Fundamentals of Marketing

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Fundamentals of Marketing 1.1 Introduction Marketing, more than any other business function, deals with customers. Understanding, creating, communicating and delivering customer value and satisfaction are the very heart of modern marketing thinking and practice.

The Pepsi company consists of Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International and Quaker Foods North America. PepsiCo brands are available in nearly 200 countries and territories and generate sales at the retail level of about $78 billion.

Many of PepsiCo's brand names are more than 100-years-old, but the corporation is relatively young. PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including Gatorade, in 2001.

PepsiCo offers product choices to meet a broad variety of needs and preference -- from fun-for-you items to product choices that contribute to healthier lifestyles.

PepsiCo’s mission is “To be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce healthy financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.”

1.2 Objective of the study Our objective of the study is to discuss the marketing objective and strategies of PepsiCo Limited in our country. We have also analyzed the position of Pepsi in the soft drink market of Bangladesh. This is done in order to minimize the gap between the textbook knowledge and real life practices.

1.2 Historical background Pepsi Co Inc. is a U.S.A. based organization. But the market of Pepsi is spread all over the world. In 1974 Transcom Limited became the franchiser company of the Pepsi Co Inc. (U.S.A.). In December, 1975 Transcom Limited initiated its Pepsi oriented activities as a separate strategic business unit. The name of the separated business unit was Transcom Beverage Ltd. PepsiCo Limited is the part of this Transcom Beverage Ltd. where only the transactions related to Pepsi is dealt. The head office of PepsiCo Limited is situated at Tejgaon Commercial Area on their own compound. In Bangladesh PepsiCo

Limited is the responsible authority for marketing of Pepsi. It is making reasonable effort to maintain the position of Pepsi in the soft drink market of Bangladesh.

1.4 Mission of Pepsi as a Group: Organization’s mission refers to management’s customized answer to the question “what is the business of the company and what will it be”. A mission statement broadly outlines the organization’s future direction and serves as a guiding concept for what the organization is to do and to become.

The mission of the PepsiCo Limited as a Group is their products will be the preferred partner in the field of soft drink and juices through innovation of newer products locally and globally and better understanding of consumers.

1.5 Visions of Pepsi as a Group: The vision of the Pepsi Co Inc. as a group is: “Make the business from good to better and from better to best. In the process of making such an evolution consumer preference comes as the first and foremost choice. Through our product and services our customers have to be delighted and satisfied. Our promises to our customers are our obligation. People related with our family are good citizens, both personally and globally. They are professional in every thing that is done by them. Be good as corporate citizens and never injure even the fiercest competitor or any other. ” Source: Pepsi’s corporate website www.PepsiCo.com; as per May 9, 2003.

Pepsi Co sustainability vision PepsiCo's responsibility is to continually Improve all aspects of the world in which we operate--Environments, social, economic-creating a better tomorrow than today, Tomorrow > Today Our Commitment Our commitment is to deliver sustained growth, through empowered people, acting with responsibility and building trust.

Here’s what this means: Sustained Growth is fundamental to motivating and measuring our success. Our quest for sustained growth stimulates innovation, places a value on results, and helps us understand whether today’s actions will contribute to our future. It is about growth of people and company performance. It prioritizes making a difference and getting things done.

Empowered People means we have the freedom to act and think in ways that we feel will get the job done, while being consistent with the processes that ensure proper governance and being mindful of the rest of the company’s needs.

Responsibility and Trust form the foundation for healthy growth. It’s about earning the confidence that other people place in us as individuals and as a company. Our

responsibility means we take personal and corporate ownership for all we do, to be good stewards of the resources entrusted to us. We build trust between ourselves and others by walking the talk and being committed to succeeding together.

Guiding Principles This is how we carry out our commitment.

We must always strive to: Care for customers, consumers and the world we live in We are driven by an intense, competitive spirit in the marketplace, but we direct this spirit toward solutions that achieve a win for each of our constituents as well as a win for the corporation. Our success depends on a thorough understanding of our customers, consumers and communities. Caring means going the extra mile. Essentially, this is a spirit of growing rather than taking.

Sell only products we can be proud of.

The test of our standards is that we must be able to personally endorse our products without reservation and consume them ourselves. This principle extends to every part of the business, from the purchasing of ingredients to the point where our products reach the consumer’s hands.

Speak with truth and candor.

We speak up, telling the whole picture, not just what is convenient to achieving individual goals. In addition to being clear, honest and accurate, we take responsibility to ensure our communications are understood.

Balance short term and long term We make decisions that hold both short-term and long-term risks and benefits in balance over time. Without this balance, we cannot achieve the goal of sustainable growth.

Win with diversity and inclusion We leverage a work environment that embraces people with diverse backgrounds, traits and different ways of thinking. This leads to innovation, the ability to identify new market opportunities, all of which helps develop new products and drives our ability to sustain our commitments to growth through empowered people.

Respect others and succeed together This company is built on individual excellence and personal accountability, but no one can achieve our goals by acting alone. We need great people who also have the capability

of working together, whether in structured teams or informal collaboration. Mutual success is absolutely dependent on treating everyone who touches the business with respect, inside and outside the company. A spirit of fun, our respect for others and the value we put on teamwork make us a company people enjoy being part of, and this enables us to deliver world-class performance.

1.6 Marketing objective PepsiCo Limited’s basic objective is to attain maximum profit product wise by increasing distribution channel throughout the country and launching new product to meet the ever changing demand of the consumers. In the long run PepsiCo Limited wants to attain better market share and producing products that ensure satisfaction of customers which also fulfills the organizational goal Source: Pepsi’s corporate website www.PepsiCo.com; as per May 9, 2003.

