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  • 1. PepsiCo International:Marketing Exemplar Firm ReportWashington State University Vancouver MKTG360: Marketing By Aaron Sparks Cherokee Meack Eli Hillstrom Sandra Cervantes April 11, 2008 1
  • 2. Executive Summary The Pepsi Corporation has taken the world by storm with their strong focus on corporategrowth and brand name domination. With 41 brand name specific products under their belt,Pepsi Co. is moving up the ladder of success and providing a strong example for otherdistribution focused companies. Although Pepsi Co. constantly struggles with their leadingcompetitor, Coca-Cola, they still hold a 37.5% share in the Carbonated Soft Drinks (CSD)market—only a few percentage points lower than Coca-Cola at 42.9%. From its humble roots as a bottling company in the late 1800’s, PepsiCo has risen tobecome one of the leading food and beverage companies in the world. With a focus on marketshare growth and distribution strategies, it is no wonder PepsiCo has risen to become theconglomerate it is today. By acquiring new brands and products, PepsiCo has managed tooutshine, out market, and outsell nearly all other competing corporations in the United States andworld markets. PepsiCo relies on strong marketing tactics to maintain its edge in the market. Celebrityendorsements and appealing advertisements have worked in PepsiCo’s favor in worldwidemarkets. They realize that marketing strategies differ between countries and have developeddiffering strategies and formulas to suit their customer needs. Segmentation is extremelyimportant to the success of PepsiCo and they realize this. Ultimately, PepsiCo’s long-term success has been attributed to their domination of themarket and superior reputation for being a stable, quality brand name. The road ahead lookspromising for PepsiCo and it has proven that its time in the international market is far from over.The world can look forward to more innovative products coming out of the PepsiCo vaults formany years in the future. 2
  • 3. Table of ContentsIntroduction………………………………………………………….……………………………4Macro-Environment and Context…………………………………………………………………5 PEST Analysis…………………………………………………………………………….5 Corporate Analysis………………………………………………………………………..7 Competitive Analysis………………………………………………………………….…11Market Research and Customer Analysis………………………………………………………..12Segmentation and Target Markets……………………………………………………………….15Differentiation and Positioning…………………………………………………………………..17 Differentiation……………………………………………………………………………17 Positioning……………………………………………………………………………….17Product………………………………………………………….………………………………..19Place………………………………………………………….…………………………………..20Promotion………………………………………………………….……………………………..21Recommendations………………………………………………………….…………………….22References………………………………………………………….…………………………….26Appendix A: SWOT Analysis………………………………………………………….………..28Appendix B: PepsiCo Stock Charts………………………………………………………….…..29Appendix C: BCG Growth Share Matrix…………………………….………………………….31Appendix D: CSD Market Share………………………………………………………….……..32Appendix E: Selected Figures……………………………………………………………………33 3
  • 4. Introduction Since it was invented by Caleb Bradham as a digestive aid, Pepsi Cola has expanded intoPepsiCo and become the “choice of generations” worldwide. Bradham introduced his new elixircalled “Brad’s Drink” in the late 1800’s. By 1898 he changed the name to Pepsi-Cola andbetween 1902 and 1903 the Pepsi-Cola Co. and logo were launched. In 1965 the companychanged its name to PepsiCo and since then it has grown into a multi brand internationalcorporation. Advertising efforts first marketed Pepsi-Cola as a bargain brand. After changing handsfour times and declaring bankruptcy twice in the first part of the 20th century, Pepsi shifted itsfocus from bargain brand promotions to advertising geared toward young people—this is wherethe “Pepsi Generation” marketing plan originated from. Once this shift in marketing tactics happened, PepsiCo took off in the corporate world.They quickly earned the spot of 2nd choice soft drink brand and have maintained a strong hold onthat title. By using razor sharp, cutting edge marketing tactics and promotion strategies, PepsiCohas grown and acquired several big name beverage and snack food brands. They hold numberone titles in many of these markets. Through failing markets, recessions, depressions, and declining consumer purchases,PepsiCo has maintained its edge as the “choice of generations.” Not only has PepsiCo continuedpleasing its customers by expanding and improving its brands, it has also made shareholdershappy by keeping their bank accounts healthy. By reinventing itself time and time again,PepsiCo has proven that it is an unrivaled global entity. 4
