Team Pepsi

Final Communication Report

Cara Connaghan
Jahron Francis
Dongpyo Hong
Hamasseh Pourhamzeh
Maytal Yachdav
Logan Zoppel
Executive Summary
PepsiCo is a company that values public health and environmental sustainability. It has outlined
values in its Performance with a Purpose initiative which is a set goals that focus on their
products, planet, and people. These goals revolve around transforming their company by 2025 to
create new healthier products while being conscious about the environment and the communities
in which they operate.

For our research and analysis benchmark, we determined that there was a conflicting issue with
their Pepsis Product goals. PepsiCos goal is to create a healthier food and beverage portfolio by
reducing sugar, saturated fat, and sodium in their products. PepsiCo is the second largest
producer of carbonated colas, and the largest producer of snack foods (IBISWorld). The majority
of its profits come from its sugary carbonated beverages and caloric snack foods, which goes
against their narrative of promoting health.

With such a long-standing reputation of being a company that dominates the junk food industry,
PepsiCos product goals have been a struggle. As a large company with many stakeholders, it is
hard to choose between transforming its snack and beverage portfolio to match its goals or
sticking to the brands that rake in the money. We have determined that PepsiCo needs to make a
change in some way, because although they claim to be driven by sustainability and health, its
profits are mainly coming from unhealthy products.

We have conducted primary and secondary research that have lead us to some conclusions about
how PepsiCo can find a way to promote its healthier products, while also maintaining and
growing its revenues. In a survey our team conducted, we found that there is a significant
correlation between health perception and price. This lead us to the idea of focusing on target
marketing. We will present recommendations to the Chief Marketing Officer of PepsiCo, Greg
Lyons, to help him narrow down these targets and invest in advertising efforts that will lead to a
greater return on investments.

For our healthier products, we want to target consumers with higher incomes and education,
because this group of consumers is more likely to pay more for products they believe to be
nutritious. We propose that PepsiCo invests in advertisements to target more affluent
demographics for its healthier products, and keeping traditional methods of advertising for its
unhealthy products since that sector of their company is financially stable.
Introduction
Greg Lyons (Chief Marketing Officer), we are PepsiCos corporate communication interns, and
this communication report will present our ideas and recommendations to improve PepsiCos
marketing of its healthier products. We have extensively researched PepsiCo and along the way
have discovered key issues that conflict with PepsiCos internal narrative. We have created this
communication plan to inform you of our findings of the challenges our key stakeholders pose
against our internal narrative.

The goal of Performance with a Purpose reflect PepsiCos core values and mission to support
public health, diversity, and environmental sustainability. The health goals that Performance
with a Purpose presents pose a dilemma because our key stakeholders needs conflict with one
another. Consumers demand healthier products, shareholders demand a higher ROI, and the
government demands a clear presentation of the nutritional information that PepsiCos products
share.

We believe our company should make changes regarding the advertisement budget, the mediums
through which we advertise, and the markets to which we target for specific products. In this
document you will read about budgets, timeline, and ROI for implementing our
recommendations.

Situation
From the research we have accumulated about PepsiCo, we have found that its narrative is to
deliver top financial performance while leaving a positive imprint on society and the
environment. In the last few years, consumers and the media have been gearing towards healthier
lifestyle trends. These trends are driven by the rising concerns about high levels of sugar,
saturated fat, sodium, and artificial additives that are known to lead to obesity, heart disease, and
other health risks.

What we call Performance with Purpose outlines the goals we are committed to achieving by
creating products that fulfill customer needs. The controversy we have found in PepsiCos
narrative lies in the Product goal, which is to further transform and expand PepsiCos healthy
snack and beverage portfolio by 2025 (Pepsico, 2016). Despite its efforts to introduce healthy
products, there has been minimal success and PepsiCo has given up on products that do not meet
the initial revenue goals.

If PepsiCo focuses on promoting the healthy snack sector with creative advertisements, we
believe we can achieve the goals and fulfilling all of our stakeholders needs. Unhealthy
products, such as their famous Pepsi-Cola classic is often advertised using a public figure. If we
use this advertising strategy for the healthier brands, PepsiCo will receive a higher return on
investment, while communicating its narrative accurately.

Background & Analysis

Our team conducted primary and secondary research using online databases, PepsiCos annual
reports, and a survey we created and sent out to 30 subjects. Our research has given us a
thorough understanding of PepsiCos narrative and core values. We found that these core values
revolve around the idea of healthier eating, diversity, and sustainability. However during the
research we conducted, we found that there are conflicting issues with their healthy eating
narrative.

Primary Research
In the primary research we conducted, we had students from the University of Arizona Campus
fill out a survey based on their opinions of certain Pepsi products as well as an average of the
participants propensity to spend. We had choices of Pepsis healthy and unhealthy food, and a
price fill-in. We observed trends in consumer spending on healthy products versus unhealthy
products and if consumers react differently to our guilt free product. A copy of our survey is
attached to the appendix of this document.

