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PepsiCo International:

Marketing Exemplar Firm Report

Washington State University Vancouver

MKTG360: Marketing

By

Aaron Sparks

Cherokee Meack

Eli Hillstrom

Sandra Cervantes

April 11, 2008

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Executive Summary

The Pepsi Corporation has taken the world by storm with their strong focus on corporate

growth and brand name domination. With 41 brand name specific products under their belt,

Pepsi Co. is moving up the ladder of success and providing a strong example for other

distribution focused companies. Although Pepsi Co. constantly struggles with their leading

competitor, Coca-Cola, they still hold a 37.5% share in the Carbonated Soft Drinks (CSD)

market—only a few percentage points lower than Coca-Cola at 42.9%.

From its humble roots as a bottling company in the late 1800’s, PepsiCo has risen to

become one of the leading food and beverage companies in the world. With a focus on market

share growth and distribution strategies, it is no wonder PepsiCo has risen to become the

conglomerate it is today. By acquiring new brands and products, PepsiCo has managed to

outshine, out market, and outsell nearly all other competing corporations in the United States and

world markets.

PepsiCo relies on strong marketing tactics to maintain its edge in the market. Celebrity

endorsements and appealing advertisements have worked in PepsiCo’s favor in worldwide

markets. They realize that marketing strategies differ between countries and have developed

differing strategies and formulas to suit their customer needs. Segmentation is extremely

important to the success of PepsiCo and they realize this.

Ultimately, PepsiCo’s long-term success has been attributed to their domination of the

market and superior reputation for being a stable, quality brand name. The road ahead looks

promising for PepsiCo and it has proven that its time in the international market is far from over.

The world can look forward to more innovative products coming out of the PepsiCo vaults for

many years in the future.

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Table of Contents Introduction………………………………………………………….……………………………4

Macro-Environment and Context…………………………………………………………………5

PEST Analysis…………………………………………………………………………….5

Corporate Analysis………………………………………………………………………..7

Competitive Analysis………………………………………………………………….…11

Market Research and Customer Analysis………………………………………………………..12

Segmentation and Target Markets……………………………………………………………….15

Differentiation and Positioning…………………………………………………………………..17

Differentiation……………………………………………………………………………17

Positioning……………………………………………………………………………….17

Product………………………………………………………….………………………………..19

Place………………………………………………………….…………………………………..20

Promotion………………………………………………………….……………………………..21

Recommendations………………………………………………………….…………………….22

References………………………………………………………….…………………………….26

Appendix A: SWOT Analysis………………………………………………………….………..28

Appendix B: PepsiCo Stock Charts………………………………………………………….…..29

Appendix C: BCG Growth Share Matrix…………………………….………………………….31

Appendix D: CSD Market Share………………………………………………………….……..32

Appendix E: Selected Figures……………………………………………………………………33

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Introduction

Since it was invented by Caleb Bradham as a digestive aid, Pepsi Cola has expanded into

PepsiCo and become the “choice of generations” worldwide. Bradham introduced his new elixir

called “Brad’s Drink” in the late 1800’s. By 1898 he changed the name to Pepsi-Cola and

between 1902 and 1903 the Pepsi-Cola Co. and logo were launched. In 1965 the company

changed its name to PepsiCo and since then it has grown into a multi brand international

corporation.

Advertising efforts first marketed Pepsi-Cola as a bargain brand. After changing hands

four times and declaring bankruptcy twice in the first part of the 20th century, Pepsi shifted its

focus from bargain brand promotions to advertising geared toward young people—this is where

the “Pepsi Generation” marketing plan originated from.

Once this shift in marketing tactics happened, PepsiCo took off in the corporate world.

They quickly earned the spot of 2nd choice soft drink brand and have maintained a strong hold on

that title. By using razor sharp, cutting edge marketing tactics and promotion strategies, PepsiCo

has grown and acquired several big name beverage and snack food brands. They hold number

one titles in many of these markets.

Through failing markets, recessions, depressions, and declining consumer purchases,

PepsiCo has maintained its edge as the “choice of generations.” Not only has PepsiCo continued

pleasing its customers by expanding and improving its brands, it has also made shareholders

happy by keeping their bank accounts healthy. By reinventing itself time and time again,

PepsiCo has proven that it is an unrivaled global entity.

