SHRI RAM COLLEGE OF COMMERCE

ANALYSIS OF PEPSI BRAND

A PROJECT SUBMITTED IN PARTIAL FULFILMENT

OF THE REQUIREMENT FOR DEGREE OF B.COM (H)
UNIVERSITY OF DELHI
PAPER CH6.3 (B)

BY
NITIN KHURANA
11/274
UNIVERSITY ENROLMENT NO.
G-32
LITERATURE REVIEW
2013-14

UNDER THE SUPERVISION OF

MS. SAUMYA

DECLARATION

This is to certify that the material embodied in this study entitled _________________
is based on my own research work and my indebtedness to other work/publications has
been acknowledged at the relevant places.
This study has not been submitted elsewhere either wholly or in part for award of any
degree.

(Students Name)

This is to certify that the project titled ____________ done by ______ is a part of
his/her academic curriculum for the degree of B.Com(H). It has no commercial
implication and is done only for academic purpose.

Ms. Alka Goyale

Teacher in-charge
Dept. of Commerce

(mentors name)

TABLE OF CONTENTS
1. Introduction
Company introduction
History
Origins
Rise in popularity
Entry of pepsi in indian market
2.

Company profile
Company structure
Multi-organisational structure
Secondary Research

3.

Branding
Introduction to brand building
marketing
Brand identity
Pepsi and branding
Success of pepsi branding strategy

4.

Internal and external analysis

Internal analysis
External analysis

5. SWOT analysis

Strength

Weakness

Oppurtunities

threats

6. Conclusion
7.

Bibliography
COMPANY INTRODUCTION
PEPSI

PEPSI
Pepsi Cola North America, headquartered in Purchase, New York, is the refreshment
beverage unit of Pepsi Company Beverages and foods, North America; a division of Pepsi
Company Inc. Pepsi Company Beverages and foods North America also comprises Pepsi
Companys Tropicana, Gatorade and Quaker Foods businesses in the United States and
Canada.
Pepsi Cola North Americas Carbonated Soft Drinks including Pepsi, Diet Pepsi, Pepsi
twist, Mountain Dew, Mountain Dew Code Red, Sierra Mist and Mug Root Beer account
for nearly One-Third of Total soft drinks sales in the United States.
Pepsi Cola North Americas Non -Carbonated Beverage portfolio includes Aquafina,
which is the number one brand of bottled water in the United States. Dole single serve
juice and SoBe, which offers a wide range of Soft drinks with Herbal ingredients. The
Company also makes and markets North Americas best selling, ready to drink iced teas
and coffees via joint ventured with Lipton and Starbucks, respectively.
Pepsi Company Inc is one of the Worlds largest food and beverage companies,
The Companys principal business includes:
Frito-Lay snacks.
Pepsi Cola Beverages.
Pepsi Company Inc is a diversified consumer products company with 3 Major lines of
Business:
1. Beverages (Pepsi Cola):- It is Pepsi.s oldest and largest business. Includes drinks like
Pepsi, Diet Pepsi, Mountain Dew, Slice, Mug. 7UP etc., available in 194 countries.

2. Snack Foods: - It includes the famous Frito-Lay Brand in the United States and other
International Brands (Example: Smith Crisps Ltd., in the UK)-available in 40 Countries.
3. Restaurants: - Includes leading brands like Pizza Hut, Taco Bell and KFC (Operating
in 94 Countries) and some relatively lesser known ones. California Pizza Kitchen,
Chevys Mexican Restaurants, Hot n now mainly in the U.S.
Today, Pepsi Cola is the second largest soft drink producer in the world. Also it has been
ranked 10th most recognized brand name in the world. INDRA NOOYI is the present
Chairman of PepsiCo in U.S.A.

HISTORY
Pepsi-Cola

Type

Cola

Manufacturer

PepsiCo, Inc.

Country of Origin

United States

Introduced

1903

Related products

Coca-Cola
RC Cola

Pepsi-Cola, commonly called Pepsi, is a cola soft drink produced and manufactured by
PepsiCo. It is sold worldwide in stores, restaurants and from vending machines. The drink
was first made in 1890s by pharmacist Caleb Bradham. The brand was trademarked on
June 16,1903. There have been many Pepsi variants produced over the years, including
Diet Pepsi, Crystal Pepsi, Pepsi Max, Pepsi Samba, Pepsi Blue, Pepsi Gold, Pepsi
Holiday Spice, Pepsi Jazz, Pepsi Next (available in Japan and South Korea), and Pepsi
Easter Hop.

