Business Strategy & Analysis - Pepsi

Business Strategy

Analysis on strategies adopted by: “PEPSI”

Nilesh Singh - 07 Rustomjee Business School

[email protected] PG2011

mailto:[email protected]

Porter’s five forces analysis

Food and beverage industries are saturated which means that the barriers to entry are low. There are usually only two ways to compete in these industries. One is by being low cost and the other is by being high quality.

This makes profit margins incredibly thin. So naturally when barriers to entry are low there will be a lot of competitors. Substitutes would also be high around the board for food and beverage industry.

When there are lots of competitors customers can easily switch to another product. However if one product is superior and maybe even a little addictive then customers may demand that product and their power will be less. Suppliers in food and beverage are on weaker side.

This is because they are supplying commodities, very general unspecialized goods that can be found locally and internationally very easily. So switching suppliers is very easy.

Things like this can give a specific product in an industry a competitive edge over the competition. Especially when the industry can only compete on price and quality rather than differentiation.

Porter’s five forces Chart



Bargaining Power of Supplier

Low- The input required in this industry is commodities which is unspecialized.- Many suppliers availavle locally as well as in international market.

- Switiching is easy

T h re a t o f n e w e n tra n tsE a sy to e n te r - h a rd to co m p e te

- T h re a t o f n e w e n tra n ts is h ig h in th e in d u stry b u t su rv iva l is ve ry h a rd .

- P ro fi t m a rg in s a re v e ry th in so co m p e ti n g .

B a rg a in in g p o w e r o f B u y e rsM e d iu m

- P ric in g a n d q u a lity a re th e tw o co n ce rn - B e a cu se o f im m e n se co m p e ti ti o n b u y e rs h a s

th e a d va n ta g e

Threat of substitute product

High - Being in the food

& beverage industry

competiton is very hugh

- Switching is easy for customer

C o m p e ti ti o n w ith in th e in d u stryv e ry h ig h

- In te n se co m p e ti ti o n w ith in th e in d u stry- In d u stry is co m p e ti n g o n th e b a sis o f p rice a n d

q u a lity


PEST Analysis

Political Influence The production distribution and use of many of PepsiCo product are subject to various

Indian laws, such as the Food, Drug and Cosmetic Act, the Occupational Safety and Health Act.

The various businesses of Pepsi are also subject to state, local and foreign laws. The international businesses are subject to the Government stability in the countries where PepsiCo is trying get into (underdeveloped markets).

The Indian, state, local and foreign environmental laws and regulations. The businesses are also subject to de taxation policy in each country they are operating. They also have to comply with Indian, state, local and foreign environmental laws and regulations.

Economic influences The companies are subject to the harvest of the raw material that they use in their snack

foods, soft drink and juice, like corn, oranges, grapefruit, vegetables, potatoes, etc. Because of they rely on trucks to move and distribute many of their products, fuel is also

an important subject, so they are subject to the fuel prizes prevailing in that economy. PepsiCo is also subject to other factors such as rising fluctuation in the market, money

supply, business cycle and fuel crises in that economy.

Sociocultural influences PepsiCo and moreover Pepsi is subject to the lifestyle changes, because of it bases is in

its advertising campaigns which is based on concrete kind of people with an special lifestyle, it is for that PepsiCo has to pay a special attention on the lifestyle changes.

Particularly in the United States Pepsi drinkers are much defined, there is a kind of people who drinks Pepsi another kind who drinks Coca-Cola; it is for that they have to pay attention to the social mobility for not losing a possible market.

Taking into account that PepsiCo is trying to introduce itself in underdeveloped markets, they have to be careful with the possible problems with the governments of this countries, and with the problems could rise from PepsiCo act with the people of this countries.

Technological influences PepsiCo is subject to new techniques of manufacturing, for their three business sectors,

snack food, juices and soft drinks. It has to pay attention to the new distribution techniques, and they have to fix their

attention in the competence developed, to know about the new products.




