Analysis of marketing strategies used by PepsiCo based on Ansoff's theory


Term Paper (Advanced seminar), 2008
24 Pages, Grade: 2

Excerpt

Table of Contents

1. Introduction
1.1 Problem definition
1.2 Objective
1.3 Course of investigation

2. Theory of Ansoff’s Matrix
2.1 Ansoff’s Matrix
2.1.1 First growth vector: Market Penetration
2.1.2 Second growth vector: Product Development
2.1.3 Third growth vector: Market Development
2.1.4 Fourth growth vector: Diversification

3. PepsiCo Inc
3.1 Some key facts about the company

4. International marketing strategies used by Pepsi-Cola Company
4.1 Market penetration
4.1.1 Advertising
4.2 Product Development
4.2.1 New Age Beverages
4.2.2 Cross-cultural Marketing
4.2.3 Pepsi Max
4.3 Market development
4.3.1 Exploring new markets in foreign countries
4.3.2 Emerging markets
4.4 Diversification
4.4.1 Mergers and Acquisitions

5. Conclusion

List of Figures

Figure 1: Ansoff’s product/market growth

Figure 2: PepsiCo – brands and products

1. Introduction

1.1 Problem definition

Most leading companies today pursue multiple strategies for growth simultaneously in order to reach their strategic goals. It is important to verify how different growth strategies are appropriate for companies operating in different types of markets, and how changes in business environment make the same company decide on different strategic options at stage time in its organisational life cycle.

The reason why firms succeed or fail is perhaps the central question in strategy1. The firm needs a well-defined scope and growth direction, that objectives alone do not meet this need, and additional decision rules are required if the firm is to have orderly and profitable growth. Such decision rules and guidelines have been broadly defined as strategy or, sometimes, as the concept of the firm’s business2.

The choice of a marketing growth strategy is a function of the strategic situation, organisational characteristics, and entrepreneur motivations3. It is inherent to the process of strategy formulation. Companies must be flexible to respond rapidly to competition and market changes. They must benchmark continuously to achieve best practice4.

1.2 Objective

This Case Study describes and analyzes the marketing strategies based on Ansoff’s theory which helped Pepsi-Cola establish its international presence. They serve as the base for the objective setting process of a company and set the ground of directional policy for its future. This work shall use Pepsi’s strategy to exemplify how other companies can benefit from it as a model for setting objectives.

In the analysis, the framework from Ansoff’s matrix is used to categorize growth strategies and then to relate them to the variable such as growth history of the company and expectations.

1.3 Course of investigation

The first part describes in detail Ansoff’s product/market matrix consisting of four growth strategies: market penetration, product development, market development and diversification. The second part deals with the main aspects of Ansoff’s analysis to the marketing strategies used by PepsiCo. It examines the historical facts and company’s point of view. The last section draws the conclusion and gives a feedback on the Pepsi’s frame strategy.

2. Theory of Ansoff’s Matrix

2.1 Ansoff’s Matrix

Ansoff’s matrix, also known as "2 x 2 growth vector component matrix", was first published in Harvard Business Review (1957) in the article “Strategies for Diversification”. Since then this matrix has been repeatedly tried out and proved its efficiency in choosing marketing growth strategies5.

Ansoff’s model of product/market growth suggests that it is possible to use several strategies simultaneously6. It is based on a supposition that the most appropriate growth strategy is appointed by the decision to sell old or new products on old or new markets. The Ansoff’s matrix represents a scheme used by managers for decision making and forecasting. It was supposed to describe optional strategies in the growing economy.

The marketing attraction of one or another strategy from Ansoff’s matrix is determined by the amount of sales and probable risk.

The product-market matrix consists of four growth vectors. The first vector is to penetrate existing product markets. The second growth vector involves product expansion while remaining in the existing market. The next growth vector is to apply the same products in ]new markets, while the fourth growth vector is to diversify into new products. In addition, there is a third dimension to the matrix based on vertical integration.

illustration not visible in this excerpt

Figure 1 Ansoff’s product/market growth.

Source: Igor Ansoff (1978) “Corporate Strategy”, McGraw-Hill, Middlesex

The advantage of Ansoff’s matrix is its simplicity. The main limitation of planning based on Ansoff’s matrix is the one-sided orientation on growth and the use of only two factors: product and market. It does not take into account indexes determining the efficiency of the company’s functioning (liquidity, financial stability, profit, etc.)7.

2.1.1 First growth vector: Market Penetration

"This is the de facto strategy: change nothing and sell more of the same to existing customers. When a business does not consciously select a growth or diversification strategy, it is doing this"8. In an existing market is selling of new products much more difficult than selling old products. It is easier to sell old products to traditional customers then to explore new markets.

In this case, a firm can use the market penetration strategy if the company tries to increase the share of its product in the overseas markets, which are already served by employing several types of tactics9:

- Product-line stretching: the company adds new products to its existing product line in an already penetrated market segment with the objective of attracting new and competitor’s customers from rivals;
- Product proliferation: the firm offers many different product types;
- Product improvement: this involves updating and augmenting the existing products, and can entail the application of the latest technology to improve the product’s capabilities, improving customer services, etc.

The market penetration is the safest strategy of all because it leverages many of the company's existing resources and capabilities. In a growing market environment, simply holding market share is bound to result in growth. There may be chances to increase market share if competitors approach capacity limits. Still, this marketing strategy has limits. As soon as the market reaches a saturation point, some other marketing strategy must be chosen if the company is to continue to grow10.

