Marketing Factors In Pepsi Cola Organisation

Company Background

Pepsi Co is a world leader in convenient snacks, foods, and beverages, with revenues of $60 billion and over 285,000 employees. PepsiCo owns some of the world’s most popular brands, including Pepsi-Cola, Mountain Dew, Diet Pepsi, Lay’s, Doritos, Tropicana, Gatorade, and Quaker. Our brands are available worldwide through a variety of go-to-market systems, including direct store delivery (DSD), broker-warehouse, and food service and vending.

PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged with the Quaker Oats Company, including Gatorade, in 2001.

Divisions

Report operations results as follows, by six segments:

PepsiCo Americas Beverages (PAB)

Frito-Lay North America (FLNA)

Quaker Foods North America (QFNA)

Latin America Foods (LAF)

Europe

Asia, Middle East & Africa

(Investors/Corporate-Profile.html, 2010)

I have selected the carbonated drinks industry for this report and discuss relative to the Pepsi under their industry conditions.

International Business of Carbonated Drinks Industry

Carbonated Drinks Market is growing

High profitability and lack of barriers to entry led to the emergence of many new players in the market of carbonated drinks. Competition in the market is increasing and as a result profitability has been decreased by 15% in 2 years in the UK market. Company held the strategic analysis and decided to begin expansion to the new market. Companies are doing marketing researches in all geographical locations and try to find better new market for entry. Despite the presence of several competitors in the market the companies having chance to enter in to new locations and try to find grab predominant market share. The drinks market is attractive for the Pepsi Company because of its lowly competitive and having huge target audience throughout the UK. Company hopes to built there strong brand that will defend chosen market from penetration of new players and give the company profits at the higher level. The company’s strategy involves building a strong distribution network in small satellite cities in addition to the urban areas.

Bad condition of the water from the municipal central water supply system and lack of prospects for their repair and modernization

Unsuitable for drinking and cooking water supplied from municipal central supply system greats a high demand for pure drinking water purified populations. This situation is general for the whole country and its solution requires great financial cost. According to the current economic situation in the country the current situation is unlikely to be rectified in the next 10 years. The marker of pure drinking water is very big. Every resident should to consume every day about 2 liters of water, so the company considers a promising development of its activities in this market in the next 10 years. Therefore people trust the pureness of bottled carbonated drinks and avoid the bad effects of them.

Growth by 15 times the tax on the production of drinking water / Carbonated Drinks in bottles from 1 may 2010

Carbonated drinks in bottles are substitute of water sold in the consumer packaging. Despite of its high price it has a raw of advantages such as Accessibility in every grocery in a city and Presented by famous brands. This drinks came directly as a response to public demand for pure drinking water and during that time became very popular in spite of price that 2-4 times higher than for drinking water sold in the consumer packaging. The introduction of the rule of this law will lead to the transition of customers to the consumption of water sold in the consumer packaging and persuade people to drink carbonated drinks due to the cost advantage.

Improvement of technologies of individual water purification system and reducing of their cost

This substitute is very popular in the market. Advantage of individual water purification systems is a possibility of their using directly at a consumer home by using water from the municipal central supply system. Cost of purification of 1 liter of water with the use such system is approximately equal of price of drinks sold in the customer packaging. However such systems have a number of weaknesses. Cheap models that cost about 10 USD purify water with a middle quality that significantly inferior to the quality of water purified by professional systems. It can be also dangerous for health to use such systems because delays in the replacement of filters can cause the user to use water with bacteria and viruses.

Expensive individual purification water systems that give higher water quality comparable in quality with given by professional systems have high initial cost about 100-300 USD, that for considerable cost of UK population’s in a monthly income. Also they don’t purify water from bacteria and viruses. However cheap individual purification water systems are becoming more popular in the market. Companies should to develop response strategy for these substitutes.

Because of all above factors the carbonated drinks market is still growing with huge industrial rivalry.

The international business environment

2.1 Micro / Macro factors affecting to Pepsi in Globally

SWOT Analysis

Strengths

S1 Experience in developing distribution chain in the industry

S2 Experience in conducting promotion in the industry

S3 Company provides strong control of servicing customers

S4 Competitive and flexible pricing

S5 High quality of water which is ideal for food that confirmed by certificates

Weaknesses

W1 Lack of natural drinks in the range of the company and specialized in carbonated drinks.

