Pepsi’s Corporate and Business-level Strategies

Table of Content

The history of Pepsi-Cola starts in 1896 in the town of New Bern in North Carolina, USA in a drugstore owned by the pharmacist Caleb Bradham. He came up with many recipes of new drinks to be served at the soda fountain of his drugstore.

Bradham aim was to create a drink both delicious, healthy, aiding digestion and boosting energy. It would be free of impurities and it should not contain any strong narcotics. Eventually one of his drinks became very popular and the customers started to call it Brad’s drink. This was the beginning of Pepsi-Cola’s story and later, Bradham’s vision was turned into a mission for the future company.

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In the beginning, the business remained small and based on operations conducted within its immediate territory. By 1898 the drink was renamed Pepsi and given its first logo and patented trademark. By 1902 the popularity of Pepsi transformed the company into a fully-fledged business.

New Bern Weekly Journal published the first newspaper advertisement and the bottling system was improved with the addition of five-gallons kegs to six ounce bottles and a marketing slogan: “Exhilarating, Invigorating, Aids Digestion”.

In 1905 Pepsi started with bottling franchises and registered its trademark in Canada and Mexico in 1908. At the same time the U.S. government enacted the Pure Food and Drug Act prohibiting substances such as arsenic, barium, uranium, etc. in food and beverages. Consequently, many soft drink manufacturers, including Coca-Cola, had to change their formulas. Pepsi exploited the situation against their main competitor Coca-Cola, by claiming that they already met federal requirements.

Distribution was modernized with motor vehicles and started to promote its products using famous public figures like Barney Olfield, an automobile race pioneer who endorsed Pepsi.

In the 1920’s and 1930’s the company experienced financial difficulties and went bankrupt twice in 1923 and 1931. In 1931 the company was sold and Charles G. Guth took over the presidency commanding a reformulation of the syrup recipe.

Few years later Walter S. Mack, Jr. was elected president and the company became a modern marketing company by using comic strips and Hollywood movie stars to advertise its products.

In 1959 Pepsi entered the former Soviet market in Moscow and acquired Mountain Dew in 1963 making it the second best selling drink ever produced by the company.

1.2 The Emergence of a Global Company

In 1965, the company expanded and grew significantly through the merger of Pepsi-Cola, operating in the beverage industry and Frito-Lay in the snack food sector.

The following year, the newly formed PepsiCo entered the Japanese and Eastern European markets. In 1974 Pepsi opened its first production plant in U.S.S.R. and was the largest soft drink selling brand in American supermarkets.

Afterward, PepsiCo substantially diversified its portfolio by acquiring Pizza Hut, Taco Bell and formed PepsiCo Food Service International (PFSI) to focus on overseas development of restaurants. In 1980 PepsiCo signed a joint venture agreement with the Chinese authorities but the project was never developed properly.

In 1984 Roger Enrico CEO of Pepsi-Cola made history by signing a lucrative advertisement contract with Michael Jackson to produce two of most eagerly-awaited television commercials featuring the famous slogan: “The Choice of the New Generation”.

Then Pepsi became the indisputable number one in the soft drinks industry with revenues of $7,5 billion and more than 137 000 employees. The company was seen as a leader in advertising when they used a space station for promotional events.

In 1986 the corporation was reorganized and decentralized by transferring its beverage operations under PepsiCo Worldwide beverages and the snack food sector under PepsiCo World wide Foods.

In 1996 Pepsi entered the Internet “boom” by creating an ambitious “worldwide” web site surpassing all expectations and was copied in numerous ways.

Subsequently, the company converted its bottling sector into a publicly traded company, the Pepsi Bottling Group (PDG).

In August 2000 the company was involved in one of the most significant transaction in the beverage and food industry through its merger with Quaker Oats and the addition of top products to its portfolio such as Gatorade beverages.

Recently, Pepsi made the headlines by signing a “skyrocketing” agreement with Britney Spears to promote its new marketing campaign and products.

2. Internal Analyses

2.1 Introduction

In this section, our analysis will focus mainly on Pepsi-Cola resources, capabilities, and competencies to effectively create competitive advantages. First, it is of evidence to mention a major characteristic of the product namely that the taste of the Pepsi is a standardized one. Consequently, is it is not a technically fastidious task to produce the drink; there are not many opportunities for innovation and improvement of the product itself. Consequently, the product quality is not a major concern and does not constitute value added for the company.

In fact, new technologies or research efforts can hardly produce any changes or innovations regarding Pepsi’s drink. Nevertheless, Pepsi has to build on customer responsiveness especially on the packaging, image and price of the product.

In other words, the main efforts are directed towards marketing, promotion and distribution and much attention is paid to increase attention in customer response time.2 To this extent, brand management and brand promotion of reputation for quality are meant to develop core competences that are perceived by customers as providing benefits and thus, create competitive advantage.3

2.2 Observations throughout History

Pepsi-Cola is still second in the carbonated drinks market and remains in the shadow of Coca Cola in terms of market share, perception and image. However, Pepsi’s insightful marketing techniques (comic strips, television ads etc…) prevented a fall of its position in the beverage industry.

From 1965, by using diversification techniques and brand management, the company was able to increase its volume of sales and get a stronger market position. Nowadays, Pepsi’s carbonated beverages division clearly remains behind the snack division in terms of profitability and share percentage of operation earnings.4 Our impression is that the profits of the snack division help create the illusion that the beverage sector is as successful as the management wishes it to be.5

We observed a definite inferiority complex towards Coke that initiated the main motor in the company’s top management philosophy. As Roger Enrico wrote in his book about cola war, Pepsi’s strategy was heavily focused in gaining a better position in the beverage industry by finding new ways to differentiate from Coke and to take advantage of strategic alliances in the market. 6

2.3 Core Competencies

A question is raised by acknowledging the above mentioned facts: how to beat your competitor if you cannot offer a “better” product. For Pepsi, the answer is efficiency, innovation in marketing techniques and customer responsiveness. Using less input in the value chain of its primary activities, Pepsi is able to be more efficient and to attain a lower cost structure.

Moreover, PepsiCo built its competitive advantage mainly by achieving greater economies of scale in the sectors of communication, distribution and bottling thus reducing production costs.

2.3.1 Marketing and Customer Responsiveness

The aim of the new marketing strategy developed by Enrico was to sharpen the image of Pepsi. It also contained a specific message directed to young people using extensive advertising campaigns on TV and radio. As an example, Pepsi’s innovative marketing was showed to the world when in 1996 it first recorded a commercial in space.

Furthermore, Pepsi kept the consumer’s perception waiting by acquiring Mountain Dew, and creating Pepsi blue. Improving the quality of the company’s product offering is consistent with achieving customer responsiveness, as is developing new products with features that existing products lack. Pepsi blue was in fact not as successful as hoped, yet the product aided in the overall perception of the brand Pepsi-Cola.

2.3.2 Branding Equity

Brand loyalty is a buyers’ preference for the products of incumbent company. A company can create brand loyalty through continuous advertising of brand and company names, patent protection of products, product innovation achieve through its research and development programs and emphasis on high product quality and good after-sales services. It is effective influence in the way in which people perceive the product or the company. By creating feelings of warmth, affection and belonging to a product, a firm is able to relate brand to human personalities.7

People prefer to buy brands as they give them personal means and judgment and they offer a quick and clear guide to a variety of competitive products.

In the beginning of the 1990’s PepsiCo management decided to create a proprietary model applicable to all major PepsiCo brands, both domestically and globally focusing on cross-category brand and product specificity. The goal was to have a single definition of brand equity applicable to every product.

A second goal was to strike a balance between sensitivity (the ability to detect real equity changes) and stability (the absence of spurious or short-term fluctuations). The marketing and research management of PepsiCo as well as some of its consumers were interviewed to find out the attributes that contributed to a favorable brand-consumer relationship across product categories and make comparisons with key competitors like Coca-Cola in the soft drinks sector.

