Strategic Management

PEPSICO ANALYSIS

Contents1.0 Introduction32.0 The Ansoff model52.1 Application:62.1.1 Global Business Units63.0 Porters Diamond93.1 Application:104.0 Generic Strategies.114.1.1 Cost Leadership-114.1.2 Differentiation-124.1.3 Focus-124.2 Application:134.2.1 Differentiation.134.2.2 Focus.135.0 References:14

1.0 IntroductionPepsiCo Inc. is an American multinational food and beverage corporation headquartered in Purchase, New York, United States. The company has interests in the manufacturing, marketing and distribution of grain-based snack foods, beverages, and other products.

PepsiCo was formed in 1965 with the merger of the Pepsi-Cola Company and Frito-Lay Inc. PepsiCo has since expanded from its namesake product Pepsi, to a broader range of food and beverage brands, the largest of which includes an acquisition of Tropicana in 1998 and a merger with Quaker Oats in 2001, which added the Gatorade brand to its portfolio.As of January 2012, 22 of PepsiCo's brands generated retail sales of more than $1 billion each and the company's products were distributed across more than 200 countries, resulting in annual net revenues of $43.3 billion. Based on net revenue, PepsiCo is the second largest food and beverage business in the world, second to Nestl. Within North America, PepsiCo is ranked (by net revenue) as the largest food and beverage business.Indra Krishnamurthy Nooyihas been the CEO of PepsiCo since 2006, as of 2013, the company had employed approximately 274,000 people globally. The company's beverage distribution and bottling is conducted by PepsiCo as well as by licensed bottlers in certain regions.

In the Beverage market, The Coca-Cola Company has historically been considered PepsiCo's primary competitor. In December 2005, PepsiCo surpassed The Coca-Cola Company in market value for the first time in 112 years since both companies began to compete. PepsiCos edge is that it moved to form mergers, acquisitions and partnerships in the 1990s and 2000s, as a result shifting its business to include a broader product base, including foods, snacks and beverages. The majority of PepsiCo's revenues no longer come from the production and sale of carbonated soft drinks. Beverages accounted for less than 50 percent of its total revenue in 2009. In the same year, slightly more than 60 percent of PepsiCo's beverage sales came from its primary non-carbonated brands, namely Gatorade and Tropicana. One of PepsiCo's primary competitors in the snack food market overall is Kraft Foods. PepsiCos different brands are- Pepsi, Mountain Dew, Diet Pepsi, Lay's, Gatorade, Tropicana, 7 Up, Doritos, Lipton Teas, Quaker Foods, Cheetos, Mirinda, Ruffles, Aquafina, Pepsi Max, Tostitos, Sierra Mist, Fritos, and Walkers.

2.0 The Ansoff modelThe Ansoff model, also known as the Ansoff matrix, is a marketing planning tool that helps a business determine its product and market growth strategy. This matrix links a firm's marketing strategy with its general strategic direction and presents four alternative growth strategies as a table (matrix), all these strategies seek growth. The purpose of this matrix is to help managers consider how to grow their business through existing or new products or in existing or new markets. In this way the matrix helps managers to assess the differing degrees of risk associated with moving their organization forward.Ansoffs matrix suggests four alternative marketing strategies which hinge on whether products are new or existing. They also focus on whether a market is new or existing. Within each strategy there is a differing level of risk. The four strategies are:1. Market penetration This involves increasing market share within existing market segments. This can be achieved by selling more products/services to established customers or by finding new customers within existing markets.2. Product development This involves developing new products for existing markets. Product development involves thinking about how new products can meet customer needs more closely and outperform the products of competitors.3. Market development This strategy entails finding new markets for existing products. Market research and further segmentation of markets helps to identify new groups of customers.4. Diversification This involves moving new products into new markets at the same time. It is the most risky strategy. The more an organization moves away from what it has done in the past the more uncertainties are created. However, if existing activities are threatened, diversification helps to spread risk.Below is a diagram of the matrix-

