FIVE-YEAR MARKETING PLAN PepsiCo, Inc.

Table of Contents

1. Executive Summary

2. Company Description

3. Strategic Focus and Plan Mission/Vision Statement Goals Core Competency and Sustainable Competitive Advantage

4. Situation Analysis SWOT Analysis Industry Analysis: Trends in Healthy Soft Drinks Competitor Analysis Company Analysis Customer Analysis

5. Market-Product Focus Marketing and Product Objectives

Target Markets Points of Difference Positioning

6. Marketing Program Product Strategy Product Line Unique Product Quality Packaging Price Strategy Promotion Strategy Place (Distribution) Strategy

7. Financial Data and Projections Past Sales Revenues Five-Year Projections

8. Organization

9. Implementation Plan

10. Evaluation and Control

1. Executive Summary This marketing plan provides a written analysis of the trends, consumer demands and markets in the soft drink industry and the implementation strategy PepsiCo plans to put into action when launching a new product line of "New Age" products. The key success factors of this marketing plan are: Growing market for healthier soft drinks: the market for diet drinks is not new, yet has limited choices and is therefore open for expansion of new products the largest segment of the U.S. population is aging (the baby boomers) causing a rise in health concerns and adding to demand for healthier soft drinks Younger generation drinks less coffee and more soft drinks with caffeine

Unique new product: Introduction of a new artificial sweetener Tastes as good as a non-diet soft drink Only one calorie Comparable competition does not yet exist

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Exciting promotional campaign strategy: Sports lounges in malls with free drinks provided and sports on TV

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Free giveaways at college and professional football and basketball games Free t-shirts displaying product to college students given away on central campus locations

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Lucrative Sales forecasts: The introduction of a new line of products including an entirely new product and

ingredient will increase sales revenue for PepsiCo. The sales revenue will in turn create an incremental growth during the introductory phase for the new products as shown during the projections for the next five years.

In conclusion, the promotion and launch of the new product line will help meet the needs of customers, provide a new niche in the soft drink industry and become a profitable venture for PepsiCo.

2. Company Description

PepsiCo, Inc. is among the most successful consumer products companies in the world, with 1999 revenues of over $20 billion and 116,000 employees. The company

consists of: Frito-Lay Company, the largest manufacturer and distributor of snack chips; Pepsi-Cola Company, the second largest soft drink business and Tropicana Products, the largest marketer and producer of branded juice. PepsiCo brands are among the best known and most respected in the world and are available in about 190 countries and territories. Some of PepsiCo's brand names are 100 years old, but the corporation is relatively young. PepsiCo, Inc. was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998. PepsiCo's success is the result of superior products, high standards of performance, distinctive competitive strategies and the high integrity of their people. Their overriding objective is to increase the value of their shareholders' investment through integrated operating, investing and financing activities. Their strategy is to concentrate their resources on growing their businesses, both through internal growth and carefully selected acquisitions. Their strategy is continually fine-tuned to address the opportunities and risks of the global marketplace. The corporation's success reflects their continuing commitment to growth and a focus on those businesses where they can drive their own growth and create opportunities.

3. Strategic Focus and Plan

Mission/Vision

PepsiCo's overall mission is to increase the value of their shareholders' investment. They do this through sales growth, cost controls and wise investment of resources. They believe their commercial success depends upon offering quality and value to their consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to their investors while adhering to the highest standards of integrity.

Goals
Nonfinancial Goals

Sharply focus their financial and management resources on their core businesses: restaurant management on restaurants, packaged goods management on beverages and snacks.

Ruthlessly prioritize to be sure they employ their greatest sustaining efforts on the biggest opportunities within their core businesses. In beverages, for example, the lions share of their investment dollars and management attention will go to high-potential markets where no company dominates like China, India and Russia and to markets where they lead or are a strong number two.

Build their success upon their key functional strengths: 1. day-to-day management of operationally intensive businesses; 2. manufacturing, selling and distribution infrastructure development; and 3. marketing and new product R&D.

Financial Goals
• •

To obtain a real growth in earnings per share of 15% per year over time. To obtain a return on equity of at least 40%.

Core Competency and Sustainable Competitive Advantage
In terms of core competency, PepsiCo seeks to achieve a unique ability to: (1) provide a distinctive, high-quality one-calorie soft drink and to provide a highquality citrus soft drink using Pepsi Company’s distinct ingredients to appeal and to excite contemporary tastes for these products and (2) deliver these soft drinks to the customer using effective manufacturing and distribution systems that maintain PepsiCo’s quality standards.

