PepsiCo Case Study Analysis

Chapter 5

PEPSICO AMEA:

The Role of Packaging in Brand Activation $

Melodena Stephens Balakrishnan and Ian Michael

Abstract

Hossam Dabbous, Senior Marketing Director of Carbonated Soft Drinks, Middle East & Africa (MEA) region and Asmaa Quorrich, MEA Senior Marketing Manager, Cola & Malt were discussing the role that packaging played in the brand activation strategy for the Pepsi brand. Packaging for PepsiCo is a focus area for sustainability, but more importantly it could also help drive volumes, reinforce brand image and act as an entry point in markets. While packaging and designs take approximately two months from planning to production, labels for PET (polyethylene terephthalate) bottles took longer and the challenges were to determine the objective of packaging, make sure to keep it relevant to local markets and produce the right quantities so that the special packages were consumed in the promotion period. The lead time for these activities was normally six months. The meeting between Hossam and Asmaa was called to understand which stock keeping unit (SKU) PepsiCo thought they could leverage to increase profitability and reinforce brand equity using innovative packaging designs and concepts.

$This case was written by Dr Melodena Stephens Balakrishnan and Dr Ian Michael. It was prepared

using company information and interviews and its intention was to provide material for class discussion

through publication. The authors do not intend to illustrate either effective or ineffective handling of a

managerial situation. The author may have disguised certain names and other identifying information to

protect confidentiality.

Copyright r Balakrishnan & Michael (2013). This case is provided courtesy of AIB-MENA.

East Meets West

Actions and Insights – Middle East North Africa

Copyright r 2013 by Emerald Group Publishing Limited, UOWD Business Case Centre and AIB-MENA

All rights of reproduction in any form reserved

ISSN: 2048-7576/doi:10.1108/S2048-7576(2013)0000003005

5.1. PepsiCo: A Brief History

5.1.1. PepsiCo — The 2nd Largest Global Food and Beverage Company

PepsiCo, a world leader in convenient snacks, foods and beverages in 2011 had revenues of more than US$65.88 billion with operating profits of US$10.36 billion. PepsiCo was the largest food and beverage business in North America and the second largest in the world having 22 one-billion-dollar brands (see Exhibit 5.1). The 2011 Annual report highlighted the power of PepsiCo’s brands:

One billion times a day, in 200 countries and territories around the world, PepsiCo provides consumers with affordable, aspirational and authentic foods and beverages. Our consumers are refreshed, rejuvenated and restored by PepsiCo’s beloved snack, beverage and nutrition brands. That is the Power of PepsiCo.

PepsiCo — the company was positioning itself for sustainable growth. ‘Perform- ance with purpose, our commitment to do right for the business by doing right for the people and the planet’ had been its business strategy and vision, a way of conducting business on a day-to-day basis (see Exhibit 5.2: Company Philosophy). By 2011, PepsiCo had approximately 50% of its revenue coming from outside USA, of this, 34% came from developing and emerging markets proving PepsiCo’s ability to innovate for local tastes and cultures. Performance with Purpose (PwP) was a central theme that PepsiCo had been advocating since 2006. The 2006 sustainability report focused on Human Sustainability (how they worked to nourish people with their products); Environmental Sustainability (how they worked to replenish the environment) and Talent Sustainability (how they worked to cherish people). By the beginning of 2010, the company had a list of 47 goals and commitments like working on reducing the sugar content in its drinks and working on pilot plan to introduce a 100% recyclable bottle.

PepsiCo traced its history way back to over 100 years when Caleb Bradham, a pharmacist from North Carolina, USA first formulated Pepsi-Cola and founded the Pepsi-Cola Company in 1898. PepsiCo was formed in 1965 through the merger of the Pepsi-Cola Company and Frito-Lay. The H.W. Lay Company (the potato chip company) was founded by Herman W. Lay in 1932 and in 1961, merged with the Frito Company, which was founded by Elmer Doolin, to form Frito-Lay. PepsiCo also acquired beverage companies. In 1998, Tropicana, founded by Anthony Rossi (who pioneered a pasteurization process for orange juice) became part of PepsiCo. In 2001 PepsiCo acquired The Quaker Oats Company (which dated back to 1901) and hence also acquired Gatorade, which was created in 1965 and had become part of the Quaker Oats Company in 1983.

By 2011, beverages contributed 52% to the total revenues of PepsiCo and were worth US$34 billion. Despite recession, the volume grew by 5% in 2011. The Pepsi

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brand, was a leading consumer global brand and was the only product the company sold in its first 65 years of existence. It continued to be a major part of the product portfolio of beverage brands of the company which included carbonated soft drinks (CSD), juices and juice drinks, ready-to-drink teas and coffee drinks, isotonic sports drinks, bottled water and enhanced waters. Some major umbrella brands in the

Exhibit 5.1: PepsiCo Mega Brands.