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Macro-Environment and Context

PEST Analysis

Political

The environment that PepsiCo and its subdivisions function in is currently undergoing a

political overhaul. New regulatory pressures regarding health concerns and other global

concerns have forced companies in the food/beverage industry to take on new challenges and

reevaluate their products to meet new consumer demands. PepsiCo and its subdivisions believe

strongly in using public and private expert knowledge in order to tackle these issues. PepsiCo

management states in their 2006 Annual Report, “We’re actively engaged with policy and

thought leaders, as well as food and beverage industry leaders, to reach decisions on steps we can

take to support consumers in their quest for healthier lifestyles” (Annual Report, 5). PepsiCo has

developed a Blue Ribbon Advisory Board, made up of leading health and wellness experts and

third-party advisors from across the globe in order to help the corporation face these newly

strengthened consumer demands. Furthermore, PepsiCo has recently worked alongside the

Clinton Foundation, American Heart Association, and the North American beverage industry in

order to set policies regarding placement of the correct products in the correct areas.

Economic

The major economic issue facing PepsiCo and its subdivisions is the rising input costs of

their businesses due to structural inflation. Agricultural, energy, and some metal industries are

going through periods of steady inflation. Because PepsiCo relies on these industries, inflation

costs must be factored into their cost equations. The corporation acknowledges its fortunate

ability to navigate through tough economic times in the past. Their Annual Report states:

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Fortunately, over the years we’ve demonstrated the resilience of the PepsiCo portfolio to

navigate through these headwinds successfully. And we are confident we will find

innovative solutions to cover rising input costs. It will mean pulling all available levers to

address inflation, as we’ve always done, such as finding new productivity, strategically

hedging our input costs, and executing prudent and judicious pricing.

Social

The social environment within food services markets are changing significantly. A new

demand for healthy food and beverages coupled with a push towards green operations and

environmentally-friendly company management has changed the social playing field within most

markets. With this in mind, PepsiCo and PBNA have successfully adopted new goals and

produced new products in order to follow these growing trends. Not only has PBNA recently

began to offer new products such as Diet Pepsi Max, a cola with zero calories, sugars,

carbohydrates, or Total Fat, but it has also added new lines of product in order to meet this more

health-conscious market. Some examples include: Aquafina Alive, which includes added

vitamins, fiber, or antioxidants; Propel health drinking water; SoBe Life Water; and Dole Single

Serve Juices, a healthy juice drink in a single serving sized bottle.

Technological

PepsiCo and its subdivisions utilize technology in order to sustain company growth, keep

up with the demands of its sustained growth, and perform efficiently. PepsiCo’s delivery

systems provide a strong competitive advantage. In particular, their most powerful distribution

system, Directstore-delivery (DSD) allows them to supply all of their retailers and customer-

distributors with up-to-date stock. “Directstore-delivery allows us to create maximum appeal

and visibility for our brands and support in-store promotions. DSD works well for popular

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products we restock often, because it allows us to distribute new products quickly. Our DSD

system reaches hundreds of thousands of retail outlets this way, from neighborhood convenience

stores to large-format supermarkets” (Annual Report, 11).

Along with distribution, PepsiCo and its subdivisions rely on the importance of their

information technology infrastructure. PepsiCo has realized the importance of IT in today’s

corporate realm. Building and maintaining an efficient IT infrastructure is a key asset to the

corporation’s operations and helps improve the communication flow within their massive

corporate framework. “We depend on information technology as an enabler to improve the

effectiveness of our operations and to interface with our customers, as well as to maintain

financial accuracy and efficiency” (Annual Report, 32).

Corporate Analysis

SWOT Analysis

PepsiCo’s corporate mission statement – “We aspire to make PepsiCo the world’s

premier consumer products company, focused on convenient foods and beverages. We seek to

produce healthy financial rewards for 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 to act with honesty, openness, fairness, and integrity”

(Annual Report, 17).

In order to analyze PepsiCo’s corporate structure and attributes, we chose to use a SWOT

analysis. This will better enable us to catch a small glimpse of several key corporate

characteristics. The following data has also been summarized in graph form in Appendix A.

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Strengths

The Pepsi Corporation has many specific strengths. One key strength is their brand

equity and brand recognition. There are currently 41 specific Pepsi-Cola brand names. Some of

their more popular brands are: Aquafina, Gatorade, Lipton Iced Tea, Propel, SoBe, Mug Root

Beer, and Mountain Dew. According to PepsiCo’s 2006 Annual Report, many of their brands

are market category leaders within the United States. These category accolades include:

• #2 Carbonated Soft Drinks • #1 Sports Drink • #1 PET Water Brand (non-jug) • #1 Chilled Juices and Juice Drinks • #1 Enhanced Water Brand • #1 Ready-to-Drink Coffee • #1 Ready-to-Drink Tea

This extensive brand equity and now instant recognition has enabled the corporation to secure a

large portion of the world’s beverage market.

