Boston Consulting Group Matrix (BCG) on Pepsi Co.
BCG Growth Matrix
Business organizations are subject to different aspects which affect the function and operations of the firm as a whole. In this regard, there are specific ways or techniques which can be noted in order to emerge and continue to be competitive in the market environment. The marketing context have been noted as the key factor to achieve company objectives and the marketing aspect rests on customer-orientation, market focus and coordinated marketing as well as profitability. In profit making business, the firm obviously has to do their best to achieve the level of customer satisfaction as a manner of staying ahead of the competitive position and making a profit.
In traditional ways, marketing has been used by different firms to be able to increase the capabilities of the company in the market. Its concept can be considered as one of the most essential element underpinning the success of business (1994). In the competitive market environment, connecting with the target market is getting more complicated for different industries (2003). Accordingly, it takes an effective management and approaches to win over the skeptical target market which suggest that it is the moment to forget everything that has been learned regarding marketing and branding (2003). It is mentioned that it is the target market that is in control of improving the power of the products or brands. In this regard, it is not the company who brand their target market, but the clients are the one which brands the company and their products and services offered.
The main goal of this report is to provide an in-depth analysis about the products of PepsiCo. In addition, these will also analyse the marketing strategies used by the company to compete with each other and aims on discussing if customer services is a most important part which let the company setting on the leading post in the market segment. In order to analyse the company, the use of BCG matrix will be considered.
Overview of the Company
PepsiCo Inc. is one of the world’s leading food and Beverage Company. PepsiCo started on 1965, during that time Pepsi-Cola’s CEO and President approached , Chairman and CEO with a proposition of merging the two company in providing food and beverage with complementary products that would give a lesser opportunity for cost sharing, joint merchandising and knowledge and skill transfer. Its expertise is to create different food and beverage products that would soothe the taste of its consumer. The new company was founded with annual revenues of $510 million and such well-known brands as Pepsi-Cola, Mountain Dew, Fritos, Lay’s, Chee-tos, Ruffles, and Rold Gold. PepsiCo’s roots can be traced to 1898, when , a pharmacist in New Bern, North Carolina, created the formula for a carbonated beverage he named Pepsi-Cola. The reinvention of different products, the introduction of new product, expansion into international markets and clever advertising campaigns are the primary focus of PepsiCo Inc. PepsiCo’s considerable marketing expertise could be leveraged in the marketing of fried chicken, pizza, and Mexican fast foods.
In 2001, PepsiCo was the second-largest food products company in the United States (behind Kraft Foods) and was diversified into salty and sweet snacks, soft drinks, orange juice, bottled water, ready-to-drink teas and coffees, nutraceutical and isotonic beverages, hot and ready-to-eat breakfast cereals, grain-based products, and breakfast condiments. Many PepsiCo brands held number one or number two positions in their respective food and beverage categories ( 2008).
PepsiCo Inc. became the first foreign product sold in the Soviet Union in 1972, expanded into China in 1982, and by 1984 sold products in nearly 150 countries and territories. The company enters the Soviet Union market by having trade relations with the USSR, giving PepsiCo exclusive rights to import Stolichnaya Russian vodka in the US while letting the products of PepsiCo be promoted in the nation. On the other hand, the company has entered the Chinese market by investing in the country and having a business operation in the nation. New brands launched under tenure as president and CEO included Pepsi Light in 1975, Grandma’s cookies in 1980, Tostitos in 1981, Pepsi Free in 1982, and Slice in 1984. In addition, Pearson crafted a corporate strategy that called for PepsiCo’s diversification into quick service restaurants. PepsiCo Inc. had diversified beyond snack foods and soft drinks with the acquisitions of North American Van Lines in 1968 and Wilson Sporting Goods in 1970, but the company’s acquisition of Pizza Hut in 1977 significantly shaped the strategic direction of PepsiCo for the next years to come.
The acquisition of different companies for the expansion of PepsiCo was believed by and that whereas soft drinks and snack foods were complementary businesses offering skills transfer and cost sharing benefits, quick-service restaurants offered a captive market for Pepsi-Cola’s fountain drinks will positioned the company in an additional high-growth industry.