Source: PepsiCo 2011 Annual Report, p. 11.

PEPSICO AMEA: The Role of Packaging in Brand Activation 139

beverage category of the company were: Pepsi, Sierra Mist, 7-up (outside USA), Slice, Tropicana, Ocean Spray (licensing agreement), Fiesta, Mirinda, Mountain Dew, No Fear, Seattle’s Best Coffee, Tazo, SoBe, Aquafina, Starbucks (in partnership) and Lipton (in partnership).

The marketing focus of the company for 2012 was brand building. In 2011, the Pepsi brand was ranked in the top 25 global brands according to the Interbrand ranking.1 In 2012, PepsiCo planned to increase their advertising and marketing spend from US$500 million to US$600 million with a strong emphasis on the North American market. For the beverage products, the company’s focus was on the developed market, while building on promising gains in emerging and developing markets, especially looking at core brands like Pepsi, Mountain Dew, Sierra Mist, 7Up, Miranda and Lipton. PepsiCo strongly felt that their key to success was the ability to change with the times and build for the future. As part of this philosophy the company believed that they not only saw opportunities, they created them.

Exhibit 5.2: Company Philosophy.

Source: PepsiCo Website: http://www.pepsico.com/Company.html.

Accessed on 13 August, 2012.

1Chapman, M. (2011). Interbrand’s top 100 global brands 2011: Coca-Cola still top but Apple gaining fast.

Marketing. Retrieved from http://www.marketingmagazine.co.uk/news/1096967/Interbrands-top-100-

global-brands-2011-Coca-Cola-top-Apple-gaining-fast/

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5.1.2. PepsiCo Asia, Middle East & Africa (AMEA)

AMEA (Asia Middle East and Africa) is one of the four major divisions of the PepsiCo family with its headquarters in Dubai, UAE (United Arab Emirates). The other divisions are PepsiCo Americas Beverages, PepsiCo Americas Foods and PepsiCo Europe. The company entered the Middle East & Africa (MEA) market in 1945 when it opened its first bottling plant in the Middle East. By 2010–2011, AMEA contributed 11% to PepsiCo’s net revenues and 8% to the company’s operating profits (see Exhibit 5.3). In the Middle East, PepsiCo had a presence across 29 countries with 70 manufacturing facilities, of these, 15 were company owned food and beverage manufacturing plants and 55 were franchisee owned bottling plants.

In the AMEA market, PepsiCo the company manufactured and marketed leading snack food brands such as Lay’s, Kurkure, Chipsy, Doritos, Smith’s, Cheetos, Red Rock Deli and Ruffles. They also marketed nutritional brands like Quaker brands which included cereals and snacks. Within the beverages, beverage concentrates, fountain syrups and finished goods, their brands included famous names like Pepsi, Mirinda, 7Up, Mountain Dew and the ready-to-drink Lipton Tea (a joint venture agreement with Unilever). The manufacture and selling of these brands were done through Company Owned Business Operations (COBO) or Franchise Owned Business Operations (FOBO) who sourced the concentrate from PepsiCo. The company’s water brand called Aquafina was also licensed to some of the company’s authorized bottlers. In this context it should be stated here that the MEA market was considered a subdivision of the AMEA sector.

Exhibit 5.3: AMEA Divisional Contribution to PepsiCo (2010–2011).

Source: PepsiCo 2011 Annual Report, p. 7.

PEPSICO AMEA: The Role of Packaging in Brand Activation 141

5.1.3. Pepsi Brand: The Role of Packaging

Insights into consumer behaviour of PepsiCo products in the United States had found that 50% of the time when a customer bought a salty snack they also bought refreshments. Hence if this behaviour was also exhibited in the MEA markets, there was tremendous scope for potential growth of PepsiCo products. The role packaging played in the soda industry was multifaceted. It was used to: (1) protect, reinforce and add to brand equity, (2) drive consumption and contribute to revenues and profits, (3) protect the product contents and (4) reflect the country requirements in terms of legality, culture, national events and pricing.

The packaging for Pepsi was of four types (1) aluminium cans, (2) PET bottles, (3) Returnable Glass and (4) Non-Returnable Glass. Aluminium cans and Non- Returnable Glass bottles were typically used for single consumer, single usage occasions. Aluminium was a commodity product, but over the last few years the price of this metal had increased considerably because of demand like most other commodities. As a metal, aluminium was 100% recyclable. PET bottles were meant for multiserve, not one single consumption occasion and hence the profit per product was much smaller than aluminium cans as the volume of liquid served in a PET bottles was larger. As an organization, PepsiCo had committed to rethink the way they grew, sourced, created, packaged and delivered their products to minimize their impact on the environment.