PepsiCo deployed the Equitrak brand equity model to track its major brands on a global scale in 1997, following its success in the USA.8 By late 1999, PepsiCo had created a brand database consisting of over 6,000 Equitrak brand equity “scores”.

Results from each tracking wave are distilled and formally presented to senior PepsiCo executives and country managers. Comparisons are made between PepsiCo brands, competitive brands, and other global brands by country over time. This presentation, supplemented with other competitive data, is used to focus managerial attention on how PepsiCo brands and marketing programs are performing towards their competitors. We imagine that this was a successful method of understanding consumer behaviour and also to project the caring Pepsi-Cola image.

2.3.3 Reducing Costs

One example illustrates how Pepsi is always trying to find new ways of reducing costs and increase efficiency. Service technicians for The Pepsi Bottling Group Inc. (PBG) in the U.S. used to generate 3 million pieces of paper per year while making routine repairs to soda fountains and vending machines. But after a yearlong rollout of wireless handheld computers, that paper mountain has completely disappeared.

The new system, built around a rugged computer allows PBG to maintain a virtual inventory of parts on each technician’s truck that’s linked to a database accessible by the company’s eight call centers, A dispatcher can quickly determine whether one of 700 Pepsi technicians equipped with the Sidearm has the right kind of part needed for a pending job thus increasing customer responsiveness and effectiveness of after-sales service.

Another way of reducing costs was by investing into the new Computer system “GenerationNet”. Following from this was the “PepNetSystem” which serves both, lower cost and customer responsiveness. This resulted in a more efficient communication system.

3. External Analysis

3.1 Introduction

In order to understand the marketing strategy of one company it is very important to analyse the environment it is operating within. The analysis of the environment has a few very important aspects that clearly illustrate how a company like Pepsi has managed to stay in business for such a long time. To analyse this clearly, a general rule can be applied to PepsiCo.

3.2 Cyclical Corporate Strategy

If we look at the Pepsi-Cola Company from the outside, there has been a certain amount of repetitiveness in its development. By following the trends and focusing on how to lower the price as much as possible, they managed to create a successful company. By investing in the development of the bottling and distribution sector, Pepsi found their balance in the market.9

Then in 1920’s Pepsi-Cola Company failed because they didn’t concentrate enough energy on branding. Within a few years Pepsi was declared bankrupt twice. By the end of the 1930’s the company was reorganized from inside and the marketing policy drastically changed. Major investment was now directed towards making people more familiar with the product.

After acquiring Mountain Dew, new sources of financing and revenue opportunities were needed because the acquisition was not an instant success. Therefore, in 1965 Pepsi merged with Frito Lay.10 In the 1980’s the decreasing sales in the beverage market induced the industry to adjust with more aggressive marketing strategy and new products. In fact, Coke marketed a new cola formula, whereas Pepsi persisted with promotional efforts and improved customer responsiveness to increase sales volume.

Following these cyclical changes in the marketing policy of the firm (every 20 years there is a huge turn over), one could conclude that this is the time for PepsiCo’s to readjust. The circumstances underlying the merger with Quaker Oats are significant. Nowadays, the market is rapidly changing and it’s becoming saturated. The entrance into potential new markets is more complex than ever consequently, the only way for the company to expand is by gaining market share by mergers or strategic alliances. Furthermore, the marketing strategies in foreign markets like China11 and India12 are experiencing problems in customer responsiveness. Currently, the beverage sector is following a trend of continuous launch of new products in order to attract new customers. In this sense, the challenge for Pepsi is to be able to sustain such a trend and conversely, to remain a leader in their market.

3.3 Key Factors for Success

To analyze the external environmental impacts, we have to look at the company as an organism that is constantly interacting with its customers, partners, suppliers and competitors. When Pepsi-Cola was created, the management was looking for the recipe for success that would also be matched with the creation of a unique name and logo. Thus, the whole “cola war” story was the driving force of every change Pepsi implemented in its business strategy.

The creators of Pepsi decided to use the same colors and lettering as Coke, simultaneously promoting and expanding the same product.13 In the short run, the strategy worked and allowed Pepsi to take advantage of Coke’s previous business innovation. However, in the long run, Pepsi would have to build its own reputation and to differentiate itself from its rival.

Basically at that time, Pepsi focused on achieving lower cost production in its bottling and distribution units.14 Therefore, the promotion of their products was put aside by the result of this strategic choice. The financial crisis commanded important changes with regards to innovation. From being a follower, Pepsi became the leading innovator.

Pepsi-Cola previous experience revealed that the management did not put much attention on their external reputation. Moreover, as a leading company, Pepsi had to be consistent and convinced about their strategy as opposed to follow the competitor’s strategy.

PepsiCo beverages operated in a highly competitive market and new solutions were to be found to remain at the edge of the industry. As a result, Pepsi-Cola Company merged with Frito-Lay, creating the Pepsi Corporation (PepsiCo) with operations in different business sectors.15 Pepsi also gained important business leverages by placing their products within their own restaurants.16 Finally they decided to change the structure by extracting the bottling company from the corporation.17

3.4. General Influences

In this section, we will focus on four elements: political, economical, socio-cultural and technological environment.

3.4.1 Political Environment

PepsiCo is a global corporation. For the company that has substantial involvement in the world economy, it is not surprising that PepsiCo has been implicated in many political scandals. In 1991 PepsiCo entered into a joint venture agreement with Myanmar Company that had ties with the junta challenging the government in place in Burma. When the country was being torn apart by internal military conflicts, the scandal erupted and Pepsi was suspected of financing the junta. Subsequently, there was a boycott of all Pepsi products and the situation alerted the international community because of the human rights violations perpetrated by the junta.18

At the end of the 1990’s PepsiCo was charged in the U.S. of violating the labor and minimum wage conditions set by ILO 19. In 1995 they were fined $95 491 on the basis of violations of labor conditions and then in 1998 they were penalized $107.000 for minority discrimination.20 Other political affairs were also brought to the public arena. Between speculations and the truth, one thing is sure: the connections to the Watergate affair and the Kennedy assassination21 led to a lot of free publicity for Pepsi.

3.4.2 Economic Environment

The economical segment is the second element to be analyzed. It is indisputable that PepsiCo is one of the worldwide leaders in the snacks and beverage industry. All available information made it clear that PepsiCo is a profitable corporation. The fact that they had some crises means they are apt to change in the modern market. This segment of the company was already explained before and will be discussed in the next chapters as well so we won’t elaborate further here.

3.4.3 Socio-cultural Environment

Turning to the socio-cultural element PepsiCo was always researching new ways to approach its customers. The involvement in the humanitarian actions is necessary for the image of international corporations. The other aspects are much more interesting since they are more recent. As it was already mentioned, the main consumer group for Pepsi is teenagers. It was just a matter of time before the company entered with its policy to market them within the educational system. Some see it as bad thing, whereas some support it. It is a fact that there are good and bad elements, but nevertheless this progress cannot be stopped.

What did Pepsi actually do? They started with the scholarship program, which is common practice. Than the idea expanded and the musical education program was initiated. It was supported because it was fun and educating at the same time. Finally the company started to financially help schools in need, by buying computers and other facilities. At this point, the problem emerged. The scheme for financial support meant that the schools had to place Pepsi signs on the buildings, in the halls or on their homepages.22 Can this policy really be beneficial for education? Nevertheless, people connected to the educational system are objecting. Why? Because the cola war has just found another battlefield: school desks.

