New Product Launch - PepsiCo

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Fictional project about PepsiCo launching an alcoholic beverage in the US and international markets. Done as part of curriculum in Jan 2010

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  • Michael Kochan, Trey Packard, Nidhi Raj, James Thomson
  • New Product Launch - PepsiCo

    1. 1. Brand Extension StudyAlcoholic Beverage MarketJanuary 8, 2010<br />Michael Kochan<br />James Thomson<br />Trey Packard<br />Nidhi Raj<br />
    2. 2. Agenda<br />
    3. 3. Objectives of Today’s Discussion<br />Provide an analysis of the alcoholic beverage industry (and associated sub-markets, including beer, wine, liquor, and the nascent pre-mixed & energy segment)<br />Analyze PepsiCo’s operational and strategic advantages as they relate to potential entry into those markets<br />Identify, test, and address prerequisites<br />for successful market entry<br />Provide strategic recommendations on<br />whether, and how, PepsiCo should<br />pursue a new product launch in the<br />alcoholic beverage space<br />3<br />
    4. 4. Should PepsiCo Launch an Alcoholic Beverage?<br />Hypothesis:<br /> Current conditions are favorable for PepsiCo to launch a alcoholic beverage.<br />Sub-Hypotheses:<br />Scalability: Growing demand in the alcoholic-beverage market supports a new entrant. <br />Inimitability / Defensibility: There a first-mover advantage in this market. <br />Execution test:<br />PepsiCo’s existing manufacturing, bottling, and distribution infrastructure can be leveraged to minimize costs through economies of scale vis-à-vis its competitors. <br />Adding an alcoholic beverage to PepsiCo’s portfolio would not negatively impact brand equity and is compatible with core corporate values.<br />Value Proposition: Customers perceive an added value and are willing to pay a price premium for a Pepsi-branded alcoholic beverage. <br />Necessary Assumptions to be Tested<br />There is sufficient space in the alcoholic beverage market for another entrant.<br />There is a significant first-mover advantage in being the first major soft drink brand to enter the alcoholic space<br />The infrastructure for production and distribution of soft drinks is not materially different then for alcoholic beverages (and there is significant overlap between alcoholic and nonalcoholic channels) <br />Adding alcohol to PepsiCo&apos;s product portfolio does not conflict with its core corporate values<br />Pepsi&apos;s brand equity can be successfully extended to the alcoholic beverage market <br />Pepsi&apos;s brand yields a price premium that extends to alcoholic-beverage customers<br />4<br />
    5. 5. Agenda<br />
    6. 6. Recommendation:<br />PepsiCo should NOT pursue the launch of a branded product in the alcoholic beverage space, although the launch or acquisition of a non-branded mixed- or energy-drink line merits consideration.<br />Summary of Findings: <br /><ul><li>The alcoholic beverage market (and the pre-mixed and energy segment, in particular) are expected to grow at an accelerating rate, and
    7. 7. PepsiCo’s manufacturing and distribution capabilities can be extended to the alcoholic beverage space.
