cola-100 years, Los Angeles: General Publishing Group.

How can Pepsi target different demographic generations in the US?

Depression Generation

Depression Generation refers to American individuals born between 1930 and 1945. Currently, these individuals are aged between 68 and 83 years. They passed through their childhood stage during the World War II and the Great Depression. According to Walker (2003), members of this generation pay attention to morals and ethics. In fact, they were economically productive during America’s emergence as an economical and political superpower.

According to Walker (2003), conformity is the main characteristic associated with this generation. In fact, they rely on tested and true ways of living. They also tend to be careful in choosing new products in the market, especially if an item tends to bring change. Therefore, for Pepsi to understand the behaviour and needs of this group, it should use themes that emphasize on traditional values such as hard work, conformity, responsibility, discipline and conservatism.

The group is quite romantic and prefers soft music. Therefore, Pepsi must ensure that its products are marketed in a manner that emphasizes on these characteristics. For example, product price, tastes and brand must look “American”. In addition, the products must emphasize on retaining the American tradition in soft drink industry. When marketing the products using mass media, the company must use themes that seek to restore or maintain patriotism and American traditions.

Marketing to Baby Boomer Generation

Baby Boomers generation has a number of other names, including Baboo, Sandwich, Love and ‘Me’ generation. It includes all individuals born between 1946 and 1964. Currently, they are aged between 49 and 67 years (Himmel, 2008). They were born between the end of the World War II (late 1940s) and 1964. At this time, the U.S. and Europe were experiencing dramatic increase in birth rates, thus the name “Baby Boomers”.

These individuals do not like bureaucracy. In fact, they want things done instantly. They also focus on product value. They also tend to consider such factors as health and aging. Generally, they do not like the idea of growing old. Therefore, they will look for products that conserve their health or help them delay or escape aging.

If Pepsi wants to target this group of individuals, it must consider these characteristics. For instance, it must ensure that its products assure the individuals a good health. Majority of these individuals are aware that sugary drinks and junk products have a negative impact on their health. Therefore, they are increasingly avoiding such products. Pepsi must market its sugarless products to this particular group by assuring individuals that their health will be maintained.

Marketing to Gen X

Generation X refers to the group of individuals born between 1965 and 1977 and are currently aged between 37 and 48 years. By the time they reached adulthood age, the American economy was facing several problems (Himmel, 2008). They are likely to be self-employed and less successful in non-self employment. One of their major characteristics is that they embrace free agency rather than company loyalty. In addition, they have high regards for their families because they are taking greater responsibilities to raise themselves and their families through hard times.

To target this group of individuals, Pepsi must develop better product pricing strategies and emphasize on product quality. The company must ensure that its product prices do not keep fluctuating. In addition, prices for comparable or alternative products in the market should not exceed Pepsi’s prices by a large margin.

Marketing to Gen Y

Generation Y consist of people born between 1977 and 1994, now aged between 19 and 37 years. They grew up at a time when technology was rapidly changing, globalization was evident and development of new cultures was rapidly taking place. They readily accept change and embrace new ideas, technologies and products. They are self-reliant and able to make independent decisions (Wellner, 2003). They like customized products, entertainment, new tastes, socialization, speed and integrity.

To market Pepsi products to this generation, it is necessary to ensure that the products come in a variety of forms, shapes, tastes, colours, qualities and prices. The marketer must ensure that promotion projects include entertainment and pay attention to integrity. In addition, they must fit into the technological aspects of modern lifestyles.

Taking advantage of demographic information in marketing

Knowledge of demographics in a given market is important in making the appropriate choice of strategies to attract certain groups of people. In addition, it allows the marketer to offer products that appeal to the unique needs and sets of customer behaviour. In the United States, each generation has a unique history and lifestyle characteristics. Similarly, each generation is characterized by uniqueness in terms of value, experiences and expectations. The uniqueness of every generation has a significant effect on their buying behaviours. Marketers always consider these unique characteristics as an important aspect of reaching out to the multi-generational population of consumers (Walker, 2003).

Marketers attempt to understand these differences and the impact they have on consumer buying behaviour. Multigenerational marketing is an area of study and business practice that enables marketers to appeal to the unique buying behaviours and needs of individuals in various generational groups. In this case, a generation is a group of individuals born and living around the same period in a given country.

