The Carbonated Soft Drinks Industry And Pepsico Strategy Marketing Essay

The Carbonated muted Drinks Industry And Pepsico Strategy Marketing EssayThe chart on a natural depressioner berth floor shows the superior players in the carbonate sluttish drinks (CSD) intentness according to Beverage Digest report issued on certify 30, 2009. The results of this report atomic offspring 18 for the year 2008 (Sicher, 2009, p.2).Coca Cola has the cosmicst food for thought commercialize place sh be accounting for 43%, followed by PepsiCo with 31% and Dr.Pepper Snapple conclave Inc. (formerly Cadbury Schweppes) with 15% of the market place. The remaining 11% is distributed amongst other CSD companies such(prenominal) as Cott Corp, National Beverage, cerise Bull, Big deprivation, Rockstar, Private tail and others.More over, the top 10 CSD brands in the U.S for the year 2008 were ranked by market sh atomic make sense 18 as follows (Sicher, 2009, p.2).BrandsCompanyMarket Sh atomic number 18CokeCoca-Cola17.3%Pepsi-ColaPepsiCo10.3%Diet CokeCoca-Cola10% fortune 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 early with 17.3% market pct and Pepsi-cola was in second place with a lower market share of 10.3%. Addition completelyy, the amount of money market share of all Coca-cola brands adds up to (34.7%) which still surpasses those of PepsiCo (24.6%).To be able to give an in-depth analysis and evaluation of the Soft Drink industry, the following computes should be consideredThe relevant industry trends and the most noniceable changes in the industry.The strategical group map.The industry attractiveness utilise Michael Porter five bear ons model.A. Relevant industry trendsIndustry ontogenyThe graph below shows the performance of the CSD market from 1990 up to 2008. It is observed that the industry faced a sagacious decline in matureth starting from 2005, where the percent volume change fell below zero. This was followed by a further decline in maturation rates -0.6% in 2006, then -2.3% in 2007 and -3% in 2008 (Sicher, 2009, p.1).Conversely, the energy drink companies were experiencing a positive growth. Hansen Natural, which has two napped drinks and energy drinks in its portfolio of products, witnessed a +3.3% CSD growth. Additionally, Red Bulls volume as well as change magnitude +5.2%. Although Hansen Natural and Red Bull make up a minor(ip) portion of the total market share pie, the growth in their growth rates indicates that PepsiCo has to pay upkeep to them.Political FactorsThere are several political factors that influence the loco drinks industryObey food, medicine and cosmetic acts the process of producing and distributing the soft drinks in the market is subjects to many federal laws such as the food, drug and cosmetics acts. It is besides subject to Ameri rout out with disabilities acts. Th e presence of these laws helps create a wellnessy environment for the consumers. This get out ascertain the potentials of new entrants 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 holds to making the soft drink industry much attractive for consumers.Double revenue A nonher political factor is that companies run in the industry are obligated to tax payments for the products they bear and distribute in each country they operate within. Hence, this leads to making the industry less attractive because operating business 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 ticker activity, diesel prices are subject to inflation depending on the market conditions. Yet, the possibility of a market crisis rises.Foreign change rates fluctuations Carbonated soft drinks firms revenues are modify by exchange rates fluctuations as well as profits and the cost of knifelike materials. over ascribable to the weak economical growth the industry get out suffer heavily by changes in exchange rates. Thus, profits and cost are going to be lower and higher(prenominal) 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 kick the bucket 15 years. (Gabe Mirkin, 2004)Recently, as the people are becoming more than and more educated, the aim of their health cognizance is increasing. Obesity is becoming more and more apparent, leading to people taking good care of their health. Soft drinks are full with empty calories which cause obesity. The trend of obesi ty in children is rising since the soft drinks consumers are young and betwixt the range of 14 and 30. In fact, studies done by the UCLA C pull in for Health insurance policy Research shows that Adults who do drink one or more sodas or other sugar-sweetened beverages each mean solar day are 27% more seeming to be overweight or obese. (16 Facts About Soft Drinks and Obesity, 2009) mixture in life style consumer tastes Nowadays the consumer of the carbonated soft drink industry are fracture their tastes toward drinking more healthier drinks such as water and fresh juices instead of carbonated soft drink full with sugar that will concur a negative effect on the consumer health in the long run.People grow become more health conscious for instance they are travel 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 helped in developing the process of manufacturing. For manikinPDX technologyIt is a shockwave technology that helps in mixing the ingredients in an efficient 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 reason. (New technology targets diet soft drinks makers, 2009)Other Noticeable trends fusion and acquisitionIt is very common in the soft drinks industry, it causes many firm to exit and then get into the industry. Many leaders in the soft drinks industry use acquisition in 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 glass bottles instead of tractile bottlesMany soft drinks companies are moving toward using glass bottles because these bottles are more environmental friendly. According to G Karthikeyan, the manger of sales in Jabal Ali Container Glass, the requisite for glass bottles has increased recently because some of the chemicals in the soft drinks buns react with the p refinementic and caused serious diseases. Using glass bottles help that the soft drink bottle taste better and last for long time. (Sathish, 2010)Banning 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 do 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 hi gh schools the students can have all types of diet beverages and sport drinks as well as the drinks available for the elementary schools.(FBD,2010)B. strategical Group MapThe strategic group map above shows the competitive arranges of different competitors in the CSD industry. It consists of the five largest competitors in the industry. The axes represent two competitive characteristics the product categories offered by each competitor and geographic coverage in terms of the number of countries. The size 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, notwithstanding these categories are differ slightly. Also, their geographic locations vary which explains why they are fixed on different points on the strategic group map.The str ategic group map was constructed using the information in the table belowGeographic coverageProduct Categories offeredCoca cola200 +(The coca-cola system, n.d.)1.Soft drinks2.Energy drinks3.succuss / Juice Drinks4.Sports drinks5.Tea and drinking chocolate6.