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Strategic Marketing System : Creating Competitive Advantage

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Question:

Discuss about the Strategic Marketing for Creating Competitive Advantage.
 
 

Answer:

Introduction

Pepsi is one of the most reputed carbonated soft drink organization, which is manufactured by PepsiCo and is headquartered in United States (Pepsico.com, 2017). It was launched in the year of 1893 (which is around 124 years ago,). There are various variants of Pepsi such as Crystal Pepsi, Diet Pepsi, Pepsi Next, Pepsi Vanilla and others. This brand has global presence and the basic ingredients of the drinks comprises of the carbonated water, high fructose, carbonated water, corn syrup, sugar, colorings, citric acid, natural flavors, and others (Pepsico.com, 2017). The brand has its presence in more than 170 countries of the world. The company has a subsidiary known as Frito, which sells, manufactures as well as markets snack items such as corn chips, potato chips (Pepsico.com, 2017). The company is not only listed in the New York Stock Exchange, but is also listed in the Chicago, Switzerland, Amsterdam and Tokyo stock exchanges (Pepsico.com, 2017).

The organization not only have profit motive but also tries to be a responsible corporate citizen. The company is always eager to look out for expanding in new business areas. This report would analyze the strategic analysis of Pepsi with the help of external as well as internal environment analysis. The key issues of the strategic analysis would be identified and a set of recommendations would be provided.

It is important to analyze the external environment of the organization with the help of PESTEL analysis and Porter’s five forces.

The PESTEL analysis for Pepsi is helpful in understanding the influence of the external environment on the functioning of the company (Pommer, 2014). The PESTEL analysis is important for understanding the external environment factors specially for companies that are operating in the international market. The analysis is done as follows-

The government stability in USA and in other countries is one of the important political factors that affect the functioning of the company. The functioning of the company is affected by the trade unions, bureaucracy, home market lobbying, corruption and the freedom of press. Pepsi has tried to manage these factors through the use of lobbying initiatives (Lake & Drake, 2014). It uses various lobbying firms to carry out these initiatives such as FTI Government Affairs, Covington, Burling and Duberstein Group (Lake & Drake, 2014). The political stability in the developed economies is considered as an opportunity for the company along with the improved inter-governmental cooperation in these countries (Lake & Drake, 2014). The various threats include the government initiatives against the carbonated drinks industry.

 

There are a host of economic factors that are impacting PepsiCo such as unemployment and the rise of inflation in USA. The rising price of the raw materials poses a threat to the company along with the changes in the income levels of the consumers (Dabla-Norris et al., 2015). There has been rise in the income levels of people especially in the developing countries, which is an opportunity for the country (Dabla-Norris et al., 2015). One of the threats affecting the organization is the sudden rise in the value of dollar against the other global currencies.

An increasing number of customers are becoming health conscious and they are approaching healthy diet options (Ward, 2016). This can be viewed as both opportunity and threat. There is an increasing trend busy lifestyle of the people, which implies that they would highly depend on the carbonated soft drinks (Ward, 2016). Pepsi has the opportunity to constantly improve the product quality by satisfying the different customer preferences.

There have been technological improvements in the global market, which acts as an opportunity for Pepsi (Séin-Echaluce et al., 2015). There has been widespread improvement of the knowledge management systems, which is an opportunity for the company (Séin-Echaluce et al., 2015). This would benefit the company in different business processes such as strategic decision making and product innovation. There is increasing automation of the business, which have the ability to improve the business performance.

There is high focus on the business sustainability, which is considered as one of the opportunities presented (Bansal & DesJardine, 2014). There are stringent government regulations regarding the standards of waste disposal. There are possibilities of risk owing to the climate change.

There are certain legal factors that needs to be considered by the company such as regulation on the different GMO ingredients, regulations regarding health as well as product safety regulations and the moderate rate of the different regulatory change (Francis, Craig & George, 2016).

The PESTEL analysis shows that there are considerable number of opportunities in the carbonated soft drinks industry, which should be tapped well by Pepsi, so that there is growth and development of the company.

Porter’s Five Forces

The Porter’s five forces model was developed for determining the most significant external factors that usually influences the functioning of the firm (Mowday, Porter & Steers, 2013). The purpose of this analysis is to find out the biggest challenges faced by the global organizations and devise appropriate strategies against them. It also aims to determine the competitive position of the firm in the global marketplace. The analysis is done as below-

The bargaining power of the consumers is relatively high for Pepsi since they can easily shift from Pepsi to some other companies. There is the involvement of low switching cost so the buyers are able to change brands in relatively short time frame (Villas-Boas, 2015). There is strong force concerning the high access to the different product information. There is high number of substitute products for Pepsi, which give the customers liberty to change the soft drink manufacturer easily (Mowday, Porter & Steers, 2013).