  • 5. Macro-Environment and Context PEST Analysis Political The environment that PepsiCo and its subdivisions function in is currently undergoing apolitical overhaul. New regulatory pressures regarding health concerns and other globalconcerns have forced companies in the food/beverage industry to take on new challenges andreevaluate their products to meet new consumer demands. PepsiCo and its subdivisions believestrongly in using public and private expert knowledge in order to tackle these issues. PepsiComanagement states in their 2006 Annual Report, “We’re actively engaged with policy andthought leaders, as well as food and beverage industry leaders, to reach decisions on steps we cantake to support consumers in their quest for healthier lifestyles” (Annual Report, 5). PepsiCo hasdeveloped a Blue Ribbon Advisory Board, made up of leading health and wellness experts andthird-party advisors from across the globe in order to help the corporation face these newlystrengthened consumer demands. Furthermore, PepsiCo has recently worked alongside theClinton Foundation, American Heart Association, and the North American beverage industry inorder to set policies regarding placement of the correct products in the correct areas. Economic The major economic issue facing PepsiCo and its subdivisions is the rising input costs oftheir businesses due to structural inflation. Agricultural, energy, and some metal industries aregoing through periods of steady inflation. Because PepsiCo relies on these industries, inflationcosts must be factored into their cost equations. The corporation acknowledges its fortunateability to navigate through tough economic times in the past. Their Annual Report states: 5
  • 6. Fortunately, over the years we’ve demonstrated the resilience of the PepsiCo portfolio to navigate through these headwinds successfully. And we are confident we will find innovative solutions to cover rising input costs. It will mean pulling all available levers to address inflation, as we’ve always done, such as finding new productivity, strategically hedging our input costs, and executing prudent and judicious pricing. Social The social environment within food services markets are changing significantly. A newdemand for healthy food and beverages coupled with a push towards green operations andenvironmentally-friendly company management has changed the social playing field within mostmarkets. With this in mind, PepsiCo and PBNA have successfully adopted new goals andproduced new products in order to follow these growing trends. Not only has PBNA recentlybegan to offer new products such as Diet Pepsi Max, a cola with zero calories, sugars,carbohydrates, or Total Fat, but it has also added new lines of product in order to meet this morehealth-conscious market. Some examples include: Aquafina Alive, which includes addedvitamins, fiber, or antioxidants; Propel health drinking water; SoBe Life Water; and Dole SingleServe Juices, a healthy juice drink in a single serving sized bottle. Technological PepsiCo and its subdivisions utilize technology in order to sustain company growth, keepup with the demands of its sustained growth, and perform efficiently. PepsiCo’s deliverysystems provide a strong competitive advantage. In particular, their most powerful distributionsystem, Directstore-delivery (DSD) allows them to supply all of their retailers and customer-distributors with up-to-date stock. “Directstore-delivery allows us to create maximum appealand visibility for our brands and support in-store promotions. DSD works well for popular 6
  • 7. products we restock often, because it allows us to distribute new products quickly. Our DSDsystem reaches hundreds of thousands of retail outlets this way, from neighborhood conveniencestores to large-format supermarkets” (Annual Report, 11). Along with distribution, PepsiCo and its subdivisions rely on the importance of theirinformation technology infrastructure. PepsiCo has realized the importance of IT in today’scorporate realm. Building and maintaining an efficient IT infrastructure is a key asset to thecorporation’s operations and helps improve the communication flow within their massivecorporate framework. “We depend on information technology as an enabler to improve theeffectiveness of our operations and to interface with our customers, as well as to maintainfinancial accuracy and efficiency” (Annual Report, 32). Corporate Analysis SWOT Analysis PepsiCo’s corporate mission statement – “We aspire to make PepsiCo the world’spremier consumer products company, focused on convenient foods and beverages. We seek toproduce healthy financial rewards for investors as we provide opportunities for growth andenrichment to our employees, our business partners and the communities in which we operate.And in everything we do, we strive to act with honesty, openness, fairness, and integrity”(Annual Report, 17). In order to analyze PepsiCo’s corporate structure and attributes, we chose to use a SWOTanalysis. This will better enable us to catch a small glimpse of several key corporatecharacteristics. The following data has also been summarized in graph form in Appendix A. 7
  • 8. Strengths The Pepsi Corporation has many specific strengths. One key strength is their brandequity and brand recognition. There are currently 41 specific Pepsi-Cola brand names. Some oftheir more popular brands are: Aquafina, Gatorade, Lipton Iced Tea, Propel, SoBe, Mug RootBeer, and Mountain Dew. According to PepsiCo’s 2006 Annual Report, many of their brandsare market category leaders within the United States. These category accolades include: • #2 Carbonated Soft Drinks • #1 Sports Drink • #1 PET Water Brand (non-jug) • #1 Chilled Juices and Juice Drinks • #1 Enhanced Water Brand • #1 Ready-to-Drink Coffee • #1 Ready-to-Drink TeaThis extensive brand equity and now instant recognition has enabled the corporation to secure alarge portion of the world’s beverage market. Pepsi-Cola has also enjoyed recent and historical financial strength. PepsiCo, theumbrella corporation of Pepsi-Cola, has recently reported revenues totaling over $39 billion andhas increased its workforce to 185,000 employees worldwide. Furthermore, Pepsi-Cola(PepsiCo Beverages North America) itself accounted for 27% of the corporation’s net revenue of35,137million in 2006 (Refer to Figure 1). PepsiCo Beverages North America’s (PBNA) 2006Volume Growth was 4% and their net revenues have increased from $8,313million in 2004 to$9565million in 2006. PepsiCo International’s “2006 Scorecard” also states growth in volumeby 5.5%, net revenue by 8%, division-operating profit by 7%, and earnings per share by 13%. 8