To translate these core competencies into a sustainable competitive advantage, Pepsi Co. will work closely with key suppliers and distributors to build the relationships and alliances necessary to satisfy the high taste standards of our customers.

4. Situation Analysis This situation analysis starts with a snapshot of the current environment in which PepsiCo finds itself by providing a brief SWOT (strengths, weaknesses, opportunities, and threats) analysis. After this overview, the analysis goes into greater detail with regards to industry, competitors, company, and consumers.

SWOT Analysis
The following table shows the internal and external factors affecting the market opportunities for PepsiCo. This SWOT analysis also shows PepsiCo's internal strengths such as their experienced management team, a competitive product line, a global marketing realm, and the continuous efforts by their research and development to research trends in the industry and to be creative in exploiting those trends. Some possible opportunities noted in the SWOT analysis are the growing markets for specialized ethnic foods and healthier food products. Another opportunity is that the income of consumers is high enabling them to be less price sensitive, and convenience is becoming evermore important not only to the United States but to many countries around the world.

Although PepsiCo has many strengths, a few weaknesses lie in the fact that the company is so large and could possibly lose focus or have internal conflict problems. A few of the threats PepsiCo must stay aware of are the ease of replicability of its product line, the almost pure competition in pricing for its products, and the quickness of technological advances causing existing products to be no longer the most advanced.

Internal Factors Management Product Line

Strengths Experienced, broad base of interests and knowledge Unique, tastes good, competitive price, and convenient Diverse, and global awareness International, diverse positions High sales revenue, high sale growth, large capital base Low costs and liabilities due to outsourcing of bottling Continuous efforts to research trends an reinforce creativity Opportunities Huge market in the healthy products and growing market for specialized foods for ethnic groups Distinctive name, product and packaging in with regards to its markets

Marketing Personnel Finance Manufacturing Research & Development External Factors Consumer/Soci al Competitive

Weaknesses Large size may lead to conflicting interests New one calorie products have no existing customer base, generic brands can make similar drinks - cheaper May lose focus, may not be segmented enough Possible conflicts due to so many people, possible trouble staying focused High expenses, may have trouble balancing cash-flows of such a large operation Lose control and quality standards May concentrate too much on existing products, intrapreneuralship may not be welcomed Threats More expensive products than Coke, such a high price may limit lower income families from buying a Pepsi product Not entirely patentable, constant replicability by competitors

Technological

Economic

Legal/Regulato ry

Internet promotion such as banner ads and keywords can increase their sales, and more computerized manufacturing and ordering processes can increase their efficiency Consumer income is high, more tend to eat out, convenience is important to U.S. High U.S. Food & Drug Administration standards eliminate overnight competitors

Computer breakdowns, viruses and hackers can reduce efficiency, and must constantly update products or other competitors will be more advanced Very elastic demand, almost pure competition

Industry Analysis: Trends in Healthy Soft Drinks
Within the soft drink industry, a major trend to capitalize on is healthier soft drinks. The market for healthy soft drinks is huge and growing among American and international consumers alike. Along with a large market, many opportunities have arisen due to recent technological advances. New research has brought to Pepsi a lower calorie sweetener than aspartame allowing for an even healthier diet drink. Also technology on the Internet has revolutionized the promotional process. By using banner ads and keyword ads, Pepsi Co. can reach a higher number of audiences and yet and the same time have more specific and targeted segments. A final factor that is providing an ideal situation to introduce a new product is that consumers are tending to eat out more often due to the fact that economically, income is high. This will help to increase our sales of fountain beverages to restaurants. All of these positive industry factors combined create an exemplary context in which to launch new healthy soft drink products.

Competitor Analysis The soft drink market represents $4,798,000,000 in annual sales. The products fall into four main groups: colas, lemon-lime-flavored drinks, diet drinks, and other drinks.

Type Cola Lemon-lime

PepsiCo Products Pepsi Mountain Dew Sierra Mist Slice

Competing Products Cocacola Generic Sprite Fresca 7-Up Generic Diet Coke Diet Caffeine Free Coke Diet Dr. Pepper

Diet

Diet Pepsi Pepsi ONE Diet Caffeine Free Pepsi Diet Mt. Dew

Diet Sprite Diet 7-Up Tab Other Mr. Pibb Mug Rootbeer Wild Cherry Pepsi Generic Dr. Pepper A&W Rootbeer Barque's Rootbeer Crush Cherry Coke Sunkist Generic

PepsiCo's current retail prices range depending on the convenience of the location in which they are located and depending on the size of the soft drink container.