ORIGINS
Pepsi-Cola was first made in New Bern, North Carolina in the United States in the early
1890s by pharmacist Caleb Bradham. In 1898, "Brad's drink" was changed to "Pepsi-

Cola" and later trademarked on June 16, 1903.There are several theories on the origin of
the word "pepsi".
The only two discussed within the current PepsiCo website are the following:
Caleb Badham bought the name "Pep Kola" from a local competitor and changed it to
Pepsi-Cola.
"Pepsi-Cola" is an anagram for "Episcopal" - a large church across the street from
Bradham's drugstore. There is a plaque at the site of the original drugstore documenting
this, though PepsiCo has denied this theory.
Another theory is that Caleb Badham and his customers simply thought the name sounded
good or the fact that the drink had some kind of "pep" in it because it was a carbonated
drink, they gave it the name "Pepsi".

RISE IN POPULARITY
During The Great Depression, Pepsi gained popularity following the introduction in 1934
of a 12-ounce bottle. Initially priced at 10 cents, sales were slow, but when the price was
slashed to 5 cents, sales went through the roof. With twelve ounces a bottle instead of the
six ounces Coca-Cola sold, Pepsi turned the price difference to its advantage with a slick
radio advertising campaign, featuring the jingle "Pepsi cola hits the spot / Twelve full
ounces, that's a lot / Twice as much for a nickel, too / Pepsi-Cola is the drink for you,",
encouraging price-watching consumers to switch to Pepsi, while obliquely referring to the
Coca-Cola standard of six ounces a bottle for the price of five cents (a nickel), instead of
the twelve ounces Pepsi sold at the same price. Coming at a time of economic crisis, the
campaign succeeded in boosting Pepsi's status. From 1936 to 1938, Pepsi Cola's profits
doubled.

ENTRY OF PEPSI IN INDIAN MARKET

Pepsis

initial foray into the Indian Soft drink industry dates way back to 1956. However,
it withdrew from the country in 1961 due to bottling problems. Its second attempt into the
Indian market was much better planned.
On Nov 9, 1987 the Government of India.s project Approval Board (PAB) approved
Pepsi Companys (PepsiCo) second proposal to enter the country. The then Government
regulations forbid the company from setting up a 100% owned subsidiary, hence it
entered the market in collaboration with VOLTAS INDIA and PUNJAB AGRO. Later
with the economic liberalization in the country, PepsiCo was allowed to acquire the
stakes of both of its collaborates. Since then, Pepsi has gone to become the largest selling
soft drink brand in the country. The Indian business unit has an annual sales turnover of
Rs.1100 Crore. The Government of India while allowing the entry of Pepsi had put forth
a series of stringent conditions like introduction of latest food processing technologies,
high quota of exports, local partnership, use of Indianised brand names etc., Pepsi, whose

basic intention was to consolidate its entry into the Indian market decide to cope with the
demand and approached the entire issue strategically and finally succeeded in its mission.
To quote Pepsi had to operate in difficult circumstances our launch was patchy virulent
anti-Pepsi lobby and competitive propaganda made it difficult , but like most big
business, Pepsi foods has been keeping up its efforts to mobilize support among
influential politicians. Pepsi managed to get quite a few well wishers form among
influential among the Member of the Parliament and ministers friends of the project.
Pepsi had embarked on a massive campaign among politicians of the opposite parties, the
first of its kind by a foreign company in India. Pepsi dispatched over 100 video cassettes
to key political personality across all major political parties. The cassettes containing
recordings of the company's initial operations in the state's economic growth. Along with
the cassette, recipients also received a small booklet providing detail of Pepsi's major
achievements and the future plans.

PCI OPERATES IN INDIA AS:

PepsiCo India Holdings Limited (PIHL)
Manufactures and distributes the beverages to the Up Country
Market.
PepsiCo India Marketing Company Limited (PCIM)
Marketing and Distribution / Sales to the local market.
The beverage business is carried out through 3 channels namely:
COBO (Company Owned Bottling Operation)
1. UP (minus) Western UP.
2. West Bengal.
3. Karnataka (minus) NW Karnataka.
4. Kerala + South Tamilnadu.
5. Mumbai + Rest of Maharashtra.
6. Gujarat.
FOBO (Franchisee owned Bottling Operation)
1. Jammu and Kashmir.
2. Rajasthan.
3. Haryana + Delhi.
4. Western UP
Brands:
Segment

Products

Clear Lemon Flavor

Cloudy Lemon Flavor
Cola
Juice

7 Up
Teem, Miranda Lime
Pepsi
Slice

Orange
Soda

Miranda Orange
Everest

PEPSICO MISSION STATEMENT

PepsiCos overall mission is to increase the value of their shareholders investment.
PepsiCo does this through sales growth, cost controls and wise investment of resources.
PepsiCo believes that commercial success depends upon offering quality and value to our
consumer and customer, providing products that are safe, wholesome, economically
efficient and environmentally sound; and providing a fair return to our investors while
adhering to the highest standards of integrity.

PEPSICO VISION STATEMENT

To be a truly global company by continuing to build a competitive and profitable world
wide refreshment beverage business.