Pepsi-Cola has also enjoyed recent and historical financial strength. PepsiCo, the

umbrella corporation of Pepsi-Cola, has recently reported revenues totaling over $39 billion and

has increased its workforce to 185,000 employees worldwide. Furthermore, Pepsi-Cola

(PepsiCo Beverages North America) itself accounted for 27% of the corporation’s net revenue of

35,137million in 2006 (Refer to Figure 1). PepsiCo Beverages North America’s (PBNA) 2006

Volume Growth was 4% and their net revenues have increased from $8,313million in 2004 to

$9565million in 2006. PepsiCo International’s “2006 Scorecard” also states growth in volume

by 5.5%, net revenue by 8%, division-operating profit by 7%, and earnings per share by 13%.

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Weaknesses

PepsiCo Beverages North America’s (PBNA) current weaknesses are ______ fold.

Firstly, the Carbonated Soft Drink (CDS) category has been suffering a decline in North America.

This trend is especially important due to the large portion of revenue that this category generates

for PBNA. However, the corporation plans to combat this trend by delivering new products,

packaging, and benefits in order to re-engage customers. By increasing their investments in

research and design of new products and groundbreaking innovations, PBNA hopes to rejuvenate

the CDS category in North America.

Secondly, because PepsiCo and PBNA do not sell their products directly to their

customers, they must rely on their distribution-customers to promote and sell their products

efficiently and effectively. In order to promote good relationships with their independent

bottling distributors and other distribution-customers, they provide these entities with financial

incentives in order to assist their performance. It is essential to the operation of the companies

that PepsiCo and PBNA keep strong and harmonious relationships with these distributors in

order to ensure continued growth and revenues.

Opportunities

PepsiCo’s chief business opportunities come in the form of new investments. Due to

aggressive competition in most of the corporation’s markets, management seeks to continually

invest in new products and market categories in order to gain new customers and capture new

market shares. The company has recently invested heavily in several new acquisitions both in

North America and internationally. Their most recent North American acquisitions are: Stacy’s

bagel and pita chips, Izze carbonated beverages and Naked Juice fruit beverages. Their most

recent international acquisitions are: Duyvis nuts in the Netherlands, Star Foods snacks in Poland,

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and Bluebird snacks in New Zealand. These new acquisitions provide PepsiCo with new growth

opportunities, including capture of new product categories and the ability to reach further into

emerging retail channels. PepsiCo plans to use other “small, tuck-in acquisitions” in future years

in order to promote continual company growth.

Another opportunity for PepsiCo and PBNA comes in the form of the newly growing

health-conscious market categories that can provide the companies with new forms of revenues.

PBNA’s Aquafina currently holds 13% of the bottled water market and, by providing new health

waters like Aquafina Alive, SoBe Life Water, and Propel, PBNA stands to attract many new

consumers.

Threats

The main forms of PepsiCo and PBNA’s threats are common risks associated with

competitive business operations. Their 2006 Annual report lists many risks the company faces

daily, but also identifies several chief business risks. These are: company reputation; product

demand; competition; global, economic, environmental, and political conditions; and retaining

good relationships with bottling partners. PepsiCo voices their opinions on how to combat these

threats in the “Our Business Risks” section of their 2006 Annual Report, stating, “Our continued

success is dependent on our product innovation, including maintaining a robust pipeline of new

products, and the effectiveness of our advertising campaigns and marketing programs.”

Because PBNA operates in a public, global market, managers realize that any damage

suffered to the company’s reputation could have adverse effects on their business as a whole,

financial conditions, and results of operations. As mentioned earlier, PBNA has developed a

massive brand recognition and customer following. Because of this, the company realizes the

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importance of sustaining a sterling reputation. In order to do this, the company goes to great

lengths to ensure that their products remain the highest quality in their categories.

PepsiCo also makes a distinction between their business risks, listed above, and market

risks. A few key market risks are: adverse changes in commodity prices, which affect raw

materials prices and energy consumption levels; foreign exchange and interest rates; stock prices;

and “discount rates affecting the measurement of our pension and retiree medical liabilities”

(Annual Report, 34).

Competitive Analysis

PBNA operates in a highly competitive market. They compete against global, regional,

local, and private label manufacturers on the basis of price, quantity, product variety, and

distribution. Their chief competitor is The Coca-Cola Company. Coca-Cola currently has a

slightly larger share of carbonated soft drink (CSD) consumption in the U.S. and maintains a

significant CDS share advantage in many markets outside North America. However, PBNA has

a larger share of chilled juices and isotonics and PepsiCo International’s snack brands hold

significant leadership positions in the snack industry worldwide. According to PepsiCo’s 2006

Annual Report, corporate management believes that the strength of their brands, innovation and

marketing, coupled with the quality of their products and flexibility of their distribution network

allows the corporation to compete effectively.