    8. 8. Nevertheless, the proposal should be rejected for two primary reasons:
    9. 9. Incompatibility with PepsiCo’s core corporate values and the company’s 5-year strategic vision, and
    10. 10. Lack of defensibility of the move due to a lack of transferability of the Pepsi brand into the alcoholic beverage space</li></ul>6<br />
    11. 11. Assumption Testing<br />Scalability<br />Growing demand supports a new market entrant<br />Defensibility<br />A first-mover advantage exists<br />Execution<br />Infrastructure can be leveraged without eroding the Pepsi brand<br />Value Prop<br />Customers value the Pepsi brand in the alcoholic space, and will pay a premium for it<br /><ul><li>There is sufficient space in the alcoholic beverage market for another entrant
    12. 12. There is significant first-mover advantage in being the first major soft drink maker to enter the alcoholic beverage space
    13. 13. The infrastructure for production and distribution of soft drinks is not materially different then for alcoholic beverages
    14. 14. Adding alcohol to PepsiCo's product portfolio does not conflict with its core corporate values
    15. 15. Pepsi's brand equity can be successfully extended to the alcoholic beverage market
    16. 16. Pepsi's brand yields a price premium that extends to alcoholic-beverage customers</li></ul>7<br />
    17. 17. SCALABILITY: Growing Demand in the Alcoholic Beverage Market will be sufficient to support a new entrant<br />Dollars ($B)<br />Source: Goldman Sachs Consumer Goods Forecasting Group<br />Attractive Opportunity<br />Source: Survey data from 100 companies across the 4 markets<br />8<br />
    18. 18. SCALABILITY: New Entrants in 2009 were able to Gain Share and Achieve Profit in Certain Markets<br />2009 New Entrants<br />Market (# New Entrants)<br />Source: Analysis of financial data from selected companies<br /> Conclusion: The alcoholic beverage market is growing sufficiently to support a new entrant. The Pre-mixed beverage market has the most opportunity for a entrant to gain share and achieve profitability.<br />9<br />
    19. 19. DEFENSIBILITY: Pent-up demand and a large underserved market means that there is a significant first-mover advantage in being the first major soft drink brand to enter the alcoholic space<br />Source: Alcoholic Beverage Industry Association, 2010<br /><ul><li> An underserved market in the pre-mixed alcoholic beverage area exists
    20. 20. Current competitors in the market are small, regionalized, and unable to capitalize on the demand gap
    21. 21. Should Pepsi enter the space, it should be able to immediately capture a significant proportion of the underserved market
    22. 22. Additionally, through targeted advertising Pepsi should be able to accelerate overall market growth beyond what is currently possible</li></li></ul><li>DEFENSIBILITY: Moreover, comparable launches have indicated that a time lag before competing entry will enable Pepsi to solidify its first-mover position<br />Anticipated Competitive Response<br /><ul><li> Analysis of previous new market entries by PepsiCo (including entry into the energy drink, diet cola, and sports drink spaces) indicates that:
    23. 23. The number of competitive entrants will be minimal (primarily Coca-Cola),
    24. 24. A significant time lag will exist before any competitive response,
    25. 25. Price wars are not a probable outcome, and
    26. 26. Overall market growth can be sufficient to sustain multiple entries</li></ul>11<br />
    27. 27. DEFENSIBILITY: In the period before competitive response, Pepsi can strengthen its first-mover position through several defensive strategies<br />Retail Exclusivity<br />Distribution Channel<br />Marketing leadership<br />Loyal Customer Base<br />Potential Defensive Strategies to Minimize Competitive Response<br />Leverage strong distribution network to ensure access to all underserved markets (in the US and globally)<br />Lock up key retail locations and points-of-sale through exclusive, multi-year and multi-geography contracts<br />Pursue key sponsorship opportunities, launch viral campaigns, and ensure distinctive product design<br />Strong national marketing campaign to ensure uptake and strengthen brand in advance of competitive response<br />12<br />
    28. 28. EXECUTION: The infrastructure for production and distribution of soft drinks is not materially different than for alcoholic beverages<br />Source: SEC Filings, International public filings, PepsiCo internal bottling & distribution data<br />Conclusion: Operating margins are essentially the same for the alcoholic and non-alcoholic beverage industries. Existing bottlers and distributors of both soft drinks and alcoholic beverages cross-utilize PP&E. Significant competitive advantage should be realizable over small or regionalized competitors.<br />13<br />
