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Analysis Carbonated Soft Drinks Industry And Pepsico

Strategy Marketing Essay


Published: 23, March 2015

The purpose of this report is to analyze the carbonated soft drinks industry and PepsiCo strategy. First the report starts with
analyzing the industry by focusing on PepsiCo's market share in the market. Then, it discusses the relevant industry trends, such as
the regulations that are followed by the carbonated soft drinks industry, and the new technologies that have been adapted by the
carbonated soft drinks rms. Additionally, the rm's position with the competitors has been analyzed by using the strategic group
model. This report also measures the attractiveness of the industry using The Porter's 5 Forces model. Furthermore, it discusses the
key success factors in the carbonated drinks industry such as the size of the rm, and brand name. External and internal scanning
have been included and recommendations have been provided based on the scanning. The second part of the report analyzes
PepsiCo's Strategy; it starts by mentioning the vision and mission of PepsiCo which basically state the future goals as well as describes
their current operations with a brief critique. PepsiCo's Generic business strategy have been discussed, it has been concluded to be
Cost leadership. What comes next is PepsiCo's Competitive advantages, and how it is doing through comparing its competitors such
as the Coca-Cola. Then the report lists some of the challenges that are faced by PepsiCo. The report is concluded with a list of
recommendations for PepsiCo in order to be able to maintain its competitive position in the market.

1. Industry Analysis
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The chart below shows the dominant players in the carbonated soft drinks (CSD) industry according to Beverage Digest report issued
on March 30, 2009. The results of this report are for the year 2008 (Sicher, 2009, p.2).
Coca Cola has the largest market share accounting for 43%, followed by PepsiCo with 31% and Dr.Pepper Snapple Group Inc.
(formerly Cadbury Schweppes) with 15% of the market. The remaining 11% is distributed amongst other CSD companies such as Cott
Corp, National Beverage, Red Bull, Big Red, Rockstar, Private label and others.
Moreover, the top 10 CSD brands in the U.S for the year 2008 were ranked by market share as follows (Sicher, 2009, p.2).

Brands
Company
Market Share
Coke
Coca-Cola
17.3%

Pepsi-Cola
PepsiCo
10.3%

Diet Coke
Coca-Cola
10%

Mountain Dew
PepsiCo
6.8%

Dr.Pepper
Dr.Pepper Snapple Group(DPS)
6.1%

Diet Pepsi
Diet Pepsi
PepsiCo
5.7%

Sprite
Coca-Cola
5.6%

Fanta
Coca-Cola
1.8%

Diet Mountain Dew


PepsiCo
1.8%

Diet Dr.Pepper
Dr.Pepper Snapple Group(DPS)
1.6%
With regard to individual brands, Coke was ranked rst with 17.3% market share and Pepsi-cola was in second place with a lower
market share of 10.3%. Additionally, the total market share of all Coca-cola brands adds up to (34.7%) which still surpasses those of
PepsiCo (24.6%).
To be able to give an in-depth analysis and evaluation of the Soft Drink industry, the following factors should be considered:
The relevant industry trends and the most noticeable changes in the industry.
The strategic group map.
The industry attractiveness using Michael Porter ve forces model.

A. Relevant industry trends


Industry Growth
The graph below shows the performance of the CSD market from 1990 up to 2008. It is observed that the industry faced a sharp
decline in growth starting from 2005, where the percent volume change fell below zero. This was followed by a further decline in
growth rates: -0.6% in 2006, then -2.3% in 2007 and -3% in 2008 (Sicher, 2009, p.1).
Conversely, the energy drink companies were experiencing a positive growth. Hansen Natural, which has both soft drinks and energy
drinks in its portfolio of products, witnessed a +3.3% CSD growth. Additionally, Red Bull's volume also increased +5.2%. Although
Hansen Natural and Red Bull make up a small portion of the total market share pie, the increase in their growth rates indicates that
PepsiCo has to pay attention to them.

Political Factors:
There are several political factors that inuence the soft drinks industry:
Obey food, Drug and cosmetic acts: the process of producing and distributing the soft drinks in the market is subjects to many
federal laws such as the food, drug and cosmetics acts. It is also subject to American with disabilities acts. The presence of these laws
helps create a healthy environment for the consumers. This will limit the potentials of new entrants in this industry.
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Environmental laws & regulations: these laws enforce packaging, recycling, water and energy policies to make sure the CSD industry
operates in a healthy environment. This leads to making the soft drink industry more attractive for consumers.
Double Taxation: Another political factor is that companies operating in the industry are obligated to tax payments for the products
they oer and distribute in each country they operate within. Hence, this leads to making the industry less attractive because
operating rms are subject to double taxation policies.