During the late 1990s, PepsiCo acquired Cracker Jack from Borden Foods, Tropicana from Seagram Company Ltd., and Smith’s Snack food Company in Australia from United Biscuits Holdings. The company also introduced Doritos 3D’s tortilla chips and Pepsi One during the 1990s. In 2000, PepsiCo launched its Fruit Works line of fruit drinks and Sierra Mist lemon-lime soda, and Aquafina became the number one brand of bottled water sold in the United States. South Beach Beverage Company, the maker of SoBe teas and alternative beverages; Tasali Snack Foods, the leader in the Saudi Arabian salty snack market; and the Quaker Oats Company were acquired by PepsiCo in 2001.
BCG Growth Matrix Analysis
As mentioned above, this study aims on analyzing the products and services offered by PepsiCo. The BCG matrix approach is based on the product life cycle concepts which can be utilized to identify what priorities should be given in the product portfolio of a business level. To make sure that the company is creating long-term value, an industry should have a portfolio of products which contains both high-growth products in need of cash inputs as well as low-growth products which establishes a lot of profit or cash.
BCG matrix relies on 2 dimensions: market growth and market share. The basic notion behind it is that the higher the market share of a specific product has or the faster the product’s marketability grows, the better it is for the industry. Placing appropriate products in the BCG matrix, results in 4 categories, in the business portfolio of an industry. The four categories include the Stars, cash cows, dogs, question marks. Each of these categories has their own measurement. First, the stars are considered as those products which have high market growth and market share. The stars products use large amounts of cash and considered to have competitive position in the business which results in generating more profit. The stars products are frequently noted as rough in balance on net cash flow. But if needed, any attempt should be created to hold market share to avoid becoming cash cow.
The second category is Cash cows which are commonly considered to have low growth with high market share. Herein, the profits and generation of cash are considered high but because of the low market growth, the investment required should be low. It is said that cash cows should keep the profit high and is noted to be the foundation of the company. The next category is Dogs which is low market growth and share. It is noted that an industry should avoid or reduce the number of dog’s products in the industry. In addition, the company is also recommended to beware of the expensive turn around plans. The last category is question markets which is high growth with low market share. Question marks products are considered to be the worst cash features of all, because high demands make it to have low returns due to low market share. Herein, if the company would not be able to solve the issue of question market products, these may be able to absorb great amount of cash and may result from stopping dogs to grow.
Accordingly, BCG matrix approach can help the business companies to understand a frequently made approach mistake. Boston Consulting Group Matrix is a tool used for product portfolio planning 2005). This tool has two controlling elements which includes market growth relative market share. In this manner, the current situation PepsiCo in the standpoint of the market environment will be analyzed using this marketing tool. This analysis will give emphasis on the product and service portfolio of PepsiCo. Thus, the product and services that the company offers will be analyzed using the following figure.
It can be said that PepsiCo products and business portfolio can be divided in four major products or services; each service operates in accordance with its functions along with the products and services in different areas especially made as a distinction of each division. The PepsiCo analysis will be based in assessment of the services offered by the company.
Table 1: BOSTON CONSULTING GROUP MATRIX
Table 1 shows the product portfolio analysis of the PepsiCo using BCG Matrix analysis. Accordingly, PepsiCo is consisted of 5 major brands: Gatorade, Quaker, Pepsi products, Frito-Lay and Tropicana. As mentioned the assessment has been based on each products provided by the company. With this, it shows that the products that belong to the question mark are Gatorade and also Tropicana. Because of the emergence of different healthy drinks and beverages in the global market, the market share of Tropicana and Gatorade are being threatened. Although these brands have already established in the marketplace, the company still needs to have an effective marketing approach to increase the sale of these brands or brands. Accordingly, question mark category means that these products have a low share of a possible high growth market and may become a star product because of the positive response of the customers.
