Free Essay: PepsiCo Company Overview and Porter's Five Forces Analysis

PepsiCo Company Overview

PepsiCo is an American-based beverage company dealing with manufacturing as well as the distribution of its products globally (Bailey 2014). PepsiCo Inc. dates back to 1965 when it was formed from merging of Pepsi-Cola Company with Frito-Lay Inc. the merging was to strengthen its consumer diversity to acquire more customer base. It has its headquarters in Purchase in New York and covers its market operations on a global scale operating in about 200 countries and more. PepsiCo Inc. has a large workforce base employing more than 274, 000 individuals in their global outlets. The company deals with both beverage dealing with foods like flavored snacks, chips, rice pasta, cereals, as well as dairy products among others. Considering beverages, the PepsiCo Inc. deals with a variety of beverages such as ready to drink coffee and tea, juices, carbonated soft drinks, bottled water, as well as sports drink (Bailey 2014; Deichert, Ellenbecker, Klehr, Pesarchick, and Ziegler, 2006).

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PepsiCo Inc. Porter's Five Forces Analysis

Porter's model of analysis is a company analyzing tool created by Professor Michael Porter from Harvard School of Business to help in analyzing the attractiveness of a company and it's like the hood of making a profit in a competitive market (Institute for Strategy & Competitiveness Harvard Business School, 2018). The Porter's five forces include competitive rivalry, threats of new entrants, bargaining power of consumers, bargaining power of suppliers, as well as threats of substitute products. This paper, therefore, discusses Porter's five forces of analyzing company's success regarding PepsiCo Inc., one of the leading beverage companies worldwide.

Competitive Rivalry

PepsiCo Inc. operates on a global scale with greater competition making its competition rivalry to be strong (Smithson 2017). The competition experienced by PepsiCo Inc. ranges from food products all the way to beverages (Bailey 2014). When it comes to the beverage, PepsiCo experiences a strong competition from Coca-Cola Company and Nestle Beverage Company. Coca-Cola Company is a multinational company dealing in drinks and beverages worldwide the same line of product PepsiCo deals with resulting in a strong competitive rivalry to PepsiCo (Deichert, Ellenbecker, Klehr, Pesarchick, and Ziegler, 2006). Besides coca cola, there are a number of small and medium firms posing competition in the market segment PepsiCo deals with. These firms together with large multinational firms contribute to a large extent the competition rivalry faced by PepsiCo.

To succeed in this intense competition in the market, PepsiCo has to be aggressive in its marketing and product innovation. The beverage industry forms part of the most aggressive and with intense competition which has a strong competition force. The strong competition calls for consumer based innovation and marketing strategies. PepsiCo has a strong marketing strategy which encompasses all its customers worldwide despite the strong competition in the market. There is a great deal of innovation in PepsiCo products as well as beverages to increase their competitive advantage in the market. As described by Porter in his five forces analysis, competition rivalry increases because of consumers' ability to shift from one company to another. PepsiCo Company takes this into account and works towards ensuring large market coverage both in beverages it deals with.

The strength of a company resides in its ability to survive the intense competition found in the market. PepsiCo Company has proven to be strong in its ability to survive in strong competition in the beverage industry due to its consumer-oriented marketing strategies and high-quality products. PepsiCo maximizes on a large consumer base such as dealing with ready to drink tea and coffee as well as tea and coffee which consumers can prepare at home. This is one of their innovation and marketing strategy aimed at strengthening their consumer base to help them in surviving the intense market competition. The competitive rivalry is therefore strong in PepsiCo beverage industry.

Bargaining power of buyers

There is a strong force of customer's bargaining power in beverage industry that PepsiCo operates in (Smithson 2017). This is because of increase in a number of firms manufacturing and distributing similar products in the market where customers can select. The strong bargaining power of buyers is due to the three most important factors such as low cost of switching, ease of access to a variety of product more so substitute goods and services, as well as increase access to information concerning the product among others (Institute for Strategy & Competitiveness Harvard Business School, 2018). To help in surviving in this challenging market with strong buyers bargaining power, PepsiCo had to be a little buyer oriented and have a good relationship with their buyers. There is a higher prioritizing of buyers in mission statement defining PepsiCo operations. Buyers are the most important stakeholders for PepsiCo, and they do everything possible to ensure their relationship with customers is good. PepsiCo makes it possible for buyers to access relevant information about customers' likelihood of making a purchase.

As previously noted, the beverage industry has a strong customer force which increases their bargaining power. PepsiCo notes this and strengthens its influence in customers to help in succeeding their operations. Moreover, PepsiCo allows extensive product information to reach their customers through advertisement in different platforms which help consumers in making their decision on PepsiCo products against their competitors' beverage products. The increase in a number of PepsiCo products substitutes in the market also gives buyers a high chance of switching producers, and this might be unwelcoming for PepsiCo.