PEPSICO VALUE STATEMENT

Value creates a path to the future and a plan for how to achieve our vision. The six.
PepsiCo values are Growth, Integrity, Global Scope, Innovation, Exceptional excellence
and Teamwork.

PROFILE OF PEPSI CO.

Company Structure
The structure of an organisation affects not only productivity and economic
efficiency but also the morale and job satisfaction of the workforce.
Firstly, one must look at what type of company is PepsiCo. To find this, we look at
the mission statement. It is clear that it is a profit making company that aims to be the
market leader. Secondly, one must identify the major stakeholders. In this case they
are the shareholders, managers and employees as detailed below. Lastly, one must
define PepsiCos purpose. This tells us how PepsiCo should be structured.
Many of these issues have been determined earlier, but for a company like PepsiCo it
is clear that these matters must also be connected to the fact that they are a
multinational company in branded goods.

Structure of PepsiCo
PepsiCos structure is paramount to the promotion of a successful strategy,
particularly when it is expanding into unknown territory. It should be simple and costeffective. Due to the fact that PepsiCos businesses are not completely unrelated to
each other, PepsiCo has a horizontal differentiation style of business. It would not
best serve their interests to have a vertical organizational style due to the fact that the
Pepsi drink is served in all the restaurants thus linking each subsidiary quite
distinctively to the others.

Pepsico

Pepsi Cola

Gatorade

Quaker Oats

Frito Lay

Tropicana

The Multidivisional Organisational Structure

This structure is ideal for an organisation that grows with time, which also needs to
subdivide their activities in order to deal with the great diversity in products and local
needs.
Below is the specific PepsiCo structure:

Chief Executive Officer

INDRA NOOYI

Headquarters
Central support services
Purchase, New York

Gatorade/Tropicana/Quaker
Foods N. America (Chicago)

Frito-Lay Europe/ Africa/Middle East

(Switzerland)

PepsiCo Beverages Int.

and Pepsi-Cola N. America
(New York)

Frito-Lay Int.(Mexico)

PepsiCo had approximately 278,000 employees in 2013.This amount of personnel

requires many levels in the corporate hierarchy and many people in each layer. The
highest layer is CEO headed by Indra Nooyi.

10

INTRODUCTION TO BRANDING
A brand is a name, term, sign, symbol, or design, or a combination of these intended to
identify the products or services of one seller or group of sellers and to differentiate them
from those of competitors. A brand is a sellers promise to deliver consistently a specific
set of features, benefits, and services to buyers. Brands convey benefits, values, and
personality. A brand is a collection of images and ideas representing an economic
producer; more specifically, it refers to the concrete symbols such as a name, logo,
slogan, and design scheme. Brand recognition and other reactions are created by the
accumulation of experiences with the specific product or service, both directly relating to
its use, and through the influence of advertising, design, and media commentary.
A brand is a symbolic embodiment of all the information connected to a company,
product or service. A brand serves to create associations and expectations among
products made by a producer. A brand often includes an explicit logo, fonts, color
schemes, symbols, sound which may be developed to represent implicit values, ideas, and
even personality.
Here are some of the worlds best-known brands:
Coca-Cola
Sony
Kodak

McDonalds
Honda
Cadburys

Say the name of each brand in your mind. What associations to you make? Do you like
some of these brands a lot? Do you trust them to deliver a good product? Would you pay
more for something carrying one of these brand names than a similar generic product? If
one of these companies brought out a new product, would you consider buying it?

MARKETING & BRAND BUILDING

One of the first steps in advertising or promoting your company name or product is to
build Brand Awareness. Promotional products, giveaways and imprinted gifts are some of
the best ways to make your brand visible to the public, your customers and your
prospects. With so many options available to consumers of all types, from banking

11

customers to retail sales, service industry businesses to Fortune 500 companies, you want
your brand, your logo, to be the one they think of first and the one they will remember.
Visibility creates awareness and awareness will help bring and keep customers. Imprinted
items are also excellent tools to assist in recognizing and rewarding your employees.
Receiving such gifts or awards can in turn can help build company loyalty and pride.
MARKETING IS BUILDING A BRAND
What is the single most important objective of the marketing process? What is the glue
that holds the broad range of marketing functions together? The process of branding.
Marketing is building a brand in the mind of the prospect. If you can build a powerful
brand, you will have a powerful marketing program. If you can't, then all the advertising,
fancy packaging, sales promotion, and public relations in the world won't help you
achieve your objective.