With this said, PepsiCo is the world’s second largest food and beverage company,

accounting for almost $40 billion net sales. They beat out their chief competitor in the CSD

market, Coca-Cola by nearly $20billion and are second only to the Nestle Corporation in net

sales (Refer to Figures 2 and 3).

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PepsiCo’s many subdivisions and brands also allow the corporation to succeed in their

competitive markets. PepsiCo currently owns 17 “mega-brands”, which generate sales revenues

of at least $1billion each. Five of these 17 generate more than $5 billion each. Along with this

massive brand equity, PepsiCo and its subdivisions also rely on their efficient distribution

systems (see “Technology” section of PEST Analysis) to maintain a competitive edge over other

corporations.

Market research and customer analysis

The various brands that PepsiCo produces are available in nearly 200 countries and

generate sales at the retail level of more than $98 billion. PepsiCo also supports and sustains

nearly 185,000 employees world wide (PepsiCo). In spite of such a daunting presence in the

global market, PepsiCo is continuing to grow. PepsiCo itself was founded in 1965 through the

merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged with

the Quaker Oats Company, including Gatorade, in 2001 (PepsiCo).

As mentioned above, PepsiCo has found it necessary to acquire companies such as

Quaker Oats and Tropicana. This can be risky and involve the investment of millions of dollars.

Also, Pepsi Beverage continues to expand by introducing new flavors of carbonated and non-

carbonated beverages into the current beverage market. For example, Mountain Dew, a heavily

caffeinated soft drink, popular among teens, has continued to introduce new flavors and themes.

These include, Mountain Dew: Game fuel, targeting the patrons of the video game “Halo 3.”

Also, Mountain Dew: Red Alert, and Mountain Dew: Pitch Black, in addition to others.

Investments in new products require extensive preliminary market research in order to

evaluate who potential consumers are as well as the ability to identify the targeted consumer

market. Specifically, Pepsi Beverage Company targets individuals between the ages of 13 to 34

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years old (Eads 1). Tactics such as consumer surveys or focus groups, cutting edge software,

and the media serve to inform PepsiCo of the current trends in the general market, as well

analyze their current customers.

Primary data is information that is retrieved from customers, either potential or current,

by asking them questions directly and recording their answers. This data is then used to obtain

ideas about their attitudes, awareness, intentions, and behaviors. In September of 1999, Pepsi

Beverage “…tapped its marketing alliance with Simon Property Group for an estimated $3

million, 29-mall tour tagged "The Joy of Cola" (Promo). The purpose of the mall tours was to

build the Pepsi Brand, while at the same time attracting potential customers to their kiosks with

entertainment from U.K. pop star “Billie.” “The ‘Joy of Tasting’ station samples Pepsi Freezes

and flavored Pepsi. Shoppers go to the ‘Joy of Voting’ center to vote for their favorite pop-

culture figures. At the ‘Joy of Winning’ station, shoppers spin the Wheel of Joy to win prizes

including a Dodge Durango, or enter a fantasy-prize sweepstake… Shoppers who carry Simon's

Mall Perks loyalty card get a Pepsi Taste Kit with a coupon for a free two-liter bottle, drink

recipe cards, and a Joy of Cola crazy straw” (Promo). Using flashy kiosks and rewards for

participating, Pepsi Bottling Company is able to retract valuable information directly from their

customers. This information allows them to get a better idea of which potential products may be

successful, and which may not.

Technology is another tool used to analyze a target market and what buying habits

customers exhibit. Because of PepsiCo’s size, tracking their purchases as well as their sales can

be a daunting task. If a large company such as PepsiCo does not have accurate and timely

purchase and selling information, they will not have the necessary tools to make accurate

managerial decisions. These decisions may include which products to continue and expand, or,

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which to abandon. “To gain control of their procurement processes, Frito-Lay chose

BusinessObjects and WebIntellingnce along with Oracle's OPM. Business Objects solutions

provide users with powerful and easy-to-use reporting functionalities, with the added benefit of

being highly scalable… Eventually, all functional groups inside each division of PepsiCo will be

able to use the Purchase to Pay system for business analysis, trend analysis, and data mining”

(Consumers). Modern technology is one of the keys in identifying consumer habits. In addition,

it also allows companies to see trends from within the marketplace itself.

