Understanding Market Segments and Targets: Building


the Right Relationships with the Right Customers



PepsiCo




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Content Page

Executive Summary ------------------------------------------------------------------------------------------- 3

Introduction ------------------------------------------------------------------------------------------------------- 4

Main Report
• Market Segmentation ----------------------------------------------------------------------------------- 5
• Market Targeting ----------------------------------------------------------------------------------------- 7
• Market Positioning --------------------------------------------------------------------------------------- 7
• Marketing Mix:
1. Product -------------------------------------------------------------------------------------------- 8
2. Promotion ----------------------------------------------------------------------------------------- 9
3. Place ----------------------------------------------------------------------------------------------- 9
4. Price ------------------------------------------------------------------------------------------------ 10
5. Customer Solution ------------------------------------------------------------------------------ 11
6. Customer Cost ----------------------------------------------------------------------------------- 11
7. Convenience -------------------------------------------------------------------------------------- 11
8. Communication ----------------------------------------------------------------------------------- 11

Conclusion ---------------------------------------------------------------------------------------------------------- 11

References ---------------------------------------------------------------------------------------------------------- 12


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Executive Summary

This report provides an analysis and evaluation of the Marketing Strategy of PepsiCo. Methods
of analysis include Market Segmentation, Market Targeting, Market Positioning, as well as the
Marketing Mix of PepsiCo.

The research draws attention to the Market Segmentation of PepsiCo. While the soft drink
industry has probably the widest and deepest customer base in the world, Pepsi did not use the
majority fallacy to market their product. Instead, Pepsi prefers to segment itself as the beverage
choice of the “New Generation”, Generation Next, or just as the “Pepsi Generation”. These
terms adopted in Pepsi’s advertising campaigns are what marketers refer to as Generation X,
which are profiled to be between the ages of 18 to 29. In addition, PepsiCo also focus on
another market, which includes Teenagers that are between the 12 to 18 years old. Pepsi
believes that if they can get this market to adopt their product, they could establish a loyal
customer in a long run.

Despite being a strong #2 against Coca Cola, Pepsi has become the largest selling soft drink in
the world and is liked by people of all ages. A recent survey has shown that about 90% of the
world population prefers Pepsi when asked the question of which soft drinks do they prefer. The
reason for their linking is because Pepsi is able to give them a higher quality of taste and a large
variety of flavors.


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Introduction:

PepsiCo is a world leader in convenient

snacks, food and beverages with revenues
of more than $39 billion and over 185,000
employees. The company consists of
PepsiCo Americas Foods (PAF), PepsiCo
Americas Beverages (PAB) and PepsiCo
International (PI). Besides the Pepsi-Cola
brands, the company owns the brands
Quaker Oats, Gatorade, Frito-Lay, SoBe,
Naked, Tropicana, Copella, Mountain Dew,
Mirinda and 7up (outside the USA).

PepsiCo’s products are recognized and are

most respected all around the globe.
Currently, PepsiCo has divisions which
operates in three major US and
international businesses: beverages, snack
foods, and restaurants. In each of these
businesses, PepsiCo has attained a leadership position as being the world leader in soft drink
bottling, the world largest snack chip producer, and the world largest franchised and company
operated restaurant system. The cooperation’s increasing success has been based on high
standards of performance, marketing strategies, competitiveness, determination, commitment,
and the personal and professional integrity of their people, products and business practices.

PepsiCo’s overall mission is to increase the value of our shareholders’ investments through
sales growth, investments and financial activities. PepsiCo believes their success depends upon
the quality and value of their products by providing a safe, whole some, economically efficient
and a healthy environment for their customers; and by providing a fair return to their investors
while maintaining the highest standards of integrity.


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Market Segmentation

As we know that PepsiCo provides varieties of beverages such as carbonated soft drinks, sport
drinks, dairy-based drinks, energy drinks, fruit flavored beverages, ready-to-drink coffees,
ready-to-drink tea, mineral water and frozen beverage. These products are marketed under
brand as Pepsi, Mountain Dew, Gatorade, Lipton, Starbucks, Tropicana, and so on. With these
products, PepsiCo aims to attract different groups of consumers.