2.1 Application: PepsiCo is good example of a company that used its strength and knowledge of its consumers wants to expand the company and become a competitor of the number ones soft drinks company. Pepsi has diversified its products globally building global business units to serve its consumers with the best. From soft beverages to breakfast meals and good fun snacks. Pepsi is the best definition of a company that uses the best in the business units through mergers and acquisitions. A strategy which they have lived by, spending over $40 million to acquire or merge with the best companies in the different business units. This is Pepsis way of market penetration into its existing markets and new markets both local and globally. The global business units of PepsiCo best describe its Ansoff model.2.1.1 Global Business UnitsPepsiCo Americas BeveragesPepsiCo Americas Beverages (PAB) makes, markets, sells and distributes beverage concentrates, fountain syrups and finished goods under various beverage brands. Through strategic acquisitions, partnerships and new product development, PAB has expanded its beverage line up over the past 20 years to offer top-selling choices for every occasion and lifestyle. As a result, Pepsi-Cola today is the flagship brand in a portfolio of liquid refreshment beverages that includes 14 billion-dollar brands and spans carbonated soft drinks, juices and juice drinks, ready-to-drink teas and coffees, sports drinks and bottled waters.Related diversification/product development for PepsiCoIts brands include Pepsi-Cola, Mountain Dew, Gatorade, Sierra Mist, Aquafina, Tropicana Pure Premium, AMP Energy, Propel, Mug, SoBe, IZZE and Naked Juice. PAB also distributes and sells in the United States a leading portfolio of ready-to-drink teas and coffees through strategic joint ventures with Unilever and Starbucks, with brands that include Lipton Iced Tea, Pure Leaf and Brisk, Tazo Iced Tea, Starbucks Frappuccino, Starbucks Iced Coffee, Seattle's Best Iced Lattes and Starbucks Refreshers. In 2012, PepsiCo announced that Starbuck's ready-to-drink beverages and Lipton Brisk had grown to more than $1 billion in estimated annual retail sales, expanding PepsiCo's portfolio of billion-dollar brand.Gatorade: Acquired in 2001In 2001, Gatorade, one of the world's leading sport's drinks, was acquired by PepsiCo. Created by researchers at the University of Florida for the school's football team, "the Gators,"" the drink is backed by 45 years of science.Mountain Dew: Acquired in 1964, today, Mountain Dew is the number 1 flavoured carbonated soft drink in the United States. With its one-of-a-kind citrus taste, Mountain Dew exhilarates and quenches with every sip. In addition to original Mountain Dew and Diet Mountain Dew, the DEW product line includes Mountain Dew Code Red, Mountain Dew LiveWire, Mountain Dew Throwback, Mountain Dew Voltage, Mountain Dew White Out and Mountain Dew KickStart.Pepsi-Lipton PartnershipIn 1991 PepsiCo entered into The Pepsi Lipton Tea partnership, a joint venture with Unilever that manufactures markets and sells ready-to-drink iced teas in the United States. The partnership includes a complete portfolio of iced teas for every occasion, including Lipton Iced Tea, Pure Leaf Iced Tea.Unrelated diversification.PepsiCo Americas FoodPepsiCo Americas Foods is the provider of many of the most popular food and snacks throughout North and Latin America. Its portfolio of businesses includes Frito-Lay North America, Quaker Foods North America, and all of our Latin American food and snack businesses.Today, Frito-Lay North America makes some of the most popular snacks in the United States, including LAY'S and RUFFLES potato chips and dips, DORITOS tortilla chips, TOSTITOS tortilla chips and dips, CHEETOS cheese flavoured snacks, FRITOS corn chips and dips, ROLD GOLD pretzels, SUNCHIPS multigrain snacks, and CRACKER JACK candy coated popcorn.Gamesa is a global leader in the cookies market and from Mexico it exports its products to more than 16 countries. Gamesa offers consumers a wide variety of high-quality products for every lifestyle, producing pastries, oats, cereals and other related products. Among its most successful brands are Marias Gamesa, Emperador, Arcoiris, Mamut, Chokis and Maizoro. Headquartered in Monterrey, Mexico, it has nine production facilities across Mexico. It was acquired by PepsiCo in 1990.Quaker Foods North AmericaFor more than 135 years, Quaker has provided consumers with innovative products that fit their ever-changing daily lifestyles. It all began on September 1877, when Henry D. Seymour and William Heston, founders of the Quaker Mill Company, registered with the U.S. Patent Office the first breakfast cereal trademark, "a figure of a man in 'Quaker garb.'"Today, Quaker Foods North America makes, markets, sells and distributes products spanning several categories such as hot and ready-to-eat cereals, rice, pasta and other branded products. Some of its best known and beloved brands include Quaker oatmeal, Quaker Chewy granola bars, Life cereal, and Rice-A-Roni and Pasta Roni.Sabritas is the most loved snack brand in Mexico. Founded in 1943, it is renowned for the quality, variety and flavours of its products, and serves as the umbrella brand under which PepsiCo markets Frito-Lay products in Mexico. Sabritas is also the name brand for its own line of potato chips, and manufactures and markets several local brands such as Doritos, Cheetos, Tostitos, Fritos, Crujitos, Poffets, Rancheritos and Sabritones. Sabritas is headquartered in Mexico City and has ten production plants. PepsiCo acquired Sabritas in 1966.Latin Americas FoodsThe Latin Americas Foods business,either independently or in conjunction with third-party partners, makes, markets, sells and distributes a number of snack food brands, including Marias Gamesa, Cheetos, Doritos, Ruffles, Emperador, Saladitas, Elma Chips, Rosquinhas Mabel, Sabritas and Tostitos, as well as many Quaker-branded cereals and snacks. These branded products are sold to independent distributors and retailers.PepsiCo Europe (market development)PepsiCo Europe includes all beverage, food and snack businesses in Europe and South Africa. It sells Lay's, Walkers, Doritos, Cheetos and Ruffles, many Quaker-branded cereals and snacks, beverage concentrates, fountain syrups and finished goods under various beverage brands, including Pepsi, Pepsi Max, 7UP, Diet Pepsi and Tropicana. These branded products are sold to authorized bottlers, independent distributors and retailers. In certain markets, PepsiCo Europe operates its own bottling plants and distribution facilities. PepsiCo Europe also, either independently or in conjunction with third-party partners, makes, markets and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name), and sells and distributes a number of leading dairy products, including Domik v Derevne, Chudo and Agusha.PepsiCo Asia, Middle East & Africa (market development)PepsiCo Asia, Middle East and Africa (AMEA), includes all beverage, food and snack businesses in Asia, the Middle East and Africa, excluding South Africa.PepsiCo AMEA makes, markets, sells and distributes a number of iconic PepsiCo brands, including Lay's, Chipsy, Kurkure, Doritos, Cheetos and Smith's, many Quaker-branded cereals and snacks, beverage concentrates, fountain syrups and finished goods under various beverage brands, including Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina and Tropicana. These branded products are sold to authorized bottlers, independent distributors and retailers. In certain markets, PepsiCo AMEA operates its own bottling plants and distribution facilities. PepsiCo AMEA also, either independently or in conjunction with third-party partners, makes, markets and sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name) and licenses juice products to third-party partners through a strategic alliance with Tingyi under the House of Tropicana brand name.Pepsis diversification goes hand in hand with its product development. We believe Pepsi is yet to grow and increase its market share. They may not have big market share in their soft drinks but they have the greatest market share in America for good fun snacks.

