Strategic Analysis of Pepsi-Cola Company
Soft drinks, more popularly known as sodas, are not exactly referred to as items of necessity. People can live without sodas. In fact, people might be safer if they don’t drink soft drinks so much. And yet, soft drinks somehow make it to the top of the list of items most bought by the average consumer. Why is this, exactly? Well, for one thing, sodas are delicious. They stand between liquor and juice. Those who are too young to drink beer but think fruit juice is too juvenile can order sodas. Those too old and are putting their health at risk by drinking hard drinks can enjoy soft drinks and no one would think any less of them. In short, sodas have a mass appeal. They carry an image with them; an image of a person with a comfortable lifestyle.
This essay will take a look at the company Pepsi Cola. For a better understanding of the subject company, this paper will delve into a brief history of the Pepsi Company’s growth over the years and the effects of competition on Pepsi’s strategies in the international and domestic market. This essay will attempt to discuss the effectiveness of Pepsi’s marketing strategies and its results.
Pepsi was one of several other brands that got their start in the late 1800s. A North Carolina pharmacist named Caleb Bradham invented "Brad's Drink" in 1893, which was later renamed Pepsi-Cola. Pepsi’s early growth was less significant than that of Coke's, and its real strength as a competitor to Coke began after Alfred Steele became CEO in 1950, a time when Pepsi was nearly bankrupt. Steele was expected to liquidate the Pepsi-Cola Co. Instead, he made it his goal to "beat Coke" (Wolburg, 2003).
Pepsi Cola has taken part of that appeal and has used it in several different marketing strategies. Pepsi was born after Coca Cola, or Coke. It began in North Carolina, invented by a pharmacist named Caleb Bradham. It came out for public use on August 28, 1898. It had the reputation for being a food drink; Bradham was a pharmacist and he claimed that his concoction aided digestion. This claim, in a way, was already a marketing strategy, because during those times, people were always buying medicinal aids for digestion.
Pepsi spread to Canada in 1906, and the year after that, it was registered in Mexico. By 1908, Pepsi had upgraded their transportation delivery services from horse-drawn carts to automobiles. Pepsi seemed to be becoming successful in such a short time. But there is still a problem. By the time Pepsi Cola came out, Coke had already made its mark among the public and the newcomer Pepsi found it hard to find a consumer base.
For their first effective marketing strategy, they put their sodas in beer bottles and sold them cheaper than Coke. There was more drink for less money. They started selling, and Pepsi was seen as the poor man’s cola. Although this strategy worked, Pepsi recognized that if their image remained as that of the Poor Man’s Soda, their customer base would never widen. In order to improve its image, Pepsi devised a new marketing strategy by employing celebrities for its advertisements. One of their first celebrity endorser was Barney Oldfield, the pioneer for automobile racing.
The advertising strategy worked, but Pepsi still could not really dethrone Coke. In the 1920’s, the company released the ad Drink Pepsi. It will satisfy you. However, despite industrious efforts, the Pepsi Company still fell into bankruptcy due to the fall of the sugar market. It suffered several years of losses before it was sold to Loft Inc., a giant candy company. Loft was what Pepsi was waiting for. The company began to regain its former success. 1936 saw the formation of Pepsi Limited of London, and in 1938, the Pepsi logo was trademarked in the Soviet Union. The company sold the drink in 12 oz. bottles and launched the advertising campaign of Twice as Much for a Nickel.
The very first advertising jingle, Nickel, Nickel, was broadcasted by Pepsi nationwide. The track enjoyed tremendous popularity. Soon, Pepsi became bigger than Loft Company, and Loft changed their name to Pepsi-Cola Company. By 1947, Pepsi has amassed millions of dollars from the international market and it moved to the Philippines and the Middle East. They added two more advertising campaigns and in 1953, Pepsi began its Light Refreshment campaign in order to appeal to a newly weight-conscious America. Pepsi continued to try and improve its image from being considered as a bargain brand and attracted the young, fashionable consumers with their theme, Be Sociable, Have a Pepsi. Pepsi targeted the younger audience and those who are young at heart. During the baby boomer generation, Pepsi positioned itself as the drink for the new generation with a series of themes designed to appeal to the youth. These youths were said to belong to the Pepsi Generation in the early 1960’s. Diet Pepsi and Mountain Dew were then added to the list of products.