Economical Factors:
Ination in diesel prices: it is an important factor aecting the CSD industry. Since, the CSD relies on trucks to distribute its diverse
end line products; trucks are subject to ination in fuel prices. Since the consumption of fuel is the core activity, diesel prices are
subject to ination depending on the market conditions. Yet, the possibility of a market crisis rises.
Foreign exchange rates uctuations: Carbonated soft drinks rm's revenues are aected by exchange rates uctuations as well as
prots and the cost of raw materials. Due to the weak economic growth the industry will suer heavily by changes in exchange rates.
Thus, prots and cost are going to be lower and higher respectively.

Socio cultural Factors:


Obesity: Dr. Gabe Mirkin says: "A study from Harvard shows that of soft drinks may be responsible for the doubling of obesity in
children over the last 15 years." (Gabe Mirkin, 2004)
Recently, as the people are becoming more and more educated, the level of their health awareness is increasing. Obesity is becoming
more and more apparent, leading to people taking good care of their health. Soft drinks are full with empty calories which cause
obesity. The trend of obesity in children is rising since the soft drinks consumers are young and between the range of 14 and 30. In
fact, studies done by the UCLA Center for Health Policy Research shows that "Adults who do drink one or more sodas or other sugar-
sweetened beverages each day are 27% more likely to be overweight or obese." (16 Facts About Soft Drinks and Obesity, 2009)
Change in life style & consumer tastes: Nowadays the consumer of the carbonated soft drink industry are shifting their tastes toward
drinking more healthier drinks such as water and fresh juices instead of carbonated soft drink full with sugar that will have a negative
eect on the consumer health in the long run.
People have become more health conscious for instance they are moving toward the consumption of healthier beverages such as
water and fresh juices. It's estimated that the consumption of juices will increase up to 20 % within the coming three years. (Health
Conscious Chileans Switching to Non-carbonated Drinks, 2009)

Technological Factors:
Introducing new technologies in the soft drink industry has helped in developing the process of manufacturing. For example:
PDX technology:
It is a shockwave technology that helps in mixing the ingredients in an ecient way. Pursuit Dynamics, the supplier, said that this
technology is most useful for the soft drinks industry. This technology is believed to help in cutting the cleaning time up to 80%. Also,
it will also increase the processing speed and save power. (New technology targets diet soft drinks makers, 2009)

Other Noticeable trends:


Merger and acquisition:
It is very common in the soft drinks industry, it causes many rm to exit and then re-enter the industry. Many leaders in the soft
drinks industry use acquisition in order to grow and increase their market share. For example, what PepsiCo did to expand into the
energy drink sector, it acquired Quaker Oat, who already bought Gatorade. Hence, the competition on the products diversications
for a rm will increase.
Using glass bottles instead of plastic bottles:
Many soft drinks companies are moving toward using glass bottles because these bottles are more environmental friendly. According
to G Karthikeyan, the manger of sales in Jabal Ali Container Glass, the demand for glass bottles has increased recently because some
of the chemicals in the soft drinks can react with the plastic and caused serious diseases. Using glass bottles help that the soft drink
bottle taste better and last for long time. (Sathish, 2010)
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Banning soft drinks in schools:
The American beverage association has announced the removal of soft drinks from schools. It asked for the removal of full calorie
drinks and the replacement will be the healthy, low calorie beverages. That decision has been made because the child obesity is
increasing rapidly. The announcement said that in elementary schools, children can only have 100% fresh juices, low fat milk and
water, while in high schools the students can have all types of diet beverages and sport drinks as well as the drinks available for the
elementary schools.(FBD,2010)

B. Strategic Group Map


The strategic group map above shows the competitive positions of dierent competitors in the CSD industry. It consists of the ve
largest competitors in the industry. The axes represent two competitive characteristics: the product categories oered by each
competitor and geographic coverage in terms of the number of countries. The size of the circles is proportional to the relative market
share of the company. PepsiCo has oers the largest variety of product categories amounting to 10 categories, followed by Coca-cola
which oers 7 categories. Dr.Pepper Snapple Group, Cott Corp and National beverage all oer 5 product categories, however these
categories are dier slightly. Also, their geographic locations vary which explains why they are located on dierent points on the
strategic group map.
The strategic group map was constructed using the information in the table below:

Geographic coverage
Product Categories oered

Coca cola
Coca cola
200 +
("The coca-cola system", n.d.)
1.Soft drinks
2.Energy drinks
3.Juices / Juice Drinks
4.Sports drinks
5.Tea and coee
6.water
7.other[1]

Pepsi
150
("Our history", n.d.)
1.Soft drinks
2.Energy drinks
3.Juices / Juice Drinks
4.Sports drinks
5.Ready to drink tea
6.Ready to drink coee
7.water
8.Dairy based drinks
9.Fruit avored beverages
10.Frozen beverages[2]

Dr.Pepper Snapple Group


81
("The best history on earth", n.d)
1.CSD
2.Juices
3.Ready to drink tea
4.Mixers
5.Other Premium beverages[3]

Cott Corp
60
("About us", n.d.)
1.CSD
2.Energy Drinks
3.Juice Drinks
4.Tea
5.Water[4]

National Beverage
13
("Overview", n.d.)
1.CSD
2.Energy Drinks
3.Water
4.Fortied powders and supplements
5.Functionally enhanced juices and waters[5]

C. Michael Porter ve forces model


Industry is classied as the Carbonated Soft Drinks Industry

Rivalry - HIGH
Rivalry in this market is very intense due to a number of factors such as the number of competitors, growth of the industry, product
dierentiation, switching costs and change in consumer tastes.
There are a few large competitors that are roughly equal in size. These competitors are Coca-cola with a market share of 43% and
Pepsi with 31%. The market shares of Coca-cola and PepsiCo combined makes up more than 70% of the whole market. Thus, it allows
these major competitors to watch each other closely. However, there are many other competitors that compete with these two giants
and intensify rivalry. These include other soft drink companies (e.g. Dr.Pepper Snapple Group and National Beverage) and energy
drink companies (e.g. Red bull and Rockstar).
As mentioned earlier, the CSD industry faced a 3% decline in growth in 2008. A declining growth rate indicated that the many
competitors in the market will have to share the shrinking pie. Also, in an industry such as CSD, there is little opportunity for
dierentiation relative to other products (e.g. cars) which lowers switching costs for consumers.
The change in lifestyles which caused consumers to shift away from carbonated to non-carbonated soft drinks increased the level of
competition. As a result, companies such as PepsiCo and Coco-cola had to adapt to these changes in demand by focusing on
marketing and innovation ("Human sustainability", n.d.).

Bargaining power of Buyers - MODERATE to HIGH


The buyers in this industry can be classied into two categories:
Those that buy in large quantities (Matthews & Knaus, 2006, p.2):
Supermarkets (31%)
Fountain outlets: e.g. restaurants (23%)
Vending machines (14%)
Mass merchandisers (6%)
Convenience stores/ Gas stations (5%)
Small grocers (4%)
Other: gas stations, drug chains, gas stations/minimarts, airlines and other channels of distribution (17%)
Those that buy in small quantities:
Final consumer
The rst category of buyers has high bargaining power. Generally, in industries characterized with many suppliers and a few large
buyers, the buyers capture a greater share of the prots. This is because they buy in bulk and they can easily switch between
suppliers since the product is standard, lacks dierentiation and is easily available in the market. Additionally, these buyers have the
power to demand higher quality or more service because they buy in large quantities. An example of a buyer that buys in bulk is the
large retail store, Walmart.
The second category of buyers is the end consumers. The fragmented nature of the buyer group and the low quantities purchased by
them lowers their bargaining power. However, the bargaining power is increased due to the presence of substitutes, low switching
costs. Thus, the bargaining power of end consumers is considered to be moderate overall.

Bargaining power of Suppliers- MODEATE to LOW


Before looking at the supplier group, it is important to rst consider the types of input or raw materials that are used in this industry.
These are: sugar, bottles, cans, water, ink and plastic. The inputs used are homogeneous and not dierentiated which makes them
readily available in the market.
The supplier group in this industry is not powerful and does not possess a high bargaining power. There are many suppliers which
make the supplier group more fragmented than the industry it sells to. Also, the product or input is neither unique nor dierentiated
and the suppliers do not represent a high percentage of total costs in the industry.
One factor that may increase the bargaining power of suppliers is that consumers are more becoming more health conscious. This
gives suppliers that oer healthier ingredients more bargaining power since they are smaller in number. Nevertheless, this
bargaining power can be mitigated by having a long term agreement with the suppliers.