Finally, the media is an excellent tool to monitor and test the potential market for a

product. Together with customer interaction, the media has played a strong role in allowing

PepsiCo, as well as Pepsi Bottling to investigate how much of a role the Pepsi product(s) have

played in their lives. “The soft-drink company (Pepsi) has invited the public to select their

favorite from among five spots that premiered during a Super Bowl over the last 15 years”

(Eads). This survey was carried on Yahoo! and those who registered and voted were put in a

drawing to win on of one hundred $2001 prizes. By January 25, 2001 pepsi.yahoo.com had

registered 76,000 votes (Business Week). In addition to testing the waters well before the Super

Bowl, Pepsi was focusing on brand awareness and freshening their image. This type of

advertising and market probing gave Pepsi the confidence to invest a few million dollars for only

a few minutes of total advertising during the Super Bowl.

Overall, it is clear that large worldwide companies, such as Pepsi invest millions of

dollars each year on advertising. However, this money must not simply be spent on a product

without first researching the effectiveness of the advertising. PepsiCo and its subsidiaries must

first understand the group of people they intend to target with their advertising; then what types

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of ads attract their attention. Once they have established customers, PepsiCo must monitor their

buying habits in order to continue to deliver superior products and services.

Segmentation and Target Markets Market Segmentation

A company that works on a global scale has to take many additional problems into

consideration. For example, trends affecting the United States may not affect countries such as

Japan or Germany. Also, customs and language can have a major impact on the way a particular

ad is interpreted throughout the world.

For this reason, PepsiCo has adapted to the customs, tastes, language, and culture of the

200 countries in which they do business. “MTV: Music Television, a division of Viacom Inc.,

and Pepsi-Cola International, the international beverage unit of PepsiCo Inc., have joined forces

to create a first-of-its-kind international alliance for both companies which covers media and

marketing” (MTV). Through MTV, which is available in over 70 countries and roughly 250

million homes, Pepsi-Cola is able to advertise in a variety of languages and according to the

specific culture of the country. The two companies merged to form a 3-year deal, which allows

Pepsi to sponsor signature MTV programming in 6 of their markets. These include MTV Europe,

MTV Asia, MTV Mandarin, MTV Japan, “Semana Rock” on MTV Latino, and MTV Brazil

(MTV). Through this deal and others similar to it, PepsiCo and Pepsi-Cola are able to segment

their [world] market into several groups, which then allows them to focus on each one’s

individual strength. This then allows the overall goal of appealing to their target market of youth

and adults ages 13-34 (MTV).

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Target Markets

Pepsi’s variety of products enables the company to serve different market segments

around the world. The products that Pepsi has, offers a drink or snack for every event. It’s not a

secret that the majority of Pepsi’s strategic marketing concept is designed to compete with the

giant Coca-Cola Corporation.

Pepsi targets different markets because it meets the demand of many consumers around

the world, no matter the age or culture. Some examples of their target markets are: athletes,

overweight people, the older generation, and teenagers. (PepsiCo)

Pepsi has committed to help overweight customers fight obesity and live healthier lives

by creating new products that are nutritious, contain vitamins, and have reduced fat, sugar or

sodium. Pepsi’s most important target market is the age group of 13 -34 year olds. Pepsi also

has the distinctive style of portraying the times in their ad campaigns. Their “Generation Next”

campaign suggested that Pepsi is not just a drink for the next generation; its drinkers are also a

generation ahead of their counterparts (PepsiCo). Pepsi has cultivated an image for itself as the

drink for the modern times. It has discovered that the buying power of the youth and the

marketing power of celebrities were compatible (PepsiCo).

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Differentiation and Positioning

Differentiation

In the mid 1970’s, Pepsi aimed to differentiate itself from competitor Coca-Cola by

issuing the “Pepsi Challenge.” This marketing plan set forth the challenge to consumers to test

Pepsi and Coca-Cola blindly and choose the soft drink they preferred. Overwhelmingly,

consumers chose Pepsi over Coke in these tests, allowing Pepsi to differentiate themselves in

quality and consumer preference without relying on more complex marketing gimmicks.

Pepsi also uses packaging to distinguish itself from other products. The red, white, and

blue color scheme invokes the idea of American patriotism -- no matter where in the world Pepsi

is sold, it is universally noted as an American product. Few people can look at a Pepsi can with

the label blurred out and not recognize it right away. Pepsi’s distinct packaging has become

recognizable throughout the world. Even the red, white and blue circular Pepsi logo is a strong

indicator of the Pepsi product and highly recognizable.

Pepsi has recently launched a new marketing campaign aimed at touting the nutritional

advantages of its products. This campaign has focused on their healthy products including

cereals, oatmeal, and fitness waters. In a society with an ever-increasing fixation on weight loss

and health food, Pepsi has made a smart move by differentiating their “healthy” products from

the competitors “junk” food.

Positioning

Although Pepsi comes in a close second to Coca-Cola as a recognizable soft drink brand,

it has cornered the markets of non-carbonated beverages and potato chip brands (Frito Lay).

