Hybrid everyday value pricing strategy

Running head: PEPSICO COMPANY 1

PEPSICO COMPANY 13

Case study: PepsiCo Company

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Abstract

In the global market, the food and beverage industry has become one of the largest businesses, contributing to about $ 8 trillion annually. Evaluating this to the global gross domestic product means that this industry contributes to about 10% of the world's total GDP. Multiple companies have established stable investment in this industry and hence contribute significantly to its enormous growth. The tops and largest companies include Nestles in the first position then followed by and not limited to PepsiCo, COca-cola, Kraft Heinz Company, Anheuser-Busch InBev, and Danone. This article provides a case study for PepsiCo cover in three sections as outlined below:

An introduction: This section covers a brief and precise overview of PepsiCo Company, which identifies the products and services offered by the company, identifies its competitors, and how the company maintains its competitiveness.

Demand analysis: This section: describes an evaluation that shows the concept of law of demand and purchasing power. It also discusses marketing strategies such as social media marketing, sports marketing, brand positioning, and market segmentation.

Production and cost analysis: This section outlines the production strategies that the company implements in its operation to minimize cost and maximize profits. It also includes a brief assessment of the fixed and variable costs involved in the PepsiCo Company.

Pricing strategy: this section outlines the various pricing strategies applied by PepsiCo Company and how it benefits from this pricing approaches. The strategies discussed include market-oriented pricing strategy, hybrid Everyday Value pricing strategy, value-based pricing, life-cycle pricing, and niche pricing.

Throughout its operations, PepsiCo has managed to dominate the global market, develop a global brand image for both food and beverage business units, and establish a highly diversified portfolio. The conclusion sums up the concept in the context.

Keywords: the law of demand, purchase power, fixed cost, the variable cost, market-oriented pricing, Everyday Value pricing, market dominance, brand image

Introductions

PepsiCo, Inc was founded in 1965, and since then, the company has consistently grown and become one of the world's most abundant food and Beverages Company in the world. In 2017 the company reported that form its current market sales, there is approximately over one billion purchase of the food and beverage products the company offer in the global market. The company business units are located in a different part of the world, such as North America, Latin American, Europe Sub-Saharan Africa, Asia, North Africa, and the Middle East (Church, 2019) Through this business unit the company offers different brands of food, snack, and beverages. Some of these brands include and not limited to Pepsi, Mountain Dew, Cheetos, Doritos, Quaker, Ruffles, and Lays (Wu, 2017). The companies also offer distribution services for their products through direct store delivery, customer warehouses, and third-party distributors/vendors partners.

In the current food and beverage industry, there are new emerging issues influencing most companies' growth and continuity. For example, health concerns have become significant challenges for food and beverage companies such as PepsiCo, especially now that people are becoming more aware and sensitive about their health. PepsiCo has been offering both sugary beverages and salty snacks for a long time to its customers. Sugar and salt are some of the factors currently identified to contribute to health issues such as obesity and diabetes. This new concern is likely to affect PepsiCo sales negatively, and to avoid this; the company must implement new strategies to address these issues.

Additionally, the market landscape has also significantly changed, calling for new approaches to leverage the position held by most companies in the food and beverage industry. With this in mind, PepsiCo Company currently plans to include new approaches such as using e-commerce platforms and mobile applications to meet new demands in the dynamically changing to the market environment. This will enable the company to enhance competitive advantages against competitors such as Coca-cola, Monster Beverages, Kraft Heinz, Nestle, and Mondelez international. Zhang (2019) suggests that Coca-cola stands out to be the highest competitor for the beverage market share in the international market. The reports that in 2018 the market share between Coca-cola and PepsiCo Company was about 22%, and 20%, respectively, shows the tight competition between these two companies. Nevertheless, this does not mean that other competitors, as mentioned earlier, should be ignored. Nestle also has significant potential to compete with PepsiCo Company in the food and beverage industry.

One of the approaches that make PepsiCo a unique competitor in this industry includes its unique selling strategy of complementary products-beverages, snacks, and food. In most cases, an individual would include other food products or snacks. PepsiCo Company uses this as one of its approaches to increase customer satisfaction and attraction. The company suggests that more than half of the customers on how to purchase beverages also include other food products in their shopping, such as snacks. Being an internationally recognized company producing quality beverages and food products enables PepsiCo to develop a unique brand image that leverages its market position against other competitors in the industry. Moreover, to avoid the negative impact of health concerns, the company is currently focusing on introducing new and healthier products such as fermented tea, smoothies, and KeVita probiotics.

