PepsiCo: Overview, Strategies, And Competitive Advantage

History and Mission of PepsiCo

PepsiCo is one of the leading food and Beverage Company in the world having a global portfolio of beloved and diversified brands.  The brand was established following the merger of Frito-lay and Pepsi-Cola in 1965. In year 1976, a code of worldwide business conduct was adopted by PepsiCo. It introduces the major caffeine free colas brand that is Diet Pepsi Free and Pepsi free in year 1982. Two of leading snack food companies of United Kingdom that is Smith Crisps and Walkers crisp was acquired by PepsiCo in year 1989. It also acquitted a large controlling interest in largest cookie company of Mexico. One of the biggest acquisitions of the brand was the products of Tropicana from Seagram Company limited. PepsiCo is the first company to respond to customer preferences with recyclable, light weight plastic bottles.  

The overall mission of the organization is to increase the value of investment made by their shareholders. This is achieved through cost controls, sales growth and making wise investment of their resources. Products of portfolio are available in more than two hundred territories and countries around the world. Some of the brand of PepsiCo includes Mountain Dew, Pepsi, Propel, Naked juice, Acquafina, Sierra Mist, SMP energy, SoBe and many others. Some of the food products that are manufactured by PepsiCo include flavoured snacks, chips, pasta, rice, cereals, and dairy based products. Beverage portfolio of the company comprised of carbonated soft drinks, sport drinks, drink tea and coffee, juices and bottled water. Organization competes with global, private and regional companies across the non alcoholic beverage and food space (Barney & Hesterly, 2015).

Michael porter has described a category scheme and this involves three types’ strategies that are used by business to maintain competitive advantage. Generic strategies are considered useful as they categorize the strategic position at the broadest and simplest level. However, the lower cost strategy is rarely able to provide sustainable competitive advantage. There are risk that is inherent in each strategy

PepsiCo is the second biggest player in the beverage and global food industry offering a diversified array of products. The generic competitive strategy of organization is based upon on the needs arising from the market pressures from their rivals and such strategy is used for maintaining competitive advantage. The intensive growth strategy of organization has been the response towards the evolving beverage and global food market conditions (Freeman & McVea, 2015). Generic strategy of PepsiCo is based on application of porters Model.

Product Portfolio of PepsiCo

The main porter’s generic strategies that have contributed to the competitive advantage of PepsiCo are strategies of broad differentiation and cost leadership. Cost leadership is used as the primary generic competitive strategy that focuses on cost minimization as a way of improving overall competitiveness and financial performance of organization. It can be explained with the help of an example the company in order to compete against its rival Coca-Cola products has offered lower prices based on lower operating costs.  Based on lower operating cost, PepsiCo offers low prices and makes special promotional offers with discounted price. The secondary generic competitive strategy is broad differentiation. Broad differentiation enables the business in gaining the competitive advantage by providing customers with unique features for some of its products. Generic strategy of cost leadership is intended to automate the process of production for minimizing the operating costs (Vogel & Güttel, 2013).

Cost leadership strategy of PepsiCo would include focusing on reducing economic cost by focusing in competitive advantage and thereby reducing the cost below its competitors. The low cost differentiation strategy of the organization has been done by taking the advantage of economies of scale by differing the products through marketing and tastes and through mass production of products.

Value chain analysis is a strategic tool that is used by companies to analyse their internal activities. The goal is to identify the most valuable activities of the firm so that they can be focused on for improving their competitive advantage. The analysis is performed using two tow different approaches that are cost advantage and differentiation advantage. Value chain helps in providing a way for identification a way for source of differentiation and the fundamental factors driving that source.  The basis of differentiation can be addressed by way of buyer’s value chain and helps in creating value to customers through improving buyer performance and lower buyers cost. Differentiation is resulting from actual uniqueness of organization in creating value to buyers and the ability of signalling that value (Zhao et al., 2017).