    29. 29. EXECUTION : Pepsi&apos;s brand equity will not be damaged by entering the alcoholic beverage market <br />Consumer Reactions to Alcohol Proposal<br />Survey:Please rate how this product affects your perception of the Pepsi brand where -5 means “negative affect on brand perception”, 0 means “no impact”, and 5 means “positive impact on brand perception”<br />Source: Focus Group, January 7, 2010<br />Conclusion: Overall, the Pepsi brand is not damaged by introducing an alcoholic beverage, although thereare slight negative brand impacts among older loyal customers. Younger loyal and non-loyal Pepsi customers’ perception of the brand should actually improve. <br />14<br />
    30. 30. EXECUTION: Adding alcohol to PepsiCo&apos;s product portfolio may conflict with its core corporate values<br />Survey: <br />A Pepsi-branded alcoholic beverage is not at odds with PepsiCo’s corporate strategy. 1 = Strongly Disagree, 3 = Neutral, 5 = Strongly Agree<br />Source: Focus Group, 2009<br />15<br />
    31. 31. EXECUTION: Moreover, key stakeholders within the organization oppose the launch as being incompatible with the Company’s commitment to healthier products<br />“The goal of PepsiCo’s human sustainability effort is to nourish consumers with a range of products, from treats to healthy eats. We are proud to give consumers choices across the spectrum. Our products deliver joy as well as nutrition.” – Member of Corporate strategy<br /><ul><li>“We are committed to be a company that offers food and drinks that are ‘fun for you, better for you, and good for you.’ I do not believe adding an alcoholic beverage would be better or good for either our current or potential customers.” – Member of Internal M&A
    32. 32. “I would be concerned about how an alcoholic beverage might cause backlash in my markets, particularly in the Middle East and Northern Africa.” – Division Head, EMEA</li></ul>Conclusion: Critical PepsiCo stakeholders believe an alcoholic beverage is not compatible with the Corporation’s core corporate values<br />16<br />
    33. 33. VALUE PROPOSITION: While brand commands a price premium in the non-alcoholic segment, pricing power in the Alcoholic segment is driven primarily by Quality<br />Assumption: “Key drivers of consumer purchasing behavior in the alcoholic beverage market will parallel those in the non-alcoholic space.”<br />Non-Alcoholic Bev Market<br />Alcoholic Bev Market<br />H<br />H<br />Availability<br />Availability<br />Quality<br />Brand<br />Size<br />Impact on Price Tolerance<br />Impact on Price Tolerance<br />Brand<br />Size<br />Quality<br />L<br />L<br />H<br />L<br />H<br />L<br />Impact on Freq of Purchase<br />Impact on Freq of Purchase<br />Conclusion: While some variation is seen across sub-segments, consumers in the alcoholic beverage space generally place more of a premium on quality than on brand. Pepsi’s existing brand equity will not translate well to alcoholic drinks.<br />Source: Income levels & purchase frequency by segment<br />17<br />
    34. 34. VALUE PROPOSITION: Moreover, the Pepsi brand is unlikely to translate well to alcoholic markets, with the exception of the pre-mixed & energy segment<br />Conclusion: While loyal Pepsi customers are very likely to try a Pepsi-branded alcoholic beverage in the pre-mixed and energy drink space, they are unlikely to do so in any other segment. Non-loyal customers are less likely in all cases.<br />Loyal Customers<br />New Customers<br />Source: Bain & Co Focus Group, 1/7/2010<br />18<br />
    35. 35. Agenda<br />
    36. 36. Conclusions & Recommendations<br />PepsiCo should NOT proceed <br />with a branded alcoholic beverage.<br />20<br />
    37. 37. Summary of Work Performed To-Date<br />Timeline<br />12 week engagement beginning early January 2010<br />2 preliminary meetings after weeks 4 and 8<br />Final presentation at end of week 12 (early April) to CEO IndraNooyi and executive team<br />Resources & Assignment Responsibilities<br />1 Partner to manage relationship with PepsiCo<br />1 Manager to deal with upper management at PepsiCo and manage problems during engagement<br />2 Consultants to manage workstreams and prepare proposals to PepsiCo<br />3 Analysts to collect and analyze data<br />Strategic Question<br />Should PepsiCo launch a Pepsi-branded alcoholic beverage?<br />Hypothesis<br />Current conditions are favorable for PepsiCo to launch an alcoholic beverage<br />Analyses<br />Does PepsiCo&apos;s brand yield a price premium that extends to alcoholic-beverage customers?<br />Is there is sufficient space in the alcoholic beverage market for another entrant?<br />Is there is a significant first-mover advantage in being the first major soft drink brand to enter the alcoholic space?<br />Is the infrastructure for production and distribution of soft drinks materially different than that for alcoholic beverages (and there is significant overlap between alcoholic and nonalcoholic channels)?<br />Can PepsiCo&apos;s brand equity be successfully extended to the alcoholic beverage market?<br />Will adding an alcoholic beverage to PepsiCo&apos;s product portfolio conflict with its core corporate values?<br />Data<br />PepsiCo Interviews<br />Surveys<br />Published Reports<br />Custom Reports<br />Market Data<br />21<br />

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