PepsiCo is a multinational corporation that deals with production and distribution of food, snacks, and beverage. It was formed in 1965 as a result of merging Pepsi-Cola Company and Frito-Lay. The Company distributes its products to more than 200 countries around the world. It has been making profits across all its brands worldwide since its inception hence making it the second- largest food and beverage business in the world (PepsiCo Annual Report, 2012).
Therefore, this article shall be analyzing the strategic capability of the organization by scanning its environment by the help of SWOT tool. It shall also analyze the competition that the Company faces in the industry and how it can stand tall amidst such rivalry. The paper will cover the chosen current strategy for the organization after which it will endeavor to uncover two alternative strategic options available for the company in future. From the two choices, the article gives priority to the best solution to be adopted. The paper finally looks at how the Company is committed to ethics and social responsibility. It focuses on the strategy of the firm and how the policy has captured the social factor in three- dimensional issues relating to social responsibility and ethical behavior.
PepsiCo is the second largest Company in food and beverage industry in the world and has a critical focus on the proper analysis of its internal factors to ensure they are in tandem with the changing market needs due to the saturation of the market. The appropriate tool will be the SWOT framework. The framework concentrates on the strengths and opportunities available for the firm to counter threats and weaknesses which are detrimental to the business (Leigh, 2006).
Strengths
The brand image is high. The firm has over the years gained a strong niche on the market due to its continuous positive performance and quality products. This characteristic attracts both the potential and actual customers to the firm’s products thus increasing sales volume (Dacin & Dacin and Matea, 2010). Also, there is broad product mix. The business has been able to penetrate various markets and segments through its different variety of goods offered e.g. by Frito-Lay, Quaker and Pepsi products. The broad product mix makes the firm relevant in different markets depending on the gap created on the market. It has extensive global production and distribution network. The system has enabled the firm to compete favorably on the international market leading to further expansions and growth (Miles, 2006).The strengths have continued to place the organization at a competitive level among its rivalry. They have also ensured that the team continues to excel both in production and distribution in delivering quality to users.
Weaknesses
Weaknesses are capable of pulling the organization backward if the firm does not take into account proper intervention. First, it suffers low level of penetration outside America. From the reports, PepsiCo gets most of its revenues (about 70%) from American markets. It means that the team invests less than 30% of its operations internationally. The company, therefore, has neglected the market outside America that would likely result in more revenues if exploited. Although the Company has the potential to invest in such markets, the same has not been maximized. As a result, sales realized do not reflect the full ability of the business as it only reflects its performance in North America and South America.
Secondly, it has limited business portfolio. Since the Company deals mainly with food and beverage products, it is exposed to high risks in the food and beverage sector. Such risks may impact the organization negatively in the long run. With such a limited scope of business portfolio, the company is not able to make use of the available market with diverse needs. It makes it hard for the firm to penetrate the market with such a small portfolio (Chen & Chih, 2011).
Finally, it employs a weak marketing strategy to health-conscious customers. These are consumers who are sensitive to their health aspects. The firm lacks enough explanation on the allegations of the entity’s products on the health of users. The inadequate information on the part of marketers makes it hard for the products to get the goodwill of such users. It finally leads to reduced sales and hence reduced profits.
Opportunities
Opportunities are available gaps which the company can take advantage of within the industry. Threats, on the other hand, are the areas the company needs to be careful. Proper utilization of the opportunities results in better performance of the business and growth. PepsiCo has various opportunities to enable it to grow globally (Pavlou & Stewart, 2015). First, there is an opportunity for business diversification whereby the company is in a good position to acquire other firms dealing in a different line of production other than food and beverage. Venturing in such businesses will enable the parent company to penetrate the market and widen its scope. By so doing, the risks facing the firm will be spread across many outlets thus reducing the impact if it was to be borne by a unified sector. It is possible for the Company to acquire other complementary firms due to its strong financial position.
Another opportunity for the Company is that of penetrating the market in developing countries. For many years since its inception, PepsiCo has majored in the United States of America where it has been receiving revenues of more than 65% of its sales. It shows, therefore, that the firm has not exploited the international market which is available to it. Due to the saturation of the market in America in food and beverage industry, it will be prudent for it to make use of the outside market, especially in the developing countries. It will increase the sales volume thus making it more relevant to the market. It will also help the business to expand using the extra incomes gained from these chosen countries.
Moreover, there is the opportunity of forming global alliances with other companies offering complementary services. Formation of partnerships will enable it to its market presence. It will also make it secure competitively and enjoy significant economies of scale due to shared overhead costs with other companies. Thus, it will be easy for the company’s operations to run smoothly regarding sales due to increased awareness created by a pool of businesses.