References

Himmel, B. (2008). Different Strokes for Different Generations. Rental Product News, 30(7), 42-46.

Walker, E. (2003). The Value of Generational Marketing. National Underwriter, 107(29), 24.

Wellner, A. S. (2003). The Next 25 Years. American Demographics, 25(1), D26-D29.

The Coca-Cola Company is considered one of the largest companies in the world. Apparently, the company specializes in manufacturing of non-alcoholic drinks. The company has five top soft drinks brands- Coca-Cola, Fanta, and Sprite, Diet Coke, and Minute Maid drinks (Dhar, Chavas, Cotterill & Gould, 2005). Over the years, the Coca-Cola Company has attracted a number of competitors such as the PEPSICO, Inc.

Through analysis, it is possible to identify the production differences between the two companies. Therefore, this analysis reveals the companies’ competitive positions in the market and the differential margin between the two firms. Using the DuPont Analysis, the ROE (Return on Equity) is expressed as the net income as a ratio of the shareholder’s equity. Therefore;

• ROE = Net Income / Shareholder’s Equity.
  • For Coca-Cola: 232,000,000/34,007,000,000 = 0.006822
  • For Pepsi: 5980000000/22910000000= 0.062643

The ROA (Return on Assets) is expressed as the net income of the company divided by the total assets. Thus;

• ROA = Net Income / Total Assets
  • For Coca-Cola: 41470000000/95490000000= 0.434286
  • For Pepsi:598000000 0/80470000000= 0.074313

The profit margin for Coca-Cola is 20.64%. On the other hand, Pepsi’s profit margin is 53.57%.

Total Asset Turnover for Coca-Cola is 0.14%. Pepsi has a total asset turnover of 0.87%

Equity Multiplier is expressed as total assets divided by total equity.

• Where: EM= Total Assets/ Total Equity
  • For Coca-Cola: 95490000000/34070000000= 2.802759
  • For Pepsi: 80470000000/22910000000= 3.512439

Since the establishment of the Coca-Cola and Pepsi in 1886 and 1893 respectively, the rivalry between the two companies has attracted much interest from accountants and industrialists. From the financial analysis, the comparison of the two companies using dividend increment has been a factor of consideration. Since Coca-Cola had an increase of dividends by 11.01% while Pepsi recorded a dividend increase of 9.80%.

In this context, Pepsi has diversified its activities into snacks. On the other hand, Coca-Cola remains retain its original brands. The domination of the Coca-Cola brands in the markets is higher than Pepsi. In fact, Coca-Cola sales volumes are relatively higher than Pepsi’s within the same market.

The comparison of the Coca-Cola and the Pepsi Companies is complete with a presentation of the common size analysis. Drake and Fabozzi (2012) define a common size analysis as a fiscal report that shows each item as a percentage of a base figure within the account. The base figures must always include the company’s total assets, the stakeholder’s equity as well as the liabilities.

In this case, each of the company’s balance sheets is considered. The assets indicated in the balance sheets are expressed as a percentage of the total assets in each case. The figures must include the current liabilities, equities as well as the long-term debts. They are expressed as a percentage of the company’s total liabilities and the shareholder’s equity in each case.

Therefore;

Base% = Amount of Individual Item / Amount of Base x 100%

For the Coca-Cola Company: Individual Items: 9754+14041+2000000 =2023795

2023795/ 34,007,000,000x 100= 0.005951

Amount of Base: 9754+1000000+34,007,000,000= 34,008,009,754

For Pepsi: Individual Items: 150000+1000+1500000 =1516000

1516000/ 22910000000x 100= 0.006617

Amount of Base: 5000+900000+22910000000= 22910905000

The Coca-Cola Company is a large corporation with a huge market share and one of the largest significant consumer bases in the US. Consequently, it has a large income in terms of returns. Therefore, the company is recognized as the most dominant in the beverage market. Comparing the base values of Coca-Cola and Pepsi, the former has a great value as compared to the latter due to the difference a difference in the stakeholder’s equity. Therefore, Coca-Cola is bigger than Pepsi in terms of the market share and the consumer base.