Pepsi in the Middle East unlike most other markets continued to be a market leader. Pepsi had always been positioned as a younger, trendier and a more relevant brand for the new generation. To keep this position they had to keep on innovating. So as a brand, Pepsi kept re-energizing their brand (see Exhibit 5.4 for Pepsi Brand Evolution). In the Middle East market, Pepsi had been an established brand and was a ‘Defender’ brand unlike other markets where it was perceived as the ‘Challenger’ brand, and this meant that they (Pepsi) were not necessarily viewed as a young brand in MEA. Consumers in MEA felt that it was a way of life ‘I grew up drinking it and it is the drink of my life’.

There were some unique challenges in some difficult markets that Pepsi was in. An example would be Iraq where three to four brands had similar logos to the Pepsi logo. PepsiCo created a unique packaging for the Iraq market using an emblem that sent an ‘authenticity message of pure Pepsi’ (see Exhibit 5.5). To reinforce this message, advertising commercials focused on communicating the difference between an authentic Pepsi and other similar brands in the marketplace through the packaging of its can. Pepsi further engaged the consumers through their websites which were mentioned on their cans: Pepsiarabia.com; Pepsiarabia-facebook and Pepsiarabiatv.com.

Brand equity could be activated through different platforms and one such platform was product packaging. Packaging as an equity builder drove brand health and enhanced key performance indicators (KPIs) balancing the focus on volumes and profit. The other platform that PepsiCo used to enhance its brand equity was sponsorship of music and sporting events. In 2012 Pepsi, sponsored the Arab Idol programme and designed its cans to reflect this sponsorship. It allowed engagement

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PEPSICO AMEA: The Role of Packaging in Brand Activation 143

with the target audience as consumers could download an application via a QR code on the pack that allows them to view exclusive content on the Arab Idol programme and get a chance to win tickets for the live finale. This was a seasonal packaging design that was available on shelf during the entire period Arab Idol was running on TV (see Exhibit 5.6). Research indicated that the youth or the so-called mobile generation found that sponsorship of music and sports events helped extend the consumer experience,2 increase brand awareness, reinforce favour- able brand image, support brand positioning and effectively reach opinion leaders and innovators.3

In today’s marketplace it was noticed that packaging could be designed for special occasions. During the 2010 Football Season, Pepsi came out with a special can with an embossed football on it. This 2010 packaging was a 500 ml can and not the standard 355 ml can that was available in the Kingdom of Saudi Arabia (KSA). While the can was sold for a premium, the profits collected were used to sponsor a notable corporate social responsibility (CSR) programme whereby Pepsi built several football pitches all around KSA. The can design was also a very good equity driver for brand Pepsi during the football season (see Exhibit 5.7). Pepsi also released a special can for the 2012 Football Season with the football players’ profiles on the can (see Exhibit 5.8).

Exhibit 5.5: Iraq Authenticity Seal on Pepsi Can.

2Frederick, H., & Patil, S. (2010). The dynamics of brand equity, co-branding and sponsorship in

professional sports. International Journal of Sport Management and Marketing, 7(1), 44–57. 3Fan, Y., & Pfitzenmaier, N. (2002). Event sponsorship in China. Corporate Communications: An

International Journal, 7(2), 110–116.

144 Melodena Stephens Balakrishnan and Ian Michael

Exhibit 5.6: Pepsi Arab Idol 355 ml Can (UAE).

Exhibit 5.7: Football 500ml Can (KSA).

PEPSICO AMEA: The Role of Packaging in Brand Activation 145

Seasonal festivals like the holy month of Ramadan were an occasion for Pepsi to express their affinity with the local market, embracing the culture and respecting tradition. Every year, for the month of Ramadan which lasted for 30 days, Pepsi introduced a can designed for the occasion (see Exhibit 5.9). In the UAE, for the nation’s 40th year National Day celebrations, the company released a commem- orative can that included designs from the seven Emirates (states) of the nation (see Exhibit 5.10).

Packaging had the ability to drive consumption. Keeping this in mind, PepsiCo had different can sizes to suit various consumer needs in different countries across MEA. In some countries the standard can size was 250 ml — this was meant to bring value as it was cheaper than the other regular sizes like the 300 or 350 ml size. In countries like KSA and UAE the company introduced cans sizes of 355 ml. Pepsi’s smaller can size of 250 ml looked sleek and slim, and being more affordable was able to penetrate price sensitive markets like Egypt (see Exhibit 5.11). Accordingly, what consumers lost in terms of volume of liquid, they gained in terms of price and convenience.

Another factor affecting packaging size and material was the consumer consumption behaviour. For example, if most consumers in a country consumed CSD on the go outside their homes, Pepsi was able to sell a mix of cans and bottles. In such countries where consumption of CSD was mostly at home, consumption was skewed towards the PET bottles. In countries where consumers tended to drink on

Exhibit 5.8: Pepsi Football 2012.

