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A strategic plan for PepsiCo North America is hereby proposed as follows for the geographical region of the national United States for the Pepsi Soda Product promotion to consumers between the ages of 12 through 18 years of age. It will utilize a pull strategy through the distribution channels to stimulate demand for the Pepsi carbonated soft drink to the end users as defined to maintain Pepsi’s younger generation of consumers over the next two decades. The strategic plan will consist of a strategic alliance with The Walt Disney Company coupled with a pop star endorsement by Hannah Montana and Kanye West with
Team 5 Chen, Szuhua (Twiggy) Xiong, Xitao (Helen) Ma, Johnny Tsang, Man Dwyer, Michael
multiple promotion communication channels and strategies over the next two (2) years. The primary competitor, Coca-Cola, has been entrenched in the North American beverage market and is most commonly consumed by older generations. As such, Pepsi has been typically been targeted to a younger audience. As the ‘Pepsi Generation’ ages, PepsiCo North America should take proactive marketing action into the younger audiences to maintain the younger generations of soft drink consumption for decades to come.
The Company History and Related Companies 1
PepsiCo (herein referred to as the ‘Parent Company’) was founded in 1965 via the merger of two major corporations, Pepsi-Cola and Frito Lay. Subsequently in 1998, Tropicana was acquired to add the family of brands under PepsiCo. In 2001, the Parent Company made yet another bold step in the merger with The Quaker Oats Company, which also then included the Gatorade Company. Notwithstanding the Parent Company being relatively young, several of the brand names under the PepsiCo umbrella have been in existence for over 100 years. Through the multiple brand acquisitions and developments PepsiCo is now a leading conglomerate owning significant market control and brand equity in consumer convenience foods and beverages. “PepsiCo brands are available in nearly 200 countries and territories and generate sales at the retail level of about $92 billion” (PepsiCo, 2007). Sales volumes are measured on the retail level to show success of the manufacturing due to the Parent Company utilizing a pull strategy for its multiple divisions and product lines with a combination of a push strategy. The current headquarters are located in Purchase, New York.
The multiple corporations within the PepsiCo Family are Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International, and Quaker Foods North America. Frito-Lay North America markets and sells to the subject geographical regions
the following well known brands of convenience foods: Fritos, Lays, Cheetos, Ruffles, Doritos, Rold Gold, Tostitos, Sunchips, Munchies, Crackerjack, Go Snacks, Quaker Fruit and Oatmeal Bars, Quakers Corn and Rice Snacks, and even more. While Frito-Lay North America sells to business, its end user is a consumer who has demand for a snack food, or convenience food. These are typically found in grocery stores, gas stations, small markets, vending machines, public schools, and several other distribution channels. Several of these products are facing new market changes including a health conscious consumer movement. Thus, a great diversification of product lines within the PepsiCo Family is The Quaker Oats Company, merged in 2001, just on the cusp of the health conscious movement. Brands include Quaker Oats products, Aunt Jemima products, and Rice-a-Roni products. The Gatorade brand rights are legally owned by this Corporation, yet it is sold and marketed through PepsiCo Beverages North America. PepsiCo International markets and sells the North American product brands abroad, and in additional markets and sells the Mirinda, Walkers, Sabritas, Gamesa, etc. and several others in multiple countries (over 200). Each of these subsets of brands are developments of unique products tailored to each geographical culture it is marketed to.
The focused Corporation of the subject strategic proposal is PepsiCo Beverages North America. This company was originally founded in 1898 by a North Carolina druggist. PepsiCo Beverages North America (herein referred to as the ‘Company’) sells several brands of consumer beverages in the United States and Canada. The various beverage products span through carbonated soft drinks, juices, readymade teas, isotonic sports drinks, bottled water, and enhanced waters. Several established brands include Diet Pepsi, Mountain Dew, Gatorade, Tropicana products, Aquafina Water, Sierra Mist, Mug, Propel, Sobe, and Dole. Refer to the Competitor Analysis section for in depth product information and listings.