  • 9. Weaknesses PepsiCo Beverages North America’s (PBNA) current weaknesses are ______ fold.Firstly, the Carbonated Soft Drink (CDS) category has been suffering a decline in North America.This trend is especially important due to the large portion of revenue that this category generatesfor PBNA. However, the corporation plans to combat this trend by delivering new products,packaging, and benefits in order to re-engage customers. By increasing their investments inresearch and design of new products and groundbreaking innovations, PBNA hopes to rejuvenatethe CDS category in North America. Secondly, because PepsiCo and PBNA do not sell their products directly to theircustomers, they must rely on their distribution-customers to promote and sell their productsefficiently and effectively. In order to promote good relationships with their independentbottling distributors and other distribution-customers, they provide these entities with financialincentives in order to assist their performance. It is essential to the operation of the companiesthat PepsiCo and PBNA keep strong and harmonious relationships with these distributors inorder to ensure continued growth and revenues. Opportunities PepsiCo’s chief business opportunities come in the form of new investments. Due toaggressive competition in most of the corporation’s markets, management seeks to continuallyinvest in new products and market categories in order to gain new customers and capture newmarket shares. The company has recently invested heavily in several new acquisitions both inNorth America and internationally. Their most recent North American acquisitions are: Stacy’sbagel and pita chips, Izze carbonated beverages and Naked Juice fruit beverages. Their mostrecent international acquisitions are: Duyvis nuts in the Netherlands, Star Foods snacks in Poland, 9
  • 10. and Bluebird snacks in New Zealand. These new acquisitions provide PepsiCo with new growthopportunities, including capture of new product categories and the ability to reach further intoemerging retail channels. PepsiCo plans to use other “small, tuck-in acquisitions” in future yearsin order to promote continual company growth. Another opportunity for PepsiCo and PBNA comes in the form of the newly growinghealth-conscious market categories that can provide the companies with new forms of revenues.PBNA’s Aquafina currently holds 13% of the bottled water market and, by providing new healthwaters like Aquafina Alive, SoBe Life Water, and Propel, PBNA stands to attract many newconsumers. Threats The main forms of PepsiCo and PBNA’s threats are common risks associated withcompetitive business operations. Their 2006 Annual report lists many risks the company facesdaily, but also identifies several chief business risks. These are: company reputation; productdemand; competition; global, economic, environmental, and political conditions; and retaininggood relationships with bottling partners. PepsiCo voices their opinions on how to combat thesethreats in the “Our Business Risks” section of their 2006 Annual Report, stating, “Our continuedsuccess is dependent on our product innovation, including maintaining a robust pipeline of newproducts, and the effectiveness of our advertising campaigns and marketing programs.” Because PBNA operates in a public, global market, managers realize that any damagesuffered to the company’s reputation could have adverse effects on their business as a whole,financial conditions, and results of operations. As mentioned earlier, PBNA has developed amassive brand recognition and customer following. Because of this, the company realizes the 10
  • 11. importance of sustaining a sterling reputation. In order to do this, the company goes to greatlengths to ensure that their products remain the highest quality in their categories. PepsiCo also makes a distinction between their business risks, listed above, and marketrisks. A few key market risks are: adverse changes in commodity prices, which affect rawmaterials prices and energy consumption levels; foreign exchange and interest rates; stock prices;and “discount rates affecting the measurement of our pension and retiree medical liabilities”(Annual Report, 34). Competitive Analysis PBNA operates in a highly competitive market. They compete against global, regional,local, and private label manufacturers on the basis of price, quantity, product variety, anddistribution. Their chief competitor is The Coca-Cola Company. Coca-Cola currently has aslightly larger share of carbonated soft drink (CSD) consumption in the U.S. and maintains asignificant CDS share advantage in many markets outside North America. However, PBNA hasa larger share of chilled juices and isotonics and PepsiCo International’s snack brands holdsignificant leadership positions in the snack industry worldwide. According to PepsiCo’s 2006Annual Report, corporate management believes that the strength of their brands, innovation andmarketing, coupled with the quality of their products and flexibility of their distribution networkallows the corporation to compete effectively. With this said, PepsiCo is the world’s second largest food and beverage company,accounting for almost $40 billion net sales. They beat out their chief competitor in the CSDmarket, Coca-Cola by nearly $20billion and are second only to the Nestle Corporation in netsales (Refer to Figures 2 and 3). 11