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their own, they preferred cans or non-returnable bottles (NRB) which were made of glass. In countries such as Algeria, Egypt, Ethiopia, Iraq, Ivory Coast, Jordan, Lebanon, Libya, Morocco, Namibia, Nigeria, Pakistan, Kingdom of Saudi Arabia, Sudan, Bahrain and Kuwait, returnable glass bottles were cheaper than cans and

Exhibit 5.10: UAE 40th Year National Day Celebration.

Exhibit 5.9: 2012 Ramadan Special Packaging Design.

PEPSICO AMEA: The Role of Packaging in Brand Activation 147

hence there was a resistance from the customer to embrace single serve aluminium cans. In terms of income and consumption, low-income countries preferred value packs and larger 1.5 litre bottles over the 1 litre PET bottles. PET bottles did well for large families like the GCC. Pepsi needed to balance the promotions: for example offer 0.5 litre free while selling a 2 litre PET bottle with the image conscious con- sumer. It was important for the company to plan this product mix, based on a country’s economic variable and the consumption patterns in terms of where and how the consumer choose to consume the product.

PepsiCo’s bottles and cans were often packed in multipacks, for example 24 pack for cans, 12 pack for both cans and bottles, 8 pack for bottles (and cans being introduced in 2012) and 6 pack for cans and bottles (see Exhibit 5.12). The sale and consumption of multipacks was a function of the market consumption patterns. For example, in KSA 50% of the sales were in cans which was a very unusual consumption pattern compared to the rest of MEA as people drank from cans on the go and at home. In KSA there was a low preference for the 12 pack as they found it too bulky and too expensive. In response, Pepsi introduced and marketed to them a more affordable and a less bulky multipack consisting of 6 or 8 cans. Packaging could also differ based on the type of retail channel, for example in airports, restaurants and cafes, a special 300 ml can was served instead of the 350 or 355 ml product. In the airplanes, can sizes were 150 ml. Also various countries had different

Exhibit 5.11: 250 ml Pepsi Aluminium Can (Relative Size to 355 ml).

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rules and restrictions based on size, language, labelling and price. All such information was displayed on the side panel so this made the product immobile across national borders. The normal shelf life of a Pepsi can was nine months, while Diet Pepsi had a shelf life of six months.

5.2. Future Opportunities

Pepsi needed to look at consumption patterns to discover future opportunities in the different markets across the region. For example research in Egypt showed Pepsi tended to be consumed outside home and often during lunch time. In KSA the consumption took place mostly at home, at the same time during lunch hours. In KSA when people consumed Pepsi beverages during the workday they wanted the product conveniently placed in the shopping outlets. Pepsi was trying to get data on consumers regarding what package they preferred and why, which type of pack suited them, did they consume CSD during their meals and which meals, did they drink alone and why? In short, they wanted to address the 6Ws and 1H — Where, What, When, Why, Which, Who and How. At a macro worldwide level 70% of sales

Exhibit 5.12: Secondary Packaging.

PEPSICO AMEA: The Role of Packaging in Brand Activation 149

of PepsiCo products were cans and the profit margins were dependent on the commodity price of aluminium. In the MEA region, sales increased by 40% in summer peaking from April to August (depending on the country).

How does Pepsi increase penetration in MEA? What consumer insights can they use to redesign packaging to help brand activation, increase sales and reach brand KPIs? Packaging for beverages were constantly innovating, bottles of aluminium shaped like the original glass bottle, slimmer cans, reusable packaging, interactive packaging, collector items, multipacks and various packaging material were just some of the elements Pepsi could play around with.

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Possible Questions

This case is recommended to Masters Student’s studying consumer behaviour, products strategy, brand activation and international business. Practitioners in the food industry, design and advertising industry may also find this case interesting. Policy makers looking at mobility of products across borders may also consider this case interesting.

Question 1

What is the role of packaging in brand and product strategy?

Question 2

Discuss how consumer insights increase in market penetration, building brand equity, contribute to sustainability and increase the organization’s bottom line?

Question 3

Debate the usefulness of music and sports brand platforms. How does Pepsi differ from its nearest competitor in activating these platforms and how does packaging play a role?

Question 4

Global value chains are becoming more important to the function of marketing. What role does packaging have in this and what are opportunities that Pepsi can make use of ?

Question 5

Does packaging help in dealing with counterfeits for a brand like PepsiCo? Discuss.

Question 6

Is it possible for a brand like Pepsi to create an engagement and loyalty strategy using packaging? Discuss.

Question 7

How can Pepsi design an effective recycling programme in AMEA markets?

Question 8

What are some strategies a Defender can use versus a Challenger — relate to Pepsi brands for your marketplace.

Question 9

What is the relationship with packaging and branding in the product strategy?

Question 10

What is the frequency of innovation required for an FMCG product like Pepsi?

PEPSICO AMEA: The Role of Packaging in Brand Activation 151