W2 Company doesn’t have service of delivering drinks to customer’s home

W3 Difficulties in branding in the industry to heavy competition and should maintain promotions daily

Opportunities

O1 Growth by 15 times the tax on the production of drinking water in bottles from 1 may 2010

O2 Low prices for the rental of retail space and down wages, that allow company to cut cost

O3 The market has a big potential of growth and now it is completed just for 30%

O5 There is low competition in the chosen market

O6 Bad condition of the water from the municipal central water supply system and lack of prospects for their repair and modernization

O7 Growing concern of the population about their health

O8 Development of vending technologies for selling pure drinking water

O9 Severe pollution of water resources in the region

Our strength S4 and S5 will help us to grab opportunity O1 and take some customers from segments of water in the bottles

Our strengths S1 with opportunity O2, O3, O8 will help us to develop distribution chain in the city very quickly

Our strengths S2, S3, S4, S5 with opportunities O3, O5, O6, O7, O9 would contribute to great sales of the company in the chosen market

Weaknesses W1, W2 prevents us to fully utilize opportunities O3, O5, O6

Treats

T1 Improvement of technologies of an individual water purification systems and reducing of their cost

T2 The absent of barriers in the industry and low initiate investments attract new players

T3 Expected growth prices by 10% for water from the municipal central water supply system that used by company for purification drinking water

Our strengths S1 , S2 and S4, S5 will help us to minimize impact on the market The treat T1

Our strengths S1, S3, S4 will help us to minimize chances of new entrances to the market

Opportunity O2 will eliminates treat T4

Weakness W2 with treat T1 can cut share of the industry in the market of pure drinking water. We need to develop promotion program that will stimulate population to use just quality water purred by professional systems

Weakness W1 with treat T3 great opportunity for other companies to entry the market with offer of natural drinking water sold in the customer packaging and grab segment of the market. So company should initiate project of sales natural drinking water from own distribution chain for the segment of the market that want to drink just natural water

2.2 PESTEL

Variable

Factors

Political and Legal

Growth by 15 times the tax on the production of drinking water in bottles from 1 may 2010

Total corruption in the controlling state bodies

Bad condition of the water from the municipal central water supply system and lack of prospects for their repair and modernization

Economic

Low prices for the rental of retail space caused by economic recession in 2009

Down wages, high level of unemployment

Expected growth prices by 10% for water from the municipal central water supply system that used by company for purification drinking water

Reduction in purchasing power of the population

Socio-cultural

Growing concern of the population about their health

Negative attitude of population toward quality of water from municipal central water supply system

Technological

Improvement of technologies of an individual water purification systems and reducing of their cost

Development of vending technologies for selling pure drinking water

Ecological

Severe pollution of water resources in all around the world

2.3 Porters 5 Forces Analysis

Buyer Power is moderate: Bottling companies and retailers constitute the main buyers in the carbonated soft drinks market. The latter represents the most significant force yet despite their large size and concentration, it is the public that drives the market (heavy marketing campaigns and brand consciousness are a warrantee that popular products must be stocked, reducing the power of buyers). Although Pepsi does not do any bottling, the company owns about 36% of Pepsi Enterprises which is the largest Pepsi bottler in the world (Murray, 2006a). Since Pepsi owns the majority of the bottler, that particular supplier does not hold much bargaining power.

Suppliers Power is moderate: Pepsi is dependent on suppliers for various ingredients and vulnerable to certain commodities price fluctuations. However, the availability of substitutes reduces their power. N.B: the advertising and marketing agencies represent key suppliers (very concentrated) but their power is moderate.

New Entrants threat is weak: they face important barriers such as strong brand loyalty and substantial fixed costs. The nature of the market also demands an intensive marketing campaign in order to create and maintain a successful brand awareness and image. The difficulty in dislodging the main players of the market is linked to the importance of economy of scale which inevitably benefits current mass manufacturers.

