The Carbonated Soft Drinks Industry And Pepsico Strategy Marketing Essay

The Carbonated Soft Drinks Industry And Pepsico schema Marketing EssayThe chart be depleted shows the dominant players in the carbonate docile sw on the wholeows (CSD) sedulousness according to pot adapted Digest report issued on March 30, 2009. The results of this report are for the year 2008 (Sicher, 2009, p.2).Coca Cola has the erectst market office accounting for 43%, followed by PepsiCo with 31% and Dr.Pepper Snapple Group Inc. (formerly Cadbury Schweppes) with 15% of the market. The remaining 11% is distri furthered amongst different CSD companies such as Cott Corp, National Beverage, Red Bull, Big Red, Rockstar, semiprivate label and separates.Moreover, the top 10 CSD brands in the U.S for the year 2008 were ranked by market voice as follows (Sicher, 2009, p.2).BrandsCompanyMarket ShareCokeCoca-Cola17.3%Pepsi-ColaPepsiCo10.3% food CokeCoca-Cola10%Mountain DewPepsiCo6.8%Dr.PepperDr.Pepper Snapple Group(DPS)6.1%Diet PepsiPepsiCo5.7%SpriteCoca-Cola5.6%FantaCoca-Cola1.8 %Diet Mountain DewPepsiCo1.8%Diet Dr.PepperDr.Pepper Snapple Group(DPS)1.6%With regard to individual brands, Coke was ranked first with 17.3% market make do and Pepsi-cola was in second place with a discredit market dowery of 10.3%. Additionally, the fare market share of all Coca-cola brands adds up to (34.7%) which still surpasses those of PepsiCo (24.6%).To be equal to give an in-depth analysis and evaluation of the Soft Drink perseverance, the following factors should be consideredThe relevant constancy trends and the most noticeable trades in the fabrication.The strategic group map.The persistence attractiveness using Michael Porter five forces model.A. Relevant industry trendsIndustry GrowthThe graph on a lower floor shows the performance of the CSD market from 1990 up to 2008. It is observed that the industry faced a sharp dec profligate in growth starting from 2005, where the percent volume diverseness fell below zero. This was followed by a gain ground decline in growth rates -0.6% in 2006, then -2.3% in 2007 and -3% in 2008 (Sicher, 2009, p.1).Conversely, the animation boozing companies were experiencing a positive growth. Hansen Natural, which has both squashy drinks and energy drinks in its portfolio of products, witnessed a +3.3% CSD growth. Additionally, Red Bulls volume also increased +5.2%. Although Hansen Natural and Red Bull go up a small portion of the total market share pie, the increase in their growth rates indicates that PepsiCo has to pay attention to them.Political FactorsThere are several semipolitical factors that influence the easily drinks industryObey food, Drug and cosmetic acts the deal of producing and distributing the low-key drinks in the market is clears to many federal laws such as the food, drug and cosmetics acts. It is also field of force to Ameri evict with disabilities acts. The presence of these laws services create a wellnessy environment for the consumers. This depart limit the dominances o f bleak neophytes in this industry.Environmental laws regulations these laws enforce packaging, recycling, water and energy policies to make sure the CSD industry operates in a healthy environment. This leads to making the soft drink industry to a greater extent attractive for consumers.Double Taxation An opposite political factor is that companies operating in the industry are obligated to tax payments for the products they offer and distribute in each country they operate within. Hence, this leads to making the industry less attractive because operating firms are subject to double taxation policies.Economical FactorsInflation in diesel prices it is an important factor affecting the CSD industry. Since, the CSD relies on trucks to distribute its diverse end line products trucks are subject to inflation in fuel prices. Since the consumption of fuel is the core activity, diesel prices are subject to inflation depending on the market conditions. Yet, the possibility of a market cris is rises.Foreign flip rates fluctuations Carbonated soft drinks firms revenues are affected by exchange rates fluctuations as well as profits and the cost of raw materials. Due to the weak economic growth the industry will suffer intemperately by changes in exchange rates. Thus, profits and cost are going to be lower and lavishlyer respectively.Socio cultural FactorsObesity Dr. Gabe Mirkin says A study from Harvard shows that of soft drinks may be responsible for the doubling of obesity in children over the last 15 old age. (Gabe Mirkin, 2004)Recently, as the people are becoming more than and more educated, the level of their health awareness is increasing. Obesity is becoming more and more apparent, leading to people taking good care of their health. Soft drinks are integral with empty