Core Competency

Product integration and InnovationThe first core competency is their product integration and innovation. PepsiCo is able to enhance their product line by carrying fruit drinks, Gatorade, and Frappuccino. This allows them to promote their products and services more efficiently while being able to reach a much broader group of individuals. Through integration, they are able to eliminate potential competitors, while creating a more diverse product line.

Branding & MarketingSecondly, Pepsi’s strength lies in its branding and marketing. Pepsi had always come up with the unique ad campaign’s focusing towards its target market. This uniqueness in advertising and branding has given it a competitive advantage over its competitors. Pepsi target audience is mostly teens and young adults and their advertising reflects this in every possible manner. Some of Pepsi successful Ad campaigns like “Yeh dil maange more”, “Oye Bubbly” and “Youngistan” created a huge impact on its Target group.

Apart from these, several factors mentioned below have been PepsiCo strength over the years, and still they are backing up its core competencies in different possible way.

- Savings resulting from economies of scale.- Number 1 maker of snacks, such as corn chips and potato chips.- Merger combined two strong companies, PepsiCo and Quaker Oats. - Company does more than just soft drinks.- Merger combined more than carbonated and noncarbonated drinks.- Not all PepsiCo products bear the company name.




Industry analysis

GrowthPepsiCo is in the Food & Beverages market. This industry is saturated with huge no of players operating in it. In the soft drink industry the entry of new competitors depends on the barriers to entry that are present, and also the reaction from existing competitors that the entrant can expect. Industry analysts are projecting that the soft drink industry will grow by almost 4% over the next five years.

Although there are numerous substitutes and alternatives, the savory snack and soft drink industry is going to be a large part of our economy for many more decades. Companies need to know these factors if they intend to operate with a competitive advantage in this industry, especially at a time when the economy is slumping. Major forces affecting the industry are economies of scale and barrier to entry.

Major sources of barriers:

Economies of scale limit the entry by forcing the entrant to come at a large scale. Few companies wants to decline its unit costs of their product, they will have to produce more to lower the cost. The more you produce, the lower the costs.

In the soft drink industry establishing firms have brand identification and customer loyalties. The brand name can have differences. This is a high barrier to enter. Entrants are forced to spend a lot to overcome existing customer loyalties.

The capital requirements within this industry are very high. Production, distribution and advertising are a must to compete with the industry leaders like coca cola and Pepsi. Taking these aspects in consideration I will say that the rivalry is very high is this market.

Supplier concentration is low due to the fact that the main ingredients are sugar, water, aluminum cans, and plastic and glass bottles. There are many suppliers of sugar and ingredients for soft drinks because they are commodity items. There are also many suppliers of cans, plastic and glass bottles in the India.




Levels of strategies

Functional LevelAs a company PepsiCo has tremendous opportunities and to capitalize on them PepsiCo depends on talent of its associates and executive leadership. Therefore talent sustainability is their main motto. Through this investment in people they help them in succeeding and developing the skill that are required to move ahead and to sustain PepsiCo long term growth.

Business levelPepsiCo engages in a low-cost-differentiation strategy by taking advantage of economies of scale through mass production of its products and by differing their products through taste and marketing.

Corporate LevelCorporate level strategy revolves around asking, "What business are we going to be in? What business should we abandon? What types of portfolio businesses should we hold?" Therefore a large corporation like Pepsi each quarter evaluates their portfolio businesses (whether it is in beverages, snacks or fast food). After viewing the performance of each, they decide to either cut activity in one or increase focus in one.

PepsiCo was US centric three years ago and it had a western “Push model” of business. To accelerate global growth PepsiCo restructured its food and beverages business in America so that it will include other region such as Canada, Mexico and Latin America.

To accelerate it more PepsiCo created sectors for PepsiCo Europe and PepsiCo Asia, Middle East and Africa along with the Americas Foods and Americas Beverages sectors. This helped in leading a new path of innovation and product development.

The acquisition of Quaker oats in last “August 2000” was a smart move of PepsiCo which enabled the synergies between both the companies. After the acquisition PepsiCo witnessed the growth of 14% in fiscal year 2001. The large product portfolio and distribution channels of Quaker helped PepsiCo to add more to its economies of scale.




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Business Strategy & Analysis - Pepsi