This report presents a brief introduction and investigation of PepsiCo China’s marketing mix.
PepsiCo is one of the world largest manufacturers of food and soft drinks. Currently, it products are being sold in nearly 200 countries and number of employers has reached 198,000. Its sales volume of 2008 was over 43.3 billion USD. Today, it is universally acknowledged as one of the world’s most successful companies of consumer products. Enormous awards have gone in the worlds. In 2009, Pepsico is ranked 175 in the Fortune’s . 18 brands out of its series boast an annual sales volume of over 1 billion USD, including Pepsi-Cola, Mountain Dew, Gatorade, Lay’s, Diet Pepsi, Tropicana, Doritos, Lipton Teas, Quaker Cereals, Cheetos, 7-UP, Ruffles, Aquafina, Mirinda, Tostitos, Sierra Mist, Walkers, Fritos.
Thus, this report aims to see how it achieves its 4P strategies—-Product, Price, Place and Promotion. It is supposed to be a role model for both China’s small and medium enterprises and other potential business personnel who aims to enter this field.
2. The Marketing Mix
PepsiCo’s product portfolio has two main categories: non-alcoholic drinks and instant food. For non-alcoholic drinks, its products are designed for different purposes and tastes. Soda drinks—-the most famous of its products, including Pepsi-Cola, Mirinda 7-UP and Mountain Dew.Sport drinks—-Gatorade.Fruit juices—-Tropicana series, Dole Traditional tea drinks—-Lipton TeasHerbal tea—-Herbal Life. PepsiCo has utilized various strategies in order to win over customers of different tastes. Its soda drinks entered China market first and have remained to be its flagship products. However, as criticism rose that soda drinks deteriorate consumers’ well-being, it had to take action then. PepsiCo never forgot the strategy of consumer first. Lipton Teas came out as demand for healthy drinks had increased. As told by experience and observation, fruit juices are young women’s favorite, thus the Tropicana series were brought into the market in the summer of 2007, not only to suit consumers’ demand, but also to combat with Coca-Cola, its archenemy. Actually, Dole has entered Chinese market for many years but has not performed very well. But this time is different. As fruit juices, this series did creatively combined various fruits together to achieve a unique taste of its every flavor which would not be easily replaced by other products. Although in the first quarter of 2009 its market share stays at roughly 7.2—-ranking only fourth in mainland China, after Coca-Cola’s Minute Maid (since 2004) and President and Master Kong, it shows a positive trend. Always keep pace with your rivals is another strategy of PepsiCo, whether you are leading or falling behind. Meanwhile, its sports drink Gatorade has remained the number one giant in the US market. Besides these, an important strategy used by PepsiCo is localization. Originally, it had wanted to merge with Herbal Tea, the Chinese leader in the field of herbal tea. After the failure, PepsiCo decided to design a kind of herbal tea itself. Not long after in April 2009, Herbal Life, the first traditional Chinese drink of this American company came out. Its ingredients include lotus leaves and chrysanthemum leaves, etc., which are unprecedented throughout the company’s history. However, this not inspiring. becuse, Coca-Cola had brought up similar products before and ended up almost in failure. Actually, Chinese consumers are not likely to stash Herbal Tea aside and embrace Herbal Life, since above all, it doesn’t sound professional.
As the newcomer compared with Coca-Cola, PepsiCo has always been in the “challenger” role. In 1929’s Great Depression, Pepsi-Cola had declared price war on Coca-Cola by reducing its price by 50%. Price war had been the major method of competition through PepsiCo’s early decades. However, it did not reach the expected outcome and price war had gradually declined as a competition strategy.
Statistics indicate that the cost of Pepsi-Cola’s concentration liquid is 6,400 RMB per unit (2002). Ultimately, it can produce a sales volume of approximately 36,700. Therefore, almost one third of its cost lies in concentration liquid.
Currently, PET bottle of Pepsi-Cola with the volume of 600 ml’s retail prices ranges between 2.5 to 3 RMB. Meanwhile, its cost price stays at approximately 1 RMB. Therefore, its profit margin is very remarkable, at 150%–200%. With such profit margin, the various bottling plants can take freedom in having sales promotions.
Pepsi-Cola has gone neck-and-neck with its major rival Coca-Cola in terms of retail price for many years. After the failure of early price wars, PepsiCo clearly do not want to start up wrong again. In terms of pricing strategy, coherence is important. The current retail prices for PepsiCo products have remained stable for many years; therefore neither increase nor reduction is necessary.
The operation of PepsiCo China can be summed up as the “1+X” system (1 refers to the only concentrated liquid plant in Guangzhou and X refers to multiple bottling plants in all over China). Its sales channels can be divided into direct selling and wholesale cooperation, including traditional and non-traditional locales. Its traditional channel is through stores of different scales, ranging from roadside grocery stores to chain stores to hypermarkets like Carrefour and Wal-Mart; other channels include restaurants of various styles, net cafés, wholesale markets, canteens stores in and around campuses, bus, train and gas stations etc.
