Comprehensive Situational Analysis
For PepsiCo:
Strong production and distribution techniques increase
company value and profit.
Presented by the Marketing Magnates Team
Aaron Bowen
Conor Buckley
Patrick Hoover
Vernon Irvin
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Situation Analysis
The Marketing Magnates team was tasked with conducting a situation analysis of
PepsiCo. The purpose of this analysis is to determine the current state Pepsi is in as
a company in the soft drink industry. After careful research, it can be determined
that strong production and distribution techniques have increased Pepsi’s company
value and profits. The Marketing Magnates team has carefully analyzed Pepsi
through a series of analyses, including a company and industry analysis, competitive
analysis, SWOT analysis, and market analyses. All of this can be followed up by a
concise statement of problems and opportunities. It is through this collection of
data and information that we will evaluate Pepsi’s strong position in the soft drink
industry.
Company and Industry Analysis
PepsiCo is currently in an excellent position within the soft drink industry. The purpose
of a company and industry analysis is to evaluate where a company stands within itself as
well as in relation to its industry. In a highly competitive industry, it is important to have
a sustainable advantage, and Pepsi has made strides to obtain just that. To put themselves
in a positive situation, the company has made maximized its profits through product
diversity. Pepsi has achieved company stability with its brand portfolio and recent
acquisitions have boosted profits. In terms of the industry, Pepsi has worked hard to
develop positive public perception and has been forced to deal with government taxation
and bans. Fortunately, the industry is still thriving and Pepsi is on its way to becoming
the number one soft drink company. Through various methods, Pepsi is one of the most
profitable and successful companies.
Maximized Profits through Product Diversity
One of the main ways Pepsi has positioned itself to maximize profits is through product
diversity. Pepsi has a great brand. Knowing what Pepsi owns can help determine where
the company stands and who it has the ability to reach. Business Week and Interbrand
valued Pepsi brand at $13,249 million in 2008 (Business Week & Interbrand, 2008, para.
8). This shows that the brand alone has a giant influence on the industry. Furthermore,
Pepsi owns 18 mega brands, which are known around the world and generate annual
sales of over $1 billion each. Pepsi is not only made up of beverages. It has diversified its
products with bottled water and snacks as well. According to PepsiCo’s official website,
Pepsi offers a wide array of beverages including Pepsi, Diet Pepsi, Gatorade, SoBe Life
Water, and Aquafina (“Pepsi-Cola Brands”, 2011). Pepsi also extends its offering into the
snack food sector, owning Frito Lay and Quaker. This large diversity of products is one
of the main reasons Pepsi is such a massive dominating company.
Company Stability and Brand Portfolio
Pepsi has substantial opportunity for growth. Pepsi’s sales are a good indicator of its
stability. According to PepsiCo.com, their performance and purpose are not separate—
they each are linked inextricably with the other. In its mega-brand portfolio, Pepsi now
has nineteen $1 billion brands (“Mega Brands,” 2011). Pepsi’s revenue has continuously
risen over the years. According to Standard and Poor’s, Pepsi’s most recent revenue is
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$17,582 million compared to $15,514 million at the same exact time one year prior (S&P,
2011). By focusing on expansion tactics, Pepsi can increase its customer base and further
establish itself as a leading brand in the soft drink industry.
Recent Acquisitions Improve Pepsi’s Position
In 2010, the Pepsi Company consolidated its two largest bottlers: Pepsi Bottling Group
and PepsiAmericas. When and where a product is bottled and produced impacts the
factors of production. Having various locations makes it easier and more efficient to ship
around the world. According to Pepsi Bottling Ventures, it has 26 locations in North
Carolina, New York, Maryland, Delaware, Vermont, Idaho, and South Carolina.
Acquiring PepsiAmericas and the Pepsi Bottling Group gives PepsiCo control over the
majority of its North American bottling and distribution volume. This has allowed the
company to cut costs as well as respond to changes in the supply chain.
Public Perception and Going Green
The public’s view of the industry is important to success as a whole. Recent concerns
over environmental factors have crossed over to the soft drink industry, as more and more
individuals are concerned with “going green.” Standard and Poor’s says that “Pepsi has
teamed up with Waste Management Inc. to place up to 3,000 recycling kiosks in busy
places (such as stores, stadiums, and public parks), with the aim to recycle at least 400
million containers annually (S&P, 2011). By capitalizing on changing consumer
perceptions, Pepsi has improved its overall standing with potential customers.
Government Taxation and Bans of Soft Drinks
In addition to the health and environmental concerns of the industry, government
regulation also has a great impact on the beverage manufacturing industry. Taxes impact
the industry directly. There have been several debates of whether or not a tax should be
implemented on sugary soft drinks. With obesity rates on the rise, soft drinks are one of
the first to blame.
