PepsiCo: Company Analysis

Company background

PepsiCo Incorporation has been successful since its establishment in 1898 within the US processed and packaged goods industry. The firm operates on a global scale with its headquarters located in US. The firm’s success is evident from the fact that it has managed to become the global leader within the industry having achieved a number of milestones over the years. This has resulted from strict adherence to its corporate governance strategy which entails ensure a high level of accountability in all its operations. In its operation, the firm is divided into a number of divisions. These include PepsiCo International, PepsiCo Beverages and PepsiCo International (Banks, 2001, para.2).

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Market position

The global beverage market is relatively large with the markets being distributed in different regions. However, the proportion of market share varies across different geographical market segments. Europe has the largest market size of 37.10% while US and the Asia-Pacific region has a market share of 30.90% and 19.80% respectively. The rest of the world shares a market share of 12.30 %(Deichert, Ellenbecker, Klehr, Pesarchick & Ziegler, 2006, p. 13).

A variety of non-alcoholic drinks are produced by firms in this industry. These products are categorized into energy drinks, functional drinks such as milk, coffee and tea and sports drinks. These products specifically target both individual and institutional customers. For instance, sports clubs form a significant proportion of institutional consumers of energy and sports drinks. This is due to the fact that these drinks have a characteristic of improving the performance of individual sport personalities. In addition, these soft drinks are also consumed by individual consumers so improve their health, concentration and performance.

Pricing strategy

The beverage industry is very competitive. This presents a challenge to firms operating in this industry in formulating their pricing strategy. In addition, pricing challenge also results from the fact that the industry has a wide variety of similar products and multiple channels of distribution. The industry’s pricing structure is mainly based on price optimization program and strategic pricing. Price optimization is attained by conducting a consumer survey to determine their willingness to pay. In addition, data relating to the competitors is also utilized in setting the price of the beverages.

Industry analysis

Over the past century, the industry has undergone a number of development stages. The 20th century was characterized by a few players in the industry. As a result, competition was relatively low during the formative years. Due to the lucrative nature of the industry, a large number of investors began to venture into the industry which characterized the industry’s growth phase. This culminated into an increment in the level of competition. Currently, the industry has become saturated representing the industry’s maturity stage. As a result, firms in this industry are formulating alternative survival strategy (Deichert et al, 2006, p. 2).

The processed and packaged goods industry is categorized into three strategic groups. These include firms which deal with food, beverage and snacks. Strategic groups are defined as a number of firms within a given industry which have adopted a set of similar strategies or business model.

A number of variables are used in defining strategic groups within the processed and packaged goods industry. These include product diversity, geographical coverage, and market segment served; extend of branding, marketing effort, pricing policy, product quality and distributional channels used.

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The major strategic groups dealing with beverage production within the US processed and packaged goods industry includes PepsiCo, Cadbury Schweppes and Coca Cola Company.

Coca Cola Company enjoys a significant of approximately 50%. On the other hand, PepsiCo’s market share is 21% while Cadbury Schweppes has a market share of 7%. The remaining market share is shared amongst smaller firms such as National Beverage Company and Cott Incorporation (Deichert et al, 2006, p. 7).

Key success factors

Firms in different economic sectors face intense challenges originating from the external business environment. This is due to the fact that the external market is characterized by a high level of dynamism. For instance, firms have to deal with competitive forces, technological developments, changes in consumer behavior and government regulations (Stoehr, 2005, p.34). These factors results into an increment in the level of pressure experienced by the firms. According to Faulkner (2002, p.21), for a firm to succeed within a given industry, it is paramount for the management team to understand factors which are necessary for the firm’s success. As a result, the management team will be in a position to address these factors more effectively. For firms within the consumer goods sector in US to succeed, a number of factors should be considered. These factors are outlined below.

Global expansion

The effectiveness with which firms dealing with consumer goods such as PepsiCo have penetrated the entire global market is a key determinant of the firm’s success. It is paramount for firms in this industry to penetrate the entire market to enable them attain a high competitive advantage compared to their competitors. This can be attained through incorporation of the concept of globalization. In conducting their global expansion strategy, it is paramount for firms in this sector to optimize their production and distribution channels. This will enable these firms to address changes in market demand more effectively (Thompson, Strickland, & John, 2004, p.45).

Market awareness

The effectiveness with which firms dealing with food and beverage products have integrated marketing communication plays a significant role in their success. This is due to the fact that market awareness plays a significant role in the process of the firm developing brand loyalty. One of the ways through which firms in this industry can create effective market awareness is by integrating celebrities in their advertising strategies (Deichert et al, 2006, p. 6).

