Strategic Analyses #1
No, Pepsi should not raise the prices of the carbonated sodas at this time. This will not
only go against their brand identity, but it will encourage consumers to use alternatives.
Pepsi has a decent size group of consumers that are brand loyal to them; however, there
are a lot of consumers that will drink what is available. If a consumer is shopping at a
grocery stores the different sodas are located next to each other, usually with big price
signs. If there is a price difference, consumer may choose Coke or may even decide to try
the off-brand soda, i.e. Dr. K. One of their strategic advantages is there brand name and
value attributed. They have been known to offer a good quality soda for a decent price. If
you start raising the price when the economy is already bad for most consumers, they may
cut soda out their weekly budget.
There is a lot of controversy about soda being “bad” for you and are encouraged to drink
more water, juice or Kombucha. The sociocultural factors currently consumers trying to be
“healthier”, and the soda does not fit into their ideal image of healthy drinks. While
majority of the alternatives are just as bad for you as soda is, the optics say something
different. Consumer will allow their “guilty pleasures” if it does not also cost a lot of money.
A twelve pack of Pepsi costs about $6 when not on sale and about $3.50 when on sale. A
twelve pack of water is only $2, and a carton of juice is about $2.50. If they were to raise
their prices, then “bargain hunters” and people on a budget would just decide to go with
the alternative because it is cheaper and healthier.
WPC480: Business Capstone
By: Gina Santigati
Basic economics shows that raising prices does not mean a change in revenue. If you
were to raise the prices and 15% and then lost 30% of sales, you would be making the same
amount of gross profit as before. If you lose the consumers to Coke or other alternatives you
may never get them back. A core competency is being able to maintain and control costs. If
the prices get raised because revenue dropped it will give the appearance that Pepsi is no
longer good at one of their core competencies.
Pepsi would lose their competitive advantage of having a well-known name that has
good deals on refreshing drinks. Consumer’s view Pepsi as being a carbonated soft drink
giant, raising prices could change their view that they are only trying “line their pockets”
and will create more consumers with a bad image of Pepsi. In the drink industry it is all
about optics, sociocultural factors and brand loyalty. If you fail any of them, you run the risk
of losing more revenue from lack of sales then gross profit from raising supply costs.
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