PepsiCo has been competing on cost and the organization wants to understand their cost advantage source and factors that are able to drive the costs reduction factor. For this, the firm has to identify their supporting and primary activities and establishing the relative importance of all such activities in relation to the total cost of product. After this, the cost drivers for each of the activities are identified and thereafter the link between such activities (Slack, 2015). After the analysis of all such activities, company intends to look for opportunities that will help in reducing the costs.

PepsiCo’s Competitive Strategies

PepsiCo has engaged in low cost differentiation strategy by taking the advantage of mass production of products through economies of scale and differentiating its products through marketing and taste. In year 2009, PepsiCo announced creating the products at lower prices and it continued offering discounts in its beverage and Frito Lay business.

Focus strategy of PepsiCo- There are many different geographical areas that the company have been targeting inside and outside cities for capturing ore customers and retaining existing customers. Relating to this particular strategy, PepsiCo has been launching several products under one umbrella.

PepsiCo has gone through five analysis steps for gaining cost advantage:

Identifying the primary and supporting activities of their business-

PepsiCo has separated all the activities that are required for producing services and goods after recognizing them. Such activities may vary from storing and receiving materials to selling, marketing and after sales support. It is required to have sufficient knowledge about the operations and is required by managers of the organization to look into how the work is being done to deliver the value to customers (Eden & Ackermann, 2013).

Establishing relative importance of such activities in relation to the products total costs:

Under this step, it is required by organization to break down the total cost of producing the products and assigning to each activity. For all such activities, PepsiCo has been relying on activity based costing. All such activities that are a major contributor of costs are addressed first and they are reduced by benchmarking against their competitors.

Managers of PepsiCo are able to focus on improving the costs by understanding the factors that are responsible for driving their cost of operations. Different activities have different cost drivers and costs of some labour intensive activities are driven by work speed, wage and work hours.

One of the factors that lead to cost reduction in subsequent activities is reducing cost in one activity. Establishing the Link between the activities will help in better understanding how the improvement in cost can be done and how it is affecting the whole value chain. It might happen sometimes that reducing cost in one activity can lead to higher cost in other activities (Hunger & Wheelen, 2014).

If the organization is well known with their cist drivers and activities that are inefficient, there can be well plan in place for improving them. Increasing production speed can be dealt with high wage rate or installation of some more automated process.

Porter’s Generic Strategies Applied by PepsiCo

Under the differentiation approach, PepsiCo uses the differentiation advantage approach for creating superior services and products. In this regard, the customer value creating activities are identified by the firm and differentiation strategies are evaluated for improving the value generated to customers. Later, the best sustainable differentiation is identified.

Identification of customer value creating activities-

Under this step, managers focus on all those activities that help in creating value for customers after all the activities have been identified.

Evaluation of different activities that helps in improving value to the customers-

Managers of PepsiCo for increasing customer value use the following strategies and product differentiation and they are as follows:

• Adding some more features to the products
• Increasing customization
• Focusing on responsiveness and customer service
• Offering complementary products

The result of many strategies and interrelated activities used are creation of greater customer value and superior differentiation. Pursuing the sustainable differentiation advantage will arise from the best combination of the above listed facts and features.

The supply chain management of PepsiCo had been based on idea of integration and collaboration. Several initiatives have been taken by company that have become a source of competitive advantage.

At the production facility, PepsiCo has employed many technologies and this was done when they realized there was some breakdown of mismanaged inventories and machineries. Production at the organization initiates with conveyor plantation for unloading the empty bottles. Different distribution strategies are used by organization for bringing the products in the market depending upon the local trade practices, characteristics of products and needs of customers. For distributing the products to businesses, stadiums, schools and restaurants, it makes use of vending distributors and party food services. PepsiCo has established a collaborative relationship with the retailers and this has made its supply chain more efficient (David & David, 2015). The distribution network of PepsiCo provides them with significant pricing power.