Threat of Substitutes: HIGH


Again, substitutes are classied into two categories: (1) Substitutes that come from distant industries, and (2) substitutes that come
from within the industry- internal substitution.
Since we classied the industry as that of carbonated soft drinks, then the substitutes from distant industries will be non-carbonated
soft drinks. These include juice, water, milk, tea, coee and the like. On the other hand, substitutes from within the industry include
CSD such as sodas and energy drinks.
Both types of substitutes pose a high threat because consumers' switching costs between substitutes are low. Additionally, since
people are more health conscious, they are more willing to substitute CSD with healthier alternatives.

Threat of New Entrants: Moderate to LOW


The entry barriers in the CSD industry are of dierent types, each having a signicant eect on the threat of potential new entrants,
these include:
Technical barriers: For instance, PepsiCo has an absolute cost advantage enabling it to achieve lower average costs. That is, even if an
individual or company was able to discover Pepsi's recipe, they will not be able to achieve the low costs of PepsiCo. This is because
PepsiCo is a large company that has economies of scale.
Commercial Barriers: these barriers include brand name, reputation, access to distribution etc. In an industry like CSD, it is very
dicult for a new entrant to compete eectively with the existing competitors that already have a large and loyal customer base. New
entrants will have to put in a lot of marketing eorts and resources in order to convince customers to switch to their products. This
will be time consuming and will also require a large amount of capital. Additionally, it is very dicult for new entrant to gain access to
extensive distribution channels like those of Coca cola and PepsiCo.
Financial Barriers: these barriers include capital requirement, access to nancing etc. The bottling process requires a higher amount
of capital than concentrate manufacturing since it is associated with higher xed assets. For concentrate manufacturing, one plant
which has the potential to serve a country as large as the United States costs $25 million. On the other hand, the bottling process
needs 80 to 85 plants, each costing $30-50 million, to provide ecient distribution for a country the size of the US. Moreover, the
bottling process is highly specic to both the type packaging and the bottling process. This, in return, makes it dicult to exit the
market. ("Cola wars", n.d., p.3)
Retaliation: the more retaliation new entrants expect from existing competitors, the higher the entry barrier. In this industry, new
entrants should expect sharp retaliation.
The aforementioned barriers to entry lower the threat of new entrants. However, there is another factor that should be taken into
consideration: private label brands. Cott Corp. holds the majority of private label brands in addition to few other smaller companies.
Since private label brands are cheaper, retailers would nd it more attractive to sell them, instead of Coca-cola or Pepsi, taking into
consideration the higher prot associated with them. Thus, the threat of these private brands slightly increase the threat posed by
new entrants. This makes the overall threat of new entrants moderate to low. ("Pepsi", n.d., p.6)

Conclusion
The "spider web" below summarized the ve forces (the 6th force is excluded). The more intense the forces are, the less attractive the
market is. Most of the forces in the CSD industry are moderate to high which indicates that this industry is not attractive for new
entrants. However, for those companies that are already in the industry, it is attractive.

2. Key Success Factors of Carbonated Soft Drinks industry


1. Size of Company (distribution and market share)
The companies' size is an important factor in such an industry. E.g. PepsiCo is the second leader in the industry as well as one with
the largest market share.
2. Location (Convenience and Availability)
Convenience for customers is also essential in a soft drink industry. Such that a company must make sure the soft drink is readily
available everywhere in supermarket, grocery stores, vending machines, and restaurants.
Brand Loyalty
Due to the diverse soft drinks and the intense competition in the industry, brand loyalty plays an important success factor for a
company. E.g. PepsiCo's regular customers are devoted to Pepsi and they rarely switch to other brands. Loyalty creates inelastic price
change. PepsiCo successfully adapts to customer taste.
International market
International presence is essential for the success of Soft Drinks industry. Going global is important for it helps the company enhance
growth. E.g. the majority of PepsiCo's prots come from US yet population growth in markets like India and china could lead to
potential market growth.

SWOT Analysis
Strengths:
Strong Brand Reputation
Strong market Position
Strong market Position
PepsiCo is an early entrant which helped build market share. Its market share accounts for 31% of the market share of the
carbonated soft drinks industry.

