Strategic 2

External Environment for PepsiCo

Student’s Name

Institutional Affiliation

Executive Summary

PepsiCo is a frontrunner in the production and selling of soft drinks and other beverages. It mainly produces beverages and fast foods as the core of its business. PepsiCo's success is defined by its ability to manage the internal and external business environments that affect business operations. This paper analyses the five competitive forces for PepsiCo by Porters, SWOT analysis, and PEST analysis. This way, the research can utilize the results to recommend some of the strategies that can be used to improve the productivity, profitability, and performance of PepsiCo Corporation.

Introduction

PepsiCo, originally known as Pepsi-Cola is located in New York City. It mainly produces beverages and fast foods as the core of its business. The company has dozens of products under its operations. PepsiCo's success is defined by its ability to manage the internal and external business environments that affect business operations. In this light, a SWOT analysis is necessary to examine how well the company performs both internally and externally. This paper presents an industry analysis for PepsiCo Company, including the internal and external environments. It also discusses Porter's five forces analysis of the industry as well as a PEST analysis for the company. Finally, it gives recommendations basing on the SWOT, PEST, and PORTERS results and conclusions.

Porters Five Forces Analysis of PepsiCo Company

Competitive Rivalry

One of the major competitors for PepsiCo is Coca Cola Company. It presents a strong and intense competitive force in the beverage industry. This in turn drives down the prices for the commodities produced by PepsiCo and reduces its profit margins in the industry (Dobbs, 2014). This intense competition presented by Coca-Cola and other soft drink companies takes a huge toll on the long-term and general profitability of PepsiCo.

Bargaining Power of Customers

PepsiCo values its consumers and includes this in its mission statement. However, these consumers have strong bargaining power over the company's products. This bargaining power comes as a result of the intense competition that offers much cheaper prices compared to PepsiCo (Benjamin, 2014). The consumers determine the success rate for this company. They hope to buy the best products at cheaper prices. This takes a huge toll on PepsiCo's profitability in the long haul.

Bargaining Power of Suppliers

PepsiCo strives to maintain a positive relationship with its suppliers. The bargaining power of these suppliers presents a weak force in the industry as there are several suppliers in the industry offering the same raw materials and resources for the production of soft drinks (PepsiCo Inc, 2012). The suppliers in the prevailing positions can reduce the profit margin for the company by negotiating for higher prices from the company. However, this is not the case as PepsiCo has several suppliers and can always shift to the ones that offer the best and affordable prices for the raw materials and resources.

Threat of Substitutes

PepsiCo's products could suffer a strong threat of substitutions from other companies that offer alternative products. This is because several emerging soft drink companies continue to develop and meet customer needs by producing the same products as PepsiCo (Benjamin, 2014). When this case happens, the industry is likely to suffer great losses. The threat of substitute products for PepsiCo is high and this could call for a value proposition that is distinctively different from the present ones.

The threat of New Entrants

PepsiCo needs to stay strong despite the likelihood of new companies competing against it. New entrants in the market always come with innovative and advanced strategies that could take over the industry and make most customers run away from PepsiCo (Dobbs, 2014). Therefore, the company needs to manage this threat and develop the most effective barriers to protect its competitive advantage against these new entrants in the industry.

External Analysis Using the Components of PEST Analysis

Political Factors

The development of soda taxes in the United States in 2017 grappled over the product prices for the beverage and fast food industry. This regulation was majorly mandated to prevent people from drinking much soda and soft drinks and improve their health and wellbeing. This led to the reduction of sales for soft drink companies, including PepsiCo. The buying power of the consumer is the major success factor for PepsiCo. Such political regulations can decrease the company's profit margins by reducing soda consumption.

Economic Factors

The major economic factor that is likely to adversely influence business operations for PepsiCo is the dollar value working against them. The company is scared about customer opinion and the strength of the dollar (PepsiCo Inc, 2012). Economic factors such as recession, economic instability, inflation, and high taxes can affect the company negatively. Furthermore, the foreign exchange rate can either be a hit or a miss for the corporation.

Social Factors

The need to move along with the times is putting huge pressure on PepsiCo to develop its products into more advanced and innovative products. Fluctuations in money spending, lifestyles, and buying behavior may negatively impact revenue and sales (Zhang, 2019). These changes cannot be preempted. Currently, the company has been facing negative changes from the increasing need of customers for healthy soft drinks. Soda was considered one of the deal-breakers when it comes to healthy eating. Therefore, the company was forced to research ways to introduce soft drinks that meet the dietary needs of their consumers. This led to the loss of revenue before the company could get back into running on profits.

Technological Factors

Gone are the days when corporations could advertise their products on a 20-second ad on TV. Thanks to advanced technological development, PepsiCo can explore online advertisement, social media sales and marketing, and video marketing (Dobbs, 2014). The company can borrow Coca-Cola's online marketing idea whereby the company placed people's names on bottles and sold their products using this strategy. Besides, the company can take advantage of artificial intelligence, digital bots, and machine learning for product development and connect better with its customers worldwide.

The Results of the External Analysis including their Labels

The threat of New Entrants

PepsiCo has the following threats for the new entrants. It has low switching costs which present a strong force. It also has moderate customer loyalty, something that could lead to a moderate force (PepsiCo Inc, 2012). Also, it has a higher cost of brand development which presents a weak force. New companies can easily threaten the company as the customers can easily change their direction to the company that offers the cheapest prices.

Bargaining Power of Suppliers

PepsiCo has a weak bargaining power of suppliers due to the following factors. It has a high supply which presents a weak force. This increases the options for the company to acquire raw materials. The forward integration plan for the suppliers is low, leading to a weak force. This factor restricts the suppliers' power over the supply chain management. Finally, the sizes of suppliers are moderate.