3.4.4 Technological Environment

Last, but not least, technology. What kind of technology are we talking about? Technology that makes the drink and the one that makes the drinks containers. Externally there is a small problem, which has the potential to develop. The problem is with plastic waste. This is already a huge problem in the U.S. and it is becoming an issue in Europe as well. The fact that plastic packaging is the cheapest and most practical material is not a good enough reason anymore. The larger market is demanding new solutions.

The second problem is even more recent: how is the beverage produced and what are the ingredients used? Biological awareness will soon reach the point when the ingredients and their production will have to be transparent to the consumers. Bioengineering is target enemy number one in the 21st century. Will Pepsi be lucky in this area, as it was with drugs at the beginning of 20th century?

3.5 Specific Influences

When talking about specific influences the most important thing to mention are the competitors. In the case of Pepsi-Cola, this is the biggest and the most interesting aspect. Discussing carbonated drinks and Pepsi beverages cannot be done without mentioning Coke and the cola war. Was that really a “war”? It was a struggle for the market place and it had a large public impact. Due to the circumstances, both companies now know it is beneficial to have a cola war. However, there are other companies that are successfully disrupting the old order of the beverage market. The most prominent one is Cott. It is a small firm that started at the end of the 60’s with the distribution of carbonated drinks in Quebec and it has been growing surprisingly fast in the last few years.23 How the market will be reorganized is still not clear, but the last two annual reports show the following:

There are no doubts that Coca-Cola remains the largest player at this moment. Coca-Cola is not yet seriously jeopardized as a beverage producer, but PepsiCo could have some problems as their beverage sector is still divided between Pepsi Beverages Worldwide, Tropicana and Quaker Oats. Cott’s market tactics appear to be the improved version of PepsiCo and Coke’s, so it is going to be interesting to follow the development of the market.

3.6 The Co-operators

Pepsi-Cola as a company, then also as a part of a corporation, had a very simple policy for quite a long time: those who are not your friends are either your enemies or your future acquisitions. Then in the 90’s the policy changed and PepsiCo started to sell off parts of the corporation. Was that because of the low profits, or was it due to the new way of thinking? PepsiCo was involved in many diverse areas did they plan to specialize?

One thing is sure; the mother corporation acquired precious co-operators. When they exited from the restaurant sector, there was an agreement made that ensured the PepsiCo products exclusive placement within the new Tricon Global Company. Their bottling sector, on the other hand, was placed on the stock market as PBG. PepsiCo disposed of their responsibilities in this area, but still maintained 40% of the shares.25

3.7 The Importance of being aware of the Environment

To conclude, Pepsi-Cola is 100 years old and it has developed within strict markets, such as China, and also within liberal environments, such as Europe. It is therefore quite logical to support the analysis of the external issues, because it is necessary for success.

4. Pepsi’s Corporate and Business-level Strategies

4.1. Responding to Conflicting Demands: The Environmental Challenge

Nowadays, globalisation is a trend which drives the world towards a converging common market by the force of technology. The result is a new commercial reality – the emergence of global markets for standardized consumer products on a previously unimagined scale in production, distribution, marketing and management. The global corporation operates with resolute constancy – at low relative cost – as if the entire world were a single entity: it sells the same things everywhere.

Consider the case of Coca-Cola and Pepsi-Cola, which are globally standardized products sold everywhere. Both successfully cross multitudes of national, regional, and ethnic taste buds trained to a variety of deeply ingrained local preferences of taste, flavour, consistency, effervescence, and aftertaste. In many markets, both sell well. 26 Commercially, nothing confirms this as much as the success of Pepsi-Cola in Moscow.

4.2. Business-level Strategy

Business strategy refers to the plan of action that strategic managers adopt to use a company’s resources and distinctive competencies in order to gain a competitive advantage over its rivals in a market or industry. 27 To this extent, decisions in relation with business-level strategy should address customer’s needs and product differentiation, customer group and market segmentation and distinctive competencies.

5.2.1. PepsiCo Beverage Industry Customer needs, Responsiveness and Product Differentiation of Pepsi-Cola

People don’t drink large quantities of soft drinks because they have to. Nowadays, they choose more soft drinks because they want to become part of the “American way of living” and because companies like Pepsi encourage people to do so. PepsiCo do it with print advertising, coupons in newspaper, signs at stadiums and billboards on highways, eye-catching displays in supermarkets and convenience stores, catchy jingles in radio advertisements. In the cola war, television commercials have become increasingly important.

As one famous chief executive officer of Pepsi-Cola Company pointed it out:

Image is critical to our company’s success. After making sure that our products are as good as we know how to make them, sharpening our image is the most important thing we do. The distinction between soft drinks being not universally appreciated, giving Pepsi an image that could never be confused with Coke was critically central to our strategy. 28

This distinction between products refers to differentiation, which seeks to develop sources of sustainable competitive advantage. In other words, differentiation is the development of unique features or attributes in a product that position it to appeal especially to a part of the total market.29 For Pepsi this means regarding brand equity as a platform upon which to build a competitive advantage, future earnings, and shareholder wealth.

After an exhaustive review of the previous existing conceptualizations of brand equity and measurement procedures, an executive decision was made to create a proprietary model applicable to all major PepsiCo brands, both domestically and globally, that could be used to track brands over time. Model development focused on PepsiCo’s three primary businesses in the early 1990s, namely, soft drinks (Pepsi-Cola), snack foods (Frito-Lay), and quick service restaurants (KFC, Pizza Hut, and Taco Bell). Market Segmentation

For the last 40 years, Pepsi has positioned itself as the “leading edge” soft drink and called its consumers the “Pepsi Generation”. Pepsi-Cola marketing campaigns are heavily targeted towards the young consumers. For example, Pepsi-Cola North America has introduced Pepsi Blue, a blue-colored, berry-flavored extension of its trademark Pepsi this summer. Teens with the highest propensity to switch brands were targeted by the Pepsi Blue Crew, which engaged in a summer-long program interacting with teens. This new product wave reflects the strategy shift for these companies. During the past six to eight years, there has been strong growth in the non-carbonated beverage market .30

Pepsi-Cola is an established brand at the mature stage of its product life cycle. 31 Sales of beverages target younger and younger people, with schools and universities being one highly competitive marketplace for Pepsi exclusive marketing agreements. To this extent, creative marketing has been the focus of Pepsi’s business strategy. Huge advertisement contracts, like the “The Choice of a New Generation” commercials with Britney Spears and packaging changes indicate that Pepsi is using market awareness to create competitive advantage. Thus, as emphasized previously, competitive advantage is stronger in a segment than in broader market.32 Distinctive Competencies

As was pointed out in our internal analysis, the Pepsi brand and its differentiation from other brands (i.e. Coke) through effective marketing has been central to its business strategy. The originality and creativity of its marketing matched with a desire to be a strong competitor in every market place made Pepsi’s business strategy very successful. This is reflected in the marketing costs reported in the 2001 Annual Report. Selling, general, administrative, advertising, promotional programs and other marketing activities costs were $1.7 billion in 2001 and 2000 and $1.6 billion in 1999 compared to Research and development costs of $206 million in 2001, $207 million in 2000 and $187 million in 1999. 33

Insightful human resources management have also helped PepsiCo to gain competitive advantage in foreign markets. European and Japanese managers are better trained than Americans to deal with cross-cultural relationships. PepsiCo have realized the need for global understanding and experience among their managers. To this extent, they have instituted screening, selection and training programs geared to identify young managers, early in their careers, for global operations. 34 Customer Group

Many examples emerge as we analyse the customer group that Frito-Lay are targeting. For instance, in line with the PepsiCo strategy of market segmentation is the launch of a line of snacks targeted specifically at Hispanics, currently the fastest growing ethnic group in the United States. This product lineup offers distinctive flavors and textures that are both appealing and familiar to Hispanic consumers. Frito-Lay conducted extensive consumer testing in four key markets (Miami, New York, Los Angeles, Houston) to determine the snack flavors and textures with the strongest appeal among Hispanics. The complete line of products will be distributed in key urban markets including several Southwest cities.35 Perhaps this should also be done for the beverage sector. Their emergence into the developing markets is hindered by the dislike for the Pepsi-cola taste, particularly in Asia.