There are two levels in which Pepsi segments its market:

• Demographic
• Niche marketing

Concentrated Marketing
Despite the large customer base in the Soft Drink industry, Pepsi prefers to segment itself as
the beverage choice of the “New Generation”, Generation Next, or just as the “Pepsi
Generation”. These terms adopted in Pepsi’s advertising campaigns are what marketers refer to
as Generation X, which are profiled to be between the ages of 18 to 29. In addition, Pepsi
shifted its focus to the growing American teenage market in the 1990s by forming exclusive
contracts with American schools and developing advertising campaigns such as “The Next
Generation” and the “Joy of Pepsi”, featuring Britney Spears. Pepsi believes that if they can get
this market to adopt their product, they could establish a loyal customer in a long run.

Niche Marketing
Pepsi focused on varietal differentiation since 1990 by introducing a string of niche products. To
increase volume in order to counter flat coca sales, Pepsi introduced Sierra Mist in 2002-2003
to take the place of 7-up and go head-to-head with Sprite. Pepsi has also tried to boost volume
by introducing products that appeal to specific target markets that it currently is not reaching.
Pepsi has introduced Code Red and Live Wire, extensions of Mountain Dew, Pepsi One, and
Pepsi Blue. Finally, Pepsi is countering declining sales of carbonated drinks through the
marketing and distribution of Starbucks ready to drink products, and the acquisition of SOBE
and Gatorade. The success of Pepsi’s Mountain Dew Code Red launched in 2001 was the most
successful soft drink innovation in 20 years and has spurred even more niche product
introductions for PepsiCo as well as other competitors.


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Bases of Segmentation:

Demographic

In focusing on the Pepsi-Cola beverage product, PepsiCo has retained a long history of
concentrating on youth as its main target market – “Generation Next!” It has spent billions of
dollars in trying to woo the young and nearly young, implying that Coca-Cola is for the older
generation. The reason why Pepsi-Cola has fiercely targeted this market is because it is the
largest amongst its users. Market segment profiles have shown that the majority of carbonated
beverage drinkers are youth and middle age people. Also, Pepsi continually targets the college
market in which they spend huge amounts of money to compete with Coca Cola in acquiring
contracts with universities (ie: CSUF) to have sold representation of their product distribution.
Pepsi’s use this behaviorist segmentation has been a key to the company’s success.


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Market Targeting

Pepsi customers are mostly Teenagers and Young Adults between the ages of 14 to 30. It also
targets at Schools, Colleges, Universities, Homes, Restaurants, Hotels, and Stores.

Market Positioning

PepsiCo plans to further create positions that will give products the greatest advantage in their
target markets. Pepsi has been positioned based on the process of positioning by direct
comparison and have positioned their products to benefit their target market.


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Marketing Mix of Pepsi

1. Product


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2. Promotion

PepsiCo has advertised its products through many different ways and media. Through TV, we
have seen different advertisements of its products such as Pepsi or Dew. PepsiCo also
advertise its products by targeting those favorable television programs, like sports, TV series
etc. In addition, PepsiCo has also made used of some events like “Pepsify Karogey?” to
promote its products. Through newspapers like Jung and Dawn, PepsiCo has advertised a wide
range of products it offers to its customers. The usage of Posters are also used to create
awareness of the products that PepsiCo offers.

3. Place

Decisions with respect to distribution channel focus on making the product available in
adequate quantities at places where customers are normally expected to shop for them to
satisfy their needs. Pepsi’s supply is low uncertainty. Some of its supply source capabilities are:

• Less breakdowns
• High quality
• Flexible supply capacity
• Mature production process

Venues where Pepsi is sold off-site consumption include grocery stores, convenience stores
and vending machines. However, Pepsi is most effective in grocery stores where it has 33%
market share. This is contrary to the fountain station channel, where Pepsi has less than half
the market share.


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4. Price

Pepsi being a company that emphasizes on product quality tends to sell its products with price
range from moderately low to high prices, depending on the use and the targeted customers.