Threats
PepsiCo faces some threats that management needs to plan well on ways of countering them. These are external factors that can likely reduce business performance if not dealt with efficiently and in time. To begin with, we have stiff competition. PepsiCo faces rivalry from Coca-Cola Company which is its strongest competitor. Coca-Cola Company has the primary influence on the market over the products that PepsiCo offer regarding branding, packaging, innovation and distribution channels (PepsiCo Inc, 2012). Coca-Cola provides competition in the beverage sector which has made PepsiCo invest in non-carbonated drinks and food stuff. In the foodstuff sector, the company faces rivalry from Kraft Foods which is a major challenge to the industry.
Also, since PepsiCo’s products contain a certain level of sugar content, they are considered as unhealthy by some users. Most users claim that PepsiCo’s products contain elements of sugar, salt, and fat which affect the health of many of their consumers. The products, therefore, face a threat of reduced demand which in turn lowers their sales substantially (Dacin et al., 2010). Lastly, environmental issue is another threat to the organizations. There have been allegations that PepsiCo disposal policy does not take into account environmental conservation policy. At the same time, there is criticism from the environmental advocacy group that the company packages its products in plastic materials which consume a lot of energy and emitting harmful carbon (IV) oxide to the atmosphere.
Despite the many generic competitive strategies employed by the company, PepsiCo has adopted two primary strategies basing on the wide range of products they deal. The current policies are broad product differentiation and cost leadership. Cost leadership strategy focuses on maintaining costs of production as minimum as possible to ensure that PepsiCo’s perform well financially by creating a competitive edge on the market. Low production costs facilitate offering final products on the market with relatively low prices compared to that of the competitors like Coca-Cola. The strategy also helps the Company to avail a variety of promotions including discounts without negatively impacting its profits margin (PepsiCo Inc, 2009).
Product differentiation similarly attracts customers to the products. Since products create a picture of unique quality, users always are on the look for something new and outstanding. Differentiation aims at innovating goods to address specific concerns of buyers. For example, Lay’s potato chips are marketed as a healthful snack due to the reduced content of fat in them. It has made the product to be widely preferred due to its unique feature that is not provided by its competitor (Burke, van Stel &Thurik, 2010). To maintain the strategies above effectively, PepsiCo has implemented proper employee relationships which have increased their moral and loyalty towards the vision and objectives of the Company. It has been achieved through employee training, impressive remuneration, appraisals, motivation and proper employee selection. Since workers are crucial to good performance, it has enabled the Company to minimize costs through unnecessary wastages by employees (Dobbs, 2014).
Similarly, PepsiCo enhances product differentiation through its intensive research on customer needs and commitment to a healthy performance as enshrined in its mission statement. It is facilitated by its strong financial base as well a team of competent professionals who are committed forecasting the future needs of customers. With the above strategies, PepsiCo has maintained its niche amidst the greatest competitor Coca-Cola which has continued to offer carbonated drinks (Hanssens, Pauwels, Srinivasan,Vanhuele &Yildirim, 2014). The success of PepsiCo is linked to its internal capabilities by deliberately overcoming challenges in Porter’s Five Forces. As the second largest Company in food and beverage industry globally, PepsiCo has given priority to analyze its environment to enable its position strategically for performance (Meyer, 2017).
PepsiCo’s customer’s bargaining power is strong due to low switching costs and high availability of substitutes. Therefore, the Company must ensure that consumers are adequately satisfied to maximize its revenue. The bargaining power of suppliers is low due to high overall supply. The nature of providers shows that they are not of high concern to PepsiCo. Substitutes are many with high performance and availability such as real fruit juice which is affordable compared to Tropicana. The Company should, therefore, give it a priority. The rate of new firms entering the market is moderate due to low switching costs, customer loyalty to PepsiCo products and a high cost of brand development. It poses a little challenge to the management of PepsiCo (Meyer, 2017). The competition level is high due to the high aggressiveness of firms, many enterprises, and small switching costs. The main competitor being Coca-Cola Company, it sensitizes PepsiCo management on the need to be more aggressive.