YOUR BRAND IDENTITY

Image is what youve got; identity is what you want to aspire to before.
Your brand identity specifies your promise to your customers. It creates a value
proposition involving functional, emotional, or self-expressive benefits. It is the soul of
what you seek to achieve.
Brand Image
Brand Identity
What you got
Where you want to be
Looking back
Looking ahead
Appearance
Reality
Superficial
Enduring
Others view
Your desire
Passive
Active
Focus on shaping your Brand Identity. Brand Image will follow.
David Aakers, a professor at the Haas School of Business at Berkeley and reigning guru
of branding, identifies these sources of brand value:

VALUE TO CUSTOMERS
Easier to process information
Confidence in selecting the product

VALUE TO FIRM
Effective marketing programs
Loyalty, repeat business

12

USING PROMOTIONAL PRODUCTS

Marketing, advertising and brand building are important for all types of organizations:
Businesses, schools, religious organizations, non-profit associations, political campaigns,
cities and states, teams and clubs.
Below are just a few of the ways to use promotional items to help build awareness and
brand recognition:
Use in direct mail programs
Launch a new product or service
Promote an upcoming sale
Giveaways for tradeshows, business meetings, community events
Notify people of your new address and phone number
Encourage new sales leads
Award and recognize employees and volunteers
Brand identity originates from the company, ie a company is responsible for creating a
differentiated product with unique features. Brand image refers to consumer perceptions
and encompasses a set of beliefs that consumers have about the brand.

PEPSI & BRANDING

A new Pepsi can featuring Lampard depicts him as a cartoon superhero, like an alter-ego
avatar from the online virtual world Second Life. The Lampard packaging, which is being
prepared for the British market, is one of dozens of new can and bottle designs coming
from Pepsi as it seeks to connect with the "Second Life generation" young consumers
who may be fiercely loyal to certain video games or portable music players, but relatively
indifferent when it comes to choosing a mass-market soda brand. Under a new branding
strategy, Pepsi is introducing new can and bottle designs every few weeks, planning to
sell 20 or more different ones annually in every market. Pepsi has already started selling
the new packages in several countries, including China, Australia, Brazil, Mexico and the
United States, and they are coming soon to Europe. For a mainstream consumer brand to
vary its packaging so often is a striking departure from marketing convention, which says
that brands should strive for consistency. Brands were developed to reassure consumers

13

that they were getting the same product every time they bought it. Why tinker with that
formula?
"This is much bigger thing than just a change in packaging," he said.

SUCCESS OF PEPSI BRANDING STRATEGY

Customer Desired Benefits : Pepsi has been successful in capturing the Youth
Spirit.It has also ventured out to different customer segments with different offering for
e.g. Diet Pepsi was introduced to cater to the health conscious people. Pepsis entire
Product Portfolio caters to the different customer segments.

Relevance : Its considered to be a new generation drink, the drink has managed to
grab the imagination of Teens and young Adults alike. Pepsi through the combination of

14

innovative ideas (like Pepsi Blue even though a failure), effective communication and
aggressive advertising has been able to stay relevant to its customers.

Pricing : based on consumers perception of Value and on the market. Pepsi isn't on a
price war with coke in order to keep its brand equity.

Brand positioning : The brand positioning is based on its sweet sugary taste suited for
its young consumers. Thus it was able to create a Point of difference from Coca cola.

Consistency : Pepsi has maintained continuity in its brand image and has been
consistent in its brand promise of refreshing drink for Youth. It has always depicted a
defying attitude and continued to challenge the market leader. Its campaign have been
about making a mark and proving its real benefit among young people & cool people.

Brand Portfolio and hierarchy : All Pepsi brands cater to different market
segments and rarely cannibalize each others sales. It also gives Pepsico optimum market
coverage as its products are diversified.

Repertoire of marketing Activity : Pepsis Brand Elements are distinctive and the
awareness is very high. It has an extensive distribution network. Promotional campaign
have also been innovative in the usage of social media like Facebook ore twitter .

Internal Branding : Pepsis give it brand manager the liberty to experiment ideas to
capture customers at the bottom of the pyramid. Pepsi also has predefined set of rules that
brand manager should follow which is meant to develop a sense of ownership for the
brand.

Sustainable and support marketing programs : Pepsi marketing team is

probably the most innovative when it come to determining go to market strategy for its
product. The companys marketing expenditures are very high.

Monitoring Sources of Brand Equity : Pepsi has a series of monitoring programs

like periodic brand audit, routine brand sales tracking, monitoring brand performance, etc.
Pepsi branding strategy is very effective. Its brand value has been estimated to $12,762
million.

15

INTERNAL AND EXTERNAL ANALYSIS

INTERNAL ANALYSIS

In this section, our analysis will focus mainly on Pepsi-Cola resources, capabilities, and
competencies to effectively create competitive advantages. First, it is of evidence to
mention a major characteristic of the product namely that the taste of the Pepsi is a
standardized one. Consequently, is it is not a technically fastidious task to produce the
drink; there are not many opportunities for innovation and improvement of the product
itself. Consequently, the product quality is not a major concern and does not constitute
value added for the company.

In fact, new technologies or research efforts can hardly produce any changes or
innovations regarding Pepsis drink. Nevertheless, Pepsi has to build on customer
responsiveness especially on the packaging, image and price of the product.