Outside of manufacturing and selling bottled products, the Company manufactures and sells concentrates for some of the above mentioned brand name beverage products to licensed bottlers. The Company has also established strategic partnerships with Lipton and Starbucks to create, market, and sell ready to drink Lipton tea brands and bottled ready to drink Starbucks Frappuccino drinks. These are two very powerful example of a cobranding strategic partnership.
Industry Analysis of the Beverages Market 4
Soft drinks can be divided into carbonated and non-carbonated drinks. Cola, lemon and oranges are carbonated drinks category. The carbonated soft drink market has been challenged by a health consciousness movement within American consumers. Health consciousness is a very strong growing trend in America, and has created an organic movement within the drink and food industries. Within the last five years ending in 2006, the soft drink market in the United States has experienced 0.0% growth due to this factor. Since 1975 the overall growth rate of soft drink market has been slowing. (Figure_1) As this provides a constraint on new market opportunities, it does not constrict maintaining a similar level of revenue or slightly improving it. As the current consumer market continues to age, it is expected there exists a certain level of retention to Pepsi consumption until a specific age when it is recommended by a doctor not to consume a soft drink. Given Pepsi’s position in terms of product placement within demographics, it holds the youth market when compared with Coke. As growth slows, the youth markets must continually be targeted to maintain the consumption level of Pepsi as new consumers enter the market of soft drink consumption, and other age out of it. This strategy will over a long period of time prove to gain market share of domestic soft drink consumption over Coke, while being offset by a slowing of the overall consumption.
The subject proposal is targeted to use a pull strategy through the distribution channels, and is therefore focused on the end user, or consumer segment of the market. Notwithstanding, the industry
overall (primarily Pepsi and Coke as outlined herein below) does not only sell directly to consumers. A very prevalent distribution channel is through licensed bottlers and restaurant chains. A very strong business to business transactional distribution channel exists in the soft drink industry, and in fact 22.6% of all soft drink volumes are sold in a syrup for fountain soda. This is 100% business to business within the scope of these
transactions. The remaining 77.4% of packaged soft drink volume comprises primarily of business to business transactions to retailer and bottling companies. (Figure_2) While PepsiCo Beverages North America does not directly sell to consumers primarily, the subject proposal will stimulate demand for the product at the end user level, and therefore result in more business to business sales in order to meet that demand.
PepsiCo Inc. and Coke-cola Co. have dominated the carbonated soft drink industry in North America since they first entered this market. They continue to compete with each other for market share for centuries. Therefore, some experts conclude that the soft drink
market is an oligopoly or even a duopoly between Pepsi and Coke.5 By the year of 2006, PepsiCo has the leading share (26%) of U.S. liquid refreshment beverage market, followed by Coca-Cola which has taken 23% of market share as indicated in the left chart. Cadbury Schweppes, another big rival on the bottled soft drink shelves, obtained 10% by acquiring key brands in the US, namely Dr. Pepper, Seven Up, and Canada Dry.
SWOT Analysis Strength Branding and packaging Appealing to young generation Superior Taste (in Blind Tests) Many distributions Opportunities Global markets Weakness Hard to enter markets occupied by Coca-Cola Lack of novelty in advertising Threats Health Conscious Consumer Trends
Additional Youth Consumers entering More substitutes the market
“Manifesting brand essence through packaging is powerful at retail,” declares Ron Pence, Pepsi Senior Marketing Manager for packaging innovation. Youth and vitality is the main idea that the Pepsi brand tries to express, and the bottle design helps the brand associate with teens at the age between 12 to 18 year old. Pepsi restyles its cans with a series of 35 new designs and different themes such as car culture, sport or fashion. On Pepsi website, each theme has its own video clips which can be downloaded for free and other features to attract consumers with the purpose of representing the “fun, optimistic and youthful spirit “of Pepsi. The natural tendency of young generation is to rival with old generations. Pepsi
also use “music, which was traditional weapon of teenager to show their rebellion approach”.7 Besides, a blind test conducted by Pepsi was performed in shopping malls, grocery stores and other public locations, in which consumers were asked to pick the soft drink they liked better, without knowing whether the cola they tasted was Coke or Pepsi. As results came in, 57% of testers chose Pepsi and only 43% chose Coke. It became apparent that Pepsi tastes better than Coke.14 In addition, Pepsi products are distributed to many outlets. For example, supermarkets where Pepsi buys large shelf area and display areas so the customer can find them easier, Convenience stores, gas stations, restaurants, movie theaters and almost and other conceivable spot.