Figure 1 – Porter’s Five Forces
Table 2: Showing alignment of current strategy with strategic capability of PepsiCo.
|
Suitability |
Acceptability |
Feasibility |
|
Yes since it is in agreement with the strong PepsiCo brand, employees, innovation and customer service. |
It is acceptable since it generates acceptable incomes to stakeholders with minimal risks involved. |
It is feasible due to availability of both economic, physical and human resources. |
It is important to understand the tool provided by Igor Ansoff. The matrix positions the organization for future corporate growth. It focuses on the organization’s present and potential products and markets in devising ways of growth in both the existing and new markets and goods. The matrix combines four possible product-market strategies as shown below:
Ansoff’s Matrix
|
Existing Products |
New Products |
|
|
Existing |
Market Penetration |
Product Development |
|
New |
Diversification |
Market Penetration. The strategy is achievable due to the ready market in their areas of operation. With the known available products, the PepsiCo management can implement market penetration as its primary intensive growth strategy. It facilitates growth by attracting customers through product differentiation and cost leadership strategies. In the short run, the Company can gain a significant market share hence increasing its sales volume and revenues as well (Criston, 2012).
Product Development. The strategy works where there exist new products on the existing market. The Company should consider modification of new products that are unique and meets customer requirements. The initiative will ensure that new customers are captured. The new commodities should aim at improving users’ health and reducing their exposure to health risks. Products with reduced salt content, low-calorie, and low saturated fat will give PepsiCo an upper hand to create an image that the Company is committed to delivering excellence. The innovation can be facilitated by extensive research and development for product innovations. Product development can also be achieved through the current marketing strategy of product differentiation that ensures that the PepsiCo goods are unique and responds strictly to the changing needs of users. It aims at making sure that the commodities of this Company remain upfront compared to other rival firms. Consequently, a pool of customers is created which will boost the sales (Criston et al., 2012).
Market Development. It is viable where there are existing products and the new market. PepsiCo stands a better chance to increase its sales through widening its geographical scope of coverage beyond American market. Through this strategy, a new market is created in various market segments. For example, PepsiCo continues to expand its marketing network to cover the remaining markets, especially in developing countries. A strategic objective of this intensive strategy is to expand PepsiCo’s supply chain to support the growth of its distribution network. The cost leadership general competitive strategy enables PepsiCo to use this intensive growth strategy through cost minimization regardless of additional investments used for expansion to new markets or market segments (Merchant, 2014).
Diversification is another possible plan available to PepsiCo. Basing on the changing tastes and preferences of consumers, the Company has to ensure that it invests in the production of a wide range of products to compete favorably. Demand patterns keep on fluctuating thus it will be good for this organization to consider discovering new products. It will make the firm to acquire new customers as well as retaining the existing ones thus an overall increase in sales volume (Goi, 2009). Although the above strategic options are available for the Company, I suggest a future dual strategy of market development and diversification which takes into consideration cost leadership and product differentiation. This will enable the firm to explore all the available market gaps as well as locating its strategic position on the new market (Grundy, 2006).
The company currently adopts a dual strategy of cost leadership and product differentiation. The policies adopted are based on various factors to capture its impact on the environment and health of the society as well (Miles, Munilla &Darroch, 2006).The key features of the above strategy include the priority to consumers. Since users are inevitable as far as revenues are concerned, PepsiCo ensures that their needs are catered for through provision of high- quality products with affordable prices. It is this quest that the Company undertakes continuous innovation to improve its products. Therefore, the Company fulfills this responsibility to consumers through responding to their various interests’ health wise especially in providing products with little content of salt, sugar, and fats which are considered as unhealthy. Another feature of the strategy is their commitment to employees. These stakeholders are very critical to PepsiCo since they determine the growth of the Company. Therefore, employees are well remunerated and adequately trained to ensure quality performance. Thus, the Company is committed to sustaining this talent through ensuring their welfare is catered for. Furthermore, the strategy aims at maximizing shareholders wealth which is the motive behind product differentiation and cost leadership. It is only through the strategy that the Company can increase revenues which impact positively to shareholders (Peloza & Shang, 2011).Through the above features, it can be seen that PepsiCo is committed to ethics and corporate social responsibility to its stakeholders like customers, employees, government, and community as a whole (Rahmani, K., Emamisaleh, K., &Yadegari, 2015).
There are various ethical issues that PepsiCo is facing in the course of its provision of goods and services. One of the major issues is related to environmental conservation. Over the years, PepsiCo has been accused of using voluminous amounts of water in its processing of food and beverages. It is an infringement of the human right of access to clean water. In response to this, PepsiCo resorted to water conservation program called Pepsi Refresh Project and water policy which aims at ensuring water conservation (Werther & Chandler, 2010).