Bans can also hurt the industry greatly. The government does this in order to limit
consumption of unhealthy products. One example of an instance where the production of
beverage manufacturing decreased is as a result of Boston Mayor, Thomas Menino. He
announced an expansion of the city’s existing ban on sugary drinks in schools to all city
properties and functions. Menino ordered this so that vending machines in city buildings
were given six months to remove the products. The ban included sodas, sports and energy
drinks, refrigerated coffee drinks, and juices with added sugar (Irons, 2011, para. 1).
Another instance occurred in New York City, where Mayor Michael Bloomberg
proposed a ban of the use of food stamps to buy sugar-sweetened beverages. Bloomberg
claimed that this would help lower obesity and diabetes and give those in need more of a
chance to use food stamps on food that provide real nourishment (Diemer, 2011, para. 3).
With health concerns on the rise, the soft drink industry is at risk.
The Future of the Soft Drink Industry
It is important to look at the possible future of the industry in order to know how secure
an industry is. According to Standard and Poor’s assessment on the Food and Beverage
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Industry, in the near future the U.S. beverage industry will be engaging in a labeling
initiative to better portray nutritional information on food and beverages. To be
completed by 2012, the initiative will be led by the movement of calorie and nutritional
information to the front of labels from the back, making information more visible to the
consumer.
The future of the nonalcoholic beverage industry will show major companies refocusing
their product lines as well as acquiring new brands. Coke, specifically, has made many
attempts to buy companies. In 2009, China blocked a $2.4 billion bid from Coca-Cola to
acquire China Huiyuan Juice Group Ltd, who claimed it would be bad for competition
(Wei and Munroe, 2009, para. 1). The beverage manufacturing industry will always
continue to grow. In general, there will be various growth opportunities for the beverage
industry in the U.S., and will continue to have a great impact on the market.
Competitive Analysis
Analyzing the competition is important to the development of strategies that will help a
company acquire a sustainable competitive advantage. The purpose of a competitive
analysis is to determine how a company matches up to its competition. Pepsi’s main
competitor has been Coca-Cola for over one hundred years now, but it also competes
heavily with the brand Sam’s Choice made by Wal-Mart. Pepsi is continuing its growth
and will remain ahead of Coca-Cola and Sam’s Choice in annual revenue. Each of these
companies has distinct advantages, but Pepsi has shown that it has the tools to continue
its trend in growth to maintain distance from Coca-Cola and Sam’s Choice. Pepsi will
remain ahead by maintaining growth through strong product diversity, a united brand,
targeted marketing efforts, and competitive pricing.
Pepsi’s Strong Growth Since 2005
Pepsi has maintained solid growth for a number of years and has surpassed Coca-Cola in
the process. Pepsi has had higher revenues as a company than both Coca-Cola and Sam’s
Choice. The revenues for 2010 can be seen in figure 1 below.
2010 Revenue
$70.00
$60.00
$57.84
Revenue in Billions
$50.00
$40.00
$35.12
$30.00
$20.00
$10.00
$1
$0.00
Pepsi
Coke
Sam's Choice
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Figure 1: 2010 Revenue, Adapted from Company Income Statements, 2011.
The graph shows Pepsi’s dominant position over Coca-Cola and Sam’s Choice. Pepsi has
been growing strongly over past years to get to the point in which the company has
reached today. Pepsi did not surpass Coca-Cola in revenue until 2005 and since then,
Pepsi’s annual revenue has continued to increase as seen in Figure 2.
Figure 2: Pepsi Revenue and Income. Reprinted from “PepsiCo: Dividend Stock Analysis,” By Seeking
Alpha, 2011, Para. 1.
This shows continued growth over 5 years with no signs of stopping. Using the trend of
past years, it can be determined that Pepsi will continue to grow in the years to come.
Diverse Grouping of Products
Pepsi has become a strong competitor in both the soft drink industry and the snack food
industry. As of 2009, Pepsi’s beverage holdings accounted for roughly 50% of the
company’s total revenue (Business week, 2010). Pepsi’s offerings in the beverage
industry include Pepsi, Diet Pepsi, Gatorade, Tropicana and Aquafina. In the snack food
industry, the company has bought Frito Lay and Quaker which greatly diversify its
product line in this industry. Having diversity into other industries helps stabilize growth
by reducing the impact of losses in one industry by offsetting them with gains in another
industry.
Coca-Cola has stayed primarily in the soft drink industry with offerings such as Coke,
Diet Coke, Sprite, Minute Made, Nestea, Vitamin Water, and Dasani. Although CocaCola has a higher market share in the soft drink industry, it does not have enough
dominance to make up for the diversified product line of Pepsi. In 2008, Pepsi held a
market share of 30.8% while Coca-Cola held 42.7% (Sicher, 2009). Even though Pepsi
falls behind in this area, it is still leading Coca-Cola by more than $20 billion in annual
revenue as seen in Figure 1.