Pepsi is now sold in more than 160 countries around the globe, but it still has a weakness in the international beverage market because it entered later into this arena than Coke. Pepsi has tried to enter this market by trying to do in three years what took Coke 50 years to do. Nevertheless, Pepsi has to spend years “to mature simply due to Coke’s dominance in the international market and the strong ties that Coke has developed with these markets and their governments.”15 Additionally, when marketing its products, Pepsi utilize celebrity endorsement mostly which bored some consumers due to lack of novelty. Conversely, the success of fresh and creative advertise has consistently helped Coco-Cola attract and retain customers.
The world is becoming a smaller place with investors thinking in terms of sectors rather than geographic boundaries. Broad global markets, like China, India, can provide lots of opportunities for Pepsi. We may conclude from the tables
on the right that in 2004, 63% PepsiCo’s profits come from the United States 8, and in the same year, the U.S. holds 30.90% of the global market share under Europe (showed in the table below), which means Pepsi still has opportunities to compete globally. Moreover, as Pepsi targets young generation, additional youth consumers enter the market every year, which provides Pepsi adequate consumer base.
For these decades, changing societal concerns, attitudes, and lifestyles become important trends that force the soft drink industry’s business environment to change. Growing health concerns for caffeine and sugar consumption threatens the carbonated industry. The large amounts of sugar, fat, and acid contained in cola will lead to heart disease, vascular diseases, osteoporosis or tooth decay. On the other hand, many other companies have tried to enter the carbonated industry, but they face high barriers, such as lawsuits and tough competition. Some of these companies end with searching for entering the noncarbonated soft drink industry for growth. Consequently, some consumers will turn to noncarbonated soft drink, such as bottled water, teas, instead of soda.
Environmental scan of today’s carbonated beverage marketplace A quick glance at today’s beverage marketplace indicates an increasing amount of beverage alternatives in the market. As such, these beverage companies must understand the various factors that can help them succeed or fail. For instance, the increased awareness of the importance of health has significant influence on soft drink industry. Since most soft beverages comprises of unhealthy ingredients including High Fructose Corn Syrup, the beverage industry faces an incredible threat to their reputation and sales. Therefore, developing consumer-preferred products that can become an integral element in consumers’ daily lives has become an essential issue for beverage industry. Possible environmental factors are as follows: Social environment
In 2004, 28 percent of all beverages consumed in the U.S. were carbonated soft drinks. In the United States, 450 different types are sold and more than 2.5 million vending machines dispense them around the clock, including in elementary and high schools.
As consumers focus more on health and nutritional benefits of food items, it has sparked a key new driver in trends throughout the beverage industry. The result is the decrease in sales of carbonated beverages.
Competitive environment Monopolistic competition: PepsiCo., The Coca-Cola Company, Cadbury Schweppes The entire beverage industry, including but not limited to bottled water, juice, other carbonated beverages, and ready-to-drink tea. Recent growth and demand of sports and energy drinks.
Regulatory environment In response to weight gaining and health concerns, the nation’s largest beverage makers -- including Cadbury Schweppes, PepsiCo. and The Coca-Cola Company-- agreed in May 2006 to halt nearly all soda sales in public schools. Beginning in 2009, elementary and middle schools will sell only water and juice (with no added sweeteners), plus fat-free and low-fat milk. High schools will sell water, juice, sports drinks and diet soda. Diet sodas use artificial sweeteners, which add little or no calories, though some, such as aspartame, have been embroiled in controversy for years over their questionable health benefits and even possible links to cancer.