Substitutes’ threat is moderate: there are various substitutes such as alcoholic beverages, tea, coffee and non-carbonated soft drinks. But the diversity of public demand ensures that a wide range of products offered by Pepsi will be stocked by retailers. For many consumers, such products represent alternatives and not substitutes.

Industry competition is a moderate force: with only a limited number of players, competition is lessened as each established competitor secures an important segment of the market thanks to strong branding and product differentiation. Coca Cola and Pepsi Co dominate the industry with strong brand names and great distribution channels.

Forces

Factors

Threat of substitutes

The individual water purification systems. The cost of water with the use of the individual water purification systems is approximately equal to the cost of water sold in the customer packaging. Cost of cheap purification systems sold at the supermarkets is low (about 10 USD), so it’s the easiest way for customer to have pure water directly at home.

Drinking water in bottles. This water is available in any store in the city. Its price higher by 3-4 times than drinking water sold in the customer packaging. Small part of customers uses this water every day for drinking and cooking. Some companies specialize in supplying the offices of drinking pure water in bottles. This market is strong competitive.

Threats of new enters

Licences or any other special permission aren’t needed to entry the market. Initial investment to start business in this market is about 20 000 USD, so it is some easy to entry in the market.

It is easy to organize distribution chain by setting up chain of outlets in a chosen area.

It is low chances for new outlets to be opened near existing one, because owners understand that there much area is free in the market and strong competition will kill profits.

Density of rivalry

Industry is growing by 20-30% every year

In the chosen market competition is low, existing sellers are getting super profits

Brands aren’t developed at all. The companies haven’t differentiated their products in the minds of buyers because of low competition and haven’t provide any marketing events

The market has a big potential of growth and now it is completed just for 30%

The most important competitive advantage is a dense distribution chain

Bargaining power of buyers

Buyers are individual and amount of purchase is small, so buyers don’t have significantly impact on prices.

Buyers can easy switch on substitute products or on purchasing water from a competitor outlet if it is available in the nearest area.

Product cost isn’t significant for buyers, so their sensitivity to price isn’t very big

Buyers are sensitive to quality of product and to information about it

Bargain of suppliers

Producer of drinking pure water distribute it by own distribution chains and use water for purification from municipal water supply system

International strategies of the company

Strategies

As for the growth strategy, I choose the Product Development strategy because decided to create a new product for existing customers and because it is a medium risk strategy. And for the competitive strategy, I choose the differentiation strategy because Pepsi is a very innovative company, the unique selling point being having a great Energy drink with the amazing taste of Coke Zero. It is costly but Coca is a multinational company and the leader in its market.

STP

Segmentation criteria: Market Size: UK, Males, Age: 15-35, Wage: , Students, Professionals, Sports People, Urban people.

Targeting criteria: Influence, Strategic Fit, Disposable Income, and Reachable, likely to buy.

Targets: Professionals and Sports People.

Positioning: Sporty, Cool, Young, Adventure, Personality, Unique.

Tactics

Product

Core Product: NRJ Coke Zero, satisfy the need of thirst and vitamins

Second Product: (first added value): taste, design, quality, brand, innovation,…

Third: After sales, cool personality, differentiation,…

Why innovation: Rationale for my product development:

Stay competitive in the energy drinks market

Retain market share

Trends

NPD (New Product Development)

Idea Generation and screening

Business Analysis

Market Testing

Commercialise

Price

Price Elasticity: Perfect Elasticity: Intermediate pricing

Place / Distribution Channels

Indirect distribution because it allows more market reach, maximum availability of products, minimum costs of ownership and infrastructure. As a matter of fact, the targeted segments are very large (FMCG product).

Unfortunately, there are some disadvantages such as the brand is diluted: the competitors can have a stronger power on retailers which might lead to less availability or lack of presentation and merchandising. Also commissions: The power of retailers may have adverse impacts on the company’s margins and profits.

Intensity of Distribution:

Intensive Distribution: Prelaunch exclusive then intensive starting from the introduction stage.

Integration of Distribution:

Backward Vertical Integration:

B2B: Upstream relationship (with suppliers: contracts, acquisition of suppliers and bottlers, mergers, joint ventures, strategic alliances).

Forward Vertical Integration:

B2B with retailers: Downstream.

