Company overview and market analysis for pepsico

PepsiCo Inc. is the world’s second largest soft drink brand and the world’s largest potato chips manufacturer. In this report, we will be analysing PepsiCo Inc.’s marketing strategies with regards to its North American market. Where absolutely required, PepsiCo’s international efforts are mentioned as well as some past advertising feats. I will, however, try to cover as much of PepsiCo’s recent strategies as possible. Relevant references are cited at the end of the report, following with a number of images in the Appendix.

Company Profile:

In New Bern, North Carolina, USA, Caleb Bradham created a fountain drink, which contained digestive enzymes pepsin and kola nuts. This was then known as Brad’s drink. Subsequently, it was renamed and marketed as Pepsi-Cola (Soda Museum 2010). The Pepsi-Cola Company, in 1965, merged with Frito-Lay Inc., to become PepsiCo Inc. Pepsi is PepsiCo Inc.’s flagship product and signature drink (PepsiCo Inc. 2010).

Advertising efforts in the early years of Pepsi-Cola mainly presented itself as a bargain brand compared to rival Coca-Cola. However, since the later part of the 20th Century, PepsiCo’s marketing strategy is focused towards the young people with taglines such ‘Choice of a New Generation’ being the spotlight.

Macro Environment:

Political:

PepsiCo Inc. is a multinational company. As such, it is exposed to different political environments.

In 2006, The Centre of Science and Environment (CSE) based in India found that soda drinks including Pepsi-Cola had high pesticide content. Following this, the state of Kerala banned the sale and production of Pepsi-Cola, along with other soft-drinks. However, this decision was later reversed by the Kerala High Court. Five other Indian states have partial ban on soft-drinks (BBC 2006 The Hindu 2006).

As part of a major public health initiative in the US, sugar-sweetened drinks and syrups would be levied a new tax called the soda tax (Reuters 2010).

Economic:

The financial crisis of 2008-2009 has had its effects on the soft drinks sector. During this period, the soft drinks industry lost over $55 billion (Beverage Digest 2009). Also, the packaged food industry reduced spending on non-essential food items such as snacks.

Being a multinational corporation, PepsiCo has to take into account the fluctuations in foreign currency rates. The financial crisis caused the Mexican peso, British pound, the Euro and the Russian ruble to depreciate. As such, PepsiCo’s net revenue growth was reduced by 5% (Annual Report 2010)

In the US, interest rates have been abysmally low between zero and 0.25% since December 2008 thereby allowing companies such as PepsiCo to make use of low borrowing rates to invest in operations and new product development (Murchie 2010). Likewise, in the UK, The Bank of England has maintained an all-time low interest rate of 0.5% (BBC 2010).

Social:

There is a new demand for healthy foods and beverages. As a result, PepsiCo is increasingly investing in developing healthier options to its beverages as well as promoting Heath Foods (Annual Report 2010).

In the recent years, PepsiCo has launched Diet Pepsi, Diet Pepsi Max, Caffeine Free Pepsi, Caffeine Free Diet Pepsi, Pepsi Natural and Pepsi One as variants of Pepsi-Cola. PepsiCo has also added a new line of products such as Aquafina Alive, Propel Health Water, Sobe Life Water, Dole Single Serve Juices and many more to meet this growing demand (PepsiCo 2010).

PepsiCo has developed a Blue Ribbon Advisory Board, made up of leading health and wellness experts and third-party advisors from across the globe in order to help the corporation face these newly strengthened consumer demands.

Furthermore, PepsiCo has recently worked alongside the Clinton Foundation, American Heart Association, and the North American beverage industry in order to set policies regarding placement of the correct products in the correct areas.

Technological:

PepsiCo Inc. relies heavily on technology to carry on its different operations and perform efficiently.

Their technologically advanced distribution system, Direct Store Delivery (DSD), allows them to supply distributors and retailers with fresh stock efficiently (PepsiCo 2010).

PepsiCo also has an extremely sound information technology infrastructure. To build and maintain an efficient IT infrastructure is a key asset to the corporation’s operations and helps improve the communication flow within their massive corporate framework. It also helps them improve the effectiveness of their operations and maintain financial accuracy.

Micro Environment:

Competitive Analysis:

The carbonated beverages industry is highly competitive. The companies have to compete against global, regional and local manufactures on various factors including price, quantity, variety and distribution. The prime competitor of PepsiCo Americas Beverages is The Coca-Cola Company. In terms of carbonated soft drinks (CSD) consumption, Coca-Cola has a larger market share in the US as well as in many markets outside North America. Also, in Interbrand’s Best Global Brands list, Coca-Cola is ranked number 1, while Pepsi is listed much lower at number 23 (Interbrand 2009). However, PepsiCo’s snack brands hold significant leadership in the snack industry worldwide, with Pepsi commanding 28% of global sales. PepsiCo Inc. also faces stiff competition from other beverage companies like Dr. Pepper Snapple Group, Nestle Corporation and Danone as well as other food companies such as Kraft Foods and Unilever.