We put the results into an excel document to find the correlation between the health perception
of each item and how much people were willing to spend on each item. Out of the three
measured correlations (preference, health perception, and price) price had a significant
correlation value of 0.185 with a 95% confidence level. The data showed that the total amount
that our participants would spend on unhealthy products was $4.57 where participants were
willing to spend up $6.31 on healthy products.

By comparing these two amounts that people would spend on healthy products and unhealthy
products we determined that our participants were willing to spend on average 15% more on
products they perceived as healthy. Since the sample population we used for this survey mostly
consisted of students on a college campus, we can conclude that our target market for our
healthier products are millennials.

Secondary Research
PepsiCos 2016 annual report segmented its revenues by each sector of the company. Its
healthiest sector, Quaker Foods, makes up only 4% of their total revenues, which was the
smallest fraction of the pie (PepsiCo, 2016). The North American Beverages sector and Frito-
Lay North America together make up 59% of the total annual revenue. These sectors of the
company are bringing in more revenue for unhealthier products such as Lays Potato Chips and
Pepsi-Cola. According to Statista, they are spending far more advertising these products than
their healthier products.

Consumers
One of PepsiCos key stakeholders is its consumers. PepsiCo is concerned with how its
purchasing habits affect the companys success. In the media, there has been a push toward
healthier eating and consumption of foods with better ingredients. Consumers as a whole are
following this health trend and choosing healthier products. However, PepsiCos consumer
population is choosing its unhealthier options over the healthy products. We found that this is
likely due to the fact that when people are choosing healthier products they are not necessarily
turning to PepsiCos products. (Wall Street Journal, 2016)

PepsiCo tried to implement a healthier snack option called Sproutzels, which was a sprouted-
wheat pretzel that would serve as a healthier alternative to some of PepsiCos more well known
savory snacks such as Lays or Doritos. Sproutzels projected revenue was $100million but this
products barely even reached 50% of the projected sales, falling short by $50 million. Instead of
putting more money into marketing this healthy snack, PepsiCo stopped selling it, and
abandoned the effort to implement this healthy snack. (MarketWatch, 2016)

Government
Government officials are one of PepsiCos key stakeholders because there are laws and
regulations that every food and beverage product must follow. The Fair Packaging and Labeling
Act forces companies in the United States show explicit knowledge of a product's ingredients
and nutritional facts (FDA, 2009). Implementing this regulation has hurt PepsiCos profits
because customers are becoming more aware of the unhealthy and harmful ingredients in its
products. PepsiCo has received negative backlash in the media for the unhealthy ingredients in
its products and it has made people question if the company cares about public health.

Shareholders
The company operates to satisfy the stockholders and increase the value of the company. Food
and beverage companies feel that is a matter of personal responsibility on the consumer side to
monitor their eating habits. PepsiCo and competing companies tend to promote the social
acceptability of consuming foods and sugary drinks in copious amounts anywhere at any time.
Ethical choices are considered too rarely when unhealthy food and beverages are in high
demand. Primary mission is to sell products therefore stockholders needs are placed over the
considerations of public health.

PepsiCo also tried to reformulate Diet Pepsi to get rid of aspartame, which is an artificial
sweetener that may cause harmful side effects such as cancer, sweet receptor damage, or
diabetes. Consumers immediately noticed a difference in taste and sales fell as a result. PepsiCo
kept the reformulated Diet Pepsi, but then brought back the classic taste with aspartame.
(Fortune, 2016) If PepsiCo is willing to keep products that have harmful ingredients to increase
revenues, it is contradicting its narrative of being a company who cares about its consumers
health.

Our current CEO Indra Nooyi has stated, PepsiCo would love to offer even more healthy choice
options however, our customers do not necessarily want to buy these products. A similar
statement was put out by Gregory Yep, PepsiCos senior vice president. He said I don't know
too many consumers who compromise on taste for something that's more nutritious.
(MarketWatch, 2016).
Recommendations
Since PepsiCos goal is to make a positive imprint on society by offering a variety of healthy
options to customers, we have a few recommendations to help PepsiCo reach their 2025 goals of
promoting healthy eating (PepsiCo, 2017). Currently, there is a discrepancy between PepsiCos
internal narrative and its external narrative because although Pepsi sees itself as a company who
promotes public health, Pepsi has a reputation for its unhealthy sodas and snack foods.

Crystal Pepsi was a clear cola alternative that PepsiCo introduced in 1993. After a year on the
shelves, it was taken off the market because the clear cola did not seem to be what consumers
were looking for (Feloni, 2016). We recommend that when PepsiCo should spend more time and
money in its market research developing healthier products that consumers will not reject.