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Sam’s Choice is a much smaller brand, but has taken Pepsi’s diversification to the next
level by offering a very wide array of products. These products include sodas, fruit juices,
crackers, chips, and cookies, but also include quality T.V dinner meals. Sam’s Choice has
expanded to include almost every prepackaged food that one can think of.
The Image of One United Brand
In 2009, PepsiCo bought out Pepsi Bottling Group and Pepsi Americas, its two largest
bottlers in North America. This has proved to drastically increase revenue between 2009
and 2010 as seen in Figure 2. Pepsi has done this in an attempt to streamline business.
After the acquisition, Pepsi saw a decrease in costs associated with distributing its
products. “There will be chances to cut costs through the integration of some of its
distribution channels and consequent elimination of duplicate jobs (Knapp, 2009,
para.7).” By reducing unnecessary jobs, Pepsi will increase efficiency which, in turn, will
increase profitability.
Based on recent efforts by the company, Coca-Cola also thinks buying bottlers will
streamline the company. Coca-Cola has also begun buying its bottlers in North America.
“Great Plains Coca-Cola Bottling Co., the fifth-largest independent Coca-Cola bottler in
the U.S., agreed to be acquired by The Coca-Cola Co. for $360 million (Yahoo News,
2011, Para. 1).” By looking at what Pepsi has achieved by buying its bottlers, it is not
unrealistic to think that Coca-Cola could see a similar increase in revenue. Even with an
increase in revenue similar to Pepsi after buying its bottlers, Coca-Cola will still be
behind Pepsi in terms of annual revenue.
Using New Marketing Channels
Marketing is one of the major ways a company makes sales. A good marketing campaign
will increase the strength of a brand. Pepsi has begun cutting television advertising in an
attempt to increase online advertisements. Pepsi, as a result, will not be advertising in the
upcoming Super Bowl (Evangelista, 2011, Para. 2). Although the company has reduced
T.V advertisements, it still continues to sponsor sporting events and athletes.
Coca-Cola sponsored the World Cup in South Africa in 2010, which increased popularity
amongst people from the region. The company also tends to increase advertisements
around holidays, which help boost sales during these periods of time (CNBC, 2010).
Sam’s Choice is much different from these two companies when it comes to marketing.
The main disadvantage is that Sam’s Choice is only sold in Sam’s Club and Wal-Mart.
This reduces the size of the potential customer base. Wal-Mart does not have direct
advertising for the Sam’s Choice brand. Wal-Mart stores are advertised as a whole. Sale
prices, however, can be found in circular papers mailed out weekly. This approach to
marketing saves money and allows prices to be lowered even further.
Pepsi’s Pricing Strategy in Relation to Competitors
The price of each company’s products is also a determining factor in success. Pepsi and
Coca-Cola compete directly and have kept prices even between its brands. Sam’s Choice
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indirectly competes with both Pepsi and Coca-Cola. As the smallest company in the
analysis, Sam’s Choice has to differentiate its company from the two larger ones. The
company does this by competing on the basis of price. Sam’s Choice offers a quality
product at a lower price than the other two competitors. This strategy has captured the
value minded customer that still wants a quality product. The price difference can easily
be seen when looking at the price of a 12 pack of soda. By using Wal-Mart’s webpage to
get a more fair comparison between the brands, the difference in pricing can be seen in
Figure 3.
12 Pack Pricing
$4.00
$3.65
$3.66
$3.50
Cost of a 12 Pack
$3.00
$2.80
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Pepsi
Coke
Sam's Choice
Figure 3: 12 Pack Pricing. Adapted from Walmart.com, 2011.
With such a difference, price sensitive shoppers will tend to stray away from Pepsi and
Coca-Cola and go with the lower priced product. Sam’s Choice understands that the
people that shop at its sponsored stores are value-oriented and the company has done its
best with the Sam’s Choice brand to continue providing its customers with the products
they desire.
Pepsi Has the Tools to Remain Ahead
Pepsi has built a company that has grown over the past few years. The company’s
growth shows its ability to develop and prosper far into the future. By having great
product diversity, becoming a united brand, using targeted marketing, and having
competitive pricing, Pepsi should have no trouble in achieving sustainable growth.
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SWOT Analysis
As part of the overall situational analysis, the Marketing Magnates team researched
PepsiCo by taking a SWOT analysis. This was required in order to get a better
understanding of where Pepsi stands both internally and externally. From this research, it
is clear that Pepsi’s strengths and opportunities outweigh its weaknesses and threats. The
company’s diverse and growing product range and market are helping it catch up to the to
the industry leader Coca Cola, its biggest threat.