The business model of PepsiCo is based on the fact that it would continue to explore and extend its existing line of products by participating in new line of beverages. The company has responded competitive changing environment by adapting assets and organizational structure. Implementation of selective packaging strategies has been designed to meet the increasing demand of consumers and building returnable base for the brand (Gans & Ryall, 2017).

In relation to cost, organization has implemented three year productivity program that has resulted in incremental saving and further cost reductions. Operations of organization are run by larger extended consensus management style. Differentiation strategy comprises of strong positioning and high value products.

Value Chain Analysis of PepsiCo

Some of the other strategies used by PepsiCo relates to retrenchment strategy, growth strategy, portfolio strategy and stability strategy. Organization has been striving to increase the association level of individual brands with company philosophy and values. This is meant to be facilitated through the supply chain management, operational costs and infrastructure. 

There is a risk of cost leadership as positioning of the firm as the low cost service provider or manufacturer places a severe burden on firms. Several vulnerability is available to cost leadership and this involves technological changes, imitation risk, lack of attention and unexpected inflation in cost. Technological changes is related to outdating past learning and erases past investments. The risk of imitation by late entrants comes with the advantage of low cost learning. The excessive concern by organization for minimizing its cost is concerned with lack of need of preference and attention. Risk associated with the unexpected inflation in costs is responsible for reducing the ability of firm for offsetting the product differentiation through cost leadership (Dess et al., 2014).

Differentiation strategy of PepsiCo is associated with the risk of increased cost differential between the differentiating firms and low cost producers. The differentiating firm is responsible for motivating the customers with brand loyalty to switch to another brand. Therefore, buyers will sacrifice some of the additional features and huge savings in cost. Perceived difference might be narrowed down due to imitation. Differentiation firm such as PepsiCo would be lagging behind if the firm with lower cost will take over the market for differentiating firm (Bergh et al., 2016).

Various risks are related to the generic cost and differentiation strategies and maintaining the cost leadership strategies requires the business to continuously research for cost reductions in all aspect of business. In this regard, it is recommended to business of PepsiCo to have two alternative strategic initiatives and they are as follows:

It is recommended to the firm to pursue with only one potters generic strategy to make the strategy sustainable in long run. One of the effective way of matching the strategy of product with the characteristics of target market segments is the combination of product differentiation strategy with the market segmentation strategy. The combination of broad differentiation with the cost leadership is hardly successful and they are difficult to be implemented due to the potential for conflict between additional cost of value added differentiation and cost minimization.

Cost Advantage Analysis of PepsiCo

One of the weakest aspect of strategic management is implementation. Conceptual skills used in the formulation of strategy during implementation are superseded by pragmatic skills. Some of the factor that is of paramount importance in the implementation of strategy are effective leadership, efficient planning and efficient management. The Hubbard model helps the organization in providing the good overview of main elements in the implementation of strategy (Hubbard et al., 2014). It is well known by the PepsiCo the types of business strategies they are required to follow, it is required by the organization to become acquainted with the elements that needs to be addressed for implementation of the strategy. There are several factors incorporated in the model and this comprise of strategy itself, shared values, structure, system, staff, styles and skills. The analytical elements of the environment of PepsiCo has been incorporated in the model along with their capabilities and business organization. Implementation is regarded is an integral part of management. Issues of implementation are influenced by the assessment of current capabilities, strategy chosen and environment (Greco et al., 2013).

Leadership- One of the elements that is essential in determining whether a strategy should be carried by an organization or not. This relates to all the people having profit responsibility such as group and divisional mangers rather than team of top management or CEO of organization. Some of the significant part of the organization that is managed by the mangers are expenses and revenue centres. Leadership strategy is intended to balance the long-term and short-term and focus is on short-term quality results in the event of yielding decisions that would impact the long term health of organization.

People- This factor deals with the skills, values, behaviour and attitude of people in organization. Claim of an organization can be assessed by with the help of application of this model. Business activities are increasingly being dominated in the knowledge based organizations and the reason is attributable to the role of people.