calories which cause obesity. The trend of obesity in children is rising since the soft drinks consumers are young and between the range of 14 and 30. In fact, studies done by the UCLA Center f or Health Policy Research shows that Adults who do drink one or more sodas or other sugar-sweetened beverages each day are 27% more likely to be overweight or obese. (16 Facts About Soft Drinks and Obesity, 2009)Change in life style consumer tastes Nowadays the consumer of the carbonated soft drink industry are shifting their tastes toward drinking more healthier drinks such as water and youthful juices ins tea leafd of carbonated soft drink in full with sugar that will brook a negative effect on the consumer health in the long run.People gift be take place more health conscious for instance they are moving toward the consumption of healthier beverages such as water and fresh juices. Its estimated that the consumption of juices will increase up to 20 % within the coming three years. (Health Conscious Chileans Switching to Non-carbonated Drinks, 2009)Technological FactorsIntroducing new technologies in the soft drink industry has benefactored in developing the process of manufa cturing. For display casePDX technologyIt is a shockwave technology that helps in mixing the ingredients in an good way. Pursuit Dynamics, the supplier, said that this technology is most useful for the soft drinks industry. This technology is believed to help in cutting the cleaning time up to 80%. Also, it will also increase the processing speed and save power. (New technology targets diet soft drinks producers, 2009)Other Noticeable trendsMerger and eruditionIt is very common in the soft drinks industry, it causes many firm to exit and then re-enter the industry. Many leadership in the soft drinks industry use acquisition in rules of order to grow and increase their market share. For example, what PepsiCo did to expand into the energy drink sector, it acquired Quaker Oat, who already bought Gatorade. Hence, the competition on the products diversifications for a firm will increase.Using deoxyephedrine bottles instead of plastic bottlesMany soft drinks companies are moving to ward using glass bottles because these bottles are more environmental friendly. According to G Karthikeyan, the manger of sales in Jabal Ali Container Glass, the demand for glass bottles has increased recently because some of the chemicals in the soft drinks can react with the plastic and ca apply serious diseases. Using glass bottles help that the soft drink bottle taste better and last for long time. (Sathish, 2010) illegalise soft drinks in schoolsThe American beverage association has announced the removal of soft drinks from schools. It asked for the removal of full calorie drinks and the replacement will be the healthy, low calorie beverages. That decision has been made because the child obesity is increasing rapidly. The announcement said that in elementary schools, children can only have 100% fresh juices, low fat milk and water, while in high schools the students can have all types of diet beverages and sport drinks as well as the drinks on tap(predicate) for the elementary schools.(FBD,2010)B. Strategic Group MapThe strategic group map above shows the war-ridden positions of different competitors in the CSD industry. It consists of the five largest competitors in the industry. The axes represent dickens competitive characteristics the product categories offered by each competitor and geographic coverage in terms of the number of countries. The size of it of the circles is proportional to the relative market share of the company. PepsiCo has offers the largest variety of product categories amounting to 10 categories, followed by Coca-cola which offers 7 categories. Dr.Pepper Snapple Group, Cott Corp and National beverage all offer 5 product categories, however these categories are differ slightly. Also, their geographic locations vary which explains why they are located on different points on the strategic group map.The strategic group map was constructed using the breeding in the table belowGeographic coverageProduct Categories offeredCoca cola2 00 +(The coca-cola system, n.d.)1.Soft drinks2.Energy drinks3.Juices / Juice Drinks4.Sports drinks5.Tea and coffee6.water7.other1Pepsi150(Our history, n.d.)1.Soft drinks2.Energy drinks3.Juices / Juice Drinks4.Sports drinks5.Ready to drink tea6.Ready to drink coffee7.water8.Dairy based drinks9.Fruit flavored beverages10.Frozen beverages2Dr.Pepper Snapple Group81(The best history on earth, n.d)1.CSD2.Juices3.Ready to drink tea4.Mixers5.Other Premium beverages3Cott Corp60(About us, n.d.)1.CSD2.Energy Drinks3.Juice Drinks4.Tea5.Water4National Beverage13(Overview, n.d.)1.CSD2.Energy Drinks3.Water4.Fortified powders and supplements5.Functionally enhanced juices