As can be seen in the figure, the services that fall in star category are is the pay-is Pepsi brands. The star category shows the products with a high share of a gradual growth of market and these products have a tendency to produce high amount of profits. The next category that can be seen in the figure is the cash cows. Herein, the products are considered to have a high share of a slow growth market ( 2005). With regards to the PepsiCo, services that can be considered in the cash cows are the Quaker. Lastly, it can be seen that Tropicana, Gatorade and Frito-Lay are products that can be considered in the dogs’ category.
It can be said that PepsiCo has been able to market their products and increase their market share and market growth by using different strategies and approaches. The company enhances the market share of their brands by considering different marketing entry modes. Through collaborative venture PepsiCo has been able to se merger and acquisition along with joint venture approach. Furthermore, franchising is another method that PepsiCo used to enhance the market share of the brands of the company ( 1990). This model used by (1990) has been utilized by PepsiCo in order to expand its business portfolio in other regions in the world. In this manner, the management of PepsiCo considers franchising an existing company in an international market while applying the methods of collaborative venture.
In order to make this foreign operational mode combination a success, PepsiCo consider the most suitable and effective expansion strategy. It can be said that the spread of PepsiCo is truly global. The company has hundreds of brands, which can be found in almost 200 countries and territories around the world. Market concentration is the result of interaction between the market size and a few vital factors. It is said that the industry of Carbonated Soft Drinks (CSD) is highly concentrated. There are three major industries that compete in this business (PepsiCo, Coca-Cola and Cadbury Schweppes). These industries are accounted for more than 90% if market share per case volume in 1998.
Exhibit 1: Growth of Market share by Case Volume
1990 1995 1998 2000E
Coca Cola Company 41.1% 42.3% 44.5% 44.1%
PepsiCo, Inc 32.4% 30.9% 31.4% 31.4%
Cadbury Schweppes (*) 3.2% 15.1% 14.3% 14.7%
Others 23.3% 11.7% 9.8% 9.8%
This shows that PepsiCo have a high market concentration and has a strong market share. In this manner, the strategies used PepsiCo in its brands is a good expansion strategy so as to maintain its position in the global market. PepsiCo is a global company and one of its strategies is the use of diversification approach. Aside from this approach, the BCG matrix results for PepsiCo is also considered to be inspired by the branding strategy of the company for enhancing the market share and growth of their brands like Frito-lay, Pepsi, Quaker, Tropicana and Gatorade.
Companies like PepsiCo perceived that their brand and products have some personalities and characteristics in which clients and customers use as a channel for expressing themselves or to experience the predicted emotional benefits that differentiate a specific brand from another. The considered product characteristics evolved through the different approaches used by the company and it is the one used for identifying which products should be put in the stars, dogs, cash cows or question marks categories in the BCG matrix. Nevertheless, studies on brand personality or characteristics and the representational utilization of brands has been confined to how target markets and audiences express themselves by purchasing the brands and has not given consideration on how the company perceived their brand characteristics 1998).
Accordingly, there are various management approaches that the company may use to have a strong and effective brand image and to determine which brands are more appealing to the market and which brands are not doing well. In order to build a strong brand and effective image, the management who of PepsiCo should think of two things in planning a strategy. Such things are first is to sell the service of the company as a short-term goal and second is to build a strong brand image in the long run. In time of the process of promoting the brand name, the industry can apply integrated marketing communications to ensure the efficient introduction of the quality of service that the organization stands for ( 2007).
It can be concluded that through the use of BCG Matrix analysis, companies like PepsiCo has been able to know which products can be considered as the foundation of the company and which products needs effective marketing approach to enhance its market share and growth in the marketplace. All in all, it can be said that BCG matrix is really a helpful marketing tools for different companies to know their competitive position in the market. It can also be said that effective marketing approach is a complex phenomena and it can easily be understood using metaphors such as understanding the current situation of the brands in the market. Analysis has shown that to be able to have a strong and effective brand, it must be able to meet the needs and demands of the clients and the company itself. In addition, analysis shows that the use of promotional activities is an important aspect to make the brand be more attractive and appealing to the target market.