Owning Tropicana, Gatorade, and manufacturing its own bottled water has put Pepsi far ahead of

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most other foods company and earned them the number one spot as non-alcoholic beverage

producer in North America. Pepsi has also taken on the new position of healthy snacking

alternatives. This has positioned them in a whole new niche market that is growing

exponentially.

In 2007 Pepsi launched a new marketing program centered on health and environmental

sustainability. With an ever increasing global focus on “going green”, Pepsi realized the

importance of its position as a company with a purpose. Not only has it launched new, healthy

products, it has also reformulated old products, and teamed up with government agencies to

begin the fight against obesity.

Pepsi is currently focusing their efforts on renewable energy and conservation tactics

company-wide. By 2015, Pepsi plans to “reduce per-unit water consumption by 20%, electricity

consumption by 20% and manufacturing fuel consumption by 25%” (PepsiCo).

All of these efforts reinforce Pepsi’s plan to position itself as the corporation of the future.

It is taking steps to get and maintain a strong foothold in a boundless new market.

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Product

PepsiCo has four main divisions that manufacture, market and sell a variety of salty,

sweet and grain based snacks, carbonated and non-carbonated beverages and foods. These

divisions are organized on the following way:

. Frito – Lay North America (FLNA)

.PepsiCo Beverages North America (PBNA)

.PepsiCo International (PI)

.Quaker Foods North America (QFNA)

Frito-Lay North America (FLNA), manufactures snacks foods. These snacks include

Lay’s potato chips, Doritos tortilla chips, Tostitos tortilla chips, Cheetos cheese flavored snacks,

Fritos corn chips, branded dips, Ruffles potato chips, SunChips, Quakers, Gamesa, and Smart

Food (PepsiCo).

PepsiCo Beverages North America (PBNA), manufactures or uses contract

manufacturers and markets. They also sell beverage concentrates, fountain syrups and finished

goods under various brand names including Pepsi, Mountain Dew, Gatorade, Tropicana, Lipton,

Sierra Mist, Dole and SoBe (PepsiCo). This same company also sells ready to drink tea, coffee

and water products through a joint venture with Unilever and Starbucks. Also, PBNA licenses

the Aquafina water brand to its bottlers and markets this brand.

PepsiCo International (PI), produces a number of leading salty and sweet snacks, and

beverage concentrates through consolidated businesses. These brands include Lay’s, Walkers,

Cheetos, Doritos, Gamesa, Sabritas, Mirinda, 7UP and Tropicana (PepsiCo). These brands are

then sold to authorized bottlers, independent distributors and retailers. However, in certain

markets, PepsiCo International operates its own bottling plants and distribution facilities.

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Quaker Foods North America (QFNA) manufactures cereals, rice, pasta and other

branded products such as Life cereal, Pasta Roni, Aunt Jemima mixes and syrups, and Quaker

oatmeal (PepsiCo). These branded products are also sold to independent distributors and

retailers like Frito Lay.

Pepsi’s brands’ size and popularity gives the company confidence to introduce new

flavors and launch entirely new varieties with trusted brand names that deliver consistently great

taste. Their continuing success depends on their product innovation, including maintaining a

robust pipeline of new products, and the effectiveness of their advertising campaigns and

marketing programs. Also, Pepsi’s success depends on the ability to respond to consumer trends.

Pepsi’s products’ demand may be adversely affected by changes in consumer tastes and

preferences. Pepsi is aware that any significant changes in the consumers’ preferences and any

inability on their part to react to such change could result in decreased demand for their products

and erosion of their competitive positions. In order to remain competitive PepsiCo maintains the

understanding that “Maintaining a good reputation globally is critical to sell their branded

products” (PepsiCo).

Place

There is always easy access to a Pepsi Cola when the craving arises. This is because their

products are available to consumers almost everywhere. Pepsi’s products are distributed to fast

food chains such as KFC, Pizza Hut and Taco Bell. Pepsi’s delivery market program provides a

strong competitive advantage (PepsiCo). Pepsi can also deliver to retailers, gas stations, and

vending machines, as well as other businesses that sell their product.

The corporation’s distribution systems are one of the world’s most powerful supply

chains. Its performance has become well known throughout the world (PepsiCo). Sabritas,

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(Frito Lay in the United States), has operations in Mexico, Central America and the Caribbean.

In the Middle East, zero-calorie Pepsi Max posted strong growth, and Mountain Dew surged

ahead in markets like Nigeria and Pakistan; while the Doritos brand drove healthy growth in

Egypt. In Russia, annual beverage volume reached more than 200 million cases. Finally, their

South America foods business, which includes operations in Brazil, Argentina, Colombia, Peru

and Venezuela, grew organically and through the acquisition of “Lucky Snacks,” a small

Brazilian brand (PepsiCo).