Availability of large Free Cash Flow ( and Strong Revenue Growth)


Solid revenue results in the second quarter of 2009 reecting PepsiCo's Product innovation, strong eective net pricing, and cost
discipline showing a 5.5 percent increase in net revenue and an 8 percent increase in core EPS. PepsiCo Chairman and Chief Executive
Ocer, Indra Nooyi said "Our results this quarter reinforce the advantages of our balanced portfolio, as our food and international
businesses delivered solid performance while we continued the transformation of our North American beverage business."(Nooyi,
2009)
PepsiCo has large amount of free cash ow and lack of capital constraint creating strength for the company to improve its innovative
capabilities, and create a strong distribution thus further strengthening its brand.

Strong and creative advertisement


Besides PepsiCo's strong advertisement, it uses creative techniques. Such that PepsiCo created an add through a football eld with
most well known players (Kaka-Brazilian, Henry-France, Drogba-Godivoi, Messi-Argentine, Lumoard-England) .

Extensive product list


Pepsi oers various products besides the Pepsi cola. It oers beverages and snacks. It's also the number one maker of snacks (potato
chips and corn chips).

Weaknesses:
Many Large existing Competitors
Large existing competitors in the market create signicant weakness for PepsiCo and thus create a need for stronger advertising,
consequently requiring higher capital.
Following are the strong competitors sharing a high market share in comparison to PepsiCo with 31% market share:
Coca Cola has a market share of 43%
Dr.Pepper Snapple Group Inc. 15% of the market

Concentration
PepsiCo is concentrated in North America (US, Canada, Mexico), where almost 70% of its revenues comes from.

Opportunities:
Acquisitions and Alliances:
Due to the increased threat of rivalry and competition in the carbonated soft drink industry, acquisitions and alliances create an
opportunity that reduces such threats. Through acquisition the market share rises and the revenue rises, though the high cost of
doing it is a drawback to such a strategy.
Acquisitions of rivals (e.g. RedBull)

Increase Market Share


Increase Advertisements
Advertisements play a major role in Carbonated Industries. For example, for one to see Pepsi's add on road while very thirsty would
likely to stop by a petrol station or any convenient store who oers Pepsi to purchase it.

Strengthen Brand names of N.A portfolio:


Since coke dominates Western Europe and Latin America, PEPSI dominates Middle East and Southeast Asia.

Threats:
Change in customer's taste: weakening demand in USA new federal nutrition guidelines identied regular CSD as largest source of
obesity-causing sugars in American diet (Pinto, 2006)

Health care awareness


Increased awareness of health campaigns cut down revenues of soft drink industries. Customers move to substitutes such as water,
non-carbonated drinks and juices. These challenges are PepsiCo's target to overcome, such as the gure below shows the peoples
negative perception of PepsiCo.

High Rivalry
High Rivalry
As Explained earlier, threat of rivalry is very intense due to the following factors:
Large number of competitors,
Decline in growth of the industry,
Lack of dierentiation in products,
and low switching costs.
Therefore there exists an intense competition for shelf space due to expanding array of products and packaging options
Large company size, will demand a varied marketing program;
Social, cultural, economic, political and governmental constrains. As a result, the company will incur more expenses and resources.
Threat of substitutes is very high. People can easily substitute Pepsi with other drinks.

Strategic recommendations to the rm based on your SWOT analysis


Since PepsiCo has availability of high free cash ow (strength), I would recommend that PepsiCo opts for Acquisition and Alliance
(Opportunity) to increase its market share thus to take over its rivalry (threat)
Due to the threat of health campaigns (threat), PepsiCo should increase its product line (opportunity)
I would recommend that PepsiCo increases its EPS and increase PepsiCo's stock price, by:
Increasing Income
Decrease amount of outstanding stock

B. Company strategy analysis


1. Mission Statement/Strategic intent/Vision
Mission statement:
"Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to
produce nancial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business
partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity" (PepsiCo
Inc., 2009)
Reproduced Mission statement:
PepsiCo aims to be the world's number one foods and beverages producer. It mainly focuses on providing money for its investors as
well as enhancing the market with jobs and opportunities for growth. PepsiCo try their best to be honest, fair and truthful in all of
their operations.
Critique:
The mission statement relatively reects the core values of PepsiCo. It specically describes its goals and objectives. It also sets
guidelines for the activities and operations that need to be accomplished in order to meet the company prospects & aims.
Vision:
"PepsiCo's responsibility is to continually improve all aspects of the world in which we operate - environment, social, economic -
creating a better tomorrow than today. Our vision is put into action through programs and a focus on environmental stewardship,
activities to benet society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company." (PepsiCo
Inc., 2009)
Reproduced Vision:
Operate by creating a better future sustainable environment.
Critique:
A vision is a statement that states what the rm will be in the future. Pepsi's vision aims toward creating a future healthier,
sustainable friendly environment. PepsiCo vision should be more specic to its goals and objectives in order for PepsiCo to be more
productive in the future. It should be more creative and easy to adapt to new trends. The vision can help PepsiCo in controlling the
future market.

