Businesses compete for limited market share, employing different strategies to gain a competitive advantage over their competitors. In the soft drinks industry, Coca-Cola, PepsiCo, and Dr. Pepper Snapple are the main players in the American market. Globally, PepsiCo and Coca-Cola contend for world dominance. Each of these companies enjoys certain advantages that allow them to command a certain portion of the market. Carefully formulated policies govern their operation and ultimately, profitability. Without these competitive advantages, businesses would be incapable of competing in an aggressive market. In this essay, we shall asses the competitive advantages of PepsiCo Incorporated, including the sources of the company's competitive advantage, their sustainability, and threats to these advantages.
PepsiCo has always been a diversified company, at one time having been the world's leading restaurant company with Kentucky Fried Chicken (KFC), Taco Bell, and Pizza Hut being among its core brands (Tanwar, 2013). After shedding the restaurant business to focus on food and beverages distribution, PepsiCo maintains its diversity by owning brands in the snacks category as well as in the carbonated and non-carbonated drinks category. Consequently, the company owns a product portfolio that places it second in the global social beverages market after Coca-Cola (Johnston & Compton, 2012). The company also owns a savory snacks products portfolio that places it as the leader in that category in global sales, with a marginal lead over the second-placed competitor. With brands such as Gatorade and Tropicana among others, PepsiCo ranks among the global top three in the nutrition category.
PepsiCo enjoys a competitive advantage over its main rival Coca-Cola because the latter concentrates on the carbonated drinks category with limited presence in juices, sports drinks, and non-carbonated beverages. Consequently, the country posts greater gross year-to-year sales from all the products in its portfolio than Coca-Cola, resulting in larger profits and thus an increased capacity to compete. Therefore, while Coca-Cola is PepsiCo's main rival in the carbonated beverages category, the company competes with numerous other businesses in other categories like snacks, sports drinks, and juices. According to Pesic, Milic, and Stankovic (2012), multiple competitors are more effective in increasing a company's profitability because it is constantly striving to beat them. Accordingly, PepsiCo competes with Dr. Pepper Snapple in the juices department in their North American markets (United States, Mexico, and Canada). The company also enjoys a competitive advantage over Dr. Pepper Snapple in that the latter only operates in North America while PepsiCo has a global presence. PepsiCo also has a larger product portfolio that cushions it from losses in the event of poor performance in one segment of the market.
Apart from diversity, PepsiCo enjoys another competitive advantage as a consumer-centric brand with a great emphasis on building products the market wants and engaging the consumers in the making of these products. Among all the players in the snacks and beverages market, PepsiCo best exploits social media to capture the attention of the market and capitalize on social media buzz. For example, the DEWmocracy campaign invited social media users to participate in every process of the creation of its Mountain Dew drink, resulting in sales of more than 36 million cases of the brand (Madadipouya, 2015). The company's ability to relate to the younger demographics by capitalizing on social media has given its products great traction. PepsiCo's history of mergers and acquisitions in its long history of operation and the profitability of the resultant entity suggests that its strategy of diversification and consumer centrism is very sustainable. As a company constituting of merged entities, PepsiCo would suffer the greatest financial loss if its major competitors merged.
Business strategies discussed in class included cost, differentiation, and value innovation. While PepsiCo does not fit neatly into either of these strategies, aspects of its approaches to business organization point towards cost and value innovation, with differentiation emerging in products such as its sports drink Gatorade. According to Johnston and Compton (2012), PepsiCo's path to its current profitability and market dominance included shedding its bottling operations into a different company, a strategy that allowed the company to reduce the cost of production of its beverages and increase profitability. Value innovation has been used as a marketing tool by PepsiCo, creating value in its Mountain Dew bottled drink by engaging the market in its development through social media. Social media presents another avenue through which PepsiCo creates value in its products, interacting with millions of users online through YouTube videos, Facebook posts, and Tweets.
The structure of PepsiCo aligns with the VRIO framework suggested by Pesic, Milic and Stankovic (2012) of creating value, rarity, inimitability, and organization. PepsiCo creates value through its commitment to customer satisfaction, ensuring the highest quality of the products in its portfolio, and innovating constantly through IT to improve its customer relations. Rarity is achieved at PepsiCo by the development of unique products that fulfill the needs of the market in refreshment, snacking, healthy eating, and sports. As a product of numerous mergers and acquisitions, as well as product developments, PepsiCo, and its portfolio, are truly inimitable, standing out among global food and beverage companies as a truly unique company. The greatest competitive edge of PepsiCo is the ability to maintain relationships with suppliers, buyers, and other partners in their operations.
In conclusion, PepsiCo maintains a position of dominance in the foods and beverages industry by maintaining a competitive product portfolio in the snacks, beverages (carbonated and non-carbonated), and healthy drinks and snacks (such as Gatorade and Tropicana). Its operations include outsourcing some infrastructural needs such as bottling, streamlining distribution channels and customer service, and maintaining an effective inventory for its global operations. By using IT and social media tools, PepsiCo ensures that its products remain relevant to the market by interacting directly with customers and giving them a greater role in the development of its products.
Tanwar, R. (2013). Porter's generic competitive strategies. IOSP Journal of Business and Management, 15(1), 11-17
Johnston, H., & Compton, J. (2012). The PepsiCo Advantage. New York: PepsiCo Inc.
Pesic, M. A., Milic, V. J., & Stankovic, J. (2012). Application of VRIO framework for analyzing human resources' role in providing a competitive advantage. Algarve: Book of Proceedings - Tourism and Management Studies International Conference, Vol. 2
Madadipouya, K. (2015). A review of the strategic use of IT applications in achieving and sustaining competitive advantage. International Journal of Managing Public Sector Information and Communication Technologies, 6(2), 21-30, DOI: 10.5121/ijmpict.2015.6202
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