References

Dhar, T., Chavas, J. P., Cotterill, R. W., & Gould, B. W. (2005). An Econometric Analysis of Brand‐Level Strategic Pricing Between Coca‐Cola Company and PepsiCo. Journal of Economics & Management Strategy, 14(4), 905-931.

Drake, P. P., & Fabozzi, ‎. J. (2012). In Analysis of Financial Statements. Hoboken: NJ: John Wiley & Sons, Inc.

Coke and Pepsi have remained the leading marketers of carbonated drinks. The firms have been using powerful corporate strategies to emerge successfully. Coke’s intensive strategies focus on new markets and product developments. For instance, the company has been redesigning its products to address the health needs of many customers. The same strategy has also been used by Pepsi. As well, the companies have identified new markets and age groups.

The two firms also use similar integration strategies. The firms have been attracting new distributors and bottlers. The firms have also been identifying cheaper sources of fructose. Diversification is achieved by producing non-carbonated drinks. Such unrelated products have continued to support the company’s goals. Coke has produced coffee, water, and tea. Pepsi has also introduced “Aquafina” to compete with Coke’s “Dasani”.

These companies can embrace better strategies in each of the above directional practices. To begin with, Pepsi can widen its intensive strategies by developing every product. This approach will produce superior products and attract more consumers. Coke can use powerful advertising strategies to increase the market share of its present products. New integration strategies can focus on different business partners. The firms can open their retail stores and outlets to increase sales. They can also purchase more bottling plants. Coke and Pepsi can transform their diversification strategies by introducing similar products that target new individuals. For example, they can produce specific products for elderly citizens.

It is agreeable that Coke and Pepsi have developed similar business models. However, an intensive corporate strategy can work effectively for the firms. The approach will ensure such products address the changing needs of more customers. They can also acquire more bottling plants to achieve their potentials. However, the “decision to take actions to pursue growth is never a risk-free choice for firms” (Hitt et al., 2010, p. 158). Such approaches will reduce costs and attract more customers.

Reference

Hitt, M., Ireland, R., & Hoskisson, R. (2010). Strategic Management: Concepts and Cases. Boston, MA: Cengage Learning.

Enrico is contemplating changes that would have a wrenching impact on the Pepsi organization. What specific problems is he trying to solve? Don’t simply recite symptoms; dig down and identify the root economic issues

Roger Enrico, President, and CEO of Pepsi Cola are concerned about the following three problems in the company.

1. Whether the conflict between the three divisions hinder the company to compete in the market;
2. Whether the present structure is cost-competitive; and
3. Whether the present organizational structure will be able to meet the challenge posed by the competitors;

Among the three problems identified by him the first problem relates to Human Relations, the second one relates to finance and the third one relates to operations and marketing. It is necessary to sort out all three problems to solve the present critical situation.

There is less cohesion between the three subdivisions of Pepsi Cola. A good organizational relationship is indispensable for the success of any business concern. The present structure of the company seems to be less cost-effective. The present decentralized setup requires individual managerial resources for each division. Every additional resource will add to the total cost structure. Over the years the company’s market share has increased marginally but profitability remains constant as evident from the given financial statements of the company. This shows that the company is not having an effective cost control system. For profitability to increase with the increase in the sales volume, the cost should be minimized accordingly.

Pepsi USA is the major marketing division of the company. They supply the concentrate for the bottling division and perform advertising and other marketing function. The responsibility to supply the bottled product rests with the bottling division. They have a complicated marketing setup and their margin is lower compared to Pepsi USA. Pepsi USA doesn’t have a direct relationship with the customers. But Pepsi Bottling Group takes continuous effort to maintain a good relationship with the customers. Therefore a proper reorganization should be done to solve the problem. Each division should be aware of its responsibility so that there will be less conflict in the future.

Each division should be considered as a cost center and the profitability of each division should be worked out separately. Centralization of activities may reduce the overall cost. In a centralized setup, there will be only one organization and one department for each function. For example, in the present case, there are separate marketing departments for the three divisions of the company. But when centralized a single department will carry out the whole marketing activities.