5.3 Corporate-level Strategy

Corporate strategy is concerned with an organization’s basic direction for the future: its purpose, its ambition, its resources and how it interacts with the world in which it operates.36 This concept refers to the resources of an organization in relation to its external environment, the prime purpose being the value added to what supplies are brought into the organization and then distributed among the stakeholders. The principal concern of corporate strategy is identifying the business areas in which a company should participate in order to maximize its long-run profitability.

Interestingly, Coca-Cola at one time pursued a diversification strategy. Coca-Cola once owned Columbia Pictures and a wine-producing business. However, Coca-Cola came to the conclusion that diversification dissipated rather than created value, and, in recent years it divested its diverse business and refocused on a single operation. They have done this because there are clear advantages to concentrating on just one business area. 37

However, for Pepsi the story is a quite different. PepsiCo has adopted a policy of diversification by structuring itself into three major divisions: beverages, snack food and restaurants. Although in separate markets, the three operate in the same industry, namely leisure food. It seems that PepsiCo have chosen this approach in order to allow for an overlap between the value chain of its divisions. This is advantageous in that it can be used to bring down costs or even increase customer loyalty across product line.

Focus on the leisure-food markets means that PepsiCo is in a position to take advantage of similar activities across business units. Take food production, all restaurants have to produce food from raw materials, as do the snack producers; businesses within PepsiCo’s portfolio are in a position to create a competitive advantage by realizing greater economies of scale and cross utilization of technologies. Consequently, when two or more business units share resources such as manufacturing facilities, distribution channels, advertising campaigns and R & D costs, each business unit has to invest less in the shared function. 38. Moreover, there are opportunities for competence leveraging through brand names and shared finance.

5.3.1 Human Resources Management

More specifically, Pepsi’s Bottling Group organizational structure, based on a General Management Model, reflects these priorities. The Market Unit General Managers (MUGMs) lead marketing and sales efforts in contiguous geographic areas with common major customers. Pepsi designed its organization to give the Market Units the autonomy to serve the needs of individual customers, develop market-specific strategies, and respond to local marketplace dynamics.

From the MUGM to the frontline customer representative, the entire PBG sales force competes on a local level to serve existing customers and to win new accounts. For example, when managers began investigating why its advertising campaign built around the highly successful “Come Alive with Pepsi” theme was not having the expected impact in Thailand, they discovered that the Thai copy translation read more like “come out of the grave with Pepsi”. This reflects an important strategic task facing managers for Pepsi : how to sense, respond to, and even exploit the differences in the environments of the many different countries in which Pepsi operate. 39

5.3.2 Mergers, Acquisitions and Positioning

Companies typically use acquisition to enter a business area that is new to them when they lack important competencies (resource and capabilities) required to compete in that area but can purchase an incumbent company that has those competencies and do so at a reasonable price. 40

PepsiCo “juiced” up its portfolio when it acquired Tropicana Beverages in July 1998, marking it one of the most significant mergers to occur among food or beverage processors in recent years. There was a strong incentive for PepsiCo when it acquired Tropicana for $3.3 billion: playing the perpetual second fiddle to Coca-Cola Co. in the soft drink market. The Tropicana deal “gave Pepsi a chance to beat Coke in this area”. In the $3 billion orange juice market, Tropicana’s 42% share is head and shoulders above Coke-owned Minute Maid’s 24% share. Tropicana has thrived so well in the top-of-the-line fresh juice category that Minute Maid in 1997 pulled out of that $1.3 billion slice of the market. 41

In August 2001, Pepsi was also involved in one of the largest mergers in the food and beverage industry. The horizontal merger between Pepsi and Quaker Oats provided Pepsi with the boost it needed to attain tremendous growth and positioned PepsiCo as a dominating force in the food and beverage industry. Before the merger, Quaker Oats’ U.S. brands held the number-one or number-two positions in their respective categories.42

Consequently, we can identify the above elements as the motivations and specific objectives underlying the merger. Indeed, especially in the case of Horizontal integrations, M & As can increase market share by combining the market share of the two business.43 In fact, when Gatorade folded into PepsiCo’s existing non-carbonated beverage line, it gave the company a dominant 33 % share of the domestic non-carbonated drink category, beating Coke 21 %. 44 Due in large part to the similarities of each company’s products, the merger of PepsiCo and Quaker Oats created important cost and selling synergies. Pepsi decided to merge many of Quaker’s sales-and-distribution channels into its ongoing business. Analysts predicted that Gatorade volume could receive a 10 % increase just from being available in Pepsi vending machines.

5.3.3 PepsiCo Bottling Group Strategy

PBG became an independent, publicly traded company in March 1999. PepsiCo retains an equity interest in PBG of about 40 percent.

As an independent entity, PBG benefits from a much sharper definition of its role and is able to execute its business strategy more effectively on a local market level. PepsiCo’s can focus on what it does best now, which is developing its powerful brands and the world-class marketing programs. PBG’s focus is on superior sales execution, customer service, merchandising and operating excellence.

PepsiCo provides new product development, advertising, marketing, sales and promotional support to PBG and other Pepsi bottlers. The company manufactures and sells soft drink concentrate syrup to PBG and other Pepsi-Cola bottlers. Afterwards, PDG produce the final product by combining the concentrate syrup with other ingredients to manufacture and package the beverages.

In fact, The Pepsi Bottling Group Sales Team works on the front line of a fiercely competitive global battle, dealing with the most important people in their business – the customers. The team works with customers, new and existing, to grow the highly profitable beverage business armed with one of the most powerful trademarks in the world. Their sales approach focuses on fact-based selling and expert advice – offering “total beverage solutions,” not just successful day-to-day transactions. PBG Sales provides a demanding, fast-paced environment in an intensely competitive industry, where growth equals opportunity. 45

Also, we must understand that PDG is bottling under a franchise right from the parent company. Pepsi Co. gave them the right to produce their products, and Cadbury Schweppes gave them the right to do Dr. Pepper and their other products.” Recently, Pepsi Bottling Group just finished a yearlong deployment of 700 rugged handheld computers running on the Windows CE operating system to its technicians throughout the U.S. This has eliminated the 3 million pieces of paper per year Pepsi once generated to handle repair work orders. Pepsi’s new system maintains a “virtual inventory” of parts on each technician’s truck. This database, which resides on a mainframe, is updated by data transmissions and accessible to the company’s eight call centers. Within seconds, the closest vehicle is digitally dispatched — all part of a process designed to get a technician with the right parts to a customer within three hours or less.

Moreover, in terms of sales, the executives consolidated the Quaker and Tropicana warehouse sales forces. The new organization is capable of calling directly on the headquarters of virtually all of their major customers-including club stores, supermarkets, and convenience store chains. These factors combined not only save time, space and manpower, but also enables the companies to benefit from the relationships already established, connections and arrangements that each one formerly had with certain retailers. In fact, the merger met all cost-saving expectations for it raised cost-cutting goals to $400 million annually, from $230 million.46

6.Company Structure

“The structure of an organisation affects not only productivity and economic efficiency but also the morale and job satisfaction of the workforce.”47

Firstly, one must look at what type of company is PepsiCo. To find this, we look at the mission statement. It is clear that it is a profit making company that aims to be the market leader. Secondly, one must identify the major stakeholders. In this case they are the shareholders, managers and employees as detailed below. Lastly, one must define PepsiCo’s purpose. This tells us how PepsiCo should be structured.