3.0 Porters DiamondWhen a company seeks to go global, this desire/choice to go global needs to be backed by the companys possession of some sustainable competitive advantage. This competitive advantage has usually to be substantial. After all, a competitor entering a market from overseas typically starts with considerable disadvantages relative to existing home competitors, which will usually have superior market knowledge, established relationships with local customers, strong supply chains and the like. A foreign entrant must have significant competitive advantages to overcome such disadvantages. Michael Porters Diamond helps explain why some nations tend to produce firms with sustained competitive advantages in some industries more than others. The degree of national advantage varies from industry to industry. Porters Diamond suggests there are four interacting determinants of national, or home base, advantage in particular industries (these four determinants together make up a diamond-shaped figure). The home base determinants are: a) Factor conditions- These refer to the factors of production that go into making a product or service (that is, raw materials, land and labour). Some of these factors can be obtained by any company (like unskilled labour and raw materials) and, hence, do not generate sustained competitive advantage. Even though, we have to take into account that specialized factors involve a heavy and sustained investment, we have to know that if we are able to achieve them, we could generate a competitive advantage.Factor condition advantages at a national level can translate into general competitive advantages for national firms in international markets. b) Home demand conditions- The nature of the domestic customers can become a source of competitive advantage. Dealing with sophisticated and demanding customers at home helps train a company to be effective overseas. For example if in one country there exists a sophisticated type of demand, the customers pressure firms to be competitive. Firms that face a sophisticated domestic market are likely to sell superior products because the market at home demands high quality and a close proximity to such customers enables the firm to better understand the needs of the customers, in the same way.c) Related and supporting industries- Local clusters of related and mutually supporting industries can be an important source of competitive advantage. These are often regionally based, making personal interaction easier. d) Firm strategy, industry structure and rivalry- The characteristic strategies, industry structures and rivalries in different countries can also be bases of advantage. German companies strategy of investing in technical excellence gives them a characteristic advantage in engineering industries and creates large pools of expertise. A competitive local industry structure is also helpful: if too dominant in their home territory, local organizations can become complacent and lose advantage overseas. Some domestic rivalry can actually be an advantage, therefore. For individual organizations, the value of Porters Diamond is to identify the extent to which they can build on home-based advantages to create competitive advantage in relation to others on a global front.Alongside, is a diagram of the Diamond-