  • 12. PepsiCo’s many subdivisions and brands also allow the corporation to succeed in theircompetitive markets. PepsiCo currently owns 17 “mega-brands”, which generate sales revenuesof at least $1billion each. Five of these 17 generate more than $5 billion each. Along with thismassive brand equity, PepsiCo and its subdivisions also rely on their efficient distributionsystems (see “Technology” section of PEST Analysis) to maintain a competitive edge over othercorporations. Market research and customer analysis The various brands that PepsiCo produces are available in nearly 200 countries andgenerate sales at the retail level of more than $98 billion. PepsiCo also supports and sustainsnearly 185,000 employees world wide (PepsiCo). In spite of such a daunting presence in theglobal market, PepsiCo is continuing to grow. PepsiCo itself was founded in 1965 through themerger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged withthe Quaker Oats Company, including Gatorade, in 2001 (PepsiCo). As mentioned above, PepsiCo has found it necessary to acquire companies such asQuaker Oats and Tropicana. This can be risky and involve the investment of millions of dollars.Also, Pepsi Beverage continues to expand by introducing new flavors of carbonated and non-carbonated beverages into the current beverage market. For example, Mountain Dew, a heavilycaffeinated soft drink, popular among teens, has continued to introduce new flavors and themes.These include, Mountain Dew: Game fuel, targeting the patrons of the video game “Halo 3.”Also, Mountain Dew: Red Alert, and Mountain Dew: Pitch Black, in addition to others. Investments in new products require extensive preliminary market research in order toevaluate who potential consumers are as well as the ability to identify the targeted consumermarket. Specifically, Pepsi Beverage Company targets individuals between the ages of 13 to 34 12
  • 13. years old (Eads 1). Tactics such as consumer surveys or focus groups, cutting edge software,and the media serve to inform PepsiCo of the current trends in the general market, as wellanalyze their current customers. Primary data is information that is retrieved from customers, either potential or current,by asking them questions directly and recording their answers. This data is then used to obtainideas about their attitudes, awareness, intentions, and behaviors. In September of 1999, PepsiBeverage “…tapped its marketing alliance with Simon Property Group for an estimated $3million, 29-mall tour tagged "The Joy of Cola" (Promo). The purpose of the mall tours was tobuild the Pepsi Brand, while at the same time attracting potential customers to their kiosks withentertainment from U.K. pop star “Billie.” “The ‘Joy of Tasting’ station samples Pepsi Freezesand flavored Pepsi. Shoppers go to the ‘Joy of Voting’ center to vote for their favorite pop-culture figures. At the ‘Joy of Winning’ station, shoppers spin the Wheel of Joy to win prizesincluding a Dodge Durango, or enter a fantasy-prize sweepstake… Shoppers who carry SimonsMall Perks loyalty card get a Pepsi Taste Kit with a coupon for a free two-liter bottle, drinkrecipe cards, and a Joy of Cola crazy straw” (Promo). Using flashy kiosks and rewards forparticipating, Pepsi Bottling Company is able to retract valuable information directly from theircustomers. This information allows them to get a better idea of which potential products may besuccessful, and which may not. Technology is another tool used to analyze a target market and what buying habitscustomers exhibit. Because of PepsiCo’s size, tracking their purchases as well as their sales canbe a daunting task. If a large company such as PepsiCo does not have accurate and timelypurchase and selling information, they will not have the necessary tools to make accuratemanagerial decisions. These decisions may include which products to continue and expand, or, 13