Roger felt that the present organizational structure cannot meet the challenges posed by the competitors since they had an organizational structure different from its competitors. Coca-Cola is the major competitor of Pepsi Cola who has a greater share in the market. To work out a revised organization Roger appointed a task force consisting of three divisional presidents and the vice president of the HR division. They had given two options for the reorganization of the company. They are fully decentralized and matrix organizations. The pros and cons of these two alternatives are discussed in the next portion.

What are the pros and cons of reorganizing around geographic regions? If you were forced to select one -full decentralization or matrix reorganization- which would you recommend and why?

The two options available for the company are full decentralization or forming a matrix organization. As per the new idea of full decentralization all three divisions will be brought under one umbrella. Only one superior authority will be there for each function. For example, the marketing head of Pepsi in Canada will manage the whole marketing function of his region Canada. This is the case with other functions of financing, HR, etc.

The second option is matrix organization. Under the matrix organization, the marketing function will be decentralized. There will be several regional heads for the marketing function. But the other functions will remain centralized. In short, this follows a mix of centralization as well as decentralization. An overview of the pros and cons of both options will help to understand the right choice for the situation.

Under a decentralized setup, there will be good efficiency of operation as every function will be managed by a single person. Responsibility can be easily identified because there is only one person to whom everybody is accountable. There will be good control over the situation. Duplication of activities is absent in the case of a fully decentralized setup. Though full decentralization has these merits it also faces certain demerits that prevent them from being applied in the organization. Full decentralization will be a hindrance for innovative ideas as there is only one person on the top for each function. Costing will be difficult in the case of full decentralization as the costing information of the whole company has to be managed at a single level.

Under the matrix organization, the marketing function is decentralized and the others are centralized. The major advantage of this method is that except for sales and marketing HRD and Finance would report to the corporate office. So there is no change in the traditional work culture of Pepsi which is a key factor in its success story. Sales and marketing are the major activities of the company. When it is decentralized it will lead to more freedom for regional managers. They can design their advertising strategies and sales incentives depending upon the region.

While comparing both the options it can be seen that the matrix method is much more advantageous. Full decentralization makes a drastic makeover in the organization whereas matrix organization doesn’t make a full change in the existing system. Thus if the system is changed to matrix organization employees will feel at ease as it is leading only to minor changes in the existing setup. The key function of the company is marketing and sales which when decentralized will give an extra competitive advantage to the company. Delivery and service are given great prominence in the new setup.

Pepsico contributed a larger proportion of gross revenues, however, Frito Lay had higher operating income than Pepsico, indicating that the profit margins were higher on Frito Lay. Therefore, on a free cash flow basis, it is Frito Lay product lines that currently contribute the highest returns. The four segments however display very different characteristics. Frito Lay, Pepsico N. Am., and Quaker N. Am., all display the characteristics of mature markets. With the notable exception of Quaker, the other two segments display similar growth in revenue and operating income, which are circa 5.9% in revenues and 6.1% for Frito Lay in operating income, while Pepsico N. Am., has only 3.6% growth in operating income… Quaker demonstrates far lower growth in both metrics. Revenue growth is 4.1% and operating income is only 2.8%.

Using a common-size analysis of the financial statements, the information provided by this analysis allows questions 7 & 8 to be answered. Gross margins during the 2005/07 period are deteriorating, the cost of goods increasing during 2005/07 by 12.8%, as compared to Revenues increasing by +10.1%. This is due to “pricing pressures” (Schilit 2002, pg. 202) This trend continues into 2007/08 with 12.8% and 9.6% changes respectively. The result of this gross margin compression is that operating income and net income decline in 2007/08 by (-3.1%) and (-9.5%) respectively.

Continuing the analysis using the Balance Sheet, it is possible to identify one of the possible drivers of this gross margin compression. In the 2005/07 period, inventories grew by 16.3%. This significantly exceeded the growth in revenues at 10.1%. Schilit states “the Company may have failed to charge the cost of sales, on some sales” (Schilit 2002, pg. 201). It would suggest that the gross margin compression is due to an inability to pass onto consumers, the increased manufacturing costs of products. This may be across aggregate product lines or specific product lines.