and waters5C. Michael Porter five forces modelIndustry is classified advertisement as the Carbonated Soft Drinks Industry aspiration HIGHRivalry in this market is very intense due to a number of factors such as the number of competitors, growth of the industry, product differentiation, electrical switch costs and change in consum er tastes.There are a few large competitors that are roughly equal in size. These competitors are Coca-cola with a market share of 43% and Pepsi with 31%. The market shares of Coca-cola and PepsiCo combined makes up more than 70% of the whole market. Thus, it allows these major competitors to watch each other closely. However, there are many other competitors that compete with these two giants and intensify rivalry. These include other soft drink companies (e.g. Dr.Pepper Snapple Group and National Beverage) and energy drink companies (e.g. Red bull and Rockstar).As mentioned earlier, the CSD industry faced a 3% decline in growth in 2008. A declining growth rate indicated that the many competitors in the market will have to share the shrinking pie. Also, in an industry such as CSD, there is little opportunity for differentiation relative to other products (e.g. cars) which lowers switching costs for consumers.The change in lifestyles which ca utilise consumers to shift away from car bonated to non-carbonated soft drinks increased the level of competition. As a result, companies such as PepsiCo and Coco-cola had to adapt to these changes in demand by focusing on marketing and innovation (Human sustainability, n.d.).Bargaining power of Buyers MODERATE to HIGHThe depraveers in this industry can be classified into two categoriesThose that buy in large quantities (Matthews Knaus, 2006, p.2)Supermarkets (31%)Fountain outlets e.g. restaurants (23%)Vending machines (14%)Mass merchandisers (6%) thingamabob stores/ Gas stations (5%)Small grocers (4%)Other gas stations, drug chains, gas stations/minimarts, airlines and other channels of dispersal (17%)Those that buy in small quantitiesFinal consumerThe first category of purchasers has high talk terms power. Generally, in industries characterized with many suppliers and a few large buyers, the buyers capture a greater share of the profits. This is because they buy in bulk and they can easily switch between suppliers since the product is standard, lacks differentiation and is easily addressable in the market. Additionally, these buyers have the power to demand higher quality or more service because they buy in large quantities. An example of a buyer that buys in bulk is the large retail store, Walmart.The second category of buyers is the end consumers. The fragmented nature of the buyer group and the low quantities purchased by them lowers their bargaining power. However, the bargaining power is increased due to the presence of substitutes, low switching costs. Thus, the bargaining power of end consumers is considered to be moderate overall.Bargaining power of Suppliers- MODEATE to LOW sooner looking at the supplier group, it is important to first consider the types of stimulant or raw materials that are utilise in this industry. These are sugar, bottles, cans, water, ink and plastic. The inputs used are homogeneous and not differentiated which makes them readily available in the market.The supplier group in this industry is not powerful and does not have a high bargaining power. There are many suppliers which make the supplier group more fragmented than the industry it sells to. Also, the product or input is neither unique nor differentiated and the suppliers do not represent a high percentage of total costs in the industry.One factor that may increase the bargaining power of suppliers is that consumers are more becoming more health conscious. This gives suppliers that offer healthier ingredients more bargaining power since they are smaller in number. Nevertheless, this bargaining power can be mitigated by having a long term agreement with the suppliers. affright of Substitutes HIGHAgain, substitutes are classified into two categories (1) Substitutes that come from distant industries, and (2) substitutes that come from within the industry- internal substitution.Since we classified the industry as that of carbonated soft drinks, then the substitutes from distant indu stries will be non-carbonated soft drinks. These include juice, water, milk, tea, coffee and the like. On the other hand, substitutes from within the industry include CSD such as sodas and energy drinks.Both types of substitutes pose a high curse because consumers switching costs between substitutes are low. Additionally, since people are more health conscious, they are more willing to substitute CSD with healthier alternatives.Threat of New Entrants Moderate to LOWThe entry barriers in the CSD industry are of