Strengths
Pepsi has much strength as a company. It has grown and developed over its several years
in business and has truly established itself in the soft drink industry as one of the leading
competitors. Pepsi handles its company internally through a diverse product portfolio, an
easily recognizable brand name, a strong production and distribution network, and a well
developed marketing strategy. The strengths Pepsi possess have promoted success and
recognition over the years.
Diverse product portfolio. Pepsi has a diverse product portfolio. PepsiCo is not only the
second largest soft drink manufacturer, but also have a leader in the snack industry with
its assortment of food products as well. This is unlike Pepsi’s top competitor, Coca Cola,
which only plays a role as a soft drink manufacturer. It is a mix of soft drinks and snack
foods that, according to PepsiCo’s annual report, make up its “mega brands.” Each mega
brand generates over one billion dollars annually for the company. In 2010, PepsiCo had
19 mega brands, up one since 2008 (PepsiCo, 2010, para. 1). Also stated in the 2010
annual report, the company’s net revenue is almost evenly split between beverages and
food with 51 and 49 percent respectively (para. 3). This shows how PepsiCo has a large
variety of profitable products and is continuing to grow.
Easily recognizable brand name. Pepsi also has an incredibly well known and
recognizable brand name. PepsiCo has been manufacturing Pepsi Cola, now known as
just Pepsi, for over 100 years. This makes it a well trusted company with many loyal
customers. According to the PepsiCo website, the company has the second highest
market share in the soft drink industry, trailing Coca Cola (PepsiCo, 2010, para. 4). Pepsi
products are sold worldwide with its name being well known in the beverage industry in
many countries. PepsiCo’s top brand, Pepsi, was ranked the 26th out of the top 100
global brands according to Interbrand (SWOT Analysis PepsiCo, 2011, para. 1). Being
such a well-known company for so long, it is clear that their brand name helps them
financially in the market.
Strong production and distribution network. A key component to Pepsi’s success is its
strong production and distribution network. PepsiCo has many distribution facilities
worldwide. This allows for Pepsi to be a relevant company in the industry in many
countries with local facilities to millions of people. An advantage that PepsiCo has over
Coca Cola is that it was the first of the two companies to acquire their own bottling
company instead of importing bottles from another manufacturer. This saves Pepsi time
and money so it can now minimize bottling expenses. Not only is the company saving
money with manufacturing, but also maximizing profits through distribution.
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Well developed marketing strategy. Last, but certainly not least, is Pepsi’s marketing
technique. PepsiCo has a very strong marketing campaign. The company sponsors many
different sporting events and television shows. These include numerous NFL, MLB, and
NHL sporting events, and new popular television shows such as The X-Factor. Each of
these receives millions of viewers per event which constantly puts the company in the
public eye. With Pepsi products always being seen with these major athletes and judges,
they are more likely to be purchased by customers when seen in stores or while at these
events because of the connection they make between them and the product. The
customers associate the athletes with Pepsi and will want to be more like them, in return
buying more Pepsi products.
Weaknesses
Like any other company, Pepsi does have some weaknesses in which it needs to
overcome. Before Pepsi is able to claim the top position in the soft drink industry, it
must realize its weakness and take the necessary steps to improve. Overdependence on
single companies, negative publicity and recalls, a concentration of business in North
America, and low operating margins overseas are all areas where Pepsi can improve.
Overdependence on single companies. Pepsi has overdependence on single companies.
According to PepsiCo’s 2008 annual report, Wal-Mart accounted for 12 percent of net
revenue (PepsiCo, 2008, para. 3). This may seem like a good statistic since Wal-Mart is
such a large and growing company, but since Wal-Mart’s sales pitch is “Always low
prices. Always. Wal-Mart” (Elliott, 1994, para. 3), it causes Pepsi products to sell for
minimal profit. Also, if for some reason Wal-Mart were to have financial problems,
although not likely, it would have huge side effects on PepsiCo due to the large loss of
revenue generated through the company.
Negative publicity and recalls. Pepsi has also struggled with negative publicity in the
past. A few Pepsi products have been forced into being recalled over the past couple
years. In 2008, PepsiCo’s Aunt Jemima pancake and waffle mixes were recalled due to
trace amounts of Salmonella found in the mixes (Swot analysis pepsico, 2011, para. 8).
Another recall in 2011 was a bit harder on the company. “According to the CSPI, soda
brands like Coca-Cola and Pepsi derive their ‘caramel colorings’ from chemicals known
to cause cancer.” (Parsons, 2011, para. 2). Although bad for the company, it also affected
the Coca Cola Company. Therefore, Pepsi’s competition was not able to benefit from its
loss.