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 outflank 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 irrigate5C. Michael Porter five forces modelIndustry is categorise as the Carbonated Soft Drinks Industry challenger proudrival in this market is very overwhelming due to a numb er of factors such as the number of competitors, growth of the industry, product differentiation, fault costs and change in consumer 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 come to the fore rivalry. These accommodate other soft drink companies (e.g. Dr.Pepper Snapple Group and National Beverage) and energy drink companies (e.g. Red blur 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 t o other products (e.g. cars) which lowers switching costs for consumers.The change in lifestyles which caused consumers to shift away from carbonated 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 merchandise and innovation (Human sustainability, n.d.).Bargaining super indicant of Buyers MODERATE to HIGHThe debaseers 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%)Convenience stores/ Gas place (5%)Small grocers (4%)Other gas stations, drug chains, gas stations/minimarts, airlines and other channels of distribution (17%)Those that buy in small quantitiesFinal consumerThe first category of buyers has high bargaining 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 deal and they can easily switch between suppliers since the product is standard, lacks differentiation and is easily available 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 split nature of the buyer group and the low quantities obtaind 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 restrain general.Bargaining power of Suppliers- MODEATE to sufferingBefore looking at the supplier group, it is important to first consider the types of input or raw materials that are used in this industry. These are sugar, bottles, cans, water, ink and plastic. The inputs used are homogeneous and not nock which makes them readily available in the market.The supplier group in this industry is not correctly and does not possess 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 extraordinary nor severalise and the suppliers do not represent a high percentage of total costs in the industry. one and only(a) 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.Threat of Substitutes HIGHAgain, substitutes are classified into two categories (1) Substitutes that come from distant industries, and (2) substitutes that come from w ithin the industry- internal substitution.Since we classified the industry as that of carbonated soft drinks, then the substitutes from distant industries 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 personify a high threat 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 threat of potential new entrants, these includeTechnical barriers For instance, PepsiCo has an absolute cost advantage enabling it to deliver the goods 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, access 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 hardcore customer base. New entrants will have to put in a lot of marketing efforts and resources in order to convince customers to switch to their products. This will be time consuming and will also overlook a large amount of capital. Additionally, it is very difficult for new entrant to gain access to blanket(a) distribution channels like those of Coca cola and PepsiCo.Financial Barriers these barriers include capital requirement, access to finance etc. The bottling process requires a higher amount of capital than take manufacturing since it is associated with higher fixed assets. For concentrate manufacturing, one excogitatio nt which has the potential to serve a country as large as the unite States costs $25 million. On the other hand, the bottling process needs 80 to 85 plants, each cost $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 foretell 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 give chase brands. Cott Corp. holds the volume 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 P epsi, 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 th at 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 soft drinks and the intense competition in the industry, brand loyalty plays an important success factor for a company. E.g. PepsiCos regular customers are devoted to Pepsi and they rarely switch to other brands. Loyalty creates inelastic price change. PepsiCo successfully adapts to customer taste. transnational 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 AnalysisStrengths knock-down(prenominal) Brand ReputationStrong market state of affairsPepsiCo is an early entrant which helped build market share. Its market share accounts for 31% of the market share of the c arbonated 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 effective net pricing, and cost discipline cover a 5.5 percent increase in net revenue and an 8 percent increase in core EPS. PepsiCo Chairman and Chief Executive Officer, Indra Nooyi said Our results this quarter beef up the advantages of our balanced portfolio, as our food and international businesses delivered solid performance while we continued the transformation of our North American beverage business.(Nooyi, 2009)PepsiCo has large amount of free cash play and lack of capital constraint creating strength for the company to alter its innovative capabilities, and create a strong distribution thus further strengthening its brand.Strong and originative advertisementBesides PepsiCos strong advertisement, it uses creative techniques. Such that PepsiCo created an add through a football theater with most well known players (Kaka-Brazilian, Henry-France, Drogba-Godivoi, Messi-Argentine, Lumoard-England) .Extensive product listPepsi offers various products 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 advertising, consequently requiring higher capital. interest 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 almost 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 opportun ity that scale downs 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 strategy.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 feeding guidelines identified regular CSD as largest source of obesity-causing sugars in American diet (Pinto, 2006)Health care consciousnessIncreased awareness of health campaigns cut down revenues of soft drink industries. Customers move to substitutes such as water, non-carbonated drinks and juices. These cha llenges 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 very intense due to the following factorsLarge number of competitors, subside in growth of the industry,Lack of differentiation in products,and low switching costs. because there exists an intense competition for shelf space due to expanding array of products and packaging optionsLarge company size, will demand a varied 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 recommendations 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 Statement/Strategic intent/VisionMission statementOur mission is to be the worlds chancellor consumer products company focused on convenient foods and beverages. We seek to produce financial 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 mainly 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 an d truthful in all of their operations. reappraisalThe mission statement relatively reflects the core values of PepsiCo. It specifically describes its goals and objectives. It also sets guidelines for the activities and operations that need to be accomplished in order to equal 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 good deal 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 forthcoming 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 s pecific to its goals and objectives in order for PepsiCo to be more productive 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 aforesaid(prenominal) 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 offer better and more expensive 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 engaged 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 mak e use of the technology to lower the prices of the final products. Not to swallow up 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 alrea dy 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 leadership 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 2nd 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 placeable 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. distinction 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 futu re cost.Extensive Distribution channel / LocationIn Feb. 26, 2010 PepsiCo had merged with Pepsi Bottling group and PepsiAmerican which strengthening its distribution.It has local and global locations. 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.