Pepsi Case 1

INCLUDEPICTURE "http://www.pepsico.com/includes/images/Btn_PepsicoLogo.gif" \* MERGEFORMATINET HYPERLINK "http://www.pepsiworld.com" \t "_blank" INCLUDEPICTURE "http://www.pepsico.com/includes/images/Icn_Pepsi.gif" \* MERGEFORMATINET HYPERLINK "http://www.fritolay.com" \t "_blank" INCLUDEPICTURE "http://www.pepsico.com/includes/images/Icn_Fredo.gif" \* MERGEFORMATINET HYPERLINK "http://www.tropicana.com" \t "_blank" INCLUDEPICTURE "http://www.pepsico.com/includes/images/Icn_Tropicana.gif" \* MERGEFORMATINET HYPERLINK "http://www.quakeroats.com" \t "_blank" INCLUDEPICTURE "http://www.pepsico.com/includes/images/Icn_Quaker.gif" \* MERGEFORMATINET HYPERLINK "http://www.gatorade.com" \t "_blank" INCLUDEPICTURE "http://www.pepsico.com/includes/images/Icn_Gatorade.gif" \* MERGEFORMATINET Morgan Burau Alicia Crawford Heather Schnacke Jessica Shaw Sarah Thomas Pepsi Co. Decision and Rationale Decision: Due to the volume of intense competitors in the carbonated beverage industry, Pepsi should constantly try to reduce rivalry (refer to Appendix 1 ? rivalry). Rationale: The rationale for this decision is that reducing rivalry will result in more overall profit for the company. There are many theories as to how to reduce rivalry within an industry. For example, the 4th of July is a popular pastime where people tend to buy a lot of soft drinks for cookouts and celebration. Usually, Pepsi reduces their price at this time, which in turn causes competing companies such as Coca-Cola to quickly reduce prices as well. In the worst case scenario, a price war could break out, drastically reducing revenues for all firms involved. According to the game theory, if Pepsi decreases their price by a lesser amount than competing companies, even by as little as two cents, competitors would not feel the need to increase their already reduced price. This strategy not only puts Pepsi ahead of the game because customers will buy Pepsi if it is their preference, but it also allows the company to decrease rivalry and increase revenue. A second way Pepsi can reduce rivalry is by differentiating themselves. With competitors mainly focusing on their carbonated beverage selection, Pepsi can reduce rivalry by focusing on what they do differently or uniquely from the other companies. As seen in the strategic group analysis, Pepsi already leads competition in the variety of salty snacks and non-carbonated drinks they offer (refer to Appendix 2). If Pepsi were to increase advertising and promotions in the soft drink market, other competitors would quickly follow. By concentrating their advertising on their unique salty snacks and non-carbonated drink categories, Pepsi will gain market share in a market that other companies have yet to penetrate. With Pepsi?s deliberate efforts to not put all of their eggs in one basket, they can expand their company and be successful in many markets as opposed to just one. The money for increased advertising could come from other areas within the company. Pepsi and other international bottlers have utilized their resources to create sufficient logistical systems. This has resulted in efficient warehousing and shipping activities and improved customer responsiveness, thus saving the company money. Pepsi should use the money saved to increase advertising of their distinct salty snacks and non-carbonated drink brands (refer to Appendix 3). Appendix 1 - Five Forces Analysis Rivalry- High Many competitors Low entry cost Lack of switching costs Factors Affecting Competition for Customers Overlap of customer targets Degree of differentiation Number and size of strategic groups Divergence in strategic approaches Channel diversity Geographic location Entry Barriers- Low High product differentiation Low capital expenditures No government regulation New companies entering with own niche markets (hundreds of them) Mobility Barriers Brand ID?it is more difficult for well-known brands to move up because they may not have the brand identification that the top companies do. Leverage?The leading manufacturers may have more clout with retailers. They will get better positioning and placement for promotional occurrences, etc. Product Quality?The top producers have already garnered a reputation for their quality of product. New entrants must prove themselves first. Technological leadership?This is a mobility barrier for smaller companies because technology can be very expensive. Substitutes- High Bottled water, milk, sports drinks, beer, coffee, tea, etc.. Option of doing without Position of each group versus substitutes Substitutes do pose a risk to this industry. For example drinks such as energy drinks could replace someone?s desire for a soft drink. Beverages are a necessity, but there are many types and each one can substitute for another. Suppliers- Low Sugar-low cost (generic good) Variety of bottling methods Main inputs of sugar and bottle material are low cost and easy to access Buyers- Low and high Low on individual High on industrial Walmart- strong influence High on fast food chains Bargaining Power of Buyers and Suppliers The supplies do not have much bargaining power. The goods in this particular industry are low-cost and generic. Individual buyers have no impact of the industry. Big companies, however, such as Wal-Mart or fast food chains can have an impact. Appendix 2: Structural Analysis Within an Industry. Appendix 3: Structural Analysis Within a Strategic Group