In order to capture this age group, Pepsi spent 637 million dollars over five years, changing its packaging from red, white and blue into the new rich deep blue coloring. The rich deep blue coloring represents eternal youthfulness and openness. Marketing plans like this made Pepsi one of the coolest brands recognized among teens in the top five and the only beverage product in this category.
Apart from that, Pepsi-Cola also has a policy in choosing the eligible vendors in order to save the cost of running the business in other countries. Their policy is to promote the utilization of eligible M/WBEs vendors in all aspects of the company’s business, and the company will:
- Actively and diligently seek out qualified M/WBEs for all possible company requirements
- Ensure that M/WBEs fully comprehend the company's requirements and are thus able to bid appropriately.
- Make every reasonable effort to help qualified M/WBEs to meet company standards.
In carrying out this policy, the company does not expect to sustain any undue or enduring financial or service penalties.
Further, with respect to majority-owned companies and general contractors, they advise these vendors of Pepsi-Cola's commitment to support minority economic development.
2.2 Market Development
In order to diversify their soft drink beverage market, Pepsi also invests a lot on their Research and Development (R&D) over decades. In the 70s, Pepsi had already introduced Pepsi Light with a distinctive lemon taste, as an alternative to the traditional diet colas, and over 10 favors of Pepsi are available on the market today, e.g. vanilla, strawberry and cherry etc. Different varieties of product ranges can be applied in different market to test the market response and gain market share, as well as the product designs and modifications. With different market development, such can enable PepsiCo to share the risks of Single market, and can diversify the market sales as well as revenue or profit generation. However, with the same company group, as the company shares the resources (e.g. Marketing, Advertising materials etc) in different markets, such may increase the total expenditures & even investment which may affect the shareholder’s revenue. Besides, as the company group shares the resources, each market may receive inadequate resources/capital for market development and such may decrease the effect.
Apart from diversification, PepsiCo co-operates and forms strategic alliance with other companies in development. In some countries (e.g. China), Pepsi works together with Kennedy Fried Chicken(KFC), Pizzahut & Warner Bros. in competing with Coca-Cola, McDonald & Walt Disney. Such can help to increase the competitive advantages to gain market share. In 1994, PepsiCo and Starbucks from North American Coffee Partnership to jointly develop ready-to-drink coffee beverages, and creates a new market in nowadays coffee culture.
Pepsi has also made wise investments in snack food companies like Frito Lay, which at present time is the largest snack company in the world. Probably high on the list of strengths is Pepsi beverage line up. Pepsi has four soft drinks in the top ten beverages in the world. These brands are Pepsi, Mountain Dew, Diet Pepsi, and Caffeine Free Diet Pepsi. Pepsi also has the Number 1 tea in the United States - Lipton Tea. Some other strong brands are All Sport, Slice, Tropicana, Starbucks, Aquafina and a license agreement with Ocean Spray juices
However, the brand suffered low single-digit declines and the carbonated drinks range as a whole showed no improvement, suggesting fizzy sodas, as we knew them may now be in terminal decline. Strong double-digit growth from Pepsi's Gatorade sports drink led the firm to an 8% volume rise across its North American beverages division. The group was also boosted by a resurgent Tropicana brand, which managed to reverse declines earlier this year. The results will be music to the ears of market researchers who have long predicted that juice; water and energy drink are set to lead mature soft drinks markets forward as more and more consumers search for healthier lifestyles. Elsewhere the firm continued to benefit from healthy snacks ranges, including Quaker Chewy Granola bars and rice cakes as well as Rice-A-Roni and Life cereal. Emerging markets in Russia and China as well as the Middle East and South America also recorded strong growth in both snacks and beverages. PepsiCo's successful diversity and faster action on health has taken it ahead of Coca-Cola in the market for the first time in 112 years.
Chapter 3 Internationalize
With the success of the US market, PepsiCo thinks that such success can affect another. However, when developing in different markets, as the PepsiCo is not fully-understand about the market situations (with different culture, drinking habits, countries climate etc.), the strategies are not effectively implemented. Pepsi faces difficulties when launching Pepsi Cola in other countries, especially in the Asian Markets. Hence modifications and adjustments of strategies are needed to be applied, and thus delayed the effects and profit generation. In addition, duplication of work within different markets may be done, due to different government regulations, raise of competitors and different in cultures.