B2C: CRM, Mass Media, Loyalty cards, research…. Pepsi collects information from the retailers,…

Promotion / Communication:

Objectives:

D ƒ  Differentiate 40%

R ƒ  Reinforce the message 0%

I ƒ  Inform 40%

P ƒ  Persuade (call to action) 20%

In the introduction stage, my main objectives are to inform and differentiate.

Then develop a COMMUNICATION STRATEGY:

PUSH: Pepsi ƒ  Retailer ( trade magazines, promotion, incentives)

(25%)

PULL: Pepsi ƒ  Customer ( TV advertising..)

(25%)

PROFILE: Pepsi ƒ  Retailers and Customers ( brand image, sponsor events, celebrity endorsement).

(50%) because main CSF is strong brand image

Develop Brand:

Umbrella branding: NRJ Pepsi Zero

Promotional Mix

ABOVE THE LINE ( Mass reach, not customised)

TV teaser, TV adverts, Radio, Press, Billboards

BELOW THE LINE (Customised)

Direct Marketing, Personal Selling, Sales Promotion

THROUGH THE LINE (Cinema, fashion magazine, event sponsor,…)

Sponsorship

Samples

Exhibitions

PR/ Publicity

2012 London Olympic Games

04. Effectiveness of the company’s international strategies

4.1 Value Chain Analysis

In Bound Logistics: Some of Pepsi’s most notable suppliers include Spherion, Jones Lang LaSalle, IBM, Ogilvy and Mather, IMI Cornelius, and Prudential. These companies provide Pepsi with materials such as ingredients, packaging and machinery. In order to ensure that these materials are in satisfactory condition, Pepsi -cola has put certain standards in place which these suppliers must adhere to (The Supplier Guiding Principles). These include: compliance with laws and standards, laws and regulations, freedom of association and collective bargaining, forced and child labor, abuse of labor, discrimination, wages and benefits, work hours and overtime, health and safety, environment, and demonstration of compliance (Pepsi Cola 2006).

Process: Pepsi purchases its own ingredients through use of future contracts (to avoid market volatility) and produces its concentrate from its own facilities. Once this is done, these companies send their concentrate out to bottlers upon approval of contract for bottling company.

Outbound Logistics: Once the bottling company receives the shipment of concentration, it is diluted to the correct concentration by adding the correct amount of carbonated water, and sugar, and bottled for sale. This is done for two reasons. One reason is so that Pepsi can maintain its exact mix of ingredients as a well-kept secret, and not let the bottling companies know what exactly goes into its product. This affects the image of the product, and preserves it as something of higher value, and actually applies a sense of prestige to the Pepsi products that are kept such excellent secrets. Pepsi operates by sending concentrate to bottlers, who then take the necessary actions, and ship out its products to consumers and vendors.

Automation in technology in cash registers allows Pepsi and the bottling companies who bottle and ship the contents of each bottle to know exactly how much of their product the merchant is carrying. This allows for a quick delivery of more products for the merchant to sell in a nice and timely procedure. (Source: article VCA)

JDA Software Group has announced that Pepsi Bottling Co. Consolidated, with 6,000 employees and $1.4 billion in annual revenue, has upgraded its JDA Software supply chain management solutions to Version 7.4, including JDA® Demand, JDA® Fulfillment and JDA® Transportation Planning, all powered by Manugistics®. Pepsi Consolidated expects to further improve forecast accuracy, customer service levels, order fill rates and on-time deliveries with the support of JDA Software. JDA Software’s Supply Chain Optimisation and Transportation & Logistics Management solutions allow companies to respond rapidly to shifts in consumer demand, as well as manage, optimise and execute the strategic, operational and tactical business processes that transform the supply chain into a strategic differentiator. (Source: Forecasting & Demand Planning).

Sales & Marketing: Marketing and Sales for Pepsi e is huge. Pepsi relies extensively on advertising and sales promotion in marketing its products. Pepsi Enterprises and TCCC have established a Global Marketing Fund, under which TCCC pays Pepsi Enterprises $ 61.5 million annually through December 31, 2014, as support for marketing activities. (Source: annual report).

