pepsi strategy

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Case Study 2Strategic Management : 

Case Study 2Strategic Management –KILLING SOFTLY Faculty : Dr. Archi Mathur Group Members : Sunidhi Mehta Jyotirman Choudhury Priyadarsh Charan Rakesh Sharma

Slide 2: 

Facts of the case

Slide 3: 

THE INTERNATIONAL SCENARIO: Rivalry between Coke and Pepsi and each was out to beat the other. Coke outsells Pepsi. In 1987 Coke & Pepsi have 40.3% & 30.2 % of the U.S market respectively.

Had an image of soft drink manufacturer and marketer. Apart from Pepsi cola co. and Pepsi cola International, it had six other divisions which had given it a commanding presence in Food Business. Soft drinks contributed 32 % & the restaurants 27 % to the total operating profits in 1987 . Pepsi was merged with Frito-Lay to constitute Pepsi co. International in 1965. In 1987 Pepsi co. was ranked 29th in the Fortune 500 whereas Coca Cola was at 54th. Today, Frito-Lay division markets over 100 varieties of Snack Food. Pepsi Co. acquired Kentucky Fried Chicken chain in 1986, with this Pepsi became the owner of the world’s largest restaurant chain which also includes Pizza hut and Tacco Bell with a total of nearly 16500 outlets in 1987. Pepsi had so far made inroads in 151 countries – 150 before India.

Slide 5: 

THE INDIAN SCENARIO: Limca was the largest selling brand, cola was the largest selling flavor accounting for 40 % of the market share Lemon drinks followed cola with 31 % and orange drinks had only 19 %. Lemon drinks were more popular in Metros. In 1977 a change at a centre led to the exit of the Coca cola. The first national cola drink to pop up was Double Seven. Pure drinks, Delhi switched over to Campa Cola after coke’s exit and by the end of seventies, it was only Campa cola in the Indian cola market. In 1980 another cola drink, Thumps Up was launched by Parle but was objected by Pure Drinks to its being called a cola drink. Thrill by Mc Dowell's in mid eighties and by the late eighties there was Double cola which entered the market with the USP of an American Cola. The Indian soft drinks industry was estimated to be worth Rs 900 crores. In 1978 Parle led the Indian soft drinks market, in 1983 its market share was 43 percent, 44 percent in 1987 and in 1990 it reached to 70 percent whereas its chief rivals Pure drinks’ share had been declining in 1978 it was 28 percent , in 1983, 22 percent and in 1987 it was 21 percent. An additional dimension to the Indian soft drinks was fruit drinks. In 1988 it was valued at Rs 40 crores and was growing at a rate of 20 percent which was faster then the growth of the aerated soft drinks.

ENTRY OF PEPSI IN INDIA – PHASE I: : 

ENTRY OF PEPSI IN INDIA – PHASE I: In 1985 a proposal with R.P. Goenka group was rejected by the then govt. The proposal involved: Export of fruit juice concentrates from Punjab in return for the import of cola concentrates. The deal offered was 3:1 export import ratio.

ENTRY OF PEPSI IN INDIA – PHASE II: : 

ENTRY OF PEPSI IN INDIA – PHASE II: Rs 22 crore Pepsi co project was the second bid. The second proposal encompassed the following activities: Agro Research centre (costing Rs 1.55 crores). A potato and grain based processing unit (costing Rs 8 crores). A fruit and vegetable processing unit (costing Rs &.5 crores). Exports. The Pepsi co would have an equity holding of 39 percent, PAIC, 20 percent and Voltas , 24 percent. The balance was to be placed privately from loans. Imports would be 37 crores and exports a minimum of Rs 194 crores over a 10 year period. Benefits and advantages of proposal includes better market for rice, wheat and fruits in Punjab

Acceptance of the Pepsi Offer in India in 1990: : 

Acceptance of the Pepsi Offer in India in 1990: Offer was accepted after much negotiations Export import ratio was finally fixed at 5:1 Cold drinks sale was fixed at 22.5% of total sales Lot of political lobbying was involved.

Issue 1 : What were the elements of Indian market environment that Pepsi co. had to tackle? : 

Issue 1 : What were the elements of Indian market environment that Pepsi co. had to tackle? Elements of Micro Environment Competitors Partners/ Collaborations Suppliers Customers

A) Competitors : 

A) Competitors 1-Market Leader- Parle Direct—Limca ,Thums Up, Golds Spot-44% in 1988. Indirect– Fruit Juice, Frooti. 2- Challenger – Pure Drinks-Campa cola

Contd… : 

Contd… 3- Followers – Mc Dowell’s Thrill Double Cola Other Characteristics Medium Competition 2% of Advertisement Inexperienced and Apprehensive of Fighting International Player . Low Installation Cost and Equipment Value Relatively Inferior

B-Partners/ Collaborations : 

B-Partners/ Collaborations PAIC and Voltas were vocal in their support. Agriculture Oriented PAIC had know-how about farmers state of agriculture . Established Brand Name of Tata.

C-Suppliers : 

C-Suppliers Mostly farmers with high expectation whose: Income from wheat was falling . Fruit Cultivation was increasing , but had a major problem to dispose them.