Price

Price is also a significant key success factor for firms in this industry. This arises from the fact that consumers who do not have specific brand preference consider price in selecting the product to purchase. As a result, it is paramount for management teams of firms in this industry to consider attaining price competitiveness (Deichert et al, 2006, p. 7).

Health consciousness

In the 21st century, the consumers have become more health conscious in their consumption pattern. To cope with this change in consumer behavior, it is paramount for the management teams of firms dealing with food and beverage products to ensure that the products supplied in the market are fit for human consumption. This can be achieved through integration of total quality management.

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Attaining competitive advantage

For a firm to survive into the long term in an industry characterized by intense competition, it is paramount for the management team to incorporate competitive advantage. There are various generic strategies which PepsiCo can incorporate in an effort to develop its competitive advantage. These strategies are explained below.

Differentiation strategy

This strategy entails the firm selecting a single or more criteria used by the customers in their purchasing process. The criterion is used in positioning the firm so as to meet the unique market needs of the identified customer category (Tutor2U, 2010, para. 5). Through differentiation strategy, PepsiCo is in a position to develop its competitive advantage by charging premium price to the products that it offers to this market.

Cost leadership

PepsiCo can also develop competitive advantage by incorporating cost leadership strategy. This strategy entails a firm intending to become the market leader by ensuring that the firm incurs minimal cost during the production process. As a result, the firm is able to pass these benefits to the consumers through low pricing. The ultimate effect is that the firm will be in a position to attract a large number of customers’ (Tutor2U, 2010, para. 5).

Key strategies

In order to attain a high competitive edge, the major players in this industry are incorporating a number of strategies. Some of the key strategies being considered relate to expansion and product line extension. In its operation, PepsiCo Company has formulated a comprehensive expansion strategy. The strategy entails acquiring other firms within the industry (Bank, 2001, para.8). On the other hand, Coca Cola Company has integrated product the product innovation strategy. This is being implemented by venturing into other market segments. One of the market segments that the firm has targeted is production of non-carbonated soft drinks, water and other beverages such as coffee and tea (Deichert et al, 2006, p. 8).

Incorporation of formation of mergers and acquisition has proved to be a successful survival strategy in the industry considering the intensity of competition.

PepsiCo SWOT analysis

Strengths Weaknesses Opportunities Threats
Strong financial base. Relatively low brand image.
Not all the products that the firm deals with have the name of the company.
High probability of growth. Increase in the intensity of competition.
Effectiveness in product line extension. Weak coordination in the firm’s stores. Increase in consumer purchasing power. Change in consumption pattern.
PepsiCo has integrated an effective distribution strategy. Increased health-consciousness amongst consumers. Negative effects of the financial crisis.

Strengths

The firm has had strong financial cash flow over the years it has been in operation. This has enabled the firm to have a strong financial base thus enhancing its capacity to undertake effective expansion strategy.

The firm offers a wide variety of food and beverage products. This has been achieved through incorporation of product innovation. As a result, the firm has been effective in conducting product line extension.

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PepsiCo has integrated an effective distribution strategy which enables the firm’s product to reach the entire global market. The firm directly distributes its products to the market through delivery customer warehouse and vending networks.

Weaknesses

Not all the products that the firm deals with have the name of the company. This results into a reduction in the firm’s brand image. In addition, the firm experienced difficulty in inspiring direction and vision due to its global scale of operation.

Opportunities

There is a high probability of the firm meeting changing market requirements through incorporation of product innovation. This will enable the firm meet health requirements of he consumers.

In addition, there is a high probability of the firm growing upon the economy recovering. This will result from an increment in consumers’ purchasing power. Alternatively, growth will result from the fact that noncarbonated drinks are witnessing a rampant growth rate.

Threats

Increase in the intensity of competition within the industry is posing a threat to the survival of the firm. Competition originates from the existing firms and new entrants.

Change in consumption pattern amongst the consumers resulting from increased health consciousness. In addition, the negative effects of the financial crisis are resulting into a reduction in consumers’ purchasing power.

Reference

Banks, E. (2001). Company profile: PepsiCo. Suit101.com. Web.

Deichert, M., Ellenbecker, M., Klehr, E., Pesarchick, L. & Ziegler, K. (2006). Strategic management in the global context: industry analysis -soft drink. Web.

Faulkner, D. (2002). Strategy: critical perspectives on business and management. New York: Taylor & Francis Publishers. Web. 

Stoehr, T. (2005). Managing e-business: 99 key success factors. New York: Springer. Web. 

Thompson, A., Strickland, J. & John, E. G. (2004).Crafting and executing strategy, the quest for competitive advantage. Irwin: McGraw-Hill.

Tutor2U. (2010). Strategy: competitive advantage. Web.

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