Pepsi procures their raw materials such as corn, sweeteners, sugar, juice concentrates from a large supplier, who use to offer unique products to their clients (R Sotgiu & Gielens, 2015). There is high level of importance for each suppliers and Pepsi have the ability to switch over suppliers, which reduces their ability to bargain (R Sotgiu & Gielens, 2015). There is low forward integration of the suppliers and there is moderate size of the individual suppliers, which give Pepsi to choose its suppliers as per their business requirements.

 

Threat of new entrants- Moderate

There are average moderations to enter the carbonated soft drink industry and this is the reason why there is high bargaining power of the customers (Baker & Friel, 2015). There can be a large number of new companies in the market that provide the same product as offered by Pepsi. There are low switching costs which causes low customer loyalty. This implies that the customers have high bargaining power (Baker & Friel, 2015). There is considerably moderate cost of the brand development, which would make the new entrants compete with Pepsi.

The threat of substitute products is relatively strong for Pepsi and hence the products for this company can be easily substituted by other products (Baker & Friel, 2015). There is strong force regarding the high performance of the substitutes and there are low switching costs. The consumers can get hold of real fruit juices instead of drinking Tropicana (Pepsi products) (Nestle, 2013). The consumers have the ability to switch to other brands at less time.

The strong competitor of Pepsi is Coca Cola and the above factors has led to strong competitive rivalry (Raja, & Kumar, 2014). There is high rate of aggressiveness of the firms and there are low switching costs of the companies. There is average number of firms that compete in the market in the carbonated soft drinks industry (Raja, & Kumar, 2014). Pepsi connects with several firms which includes both the small ones and the big ones such as Coca Cola.

The five forces analysis of Pepsi shows that the bargaining power of the buyers, competition and the different threats of the substitutes are some of the issues that affect the company to a large extent. Pepsi should improve their competitive spirit through the use of exhaustive marketing strategies along with bringing in product innovation.

Internal environment analysis

It is important to understand the internal environment analysis of the firm so that the company can gain sustainable competitive advantage. PepsiCo has considerable competitive advantage in the market as compared to other rivals such as Coca Cola (West, Ford & Ibrahim, 2015). Pepsi has large number of innovative as well as differentiated products which make it popular in the market (West, Ford & Ibrahim, 2015). It also has efficient distribution systems and different cost-saving initiatives. It has excellent value cycle which is sustained by the external as well as internal operations. A SWOT analysis has been performed which would provide extensive internal environment analysis-

Pepsi has strong brand image and it is one of the most favorite brands all over the world. The company has broad product mix and it offers a large number of products according to the preferences of the target market (West, Ford & Ibrahim, 2015). It has various products to cater to different markets such as Frito-Lay products and Quaker products, which appeal more to the young generation (Farazuddin, Ahmed & Maddali, 2016). There was extensive global production network and the brand distributes its products throughout the world. Pepsi engages in deep research and development, which makes their product highly competitive (West, Ford & Ibrahim, 2015). Pepsi engages in the utilizing the competitive advantages so that they can gain considerable amount of revenue from the growth as well as progress of the company (West, Ford & Ibrahim, 2015). As compared to the external products, the company adheres to the Code of Business Conduct in guiding the top management and the employees of the firm. The Code is also the basis for the ethics as well as compliance program that promotes honesty as well as integrity in the workplace (West, Ford & Ibrahim, 2015). The management of Pepsi gives high preference to the various parameters such as business integrity, workplace behavior and competitive intelligence.

 


There are several weaknesses of the company such as low penetration rate outside USA. It is true that the company has worldwide presence, however, the intensity is less as compared to USA (Babin & Zikmund, 2015). There are weak marketing campaigns for the increasingly health conscious customers, which often causes reduction in the sales of the company (Babin & Zikmund, 2015). It primarily functions in the food and beverage industry and hence it is exposed to risks in this sector. The company has not undertaken total quality management initiatives, as adopted by its competitor Coca Cola (Babin & Zikmund, 2015). These weaknesses inhibit the international growth prospects of the firm.

The external strategic factors of the company comprise of the opportunities that the company has in the global market (Chittoor, Kale & Puranam, 2015). There are more opportunities for business diversification in the emerging markets and there is immense scope of market penetration in the various developing countries (Chittoor, Kale & Puranam, 2015). There are chances of global alliances with the different forms of complementary business so that the company would be able to increase its market presence.

Pepsi has significantly high amount off threat from the aggressive competition in the market and the increasing adoption of healthy lifestyle among the people (Chittoor, Kale & Puranam, 2015). The modern-day customers do not prefer aerated soft drinks since they have high concentration of salt, sugar and fat content (Buscemi, 2014). There are a growing number of stakeholders who respond negatively the lifecycle issues and the product wastes. 