In other words, the main efforts are directed towards marketing, promotion and
distribution and much attention is paid to increase attention in customer response time. To
this extent, brand management and brand promotion of reputation for quality are meant to
develop core competences that are perceived by customers as providing benefits and thus,
create competitive advantage.

Observations throughout History

Pepsi-Cola is still second in the carbonated drinks market and remains in the shadow of
Coca Cola in terms of market share, perception and image. However, Pepsis insightful

16

marketing techniques (comic strips, television ads etc) prevented a fall of its position in
the beverage industry.

From 1965, by using diversification techniques and brand management, the company was
able to increase its volume of sales and get a stronger market position. Nowadays, Pepsis
carbonated beverages division clearly remains behind the snack division in terms of
profitability and share percentage of operation earnings. Our impression is that the profits
of the snack division help create the illusion that the beverage sector is as successful as
the management wishes it to be.

We observed a definite inferiority complex towards Coke that initiated the main motor in
the companys top management philosophy. As Roger Enrico wrote in his book about
cola war, Pepsis strategy was heavily focused in gaining a better position in the beverage
industry by finding new ways to differentiate from Coke and to take advantage of
strategic alliances in the market.

Core Competencies

A question is raised by acknowledging the above mentioned facts: how to beat your
competitor if you cannot offer a better product. For Pepsi, the answer is efficiency,
innovation in marketing techniques and customer responsiveness. Using less input in the
value chain of its primary activities, Pepsi is able to be more efficient and to attain a
lower cost structure.

Moreover, PepsiCo built its competitive advantage mainly by achieving greater

economies of scale in the sectors of communication, distribution and bottling thus
reducing production costs.

Marketing and Customer Responsiveness

The aim of the new marketing strategy developed by Enrico was to sharpen the image of
Pepsi. It also contained a specific message directed to young people using extensive

17

advertising campaigns on TV and radio. As an example, Pepsis innovative marketing

was showed to the world when in 1996 it first recorded a commercial in space.

Furthermore, Pepsi kept the consumers perception waiting by acquiring Mountain Dew,
and creating Pepsi blue. Improving the quality of the companys product offering is
consistent with achieving customer responsiveness, as is developing new products with
features that existing products lack. Pepsi blue was in fact not as successful as hoped, yet
the product aided in the overall perception of the brand Pepsi-Cola.

Branding Equity

Brand loyalty is a buyers preference for the products of incumbent company. A company
can create brand loyalty through continuous advertising of brand and company names,
patent protection of products, product innovation achieve through its research and
development programs and emphasis on high product quality and good after-sales
services. It is effective influence in the way in which people perceive the product or the
company. By creating feelings of warmth, affection and belonging to a product, a firm is
able to relate brand to human personalities.

People prefer to buy brands as they give them personal means and judgment and they
offer a quick and clear guide to a variety of competitive products.

In the beginning of the 1990s PepsiCo management decided to create a proprietary

model applicable to all major PepsiCo brands, both domestically and globally focusing on
cross-category brand and product specificity. The goal was to have a single definition of
brand equity applicable to every product.

A second goal was to strike a balance between sensitivity (the ability to detect real equity
changes) and stability (the absence of spurious or short-term fluctuations). The marketing
and research management of PepsiCo as well as some of its consumers were interviewed
to find out the attributes that contributed to a favorable brand-consumer relationship
across product categories and make comparisons with key competitors like Coca-Cola in
the soft drinks sector.

18

PepsiCo deployed the Equitrak brand equity model to track its major brands on a global
scale in 1997, following its success in the USA.By late 1999, PepsiCo had created a brand
database consisting of over 6,000 Equitrak brand equity "scores".

Results from each tracking wave are distilled and formally presented to senior PepsiCo
executives and country managers. Comparisons are made between PepsiCo brands,
competitive brands, and other global brands by country over time. This presentation,
supplemented with other competitive data, is used to focus managerial attention on how
PepsiCo brands and marketing programs are performing towards their competitors. We
imagine that this was a successful method of understanding consumer behaviour and also
to project the caring Pepsi-Cola image.

Reducing Costs

One example illustrates how Pepsi is always trying to find new ways of reducing costs
and increase efficiency. Service technicians for The Pepsi Bottling Group Inc. (PBG) in
the U.S. used to generate 3 million pieces of paper per year while making routine repairs
to soda fountains and vending machines. But after a yearlong rollout of wireless handheld
computers, that paper mountain has completely disappeared.

The new system, built around a rugged computer allows PBG to maintain a virtual
inventory of parts on each technician's truck that's linked to a database accessible by the
company's eight call centers, A dispatcher can quickly determine whether one of 700
Pepsi technicians equipped with the Sidearm has the right kind of part needed for a
pending job thus increasing customer responsiveness and effectiveness of after-sales
service.

Another way of reducing costs was by investing into the new Computer system
GenerationNet. Following from this was the PepNetSystem which serves both, lower
cost and customer responsiveness. This resulted in a more efficient communication
system.