Concentration of business in North America. Although being a global company, most of
their revenue is received from sales in North America from the United States, Canada and
Mexico. This results in a clumped business concentration. According to MBA Lectures,
“the company generates 52 percent of its sales from the U.S.” (2010, para. 3). The
problem with having such a large percentage of revenue from single countries is that loss
of sales in those countries would be detrimental to the company. For example, an
economic downturn that may occur in a region of high sales revenue could cause a large
drop in sales and cause the whole company to feel the downturn as well.
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Low operating margins overseas. With most of its revenue generated in North America,
PepsiCo is falling behind to the competitor Coca Cola in overseas sales. “PepsiCo is far
away from leader Coca-cola in the international market – demand is highly elastic”
(Brady, 2010, para. 8). If PepsiCo wants to be able to compete with Coca Cola, it needs
to be able to generate similar revenue from sales overseas.
Opportunities
Pepsi can certainly realize areas in which opportunities can be taken advantage of. In
order to grow and develop, Pepsi must capitalize on areas that provide an opportunity for
increased profits and public portrayal. Some areas Pepsi has begun to take advantage of
include expansion internationally, further development in the bottled water sector,
expansion into social networking and online advertising, and company acquisitions.
Ability to expand internationally. Pepsi always has room for international expansion. In
relation to the previous weakness point, PepsiCo is doing more to increase sales overseas.
According to SWOT Analysis PepsiCo, “PepsiCo is in the midst of making a $100
million investment in China, and a $500 million investment in India” (2011, para. 10).
These investments are in manufacturing plants in these countries. Having these
additional plants will increase local sales in those countries nearby. This Asian generated
revenue will spread the company’s global sales.
Increased sales in the bottled water sector. A growing influence in the bottled water
sector also provides great opportunity. Bottled water sales have drastically increased
over the past few years and PepsiCo is taking advantage of this. The company has plain
bottled water, Aquafina, and flavored bottled water, SoBe Life Water. With many people
looking for bottled water, they now have multiple Pepsi options to choose from making
the bottled water market very profitable for the company.
Expansion into social networking and online advertising. PepsiCo is taking a risky
move this year and deciding not to run any Super Bowl commercials. Instead, the
company is focusing on online advertising. As stated on internetworldstats.com, on
March 31, 2011 there were over 2 billion people who have internet access (2011, table 1).
With so many people accessing the internet around the world, the online advertisements
will reach millions of people, many which would not watch the Super Bowl, thus
potentially gaining more customers. Another technique is the use of celebrities. PepsiCo
uses celebrities such as Britney Spears in their commercials and online advertisements.
Viewers begin to associate the Pepsi brand with the celebrities and will be swayed to
purchase Pepsi products so be similar to the celebrities.
Company acquisitions increase efficiency. Finally, and possibly most important, are
Pepsi’s recent acquisitions. According to SWOT Analysis PepsiCo, “[PepsiCo recently
acquired] Russia’s leading Juice Company, Lebedyansky, and V Wwater in the United
Kingdom” (2011, para. 9). With these acquisitions, PepsiCo is able to deal with one of
their weaknesses, low operating margins overseas. The company is now expanding its
product range even more while becoming more profitable in Russia and the United
Kingdom, along with the surrounding areas.
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Threats
Externally, Pepsi must be aware of possible threats to its success. Pepsi has the potential
to be the number one company in the soft drink industry. Part of reaching that goal
understands where the company may be threatened. Such areas include the concern over
health and wellness, intense competition within the industry, constant brand changing,
and government and legal regulations.
Concerns over health and wellness. Health concerns have become a major issue. With
obesity becoming a problem faced or feared by many, those people are now looking for
healthier alternatives than sodas for beverages. As stated, “Carbonated drink
consumption has been decreasing due to the [link between] sugar and obesity [and] heart
disease” (MBA Lectures, 2010, para. 5). Although the sluggish growth in sugary drinks
may push some customers away from the Pepsi brand, the availability of bottled water
from PepsiCo becomes another option to the health conscious customers.
Intense competition within the industry. The soft drink industry is highly competitive,
causing Pepsi to compete with relatively high stakes. As stated previously with having a
recognizable brand name, PepsiCo has the second highest market share of soft drinks
behind Coca Cola Company. Coca Cola Co. is outselling PepsiCo, and the company
needs to find ways to better compete with its competition. The recent acquisitions and
expansion overseas may be what PepsiCo needs to potentially pass Coca Cola Company
in soft drink market share. On the food side of their business, Kraft foods are a big
competitor. Competition between these competitors can cause the price of products to
drop.
Constant change becomes overwhelming. Adapting to change is a positive quality to
any company; however constant change can prove to be detrimental. PepsiCo has
changed its logo numerous times since being created. New looks keep the design trendy
and may attract new customers to the product. The company has also are recently
changed the size and shape of its diet cans to make the product seem more marketable.