different types, each having a significant effect on the brat of potential new entrants, these includeTechnical barriers For instance, PepsiCo has an absolute cost advantage enabling it to achieve lower average costs. That is, even if an individual or company was able to discover Pepsis recipe, they will not be able to achieve the low costs of PepsiCo. This is because PepsiCo is a large company that has economies of scale.Commercial Barriers these barriers include brand name , reputation, entre to distribution etc. In an industry like CSD, it is very difficult for a new entrant to compete effectively with the existing competitors that already have a large and loyal client base. New entrants will have to put in a lot of marketing efforts and resources in order to influence customers to switch to their products. This will be time consuming and will also require a large amount of capital. Additionally, it is very difficult for new entrant to gain access to extensive distribution channels like those of Coca cola and PepsiCo.Financial Barriers these barriers include capital requirement, access to financing etc. The bottling process requires a higher amount of capital than concentrate manufacturing since it is associated with higher fixed assets. For concentrate manufacturing, one plant which has the potential to serve a country as large as the United States costs $25 million. On the other hand, the bottling process privations 80 to 85 plants, each costing $30-50 million, to provide efficient distribution for a country the size of the US. Moreover, the bottling process is highly specific to both the type packaging and the bottling process. This, in return, makes it difficult to exit the market. (Cola wars, n.d., p.3)Retaliation the more retaliation new entrants expect from existing competitors, the higher the entry barrier. In this industry, new entrants should expect sharp retaliation.The aforementioned barriers to entry lower the threat of new entrants. However, there is another factor that should be taken into consideration private label brands. Cott Corp. holds the majority of private label brands in addition to few other smaller companies. Since private label brands are cheaper, retailers would find it more attractive to sell them, instead of Coca-cola or Pepsi, taking into consideration the higher profit associated with them. Thus, the threat of these private brands slightly increase the threat posed by new entrants. This makes the overall threat of new entrants moderate to low. (Pepsi, n.d., p.6)ConclusionThe spider web below summarized the five forces (the 6th force is excluded). The more intense the forces are, the less attractive the market is. Most of the forces in the CSD industry are moderate to high which indicates that this industry is not attractive for new entrants. However, for those companies that are already in the industry, it is attractive.2. Key Success Factors of Carbonated Soft Drinks industry1. Size of Company (distribution and market share)The companies size is an important factor in such an industry. E.g. PepsiCo is the second leader in the industry as well as one with the largest market share.2. Location (Convenience and availability)Convenience for customers is also essential in a soft drink industry. Such that a company must make sure the soft drink is readily available everywhere in supermarket, grocery stores, vending machines, and restaurants.Brand LoyaltyDue to the diverse so ft drinks and the intense competition in the industry, brand verity plays an important success factor for a company. E.g. PepsiCos fixedness customers are devoted to Pepsi and they rarely switch to other brands. Loyalty creates inelastic price change. PepsiCo successfully adapts to customer taste.International marketInternational presence is essential for the success of Soft Drinks industry. Going global is important for it helps the company enhance growth. E.g. the majority of PepsiCos profits come from US yet population growth in markets like India and china could lead to potential market growth.SWOT AnalysisStrengthsStrong Brand accountStrong market PositionPepsiCo is an early entrant which helped build market share. Its market share accounts for 31% of the market share of the carbonated soft drinks industry.Availability of large Free Cash Flow ( and Strong Revenue Growth)Solid revenue results in the second quarter of 2009 reflecting PepsiCos Product innovation, strong effecti ve electronic network pricing, and cost discipline showing a 5.5 percent increase in net revenue and an 8 percent increase in core EPS. PepsiCo prexy and Chief Executive Officer, Indra Nooyi said Our results this quarter reinforce the advantages of our balanced portfolio, as our food and international businesses delivered solid performance while we continued the transformation of our northward American beverage business.