19

EXTERNAL ANALYSIS

In order to understand the marketing strategy of one company it is very important to

analyse the environment it is operating within. The analysis of the environment has a few
very important aspects that clearly illustrate how a company like Pepsi has managed to
stay in business for such a long time. To analyse this clearly, a general rule can be applied
to PepsiCo.

Cyclical Corporate Strategy

If we look at the Pepsi-Cola Company from the outside, there has been a certain amount
of repetitiveness in its development. By following the trends and focusing on how to
lower the price as much as possible, they managed to create a successful company. By
investing in the development of the bottling and distribution sector, Pepsi found their
balance in the market.

Then in 1920s Pepsi-Cola Company failed because they didnt concentrate enough
energy on branding. Within a few years Pepsi was declared bankrupt twice. By the end of
the 1930s the company was reorganized from inside and the marketing policy drastically
changed. Major investment was now directed towards making people more familiar with
the product.

After acquiring Mountain Dew, new sources of financing and revenue opportunities were
needed because the acquisition was not an instant success. Therefore, in 1965 Pepsi
merged with Frito Lay. In the 1980s the decreasing sales in the beverage market induced
the industry to adjust with more aggressive marketing strategy and new products. In fact,
Coke marketed a new cola formula, whereas Pepsi persisted with promotional efforts and
improved customer responsiveness to increase sales volume.

20

Following these cyclical changes in the marketing policy of the firm (every 20 years there
is a huge turn over), one could conclude that this is the time for PepsiCos to readjust.
The circumstances underlying the merger with Quaker Oats are significant. Nowadays,
the market is rapidly changing and its becoming saturated. The entrance into potential
new markets is more complex than ever consequently, the only way for the company to
expand is by gaining market share by mergers or strategic alliances. Furthermore, the
marketing strategies in foreign markets like China and India are experiencing problems in
customer responsiveness. Currently, the beverage sector is following a trend of
continuous launch of new products in order to attract new customers. In this sense, the
challenge for Pepsi is to be able to sustain such a trend and conversely, to remain a leader
in their market.

Key Factors for Success

To analyze the external environmental impacts, we have to look at the company as an

organism that is constantly interacting with its customers, partners, suppliers and
competitors. When Pepsi-Cola was created, the management was looking for the recipe
for success that would also be matched with the creation of a unique name and logo.
Thus, the whole cola war story was the driving force of every change Pepsi
implemented in its business strategy.

The creators of Pepsi decided to use the same colors and lettering as Coke,
simultaneously promoting and expanding the same product. In the short run, the strategy
worked and allowed Pepsi to take advantage of Cokes previous business innovation.
However, in the long run, Pepsi would have to build its own reputation and to
differentiate itself from its rival.

Basically at that time, Pepsi focused on achieving lower cost production in its bottling
and distribution units. Therefore, the promotion of their products was put aside by the
result of this strategic choice. The financial crisis commanded important changes with
regards to innovation. From being a follower, Pepsi became the leading innovator.

21

Pepsi-Cola previous experience revealed that the management did not put much attention
on their external reputation. Moreover, as a leading company, Pepsi had to be consistent
and convinced about their strategy as opposed to follow the competitors strategy.

PepsiCo beverages operated in a highly competitive market and new solutions were to be
found to remain at the edge of the industry. As a result, Pepsi-Cola Company merged
with Frito-Lay, creating the Pepsi Corporation (PepsiCo) with operations in different
business sectors. Pepsi also gained important business leverages by placing their products
within their own restaurants. Finally they decided to change the structure by extracting
the bottling company from the corporation.

General Influences

In this section, we will focus on four elements: political, economical, socio-cultural and
technological environment.

22

Political Environment

PepsiCo is a global corporation. For the company that has substantial involvement in the
world economy, it is not surprising that PepsiCo has been implicated in many political
scandals. In 1991 PepsiCo entered into a joint venture agreement with Myanmar
Company that had ties with the junta challenging the government in place in Burma.
When the country was being torn apart by internal military conflicts, the scandal erupted
and Pepsi was suspected of financing the junta. Subsequently, there was a boycott of all
Pepsi products and the situation alerted the international community because of the
human rights violations perpetrated by the junta.

At the end of the 1990s PepsiCo was charged in the U.S. of violating the labor and
minimum wage conditions set by ILO. In 1995 they were fined $95 491 on the basis of
violations of labor conditions and then in 1998 they were penalized $107.000 for minority
discrimination. Other political affairs were also brought to the public arena. Between
speculations and the truth, one thing is sure: the connections to the Watergate affair and
the Kennedy assassination led to a lot of free publicity for Pepsi.

Economic Environment
The economical segment is the second element to be analyzed. It is indisputable that
PepsiCo is one of the worldwide leaders in the snacks and beverage industry. All
available information made it clear that PepsiCo is a profitable corporation. The fact that
they had some crises means they are apt to change in the modern market. This segment of
the company was already explained before and will be discussed in the next chapters as
well so we wont elaborate further here.