PepsiCo Company: demand analysis

Demand analysis refers to the procedure taken by an organization to understand customer needs for a product and services provided in a particular market. Through a demand analysis and organization can determine its success capability for getting into a new market or achieve expected growth in an industry (Wu, 2017). Marwala & Hurwitz (2017) suggest that according to the law of demand, the quantity purchased decreases with an increase in price. On the other hand, purchasing power refers to currency value that can be defined in terms of the goods/services that an individual can buy using one unit of money.

Inflation is one of the concepts that define how purchasing power can influence demand in a given market. For example, it is suggested that an increase/decrease in inflation leads to the fall/rise in buying power or quality of living. This means that when inflation increases, money loses its value, and hence in such a situation, an individual would need more money to buy some product that was much cheaper before. The same applies to the beverage and food industries. For example, after an increase in inflation, an organization like PepsiCo would need more money to make the same investment that would have been less costly.

The connection here is that when the cost increases during production, an organization is likely to increase the prices of its product and services to cover that cost. This reduces the demand for a particular product or service provides because an increase in price reduces demand. Fortunately, according to demand analysis for Pepsi, the concept of price changes does not necessarily affect the demand for it. Wu (2017) suggests that PepsiCo takes advantage of its large scale production to apply the economy of scales, enabling it to price its products at a relatively desired value that meets consumer economic potential. Additionally, the company minimizes its production cost through an economy of scale. This allows PepsiCo to realize its profits targets besides offering desirable prices for its product and services.

Moreover, the company also implements similar targeting approaches with modified marketing strategies that involve customer-oriented segmentation, mass promotion, and global positioning of the brands it offers. PepsiCo Company position it brands for food and beverage product as a quality product that nutritious benefits and low calories. This approach has managed to maintain demand for its products despite the current increase in health concerns associated with salted snacks and sugary beverages. The price strategy enables the company to meets the demand for every form of the market segment in the global market. It also positions it to use market segmentation to meet the needs of different market segments. For example, the company positions itself as one that produces energetic drinks love by the young generation. This approach enables it to dominate the market for customers aged between 13-35 years. The company also uses digital marketing such as social media (Facebook, Tweeter, YouTube, and Instagram) and sports marketing to promote its brands.

PepsiCo Company: Production and cost analysis

There are different production strategies and techniques that different organizations use to meet their final output objective. For PepsiCo Company, Lean and Six Sigma principles have the primary production strategy to sufficiently manage its operations. Radjou, Prabhu & Ahuja (2012) suggest that through the six sigma principle and lean manufacturing tools, the company identifies the possibility of the defect and eliminates any factor that can cause those defects. This allows the company to reduces waste and hence contribution to minimizing unnecessary cost during production. Overall Equipment Effectiveness (OEE), an integral part of the lean manufacturing strategy, allows PepsiCo to sufficiently evaluate its production efficiency by analyzing the rate of production and quality of product/service. Moreover, the company also uses process/capital design in its production processes to maximize its productivity-cost ratio. For instance, PepsiCo Company manages to achieve quality production and operational efficiency through process efficiency and overall capacity utilization.

The PepsiCo Bottling facilities, the company, reduce costs involved while using raw materials by reducing wastes and minimizing material use per container. Additionally, the bottles' manufacturing process is also designed to minimize inter-production activities such as handling, shipping, storage, and sterilization. This allows the company to farther reduce cost without compromising the quality of its product and services.

Other implementation in PepsiCo production that enhanced cost reduction includes integrating research/development of output, improving layout structures, conserving energy, and using a strategic location for its premises. Ahmed (n.d) explains that research and development in PepsiCo production activities help the company understand market trends and changes in customer preferences. This gives the company a directive strategy that promotes proper innovation and deciding about production. The company uses layout design and strategies such as total quality management and production line assembly to increase efficiency and productivity.

The cost involved in the PepsiCo company includes variable costs such as cost of sales and fixed cost such as general/administrative cost. Ahmed (n.d) suggests that about 84% of the company's total revenues in 2018 were used to cater to these expenses. Most of the company's variable costs are incurred through sales, marketing, promotion, and advertising projects carried out to promote the brand. The fixed cost incurred in the company is due to administrative activities insurance bills, rental charges for leasing premises, taxation charges, and interest payments. The company aims to use the strategies mentioned in the production analysis to minimize both fixed and variable costs involved in its operations.

PepsiCo Company: analysis for the pricing strategy

PepsiCo uses varying strategies to pricing its multiple categories of product varieties and brands. Therefore before the company can implement a pricing strategy, it first considers the product line involved and the market mix element crucial for that particular product line. Nevertheless, both market-oriented pricing and the hybrid everyday value pricing strategy have been the company's main approaches. Through a market-oriented pricing strategy, PepsiCo manages to enhance its competitiveness in the global market. Rahmani, Emamisaleh & Yadegari (2015) includes that through this strategy, the company offers identifies the best prices that meet the market condition and match the prices offered by substitute firm with substitute products. These strategies allow the company to adjust its pricing according to dynamic changes in the global market.