After Sales: David Johnston, JDA Software senior vice president of manufacturing and wholesale distribution, said, “JDA’s innovative supply chain solution enabled Pepsi Consolidated to achieve substantial inventory reductions while also delivering significant improvements in customer service levels. Additionally, sales from new product introductions improved greatly. More and more companies are focusing on achieving true supply chain optimisation excellence in a quest to deliver improved market responsiveness, better lifecycle management, optimised network-wide inventory levels, increased customer service levels, and reduced logistics costs. JDA Software has continually delivered innovation that provides manufacturers, wholesale distributors and retailers with unparalleled optimisation and visibility into the extended supply chain that enables them to delight their customers and shareholders alike.” (Source: Forecasting & Demand Planning).

4.2 “7 P’s and 7 S’s”

7 Ps

STRENGTHS

WEAKNESSES

PRODUCT

1. Great Energy drink with the popular Pepsi Zero taste

2. Carbon drink

3. Enriched with vitamins

4. Innovation in products and packaging

5. Consumer and customer goodwill associated with the brand portfolio

6. Very strong brand awareness ensures that Pepsi popular products must be stored by retailers

1.Seasonality in the UK

2. The energy drinks are usually considered as unhealthy and too sweet

3.Competing with Red Bull which is the leader ( de loin)

PRICE

1. Same price as Red bull

2. Affordable for Coke Zero consumers

3. Price package architecture (different pricing options)

1. Ingredients and packaging costs per case increase, as finished goods and increasing cost of sparkling beverage concentrate.

2. Same price as Red Bull but same taste as Pepsi, so needs to justify the price by insisting on the added vitamins and quality of “Stevia” sweetener.

PLACE

1. Pepsi owns the largest beverage distribution system

2. NRJ Coke Zero will be available everywhere

3. Will benefit from the Pepsi existing and well established distribution channels

1. Changes in the relationships with large customers may negatively impact financial results

2. Disagreement among bottlers could lead to complicated negotiation with customers, suppliers…

3. Dilution of the Coke brand as it is sold in the retailers shelfs

4. Referencing challenge as it is a question mark product for the retailers

PROMOTION

1. Heavy marketing and advertising campaigns

2. Heavy use of celebrity endorsement

3. Effective PR

4. TCCC is the official sponsor of the 2012 Summer Olympic Games in the UK

1. Expensive Marketing and Advertising campaigns

2. Expensive promotion as it is to inform and differentiate the product

PEOPLE

1.Great customer service

2.Improved customer service through the implementation of a new selling system for smaller customers

1. The customer facing staff are not part of the TCCC personnel, their customer service is not homogeneous and dedicated to Pepsi

2. The staff are not expert of the new product and will not be able to sell it properly or explain its attributes to the final customers

PROCESS

1. Constant innovation in the equipment and in supply chain infrastructure improvement

2. Very efficient supply chain, linking the retailers stocks to TCCC bottling partners directly for reordering

1.Long processes as it is a multinational

2. Long decision making process

PHYSICAL EVIDENCE

1.Great vending, dispensing machines, coolers

2. Great head offices

3. Strong brand, trademark, Pepsi bottler, great packaging and design

4. Very comprehensive and well elaborated website

1. Variety of shops

Recommendations for improvement

The marketing plan takes the corporate objectives and communicates them into measurable outcomes. Piercy (2002) states that “The real strategic problem in marketing is not the strategy it is marketing the implementation and the change” (p166 CIM)

Lack of skills – An effective organizational structure and committed leadership is needed to deliver the marketing plan (CIM p166).

Improving marketing skills in the company

Presentation of operational proposal for addressing the :

Lack of Resources

A lack of sufficient financial budgets and people to support the required task needed to implement the plan.

Time constraints can also affect the delivery of the plan.

Organizational Culture

The culture of the company could hinder the development of the marketing plan across the company. The existing shared values of the organizations.

The established processes and company traditions can make departments resistant to change.

Systems

Internal Marketing

Internal marketing and resource allocation will need to be planned to Ensuring people sell expected targets and Undertaking effective communicate brand images and ensure value based marketing

Strategy not suitable for the business

The strategy needs to be approved by Managing directors to determine its accuracy and

Turbulent market environment

The unpredictable changes in the market will make the marketing plan

The inclusion of an contingency planning and benchmarking