Pepsicos diversification strategy in 2017 case study
Competitive Strategy – Why Diversify? PepsiCo Case Study.
Why Diversify?
Why consider diversifying your business? What is diversification? Why do businesses do it? Are there different types of diversification and have any been really successful? This article will give answers to these questions and much more!
Firstly what is Diversification? It is a corporate strategy to increase market penetration and thereby increasing sales and gaining market share.
Many organisations consider diversification for a range of reasons. Some valid reasons are:
Not having all of your eggs in one basket If the industry becomes unattractive Diminishing market opportunities & stagnating sales When you spot an industry whose technologies & products complement the present business When you can leverage existing competencies & capabilities by expanding into businesses whose same resource strengths are key success factors & valuablecompetitive assets Opens new avenues for reducing costs Transference of a brand name to drive sales & profits Competitive pressures Diminishing growth prospects in the present business Expand into industries whose technologies & products complement present business (Dell – printers) Leverage existing competencies & capabilities by expanding into businesses where these resource strengths are key success factors Reduce costs by diversifying into closely related businesses – economies of scope & shared value chain Powerful brand name can be transferred to products of other businesses.
There are two types of diversification:
possess competitively valuable cross-business value chain matchups – horizontal integration.
have dissimilar value chains, containing no competitively useful cross-business relationships – can share вЂ˜support activities’ HR etc.
There is also the concept of strategic fit. Without a strategic fit is highly unlikely that a diversification will work:
strategic fit exists whenever one or more activities comprising the value chains of different businesses are sufficiently similar as to present opportunities for – transferring, combining, exploiting & business collaboration.
PepsiCo Case Study.
A few years ago PepsiCo diversified. This is an interesting case study of what can be achieved with a related diversification that has a strategic fit and some future opportunities for PepsiCo.
PepsiCo has used the related diversification corporate strategy as their basic approach to new businesses and acquisitions with a focus on beverages and consumer foods. Wherever possible PepsiCo has found related activities within the value chain between the various beverage and snack food brands to reduce costs and increase profits. Some of the elements of the value chain that are shared include:
This has enabled PepsiCo to find a good strategic fit in most of the businesses they have acquired. In turn this has lead to a good resource fit with all businesses generating free cash flow and a minimum margin of 15%+ across all units.
A key advantage for PepsiCo is that customers across the globe have similar tastes and this has assisted the company in implementing global strategies and being able to execute marketing and distribution similarly in all regions.
An opportunity exists for PepsiCo in the good-for-you and better-for-you markets that they are just starting to implement across their products. This change in consumer tastes worldwide provides an opportunity for PepsiCo to acquire a вЂ˜health food’ company similarly to Sanitarium in Australia. Sanitarium would fit into the PepsiCo model of being a consumer foods company with a focus on ready to eat breakfast cereals and well as being a horizontal integration into the value chain as a related diversification. The added advantage is that Sanitatium would give PepsiCo more credibility in the GFU/BFU market and enable the company to take leadership on this issue.
If you are considering diversification, hopefully these points will start you on the right direction!
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Sample Essay on PEPSICO Diversification Strategy.
PEPSICO diversification strategy is a plan introduced by the company to include snacks and other various beverage brands into its already existing product range. PEPSICO is a renowned beverage, food and snack company headquartered in the US. It deals in the manufacture, marketing and distribution of beverages and snacks to different markets across the world.
Through PEPSI Company’s diversified portfolio, it has also been able to move towards supplying ‘healthier’ products, which it had not primarily focused on.
This article will outline and explain the PEPSICO diversification strategy and how it has so far performed towards the achievement of the company’s goals.
Creation of PEPSICO Diversification Strategy.
PEPSI Co. has been conducting restructuring activities on its key product portfolios since 1997. However, it made a bold move in 2008, which saw the company launch differentiated beverage products and snacks.
The PEPSICO diversification strategy re-classified its products into three main categories under the banners:
‘’Fun For You’’ (Including potato crisps and regular soda), ‘’Better For You’’ (Diet or low-fat versions of snacks and sodas), and ‘’Good For You’’ (products like oatmeal).
Through the strategy, the company now boasts of three key products, including Pepsi Cola Beverages, Frito-Lay Brands and Quaker brands. Under the umbrella of these three key products, PEPSI manufactures a wide range of beverages and snacks, each bearing a different brand.
For instance, the Pepsi Cola Beverages include Pepsi Mountain Dew, Sierra Mist, SoBoe, AMP Energy among others. Frito-Lay Brands on the other hand comprise of Lay’s Potato Chips, Dorritos Tortilla Chips, Cheetos Cheese Snacks among others. Some of the products under the Quaker Brands include Quaker Oats, Quaker Rice Cakes, Chewy Granola Bars, Rice-A-Roni, Aunt Jemima mixes and syrups.
In the beverages categories market, PEPSI holds a significant share considering that it deals in both juices, sports drinks and bottled water, some of those whose demands are fast rising across the globe.
Reasons Behind PEPSI Co Diversification Strategy.
While making an announcement for the diversification portfolio launch in 2008, PEPSICO CEO Indra Nooyi pointed out that Pepsi must address ‘’one of the world’s biggest public health challenges, one which is fundamentally linked to the company’s industry: obesity.
The company has on several occasions said that the diversification portfolio is in line with its commitment to shifting resources from junk to healthier foods and improving general health and wellness.
Another reason for PEPSI’s adoption of the diversification strategy is to shield it from the impacts of the plunging consumption of CSD products in the beverage industry. The use of CSD products has been widely linked to conditions like diabetes, obesity among other health concerns.
How PEPSI Diversification Portfolio Has Performed.
The company’s beverages and snacks have generally been successful in the market despite the turbulence. In 2014, one of its brands, Doritos Locos Tacos surpassed $1 billion in sales since its launch in 2012.
Besides, the company’s winning of the Buffalo Wild Wings account in the same year is another demonstration of the success of PEPSICO diversification strategy.
Pepsi has also partnered with selected food stores, restaurants and theme parks, like Shanghai Disney China with the aim of promoting its beverages and snacks.
Some of the latest entries into PEPSI’s product portfolio include Spire, Doritos Loaded and Mtn Dew Solar Flare, Mtn Dew Baja Blast among others, launched in 2014.
Will PEPSICO Diversification Strategy Stand the Test of Time?
This is a question that many will be seeking answers to, considering that other beverage companies are also not left behind in the scramble for a fair market share. In the developed markets where CSD consumption is dwindling, PEPSICO diversification strategy might be an ideal formula to keep the company on top. In fact, the annual per capita levels of CSD consumption has significantly reduced over the years, presenting better hopes for Pepsi’s health-themed drinks and snacks.
On the other hand, the success of Pepsi’s diversification portfolio would still not be realized soon in developing markets where many people are still not fully informed about CSD consumption, the biggest threat in the market. With focus on proper marketing and partnerships, the diversification strategy could enable the company to outperform some of its biggest rivals in the beverage industry.
The above paper on PEPSICO Diversification Strategy is one of the many custom papers that you can find on our blog . In case you may need assistance in writing an assignment or term paper on any topic, simply visit our homepage for professional custom paper writing services.
Pepsico Case Study - 1 What is PepsiCos corporate strategy.
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