PepsiCo Generic Strategy:


According to Michael Porter, there are two types of competitive advantages a rm an posses:
A rm can either make the same products that its competitors do, but with a lower cost. Cost Strategy
OR
A rm can dierentiate its products from those oered by its competitors, either by oering better and more expensive products or
by oering lower quality cheaper products Dierentiation Strategy.
To gain a competitive advantage in the market, PepsiCo looked in its position in the industry. It engaged in cost leadership
competitive strategy:
Since PepsiCo is a large corporation, it can keep the prices of its products low through the massive production and economies of
scale. They also can buy from suppliers in bulk at a discount and make use of the technology to lower the prices of the nal products.
Not to forget that the extensive distribution channels and the global existence of the rm are considered as important factors to
reduce the price. Allocating the cost among the brands carried by PepsiCo, the prociency in the development and production help
PepsiCo achieving its cost leadership strategy. PepsiCo also vertically integrated. It has merged with Pepsi bottling group in order to
reduce the cost of distribution. Additionally, the types of input or raw materials that are used in this industry are: sugar, bottles, cans,
water, ink and plastic. Since these raw materials are not dierentiated and are easily available in the market, PepsiCo can achieve
economies of scale.
By looking at the graph above we can learn that by achieving economies of scale the rm will reduce its costs which will lead to lower
prices of the nal products. Although lower prices will result in having price war, which had already existed between PepsiCo and
Coca-Cola and other rms in the CSD industry, it will still help the company in increasing its market share and to compete in the
industry. Adapting the Cost leadership strategy had raised strong barriers for any new entrants to enter the market since it will be
very hard to compete with a well-known brand that oers low prices.

PepsiCo's key resources that could lead to long term competitive:


In order to stay ahead of the future and present competition, Pepsi has developed many attributes. It has constructed a business
strategy that will allow it to outperform its competitors. Therefore PepsiCo has concentrated on few main resources that it believes
will turn out as competitive advantages for the rm which will help it to goal superior performance in its industry. These competitive
advantages are believed to be:

Strong Brand Name


Advertising:
PepsiCo has the luxury to spend around 200 million dollars in this eld, which allows it to reinforce the products.
The strong advertising helps PepsiCo to introduce new products very quickly because it helps in improving the awareness level on the
consumers about launching new products.
PepsiCo logo/ being the 2nd leader of the market:
PepsiCo is a very well-known brand not only because of product's taste but also because of its logo and unique way of packaging.
These all created what is called brand recognition. The unique blue and red symbol made PepsiCo very recognizable among people.
Pepsi has spent 637 million dollar over the ve past years on its marketing plan just to introduce the new rich deep blue packaging.
This color represents the eternity of youthfulness and openness.
Celebrity endorsement:
Pepsi had used famous faces such as Britney Spears and Beyonc in advertising its products, which lead to attract more customers
and increase the level of costumer's preference. Although celebrity endorsement was a success but PepsiCo won't be using
celebrities anymore as a step forward reducing its future cost.

Extensive Distribution Channels / Location


In Feb. 26, 2010 PepsiCo had merged with Pepsi Bottling group and PepsiAmerican which strengthening its distribution.
It has local and global locations. PepsiCo has locations in 150 countries all around the world.
Physical locations: PepsiCo soft drinks can be found in vending machines which are located in high trac locations, schools,
universities. PepsiCo reaches more consumers by also distributing its products to restaurants, department stores and grocery
markets.
PepsiCo has ventured into the restaurants business such as Taco Bell, KFC, Burger king and Pizza Hut.
PepsiCo has entered the snack food market by acquiring Frito lay which considered as the largest snack food company at the present
time.

Wide product oering/ diversity in products line


PepsiCo has in its product line Mountain Dew: it has about 6.3% market share and considered as #4 best soft drink in America.
PepsiCo is the rst to introduce Pepsi-One, which is a one calorie soda drink, after getting the approval of the FDA. Ace-K. This drink is
expected to be a break through the diet soda.
Wide range of Cola drinks. PepsiCo has around 55 dierent cola drinks such as Pepsi Blue Hawaii, Pepsi Carnival, Pepsi Green, Etc.