Culture- The way of operating, behaving and the actual values of organization are involves in culture. Power sources, control mechanism, routine, symbol and rituals influence behaviours. Organization takes into account different cross-cultural of various market when developing and delivering the marketing message of PepsiCo. The marketing tagline of the organization has been modified by taking into account cross-cultural differences related with different markets. The strategic level management of the company is committed to increase the level of core organic revenue through the application of effective marketing strategy and maintaining high quality standards (Hubbard et al., 2014). It can be said in this regard, that PepsiCo has taken into account the cultural factor when planning and implementing their strategies. PepsiCo has considered culture that exists and is desired. 

Differentiation Advantage Analysis of PepsiCo

Structure- Formal structure of organization is the first preferred area for organizational change. Implementation of planned strategy is least effected by this particular factor.

System- System involves control, information, operating, and information technology and reward system. System is regarded as one of the most underrated area for determining the strategic performance. The performance of organization has the purpose effort and this is directed towards creating healthier relationship between people and food along with continuing to grow their business (Frynas & Mellahi, 2015).

The company has not been employing the right mix of porter’s generic strategies. It has been simultaneously employing the cost leadership and broad differentiation strategy. Such combination is not always successful as there are many risk associated with strategies employed (Bettis et al., 2014). Concerning the leadership strategy, it is seen that organization has sufficient leadership support for implementing the strategy. However, some of the facts that have led to the implementation issues is attributable to the inappropriate mix of strategies combination. Management process of organization have not been properly aligned and inappropriate implementation planning.

Organization operates primarily in food and beverage markets and this is considered as one of the issue as the vulnerability of company toward the risk is maximized. There is failure on part of management of PepsiCo for effectively marketing many of their products. Organization can effectively respond to several issues relating to the strategic management by diversifying the business to minimize the exposure to the risks. In order to grow the revenues of the business, it is required to further penetrate in the developing market and attract more consumers by improving healthfulness of products (Chen et al., 2014). Organization needs to continuously work for stabilizing their business as they have been increasingly facing competition from their competitors.  It is required by the organization to work on differentiation, as they are required to launch the products with different taste to compete with their competitors. There is a need to make the betterment of the continuous process using the standards of total quality management. For all the franchises, there is a need to make the implementation rules. Some of the recommendations for improving the strategic management of PepsiCo.

• It is recommended to the organization to employ strategies that are useful and generate benefits in the long-term.
• Strategic management concerning products of PepsiCo should be enhanced by implementation of combination of two different strategy of product differentiation and market segmentation.
• The Porters generic strategies employed by the organization is not adequate and before choosing the route of cost leadership, it is required by the organization to prevail in this strategy and acquire number one position so that it is able to exceed its competitors.
• In order to make differentiation a successful strategy, it is required by PepsiCo to conduct good research, innovation and development. It should be capable of delivering high quality of services and products. Marketing and sales strategies needs to be highly effective as it will help them in understanding market in better way by providing the benefits of differentiated offerings.
• PepsiCo is required to stay responsive when pursuing differentiation strategy while development process of new products. If the organization is not able to stay agile then run the risk of several fronts by the differentiation strategies used by its competitors in different market segments.
• It is required by organization to focus on other areas such as supply chain management along with concentrating on porter’s generic strategies. They should developing an understanding of gaining the knowledge about the needs of customers.

Conclusion:

From the above discussion about the strategic management of PepsiCo, it is concluded that the organization has not been employing the right mix of generic strategies. Organization has employed many corporate strategies for remaining competitive advantage in the market. Application of Hubbard model has helped in analysing whether the implemented of strategies in the organization has been done by considering all the relevant factors affecting the decisions and behaviours of organization. There is need on part of PepsiCo to re-examine their strategy models that requires them to move to new beverage categories. In order to transfer resources from other brands, it is required on part of organization to make heavy investment in some risky innovations. Organization is required to attract new consumers by using the media vehicles.  

Supply Chain Management of PepsiCo

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