By now, Pepsi’s prevailing theme was clearly focused on the youth and their active lifestyles. In 1969 to 1973, Pepsi portrayed the social changes of the times and projected the American image of unity and individuality. Pepsi has broken its way into international markets. Apparently, Pepsi’s advertising strategies of celebrity endorsers is very effective. But advertising isn’t Pepsi’s only strategy. Moreover, there are several factors for effective international marketing strategies, and Pepsi has exploited most of them.
Before breaking into an international market, a company must familiarize itself first with the new country’s culture, people, and economy and government regulations. The company must also define their objectives for entering a new market. Pepsi began in the early 1900’s; a time when government regulations for business were less strict. But Pepsi did not break into the international market immediately. It first cultivated a solid consumer base in their homeland, America. Only then did the soft drink company set their sites on foreign countries. Canada was their first target. Their objective at the time was not simply to gain profits, but to broaden the reach of their company. Canada was, perhaps, closest to America, and therefore was the easiest to reach and their economy and government regulations there were familiar to Americans. Pepsi used their old strategy as well as a new one; they just concentrated on selling their cheaper but plentiful drink, and they expanded their distribution system from carriages to cars. In Canada, they maintained their target audience through the image of Pepsi being the Poor Man’s Soda.
Most of their early consumers in Canada belonged to the middle class, and Pepsi is still known as the preferred drink of these people there up until now. After being trademarked in Canada, Pepsi entered a new market in Mexico and then in Argentina, but only after incredible losses to the original company. Loft Company had injected new life into Pepsi, though, and it was with new marketing strategies that Pepsi came back. For the next several years, Pepsi employs different marketing strategies. They used their bottling networks to start marketing in foreign countries.
When Americans became more watchful of their weight, Pepsi launched a new campaign suited for this change of times, the Pepsi Light Refreshment. However, though, Pepsi was forced to change their cheaper drink image and they had to raise their prices in order to compete in the market in the 1950’s, and this included their franchises outside of the United States. Once more, their advertising strategy helped make this transition easier for consumer’s to accept. 149 bottling plants operating in 61 countries outside of the U.S. was a testament to the effectiveness of the Pepsi’s marketing strategies. They were now operating globally.
In 1965, Pepsi employed another marketing strategy which was company expansion. They merged with Frito-Lay, the most popular snack brand in the world. PepsiCo was formed. Pepsi took care of the beverages while Frito-lay manned the snacks. In 1966, PepsiCo settled into the Eastern European and Japanese markets. They also introduced new products; Diet Pepsi and Mountain Dew.
Afterwards, PepsiCo dipped its marketing hands into acquiring even more business. They bought Taco Bell and Pizza Hut and exerted effort into developing overseas restaurant ventures. One of the most successful advertising and promotion campaigns in history, the Pepsi Challenge, provides evidence on the importance of bottler coordination and on the difficulty of attaining such coordination. The success of the Challenge depended crucially on bottler execution. The bottlers were required to place spot advertising and in-store displays, develop and execute effective local price promotions, and discuss the results in detail with Pepsi- Cola to help the CM fine-tune the campaign (Muris, et al, 1993).
After many successes, PepsiCo then underwent reorganization of the company, diversifying itself into PepsiCo Worldwide Foods and PepsiCo Worldwide Beverages and placing their beverages and food products under the separate operations respectively. All through the 1990’s, Pepsi peppered their promotions, campaigns, advertisements and themes with celebrities from practically all industries. They also rode the Internet wave by creating a worldwide website that was indeed the top of the line and was imitated by other companies. This website didn’t just feature the Pepsi products; it also contained attention-grabbing stuff like movie previews, music, articles, games, and promotions.
Pepsi also repeated their promotional ways with their new Pepsi Stuff promos that involved basketball superstar Shaquille O’Neal. The promo also gave the buyer chances of earning points which they can then exchange for Pepsi prizes. As the new millennium rolled around, Pepsi resorted to their tried and proven promotions and advertisements strategies. They also introduced brand new products such as Pepsi Blue, endorsed by Britney Spears, and the new Code Red from Mountain Dew. They brought back the immensely popular Pepsi Challenge. They joined up with the National Football League and became their official soft drink sponsor with Gatorade. Pepsi is also responsible for the world’s first ever commercial to be filmed in space. This ad was all part of the promotion for Pepsi’s Project Blue.
Pepsi is also active in securing alliance deals with other big corporations. This is a merger-like strategy proven to be effective in marketing. For example, Pepsi has closed an alliance with Warner Brothers International Theaters and with Major League Baseball. Warner Brothers has granted Pepsi exclusive pouring rights, which means it is the only drink served in all the Warner Brothers International Theatres.