The PESTEL analysis helped in the identification of various factors that are prevalent in the external environment of the firm such as trade unions, bureaucracy, rising price of the raw materials, increasing number of health-conscious customers, improvement of the knowledge management systems and stringent government laws for waste disposal. The Porter’s five forces revealed that the threats of the substitutes, bargaining power of the buyers and competition are relatively high for Pepsi. The internal strengths of the company reveal that the brand engages in intensive research and development. It is also a popular brand and they successfully adhered to the Code of Business Conduct.

Identification of key issues

The report identified some of the key issues such as exposure to risks, weak marketing campaigns, less diversification of the products, less focus to healthy drink alternatives and others (Hafiz, 2015). The company does not pay adequate attention to the recycling of the wastes and other efforts to reduce the impact on the environment (Hafiz, 2015). It has not adopted Total Quality Management (as compared to its competitors), which has left quality issues in the different organizational procedures and the process of benchmarking.

 

Recommendations

It is important to adhere to the following set of recommendations based on the above analysis-

  • Adhere to the principles of total quality management by giving the best compensation to the employees as well as diverse range of benefit programs.
  • Address the concerns of the managers and the employees so that they can give their best performance.
  • Introduce more number of healthy food and beverage products
  • Expand and enter the emerging economies of the world to gain more customers
  • Focus on recycling efforts of the firm so that there are no complaints from the environmental boards

Conclusion

This business report focused on the different strategic analysis of the firm and underlined the key issues in them. The external and internal environment analysis was done with the help of PESTEL analysis, Porter’s five forces and SWOT analysis. There were some key issues identified such as lack of environmental concern, less focus on healthy beverages, lack of proper focus on quality management and the less diversification of the products. This report has explored some possible recommendations which would solve the existing issues in the organization.

 

References

Babin, B.J. & Zikmund, W.G., (2015). Exploring marketing research. Cengage Learning.

Baker, P. & Friel, S., (2015). Transnational Food and Beverage Corporations, Food Systems Transformations and the Nutrition Transition in Asia.

Bansal, P., & DesJardine, M. R. (2014). Business sustainability: It is about time. Strategic Organization, 12(1), 70-78.

Buscemi, S., (2014). Soft drink consumption and unhealthy diet. European journal of clinical nutrition, 68(3), p.408.

Chittoor, R., Kale, P., & Puranam, P. (2015). Business groups in developing capital markets: Towards a complementarity perspective. Strategic Management Journal, 36(9), 1277-1296.

Dabla-Norris, M.E., Kochhar, M.K., Suphaphiphat, M.N., Ricka, M.F. & Tsounta, E., (2015). Causes and consequences of income inequality: a global perspective. International Monetary Fund.

Farazuddin, S., Ahmed, F. & Maddali, A., (2016). Article on Pepsi’s Promotional Strategies. Journal of Management Research and Analysis, 3(1), pp.56-58.

Francis, L., Craig, R.K. & George, E., (2016). FDA's Troubling Failures to Use its Authority to Regulate Genetically Modified Foods. Food & Drug LJ, 71, p.105.

Hafiz, R., (2015). Rethinking Brand Identity to Become an Iconic Brand-A Study on Pepsi. Asian Business Review, 5(3), pp.97-102.

Lake, P. & Drake, R., (2014). Strategy. In Information Systems Management in the Big Data Era (pp. 19-52). Springer International Publishing.

Mowday, R.T., Porter, L.W. & Steers, R.M., (2013). Employee—organization linkages: The psychology of commitment, absenteeism, and turnover. Academic press.

Nestle, M. (2013). Food politics: How the food industry influences nutrition and health (Vol. 3). Univ of California Press.

Pepsico.com, 2017. The Search for Hidden Figures. [online] Available at: https://www.pepsico.com [Accessed 22 Apr. 2017].

Pommer, B., (2014). Market definition and analysis of Pepsi-Cola.

Raja, R.V. & Kumar, A., (2014). The impact of harmful ingredients over the consumers in reference with coke and pepsi. ZENITH International Journal of Multidisciplinary Research, 4(6), pp.147-162.

Séin-Echaluce, M.L., Blanco, Á.F., García-Peñalvo, F.J. & Conde, M.Á., (2015), August. A knowledge management system to classify social educational resources within a subject using teamwork techniques. In International Conference on Learning and Collaboration Technologies (pp. 510-519). Springer International Publishing.

Sotgiu, F. & Gielens, K., (2015). Suppliers Caught in Supermarket Price Wars: Victims or Victors? Insights from a Dutch Price War. Journal of Marketing Research, 52(6), pp.784-800.

Villas-Boas, J.M., (2015). A short survey on switching costs and dynamic competition. International Journal of Research in Marketing, 32(2), pp.219-222.

Ward, J., (2016). Keeping the family business healthy: How to plan for continuing growth, profitability, and family leadership. Springer.

West, D., Ford, J. & Ibrahim, E., (2015). Strategic marketing: creating competitive advantage. Oxford University Press.

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