Obviously, Pepsi is facing not only the transition of customer perception but also the regulation stress. Besides, it always has it big and powerful competitor, The Coca-Cola Company. Under this circumstance, strategy and innovation become the top issue of Pepsi.16
Competitor Analysis The table below displays the various brands between PepsiCo. and The Coca-Cola Company. It appears that for every product on the market from one company, the other company has an similar product to match it. This demonstrates the intense compeititve nature of both companies to keep up or outwit the competition.
The Coca-Cola Company has the distinct advantage of being the most recoginzed brand in the world. It is considered the classic beverage in the United States as well as in other countires. In fact, when Coca-Cola decided to change its forumula dubed “New Coke” in response to Pepsi’s emergence, public outraged roared throughout the nation. Fearing mass boycott, the original Coke formula was quickly reinstated to satisfy the demands of the public under the name “Coca-Cola Classic”. Revered as the classic beverage, Coke enjoys the stature of being the market leader. Coke appeals to a wide global audience in terms of demographics and popularity. One side effect of being the “classic” choice leads to a larger share of older consumers. PepsiCo. appeals to younger consumers with a more sweeter taste compared to Coke. Pepsi presents itself as the hip and cool alternative choice over Coke. This is edvient in the deep blue hues and patterns that Pepsi takes advantage of in its marketing compaigns. Pepsi’s younger image is also aided by celebrities endorsement touted by the teen market including Britney Spears, ‘NSync, along with popular rappers. Self-proclaimed as “The Choice of a New Generation”, Pepsi devised television commericials of younger consumers participating in blind taste tests. The participants frequently perferred Pepsi over Coke. Eventually, PepsiCo. began hiring popular celebraties to promote their products. Resource Analysis The Coca-Cola Company The Coca-Cola Company’s flagship product, Coke, is sold in stores, restaurants and vending machines in more than 200 countries. Originally developed as a medicine in the late 19th centry by John Pemberton, it has evolved into a dominating figure in the soft drink market throughout the 20th century. The Coca-Cola Company licenses worldwide bottlers who hold territorially exclusive contracts with the company. Cola cncentrate is sold to these bottlers who them produce the finished cola in cans and glass bottles while using filtered water and various sweeteners.
The finished product is then sold, distributed, and merchandised to retail stores and vending machines. Coca-Cola Enterprises is currently the single largest Coca-Cola bottler in North America, Australia, Asia, and Europe. In addition to licensing to bottlers, the company sells the concentrate to major restaurants and food service distributors for use in fountain drinks. The Coca-Cola Company envision a world in which… They improve the lives in every community that they touch. They replenish each drop of water that they use. Their packaging is no longer seen as waste, but as a valuable resource for future use. Workplace rights are protected and all people are respected. They work in partnership with others to provide good jobs, world class quality beverages and a healthy environment. PepsiCo The Pepsi Cola Company started in 1898 in Purchase, New York. It became known as PepsiCo when it merged with Frito Lay in 1965. PepsiCo owned Kentucky Fried Chicken, Pizza Hut, and Taco Bell up until 1997 when they were spun off into Tricon Global Restaurants – which eventually became Yum! Brands, Inc. In 1998 and 2001, PepsiCo purchased Tropicana and Quaker Oats, respectively. PepsiCo, a global American beverage and snack company, manufactures, markets, and sells a variety of carbonated and non-carbonated beverages, as well as salty, sweet and grainbased snacks, and other foods. PepsiCo also manufactures Quaker Oats, Gatorade, FritoLay, SoBe, and Tropicana.(Figure_3) In several ways, PepsiCo differs from its competitor, The Coca-Cola Company, having almost three times as many employees. The Pepsi Bottling Group was formed for distribution and bottling.