(Nooyi, 2009)PepsiCo has large amount of free cash flow and lack of capital constraint creating strength for the company to improve its innovative capabilities, and create a strong distribution thus further strengthening its brand.Strong and creative advertisementBesides PepsiCos strong advertisement, it uses creative techniques. Such that PepsiCo created an add through and through and through a football field with most well known players (Kaka-Brazilian, Henry-France, Drogba-Godivoi, Messi-Argentine, Lumoard-England) .Extensive product listPepsi offers various pro ducts besides the Pepsi cola. It offers beverages and snacks. Its also the number one maker of snacks (potato chips and corn chips).WeaknessesMany Large existing CompetitorsLarge existing competitors in the market create significant weakness for PepsiCo and thus create a need for stronger advertise, consequently requiring higher capital.Following are the strong competitors sharing a high market share in comparison to PepsiCo with 31% market shareCoca Cola has a market share of 43%Dr.Pepper Snapple Group Inc. 15% of the marketConcentrationPepsiCo is concentrated in North America (US, Canada, Mexico), where just about 70% of its revenues comes from.OpportunitiesAcquisitions and AlliancesDue to the increased threat of rivalry and competition in the carbonated soft drink industry, acquisitions and alliances create an opportunity that reduces such threats. Through acquisition the market share rises and the revenue rises, though the high cost of doing it is a drawback to such a strateg y.Acquisitions of rivals (e.g. RedBull)Increase Market ShareIncrease AdvertisementsAdvertisements play a major role in Carbonated Industries. For example, for one to see Pepsis add on road while very thirsty would likely to stop by a petrol station or any convenient store who offers Pepsi to purchase it.Strengthen Brand names of N.A portfolioSince coke dominates Western Europe and Latin America, PEPSI dominates Middle East and Southeast Asia.ThreatsChange in customers taste weakening demand in USA new federal nutrition guidelines identified regular CSD as largest source of obesity-causing sugars in American diet (Pinto, 2006)Health care awarenessIncreased awareness of health campaigns cut down revenues of soft drink industries. Customers move to substitutes such as water, non-carbonated drinks and juices. These challenges are PepsiCos target to overcome, such as the figure below shows the peoples negative perception of PepsiCo.High RivalryAs Explained earlier, threat of rivalry is v ery intense due to the following factorsLarge number of competitors,Decline in growth of the industry,Lack of differentiation in products,and low switching costs.Therefore there exists an intense competition for shelf space due to expanding array of products and packaging optionsLarge company size, will demand a change marketing programSocial, cultural, economic, political and governmental constrains. As a result, the company will incur more expenses and resources.Threat of substitutes is very high. People can easily substitute Pepsi with other drinks.Strategic pressations to the firm based on your SWOT analysisSince PepsiCo has availability of high free cash flow (strength), I would recommend that PepsiCo opts for Acquisition and Alliance (Opportunity) to increase its market share thus to take over its rivalry (threat)Due to the threat of health campaigns (threat), PepsiCo should increase its product line (opportunity)I would recommend that PepsiCo increases its EPS and increase PepsiCos stock price, byIncreasing IncomeDecrease amount of outstanding stockB. Company strategy analysis1. Mission contestation/Strategic intent/ imageryMission statementOur perpetration is to be the worlds premier consumer products company focused on convenient foods and beverages. We seek to produce pecuniary rewards to 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 for honesty, fairness and integrity (PepsiCo Inc., 2009)Reproduced Mission statementPepsiCo aims to be the worlds number one foods and beverages producer. It primarily focuses on providing money for its investors as well as enhancing the market with jobs and opportunities for growth. PepsiCo try their best to be honest, fair and truthful in all of their operations.CritiqueThe mission statement relatively reflects the core values of PepsiCo. It specifically describes its goals and obje ctives. It also sets guidelines for the activities and operations that need to be accomplished in order to meet the company prospects aims.VisionPepsiCos responsibility is to continually improve all aspects of the world in which we operate environment, social, economic creating a better tomorrow than today. Our vision is