On average, a 12 ounce can is between $.25 - $.99, a 20 ounce plastic bottle is between $.50 and $1.29, and a 2 liter plastic bottle is between $.50 and $1.95. The major disadvantages regarding the competitive structure of the market lies in the fact that there are so many other competitors and options such as water, coffee and juice to compete for the same consumer.

Company Analysis
Currently PepsiCo competes in the soft drink segment of the global beverage market. While PepsiCo's soft drinks can obviously compete as a stand-alone product, it can also complement any snack or meal At present PepsiCo, Inc. operates with over 116,000 talented and innovative employees. The steadily increasing business with minority and women-owned firms has improved their company's supplier base. It has also helped to strengthen the suppliers' firms as well as the minority community infrastructure with regard to such benefits as employment, training, role modeling, buying from other minority and womenowned businesses, and supporting community organizations. PepsiCo's culture is informal and entrepreneurial. Their people are empowered to make the decisions necessary to grow the business. They seek to achieve outstanding results through innovation, long tern partnerships, and an open work environment that respects the individual and promotes personal and professional growth. Our strategy is to concentrate our resources on growing our businesses, both through internal growth and carefully selected acquisitions. Our strategy is continually fine-tuned to address the opportunities and risks of the global marketplace. The corporation's success reflects our continuing commitment to growth and a focus on those businesses where we can drive our own growth and create opportunities.

Customer Analysis
PepsiCo has an extremely large customer base due to the wide spread popularity of soft drinks. It is therefore necessary to segment the market and look at particular trends in the soft drink market. There are two key trends in the soft drink market, which are the growing demand for healthier soft drinks and the mostly untapped market of targeting ethnic groups with specific products regarding their interests.

Information How to grow this segment

Who is the main target market

How to market these products Factors leading to the rise of this trend

Trend Healthier Drinks Ethnic Marketed Drinks Need to attract men Target the each specific and a younger market with products and audience without advertising designed excluding females around their wants (ex. Research has shown that African Americans in general prefer lighter colored soft drinks such as Mellow Yellow (99%) and Slice (73%)) The younger African Americans (who generation is the prime represent 1 of 7 soft drink target for healthier soft customers) and Hispanic drinks, a key reason for Americans (who's this is that many population is growing and younger consumers do consists of one of the not drink coffee but largest growing markets) prefer drinks such as Pepsi or Mountain Dew to give them a boost Show how they benefit Keep the advertising the customer, give full relevant, but don't try to nutritional information hard Less consumption of Marketing research has alcohol: 4 out of 10 shown that not all

people do not drink alcoholic beverages, even drinkers do not drink all the time (ex. Designated drivers, pregnant women, those who cut down for health reasons)

American's prefer the same soft drinks, the population growth of minorities in America has created a growth in their related market size

5. Market-Product Focus This section describes the three year marketing and product objectives for PepsiCo and the target markets, points of difference, and positioning of its lines of soft drinks.

Marketing and Product Objectives
PepsiCo's marketing intent is to take advantage of its brand potential while building a base from which revenues can be generated. These are detailed in the three focus areas below: · · · current markets - expand brand and flavor, increase customer awareness through promotion, coupons and in store displays new markets - healthier soft drink market and target ethnic groups new products - one calorie soft drinks (Pepsi ONE) lighter colored soft drinks (Sierra Mist). Initially these products will be introduced on college campuses as test markets then will be distributed nationally within 2 months and distributed globally within 2 years.

Target Markets

For PepsiCo every individual in the United States with a middle class status can be considered a potential consumer. Though, in order to target specific markets, PepsiCo divides the target market into the following market segments: Consumers under the age of 18: This is when PepsiCo is marketing to a younger generation. These potential customers still live at home with parents. They rely heavily on parents to purchase the product for them. In this segment, PepsiCo is trying to capture brand awareness. Consumers between the ages of 18 to 24: PepsiCo is still marketing to a younger generation, but these customers are either in college, moving away from home, and/or starting new jobs. In this segment, Pepsi Co. is trying to capture brand awareness and loyalty. Consumers between the ages of 25 to 34: PepsiCo is marketing to customers who are established in their job market and who are starting families. In this segment, loyalty has already been established. Consumers between the ages of 35 to 49: PepsiCo is marketing to customers who are an established market, one in which brand loyalty has already been sustained. These customers are loyal customers and are routine Pepsi drinkers. Consumers age 50 and up: Again, this is a market in which customers are established, and brand loyalty has been sustained. These customers are loyal customers, and only drink Pepsi products.