Mission Statement: We aspire to make PepsiCo the world’s premier consumer products company, focused on convenient foods and beverages. We seek to produce healthy financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive to act with honesty, openness, fairness and integrity. Values: Sustained Growth is fundamental to motivating and measuring our success. Our quest for sustained growth stimulates innovation, places a value on results, and helps us understand whether actions today will contribute to our future. It is about growth of people and company performance. It prioritizes making a difference and getting things done.
Empowered People means we have the freedom to act and think in ways that we feel will get the job done, while being consistent with the processes that ensure proper governance and being mindful of the rest of the company’s needs. Responsibility and Trust form the foundation for healthy growth. It’s about earning the confidence that other people place in us as individuals and as a company. Our responsibility means we take personal and corporate ownership for all we do, to be good stewards of the resources entrusted to us. We build trust between ourselves and others by walking the talk and being committed to succeeding together.
Based on the pie chart above, PepsiCo and Coca-Cola have roughly the same market share in the United States.
Finacial Analysis Brief Overview
Overall, PepsiCo trumps The Coca-Cola Company in many financial categories – largly in part from PepsiCo’s wide array of products throughout 4 divisions: PepsiCo International Frito-Lay North America PepsiCo Beverages North America Quaker Foods North America
Analysis of the Target Market Consumers 3
Who are they? What do they buy?
When do they buy it? How do they choose?
Teenagers between age of 12 and 18 in U.S. Teens want to buy something real, something from “corporations that remind them of themselves”10. They don’t want things that they are thought to like. They something that pushes the boundary, different than what they had before. When teens find something they can identify with and have the need that must be satisfied immediately. They quickly dismiss the products that look like some 45-year-old guy trying to sell them something. They easily recognize the
Why they prefer a product?
How they respond to a marketing program?
old product that was yesterday’s news. They can tell what’s being “fake” and what’s being “real”10 They pick a product because they believe that product can express themselves13. They can relate to someone like themselves through this product. They respond to something catchy. For example those ads in magazine are brightly colorful10, the flashy graphics suggest that teens respond well to that type of ad campaign; in cyberspace they respond to a space created uniquely for them12. They also respond well to products on sales.
The target consumer market to stimulate demand within is the young teen market between the ages 12 through 18 years old, geographically located within the United States. This segment is compiled of the “Tween” market and the older high school teenagers. “Tweens develop sophisticated tastes beyond their years, with boys gravitating toward electronic, Internet, and video games, and girls preferring fashion and social interaction components” (Abernathy, 2004). With the technology age with computers and increasing demanding academic environment, tweens and teens have less disposable time, and therefore product advertising attention is often tuned out. “Tweens spend their own money today: on average, $9 a week. Some experts estimate tweens have close to $80 a week in disposable income available to them… Overall, the tween market is valued at $43 billion” (Abernathy, 2004). Beyond the tween market, the teenage high school student will
sometimes hold a part time job, and have more independent tendencies. All in all, the 2000 U.S. Census estimates the U.S. population between the ages of 10 through 19 years old to be approximately 40.6 million individuals.
The goal of researching the target consumer is to accurately pinpoint the consumer behavior in regards to our product. According to our finding, these teens and “Tweens” are constantly searching for identities at their age. The most effective way of appealing our
product to them is to find a common ground. For example, there are various reasons why teens and “Tweens” idolize certain celebrity. One of them is that they can find bit and pieces of themselves in their celebrity idol. After all, who doesn’t like to see himself/herself being a celebrity? So no matter what the product is, as long as it possesses characteristic of the identity the teens and “Tweens” are searching for, they will make the purchase. The teens and “Tweens” are still very young. They have very vivid imagination and are highly visual. Therefore they are attracted to colorful pictures in the magazines. It is usual for them to just look at the pretty pictures in the magazine without reading the articles that supplement pictures. According to the finding, these target consumers prefer products that are “real”. By “real” they mean the manufacture genuinely create this product specifically for them, at least it should appears to be. Since Pepsi Cola is basically for everyone, making it appears to be special to teens and “tweens” are very important. These consumers prefer individuality. Such preference is reflected in the finding that they are constantly in search for a product that expresses themselves. The last thing these consumers wants is pressure or stereotype that sometimes appears on the commercial and magazine ads.