That being said, there has been some backlash from this decision. In an article posted by
Advertising Age, the National Eating Disorders Association has expressed outrage over
the can, saying it "takes offense" to the idea. "Pepsi should be ashamed for declaring that
skinny is to be celebrated," said Lynn Grefe, president-CEO of NEDA (Zmuda, 2011,
para. 10).” Although these changes are done to draw in more customers, current
customers may question the need for the changes and wonder if the product has changed
with the design. This could make some customers weary of continuing to buy a product
that they cannot stay familiar with.
Government and legal regulations. Government and legal issues are important to adhere
to in order to avoid negative consequences. There are many government regulations
being put on the industry such at soda and import taxes. With the soda tax PepsiCo need
to decide whether to raise the price and put the expense on the customers, potentially
losing some, or to keep the price the same and take the tax expense upon themselves,
decreasing profitability. Another issue would be the increased price of sugar where
PepsiCo has to make similar decisions as to what they do with the increased fees.
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Being Aware of Pepsi’s Position
Analyzing strengths, weaknesses, opportunities and threats allow companies to progress
forward and take the steps necessary to succeed. In focusing both internally and
externally, marketing efforts can be made to ensure profit maximization and customer
satisfaction.
Market Analysis
One of the most crucial aspects to the development of a marketing plan is the
analyzing of the current market. The purpose of a market analysis is to provide
insight to where a company, being Pepsi, lies in the market and the steps necessary
to improve and sustain a higher position in that market. Pepsi’s status in the market
has improved drastically due to its recent acquisitions. Since Pepsi’s acquisition of
its two major bottling companies, Pepsi Bottling Group and PepsiAmericas, the
company has experienced an increase in sales and revenue. Its place in the market
is improving and the company is well on its way to becoming number one in the soft
drink industry.
Pepsi’s Extensive Target Market
In order for a company to be able to attract an audience, it must identify a target market.
Due to extensive product diversity, Pepsi has the ability to target many different
consumers with its different products. The company does not limit itself to picking and
choosing one group over another, but rather offers something for everyone. Pepsi targets
kids with both its soft drinks as well as its Gatorade line. Kids in commercials can be
seen enjoying various types of Pepsi products. Products in the Pepsi line such as Diet
Pepsi also reach out to a certain audience. In 2011, Pepsi launched a new form of its diet
soda can to appeal to a larger consumer population. According to Prepared Foods, the
company launched the “taller, sassier new skinny can” during New York’s Fall 2011
Fashion Week in February in order to provide a perfect complement in today’s most
stylish looks (2011, para. 6). One final major target market of Pepsi are those who have
ideas for the future, whether they are college students or business owners alike. In 2010,
Pepsi launched the Pepsi Refresh Project in the form of the website
www.refresheverything.com. According to a 2010 press release by PepsiCo, the website
accepts idea submissions designed for the common good, whether it be helping the
environment, education, the community, or virtually anything else to contribute to
society. The initiative launched in 2009 and has given out millions of dollars in grants
through an online voting system over the past two years. Pepsi promotes incentives to
give back to the environment and those around you through this innovative project.
These only represent a few of Pepsi’s target markets.
Pepsi’s elaborative product line can target mass individuals through various promotional
means. The company does not limit itself to one particular target market such as kids,
men or women. Through its various beverages such as Pepsi, Gatorade, and Aquafina, to
its snack market including Fritos and Cheeto’s, Pepsi has made a name for itself by
targeting the masses.
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Pepsi’s Vast Product Diversification
Pepsi specializes in a wide variety of products. It is a crucial component to both the soft
drink industry as well as the snack industry. For the purpose of this situation analysis, the
Marketing Magnates team has chosen to focus on Pepsi’s role in the beverage industry.
Pepsi specializes in drinks such as original Pepsi, Diet Pepsi, Mountain Dew, Gatorade,
Aquafina, and more. The company has a broad line up of beverages that can reach out to
multiple persons. Most of Pepsi’s success comes from its carbonated beverages, though
its expansion into the bottled water market has proven to be quite beneficial. Ultimately,
the Pepsi Company tries to engage in diversification to provide multiple products that
will keep consumers happy and loyal.