  • 14. which to abandon. “To gain control of their procurement processes, Frito-Lay choseBusinessObjects and WebIntellingnce along with Oracles OPM. Business Objects solutionsprovide users with powerful and easy-to-use reporting functionalities, with the added benefit ofbeing highly scalable… Eventually, all functional groups inside each division of PepsiCo will beable to use the Purchase to Pay system for business analysis, trend analysis, and data mining”(Consumers). Modern technology is one of the keys in identifying consumer habits. In addition,it also allows companies to see trends from within the marketplace itself. Finally, the media is an excellent tool to monitor and test the potential market for aproduct. Together with customer interaction, the media has played a strong role in allowingPepsiCo, as well as Pepsi Bottling to investigate how much of a role the Pepsi product(s) haveplayed in their lives. “The soft-drink company (Pepsi) has invited the public to select theirfavorite from among five spots that premiered during a Super Bowl over the last 15 years”(Eads). This survey was carried on Yahoo! and those who registered and voted were put in adrawing to win on of one hundred $2001 prizes. By January 25, 2001 pepsi.yahoo.com hadregistered 76,000 votes (Business Week). In addition to testing the waters well before the SuperBowl, Pepsi was focusing on brand awareness and freshening their image. This type ofadvertising and market probing gave Pepsi the confidence to invest a few million dollars for onlya few minutes of total advertising during the Super Bowl. Overall, it is clear that large worldwide companies, such as Pepsi invest millions ofdollars each year on advertising. However, this money must not simply be spent on a productwithout first researching the effectiveness of the advertising. PepsiCo and its subsidiaries mustfirst understand the group of people they intend to target with their advertising; then what types 14
  • 15. of ads attract their attention. Once they have established customers, PepsiCo must monitor theirbuying habits in order to continue to deliver superior products and services. Segmentation and Target Markets Market Segmentation A company that works on a global scale has to take many additional problems intoconsideration. For example, trends affecting the United States may not affect countries such asJapan or Germany. Also, customs and language can have a major impact on the way a particularad is interpreted throughout the world. For this reason, PepsiCo has adapted to the customs, tastes, language, and culture of the200 countries in which they do business. “MTV: Music Television, a division of Viacom Inc.,and Pepsi-Cola International, the international beverage unit of PepsiCo Inc., have joined forcesto create a first-of-its-kind international alliance for both companies which covers media andmarketing” (MTV). Through MTV, which is available in over 70 countries and roughly 250million homes, Pepsi-Cola is able to advertise in a variety of languages and according to thespecific culture of the country. The two companies merged to form a 3-year deal, which allowsPepsi to sponsor signature MTV programming in 6 of their markets. These include MTV Europe,MTV Asia, MTV Mandarin, MTV Japan, “Semana Rock” on MTV Latino, and MTV Brazil(MTV). Through this deal and others similar to it, PepsiCo and Pepsi-Cola are able to segmenttheir [world] market into several groups, which then allows them to focus on each one’sindividual strength. This then allows the overall goal of appealing to their target market of youthand adults ages 13-34 (MTV). 15
  • 16. Target Markets Pepsi’s variety of products enables the company to serve different market segmentsaround the world. The products that Pepsi has, offers a drink or snack for every event. It’s not asecret that the majority of Pepsi’s strategic marketing concept is designed to compete with thegiant Coca-Cola Corporation. Pepsi targets different markets because it meets the demand of many consumers aroundthe world, no matter the age or culture. Some examples of their target markets are: athletes,overweight people, the older generation, and teenagers. (PepsiCo) Pepsi has committed to help overweight customers fight obesity and live healthier livesby creating new products that are nutritious, contain vitamins, and have reduced fat, sugar orsodium. Pepsi’s most important target market is the age group of 13 -34 year olds. Pepsi alsohas the distinctive style of portraying the times in their ad campaigns. Their “Generation Next”campaign suggested that Pepsi is not just a drink for the next generation; its drinkers are also ageneration ahead of their counterparts (PepsiCo). Pepsi has cultivated an image for itself as thedrink for the modern times. It has discovered that the buying power of the youth and themarketing power of celebrities were compatible (PepsiCo). 16
  • 17. Differentiation and Positioning Differentiation In the mid 1970’s, Pepsi aimed to differentiate itself from competitor Coca-Cola byissuing the “Pepsi Challenge.” This marketing plan set forth the challenge to consumers to testPepsi and Coca-Cola blindly and choose the soft drink they preferred. Overwhelmingly,consumers chose Pepsi over Coke in these tests, allowing Pepsi to differentiate themselves inquality and consumer preference without relying on more complex marketing gimmicks. Pepsi also uses packaging to distinguish itself from other products. The red, white, andblue color scheme invokes the idea of American patriotism -- no matter where in the world Pepsiis sold, it is universally noted as an American product. Few people can look at a Pepsi can withthe label blurred out and not recognize it right away. Pepsi’s distinct packaging has becomerecognizable throughout the world. Even the red, white and blue circular Pepsi logo is a strongindicator of the Pepsi product and highly recognizable. Pepsi has recently launched a new marketing campaign aimed at touting the nutritionaladvantages of its products. This campaign has focused on their healthy products includingcereals, oatmeal, and fitness waters. In a society with an ever-increasing fixation on weight lossand health food, Pepsi has made a smart move by differentiating their “healthy” products fromthe competitors “junk” food. Positioning Although Pepsi comes in a close second to Coca-Cola as a recognizable soft drink brand,it has cornered the markets of non-carbonated beverages and potato chip brands (Frito Lay).Owning Tropicana, Gatorade, and manufacturing its own bottled water has put Pepsi far ahead of 17