An analysis of gross revenues to the product portfolio reveals the following information. In the 2005/07 period, the highest growth was achieved by Pepsi Int. This division grew sales at a 17.8% rate. The slowest growth in revenues was by Quaker N. Am. which only grew sales at 4.1%. These figures were confirmed in the operating income line entry. Pepsi Int. grew Operating Income by 18.2% while Quaker N. Am. grew Operating Income by 2.8%. High commodity prices in this period for raw foodstuffs, make it likely that the margin compression was caused by these high prices (Economic Research 1967-2012). Frito Lay, which has the highest profit margins, which should make it the first choice for increased capital allocation, has slower growth than Pepsico Int. This may well be due to a saturated home market share, and it has become difficult to grow home market share due to competition. International growth would seemingly be the logical area to expand the business. Here, however, Frito Lay products, especially in Asia and Africa, may encounter cultural resistance to these foodstuffs, which simply is not a barrier to Pepsico Int. water-based products.

For current Shareholders, the portfolio as it exists in 2008 needs to be restructured to offer attractive returns. I would suggest that Management would need to restructure in the following manner. Capital expenditures should be reallocated away from the under-performing division Quaker N. Am. to the outperforming division on an international growth basis, Pepsi Int. Management can also, depending upon market conditions, add value to existing Shareholders through purchasing common stock if it falls below the average price of $57.66. (Yahoo Finance 2008). At this average price, the earnings yield is 8.1%. This return exceeds the 6-month money market rates that fell between 4.2% and 2.2% during 2008. (Economic Research 2008) Dividends should only be increased if there are no attractive investment opportunities. With Pepsi Int. growing Revenues at 17.8% and Operating Income at 18.2%, clearly this is a more attractive investment.

References

Economic Research, Federal Reserve Bank of St Louis, [Image] (2008). Line 1: 6-Month Certificate of Deposit: Secondary Market (CD6M). Web.

Economic Research, Federal Reserve of Bank St. Louis, [Image] (1967-2012). Producer Price Index: Crude Foodstuffs & Feedstuffs (PPICFF). Web.

Schilit, Howard. (2002). Financial Shenanigans New York, United States America: R.R.Donnelly & Sons Company, McGraw Hill.

Yahoo Finance: PepsiCo, Inc. (PEP). (2008). Web.

Mountain Dew is an original carbonated soft drink with distinct citrus flavor in a bright green bottle. This product is known worldwide as it is manufactured and distributed by PepsiCo Company. The beverage is destined for youth audiences. As in 1999, Mountain De became the third-largest carbonated soft drink, many advertisers were striving to keep the positions of the beverage thus devising a new image and target audience and considering the lifestyle of people. Later, the situation became critical due to the emergence of non-carbonated soft beverages that attracted a great number of teens. In that regard, the senior management and advertising team were concerned with the advertising campaign of the product and its positions. To resist the growing popularity of the non-carbonated soft drink, BBDO and Bruce’s team focused on the new packaging policy introduction.

In order to increase the popularity of the product, the promotion campaign of Mountain Dew applied different methods of advertising. Hence, Bruce and Cassar attempted to introduce the cultural elements to the drink such as music, sport, and lifestyle. Initially, the drink is planned to be destined for rural teens so that Dew Mountain was known as the drink for country people. The advertisers were striving to follow the latest tendencies in music and apply them to the brand name. Further, Mountain Dew was more oriented on the sports event so that the ads team adjusted to the new sportive environment.

PepsiCo attempted in inventing the new flavors presented by Diet Mountain Dew. The limited distribution was also concentrated in the rural areas in order to increase the demand. It is no wonder that innovated product was a great success due to the consistent and rather purposeful strategy of Bill Bruce.

The Super Bowl presentation provided considerable changes to the advertising, improved retail sales, and increased the popularity of the product. The original TV ads that appeared on the music channels and TV programs for teenagers had a great success thus attracting a great deal of attention. Hence, the advertisements expanded the appeal of mountain Dew and broadened the target audience among the present users. The new bottle was designed predominantly for males 18 years old who are ready to face challenges and adventures. To my mind, the name perfectly suits the objectives and the target of potential buyers. As, initially, Super Bowl, is associated with great sports events, it was in high demand among sports celebrities and fans.