3.1 Pepsi in Asia
The obviously examples on the restrictions of the government regulations are Singapore and Japan. In Singapore, Government restricts the Students to drink the soft drink which would adversely affect the company (Pepsi) sales & development.
Japan always protects their local manufacturer and brands by excluding the foreign products to enter their markets. Thus Pepsi chooses the corporate level strategies – strategic alliances with local leading beverage company in the local country so that Japanese will easily accept the foreign products. Pepsi-Cola Co., which entered the Japanese soft drink market in 1958, and it is the worldwide beverage subsidiary of PepsiCo, Inc.
In 1998, PepsiCo and Suntory Ltd announced the formation of a strategic sales and marketing alliance in Japan that will combine the brand-building power and operational excellence of Suntory, Japan's second-leading beverage company, with the strength of Pepsi's global brands. Under the terms of the basic agreement, Suntory Limited will become Pepsi's master franchisee in Japan, managing all marketing, production and distribution of Pepsi soft drinks in the country. In addition to managing this new franchise operation in Japan, Suntory Limited has been a longtime Pepsi franchisee in the United States, operating Pepcom Industries, Inc. (Raleigh, North Carolina), a Pepsi Bottler since 1980. This alliance will enable both parties to better serve the customers with the strongest product line-up in the industry. Based on this, the relationship between PepsiCo and Suntory will be further strengthened in the U.S.A. and Japan. By joining the resources of Suntory and Pepsi's bottling operations, the core brands of both companies will immediately benefit with increased product distribution. In the vending channel alone, which comprises more than 40 percent of Japan's soft drink sales, the new alliance will have more than 360,000 machines in the marketplace. This represents more than three times Pepsi's current vending availability in Japan.
- Pepsi in China
Cracking China’s elusive 1.3 billion people markets has never been easy for Pepsi. Apart from the rival Coca Cola, which enters the market earlier than Pepsi, Coca Cola also faces the increasing competition from local players. Domestic drinks maker Jianlibao Beverage had moved up to third place on the market. And another local soft drinks firm, Wahaha, reportedly saw sales pass the $1bn mark in 2003.
PepsiCo presence in China dates back to the earlier days of the nation's reforms. In 1981, Pepsi-Cola became one of the first American investors in China by signing an agreement with the Chinese government to build a bottling plant in Shenzhen. Today, PepsiCo has established more than 40 joint or wholly owned ventures in China with a total investment over US$1 billion, directly employing 10,000 staff and about 150,000 indirect job opportunities, and among the employees in China, less than 1% is foreign staff and over 64% are Chinese. PepsiCo also sets up a complete talent's institutional framework, reserves local talents for the business development in the future, such as execute the localized personnel's capability of district management level institutional framework, train local talents as the suitable person of the general manager as the administrative staff of joint venture. The aim of the joint venture is to accelerate localization in the community and increase the competitiveness. However, as for specific products, competitiveness for localized market needs may be varied. Quality and Cost controls are difficult to maintain in different countries within the management group, so sometimes strategies may not be effectively applied.
Different from other countries, PepsiCo permits the cooperation with the concentrate factory through the trademark free of charge in China, and the price of the concentrate under management of Chinese Government. PepsiCo keeps and adds value to the trademark through investment in advertising, at the same time through factory cooperation to increase the market shares. This is proved by reforms which based on the local specific laws and regulations to carry proper localization adjustment, and thus gets the manage success.
After entering into China, PepsiCo has developed a positive marketing system with Chinese characteristic. PepsiCo, through imparting his administrative skill and experience to wholesale and retail, changing them into the positive products retail or third party logistics, makes the marketing channel which accords with the China's actual conditions, explore the new-type marketing method.
In addition, PepsiCo buys raw materials for their products including candy, bottle, can, case, bottle lid and the ice box in China; this not only makes their cost decreases, but also improves the sales amount to local relevant industries too.