Points of Difference The points of difference - or attributes that make PepsiCo's new products Pepsi ONE and Sierra Mist unique among its competitors are: Pepsi ONE One calorie - healthier than other diet drinks Unique taste - tastes like regular Pepsi Sierra Mist Caffeine-Free Fresher, cleaner, less syrupy sweet taste

No use of aspartame no taste of the artificial sweetener

Less harsh tasting than any other lemon-lime product

Positioning
Previously customers concentrating on health had to settle for a less appealing taste to uphold their diet. Now the new one calorie drink that Pepsi offers (Pepsi ONE) brings a great taste but is healthier than other diet drinks because it is only one calorie. The name Pepsi ONE also helps to give the product positioning because the consumers can immediately relate the name to the benefits of the product - one-calorie. Finally, the color of the product package helps position the product. Regular colas are usually a bold color, while diet colas are often white and diet caffeine free colas are usually gold. Pepsi One is in a silver can which tells consumers that the product is still a diet drink, but a different diet drink. Sierra Mist, a new lemon-lime flavored soda, has no caffeine and has been described by consumers as fresher, cleaner and less syrupy sweet than other sodas like it. Sierra Mist is to be positioned as a new age soda with marketing, packaging and advertising concentrating on its refreshing taste.

6. Marketing Program

Product Strategy
Product Line

PepsiCo's newest marketing program is for New Age soft drinks. This will initially include two flavors: · Sierra Mist - a lemon lime flavored soft drink with a fresher, cleaner, less syrupy sweet and less harsh taste that competing lemon lime soft drinks · Pepsi One - a one calorie cola flavored soft drink with the same taste of regular Pepsi but only one calorie

Unique Product Quality Pepsi ONE is the refreshing new soda for people who want it all -- great cola taste with only one calorie. This exciting new product was launched nationwide in the fall of 1998 earning significant consumer and media attentions for its revolutionary new product formulation; the newly approved sweetener, Sunnett (Acesulfame potassium or Ace-K) and aspartame. The new sweetener allows for this soda to have only one calorie per serving. This product also has significantly less carbohydrates and sodium than most other sodas. Sierra Mist is the new caffeine free soda with the great lemon-lime flavor that people love. This product was released in October of 2000 nation wide and hopes to be worldwide by the end of the year. Other than the caffeine free aspect of this soda, it has most of the same ingredients as any other regular product.

Packaging
Providing their consumers with easy-to-use, convenient and innovative containers are one of their top priorities. Package introductions they've made over the years include the industry's first two-liter bottle; The Cube, an easy-to-store 24-pack; Big Slam, the wide-mouth one-liter bottle; and their three-liter bottle, designed to provide

consumers with extra value. Pepsi Co. was the first company to respond to consumer preference with lightweight, recyclable, plastic bottles. These bottles are made of polyethylene terephthalate or "PET plastic," which is a form of polyester used to make strong, lightweight, shatter-resistant bottles. PET plastics are recyclable into products including new containers, fiberfill for sleeping bags and coats, fabric, carpets, auto parts, film and more. Sierra Mist Peps i ONE Silver New logo Says one-calorie Green New logo Says new on the label

Price Strategy Market research says that 81% of soda drinkers think that it should cost $1.00 for a single 12oz serving of soda. Pepsi is priced slightly higher than its main competitor Coca-Cola but is till in line with the majority of the industry's prices. Pricing mainly depends on the location where the soft drink is purchased, as shown in the following table:

Location Purchased 12 oz. Serving

Convenienc e Store or Gas Station $0.69

Vending Machine $0.50 $0.80 (depending on convenience of location)

Fountain drink or Restaurant $0.30 $0.90

Warehouse or club Store $0.30

Super Market or Retail Store $0.50

Promotion Strategy ¨ Test Markets - large public colleges (ex. Virginia Tech) ¨ Free Samples - handed out at basketball or football games, pep rallies, or on central campus areas (ex. Drill field) ¨ Coupons - on the product or tied to another product (ex. Buy a pack of Fritos get a free 12 oz. Pepsi One) ¨ In-Store Displays - Signs, banners etc. ¨ Entertainment - Games with free T-shirts, Pepsi points under the cap etc. ¨ Sponsorship - sports teams/clubs/events

Sierra Mist is broadly targeted to teens and adults, with an 18 to 29 year-old demographic bull's-eye. Aggressive introductory marketing support includes massive sampling efforts and outdoors-oriented point-of purchase materials asking consumers to "experience the height of refreshment." Samples of this latest brand to join the Pepsi portfolio are available at football games and supermarkets across the US and Pepsi intends to spend $50 million on marketing this product. When Pepsi ONE first came out it was targeted towards the younger, healthier crowd. This unique one calorie drink was marketed as a healthier cola with the same great taste as regular Pepsi. In this beginning this product was marketed in much the same fashion as Sierra Mist is currently being distributed.