PepsiCo International offers a diverse portfolio of products and brands that have large

profit margins throughout Europe, the Middle East, Asia, Australia and Africa. Their business is

well balanced between developed and developing nations; and their product and brand portfolio

offers benefits ranging from the simple refreshment to basic nutrition.

Promotion

For over 100 years, Pepsi-Cola has created some of the finest soft drink ads presented

throughout the world. From 2001’s "Joy of Pepsi," sung by Britney Spears, to the classic

"Nickel, Nickel" ads from 1939, Pepsi’s ads are as enjoyable as the products they produce.

Since their beginning PepsiCo has changed the design of the Pepsi-Cola can, ten times.

They have also created large campaigns promoting the company and its products. At the

beginning of the 1950s, the company changed its print ad focus from using black and white

cartoons to a refined campaign using color illustrations. PepsiCo’s success is the result of

superior products and high standards of performance. Their promotional efforts are evident in

magazines, newspapers, radio, Internet, and television.

Pepsi is known for launching their new promotions during Super Bowl commercials.

This year, Pepsi ads were advertising the downloading of music legally, by using a teenager that

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was sued for illegal downloading by the Recording Industry Association of America. The Super

Bowl ad campaign kicks off a two-month Pepsi-Apple promotion where Pepsi will distribute 300

million bottles with iTune download codes printed inside the bottle caps. Because the Super

Bowl is TV's biggest annual event, the Pepsi-Apple ad will be the highest-profile promotion of

any online music service (SFGate).

Two years ago, PepsiCo was a founding member of a voluntary U.S. food and beverage

industry initiative that redefined how Pepsi markets products to children under 12. Today, less

than 1% of PepsiCo’s total advertising budget in North America is allocated for advertising to

kids, and 100% of that advertising is devoted exclusively to promoting healthy foods (PepsiCo).

PepsiCo Europe has recently made a similar advertising and school marketing pledge in the

United Kingdom. In partnership with dozens of other food and beverage companies, PepsiCo

has introduced front-of-package nutritional labeling across all its brands.

Recommendations

PepsiCo is an organization that strives to be the world’s premier consumer products

company. It seeks to produce healthy financial rewards for investors and provide opportunities

for growth and enrichment to employees, business partners and the communities in which they

operate (Annual Report, 17). In order to remain competitive in the global market, PepsiCo and

its subsidiaries must be aware of new trends and preferences that arise, as well as the variety of

costs that go into their products. This can be accomplished through investment in health

conscious markets and continued innovation in new products. Acquiring companies with

“healthy” reputations as well as participation in the Green Movement will have a positive effect

on their reputation as a consumer friendly corporation. Finally, monitoring current and potential

23

consumers, as well as constantly reviewing the effectiveness of their marketing program, will

allow PepsiCo to detect arising trends and new taste preferences within their target markets.

First, it is clear that carbonated soft drinks are suffering a decline in North America.

Experts say the soft drink market is expected to fall one percent in 2008. In fact, “…both Coke

and Pepsi, the number one and number two beverage makers, have seen their share of the North

American soda market fall for two straight years, as more health conscious consumers switch to

vitamin-infused energy drinks and bottled water” (Kavilanz). The carbonated soft-drink market,

more specifically PBNA, is a major portion of revenue for PepsiCo.

In order to avoid substantial losses due to changes in consumers purchasing habits,

PepsiCo must continue to invest in health conscious markets. For example, the 2001 acquisition

of the Quaker Oats Company was a timely acquirement for PepsiCo. With programs such as the

“Smart Heart Challenge,” as well as the idea that oatmeal gives “Brain Power,” PepsiCo

captured a large portion of the shift toward future healthier living. PepsiCo must either focus its

efforts on reinventing its current soft drinks, or focus on marketing itself as a more health

conscious product. This can be done by highlighting the benefits one receives while drinking

Pepsi in addition to the wonderful and refreshing taste it has. This requires a greater emphasis on

the older generation and continued appeal to the individuals 13 to 34 years of age.

Next, it is evident through the media that the issue of global climate change is important

to worldwide society. This issue has created an opportunity for PepsiCo to appeal to new,

environmentally friendly consumers. In order to accomplish this, PepsiCo must invest in green

technologies, promote changes in their production techniques, and advertise to the world that

they are doing their part to promote environmental sustainability. This can be done through mass

recycling projects and engineering containers from less harmful, organic products. In addition,

24

large amounts of money can be publicly donated to foundations that research possible solutions

to “Global Warming.” By aligning themselves with a good cause and by giving back to the

community PepsiCo is sure to win the approval of a new and loyal customer base.