Pepsi Co. competitive position the industry:


Pepsi cola is ranked second after coca cola in the soft drinks industry. They are the two main competitors in the market. Their market
size is big compared to the other players in the soft drink industry such as Cott Corp, Dr.Pepper Snapple and National Beverage.
However, Pepsi cola is very competitive due to its market share, diverse line of products, major alliances and innovative advertising
strategies. Pepsi's strategy was to franchise its products in order to penetrate many markets around the world. It also partnered with
many major beverage players in the market, such as Starbucks and Lipton (Unilever) in order to produce ready to drink coees and
teas. Pepsi also have many brands across the globe which includes Lay's, Aquana, Tropicana, Mountain Dew, Mug Root Bear and
many more. Their diverse line of beverages and snacks allowed Pepsi to reach more customers and increase its market share in each
segment. None of its competitors have products as diverse as Pepsi's product line. In addition, PepsiCo acquired Pizza Hut, KFC and
Taco Bell which are global restaurant chains to grow and expand globally as well as in the U.S market, in order to gain a competitive
advantage over Coca cola. However in 1997, PepsiCo broke its contracts with these restaurants when the new CEO, Indra Nooyi,
predicted a decline in the future of fast foods.
Although PepsiCo and Coca Cola target all age groups, Pepsi tried to dierentiate itself by targeting young customers. Pepsi's goal in
targeting the younger population is that they will become its loyal customers in the future, yet Pepsi also wanted to retain their older
customers. In 1967, they launched their Pepsi generation advertising campaign to target baby boomers for the rst time and
advertising slogans that followed continued to target the energetic, youthful lifestyles of baby boomer teens. Michael Jackson became
the spokesman for "The Choice of a New Generation" in 1984 to attract customers who are looking for an edge in their drinks.
PepsiCo also signed contracts with celebrities like Michael j. Fox, Britney Spears, Christina Aguilera, Elissa and Amr Diab throughout
the years for intensive advertising campaigns featuring the feel of Pepsi. However, Pepsi decided to change their celebrity
endorsement strategy because their costs were higher that the generated revenue. Moreover, some of Pepsi's slogans are "Now It's
Pepsi For Those Who Think Young", "Have A Pepsi Day" and their most recent one is "Pepsi, The Choice Of A New Generation". Coca
Cola was not following in the trend of attracting younger customers through advertisements; however these customers will denitely
become the future loyal customers if they were properly satised.

PepsiCo's Challenges
One of the major challenges is to change the people's perspective of PepsiCo as an unhealthy soft drink producer. Due to the link of
soft drinks to obesity and diabetes, the new CEO wants to reinvent Pepsi as a healthy food producer rather than a snacks producer.
Although this is a good plan for the PepsiCo to consider, people who are used to Pepsi as it is now might not be easily convinced.
There are some products and brands that are considered healthier amongst the Pepsi product line such as Quaker Oats and
Tropicana, yet the word Pepsi usually refers to the unhealthy carbonated soft drink. The CEO recognizes this challenge of changing
people's views and she is consistent with a theme she introduced to Pepsi "performing with purpose".
Any lawsuit against Pepsi is a challenge that needs attention. Recently in October 2009 Pepsi was alleged to have stolen a water
packaging model from two men and is ruled to pay 1.26$ billion for missing the courts calling. Pepsi assumed that they didn't receive
the courts letter on time, and therefore the verdict must be overruled. This is a big challenge for Pepsi to overcome since this lawsuit
can eect Pepsi's reputation and it can cause decline in its sales, reduce trust with its suppliers and loose customers.
The global red, blue and white logo is going to change where the white part will be seen as teeth to reect a smile. The angle of the
white part will be dierent for each brand. This change could confuse the consumers who are used to the old logo, especially that for
every product, a dierent logo would be presented. The colors will still remain the same, yet the shape of the white part will change
imitating dierent smiles. Pepsi maybe was better o surveying the customers to see whether the change is necessary or not. The
new CEO might be enthusiastic, but with a logo comes loyalty and brand recognition which takes time to achieve and maintain. Image
1 below represents the new logo(s) of the company.
Image 1) The new logos of Pepsi
Another challenge for Pepsi is to maintain a good dirtubtion channel. Pepsi is aware about choosing the ditribution channels based
on the requirments and prefrences of the global customer. Due to its golbal experince, Pepsi have adopted many dirutbution
channels, however they need to properly adjust each in order to reduce costs and be more eective. Some countries could have an
excellend infrastructure, yet Pepsi operate in some developing countries like India and Egypt where infrastructre can be a challenge
to deliver products on time.