Many of these issues have been determined earlier, but for a company like PepsiCo it is clear that these matters must also be connected to the fact that they are a multinational company in branded goods.

6.1. Structure of PepsiCo

PepsiCo’s structure is paramount to the promotion of a successful strategy, particularly when it is expanding into unknown territory. It should be simple and cost-effective. Due to the fact that PepsiCo’s businesses are not completely unrelated to each other, PepsiCo has a horizontal differentiation style of business. It would not best serve their interests to have a vertical organizational style due to the fact that the Pepsi drink is served in all the restaurants – thus linking each subsidiary quite distinctively to the others.

6.2. The Multidivisional Organisational Structure

This structure is ideal for an organisation that grows with time, which also needs to subdivide their activities in order to deal with the great diversity in products and local needs.

Below is the specific PepsiCo structure:

Gatorade/Tropicana/Quaker Frito-Lay Europe/

Foods N. America (Chicago) Africa/Middle East


PepsiCo Beverages Int. Frito-Lay Int.(Mexico)

and Pepsi-Cola N. America

(New York)

PepsiCo had approximately 148,000 employees in 2001. This amount of personnel requires many levels in the corporate hierarchy and many people in each layer. The layout of the company is as follows.

This first layer is the CEO of PepsiCo, Steven Reinemund. He has eight second layers reporting him.

In our research, we could only find one third level officer, but it helps to show how each level is split up by products and by geographic locations. In the fourth level, the individual products start to become prevalent in the corporate hierarchy.

6.2.1 How the Structure has Developed

This structure has developed through PepsiCo’s mergers with other companies. PepsiCo’s aim is to be the market leader with all its products. This organisational structure above is essential for the success of all these diverse companies. With this type of vertical structure, being a relatively tall organization, the environment as a whole is stable and predictable. Each product division has varying degrees of control over changes, more so than the company as a whole.

6.2.2 The Structure should Follow the Strategy

The corporate strategy is one of growth. The company has decided to expand its business into both the food and drink markets. This expansion has mainly been accomplished by mergers (i.e. Pepsi-Cola/Frito-Lay in 1965, PepsiCo/Quaker Oats in 2001, etc.) and purchases (i.e. KFC, Taco Bell, etc). The object of the expansion has always been to increase the shareholder’s value in the company. The structure of the company does match this strategy for the following reasons.

The way the company is set up allows for each division to report the returns on individual products, as well as how well the products fare in different geographic locations. If a product is not faring well in a certain area (for example Frito-Lay products not selling in Europe), the company should be able to focus on that product specifically to find out the reasons for the downfall. This can even be used to evaluate individual products performance. With this kind of product/geographic structure, it is easy to make a change in a product line’s marketing, pull a product or brand out of a certain geographic location, or even divest a part of the division to cut losses.

As for the business level strategies, since they focus mainly on internal matters, the structure should back this up by being able to make changes within the company easily. We decided that the company was following a Niche Low Cost/Differentiator strategy on the business layer. Accordingly, the company should be focusing on keeping their prices down while differentiating itself from other companies. This also lines up with the companies structure.

With a product/geographic structure, the company is able to again look at financial results of each individual product and trace back where the product is loosing or gaining money. These results can be used to help other divisions or trace losses back to their sources, resulting in changes that will hopefully turn losses around to profits. PepsiCo can successfully stand out from its competitors, Coca-Cola, Kraft, and Cadbury Schweppes, in several ways. One way they do this successfully is by its marketing campaigns. PepsiCo is able to change its marketing strategies in different geographic locations easily because of the geographic breakdown of its business segments.

6.3 Internal Structure of PepsiCo

Is their current structure flexible enough to enable them to compete in the emerging markets? They have a structure based on a Global Product-Group Structure, with slight variations. PepsiCo still doesn’t market all its products internationally and thus only needs sub-divisions for Frito-Lay and Pepsi-Cola/beverages. This is a definite weakness in Pepsi-Cola. Pepsi-Cola needs to take a strong lead in the international market and it needs to have an international structure that facilitates this.

Currently, Pepsi-Cola is marketed in North America through its North American division. Internationally, Pepsi-Cola is marketed through PepsiCo Beverages International – along with all other beverages that PepsiCo has acquired. What is needed for Pepsi-Cola to emerge as the popular beverage in the emerging markets is separate subdivisions that concentrate on specific areas, traditions and trends.

At present, Pepsi-Cola is being marketed through PepsiCo Beverages International with the help of leading local marketing firms in certain countries that they wish to exploit. PepsiCo has realised that it needs very specific strategies based on the local area. It would be ridiculous to assume that the American marketing of a young, hip Pepsi would come across well in the new markets of the Czech Republic, Hungary, Poland, Slovakia and Russia. Here the use of local marketing firms is paramount to implementing a successful strategy to “fit” the lifestyles and traditions of those countries.

6.3.1. Management and Employees

The quality of the management and the organisational structure is essential for competitive advantage. Without key management and a highly educated staff the company stands little chance of succeeding in such a competitive market.

Steven S. Reinemund is the Chief Executive Officer for PepsiCo. The PepsiCo’s Board of Director’s come from a wide range of backgrounds and are highly qualified.

6.3.2. Benefits and Rewards

Unlike some companies, PepsiCo doesn’t like to have a fast turnover of staff. How is this possible? To encourage creativity and loyalty to the company, PepsiCo has an extensive employment package. Benefits include among others:

* Highly competitive salary

* Bonus opportunities at many levels

* Medical/dental/vision/hearing

* Life and accident insurance

* Long-term disability insurance

* Scholarships/tuition reimbursement/educational loans

* Pension plan fully paid for by the company

* Account Stock Options, eligibility for almost all positions

* 401(k) programs

The most remarkable parts of these benefits are the stock options and the 401(k) plan. The Pepsico stock option is called Sharepower and, once eligible, employees receive Pepsico stock options each year based on at least 10% of their prior year’s earnings. Sharepower stock options let them purchase shares of Pepsico stock in the future at a set price. The benefit is that they make money not only if the stock price goes up, but also if they stay with the company. The longer they work for the company, the more stock options they get. Sharepower is one way for Pepsico employees to share in the success that they create.

Not only does PepsiCo have Sharepower, it promotes a beneficial 401(k) plan which allows employees to save up to 15% of their pay on a pre-tax basis and invest in any publicly traded stock or bond in any of over 200 mutual funds.

These rewards, detailed above, for good performance and high achievement can be “powerful motivators for the delivery of corporate strategy.”48 The relationship between reward and motivation has been greatly researched over the last few years and it has been discovered that “rewards need to be seen more broadly than simple payment.”49 In other words, it could include direct remuneration, but is more likely to include promotion and career development opportunities.

In recent years there has been a shift towards performance contracts. The management and employees aim to deliver specific targets and their performance is rated on how far they achieved these objectives.

It is evident that PepsiCo wants to nurture its dedicated staff. “Our employees understand how their jobs contribute to the overall mission and performance of the company, and can be counted on to take ownership and accountability… we recruit, hire, reward, develop and promote individuals.”50 Rather than instant performance, PepsiCo appears to believe in long-term results from real accomplishments. Do they follow the textbook criteria above when they reward their employees?

Managers tend to need short-term recompense when rewarding strategic objectives. PepsiCo prides itself on having an executive pay policy that enables it to recruit the best talent available. The Compensation Committee annually examines short-term and long-term compensation for the CEO and other senior executives against the practices of other rival companies. They ensure a pay for performance linkage. Thus, PepsiCo feels that it has been able to attract and retain the executive talent necessary to support a strong sales growth and shareholders returns. The package for executives includes:

* Base salary – capped at 1 million dollars for individual salaries.

* Annual cash bonus awards.

* Long-term compensation through performance units and stock options.