  • 18. most other foods company and earned them the number one spot as non-alcoholic beverageproducer in North America. Pepsi has also taken on the new position of healthy snackingalternatives. This has positioned them in a whole new niche market that is growingexponentially. In 2007 Pepsi launched a new marketing program centered on health and environmentalsustainability. With an ever increasing global focus on “going green”, Pepsi realized theimportance of its position as a company with a purpose. Not only has it launched new, healthyproducts, it has also reformulated old products, and teamed up with government agencies tobegin the fight against obesity. Pepsi is currently focusing their efforts on renewable energy and conservation tacticscompany-wide. By 2015, Pepsi plans to “reduce per-unit water consumption by 20%, electricityconsumption by 20% and manufacturing fuel consumption by 25%” (PepsiCo). All of these efforts reinforce Pepsi’s plan to position itself as the corporation of the future.It is taking steps to get and maintain a strong foothold in a boundless new market. 18
  • 19. Product PepsiCo has four main divisions that manufacture, market and sell a variety of salty,sweet and grain based snacks, carbonated and non-carbonated beverages and foods. Thesedivisions are organized on the following way:. Frito – Lay North America (FLNA).PepsiCo Beverages North America (PBNA).PepsiCo International (PI).Quaker Foods North America (QFNA) Frito-Lay North America (FLNA), manufactures snacks foods. These snacks includeLay’s potato chips, Doritos tortilla chips, Tostitos tortilla chips, Cheetos cheese flavored snacks,Fritos corn chips, branded dips, Ruffles potato chips, SunChips, Quakers, Gamesa, and SmartFood (PepsiCo). PepsiCo Beverages North America (PBNA), manufactures or uses contractmanufacturers and markets. They also sell beverage concentrates, fountain syrups and finishedgoods under various brand names including Pepsi, Mountain Dew, Gatorade, Tropicana, Lipton,Sierra Mist, Dole and SoBe (PepsiCo). This same company also sells ready to drink tea, coffeeand water products through a joint venture with Unilever and Starbucks. Also, PBNA licensesthe Aquafina water brand to its bottlers and markets this brand. PepsiCo International (PI), produces a number of leading salty and sweet snacks, andbeverage concentrates through consolidated businesses. These brands include Lay’s, Walkers,Cheetos, Doritos, Gamesa, Sabritas, Mirinda, 7UP and Tropicana (PepsiCo). These brands arethen sold to authorized bottlers, independent distributors and retailers. However, in certainmarkets, PepsiCo International operates its own bottling plants and distribution facilities. 19
  • 20. Quaker Foods North America (QFNA) manufactures cereals, rice, pasta and otherbranded products such as Life cereal, Pasta Roni, Aunt Jemima mixes and syrups, and Quakeroatmeal (PepsiCo). These branded products are also sold to independent distributors andretailers like Frito Lay. Pepsi’s brands’ size and popularity gives the company confidence to introduce newflavors and launch entirely new varieties with trusted brand names that deliver consistently greattaste. Their continuing success depends on their product innovation, including maintaining arobust pipeline of new products, and the effectiveness of their advertising campaigns andmarketing programs. Also, Pepsi’s success depends on the ability to respond to consumer trends. Pepsi’s products’ demand may be adversely affected by changes in consumer tastes andpreferences. Pepsi is aware that any significant changes in the consumers’ preferences and anyinability on their part to react to such change could result in decreased demand for their productsand erosion of their competitive positions. In order to remain competitive PepsiCo maintains theunderstanding that “Maintaining a good reputation globally is critical to sell their brandedproducts” (PepsiCo). Place There is always easy access to a Pepsi Cola when the craving arises. This is because theirproducts are available to consumers almost everywhere. Pepsi’s products are distributed to fastfood chains such as KFC, Pizza Hut and Taco Bell. Pepsi’s delivery market program provides astrong competitive advantage (PepsiCo). Pepsi can also deliver to retailers, gas stations, andvending machines, as well as other businesses that sell their product. The corporation’s distribution systems are one of the world’s most powerful supplychains. Its performance has become well known throughout the world (PepsiCo). Sabritas, 20