Super Bowl advertising became the new stage of Mountain Dew development as it was oriented toward a diverse audience. The news campaign made the product more competitive and demanding. As a result, the increasing sales provided the advertising teams with the new incentives and desire to work further. They proved that using one of four P’s in marketing properly could greatly influence the other three ones.

From my point of view, communication is an inherent component of the successful promotion of the product. The care for demographic profile and the changes in society is of great significance since they stipulate the basis for the advertisement devising. The creation of the Mountain Dew brand was also encouraged by new communication strategies. However, the fact that Dew’s communication objective underwent minor alterations, helped to preserve the existed image and popularity.

References

Marketing, marketing in the 21st century, 11th edition, by Joel R. Evans/Barry Berman.

Company Profile

Pepsi Company (Pepsico) produces and sells various types of products such as sweet, salty, grain-based snacks, convenient, non-carbonated, and carbonated beverages (Pepsico.com). The firm has a collection (portfolio) of brands like Lay’s, Quaker, Tropicana, Gatorade, Doritos, and Pepsi (Pepsico.com). Most bottling infrastructures in North America are owned by the company although it directly distributes to stores while in the international markets, Pepsi uses independent bottlers (Morningstar.com).

PEP Security Price

On March 10, 2011, the stock of the Pepsi Company was at a low of $64.12, and a volume of 8.7 million worth of stocks was traded closing the day for $64.43 (Ycharts.com). The market was bearish on 14 March as the price ranged from a low of $64.33 and dropped to $62.05 with a trading volume of 8.4 million, the lowest price that was recorded was on March 16 (Ycharts.com). The price increased steadily since that day with the stock taking a bullish trend meaning most investors in the market started to buy more PEP stock for $62.91. The investors expected that the stock would do well in the future and that was the reason for the increased trading in the company’s stock. The stock recorded the highest price of $71.78 with a trading volume of 5.2 million on May 19, 2011; the investors started to dispose of their share at this price as a result of price decrease by $1.33 to $70.45; this means that the market was bearish (Morningstar.com).

On June 1, the stock opened for $70.58 and dropped to $68.78 on June 3, 2011; the lowest price to be made by the stock was $68.49 on June 8, 2011(Ycharts.com).

The stock trend may have been attributed to a high price/ earnings ratio of 18.4 compared to the industry average of 10.4, many investors were ready to pay a higher price for the stock than the other firms in the industry due to the high revenue growth rate of 13.6% compared to the industry growth of 9.9% (Yahoo.com). The company attracted a market value of $5 per share if it was going to operate as a going concern; this implies that the firm market value was very high compared to the industry average of $2.3 (Pepsico.com).

Financial Ratios

The shareholder’s equity was not exposed to leverage risk as the debt/equity ratio of the company was at 100% compared to 130% of the industry which means that the Pepsi Company’s competitors were highly geared. Therefore, the investors were more willing to buy and sell Pepsi stock to make capital gains. On the other hand, the recent cash dividend was declared at $0.5150 and it is expected to grow at 3% in the future, this implies that long-term investors bought the stock to earn higher dividends in the future (Bestgrowthstock.com).

The PEP beta is 0.6 which can be interpreted to mean that the security is less risky than the market (Standard & Poor Index). It implies that if the returns of the Standard & Poor index moves by 1% relative to the average then the return of the PEP security will vary by 0.6% relative to the average (Yahoo.com). The PEP security is influenced by the beta coefficient since all other variables already exist in the market (Yahoo.com). The low-risk investment on the PEP security explains the bullish trend in the last 3 months as more investors bought more than they sold to earn dividend income (NASDAQ.com).

Conclusion

In conclusion, Pepsi Company Security (PEP) is less risky than the market; this means that the investors can buy the security at its lowest price and hold to earn dividend income.

For the risk-takers this is not the best security to buy based on the last 3 months’ analysis since the risk is very low, it is best preferred by the risk-averse investors.

Works Cited

Bestgrowthstock.com. “Stock market trading activities”, 2011. Web.

Pepsico.com. . “Pepsico Inc,” 2011.

Morningstar.com. “Pepsico Inc.” 2011. Web.

NASDAQ.com. “Info Quotes”, 2011.

Yahoo.com. “Investing”, 2011. Web.

Ycharts.com. “Analysis”, 2011. Web.