PepsiCo clearly rewards for performance. Their bonus awards are paid only if the executive meets the minimum earnings target specified. Any bonuses above this are paid if they earn a higher amount per share target. The Committee, under the 1994 Executive Incentive Compensation Plan, “exercises its discretion to determine the exact amount of the bonus to be paid to each executive officer.”51 They look at the whole picture in order to establish the level of bonus; PepsiCo’s financial results, strategic position, market share and performance compared to the broad range of companies in the ‘Fortune 50’.

When considering executive officers other than the CEO, the Committee considers “PepsiCo’s earnings and cash performance as well as subjective personal factors such as quality of strategic plans, organizational and management development and special project or idea leadership.”52 They can also participate in PepsiCo’s benefit programs, such as the retirement plans, medical, savings and its SharePower Stock Option Plan.

Pepsicos executive pay programs detailed above were designed “to enable it to recruit, retain and motivate a large group of talented and diverse domestic and international executives.”53 Their rewards policies are always compared to other strategic market leaders with the intention that they will attract ‘the best’. Pepsico believes that this is essential in order for them to achieve worldwide performance.

6.3.3 Association with Minorities

One of PepsiCo’s major strengths is its reputation with minorities. “PepsiCo has long been dedicated to instilling the broadest possible base of diversity within our own company and among the companies who serve us, and is a strong advocate of diversity within our communities.”54 PepsiCo has been a leader in seeking out and working with minorities and women suppliers. Social Commitment

The company has received many honours for its participation in the community, and its undying support to women and minorities. Reputation is one asset that will never show up on any balance sheet, or financial statement, but is by far the most valuable asset a firm can hold.

Not only does PepsiCo have an extensive package for employees, it also has a management team that values them. Take for example the action taken by Mr. Enrico in 1997. In November of this year, at Mr. Enrico’s request, the Committee approved a reduction in his annual salary from 900,000 dollars to 1 dollar. He recommended to the Board of Directors that these savings be used to support front line employees. Three months later the Board approved annual charitable contributions of approximately 1,000,000 dollars to fund additional scholarships for children of PepsiCo’s front line employees. This is a clear indication to all employees working on the ‘front line’ that the company values their contribution too.

6.3.4 Conclusion

In conclusion, not only does PepsiCo reward long-term dedication in the form of stock options, they have a short-term compensation policy that ensures a pay for performance linkage. Their salaries are tied to individual performance evaluations, cash flow objectives and long-term shareholder returns, which are designed to motivate and stimulate their performance. We think that this policy is geared more towards creating a good impression for PepsiCo rather than for profitability. PepsiCo appears to want to create a ‘family’ atmosphere; one where devotion and loyalty is encouraged.

6.4 PepsiCo Within the US

Within the U.S. Pepsi-Cola has almost the same leverage as Coca-Cola:


6.5 Global PepsiCo

Even though PepsiCo has it’s main headquarters in the USA, it is a global company that needs to be very aware of what is going on in the emerging markets in order to succeed in penetrating these markets. Does it have a structure that enables them to market Pepsi-Cola according to the market?

Since PepsiCo got rid of its’ bottling company, PepsiCo Beverages International has been able to manufacture concentrates of its beverages for sale to franchised and company-owned bottlers internationally. Nevertheless it is obvious that PepsiCo focuses exclusively on the U.S. market alone, whereas PepsiCo Beverages International has all the other countries to market the beverages in. There is surely an imbalance within the time spent between the U.S. and other countries. This could be one reason why the market share is larger in the U.S.

It is clear that it will never have an overall lead in the U.S. market yet it continues to focus valuable energies here, instead of in the international markets. Although they have the biggest volume of sales in the U.S. PepsiCo should try to consolidate the international markets, including the underdeveloped markets, before Coca-cola does.

6.5.1 PepsiCo Emerging Globally.

The emerging markets are the key for the development of PepsiCo. They need to enter these markets before Coca-Cola in order to “take” the market. Even though they signed a deal with the Chinese government some time ago they have not had any real progress here and there are many reasons why. PepsiCo has tried to influence the selection of key personnel, particularly the general manager, but has found that the choice is sometimes opposed on them by the Chinese partner. The middle managers were found by the partner and other personnel were recruited through interviews. One major problem was that PepsiCo could not recruit the best talent available due to worker mobility.

Moving from region and region means that the worker must give up his work permit and local registration card along with jeopardizing their housing, medical benefits etc. In one case PepsiCo wanted to hire 17 salespersons with driver’s licences but could not do so because their employer would not release them. “If they resigned, the workers would lose their driver’s licences, an action the employer has the right to take.”56 What’s more, the government controls the wages and wage levels closely in order to keep the society on level pegging. Rewards had to be shared equally with all staff.

Another major set-back was the problem with the lack of work ethics. Underperformance and lack of accountability were the norm. Human resource issues, non-cooperation with company regulations and bureaucratic politics have seriously hindered progress within China.

6.5.2 Action Plan for the Emergence of Pepsi-Cola as Market Leader in the Global Market

Their current company structure does them no favours as far as development is concerned. A global-matrix structure could allow “them (to) simultaneously reduce costs by increasing efficiency and differentiate their activities through superior innovation and responsiveness to customers.”57

The advantages of a global-matrix structure are that the structure “provides a great deal of local flexibility and gives divisional personnel in the U.S. considerable access to information about local affairs.”58 Knowledge and experience is transferred easily throughout the divisions and regions, thus creating a “global corporate culture.”59

One of the disadvantages of the matrix structure is that there could be increased tension if teamwork is poor, because close cooperation is needed for this structure. PepsiCo has attempted to eliminate this kind of risk by creating small teams who work together for a considerable period of time. There is close co-ordination with the CEO and these teams should in theory be able to adapt to very specific situations quickly.

One of the changes in PepsiCo has been to restructure the way that the sales general managers can now focus on the marketplace, rather than being hindered by the various support functions. They replaced the old general manager structure with a functionalised reporting structure, in which support functions such as manufacturing, fleet, real estate, finance and human resources report directly to a senior VP at PepsiAmericas headquarters. This means that PepsiCo can streamline job roles and accountabilities. Instead of employees having numerous areas to work on, there are now three basic areas of accountability:

* P&L performance measurements

* Growing the business

* Organizational capability

This way they can “maintain a management group that’s sufficiently small and lean… and because the personalities and experiences of (their) management teams are compatible with what (they’re) trying to accomplish.”60 This is particularly important with PepsiCo as it aims to compete in the emerging markets.

6.5.3 Recommendations

Our recommendation on adjusting the structure of the PepsiCo that will help better achieve the goals of the company is to flatten the tall corporate hierarchy by eliminating a midlevel layer. This will help the company to make changes easily by allowing the changes to fall more quickly from upper management to bottom levels, while increasing communication. This will also make the company more decentralized, taking power away from management and giving more power to the lower levels within the company. Although the company prides itself on being a bottom-up structure, it in fact uses a top-down approach.

The responsibilities of the eliminated layer would basically be split among the layer directly above and below that layer. This elimination would bring the CEO closer to his employees, hopefully spurring a sense of union within the company. Because the company is so large, a change this monumental should not be done throughout the entire company. Also the exact results of this change are unknown. This change should be implemented within one division of the company to test its results. If the changes benefit the division, this change can be reproduced within the other divisions gradually.

6.6 The Strategic Process of PepsiCo.

The strategic process of today needs to be “adaptive and involve learning throughout the organisation, not just top management.”61 There are two types of learning; one which adapts to changes outside the environment and the other which creates new strategies for expansion within the organisation.62

The arrival of R. Enrico meant radical changes within the internal structure of the company and in its market strategies. He made the very important decisions like to finish with the restaurant chains (Pizza Hut and KFC) and the bottlers, due to the fact that they were a heavy weight for the company. Although they were to conclude these areas, they still kept their strategic alliances with them. For example, the restaurants still sell PepsiCo products and the bottlers still bottle Pepsi. Moreover PepsiCo has a minority share in these companies. Other important decisions that Enrico made were the strategic acquisitions of leader companies in related markets, like Tropicana and Mountain Drew. These acquired companies have given PepsiCo a stronger brand image of the New PepsiCo.