  • 21. (Frito Lay in the United States), has operations in Mexico, Central America and the Caribbean.In the Middle East, zero-calorie Pepsi Max posted strong growth, and Mountain Dew surgedahead in markets like Nigeria and Pakistan; while the Doritos brand drove healthy growth inEgypt. In Russia, annual beverage volume reached more than 200 million cases. Finally, theirSouth America foods business, which includes operations in Brazil, Argentina, Colombia, Peruand Venezuela, grew organically and through the acquisition of “Lucky Snacks,” a smallBrazilian brand (PepsiCo). PepsiCo International offers a diverse portfolio of products and brands that have largeprofit margins throughout Europe, the Middle East, Asia, Australia and Africa. Their business iswell balanced between developed and developing nations; and their product and brand portfoliooffers benefits ranging from the simple refreshment to basic nutrition. Promotion For over 100 years, Pepsi-Cola has created some of the finest soft drink ads presentedthroughout the world. From 2001’s "Joy of Pepsi," sung by Britney Spears, to the classic"Nickel, Nickel" ads from 1939, Pepsi’s ads are as enjoyable as the products they produce. Since their beginning PepsiCo has changed the design of the Pepsi-Cola can, ten times.They have also created large campaigns promoting the company and its products. At thebeginning of the 1950s, the company changed its print ad focus from using black and whitecartoons to a refined campaign using color illustrations. PepsiCo’s success is the result ofsuperior products and high standards of performance. Their promotional efforts are evident inmagazines, newspapers, radio, Internet, and television. Pepsi is known for launching their new promotions during Super Bowl commercials.This year, Pepsi ads were advertising the downloading of music legally, by using a teenager that 21
  • 22. was sued for illegal downloading by the Recording Industry Association of America. The SuperBowl ad campaign kicks off a two-month Pepsi-Apple promotion where Pepsi will distribute 300million bottles with iTune download codes printed inside the bottle caps. Because the SuperBowl is TVs biggest annual event, the Pepsi-Apple ad will be the highest-profile promotion ofany online music service (SFGate). Two years ago, PepsiCo was a founding member of a voluntary U.S. food and beverageindustry initiative that redefined how Pepsi markets products to children under 12. Today, lessthan 1% of PepsiCo’s total advertising budget in North America is allocated for advertising tokids, and 100% of that advertising is devoted exclusively to promoting healthy foods (PepsiCo).PepsiCo Europe has recently made a similar advertising and school marketing pledge in theUnited Kingdom. In partnership with dozens of other food and beverage companies, PepsiCohas introduced front-of-package nutritional labeling across all its brands. Recommendations PepsiCo is an organization that strives to be the world’s premier consumer productscompany. It seeks to produce healthy financial rewards for investors and provide opportunitiesfor growth and enrichment to employees, business partners and the communities in which theyoperate (Annual Report, 17). In order to remain competitive in the global market, PepsiCo andits subsidiaries must be aware of new trends and preferences that arise, as well as the variety ofcosts that go into their products. This can be accomplished through investment in healthconscious markets and continued innovation in new products. Acquiring companies with“healthy” reputations as well as participation in the Green Movement will have a positive effecton their reputation as a consumer friendly corporation. Finally, monitoring current and potential 22
  • 23. consumers, as well as constantly reviewing the effectiveness of their marketing program, willallow PepsiCo to detect arising trends and new taste preferences within their target markets. First, it is clear that carbonated soft drinks are suffering a decline in North America.Experts say the soft drink market is expected to fall one percent in 2008. In fact, “…both Cokeand Pepsi, the number one and number two beverage makers, have seen their share of the NorthAmerican soda market fall for two straight years, as more health conscious consumers switch tovitamin-infused energy drinks and bottled water” (Kavilanz). The carbonated soft-drink market,more specifically PBNA, is a major portion of revenue for PepsiCo. In order to avoid substantial losses due to changes in consumers purchasing habits,PepsiCo must continue to invest in health conscious markets. For example, the 2001 acquisitionof the Quaker Oats Company was a timely acquirement for PepsiCo. With programs such as the“Smart Heart Challenge,” as well as the idea that oatmeal gives “Brain Power,” PepsiCocaptured a large portion of the shift toward future healthier living. PepsiCo must either focus itsefforts on reinventing its current soft drinks, or focus on marketing itself as a more healthconscious product. This can be done by highlighting the benefits one receives while drinkingPepsi in addition to the wonderful and refreshing taste it has. This requires a greater emphasis onthe older generation and continued appeal to the individuals 13 to 34 years of age. Next, it is evident through the media that the issue of global climate change is importantto worldwide society. This issue has created an opportunity for PepsiCo to appeal to new,environmentally friendly consumers. In order to accomplish this, PepsiCo must invest in greentechnologies, promote changes in their production techniques, and advertise to the world thatthey are doing their part to promote environmental sustainability. This can be done through massrecycling projects and engineering containers from less harmful, organic products. In addition, 23
