PepsiCo

Abstract

People's wants change over time, the cost of production increase, the government policies changes, all these factors have an influence on the supply and demand of a product. If PepsiCo increases the price consumer will respond by purchasing the substitute products. One of PepsiCo goals is to monitor the market and respond to changes in consumer wants quickly before their competitors to maintain the customers.

Supply and Demand Conditions

The supply and demand conditions of PepsiCo are that due to the availability, the price of the product, and maintaining consistency in taste (Hubbard, R. & Brien, A., page 70). The increase of goods demanded is the growth of the middle-class economy. Demand for products is adversely affected by changes in the consumer wants and failure to innovate to meet the consumer’s preference and wants means that we cannot satisfy them thus losing them as a potential customer (Zott, 2008). The growth of the retail environment means that the universal retail environment has had significant changes over the years, during these changes the understanding to maintain a crucial partner to the big retail customers while at the same time providing the best service to the small stores. Additionally, the direct store delivery system delivers exceptional service to both the large and small retailers while maintaining the lower shipping cost.

The increase in consumer focus on health and wellness is also an emerging trend in consumers demand PepsiCo products and the company has undertaken steps to invest in research and growth to improve the nutritive value, by reducing trans-fat and eliminating salt, added sugar and fat content in the brands (Zott, 2008). PepsiCo is transforming ways to keep foods and snacks convenient while making them healthier. In 2012, Pepsi introduced Pepsi Next, a beverage with half the calories of regular Pepsi. For being able to deal effectively with all the emerging trends in the market, PepsiCo has seen an immense increase in its annual turnover in 2014. For example, the organic revenue grew by 4%, free cash soared was solid at $8.3 billion and an annual turnover of over $60 billion dollars (PepsiCo 2015).

When the price of Pepsi remains low but able to keep the same great taste the demand will rise. However if PepsiCo raised the price, the demand would go down. The change in the demand is the how people respond to the price. Actions for changing to a healthier beverage and snacks plus marketing strategies keep the consumer demand rising for PepsiCo brands (PepsiCo, 2015). On the other side of the table, the relationship between price and supply also play an important role of quantity sold. For PepsiCo to change their product to be healthier, they must invest in new technologies without raising the future price too high. Also, how the market and the substitutes affect the supply for PepsiCo. Quantity

Price Elasticity of Demand

Price elasticity of demand refers to the quantity of goods required due to the change in the price of the same commodity. There are five factors that determine the price elasticity of a product; substitutes, the passage of time, if the product is a necessity, marketplace, and consumer's budget (Hubbard, R. & Brien, A. page 170-178). There are several substitute products for PepsiCo brands, for example, Coke for Pepsi or Tropicana Orange juice for Sunkist orange juice. If PepsiCo raises, the price consumer will respond by purchasing the substitute products. Also, if the cost rapidly increase people could stop buying the product immediately since it is not a necessity, however, most of PepsiCo's product are cheap. PepsiCo being a firm with an oligopoly market structure means that it cost of production is relatively small because it enjoys enormous economies of scale thus the price of a commodity is relatively small which means that quantity of goods demand increases. Since the demand is elastic, any price change that PepsiCo makes will amend the number of products sold therefor change the total revenue (Hubbard, R. & Brien, A.). If PepsiCo wanted to increase their total revenue, PepsiCo should decrease their price that would increase the demand.

Costs of Production

The cost of production is usually the cost incurred by an organization in their process of manufacturing a good or offering a service. The production cost puts together labor and raw materials where the production per unit is achieved by dividing the production cost by the number of produced units. PepsiCo (Prusty, S. 2010). It is significantly important for the organization to ensure that the cost production of their commodities is known to set appropriate prices that will attract many customers while making excellent profits for the group.

There is a different price that Pepsi organization incurs for their production of their variety products. The brands that the body produces include Pepsi, Gatorade, Frito-Lay, Tropicana and Quaker Oats. Production input cost is the main production that the organization significantly faces since they are responsible for purchasing the raw materials they use for production. Some of the raw materials the organization purchases include grains like oats, rice, wheat and wheat flour fruits and vegetables materials (Besanko, D. 2010). The Pepsi organization as well is responsible for buying of bottlers raw materials for all of its market globally. Transport cost, marketing cost, and services cost are among the production cost the organization faces for their products to reach their customers in the local market or to their final consumers. The impact that these changes have brought to the organization is normally when their price cost changes. The rise in raw materials search as grains, fruits, bottler’s production materials and vegetable products frequently impacts the total output cost and the margin of profit that the origination attains over time. When the cost of production increases, the profitability of the organization is significantly affected.