Segmentation, Target and Positioning:

Market Segmentation:

Geo-demographic:

A multinational corporation has to take additional factors such as geo-demography into consideration. Trends affecting the US might not have an effect on countries such as Japan or Russia. Also, particular ads and marketing strategies are interpreted differently in different countries due to the difference in language and culture. For this reason, PepsiCo Inc. has adapted to the culture, tastes and language of the countries in which they do business. For example, in July 2009, Pepsi started marketing itself as Pecsi in Argentina after reports that its name was incorrectly pronounced by around 25% of the population (AdAge.com 2009).

Psycho-graphic segmentation:

PepsiCo has different products to suit different needs. It has segmented its beverage department to cope for different psycho-graphic variables such as activities, interests and opinions. For the health-conscious, Pepsi has products such as Diet Pepsi and Diet Caffeine Free Pepsi, while for those engaged in sports, Pepsi has its highly successful Gatorade range of isotonic drinks (PepsiCo 2010). For naturalists, Pepsi has products such as Pepsi Natural and Aquafina Alive. Products such as Pepsi and Pepsi Max are available for the mass market.

Target Markets:

The primary target group of PepsiCo for its Pepsi line of products are people in the age group of 13-34. It also targets people that are athletes and overweight (PepsiCo 2010). Pepsi has a distinctive style of portraying times in their ad campaigns. Their ‘Generation Next’ campaign suggested that Pepsi is not just a drink for the next generation but that its drinkers are a generation ahead of their counterparts (PepsiCo 2009). Pepsi has products that target the different cultural and regional aspects of a particular country. It has products such as Nimbooz by 7UP in India where it targets the huge demand for country-style lemon drinks (PepsiCo India 2009). While in Mexico, it has Manzanita Sol, an apple-flavoured beverage. Apple is Mexico’s second most popular soft drink flavour and Manzanita Sol means ‘little apple sun’ in Spanish (Bevnet.com 2005).

Positioning:

Pepsi has positioned its products strategically against those of The Coca-Cola Company. Although Pepsi is second to Coca-Cola as a recognisable soft drink brand, it leads the markets of non-carbonated beverages and potato chips (Frito Lay).

Since the acquisition of Tropicana and Gatorade and manufacturing its own brand of bottled water, Pepsi has earned the number one spot as non-alcoholic beverage company in North America.

Pepsi is now heavily inclined to developing healthy food alternatives. This has positioned them strategically in a niche market that is growing fast.

Marketing Mix:

Product:

PepsiCo Inc. has four main divisions that manufacture, market and sell a variety of products including snacks and beverages. These divisions are: (PepsiCo 2010)

PepsiCo Americas Beverages (PAB)

Frito-Lay North America (FLNA)

Quaker Foods North America (QFNA)

PepsiCo International (PI)

PAB sells concentrates and syrups to Pepsi bottlers as well as directly sells finished goods to distributors and retailers. PAB brands include Pepsi, Mountain Dew, Tropicana Fruit Juices, Gatorade isotonic sports beverage, Lipton tea, Sierra Mist, Dole and SoBe (PepsiCo 2010). PAB also has a joint venture with Unilever and Starbucks through which it sells ready to drink tea, coffee and water products. Additional, PAB also licenses and markets the Aquafina brand of bottled water (PepsiCo 2010).

FLNA manufactures snack foods which include brands such as Lays potato chips, Doritos tortilla chips, Tostitos tortilla chips, Cheetos cheese flavoured snacks, Fritos corn chips, Ruffles potato chips, SunChips and Smart Food (PepsiCo 2010).

QFNA manufactures cereals, rice pasta and other branded products such as Life cereal, Pasta Roni, Aunt Jemima mixes and syrups and Quaker Oats (PepsiCo 2010).

PepsiCo International manages the international operations of PAB, FLNA and QFNA. PepsiCo International licenses and markets PepsiCo’s brands in international markets. It also markets some region-specific brands including, but not limited to, Walkers potato chips, Mirinda, 7UP, Gamesa, Sabritas and Copella apple juices (PepsiCo 2010).

PepsiCo Inc.’s reputation and popularity gives the company the confidence to introduce new products. Their success depends on product innovation and the effectiveness of their advertising and marketing strategies.

Place:

Pepsi-Cola is available at almost everywhere. Pepsi has exclusive resale rights with fast food chains such as Pizza Hut, KFC and Taco Bell. It also exclusively sells its products at many supermarkets and malls. Pepsi’s products are also available at the leading departmental stores, gas stations and retailers. Pepsi’s vending machines are available at many office complexes and universities. Pepsi is also available at the White House (please check IC account for reference TIME Magazine). Due to its Direct Store Delivery system, Pepsi can get its products in these places and can maintain supply to a sustainable level.

FLNA and QFNA products are available in all the leading supermarkets and retailers.