6.7 Recommendations

For PepsiCo to emerge in new markets they must have different styles of management in each country. They must study the styles of management already in place in the countries in order to act in the best way. PepsiCo must adapt its strategies and structure as far as possible. It is more advisable for PepsiCo to concentrate on a market that hasn’t already been tried by Coca-Cola. It must aim to be the leader in the new market, not the main rival of Coca-Cola as in the U.S. They stand a much better chance of succeeding if their rival is not already positioned, or at least not the absolute leader in the market. This requires a great long-term financial investment. It would be advisable to research the market so that PepsiCo knows whether or not the goal of generating a competitive advantage is achievable.

PepsiCo must also pay attention to the governments of the emerging markets. There have been problems with PepsiCo within China; this should be researched by them fully before aiming to enter the market with clear objectives. Within Asia itself, there have been problems with the taste of Pepsi-Cola. Research and development must adapt the product to meet the needs of the market.

7. SWOT Analysis

7.1. Strengths

* Marketing

Since1938 promotion has been the major preoccupation of the Pepsi-Cola company. Their largest budget goes towards promotion. The traditional way of promoting is through commercials on TV, radio and newspapers – this achieved amazing results. What’s more, the Equitrak campaign was an innovative way of marketing their product.

The tendency to find new and impressive ways to attract the customers led Pepsi-Cola to invent other ways of promoting which have emerged during the last couple of decades. The whole internet business, school programs, musical education, computer supply and sending a shuttle designed as a Pepsi can into orbit made them known world-wide as a leader in marketing. All were sensations in this business, thus confirming their supremacy.

* Focused only on young population

At the certain point Pepsi decided to focus on one small part of the population to sell the product to. It gave great results. If you focus on a certain type of customer it is easier to target this group through marketing. This is explored in detail later.

* Diversification

PepsiCo Beverages is part of a huge corporation and the result is economies of scale which bring about large financial advantages.

* Competitive Prices

This corporation accounts for large number of diverse competitive products and their production line is very well developed. It is already a fact that Pepsi-Cola products are cheap and accessible to everyone. Competitive prices are definitely one of the strongest points of this company.

* Flexibility to Adjust to New Trends

PepsiCo beverages have been in the market for more than a century, it passed through many great and as many catastrophic periods during that time. They have always followed new trends, but they have learnt to take into consideration the environment. That shows that the flexibility to adjust to the on-going development of the market is well-handled challenge.

* The Research of the Taste

The taste of the caramel drink is an evergreen in tastes that cannot, and must not, be improved. The money invested in research for new flavours is obligatory in order for them to continue to make profits. So far, PepsiCo has had good, and also bad, experiences as we described earlier. As this is quite an unpredictable field, the acquired experience in order to search for the right taste should mean that PepsiCo has developed some kind of advantage over other competitors.

* Treatments of the Employees

PepsiCo. as corporation and Pepsi-Cola as its company has one of the most developed systems of rewarding and educating its employees. This is the area that many companies are trying to imitate and implement as part of their own structure, so this is clearly another strength.

4.2 Weaknesses

* Still Second Best

One can say that Pepsi was born with a “Coke complex” and cannot detach itself fully from that. This is still the major problem that neither the company nor the corporation have yet solved. It doesn’t matter how successful they are and it doesn’t matter how many battles against Coke they have won, the fact remains that they have invested much energy and money and they still consider themselves SECOND BEST.

* No Promotion for the Other PepsiCo Products

Pepsi-Cola is much more than the caramel drink in a white, red and blue painted can, unfortunately people are not aware of that. It is true that customers drink and eat other PepsiCo products, but how many of them can tell you that they are actually owned by PepsiCo? We believe very few really know it is PepsiCo, or even was acquired by the corporation. They achieved great branding results with Pepsi-Cola, yet did not explore this area for the other products.

* Approaching the New Markets

This is another weak point in the company. There is lot of discussion on possible strategies, but not enough results. If Coca-Cola isn’t the first one to enter the new market, then maybe Pepsi wouldn’t be seen as a “copy”. If PepsiCo concentrated their efforts in promoting only Pepsi-Cola, perhaps they could see some results.

* Recycling

Pepsi-Cola as a company for a long time had a huge number of people and assets focused bottling. Even if this pushed them ahead of the pack, they still have the problem of recollecting the containers in order to reuse them. Since ecological awareness is increasing, a bad reputation could be imminent. The best thing to do is to try to find some solution as soon as possible.

4.3. Opportunities

* NFL Sponsorship Rights

As was recently announced, PepsiCo signed an agreement for sponsorship in the NFL, the largest football league in the US. PepsiCo will have great coverage at all games, enabling them to target their young and hip market.

* United Airline’s Drink of Choice

Pepsi-Cola bumped Coca-Cola as the drink of choice on United Airlines flights. This is a guaranteed cash-cow, whilst at the same time beating their main competitor.

4.4 Threats

* Size of Company

The increasing size of the company demands a varied marketing program. A cookie-cutter approach will no longer work. This in turn requires investment in capital and energy.

* Market Threats

PepsiCo Beverages now has to compete in an aggressive market. No longer is Coca-Cola the only rival. Cott, Schweppes and Kraft are emerging as strong competition.

7. Recommendations

Although the company has increased its net product sales, it is not a real increase because the sales have increased due to new acquisitions and not because of increased sales. For this reason we recommend that PepsiCo consolidate its old products and try to increase sales. By doing this, PepsiCo can concentrate more on the beverage and snack food industries. This would lead them to focus more on their core competencies. With regards Pepsi-Cola, the International Beverage sector we advise that they concentrate on certain geographical areas. Instead of having one division based in New York, PepsiCo Beverages International should separate into several divisions for Asia, Europe etc.

The international market should be a key area that PepsiCo focuses on in the future. It needs to enter the emerging markets before Coca-Cola in order to convince the consumers that the Pepsi taste is the best. This needs resources and a good management structure in place.

We also believe that PepsiCo should continue to pursue the Chinese operation in an attempt to compete with Coca-Cola Enterprises. The Chinese market, is one of the largest markets in the world for Pepsi-Cola. In order for PepsiCo to compete with Coca-Cola Enterprises, they will be required to compete in the global marketplace. Nevertheless PepsiCo has been involved in many political scandals at home and globally. We suggest that PepsiCo should pay more attention to cultural differences, locally and on a governmental level. Is negative publicity better than no publicity at all?

The old age of Pepsi-cola v Coca-cola has ended. We agree that PepsiCo also needs to be aware of the other up-and-coming beverage companies, such as Cott. PepsiCo succeeded in creating a successful company and a dominant place in the market, which is particularly outstanding due to the fact that they were against such an important company as Coca-cola.