Furthermore, PepsiCo has been accused of polluting the environment through its packaging policy which makes use of plastic bottles. In response to this unethical practice, the Company has adopted the policy of beyond performance where it has focused on recycling of these materials to ensure a proper disposal to cater for the environment (PepsiCo Annual Report, 2014). Another ethical issue is the Company’s liability to the society. It is the responsibility of any business to positively influence the society. PepsiCo provides financial assistance to community’s development programs. In so doing, the Company can gain a good reputation thus raising its revenues (Leigh & Pershing, 2006).
The last ethical issue is related to the government regarding compliance with rules and regulations. PepsiCo has come up with policies in its strategic mission to cover all the rules that the Company is obliged to in so far as the legal-political environment is concerned. It includes a commitment to the health of the citizens and the natural resources at large (Cunningham & Peggy, 2011).
Regarding ethical issues above, I suggest that PepsiCo should;
Conclusion.
From the above discussion, PepsiCo has a greater chance of continuing to thrive if it will follow the demands of the new strategy strictly to the end. Its success is linked to its readiness to adhere to its ethical and corporate social responsibility. With the current completion in the American market, it will be advisable for the Company to add investments in the markets outside North and South America. Therefore, the Company has a bright future and considering its good reputation and changing needs of consumers coupled with day to day user’s complications, diversification and innovation should be at the core of the business.
References
Burke, A., van Stel, A., &Thurik, R. (2010). Blue ocean vs. five forces. Harvard Business Review, 88(5), 28-29.
Chen, & Chih, H. (2011) “The Major Components of Corporate Social Responsibility,” Journal of Global Responsibility, 2(1), pp 85-99.
Crison et al., (2012). “Social Entrepreneurship and Corporate Social Responsibilities” International Business Research, 5(2), pp. 106-113.
Cunningham, & Peggy, H. (2011). “State Owned Enterprises Pursuing Responsibility in Corporate Social Responsibility” Management Communication Quarterly, Sage Publishers, Volume 25, Number718.
Dacin, P. & Dacin, M.T, and Matea, M. (2010). “Social Entrepreneurship Why We Don’t Need a New Theory and How We Move Forward From Here,” Academy of Management Perspectives, 24(3), pp 37-57
Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: A set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
Goi, C. L. (2009). A review of the marketing mix: 4Ps or more? International Journal of Marketing Studies, 1(1), 2.
Grundy, T. (2006). Rethinking and Reinventing Michael Porter’s five forces model. Strategic Change, 15(5), 213-229.
Hanssens, D. M., Pauwels, K. H., Srinivasan, S., Vanhuele, M., &Yildirim, G. (2014). Consumer attitude metrics for guiding marketing mix decisions. Marketing Science, 33(4), 534-550.
Leigh, D., & Pershing, A. J. (2006). SWOT analysis. The Handbook of Human Performance Technology, 1089-1108.
Merchant, H. (2014). Configurations of governance structure, generic strategy, and firm size. Global Strategy Journal, 4(4), 292-309.
Meyer, P. (2017). Home Depot Five Forces Analysis (Porter’s Model). Accessed on 9th June 2017 from https://panmore.com/home-depot-five-forces-analysis-porters-model
Miles, M. P., Munilla, L. S., &Darroch, J. (2006). The role of strategic conversations with stakeholders in the formation of corporate social responsibility strategy. Journal of Business Ethics, 69(2), 195-205.
Pavlou, P. A., & Stewart, D. W. (2015). Interactive Advertising: A New Conceptual Framework Towards Integrating Elements of the Marketing Mix. In New Meanings for Marketing in a New Millennium (pp. 218-222).Springer International Publishing.
Peloza, J., & Shang, J. (2011). How can corporate social responsibility activities create value for stakeholders? A systematic review. Journal of the Academy of Marketing Science, 39(1), 117-135.
PepsiCo Annual Report, (2014). Retrieved on 9th June 2017 from
https://www.pepsico.com/Annual-Reports/AnnualReport14/downloads/PepsiCo_2014_Annual_Report_final.pdf
PepsiCo Inc. (2009). Strategies to Drive Our Growth. Accessed on 9th June 2017 from https://www.pepsico.com/docs/album/annual-reports/2009_PEPSICO_AR.pdf
PepsiCo Inc. (2012). PepsiCo Announces Strategic Investments to Drive Growth. Accessed on 9th June 2017 from
https://www.pepsico.com/live/pressrelease/PepsiCo-Announces-Strategic-Investments-to-Drive-Growth02092012
Rahmani, K., Emamisaleh, K., &Yadegari, R. (2015). Quality Function Deployment and New Product Development with a focus on Marketing Mix 4P model. Asian Journal of Research in Marketing, 4(2), 98-108.
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