Finally, customer research is critical to any prolonged success. The information

discovered can lead to the release of new products and the termination of those that were

unsuccessful. In order to continue to be successful, PepsiCo must maintain their investment in

new groundbreaking technology. This will allow them to capture the sentiment of current

customers and find new ways of convincing others that Pepsi is the best brand available.

Continued investment in technology will allow PepsiCo and its subsidiaries to monitor the

effectiveness of their marketing program. According to Devon Leonard of Fortune Magazine,

“…the price of a thirty second commercial is continuing to rise at a time when the broadcast

networks are steadily losing their audience” (Leonard). If Pepsi continues to pour money into

traditional advertising they will see their share of the beverage market begin to decline. Also,

“…by 2008 twenty percent of the nations households will have personal video recorders (TiVo

and DV-R devices), this enables viewers to skip ads altogether” (Leonard). It is evident that by

monitoring their customer base and continuing to invest in the latest technology, PepsiCo and its

subsidiaries will notice new and rising trends within the marketplace.

PepsiCo has produced quality products while simultaneously creating healthy financial

rewards for investors. These rewards are the result of a tireless effort to be the world’s premiere

consumer products company. However, in a competitive market, PepsiCo and its subsidiaries

must be aware of new trends and preferences that arise, as well as the variety of costs that go into

their products. Together with these recommendations and continued focus on satisfying not only

their customers, but shareholders and employees as well, PepsiCo is sure to capture more market

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share, earn greater returns, and become a source of refreshment and nourishment for an even

larger portion of the global market.

26

References

About the Pepsi-Cola Company. (2008). Pepsi USA. Retrieved March 5, 2008,

from http://www.pepsi.com/corporate/company_info/index.php

All Pepsi-Cola Brands. (2008). Pepsi USA. Retrieved March 7, 2008, from

http://www.pepsi.com/pepsi_brands/all_brands/index.php

Beene, Gary: Pepsi Information Center, <www.garybeene.com/pepsi/pep-hist.htm>

Consumers: “Consumers in the Spotlight,”

<www.uk.businesobjects.com/constomers/spotlight/pepsico.asp>, March 15

FAQ: <www.pepsi.com/help/faqs/faq.php?category=ads_and_history&page=highlights> April 4

Eads, Stefani: Business Week, “Fusion Marketing in Prime Time,”

<www.businessweek.com/bwdaily/dnflash/jan2001/nf/20010126_840.htm>, March 5

Leonard, Devon, “Nightmare on Madison Ave,” Fortune Magazine June 2004, 93-108

MTV, <www.encyclopedia.com/doc/1G1-18048483.html>, March 7

PepsiCo International 2006 Annual Report. (2007). PepsiCo international. Retrieved March 7,

2008, from <http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-reportsannual>

PepsiCo International 2007 Annual Report. (2008). PepsiCo international. Retrieved March 3,

2008, from <http://library.corporate-ir.net/library/78/782/78265/items/284320/>

2007_AR_final.pdf

Pepsico: <www.pepsico.com/PEP_Company/Overview/index/cfm>, March 5

Promo: <www.promomagazine.com/mag/marketing_tasting_joy_flavor/, March 5

The Pepsi Challenge. IUCN (2008). Retrieved on 25 March, 2008.

Kavilanz, Parija B. “Coke, Pepsi Lose Ground for Second Year.” CNNmoney.com March 8, 07

<www.cnnmoney.com/2007/03/08/news/companies/softdrinks_sales/index.htm>

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<http://www.americanartarchives.com/pepsi.htm>

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/01/31/DOWNLOAD.TMP

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Appendix A: SWOT Analysis

• Brand equity • Brand recognition • Financial strength • Steady growth

• CSD category decline • Reliance on

distributors

• Acquisitions • New investments • Health-conscious

markets

• Reputation • Competition • Exchange/Interest rates • Raw materials prices

29

Appendix B: Pepsi Stock Charts

PepsiCo 1 yr Source: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-stockquote

PepsiCo 3yrs Source: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-stockquote

Stock Quote

$71.54 + 0.09 (up 0.13%) Minimum 20 Minute Delay

Intraday High $72.21

Intraday Low $71.19

Volume 4,777,214

Last Trade 03/25/08 4:00 p.m. ET

30

PepsiCo 5yrs Source: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-stockquote

PepsiCo 10yrs Source: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-stockquote

31

Appendix C: BCG Growth Share Matrix

32

Appendix D: CSD Market Share

33

Appendix E: Selected Figures

Figure 1: Net Revenues and Division Operating Profits

Figure 2: Top Branded Food and Beverage Manufacturers

Figure 3: Percent Retail/Dollar Sales