23

Socio-cultural Environment
Turning to the socio-cultural element PepsiCo was always researching new ways to
approach its customers. The involvement in the humanitarian actions is necessary for the
image of international corporations. The other aspects are much more interesting since
they are more recent. As it was already mentioned, the main consumer group for Pepsi is
teenagers. It was just a matter of time before the company entered with its policy to
market them within the educational system. Some see it as bad thing, whereas some
support it. It is a fact that there are good and bad elements, but nevertheless this progress
cannot be stopped.

What did Pepsi actually do? They started with the scholarship program, which is common
practice. Than the idea expanded and the musical education program was initiated. It was
supported because it was fun and educating at the same time. Finally the company started
to financially help schools in need, by buying computers and other facilities. At this
point, the problem emerged. The scheme for financial support meant that the schools had
to place Pepsi signs on the buildings, in the halls or on their homepages. Can this policy
really be beneficial for education? Nevertheless, people connected to the educational
system are objecting. Why? Because the cola war has just found another battlefield:
school desks.

Technological Environment
Last, but not least, technology. What kind of technology are we talking about?
Technology that makes the drink and the one that makes the drinks containers. Externally
there is a small problem, which has the potential to develop. The problem is with plastic
waste. This is already a huge problem in the U.S. and it is becoming an issue in Europe
as well. The fact that plastic packaging is the cheapest and most practical material is not
a good enough reason anymore. The larger market is demanding new solutions.

The second problem is even more recent: how is the beverage produced and what are the
ingredients used? Biological awareness will soon reach the point when the ingredients
and their production will have to be transparent to the consumers. Bioengineering is target
enemy number one in the 21st century. Will Pepsi be lucky in this area, as it was with
drugs at the beginning of 20th century?

24

The Co-operators

Pepsi-Cola as a company, then also as a part of a corporation, had a very simple policy
for quite a long time: those who are not your friends are either your enemies or your
future acquisitions. Then in the 90s the policy changed and PepsiCo started to sell off
parts of the corporation. Was that because of the low profits, or was it due to the new way
of thinking? PepsiCo was involved in many diverse areas did they plan to specialize?

One thing is sure; the mother corporation acquired precious co-operators. When they
exited from the restaurant sector, there was an agreement made that ensured the PepsiCo
products exclusive placement within the new Tricon Global Company. Their bottling
sector, on the other hand, was placed on the stock market as PBG. PepsiCo disposed of
their responsibilities in this area, but still maintained 40% of the shares.

The Importance of being aware of the Environment

To conclude, Pepsi-Cola is 100 years old and it has developed within strict markets, such
as China, and also within liberal environments, such as Europe. It is therefore quite
logical to support the analysis of the external issues, because it is necessary for success.

25

ANALYSIS AND INTERPRETATION

-SWOT ANALYSIS

PepsiCo SWOT analysis 2013

Strengths
1.
2.
3.
4.
5.
6.
7.
8.

Product diversity
Extensive distribution channel
Corporate Social Responsibility
(CSR) projects
Competency in mergers and
acquisitions
22 brands earning more than $1
billion a year
Successful marketing and
advertising campaigns
Complementary product sales

Weaknesses
1.
2.
3.

Overdependence on Wal-Mart
Low pricing
Questionable practices (using tap
water but labeling it as mountain
spring water)
4.
Much weaker brand awareness
and market share in the world
beverage market compared to CocaCola
5.

Proactive and progressive

Opportunities
1.

Growing beverages and snacks

consumption in emerging markets
(especially BRIC)
2.
Increasing demand for healthy
food and beverages
3.
Further expansion through
acquisitions
4.
Bottled water consumption
growth
5.

Too low net profit margin

Threats
1.
2.
3.
4.

Changes in consumer tastes

Water scarcity
Decreasing gross profit margin
Legal requirements to disclose
negative information on product labels
5.
Strong dollar
6.

Savory snacks consumption

growth

26

Increased competition from

Snyders

STRENGTHS
1.

Product diversity. PepsiCo has several hundreds of brands, which

include: carbonated and noncarbonated drinks, water, savory and whole grainbased snacks. Product diversification strengthens PepsiCo because it doesnt
have to rely on few key products or seasonal sales and isnt significantly
affected by changes in customer tastes.

2.

Extensive distribution channel. PepsiCo products are served to more

than 10 million stores per week in more than 200 countries.

3.

CSR. The firm recognizes its role in a society and engages in education,
recycling, water usage reduction, obesity fighting and other projects through
PepsiCo Foundation, thus increasing its brand awareness and customer
loyalty.

4.

Competency in mergers and acquisitions. The key to PepsiCo business

growth is its successful mergers and acquisitions of beverage, bottling and
snacks companies. PepsiCo acquired such brands as Gatorade, Tropicana,
Doritos, Quaker Oats and many others.