The variable cost of production is those cost that are not fixed since they vary according to the organization's production volume since they increase as the production increases and reduce as the production reduces (Besanko, D. 2010). Fixed cost is a cost that remains the same irrespective of the output production, and they include rent, insurance, office supplies, and advertisement. The decision output f for the organization is usually based on these cost since it is necessary for the organization to ensure that they have high production rate to have the high output for the company.

Since fixed cost is constant throughout, it is exceedingly necessary for the organization to offer high consideration on variable cost for the production. It is essential to reduce the cost of production on different cost search as, labor, raw materials, and research to ensure that the organization increases its profitability. Although it is important to improve the organization research and advertises, it is essential for their cost to below to facilitate the organization profitability. In conclusion, it is significantly important to reduce the production cost for the PepsiCo on different forms of value to increase the organization output.

Overall Market

PepsiCo has also worked on improving its operation margin to see an annual increase in their turnover. PepsiCo just like any business venture faces numerous threats, and without dealing with these threats could lead to its downfall. The major threats facing PepsiCo are emerging health trends and able to conform to the comply with the consumers taste and preferences. PepsiCo has a several model of business in the food and beverage products, so given the demand for beverages decline it will have an up hand over its main rival Coca-Cola since they highly depend on carbonated drinks. PepsiCo and Coco-Cola are in an oligopoly market. Oligopoly markets have few competitors because it is hard to get started. However the few firms in the industry product similar products, therefore, these products are a substitution for one another. In 2012, PepsiCo increased their marketing by 11% with brand advertisement to put pressure on their competitors

Dealing in complementary goods was a good business plan for PepsiCo. In accordance to the Information Resource, Inc. a research company in the US 54% of consumers who consume a saline snack will at a high probability also buy a beverage (Church, 2010). PepsiCo can have as an oligopoly market structure where it main competitor is mainly Coca-Cola so that entry into that market will be difficult. The leading companies have the legal right to the technical know-how of production. Therefore, they guard it does not fall out. The firms also control all if not a high percentage of the raw materials required in the production. To enter into such business venture, you require a tremendous amount of capital to invest in because the firms already in that industry are enormous multi-billion companies.

Recommendation

PepsiCo should engage more on social issues, mainly for those in developing nations. Coca-Cola being PepsiCo chief rival has implemented many projects an example being Introducing water purification for African villages this has made them identify with the brand name increasing its market share, given PepsiCo could have the same philosophy this would escalate the brand acknowledgment. PepsiCo has mainly focused on the younger population leaving out the senior population. However, there is still a broad market with the older generation.

PepsiCo is a successful firm with enormous revenue and a significant share of the marketplace. It ought to remain in the market and take full benefit of opportunities by continuing to progress at the retail level in the market they are presently in and market portions that they aspire to venture in. With Coca-Cola Company as the chief competitor in the market, every strategic move that PepsiCo adopts is carefully monitored by her competition (Chen, 2012). From the porter five forces that shape the external market, PepsiCo is at a prime position in affecting new entrants as it has established permanent market links with the suppliers of raw materials and has control of the distribution. What this means is that the viable threat that the entity faces is largely from an almost identical market occupant like Coca-Cola Company. In summation, PepsiCo could reach its full potential given it takes measures to correct its weakness.

References

Annual Reports and Proxy Information. (2015). Retrieved January 3, 2016, from http://www.pepsico.com/Investors/Annual-Reports-and-Proxy-Information

Hubbard, R., & Brien, A. (2015). Microeconomics (5th ed., International ed.). Harlow: Pearson Education, page 68-75 and 170-178.

Zott, C., & Amit, R. (2008). The fit between product market strategy and business model: implications for firm performance. Strategic management journal, 29(1), 1-26.

Besanko, D. (2010). Economics of strategy. Hoboken, NJ: John Wiley & Sons.

Chen, H., Chiang, R. H., & Storey, V. C. (2012). Business Intelligence and Analytics: From Big Data to Big Impact. MIS quarterly, 36(4), 1165-1188.

Church, A. H., & Waclawski, J. (2010). Take the Pepsi challenge: Talent development at PepsiCo. Strategy-driven talent management: A leadership imperative, 617-640.

Prusty, S. (2010). Managerial economics.

Revenue 2010 2011 2012 2013 2014 57838 66504 65492 66415 66683 COGS 2010 2011 2012 2013 2014 26575 31593 31291 31243 30884

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