Competition

The high aggressiveness of the rival companies presents a strong competitive force against PepsiCo. Most of the companies in this industry are aggressive particularly in product innovation and development (Benjamin, 2014). Second, the low switching costs present a strong competitive force against the company. This enables customers to easily switch to companies that offer cheaper prices. Third, the high number of corporations in this industry presents a moderate competitive force. This presents several options for customers to get their desired products.

Bargaining Power of Customers

Some of the external factors leading to the bargaining power of the customers include low switching costs, the high number of substitutes, and high access to information. The low switching costs enable customers to switch from one company to the other (Zhang, 2019). This factor reinforces the customers' ability to influence the company into reducing prices. Also, the extensive and readily available information can make the consumer compare products online and go for their preferences, which may not be PepsiCo. Finally, the substitutes may offer more valid reasons to avoid PepsiCo's products.

Threat of Substitutes

Some of the external factors leading to a higher threat of substitute products include the high performance of substitutes, a high number of substitutes, and low switching costs. All these factors lead to a stronger force. Most of the alternative products to PepsiCo's are pleasing. For instance, the customers enjoy drinking real fruit juices and home-brewed coffee compared to soda products offered by PepsiCo (Jallow, 2014). This may present a huge threat to the company. Consumers can easily shift to these satisfactory products. Also, the substitutes are readily available both online and offline.

Conclusions about the Overall Opportunities and Threats Facing Pepsico As Revealed By the Analysis of Five Forces Analysis and the PEST Analysis

Implications of Porter Five Forces on Pepsico, Inc.

By examining the five forces of competition, PepsiCo can have a clear picture of the factors that impact its profitability in the industry either positively or negatively. The company can identify the game-changing trends that it can utilize to respond to the available opportunities for growth and expansion of its business. Besides, the managers can utilize this information to shape the focus in the favor of PepsiCo Corporation.

PepsiCo can handle the threats to the new entrants in the market by innovating its products. This move can bring new customers and keep the existing ones. Also, the company can handle the bargaining power of suppliers by developing efficient supply chain management with different suppliers (PepsiCo Inc, 2012). Third, it can address the issue of the bargaining power of buyers by developing a strong customer base. This will reduce customers' bargaining power and also enable the corporation to streamline its production process. It can handle the threat of substitute products by focusing on service provision. Finally, it can handle rivalry by product differentiation.

PepsiCo Internal Analysis

Strengths and Weakness

First, the company has a wide market share that enables it to obtain high revenues. It is the fourth largest food producer in the United States and adjacent countries. Second, it has a big market share that produces alternative products. Third, it has a strong reputation for its brand (Jallow, 2021). Fourth, it has a steady financial position that enables expansion plans. Contrarily, the corporation has a few weaknesses including the inability to outdo Coca-cola in the beverage industry. Coca-Cola continues to be a great threat and competitor to the company. Also, the company may lose its market share if chooses to major in other products.

External Environmental Analysis

Opportunities and Threats

Regarding the threats, PepsiCo has a low level of entrants in the industry. This implies that the company is not likely to experience intense competition. Therefore, it can expand its production by taking advantage of this low competition. Second, it experiences a low bargaining power of suppliers (Zhang, 2019). This means that the company can always negotiate for cheaper prices from their suppliers. Besides, the company can acquire high-quality products from its suppliers. On the negative side, the company experiences a higher threat of substitute products from rival companies. This threat reduces the ability of the firm to increase its prices. Eventually, this leads to a negative influence on revenues and profits.

Specific and Informed Recommendations as to What the Company Should Do Basing On the Analysis

Cost Leadership Strategy

PepsiCo can utilize the cost leadership strategy in its production process. This strategy can help the company to sell its products at principal prices, thereby increasing its profitability and revenues (Zhang, 2019). The company can also reduce the prices for its commodities to improve its rate of market penetration. Such a strategy will improve its share in the market, particularly for the newly introduced products. Therefore, the cost leadership strategy can be executed by enhancing the efficiency of production to reduce their costs.

Differentiation Strategy

Basing on the results from the SWOT analysis and other internal and external analyses of the industry, PepsiCo can utilize a differentiation strategy to improve its performance (Jallow, 2021). This encompasses manufacturing products at low costs and offering new features in the products. Presently, there is intense competition from different companies trying to refocus on product differentiation. The company can only protect its competitive edge by following the same trail. This way, it can improve the existing products and increase customer loyalty. Eventually, customer loyalty will act as a barrier for the other companies' products and therefore, help to counter competition.

Conclusion

PepsiCo is a frontrunner in the production and selling of soft drinks and other beverages. This research analyzes the competitive environment by looking at the internal and external market conditions that could influence business operations for PepsiCo. Overall, the results showed that the company has low bargaining power for suppliers, high competition, increased threats from new entrants, and strong customers' bargaining power for its products. The company can use technology as a driving force to improve its operations. Besides, it can use the recommended strategies to improve its performance in the industry.

References

Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Jallow, D. (2021). A Strategic Case Study on PepsiCo. Available at SSRN 3828353.

Benjamin, M.A. Pommer (Author), 2014, Market definition and analysis of Pepsi-Cola, Munich, GRIN Verlag, https://www.grin.com/document/279083

PepsiCo Inc. (2012). PepsiCo Announces Strategic Investments to Drive Growth .

Zhang, Z. (2019). Risk Analysis of Two Leader Drink Company: PepsiCo and Coca-Cola. Asian Business Research, 4(3), 42.

Appendix

Swot analysis Diagram