BCG MATRIX ON PEPSI COMPANY

Introduction

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

analyze 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.  

BOSTON CONSULTING GROUP MATRIX

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.

Conclusion

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.