Is Pepsi successful so far?


The gure above represents the annual income of Pepsi from the 2005 to the year of 2009. This gure indicates how the net income
of Pepsi grow in a steady pace until the year 2008 where it faced a slight decline in the net income. Pepsi has been successful so far
and Pepsi is a company that learns from its mistakes. Also PepsiCo went through many changes in the business strategy, yet they
were always capable of maintaining a steady growth rate. Their experience and market size allows them to be exible and introduce
new innovative strategies to the company. They are willing to change the core business of Pepsi toward becoming a health conscious
company that cares for the well being of the people. Pepsi operates in North America, Latin America, Europe, Middle East, Africa and
Asia Pacic which indicates that's its highly spread around the globe. Pepsi would be growing in a successful upward trend if they
always pay attention to their customers preferences, tastes, health, and observed the economical and social environment. This is a
global company that has been operating since 1898 and it will continue to grow even if it faced several problems in the future.

Growth options - organically or cooperative strategy?


An organic growth is when the company enhances sales by increasing output. However, this doesn't include acquisitions, mergers or
takeovers since the prot generated is not within Pepsi itself. Pepsi had already franchised and had many alliances throughout the
years, however now they are considering growing by partnering with well known companies. Moreover, Pepsi is seriously adding
healthier products to its portfolio; therefore they are planning some steps to help them reach that goal.
Pepsi decided to acquire the two independent bottling rms that bottles Pepsi's drinks. They hope to gain better control over their
highly diverse drinks portfolio. This decision will allow Pepsi to grow and gain a higher control over its products and it will also reduce
the costs as they can use the facilities for other product packaging as well. Pepsi did acquire these companies and it is now called
Pepsi Bottling Group since February 2010.
Pepsi signed a partnership agreement with Anheuser-Busch, a big brewer in the U.S. to reduce the cost of procurement making them
act as one company when purchasing some raw materials and services.
For a large company like PepsiCo, acquiring other companies is feasible. They are already in many places around the world; they
don't have to experience the market rst through exporting, licensing, or franchising. Also they had some problems in the past with
franchisees because they lost control of the products and was just proving them with the Pepsi syrup. They have already been
through many business strategies before, and it is more suitable for them to have their own subsidiary whenever is it feasible.

Recommendations for PepsiCo:


PepsiCo faces threat of its substitutes. In order to keep or even increase its share of customers in the market, PepsiCo can expand its
product line. Although the product line includes many soft drinks in addition to mineral water (Aquana), PepsiCo can include some
edible products like iced lolly in the avor of the soft drinks it produces. By doing so, PepsiCo would have a competitive advantage
over the soft drinks' market leader- Coca Cola.
The market for organic and healthy foods is emerging. Customers can nd healthier options of foods and beverages in every food
store; low calorie foods have been introduced to many menus. In addition, many juice bars have opened which serve fresh juices. In
order to take advantage of this emerging market in addition to having a place in a market that seems to be threatening PepsiCo's
current operations, it can expand its product line to include healthier options.
PepsiCo can consider targeting a dierent market and attracting other costumers. Soft drinks are consumed mainly by adults and
teenagers and slightly by kids under the age of 12. Therefore, PepsiCo can target the Kids' segment. They can either produce zzy
drinks that have material that is less harmful to kids. If these products were produced, they can then market them in schools and
children's playing areas and theme parks too.
PepsiCo can start their own fashion line. They can produce T-Shirts, Caps, Jumpers, shoes etc with designs of their products. Instead
of hiring designers, PepsiCo could organize a competition where consumers would design the garments and the winners would have
their designs produced and sold to the public.
Finally, the least costly recommendation we have to PepsiCo is that they maintain their current market share as their consumer
consumption is the main source of revenues. PepsiCo has its products marketing all around the world. consequently it has a diverse
geographic market segment in addition to its products being appealing to all market segments and are aordable to people from all
income levels. For that reason, PepsiCo should always satisfy their costumers and please their suppliers in order to maintain or
increase their market share.

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