D-Customer : 

D-Customer Fresh Indian Market , who were new to the taste of Foreign Cola Brand

Macro environment : 

Macro environment Political environment Legal Environment Economic Environment Socio-Cultural Environment Technological Environment

1-Political Environment : 

1-Political Environment Development of Economy. Intent of Development of Local Players Only. Opposition to promotion of carbonated drinks. Fear of invasion of foreign brand. Opposition to reliance on foreign technology . Desire to get best deal out of foreign collaboration. Desire to increase exports . Desire to earn foreign exchange.

2-Legal environment : 

2-Legal environment Severe restrictions in equity through FERA Dispute in relation to ownership of Pepsi brand name.

3-Economic environment : 

3-Economic environment Closed economy Cold drink industry in nascent stage FOREX starved economy Lack of adequate market for fruits cultivators

4-Technological environment : 

4-Technological environment Inferior technology for production of soft drinks . Requirement of knowledge in agriculture industries . Requirement of technology for fruits processing .

5-Socio-cultural environment : 

5-Socio-cultural environment Fear of invasion of MNC culture Fear of impact on diet

Issue-2-How were these elements managed ? : 

Issue-2-How were these elements managed ? MICRO ENVIRONMENT. Competitors Partners / Collaborations Suppliers Customers MACRO ENVIRONMENT. Political Legal Economic Technological Scio-cultural

A-Competitors : 

A-Competitors Tackled the market leader head on. Protected the public image, by putting up precise answers to questions : Director, Business Division . Careful instruction to its partners: PAIC and Voltas Emphasized on the point that in spite of being a foreigners, will create more benefits than local player. Did not harp on the foreign nature ; came up with the Indianized version of the brand in form of Lehar Pepsi Ensured that discrediting /disruption tactics, were properly pinned against the perpetuators. Ensured top of the line equipment and plants were installed

B-Partners /Collaboration : 

B-Partners /Collaboration Made optimum use of its partners displacing opposition garnering support Used PAIC for countering argument from competitors ensuring support from suppliers Used Voltas, it being a company of Tatas to establish credibility to quell any criticisms Both were used for swaying public opinion ,in their favour. Loyalty and interest ensured through equity stake PAIC-40% , voltas-24%

C-Suppliers : 

C-Suppliers Fueled their expectation by spreading awareness of benefits through PAIC Provided the alternative for sale of agro products Provided an option for opening of bottleneck and marketing of fruits.

D-Customers : 

D-Customers Promised a unique brand experience of foreign cola drink.

A-Political : 

A-Political Phase-I Offer made with R.P.Goenka in 1985 He included 3:1 export import ratio only on fruit juice concentrate. It was rejected

Slide 27: 

Phase-II Offer made with PAIC and voltas Offer made in areas mentioned in the facts . Agro research centre Agro based food processing mostly Fruit based food processing Exports . Assured development of products others than cold drinks limiting it to 25 % of sales . EXIM ratio highly in favor of India Repatriation only after adequate FOREX. Assurance on meeting export regulations Assured employment -500-direct and 30000-indirect Dilution of foreign brand to Lehar

Slide 28: 

Phase-III To further emphasis the offer made in phase –II Equity stakes were revised PAIC 40% Voltas -24% ,Pepsi-35% EXIM ratio fixed at 5% Indulged in political lobbying Ensured the active participation of Punjab government.

B-Legal : 

B-Legal Compliance with legal requirements Fighting out the cases inside as well as outside.

C-Economic : 

C-Economic Ensured penetration in economy through attractive offer FOREX EXIM ratio Better deal than other countries. Attacked the developing cold drinks industry Superior technology Better finance In area of agriculture Providing a market for agro products Provision of better prospects for food products .

D-Technological : 

D-Technological Assured availability of high end technology Established collaborations for development of agriculture

E-Socio-Cultural : 

E-Socio-Cultural Ensured Indianization through Indian version of Pepsi

Issue-3-what is your learning about “managing the environment”? : 

Issue-3-what is your learning about “managing the environment”? IDENTIFICATION APPRAISAL ANALYSIS REACTION

Slide 34: 

Flexibility –in changing offers . Operating on strength Brand name Soft drink Ensuring self benefit in benefit of others . Going beyond requirement making it look like an initiative.

Issue-4-How do you see the emerging environment in the Indian soft drinks market ? : 

Issue-4-How do you see the emerging environment in the Indian soft drinks market ? Production Market Competition Promotion Others

Production : 

Production Better & more efficient means of production Introduction of variety of flavours More choices available to the buyers in terms of prodcuts, brands & flovors

Market : 

Market Growth in market size Spread of market of Pepsi Probable entry of Pepsi in fruit drinks

Competition : 

Competition Increase in the degree of competition Probable exit of Pure Drinks Consolidation of small players Incoming of more foreign players especially Coke

Promotion : 

Promotion Exposure to new forms of strategies & techniques Increase in the budgetary allocation to advertisement & sales promotion More aggressive form of promotion to be observed in the market

Others : 

Others Less political hostility towards entering of foreign players Relaxation of legal requirements Better employment generation

THANK YOU : 

THANK YOU