Promotional Strategies Build Consumer Base
Pepsi participates in many promotional strategies to get its name across to potential and
current consumers. For starters, Pepsi has always recruited help from celebrity
endorsements. Pop stars such as Britney Spears and Mariah Carey have starred in
commercial roles for Pepsi throughout the years. The company also enlists the help of
major sports stars, such as David Beckham. Along with celebrity endorsements, Pepsi
recently launched a tremendous promotional campaign with the new Fox show, The XFactor. Pepsi is a major sponsor for the new show, as indicated by its website and several
television commercials promoting the show. On the show, the judges and contestants can
be seen drinking Pepsi products. On every commercial break, there is at least one Pepsi
commercial that coincides with The X-Factor. Finally, according to the show’s judge and
creator Simon Cowell, the winner of The X-Factor will land a role in a new Pepsi
commercial. This shows how truly invested Pepsi is in the program. One final major
promotional tactic in which Pepsi has engaged in recent years has been its growing
internet presence. According to the Pepsi website, Pepsi has over 6.1 million likes on
Facebook, over 150,000 followers on Twitter, and over 15,000 subscribers on YouTube.
In the social networking society we live in today, it is crucial to be able to reach out to
consumers through various websites. Pepsi has done an incredible job with capturing the
essence of social networking and gaining a fan base through the Internet. Ultimately,
Pepsi’s promotional tactics are as diversified as its product line.
Getting Pepsi Products to its Customers
Pepsi depends on a variety of retailers to supply its consumers with its products. Pepsi
products can virtually be found in any grocery store across the globe. Its well developed
brand name makes it one of the most common beverage companies around. As
mentioned in the SWOT analysis, Pepsi has an extreme reliance on Wal-Mart for its
distribution. 12 percent of Pepsi’s revenue comes from its Wal-Mart distribution. Along
with grocery stores, Pepsi also engages in quick service tactics, such as vending
machines. This allows Pepsi products to be found virtually anywhere. Finally, Pepsi also
sponsors some college campuses, such as Towson University. Towson is a Pepsi based
campus and no competitor products can be found for sale on the campus. In 2011, Pepsi
completed a merger between Pepsi Americas and the Pepsi Bottling Group. According to
a merger agreement press release posted by PepsiCo, the unification of these two bottling
groups with further establish Pepsi’s place in the market. According to Yahoo! Finance,
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PepsiCo has experienced significant quarterly gain since the merger. Revenues have
increased and the owning of its bottling company has influenced Pepsi is a positive light.
Increase in Expansion and Product Demand
The demand for Pepsi products is constantly growing. In recent years, Pepsi has
expanded into the global market and has attracted new consumers like never before.
There is a constant demand for shelf space in both the beverage and snack industry and
annual revenues have proven Pepsi to be a major competitor. Pepsi tries to reach its
consumer demand through various promotional means and new, innovative products.
Pepsi’s new diet can, for example, was developed due to a demand for a classier, sleeker
look. Pepsi has open communication with its consumers to remain consistent with its
demand as well. The demand for Pepsi products is never ending.
Pepsi’s Competitive Pricing Strategy
Pepsi’s pricing strategy is directly correlated to its competitors. Its main competition,
Coke, tends to fuel its pricing techniques and methods. For example, if its competition is
pricing a two liter bottle at $1.59, Pepsi must adhere to that and price its product at the
same or lower. Due to the fiercely competitive nature of the soft drink industry,
competitor-based pricing is a necessity in order to maintain strategic foothold. That
being said, outside factors also contribute to Pepsi’s pricing strategy. Taxes and
increased sugar costs are just two examples of how outside influences can contribute to
pricing strategies. Pepsi tries to keep its product within reason, offering sales and
discounts when possible while still charging a reasonable amount for its products. If
Pepsi wants to continue its success, it must constantly be aware of external factors that
will have a role on its prices.
Pepsi’s Piece of the Market Share
According to Market Share Reporter, in 2010, Pepsi products represented 23.6% of the
total market share in top carbonated soft drinks. This includes Pepsi, Diet Pepsi,
Mountain Dew, and Diet Mountain Dew. This statistic also only focuses on carbonated
beverages. Prior to the merger and formation of the Pepsi Beverages Company, Pepsi
represented the second largest bottler in 2010, coming in at a worth of $18.3 billion. This
number is expected to increase by the end of 2011. Ultimately, Pepsi is a major force in
the soft drink market share.
The market share of Pepsi is steadily increasing. With the merger of PepsiAmericas and
the Pepsi Bottling Group, Pepsi can focus its efforts on a single entity and improve its
place in the market. Having one entity will allow Pepsi to increase overall market share
and keep a close eye on distribution methods. The soft drink industry is highly
competitive, and therefore big moves such as the PepsiCo merger must be taken in order
to secure a top place in the market.