8.1 Books

Michael E. Porter (editor), Competition In Global Industries, Boston, Massachusetts, Harvard Businsee School Press, 1986

Kemal Fatehi, INTRNATIONAL MANAGEMENT:A Cross-Cultural and Functional Perspective, New Jersey, Prentice-Hall International, Inc.,1996

Christopher A. Bartlett and Sumantra Ghoshal, TRANSNATIONAL MANAGEMENT: Text, Cases, and Readings in Cross-Border Management (second edition), Boston, The McGraw-Hill Companies, Inc., 1992 and 1995

Jeremiah J. Sullivan, The future of CORPORATE GLOBALIZATION: From the Extended Order to the Global Village, Westport, Quorum Books, 2002

George David Smith and Davids Dyer, The American Corporation Today, edited by Carl Keysen, New York, Oxford University press, 1996

Charles W.L. Hill and Gareth R. Jones, Strategic Management: an integrated approach (fourth edition), New York, Houghton Mifflin Company, 1998

Andrew Pettigrew, Howard Thomas and Richard Whittington, editors, Handbook on Strategy and Management, Throwbridge, Wilthshire, The Cromwell Press Ltd., first published in 2002

Roger Enrico and Jesse Kornbluth, The Other Guy Blinked: How Pepsi won the cola wars, New York, Bentam Books, 1986

Richard Lynch, Corporate Strategy (second edition), London, Pearson Education Ltd, 2000

Philip Kotler, Marketing Management (ninth edition), New Jersey, Prentice Hall, 1997

Arne J. De Keijzer, CHINA: Business Strategies for the ’90s, Berkeley, California, Pacific View Press, 1992

J. David Hunger and Thomas L. Wheelen, Strategic Management (fifth edition), Addison-Wesley Publishing Company, Inc., 1996

Henry Mintzberg, James Brian Quinn and Sumantra Ghoshal, The Strategy Process (European edition), Hertfordshire, Prentice Hall International Limited, 1995

8.2 Articles

Lazare Lewis, “PepsiCo, Quaker Styrategies revealed”, Chicago Sun Times, 5 December 2000

Ashton Zeke, “Is Pepsi beating Coke?”,, accessed: 15 December 2000

Paullette Kish, Dwight Riskey and Roger Kerin, “Measurement and tracking of brand equity in the global marketplace – The PepsiCo experience”,, accessed:

D.J. Teece, “Economies or Scope and the Scope of the Enterprise”, Journsal of Economic Behaviour and Organization, 3, (1980)

Pallava Bagla, “Coke, Pepsi Under Fire for Painting Rocks in India” , National Geographic News in New Delhi, 27 August 2002

Abigail Klingbeil, “Pepsi introduces Pepsi blue”, The Journal News, original publication: 8 May 2002, used as in : John D. Sicher, editor and publisher of The Beverage Digest

Paul Temoral, “Branding Paper”,The Economist, 27 March 1998

8.3 Web Sites

PepsiCo Inc web site:, accessed: 27 September 2002

PepsiAmericas web site:, accessed: 29 September 2002

Soda Museum, LLC – The History of Mountain Dew web site:, accessed: 3 October 2002

PepsiStore web site:, accessed: 11 September 2002

The History of Pepsi-Cola:, accessed: 27 September 2002

Yahoo/Market guide web site:, accessed: 11 September 2002

The Coca-Cola Company web site:, accessed: 23 October 2002

The Cott web site:, accessed 23 October 2002, accessed: 3 October 2002, accessed: 24 October 2002, accessed: 24 October 2002, accessed: 24 October 2002, accessed: 15 October 2002, accessed: 23 October 2002, accessed: 20 September 2002, accessed:29 September 2002, accessed: 26 October 2002, accessed: 26 October 2002

1 This section is drawn from: , and /struitt/pepsi.html

2 Charles W. L. Hill and Gareth R. Jones, Strategic Management: An Integrated Approach Fourth Edition, Boston, Houghton Mifflin Company, 1998, p. 121.

3 George Stonehouse, Jim Hamill, David Campbell, Tony Purdie, Global and Transnational Business: Strategy and Management, Chichester, John Wiley and Sons, 2000, p. 50.

4 respectively, Worldwide Snacks account for 56 % ( 2.6 billion $) of segment oprating profits compared to Worldwide beverages 35 % (1.6 billion).

5 See Figure No.1

6 Roger Enrico and Jesse Kornbluth, The Other Guy Blinked: How Pepsi won the cola wars, New York, Bentam Books, 1986.

7 Paullette Kish, Dwight Riskey and Roger Kerin: “Measurement and tracking of brand equity in the global marketplace – The PepsiCo experience”, May 2000.

8 Approximately 1,500 consumers in each of 14 countries is surveyed biannually via telephone interviews, or door-to-door when necessary.

9, p.1, 2.

10, p. 1


12 Pallava Bagla, “Coke, Pepsi Under Fire for Painting Rocks in India”, National Geographic News in New Delhi, 27 August 2002

13 /striutt/pepsi.html, p. 2,3, see the pictures

14 Idem p.1,2,3

15 , p.1

16 Idem p.3-10

17 Idem p.11


19 International Labor Organisation


21 and Kirckpatrick Sale,”The World Behind Watergate”,



24 Information taken from the annual reports 2000 and 2001 available at web sites of the cited companies

25 Idem

26 Trans. Nat. management, p. 184

27 Charles W. L. Hill and Gareth R. Jones, Strategic Management: An Integrated Approach Fourth Edition, Boston, Houghton Mifflin Company, 1998, p. 186.

28 Roger Enrico and Jesse Kornbluth, The Other Guy Blinked: How Pepsi won the cola wars, New York, Bentam Books, 1986, p. 16-17.

29 Richard Lynch, Corporate Strategy Second Edition, London, Pearson Education Limited, 2000, p. 154.

30 Abigail Klingbeil, The Journal News, “Pepsi introduces Pepsi Blue” Original publication: May 8, 2002; citing John D. Sicher, editor and publisher of The Beverage Digest.

31 Kotler book.

32 Idem,note 3, p. 211.

33 Pepsi Co. web site, Shareholders Information, Annual Report 2001, Notes to Consolidated Financial Statements, Marketing cost.

34 Kamal Fatehi, International Management: A Cross-Cultural and Functional Perspective, New-Jersey, Prentice-Hall International Inc., 1996, p. 317.

35 PepsiCo web Site. Frito-Lay releases. May 22, 2002

36 Idem, note 3, p. 5.

37 Note 3, p. 280.

38 D.J. Teece, “Economies os Scope and the Scope of the Enterprise”, Journal of Economic Behaviour and Organization, 3, (1980), 223-247 as cited in : the book p. 299

39 Christopher A. Bartlett and Sumantra Ghoshal, Transnational Management: Text, Cases and Readings in Cross -Border Management, Boston, Irwin Publishers, 1995, p. 117.

40 Book. P. 326-327.

41 Taken from: Bowles Hollowell Conner & Co./Prepared Foods


43 George Stonehouse, Jim Hamill, David Campbell, Tony Purdie, Global and Transnational Business: Strategy and Managaement, Chichester, John Wiley and Sons, 2000, p. 340.

44 Ashton Zeke, “Is Pepsi beating Coke ?”, December 15, 2000.

45 Taken from:

46 Lazare Lewis, “PepsiCo, Quaker Strategies revealed”, Chicago Sun Times, December 5, 2000.

47 Richard Lynch, Corporate Strategy, Prentice Hall, p.802

48 Richard Lynch, Corporate Strategy, Prentice Hall, p.817

49 Richard Lynch, Corporate Strategy, Prentice Hall, p.817

50 Pepsi Americas,

51 1998 PepsiCo proxy statement,

521998 PepsiCo proxy statement,

531998 PepsiCo proxy statement,


55 – 2001 annual report

56 Arne J. De Keijzer, China – Business Strategies for the 1990s, Pacific View Press

57 Hill & Jones, Strategic Management – An Integated Approach, p.426

58 Hill & Jones, Strategic Management – An Integated Approach, p.426

59 Hill & Jones, Strategic Management – An Integated Approach, p.426

60 Ken Keiser (president and COO of operations), PepsiAmericas,

61 Richard Lynch, Corporate Strategy, Prentice Hall, p.728

62 Richard Lynch, Corporate Strategy, Prentice Hall, p.728

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Pepsi’s Corporate and Business-level Strategies. (2017, Dec 24). Retrieved from

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