On the other hand, PepsiCo applies a Hybrid Everyday value pricing strategy to ensure price consistency throughout its daily sales. Rahmani, Emamisaleh & Yadegari (2015) suggest that the Hybrid Everyday value pricing strategy is an approach that helps the company to close the gap involved in a regular day and holiday days. For example, instead of providing discounted sales only on holidays, PepsiCo uses it daily to offer more benefits to its customers.

Other pricing strategies include value-based pricing, live cycle pricing cand niche pricing. There are different products and services that PepsiCo that hare highly valued by customers due to high-quality perception. Some of these products include Pepsi and diet Pepsi. The company takes advantage of this highly perceived value to prices this produces at a high price and hence getting an opportunity to generate more profitability. While using a life-cycle pricing strategy, the company prices its products based on the four stages of every product it produces. The first stage of the product life cycle is development stages, and it refers to the introduction period of a product in the market. Most customers are usually not aware of the product, and due to this, sales are likely to below. To promote sales, most firms implement low prices to create customer traction.

Nevertheless, the company has a well-established brand that is well known globally, and this wide pool for loyal customers allows the company to use high prices even for its new products (Vergeer et al. 2020). When a product is at the growth stage, the company implements competitive pricing, which competes against an emerging competitor or substitute products. The company implements more competitive pricing strategies during the maturity stage to ensure that it can milk the best profit. Eventually, when the product gets to decline step, the company implements low prices for the product as a strategy to maintain sales and attract some new customers how may be trying the product for the first time at this stage. The Mountain Dew has been one of the popular product enable PepsiCo Company to use niche pricing strategy. For a long time, this drink has been recognized as one of the gamers' caffeine boosted beverages. The brand of the drink as a gamer beverage allows the company to charge more and still attract a significant percentage of athletes as loyal customers.

What PepsiCo Company has got “right."

Throughout PepsiCo's investment, development, and growth in the beverage and food industry, it reveals various capabilities that make it exceptional. For example, currently, the company has managed to be more the first five largest beverage and food-producing companies in the world (Animashaun, 2017). The company also has over 100 brands of beverages and food products that have established global recognition and reputation. The company’s brand is ranked among the top thirty brands ($18.8 billion brand value) with the high value. It has a unique business strategy in the food and beverage industry. For example, it is the best company to produce both food/snack and beverage products, from which each business unit has attained global popularity. For example, foods and snacks such as Frito Lays, Doritos, and Cheetos have global sales, while beverage products such as Pepsi, Tropicana, and Gatorade meet the same quality (Animashaun, 2017).

Conclusion

PepsiCo is a stable global competing company and produces both food and beverage products. One of the factors influencing the companies operation includes demand, cost, price, and operational capabilities. Other factors that determine the influences include inflation in which an increase in inflation reduces the value of money, making it costly to invest or buy a product/receive services. The price of the commodity is high when demand decreases. PepsiCo uses different marketing strategies, such as global positioning and customer-oriented marketing; PepsiCo's pricing strategies include market-oriented pricing, hybrid everyday value pricing, life-cycle pricing, niche pricing, and value-based pricing.

References

Ahmed, A. M. Efficiency and profitability analysis in the food and beverage sector–an application on PepsiCo.

Animashaun, O. S. (2017). An investigation of project management at PepsiCo Company (Doctoral dissertation, Тернопільський національний технічний університет ім. Івана Пулюя).

Church, A. H. (2019). Building an Integrated Architecture for Leadership Assessment and Development at PepsiCo. In Evidence-Based Initiatives for Organizational Change and Development (pp. 492-505). IGI Global.

Marwala, T., & Hurwitz, E. (2017). Supply and Demand. In Artificial Intelligence and Economic Theory: Skynet in the market (pp. 15-25). Springer, Cham.

Radjou, N., Prabhu, J., & Ahuja, S. (2012). Jugaad Innovation: Think frugal, be flexible, generate breakthrough growth. John Wiley & Sons.

Rahmani, K., Emamisaleh, K., & Yadegari, R. (2015). Quality function deployment and new product development with a focus on marketing mix 4P model. Asian Journal of Research in Marketing, 4(2), 98-108.

Vergeer, L., Vanderlee, L., Ahmed, M., Franco-Arellano, B., Mulligan, C., Dickinson, K., & L’Abbé, M. R. (2020). A comparison of the nutritional quality of products offered by the top packaged food and beverage companies in Canada. BMC Public Health, 20, 1-14.

Wu, M. B. (2017). Investment Thesis for PepsiCo, Inc.(NYSE: PEP).

Zhang, Z. (2019). Risk Analysis of Two Leader Drink Company: PepsiCo and Coca-Cola. Asian Business Research, 4(3), 42.