5.

22 brands earning more than $1 billion a year. The company doesnt

have to rely on one or two of its product to bring most of the revenues. Instead,
Pepsi has 22 brands that contribute significantly to its income, serving different
industries and satisfying various consumer tastes.

6.

Successful marketing and advertising campaigns. More than $2 billion

spent on advertising over 2012 resulted in PepsiCos growing market share
over its main competitors, including Coca Cola Company, which spent even
more on advertising.

27

7.

Complementary product sales. In its annual financial report, PepsiCo

revealed one of its studies' results that about 30% of customers who buy its
snacks also buy its beverages. PepsiCos decision to diversify its product
range is firms competitive advantage too.

8.

Proactive and progressive. According to New York Times food industry

writer Melanie Warner, PepsiCo, by many critics, is considered to be most
proactive and progressive food company.

Weaknesses
1.

Overdependence on Wal-Mart. More than 13% of PepsiCo business

revenues come from Wal-Mart store chain. Wal-Mart has a significant buyer
power and can easily dictate prices over PepsiCo leaving it with very small
margins. In addition, if PepsiCo would lose Wal-Mart it would lose 13% of its
revenue and competitive advantage.

2.

Low pricing. PepsiCo usually prices its products lower than its
competitors. Low price is associated with low quality and PepsiCo products
are usually perceived as ones.

3.

Questionable practices. PepsiCo is using and selling tap water but

places view of mountains on its water bottle labels, thus deceiving people that
it is mountain spring water when it is not. PepsiCo has also been criticized for
using water in India with higher than allowed amount of pesticides in it.

4.

Weak brand awareness. The Coca Cola Company has the largest share
market of beverages in the world and much stronger brand awareness than
Pepsi, placing it at competitive disadvantage.

28

5.

Too low net profit margin. PepsiCos net profit margin is 9.7% compared
to Coca Colas 18.55% and Nestls 11%.

Opportunities
1.

Growing beverages and snacks consumption in emerging

markets. PepsiCo has made large investments in BRIC countries to expand
its market share as these countries represent the fastest growing food and
beverages markets in the world. If PepsiCo is successful it will increase its
revenues and global market share significantly. In addition, it will be able to
rely less on US market.

2.

Increasing demand for healthy food and beverages. Due to many

programs to fight obesity, demand for healthy food and beverages has
increased drastically. PepsiCo has an opportunity to further expand its product
range with beverages and snacks that have low amount of sugar and calories.

3.

Further expansion through acquisitions. So far, PepsiCo has been

successful in acquiring other companies and adding new growing brands to its
portfolio.

4.

Bottled water consumption growth. Consumption of bottled water is

expected to grow both in US (PepsiCos largest bottled water market) and the
rest of the world.

5.
6.

Savory snacks consumption growth. The same opportunity PepsiCo

has in growing its revenue selling snacks as this market is also expected to
grow.

Threats

29

1.

Changes in consumer tastes. Consumers around the world become

more health conscious and reduce their consumption of carbonated drinks,
drinks that have large amounts of sugar, calories and fat.

2.

Water scarcity. Water is becoming scarcer around the world and

increases in both cost and criticism for PepsiCo over the large amounts of
water used for production.

3.

Decreasing gross profit margin. PepsiCos gross profit margin was

decreasing over the past few years and may continue to decrease due to
higher water and other raw material costs.

4.

Legal requirements to disclose negative information on product

labels. Some researches show that particular ingredients, consumed in extra
large quantities, in some of PepsiCo products could cause cancer. For this
reason, many governments consider to pass legislation that requires
disclosing such information on product labels. Products containing such
information may be perceived negatively and lose its customers,

5.

Strong dollar. More than 50% of PepsiCos income is from outside US.
Due to strong dollar performance against other currencies PepsiCos income
should fall.

6.

Increased competition from Snyders. Snyders increase its US savory

snacks market share by 1.6% and almost all of it was taken from PepsiCo.

CONCLUSION

On the basis of the information gathered, following conclusions have been

made:
30

 The Company invests huge amounts of money towards promotional

activities. Pepsi Co have, during the last couple of decades, come up
with the most innovative and impressive ways to attract consumers.

The target group of Pepsi Co is the younger generation as it has been

giving them good results for a long time.

This corporation accounts for a large number of diverse competitive

products. The products of Pepsi-Cola are cheap and accessible to
everyone and competitive prices have always been one of its strongest
points.

Despite all its efforts and battles Pepsi Co has won against Coke, the
fact remains that they still consider themselves the second best.

31

BIBLIOGRAPHY

Internet
http://www.adage.com

www.google.com

www.wikipedia.com
www.superbrands.com
http://marketingpractice.blogspot.com/search/brands

PepsiCo Inc web site: www.pepsico.com,

PepsiStore web site: www.pepsistore.com

32