Internet commerce accounts for about 30% of U.S. sales (Internet Retailer, 2015) and making
PepsiCos healthier products easily accessible to purchase through internet advertisements would
likely increase sales. PepsiCo will be able to increase its sales while expanding its consumer
population of its healthier brands by spending more money on advertising through the internet
and social media rather. Millennials view more advertising content via the internet, and since this
demographic is willing to spend more on healthy products, this marketing strategy targets this
market.

AdWords is a Google feature that allows companies to target their advertisements to specific
demographics on the internet. Based on publicly available data from the US Internal Revenue
Service (IRS), advertisers are able to target ads to certain areas according to their average
household income. AdWords is also able to filter by location, demographics and age. The
average cost per click is about $1 (Parker, 2017). This feature could be highly useful for
PespsiCo to target their advertisements for its more expensive healthier products to younger
internet users with higher incomes.

Television commercials target Generations X and Y, who consist of people born from the 1960s
to the 1990s (Internet Retailer, 2015). These generations view advertisements on the internet
than millennials. Television advertisements are still relevant to the company since events such as
the Super Bowl bring in over 100 million viewers, but incorporating internet ads on social media
site and search engines like Google and Bing would help target millennials.

PepsiCo is widely known for integrating celebrity figures into the advertisement of its products.
This marketing strategy would be great if used toward advertising some of their healthier product
lines such as the Baked Lays. Since the survey exhibits preferences in the healthier options,
consumers may need to be reminded of the options they have by someone they look up to. This
public figure could be an athlete or fitness enthusiast to reassure consumers that the product is
the healthier snack option.

Responses
Mr. Greg Lyon, based on our analysis, we have concluded that PepsiCo should redistribute its
marketing budget to spread awareness of its healthier options and yield higher profits. Currently,
PepsiCo is spending $102M to advertise Lays, Cheetos, and Tostitos line, and we think PepsiCo
should spend more money on advertising Baked Lay's, Baked Cheetos, and Organic Tostitos
(PepsiCo, 2017). Following is equation we used to calculate new advertising expense toward
healthier alternative and what is expected revenue.

Current Marketing spending to Baked Lays, Baked Cheetos, Organic Tostitos = $102M
(Marketing Expense * Consumer Preference)/Ratio = Marketing Expense toward
healthier products = $2.68M
$2.68M* Consumers willingness to pay extra 15% = $3.082M
$3.082M should be allocated to healthier product

According to the survey results, 55% of the population would choose baked/organic options over
the classic products. According to Statista, from quarter 3 of 2016, sales revenue for Original
Lays, Cheetos, and Tostitos ratio to their baked/organic alternatives were 21 to 1(Kantar Media,
2017). We calculated that PepsiCo spends $2.68M to advertise the healthier options, but due to
high consumer preference, reallocation of . As a result, we multiplied this by 15%, the consumer
willingness to pay, which yielded $3.082M. Spending an extra $400,000 will increase sales
revenue from $160M to $184M.

Another suggestion we have is that PepsiCo should reallocate $200M from traditional media
advertising to social media advertising. According to Pepsi Consumer Insight, 30.42% of the
consumers are under 35 years old. This population tends to be more exposed to social media, and
advertising trend is switching from traditional to social media ("The Great PepsiCo fightback",
2007). In 2013, PepsiCo Spent $660M on TV advertisment, and only $28.8M dollars on internet
advertising(Nielsen, 2014).

Because 30.42% of the consumers are exposed more to advertisements on social media platform,
we suggest that PepsiCo should allocate 30.4% of $688.8M, which is total advertising revenue of
TV and internet. This is calculated to be $200M. As an incorporation strategy, we recommend
PepsiCo to use celebrities to advertise that PepsiCo products are healthy.

Implementation of our responses will yield an ROI of 14.46%. We calculated this by averaging
the past four quarters ROI and multiplied with consumers willingness to pay 15% more for
healthy products. We found the significant correlation between health perception and price, and
we came to two conclusions: we needed an extra push to our consumers and we need to use
social media platform to reach our younger population. We will use celebrities as part of our
marketing strategy for healthier products.

Conclusion
By working with the executive board of marketing we have been able to create a corporate
communication plan. The purpose of this document was to inform you of the issues surrounding
our health narrative, provide research and analysis behind these issues, and recommend solutions
to these conflicts. We identified that the key stakeholders of our company are consumers,
shareholders, and governmental institutions that enforce regulations about nutrition labeling.

By reallocating advertising funds from unhealthier brands and products to healthier brands,
spending more money on advertising through social media rather than traditional methods, and
targeting key markets for healthier products, PepsiCo should be able to promote their health
initiative without losing out on sales.

It is our goal that after reading this communication plan you will have a better understanding of
the current conflict with our narrative, and the recommendations which would help us reach our
2025 goals. If you have any further questions, we would be happy to discuss our plan with you.
You can contact us at myachdav@email.arizona.edu. Thank you for your time and consideration.

References:

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