Promotion:

Pepsi-Cola has a strong promotion strategy. They use different marketing communication strategies which include print ads, television ads and billboards, point-of-sale as well as the Internet.

PepsiCo’s marketing strategies include both push and pull promotions. However, their pull promotion strategies are more widely spread.

Push Strategies:

PepsiCo has several exclusive tie-ups with many fast food chains, supermarkets and malls. PepsiCo also has Point-of-Sale (POS) agreements with leading departmental stores and retailers. PepsiCo also provides incentives to distributors and retailers if they meet or exceed the sales target.

Pull Strategies:

Throughout its history, The Pepsi-Cola Company has been known to create one of the finest ads. Since it became PepsiCo Inc., Pepsi has focused most of its marketing communication towards the young generation (PepsiCo). Pepsi is well-known for its ‘Generation Next’ ad campaign as well as some catchy taglines such as the classic ‘Pepsi. Choice of a New Generation’ sung by Michael Jackson to the recent ‘Refresh Everything’ and ‘Every Pepsi Refreshes the World’.

Pepsi is also known to constantly rebrand itself to boost its reputation and trust as a company that keeps up with changing time. In 2009, Pepsi launched a new logo and rebranded most of its products in North America (Reuters 2008).

One of the main advertising platforms over the years for Pepsi has been the Super Bowl, the National Football League championship game. Pepsi beverages have been advertising in the Super Bowl since 1987. However, in 2010, Pepsi opted out of advertising on this platform focusing its marketing efforts on the internet instead, ending a 23-year run. Frito Lay, however, continued to advertise in the Super Bowl (NBC News Associated Press 2009). In 2010, Pepsi announced that it would again start advertising in the Super Bowl (Reuters 2010).

On an average, advertising on the Super Bowl cost Pepsi $3 million for 30 seconds of airtime in 2009. (NBC News Associated Press 2009).

Pepsi is known to get its products endorsed by celebrities, some of which have been hugely popular with the people. Pepsi’s endorsement deal with Michael Jackson was perhaps one of the most expensive and popular deals of its time (Reuters 2009). However, since its overhaul in 2009, Pepsi has been including local people or amateurs in its ads to create a sense of connection with its consumers. For example, for the 2011 Super Bowl, PepsiCo has launched a competition wherein it is giving people a chance to make six 30-second ads for its Doritos chips and Pepsi Max with the winner receiving up to $5million for the best ads (Reuters 2010).

Pepsi also has a huge presence on the Internet. In 2008, Google/YouTube teamed up with Embassy Row, a production company run by the creator of ‘Who Wants to be a Millionaire’, Michael Davies and Pepsi, to launch a new online video series called the PopTub. This daily show deals with pop culture, internet viral videos and celebrity gossip. PopTub is updated daily by Pepsi (Reuters 2008). PopTub and YouTube provide Pepsi a big online advertising platform. Pepsi even has its own YouTube Channel (YouTube 2010).

Social networking is becoming an important aspect of people’s lives. As such, Pepsi has not left this area uncovered. PepsiCo and its subdivisions are present on Facebook and Twitter social networking sites. PepsiCo frequently updates its account on these websites, using them for marketing purposes, announcing new products and offers as well as general gossip (Facebook 2010 Twitter 2010 PepsiCo 2010).

‘Pepsi Refresh Project’ is a new campaign launched by PepsiCo Inc. in 2009 and will run over the course of 2010 to freshen up the image of its flagship drink, Pepsi. The project invites people to submit their ideas on how to ‘refresh’ their communities. PepsiCo has promised to give at least $20 million to fund these projects. This new campaign will be used by Pepsi to market its flagship as well as Diet Pepsi and Pepsi Max. This campaign will have a huge social media presence as people would be required to go online to submit their ideas as well as vote on winners (NBC News Associated Press 2009).

Recommendation:

PepsiCo Inc., as a multinational organisation, strives to be the world’s premier consumer food products company. In order to remain competitive, PepsiCo and its subdivisions need to be aware of the changing trends of the marketplace.

PepsiCo needs to keep innovating and investing in healthier food options. The Carbonated Soft Drinks (CSD) market is continually declining. In 2008, the US CSD market share declined by 3% (Beverage Digest 2009). Keeping such trends in mind, Pepsi should launched healthier variants of their carbonated beverages and gradually move towards the increasingly more popular non-carbonated beverage sector, such as fruit juices and bottled water.

PepsiCo needs to revise its marketing strategy to include the ‘not-so-young’ group of people in its communication as these people are often left out from its marketing material. Also, by constantly monitoring current and potential customers, as well as reviewing the success of their marketing strategies, PepsiCo would be in a better position to identify changing market trends and develop better products for their target markets.

The company, in 2007, had announced a major purchase of renewable energy sources which would help it in reducing its electricity costs as well as help improve its environmental footprint (NBC News Associated Press 2010).

PepsiCo needs to keep investing in green resources as this would bring financial benefits in the long term as well as increase its reputation as a Green Company.