With the same products, different product life cycle may be occurred in different markets. Some markets are developed in Embryonic & Growing rate (e.g. China market), and some markets are Mature & even starting to decline (e.g. North America). Such can enable PepsiCo to determine specific strategies in different markets, i.e. with different product penetration rate. Experiences can be shared within different markets, and thus help to ensure that correct strategies can be used to increase the market penetration.
3.3 Barriers in China and Solutions
However standardization may not be suitable in different markets, as different markets may have different product ranges and different strategies may need to be applied. In the case of the different Pepsi Cola favors, which are successfully launched in the US, the same market is totally failed in the Asian market due to different in drinking habit and culture. In the light of this, Pepsi opened research and development centre in Shanghai to analyze and improve food and develop products to cater to the taste of Chinese consumers. It is the first research lab outside the US and gives an important signal that its commitment to the fast-growing Chinese market.
When PepsiCo enters China to belong to sound out, very prudent on the tactics, they just use the single sales management method: supermarket and advertisement. Pepsi not only continues to use the international intention but also incorporate China's concept, use sports of China and music star's for effectively, transmit the brand focal, is accepted by Chinese. It has splashed out millions of dollars on advertising to build its brand in China, using pop stars and soccer players to endorse its products. Pepsi’s sponsorship of China’s League A soccer game alone costs $6m a year. In 1999, superstar Janet Jackson (USA) & Arron Kwok (HK) cooperate to promote the Pepsi in worldwide with the slogan “As for More”. Certainly this is a breakthrough and just breakout a message – the world is without boundaries. Whether you are Asian, American or European, you still can enjoy the drink. They developed a very clear and impressive image so it draws attention of customers. The revenue is dramatically increased.
The growth of its alliances Pizza Hut, KFC and Starbucks in the Asia Pacific Market, also helps Pepsi to gain most of the market shares in the area successfully. With International market development, for product production and material management, PepsiCo can get cheaper cost in some market. Such helps to increase the bargaining power and competitive advantages within the company- Cost leadership with Globalization. Shares of Resources can be made, such as Manufacturing, Marketing, Materials managements R&D and Human resources etc., and that help to reduce the expenditures & increase the efficiency among the group.
Apart from the business development, PepsiCo also fulfills their beliefs by conducting different programs and activities to benefit the societies. In China, PepsiCo sets up special fund of "Pepsi Cola" in the All-China Women's Federation - Chinese women's development foundation in 2001, succors mothers and children in the poverty-stricken area. Pepsi also subsidizes Tibet to train teachers, contributes money to support Chinese government to resist SARS, holds child's concert of international music circle in Beijing. Apart from the charity programs and activities, PepsiCo also participates in the environmental protection activity of "protecting the Changjiang river" etc. This helps Pepsi to establish a good enterprise social image in China.
It finds out that PepsiCo localized practice in China is successful with a steady growth, not only because the company has a good management in production, but also received the trust of Chinese Government and the products are wide and popular with consumers.
Chapter 4 Conclusion
In conclusion, PepsiCo is successful in launching Pepsi Cola globally due to the three major sustainable advantages give PepsiCo a competitive edge when they operate in the global marketplace:
- Big, muscular brands
- Proven ability to innovate and create differentiated products; and
- Powerful go-to-market systems,
These advantages enable the company to invest them in dollars generated from top-line growth and cost-saving initiatives, and thus creates a value cycle for the business.
Chapter 5 References
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[ ] PepsiCo’s homepage, 07 July, 2007
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[] Pepsi World’s homepage, 07 July. 2007
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[] “Pepsi”, Wikipedia, the free encyclopedia, 07 July 2007
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[] “Suntory and PepsiCo From Strategic Alliance in Japan; Agreement to Form Master Franchise Joining Resources of Suntory, Japan’s No. 2 Beverage Business, With Pepsi’s Gobal Brands”, Business Wire, 03 October 1997
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[] “ Sports drinks lead PepsiCo sales rise”, Beverage Daily, 29 September 2005
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[http://www.manaren.com/brand/201001141/] “International famous brand – Pepsi” manarem, 08 July, 2007