Strategic Action Plan
The strategic alliance with Walt Disney will initially consist of (i) concert support of and promotions at several of Hannah Montana’s concerts throughout the United States, (ii) Pepsi promotion via seamless advertisement within the Hannah Montana aired shows by having characters refresh themselves with Pepsi and also have Pepsi signs in the background, and (iii) a sparingly aired Pepsi commercial endorsed by Hannah Montana to be promoted via the ABC channel network (a Disney owned network). A future alliance holds the possibility of future benefits through Disney media networks and consumption at theme parks and resorts. The concert support will come with signs at the live shows and
events, Pepsi sales at the concerts, and Pepsi commercial promotions on the concert screens at intermission. There will also be a special promotional event of Pepsi Challenge tasting at the Pepsi center, which was previously near sell out for Hannah Montana. The seamless advertisement on the Hannah Montana show will consist of the characters drinking Pepsi as refreshment in a natural environment along with Pepsi signs in the background of the sets. This will continue for two (2) years during the strategic partnership, and be maintained on a very subtle level in the productions. Twice a year over the two (2) year period ABC (A Disney owned network) will air a Pepsi commercial of a music video of Hannah Montana singing the Pepsi Theme song. As part of the strategic alliance, Disney is giving a low market rate for airing over the network. ABC has been topping the charts with hit series and has been expanding viewer base considerably over the past decade. The Denver Post summarized the market impact this pop idol holds as: “When an episode of "Hannah Montana" followed the debut of "High School Musical 2" this fall, the movie sequel got all the buzz, but the episode of "Hannah Montana" averaged 10.7 million viewers - the highest ratings for a regular series in the history of basic cable. The Disney Channel's 90 million subscribers can watch "Hannah Montana" daily, sometimes as often as seven times a day. An average 2.2 million viewers see each episode. The show also airs weekly on ABC's Saturday morning block, and is licensed in 177 countries. Of course "HM" is available around the clock as streaming video on computers and on iTunes. Compared to the ratings of all shows on U.S. television, "Hannah Montana" is second only to "American Idol" among kids 6-11 and tweens” 2 (Ostrow, 2007). Utilizing Walt Disney’s ‘tween’ star Hannah Montana for endorsement will provide awareness and positive associations with the Pepsi brand of carbonated soft drink. This pop star idle will build significant brand equity within the demographics of young females between the applicable ages of 12 through 15 years old. This will predictably improve vending machine sales at middle schools and high schools, as well as sales at grocery stores for their respective homes. It will also build repertoire with the respective mothers who
also attend the concerts and watch the shows. The mothers of the daughters are in fact the ultimate purchasers (and also partially the ultimate consumers in some cases) of the product, while their daughters are the influencers and ultimate consumers. The daughters of families will typically have a greater influence over the parents as purchasers in American families more so than comparable aged boys. This is primarily due to the value system of the parents to typically spend more attention and money on the daughters of the family, as young females are seen to need more care. This depicts why Hannah Montana is a highly effective endorsement for Pepsi within this demographic. This strategic
relationship with Walt Disney will provide the future potential for a stronger partnership with Walt Disney, thereby opening the possibility of Pepsi consumption within the theme parks and resorts, while opening a powerful media network to younger audiences for future promotion channels. Kanye West will build brand equity in the male teen market between the applicable ages of 14 through 18 years old. A male target of the upper teen years is deemed more effective, due to males in their teens practicing habits of independence and having allowances for spending. His aired TV commercial will be on ABC similar to Hannah Montana, however it will be aired three times a year over the two (2) year period. The commercial content will be his version of a Pepsi theme.
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Ostrow, Joanne (Oct. 19, 2007). ‘Disney Wields Its Marketing Magic.’ Denver Post.
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Abernathy, R.W. (November, 2004). Tween Market 101. TD Monthly. Retrieved
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