3.1 Application:Some of the factor conditions PepsiCo has to take into account when evaluating a chance, in each country where they want to move to are 1. Unemployment. 2. Interest rate. (Short term or, long term). 3. Labour legislation.PepsiCo has its headquarters in New York, USA. The US has one of the strongest economies, this has been beneficial to PepsiCo in its bid to expand globally in that they have access to Plenty of Raw materials like, Water, Steel and Corn. They also have adequate land to carry out their activities, and The US government has financial policies that support and encourage the growth of its home companies.PepsiCo are a consumer products company operating in highly competitive markets in the US and rely on continued demand for their products. Their success depends on their ability to respond to consumer trends, including concerns of consumers regarding health and wellness, obesity, product attributes and ingredients, and to expand into adjacent categories. The demand in the US market is very volatile, and successful operation in this market has given PepsiCo an edge.The industries that PepsiCo is involved in are highly competitive and developed, the presence of technological hubs like The Silicon Valley in the US has provided the food and beverage industry with unique and innovative practices that have benefited PepsiCo. For example production processes have been smoothened with the development of high-tech harvesting machines that shorten the harvesting period for some of the raw materials like corn. PepsiCo has to study the different styles of management, for acting in the best way in each country it seeks to expand to, and see if they are in line with its own. In relation to rivalry for PepsiCo, it is advisable that when they are expanding into an overseas market, its main rival (Coca-Cola) should not already be positioned or be an absolute leader in that market. PepsiCo apply the Five Forces model in the analysis of their three core markets: the soft drink market, the snacks market and the chilled orange juice market. They treat the three markets as the same industry, with some exceptions.4.0 Generic Strategies.This is another model, developed by Michael Porter, it describes how a company pursues competitive advantage across its chosen market scope. There are three core approaches, and they are examples of "generic strategies," because they can be applied to products or services in all industries, and to organizations of all sizes. They are-4.1.1 Cost Leadership- It involves being the leader in terms of cost in your industry or market. The firm wins market share by appealing to cost-conscious or price-sensitive customers. This strategy emphasizes efficiency. By producing volumes of standardized products, the firm hopes to take advantage of economies of scale and experience curve effects. The product is often a basic product produced at a relatively low cost and made available at a large consumer base. Maintaining this strategy requires a continuous search for cost reductions in all aspects of the business.Cost leadership is obtained when a firm has cost advantages over its competitors. Sources of competitive advantage could be derived from-1. Access to the capital needed to invest in technology that will bring costs down.2. Very efficient logistics.3. A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.There are two main ways of achieving Cost Leadership:1. Increasing profits by reducing internal costs, while charging industry-average prices.2. Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