put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company. (PepsiCo Inc., 2009)Reproduced VisionOperate by creating a better future sustainable environment.CritiqueA vision is a statement that states what the firm will be in the future. Pepsis vision aims toward creating a future healthier, sustainable friendly environment. PepsiCo vision should be more specific to its goals and objectives in order for PepsiCo to be more full-bodied in the future. It should be more creative and easy to adapt to new trends. The vision can help PepsiCo in controlling the future market.PepsiCo Generic StrategyAccording to Michael Porter, there are two types of competitive advantages a firm an possesA firm can either make the same products that its competitors do, but with a lower cost. Cost StrategyORA firm can differentiate its products from those offered by its competitors, either by offering better and more costly products or by offering lower quality cheaper products Differentiation Strategy.To gain a competitive advantage in the market, PepsiCo looked in its position in the industry. It move in cost leadership competitive strategySince PepsiCo is a large corporation, it can keep the prices of its products low through the massive production and economies of scale. They also can buy from suppliers in bulk at a discount and make use of the technology to lower the prices of the final products. Not to forget that the extensive distribution channels and the global existence of the firm are considered as important factors to reduce the price. Allocating the cost among the brands carried by PepsiCo, the proficiency in the development and production help PepsiCo achieving its cost leadership strategy. PepsiCo also vertically integrated. It has merged with Pepsi bottling group in order to reduce the cost of distribution. Additionally, the types of input or raw materials that are used in this industry are sugar, bottles, cans, water, ink and plastic. Since these raw materials are not differentiated and are easily available in the market, PepsiCo can achieve economies of scale.By looking at the graph above we can learn that by achieving economies of scale the firm will reduce its costs which will lead to lower prices of the final products. Although lower prices will result in having price war, which had already existed between PepsiCo and Coca-Cola and other firms in the CSD industry, it will still help the company in increasing its market share and to compete in the industry. Adapting the Cost leadershi p strategy had raised strong barriers for any new entrants to enter the market since it will be very hard to compete with a well-known brand that offers low prices.PepsiCos key resources that could lead to long term competitiveIn order to stay ahead of the future and present competition, Pepsi has developed many attributes. It has constructed a business strategy that will allow it to outperform its competitors. Therefore PepsiCo has concentrated on few main resources that it believes will turn out as competitive advantages for the firm which will help it to goal superior performance in its industry. These competitive advantages are believed to beStrong Brand NameAdvertisingPepsiCo has the luxury to spend around 200 million dollars in this field, which allows it to reinforce the products.The strong advertising helps PepsiCo to introduce new products very quickly because it helps in improving the awareness level on the consumers about launching new products.PepsiCo logo/ being the sec ond leader of the marketPepsiCo is a very well-known brand not only because of products taste but also because of its logo and unique way of packaging. These all created what is called brand recognition. The unique blue and red symbol made PepsiCo very recognizable among people.Pepsi has spent 637 million dollar over the five past years on its marketing plan just to introduce the new rich deep blue packaging. This color represents the eternity of youthfulness and openness.Celebrity endorsementPepsi had used famous faces such as Britney Spears and Beyonc in advertising its products, which lead to attract more customers and increase the level of costumers preference. Although celebrity endorsement was a success but PepsiCo wont be using celebrities anymore as a step forward reducing its future cost.Extensive Distribution Channels / LocationIn Feb. 26, 2010 PepsiCo had merged with Pepsi Bottling group and PepsiAmerican which strengthening its distribution.It has local and global locati ons. PepsiCo has locations in 150 countries all around the world.Physical locations PepsiCo soft drinks can be found in vending machines which are located in high traffic locations, schools, universities. PepsiCo reaches more consumers by also distributing its products to restaurants, department stores and grocery markets.