Pepsi mainly competes with Coke products for market share. Both Pepsi and Coke have
several diverse soft drink products that compete with one another for market share. Both
original and diet drinks each have a specified place in the market and compete with one
another. There is also a rather large “other” category in the soft drink industry, which is
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comprised of all other “smaller” brands that compete with Pepsi and Coke. This is where
Sam’s choice comes into play. The soft drink industry is rather large, and therefore there
are many companies that compete with one another. Some Pepsi products do in fact
compete with one another in the market. Pepsi, Diet Pepsi, and Mountain Dew are just a
few of Pepsi’s products that are constantly vying for the spotlight. Self competition can
be healthy as it is not essentially harming the company, but rather showing its
diversification and overall power in the market place. It is also beneficial to keep an eye
on how individual products are doing in order to increase promotion where necessary and
know where strengths lie.
Statement of Problems and Opportunities
Following extensive research on the current situation of Pepsi, we are now able to tie
everything together. The purpose of a statement of problems and opportunities is to
provide information regarding what can possibly exacerbate Pepsi’s current situation,
found in problems, and what can enhance Pepsi’s current situation, found in
opportunities. Through understanding of the company and industry analysis, competitive
analysis, SWOT analysis, and marketing analysis, it is clear where Pepsi is currently
prospering and where it needs improvement.
Problems
Pepsi has a few key problems that it must consider if it is going to move into the top
position of the soft drink industry. First and foremost, it must use its strengths to
maintain its customer base and to attract new customers. It has made some efforts that
have been more harmful in an attempt to reach new audiences. Pepsi must go back to its
roots and use its product taste and brand recognition to succeed. Pepsi must become less
reliant on single companies. Concentration in a particular area or company can be
detrimental in the long run, and Pepsi must diversify itself enough to prevent this from
happening.
Innovative tactics have fallen short. As stated within the SWOT and Market analyses,
Pepsi has recently attempted to attract a new customer base with its new “slim and
slender” diet can. While this may have seemed like a good idea and inspired by looking
and feeling healthy, the backlash has proven to be more apparent than the benefit.
According to The Consumerist, many believe the new can is sending the wrong message.
Lynn Grefe of the National Eating Disorder Association has stated that the can “could
trigger someone who is already vulnerable to negative body-image issues to start dieting
or become more extreme in their dieting (Perton, 2011, para. 6).” As a result, Pepsi must
be aware of its potential flaws that can tarnish its successful brand name. Pepsi does not
need to be innovative, but reliable. Something that may be as miniscule as a can design
can have a long lasting negative impact.
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Overreliance on Wal-Mart. In order to diversify itself, Pepsi must shy away from relying
on Wal-Mart as its primary source of revenue. Overreliance on Wal-Mart can be a
negative aspect to sales and growth. The low priced nature of the establishment can
hinder development and make Pepsi a weaker company in the soft drink industry. While
Pepsi products are typically found in locations other than Wal-Mart, it should make
strides to ensure products can be obtained through several mediums to reduce
overdependence on single companies.
Opportunities
There are many opportunities Pepsi has to succeed and improve its standing in the soft
drink industry. For starters, Pepsi can continue to expand internationally and use its
recent acquisitions to its utmost advantage. Reaching new market sectors will increase
the company’s consumer base. Pepsi can also continue developing its online presence.
Pepsi has already taken advantage of Facebook, Twitter and YouTube, and continued use
of these forms of social media is only going to be beneficial in the long run.
Competing and expanding internationally. In acquiring its largest bottlers, Pepsi has
managed to consolidate and increase quarterly revenues over the last year. Pepsi has
continued to expand internationally as well. According to Dealbook, Pepsi recently
acquired a two-thirds state in Wimm-Bill-Dann foods in Russia. With the completion of
this deal, Pepsi is now the largest food and beverage company in Russia (2011, para. 3).
It is areas such as these where Pepsi can succeed in becoming the largest company in the
soft drink industry worldwide. Continued acquisitions and expansion will certainly put
Pepsi as the industry’s frontrunner.
Pepsi’s use of social networking. Pepsi has taken full advantage of the social networking
craze. The company currently has a Facebook fan base of over 6.8 million, over 550,000
followers on Twitter, and over 16,000 subscribers on YouTube, according to each social
networking site, respectively. Pepsi also recently uncovered a new social networking
plan at a recent trade show. PepsiCo’s Social Vending Machine will allow consumers to
purchase Pepsi products as well as send free soda to their friends and family, equipped
with a video message attached. Recipients will receive a code redeemable at another
vending machine (Wasserman, 2011, para. 2). Mikel Durham, chief innovation officer at
PepsiCo Foodservice, goes on to state that the new machine “extends our consumers’
social networks beyond the confines of their own devices (para. 3).” This social
networking innovation is a step in the right direction and will propel Pepsi’s presence in
social networking.
Recommendations
The Marketing Magnates team highly recommends a marketing campaign in cooperation
with Pepsi. The company has undeniable strengths and has become one of the most well
known and financially successful companies around. Pepsi is a company with evident
potential and we encourage you to back its marketing efforts.
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