4.1.2 Differentiation- Differentiation involves making products or services different and more attractive in comparison to those of competitors. How this is done this depends on the exact nature of the industry and of the products and services themselves. Differentiation involves doing something that is hard for competitors to copy.A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy, These could include patents or other Intellectual Property, unique technical expertise, talented personnel or innovative processes. Successful differentiation is displayed when a company accomplishes either a premium price for the product or service, increased revenue per unit, or the consumers' loyalty to purchase the company's product or service (brand loyalty).4.1.3 Focus- The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation. The essence of focus is the application of either Cost Leadership or Differentiation but on a narrow scale, targeting a niche market rather than the industry as a whole. A focus strategy is often appropriate for small, aggressive businesses that do not have the ability or resources to engage in a nationwide marketing effort. Such a strategy may also be appropriate if the target market is too small to support a large-scale operation.4.2 Application:PepsiCo has applied each of these strategies in one way or the other, it being a multinational company means it is involved in different markets, and different markets have different dynamics, hence different strategies are applied. But the notable strategies it has applied are Differentiation and Focus.4.2.1 Differentiation.Pepsi has attempted to differentiate its products from Cokes as they are viewed as very similar, it shifted its focus to the growing American teenage market in the 1990s, while Coke continued to target baby boomers. Pepsi targeted the teen market by forming exclusive contracts with American schools and developing advertising campaigns such as The Next Generation and Joy of Pepsi, featuring Britney Spears. Both Coke and Pepsi have moved to the middle in recent years, however, as evidenced by the Pepsi campaign, For Those Who Think Young, to attract an older consumer, and by Cokes moves to modernize its packaging, in order to appeal more to younger consumers. Pepsi focused on varietal differentiation by introducing a string of niche products, although product innovation has been quickly copied by Coke. To increase volume in order to counter flat cola sales, Pepsi introduced Sierra Mist in 2002-2003 to take the place of 7-Up and go head-to-head with Sprite. Pepsi has also tried to boost volume by introducing products that appeal to specific target market segments that it currently is not reaching. Pepsi has introduced Code Red and Live Wire, extensions of Mountain Dew, Pepsi One, and Pepsi Blue. This is a form of focus differentiation.Finally, Pepsi is countering declining sales of carbonated drinks through the marketing and distribution of Starbucks ready to drink products, and the acquisition of SOBE and Gatorade. The success of Pepsis Mountain Dew Code Red launched in 2001 was the most successful soft drink innovation in 20 years and has spurred even more niche product introductions between Coke and Pepsi.4.2.2 Focus.In its efforts to sharpen focus on its core beverage (Pepsi-Cola), and snack food businesses (Frito-Lay), PepsiCo underwent a major restructuring by spinning-off its restaurant businesses as an independent publicly traded company. The spin-off was completed in October 1997. One of the major initiatives undertaken to focus on its core businesses was hiving-off its bottling operations into a separate new company called Pepsi Bottling Group (PBG), in September 1998.PepsiCo decided to separate its bottling operations from the company. PepsiCo's Pepsi-Cola business included two units - a bottling company and a concentrate company. The bottling operations, which were called Pepsi Bottling Group (PBG) after the spin-off, consisted of certain North American, Canadian, Russian, and other selected overseas bottling operations. With sales of more than $7 billion, PBG was the world's largest Pepsi Cola bottler accounting for more than half of Pepsi Cola's North American volume. The concentrate company focused on product innovations and marketing Pepsi Cola's brands. It manufactured and sold beverage concentrate syrup to PBG and other Pepsi-Cola bottlers. The company also supported PBG and other bottlers in advertising, marketing, sales, and promotion programs. Analysts felt that PepsiCo's decision to spin-off its bottling operations would help the company compete more effectively in the beverage business and serve its retail customers better. PepsiCo was also expected to improve margins on its beverage operations, as bottling operations were less profitable than the supplying of beverage concentrate.Following management's efforts to make PepsiCo a focused packaged foods company, to compete with its archrival Coca-Cola. PepsiCo decided to sell-off its food distribution company. With enough cash, quality people, and the ability to build restaurant brands. When PepsiCo bought them, the brands like Pizza Hut and Taco Bell were very small businesses. The company allocated its resources to them and soon became the leader in the restaurant business. According to the executives of PepsiCo, the restaurant business had sufficient cash and quality personnel working for it. However, the restaurant culture and processes did not align with PepsiCo's organizational culture.5.0 References:1. Brand Family | PepsiCo.com. (2014, April 19). Retrieved from http://www.pepsico.com/Company/Global-Brands2. Competitive Strategies for Coca-Cola and PepsiCo Companies. (n.d.). Retrieved from http://qualitycustomessays.com/blog/competitive-strategies-for-coca-cola-and-pepsico-companies/3. Pepsico's Strategy |Business Strategy Case Studies|Business Strategy Articles. (2013, February23).Retrievedfrom http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR118.htm4. http://iosrjournals.org/iosr-jbm/papers/Vol15-issue1/B01511117.pdf?id=73805. http://www.pepsico.com/Company

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