Another component of the new competitive strategies of Pepsi-Cola is their increasingly complex and sophisticated advertising and promotions--a major tactic in the so-called Cola Wars. The two (Pepsi and Coca Cola) constantly strive to devise advertising campaigns that best each other. But the ultimate success of these campaigns often depends on the cooperation of the bottlers to implement the campaign in their territories. Bottlers must cooperate by arranging spot coverage and by implementing coordinated promotion and pricing policies that build on the theme of the national advertising campaign (Muris, et al, 1993).
Now, it is quite clear that Pepsi couldn’t have attained world wide fame so easily. Especially because it’s competition happens to be the giant Coca-Cola Corporation. It is no secret that most of Pepsi’s strategies were designed to compete with Coke. Coke came first, and even until now, it is still the leading soft drink brand preferred by most Americans and a large number of foreign drinkers. But Pepsi is keeping up with Coca Cola.
Even from the very beginning, when Pepsi was just starting in the early 1900’s, the government had passed the Pure Food and Drug Act that prohibited the use of certain drugs such as arsenic, uranium, barium and plenty of others in drinks and foods. At this time, Coke and other existing soft drink brands had to change their formulas, but Pepsi did not. It proudly boasted that it has already met all federal requirements. While other brands were changing formulas to suit government standards, Pepsi was cutting into their market share. Pepsi was one of the first markets to use automobiles to improve their distribution system, and what the younger company lacked in prestige when compared with Coke, it made up for in ambitious advertising. This constant competition has been dubbed as the Cola Wars.
Pepsi has gained a reputation for catering to the teenagers, those in their twenties and even the young at heart. This is a customer base that other soft drink brands have previously overlooked in favor of the mature consumers. Pepsi also has the distinctive style of portraying the times in their campaigns. Their Generation Next campaign suggested that Pepsi is not just a drink for the next generation; its drinkers are also a generation ahead of their counterparts. Pepsi has cultivated an image for itself as the drink for the modern times. It has discovered that the buying power of the youth and the marketing power of celebrities were compatible. They have earned generously out of this formula.
The simple product and marketing strategies of Pepsi were critical to the efficiency of their independent bottling systems. Neither Pepsi nor Coca Cola introduced new products, new packages were introduced infrequently, and advertising campaigns were long-lived relative to today. The tactics of modern promotion, which require constant change and close coordination of national advertising with local promotion, did not exist (Muris, et al, 1993).
Pepsi-Cola concentrated on markets where it could prosper alongside Coca-Cola, rather than trying to defeat it. Since then, some of Pepsi-Cola's major moves include a new soft drink plant in Russia, it's fifth in the territory thus far; an alliance with Brazil's largest brewer, Brahma, giving it tremendous access to a healthy chunk of Latin America; and Norway's Pripps Ringnes signed an extensive franchise bottling agreement with PepsiCo for production, distribution and sales for nearly all of Norway. Operationally, the company's new focus has been to allow for and adapt to market differences, but employ standard best-practices. And while the company has pulled out of some markets, it has pushed forward in a number of others, constructing new plants, and putting new emphasis on single-serve distribution (Beverage Industry, 1998).
The Pepsi-Cola drink was invented in 1898 and grew basically by following the Coca- Cola marketing, product, and distribution strategies. Like Coca-Cola it advertised as heavily as finances permitted, and was distributed through soda fountains and franchised bottlers.
Assessing Pepsi’s marketing strategies; it is clear that Pepsi has made several right choices. With the existence of Coke, Pepsi can never lay claim to true originality. It is not that unique. So, Pepsi took advantage of their late entry into the market by lowering their prices. Before it entered the international market, it first familiarized its customers with its product thoroughly in its home base. By the time Pepsi was ready to enter the international market, it had a good grasp of what its target audience really is.
In conclusion, Pepsi’s marketing strategies, from past to present included: enhancing their distribution system, knowing the environment of the foreign market and finding the things their target buyers had in common, adding new innovations and products while improving the old products, imaginative advertising, use of advanced technology, assertive promotions, trendy, socially-aware campaigns, alliances with major corporations and expansion into other industries such as restaurants. Even Pepsi’s rival, Coca-Cola, had a hand in Pepsi’s success. When Coke makes a marketing move, even their buyers can’t help but hold their breath, waiting for Pepsi’s response. So, in effect, Coca-Cola’s massive fame has also rubbed off on its rival. It even isolated these two beverage companies from other soft drink brands.
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