Despite all the strong forces of buyers' bargaining power that might force PepsiCo customers to switch from one PepsiCo to its competitors like Coca-Cola and Nestle, PepsiCo still maintains its global buyers' base (Deichert, Ellenbecker, Klehr, Pesarchick, and Ziegler, 2006). To maintain this PepsiCo, therefore, ensure production of high-quality beverage products as well as on-time delivery of their products to buyers' easily accessible locations which aims an increasing customer satisfaction which in turn increases sales revenue. As described by Porter, a company is considered successful due to its attractiveness as well as profitability, PepsiCo is. Therefore, a successful company due to its good public reputation increasing its attractiveness thereby gets revenues which cultivate profits.

Bargaining power of suppliers

Small, medium and large business operations need to have a constant supply of raw materials used in manufacturing process. Due to this idea, PepsiCo has a constant supply of raw materials from its longtime suppliers. According to Porter's five forces, the bargaining power of suppliers is weak for PepsiCo operation (Smithson 2017). This is to say suppliers have limited influence in PepsiCo operations. To ensure no switching of suppliers, the company tends to maintain a strong and good relationship with suppliers which in turn will be profitable to the company. The bargaining power of suppliers is externally influenced by the following factors about PepsiCo supply chain. First is the high supply of raw materials from its suppliers and this limits its need to switch suppliers. Secondly, PepsiCo has a low forward regarding suppliers' integration, and this is a weak force in their bargaining power when it comes to suppliers. Lastly, PepsiCo moderately accepts individual suppliers due to their fluctuations in supply which might affects the company's operation in the market regarding the availability of products in the market.

Even though PepsiCo operates in a highly competitive industry with numerous beverage-based industries, the company remains with adequate suppliers capable of maintaining its operations (Thomson, 2016). Additionally, the suppliers have limited influence in PepsiCo supply chain due to PepsiCo's diversity of suppliers. The company has diversified its supply base to ensure a continuous supply of raw material. This is one of the competitive advantages of global operation as it ensures all-time availability of products in the market thereby gaining consumer trust which then increases company's profitability (Thomson, 2016).

However suppliers have low influence in PepsiCo supply chain, the company does everything possible to stay within the limits of positive relationships with its suppliers. The key to PepsiCo global success continues the supply of products in the market and profitable operations (Thomson, 2016). The continued supply of products comes from its trust with suppliers which therefore ensures continues supply of raw materials at relatively affordable prices which enable the company to make a profit. From the Porter's five forces analysis, there is an indication that PepsiCo has a low bargaining power of suppliers due to the limited influence of supplier in PepsiCo supply chain.

Threats of substitute

Substitution of goods is a common market feature in most competitive markets like beverage market sector. PepsiCo is one of the industries in beverage industry experience a strong force of substitution threats for its products (Smithson 2017). This is to say there are a variety of products serving the same purposes as those produced and distributed by PepsiCo. The increase in the threat of substitution comes from the intense competition found in the beverage industry. Consumer preference plays an important role in containing the threat of substitution for industries in the markets.

There are high chances of PepsiCo products experiencing substitution in the beverage industry. When it comes to non-alcoholic beverages like the ones PepsiCo produce and distribute, there are substitution products of the same line as those of PepsiCo. These include nonalcoholic beverages from Coca-Cola Company, Cott Corporation, DR Pepper Snapple Group, Monster Beverage Corporation, as well as Red Bull GmbH Company among others (Bailey, 2014).

Coca-Cola drinks are the most threats of substitution to PepsiCo beverages as they are the closest rival to PepsiCo. The variety of non-alcoholic beverages in the market produced and distributed by PepsiCo competitors increases the chances of substitution threats for PepsiCo products. This, therefore, calls for strong global marketing strategy for PepsiCo products in the global market as well as consumer satisfaction priority. To overcome this strong force of substitution threat, PepsiCo produces and distributes consumer friendly and affordable products that cover all the consumer requirement thereby limiting chances of going for substitute products.

To reduce PepsiCo customers' preference for substitute products, PepsiCo Company is striving to cover all corners of the consumer market as well as ensuring 100% customer satisfaction (Bailey, 2014). The company has a strong marketing department which is constantly researching ways of improving consumer satisfaction through product quality improvement to cope with changing consumer needs. The consumer needs changes with seasons and time, and this makes it difficult to ensure all time consumer satisfaction making threats of substitution to be high. To competitively overcome this PepsiCo marketing research team is always awake on such issues and taking every step possible to ensure maximum satisfaction.