Pepsi decides its price on the basis of competition. Fortunately, Pepsi is very flexible and is able
to reduce its price very quickly. For example, in the month of Ramadan whenever Coca-Cola
reduces their prices, Pepsi also responds through price cuts and then eventually after that
period, it raises its price. Unfortunately, Pepsi has also made several losses in taking risks.
Though lowering the price would attract customers, PepsiCo wasn’t able to cover up the cost
incurred in production, and therefore resulted in losses. However, PepsiCo is now a full-fledged
and growing company, and has covered all its losses and is growing at a rapid rate.

Direct Price Discrimination: This is evident in the international operations of Pepsi.

Domestically, direct price discrimination is based on distribution channel segmentation,

Indirect Price Discrimination: Quantity discounts along with price coupons used in
supermarkets are obvious indirect price discrimination tools Pepsi can use. However the most
effective indirect price discrimination tool Pepsi has is in fact its brand name. The Pepsi brand
equity actually allows the company to maintain pricing power. Is product image translates into
perception for higher quality vis-à-vis private labels and substitute drinks.

Pepsi may enhance its price discrimination capability through creating bundle offers to
restaurants and convenience stores. The Frito Lay Brand, controlled by PepsiCo through Frito
Lay North America, is the undisputed leader in the salty snack segment. If Pepsi bundles
snacks with soft drinks as part of its pricing strategy aimed at fast food restaurants and
convenient stores, it may be able to increase sales and obtain better shelf space from retailers.
This may prove a very important tactic in trying to re-claim share in the fountain drink segment,
a large part of which was lost after Pepsi’s exit from the restaurant business in 1997.

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5. Consumer Solution

PepsiCo offers a wide variety of products that ranges from Energy drinks, Tea, Water, to
Carbonated drinks. Each variety aims to meet the needs of different consumers of different
demographics. For example, Energy drinks such as Gatorade are catered for athletes whereas
Tea such as Lipton Iced Tea aims to provide quality taste for regular consumers. Therefore
PepsiCo is able to reach a large group of customers from different demographics because of its
product variation.

6. Customer Cost

Despite the fact that PepsiCo frequently lowers its price and eventually raises its price again,
buyers have not been affected by this pricing strategy. On top of that, Pepsi has always been
very flexible and reasonable with its pricing strategy. Depending on the product, prices are
ranged from moderately low to high.

7. Convenience

As PepsiCo products are readily found in Supermarkets, Convenient Stores and Vending
machines, it is very accessible and convenient for consumers to purchase these products.
Especially so for Vending machines, which can be found in most buildings or public places.

8. Communications

Through various medium of Advertising such as TV advertisements, Posters, Newspapers and

Events, customers are aware of the different ranges of PepsiCo products. PepsiCo has also
made used of several celebrities such as Britney Spears to market its product. This creates a
perception of a young and cool image for the brand, which is easy for PepsiCo’s target market –
Teenagers and Young Adults, to identify.

Conclusion

Pepsi has been successful in generating profits in this extremely rivalrous industry. What the
company should do now is employ a strategy that now only addresses its own deficiencies in an
effort to grow market share, but one that will increase the overall size of the pie. This strategy, in
the end, will allow Pepsi to grow and sustain above-average returns.


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References

Pepsi

http://www.pepsiproductfacts.com/?or=pusa.1067

PepsiCo

http://www.pepsico.com/Company/The-Pepsico-Family.aspx

Wikipedia: Pepsi

http://en.wikipedia.org/wiki/Pepsi

Wikipedia: PepsiCo

http://en.wikipedia.org/wiki/PepsiCo

New York Times

http://topics.nytimes.com/top/news/business/companies/pepsico_inc/index.html

Associated Content

http://www.associatedcontent.com/article/336043/pepsis_latest_viral_marketing_strategy.html?c
at=35

Bevnet

http://www.bevnet.com/news/2005/03-16-2005-pepsi_switch_low-cal_marketing.asp

Alternet

http://www.alternet.org/water/79741/

Business Journal

http://www.centralpennbusiness.com/article.asp?aID=71009


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