Place (Distribution) Strategy

Pepsi ONE and Sierra Mist are distributed through PepsiCo distribution centers. The distributor delivers it to the grocery retailers, vending companies, restaurants, and warehouse/club stores.

The distribution segments can be broken down into the following: · · · · · Convenience Stores and Gas Stations: 12% of the market Vending Companies: 11% of the market Restaurants: 20% of the market Warehouse/Club Stores: 6% of the market Super Markets and Retail Stores: 51% of the market.

In order to produce sales to increase, we plan to mass distribute Pepsi ONE and Sierra Mist to the Virginia Tech campus. Here we will place the soft drinks in vending machines, campus-dining halls, education facilities, and at various athletic events. We strongly believe that this will create brand awareness and customer loyalty with the age group of 18 to 24.

7. Financial Data and Projections

Past Sales Revenues

Historically, PepsiCo, Inc. has a fairly steady amount of annual sales revenue. Sales dropped dramatically from 1995 to 1996 due to an introduction of a new product by a competitor. The trend in sales revenue appears in Figure 4.

Figure 4.

Five-Year Projections Five-year financial projections for PepsiCo Inc. appear below: Actual 1999 20,36 7 11,98 6 2,883 Projections Year1 Year2 2000 2001 21,689.0 2 12,465.4 4 2894.53 22,884.3 6 12,964.0 6 2906.11 Year3 2002 24,257.4 2 13,482.6 2 2917.73 Year4 2003 25,712.8 7 14021.92 2929.41 Year5 2004 27,255.64 14,582.80 2941.12

Financial Elements Net Sales Gross Profit Operating Profit(Loss )

Units $1,000,00 0 $1,000,00 0 $1,000,00 0

These projections reflect the continuing growth of PepsiCo Inc. and its products.

8. Organization Roger A. Enrico Chairman of the Board and CEO

Roger A. Enrico

Chairman of the Board and CEO
Margaret D. Moore Personnel

Indra K. Nooyi
Chief Financial Officer Gary H. Rodkin North American Region President and CEO Peter M. Thompson International President and CEO Steven S. Reinemund Chief Operating Officer Albert P. Carey Sales & Retailer Strategies

9. Implementation Plan

PepsiCo will be introducing its two new age soft drinks through a rolling process beginning with initial test markets in the United States. In the test markets, the tastes of several demographic segments and target market will be carefully analyzed and evaluated. If necessary based on these evaluations, promotional strategies might need to be modified before national distribution. After test markets, PepsiCo will distribute the products nationally. Next Pepsi will enter the international markets in order of highest soft drink consumption. National distribution will occur after two months of successful test markets, and worldwide distribution will be completed with in two years or the product launch.

Location US: initial test markets: Austin, TX Roanoke, VA Cleveland, OH St. Paul, MN Chicago, IL Pittsburgh, PA

Sierra Mist

Pepsi ONE

November 1, 2000 November 8, 2000 November 15, 2000 November 22, 2000 November 29, 2000 December 6, 2000

June 5, 1999 June 12, 1999 June 19, 1999 June 26, 1999 July 3, 1999 July 10, 1999

San Diego, CA Tallahassee, FA National distribution Mexico Canada Spain UK Argentina Saudi Arabia Brazil Philippines Thailand China India World-wide distribution

December 13, 2000 December 20, 2000 January 1, 2001 March 15, 2001 May 4, 2001 July 31, 2001 September 17, 2001 November 1, 2001 January 28, 2002 March 7, 2002 April 30, 2002 July 1, 2002 August 8, 2002 September 30, 2002 October 19, 2002

July 17, 1999 July 24, 1999 August 18, 1999 November 14, 1999 January 3, 2000 March 19, 2000 June 21, 2000 September 9, 2000 December 12, 2000 February 17, 2001 April 11, 2001 June 27, 2001 August 7, 2001 October 13, 2001 December 1, 2001

10. Evaluation and Control

Monthly sales targets have been set for PepsiCo for each global economy. Actual Pepsi ONE and Sierra Mist sales will be compared with these targets and tactical marketing programs modified to reflect the unique sets of factors in each global market. The speed of the program will increase, or decrease, depending on PepsiCo’s performance in the successive global markets that Pepsi ONE and Sierra Mist enter. Similarly, as described above in the implementation plan, PepsiCo may elect to respond to variation in global and regional tastes by changing ingredients and/or the image of Pepsi ONE or Sierra Mist (depending on the area). This variation will increase production cost, but it will also increase customer satisfaction, as well as sales.

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