  • 24. large amounts of money can be publicly donated to foundations that research possible solutionsto “Global Warming.” By aligning themselves with a good cause and by giving back to thecommunity PepsiCo is sure to win the approval of a new and loyal customer base. Finally, customer research is critical to any prolonged success. The informationdiscovered can lead to the release of new products and the termination of those that wereunsuccessful. In order to continue to be successful, PepsiCo must maintain their investment innew groundbreaking technology. This will allow them to capture the sentiment of currentcustomers and find new ways of convincing others that Pepsi is the best brand available.Continued investment in technology will allow PepsiCo and its subsidiaries to monitor theeffectiveness of their marketing program. According to Devon Leonard of Fortune Magazine,“…the price of a thirty second commercial is continuing to rise at a time when the broadcastnetworks are steadily losing their audience” (Leonard). If Pepsi continues to pour money intotraditional advertising they will see their share of the beverage market begin to decline. Also,“…by 2008 twenty percent of the nations households will have personal video recorders (TiVoand DV-R devices), this enables viewers to skip ads altogether” (Leonard). It is evident that bymonitoring their customer base and continuing to invest in the latest technology, PepsiCo and itssubsidiaries will notice new and rising trends within the marketplace. PepsiCo has produced quality products while simultaneously creating healthy financialrewards for investors. These rewards are the result of a tireless effort to be the world’s premiereconsumer products company. However, in a competitive market, PepsiCo and its subsidiariesmust be aware of new trends and preferences that arise, as well as the variety of costs that go intotheir products. Together with these recommendations and continued focus on satisfying not onlytheir customers, but shareholders and employees as well, PepsiCo is sure to capture more market 24
  • 25. share, earn greater returns, and become a source of refreshment and nourishment for an evenlarger portion of the global market. 25
  • 26. ReferencesAbout the Pepsi-Cola Company. (2008). Pepsi USA. Retrieved March 5, 2008, from http://www.pepsi.com/corporate/company_info/index.phpAll Pepsi-Cola Brands. (2008). Pepsi USA. Retrieved March 7, 2008, from http://www.pepsi.com/pepsi_brands/all_brands/index.phpBeene, Gary: Pepsi Information Center, <www.garybeene.com/pepsi/pep-hist.htm>Consumers: “Consumers in the Spotlight,” <www.uk.businesobjects.com/constomers/spotlight/pepsico.asp>, March 15FAQ: <www.pepsi.com/help/faqs/faq.php?category=ads_and_history&page=highlights> April 4Eads, Stefani: Business Week, “Fusion Marketing in Prime Time,” <www.businessweek.com/bwdaily/dnflash/jan2001/nf/20010126_840.htm>, March 5Leonard, Devon, “Nightmare on Madison Ave,” Fortune Magazine June 2004, 93-108MTV, <www.encyclopedia.com/doc/1G1-18048483.html>, March 7PepsiCo International 2006 Annual Report. (2007). PepsiCo international. Retrieved March 7, 2008, from <http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-reportsannual>PepsiCo International 2007 Annual Report. (2008). PepsiCo international. Retrieved March 3, 2008, from <http://library.corporate-ir.net/library/78/782/78265/items/284320/> 2007_AR_final.pdfPepsico: <www.pepsico.com/PEP_Company/Overview/index/cfm>, March 5Promo: <www.promomagazine.com/mag/marketing_tasting_joy_flavor/, March 5The Pepsi Challenge. IUCN (2008). Retrieved on 25 March, 2008.Kavilanz, Parija B. “Coke, Pepsi Lose Ground for Second Year.” CNNmoney.com March 8, 07 <www.cnnmoney.com/2007/03/08/news/companies/softdrinks_sales/index.htm> 26
  • 27. <http://www.americanartarchives.com/pepsi.htm>http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/01/31/DOWNLOAD.TMP 27
  • 28. Appendix A: SWOT Analysis• Brand equity • CSD category decline• Brand recognition • Reliance on• Financial strength distributors• Steady growth• Acquisitions • Reputation• New investments • Competition• Health-conscious • Exchange/Interest rates markets • Raw materials prices 28
  • 29. Appendix B: Pepsi Stock Charts Stock Quote $71.54 + 0.09 (up 0.13%) Minimum 20 Minute Delay Intraday High $72.21 Intraday Low $71.19 Volume 4,777,214 Last Trade 03/25/08 4:00 p.m. ETPepsiCo 1 yrSource: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-stockquotePepsiCo 3yrsSource: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-stockquote 29
  • 30. PepsiCo 5yrsSource: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-stockquotePepsiCo 10yrsSource: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-stockquote 30
  • 31. Appendix C: BCG Growth Share Matrix 31
  • 32. Appendix D: CSD Market Share 32
  • 33. Appendix E: Selected FiguresFigure 1: Net Revenues and Division Operating ProfitsFigure 2: Top Branded Food and Beverage ManufacturersFigure 3: Percent Retail/Dollar Sales 33