2.1.2 Second growth vector: Product Development

The second growth vector of the Ansoff’s matrix shows the product development strategy. It is characterized by offering new products to existing markets. Marketers are well aware of the importance of a positive customer relationship and the goodwill and trust that accompany it11. If such a relationship exists, a company is able to present for sale new products more effectively and less expensively to existing customers than to new ones.

"The advantages of this must be weighed against the possible damage resulting from negative spillover from the new to the existing product experience should it not be entirely satisfactory"12.

This strategy may be approached in the following ways13:

- Innovations,
- New brand,
- Modification of product range,
- Improving of product quality.

Product development strategy should be chosen if the company's strengths are related to its specific customers rather than to the specific product itself. In this case, it can enhance its strengths by developing a new product targeted to its existing customers14. Similar to the case of new market development, new product development is more risky than simply trying to increase market share.

2.1.3 Third growth vector: Market Development

Market development strategy as the third growth vector is oriented toward the search of new market or new market segment for already familiar products. The profit is ensured due to the market extension within a certain geographical area and outside. This strategy entails considerable expenditure and is more risky than the previous two strategies15.

Market development strategy may be successful if the company's basic competencies are related more to the specific product than to its experience with a specific market segment. However, it is extremely difficult to enter new geographical markets since other companies occupy them.

2.1.4 Fourth growth vector: Diversification

Diversification strategy entails both product, market development, and involves the company entering new product markets outside its present business or related product market. Firms could enter the conglomerate or unrelated diversification strategy. It means expanding into products and markets, which have no relationship to the company’s current product, market or technology. Expanding incurs higher risks, because the organization enters unknown markets and products. Company can justify such strategies on financial and management synergies. When there is some existing connection with the firm’s current value chain activities, it could enter a related diversification strategy. This can be divided into two types16:

- Vertical or forward / backward integration: the outlets or sources of suppliers are jointed with the firm;
- Horizontal integration: consists of moves within the economic environment of the company17, where are some complementarities in terms of the market and technology.

Nevertheless, this marketing strategy may be an appropriate option if the high risk is made up for by the chance of a high rate of return. Diversification strategy has also other advantages, like the potential to gain a foothold in an attractive industry and the reduction of general business portfolio risk18.

3. PepsiCo Inc.

3.1 Some key facts about the company

PepsiCo (Pepsi-Cola), Inc. is a global snack and beverage company. Donald M. Kendall, President and Chief Executive Officer of Pepsi-Cola and Herman W. Lay, Chairman and Chief Executive Officer of Frito-Lay founded it, through the merger of the two companies. The pharmacist Caleb Bradham created Pepsi-Cola in the late 1890s. The 1961 merger of the Frito Company and the H. W. Lay Company formed Frito-Lay, Inc. In a bid to generate faster growth for the company, PepsiCo diversified into the restaurant business through a series of takeovers. It purchased Pizza Hut in 1977, Taco Bell in 1978 and Kentucky Fried Chicken in 1986. Now, the new company reports sales of $39 billion and has more than 185,000 employees19.

[...]


1 cp. Porter, Michael E. (1991), p. 95

2 cp. Ansoff, Igor H. (1965), p.94

3 cp. Cravens, D.W. (1994), pp. 235-53

4 cp. Porter, Michael E. (1996), p.61

5 cp. http://www.marketingteacher.com/Lessons/lesson_ansoff.htm, as of 29 August 2008

6 cp. Wood, J.C. and Wood M.C. (2007), p. 54

7 Thompson, J.L. (1993), pp. 89

8 Lowy, A., Hood, Ph. (2004), pp.136

9 cp. Chee, H., Harris, R. (1998), p. 254

10 cp. McDonald, M., Ward, K., Smith, B. (2007), p. 176

11 cp. Boone, L., Kurtz, D. (2005), p. 11

12 cp. Lowy, A., Hood, Ph. (2004), pp.136

13 cp. Hansen, U., Hennig-Thurau, T., Schrader, U. (2001), p.118

14 cp. Graham, T., Alan, W. (2008), p. 101

15 cp. Freiling, J., Reckenfelderbäumer, M. (2007), w. p.

16 Chee, H., Harris, R. (1998), p.255

17 Ansoff, I. (1965), p. 116

18 Proctor, T. (2000), p. 254

19 cp. http://www.pepsico.com/PEP_Company/Overview/index.cfm, as of 29 September 2008

Excerpt out of 24 pages

Details

Title
Analysis of marketing strategies used by PepsiCo based on Ansoff's theory
College
University of applied sciences, Neuss
Course
Marketing
Grade
2
Author
Year
2008
Pages
24
Catalog Number
V119674
ISBN (eBook)
9783640236220
ISBN (Book)
9783640238293
File size
497 KB
Language
English
Tags
Analysis, PepsiCo, Ansoff, Marketing
Quote paper
Kristina Bachmeier (Author), 2008, Analysis of marketing strategies used by PepsiCo based on Ansoff's theory, Munich, GRIN Verlag, https://www.grin.com/document/119674

Comments

  • guest on 9/14/2009

    Analysis of marketing strategies used by PepsiCo based on Ansoff's theory.

    I am interested in learning more about you study.

    Is this available in english?

  • guest on 6/1/2010

    It is in eglish.

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