Among all these, department stores continue to play a leading role in its sales. However, ,while it is most convenient for the distribution in metropolitans where transportation is fast and safe, it is almost impossible for China’s vast rural areas where there are scanty of them. It is right in the rural China where Coca-Cola has long penetrated into its market. Moreover, the competition in rural China can be even fiercer than in urban areas, because it is the market that welcomes local cola more than anywhere else. The cost for Pepsi-Cola to enter rural market is rendered very high. Although PepsiCo knows well the advantages of a multi-channel market, its bottleneck of rural market vacuum has become a major hindrance.
Another factor hindering PepsiCo’s further development lies right in the 1+X system. Since there is only one concentration liquid plant in Guangzhou, the southernmost city of mainland China, transportation of concentration liquids to multiple bottling plants have to be very efficient. If PepsiCo can have more concentration liquid plants in appointed areas that can cooperate and coordinate well, then the cost of transportation can be reduced remarkably, thus further improving the competence of its products.
Thus PepsiCo China has utilized the 1+X operation system. Its two major channels’ development is not balanced: the department stores channel far outplay the other channel and methods. It is the main reason for Pepsi-Cola’s success in urban and metropolitans and comparative incompetence in rural China.
From the beginning, PepsiCo had been the inglorious copycat of Coca Cola. Throughout decades, Pepsi Cola was not that “trendy” as Coca Cola. This situation had lasted until mid 1980s. However, things started to change since 1994 when PepsiCo decided to bring celebrity effect into full play and use all star shockwave that belongs to the whole IMC strategy. It was in this year that superstar Michael Jackson became its spokesman. A new era began. A Galaxy Fleet was built. In 1985, Leslie Cheung became its first Asian spokesman. When China was crazy about soccer, Pepsi Cola had David Beckham, Ronaldinho, Thierry Henry and Raul Gonzalez all wore blue—the Pepsi color. The power of music transcends all boundaries; therefore top singers were recruited to sing out “Ask for More”—-its new corporate spirit adopted in 1998. Its choice of spokesmen is based on its corporate spirit. In the years that followed, Hong Kong singers including Faye Wong—-symbol of “cool”, Aaron Kwok—-symbol of “dynamic” and Kelly Chan were the spokesmen for Pepsi Cola. Even Edison Chan’s show biz debutant was a Pepsi commercial. Pepsi had made full use of its spokesmen: all their value had not been wasted. . “All Star” has become PepsiCo’s prime strategy for promotion. Up to now, the net of Pepsi has spread much broader. Besides the newly added Hong Kong actor Louis Koo, Taiwan singers F4.Jay Chou, Jolin Tsai, Alan Luo all became its icons. In 2007, actor Huang Xiao Ming became the first mainland star to speak for Pepsi Cola. It even cooperated with the Madame Tussauds’ Shanghai to demonstrate its irresistible charm. PepsiCo has different stars for different Asian market. It is noteworthy that PepsiCo do not just pay staggering bills to any successful stars. The styles of these stars are in close resemblance of Pepsi Cola’s global image, even they are local.
Another efficient promotional strategy utilized by PepsiCo is alliance between giants. Although KFC had been split up from PepsiCo in October 1997, the two giants still have close cooperation. PepsiCo offers all soda drinks in KFC. As KFC adopted its localization strategy —-new fast food for China—- and actively changed its operation methods to suit Chinese market, it has long surpassed its archenemy McDonald’s to become the most favorite foreign fast food chains . As its partner, PepsiCo also enjoys huge profits. Also, its sports drink Gatorade strategic partnership with NBA proves to be a most successful one. In today’s China, basketball has replaced soccer to be the most popular sports, especially for teenage boys. The fact that every NBA superstar, including the Greatest-of-all-times Michael Jordan drinks Gatorade leaves such a strong impression on audience that it is considered to be much more stylish to drink Gatorade than other Chinese sports drinks.
Thus to sum up, besides common discount strategy, PepsiCo China majorly utilizes two other promotional strategies—-all star and alliance between giants, which are simple but super efficient.
PepsiCo China’s core marketing strategy is localization and focusing on young consumers. Centered upon these, strategies involving product, price, place and promotion are designed to perform smoothly and coordinate with others. Its products are basically American, but have taken a first step in the development of Herbal Life; its prices strategies have gone through the stage of price war and remained rather stable in recent years when Chinese consumer’s purchase power has increased; its placing strategies are direct selling and wholesale, with department stores playing the leading role that results in the success of urban markets and incompetence in rural markets; finally, in accordance with its core market in urban area, all star strategy is utilized to build up its product image of the choice of young people.