3.3 Market Types Consumer Market

Business Market

Reseller market

Pepsi

Consumer Market: Individuals & households.

Business Market: Hotels, restaurants & cafeterias.

Reseller Market: Departmental stores, groceries shop.

Target market of Pepsi Now Pepsi Company will analyze different segmentation bases in relations to its products. Now management is in a position to select one or more segments as its target markets. However, thirst is a physiological need for every people & every people need something to drink. Here two or more different groups of potential customers are identified. Pepsi has identified five market segments for its target market- school going, teenagers, youth, couples, family & old people.

6.2 Points of different characteristics that make the product unique relative to competitors 1) Pepsi is flavored sugar water, empty calories without food value.

2) “The Secret Formula" means the ingredient called "7X", a mixture of fruit-oils and spices that gives the syrup its specific taste.

Different sizes.

Reasonable price Available 1.7 Marketing Process In this segment the marketing process and product marketing mix of “PepsiCO Limited” will be discussed. A glance is given ahead about the compositing factors of these features. It may help the reader to gain idea, to some extent, about marketing process followed by “PepsiCo Limited” to market its basic and major product “Pepsi Cola” 1.8 Analyzing marketing opportunities: Pepsi CO Inc. (U.S.A.) is a worldwide organization which is engaged in the business of beverage drinks, mineral water, tea and root beer. But in our country its business is limited only to beverage drinks. However, the concerned authority collects information from the market through market survey. Sometimes their district distributors also provide necessary information about the current market situation and future opportunities for the company.

1.9 Limitations To conduct this assignment we have tried to do our best but there are some Limitations Such as time, cost, and information. we have tried to over come these Limitations by our maximum effort .

2.1 Market segmentation & target market selection In Bangladesh, PepsiCo Limited does not go for any particular type of marketing segmentation. But their marketing strategy is specifically targeted to a particular age group of 15-35 years. The main reason behind this strategy shown by the authority is that the people of this age group make the purchase of all the types of soft drinks through out the year. So it is profitable for the company to target them. Very recently PepsiCo has taken steps to introduce their new product “Diet Pepsi” for the more health conscious and elderly age groups.

2.2 Marketing mix Marketing mix of any company consist of four (4) factors. They are product, price, place, promotion. Here the product of PepsiCo Limited “Pepsi Cola” is discussed.

2.3 Product line PepsiCo Limited in Bangladesh works as strategic business unit of Transcom Beverage Limited which is the actual franchise organization of Pepsi Co. Inc. (USA). The products that PepsiCo offers are given below:

Product Pepsi Cola

Category Soft Drink

Flavor Cola

Seven Up Mirinda Orange

Do Do

Lamon Orange

Mirinda Apple Slice

Do Juice

Apple Mango

Glass Bottle Size 2000,1500,1000, 500,250 milliliters Same Same

Can Size 500 milliliters ---------

250 milliliters 250 milliliters, Tetra Pack

---------

2.4 Classification of the product Pepsi Cola is a consumer product, which is bought frequently for personal consumption.

It can be classified as convenience product this is generally available to the nearest retailer shop and fast food. When a consumer attempt to purchase this type of product they have in their mind about the objective and price of the product.

2.5 Brand Name Through out the world PepsiCo Limited has created a brand value by its successive operation for over a centennial year. Especially it has become almost synonymous with health conscious soft drinks. But in our country Pepsi has not been able to create any type of brand loyalty. Their brand name has little effect in customers’ purchasing effort.

2.6 Quality Level Since Pepsi can be categorized as a type of food element, its quality is judged directly by customers themselves. Pepsi’s commitment towards maintaining quality has provided them a better hand upon other competitive organizations. To ensure the strict quality measures, a quality controller from the international head office visits the production process of the local office once a year. In the local sector their operational license is also dependent upon the quality certificate provided by the Government Organization named as Bangladesh Standard Testing Institution (BSTI).

2.7 Packaging Soft drinks products must be packaged properly for its proper distribution and selling.

Internationally PepsiCo Limited has its own packaging organization named as ‘Pepsi Bottling Group’. In our country Pepsi serves only in the glass bottles. All these bottles come from a Saudi Arabia based company named ‘Ibn Qashem International’. The plastic cases that are used to carry these bottles are produced by ‘Uttara Plastic Limited’.

2.8 Labeling In case of refreshment drinks labeling of the product plays a very vital role. Pepsi has a very distinctive labeling for its product. Its label contains information about the following things: Ingredients used in the process of making: Name of the local manufacturer and their address.

Manufacturing date and the maximum retail price.

Quality standards measured by BSTI with their own logo.

Net contents of the bottle.

Customer awareness information such as “Best before 3 months of manufacturing”, “Recycle the bottle” and “Put in the dump after use”.

2.9 New or existing product Development There is very little or almost no chance for PepsiCo Limited to develop any new product locally. All the products here come from the central organization “Pepsi Co Inc. (U.S.A.)”. Pepsi has launched its newest product “Pepsi BLUE” in 7 th May only after the supply reached our country in limited basis. There is a possibility that they introduce another product, the one calorie cola, “Pepsi ONE” by December this year.

Pepsi BLUE

Pepsi One

New product according to given outlay

Information search

Need for new product Initiative taken by mkt department

Required outlay for producing new product

New product development

Sent to R&D department Approved by the top management

Historically, price has been the major factor affecting buyer choice. This is more true in poorer nations, among poorer groups (like Bangladesh) and with commodity products.

Price is the only element in the marketing mix that produces revenue; all other elements represent costs. Price is also one of the most flexible elements of the marketing mix.

Unlike product features and channel communications, price can be changed quickly. At the same time, pricing and price competition is the number one problem facing many marketing mix. So, it is also most complex and critical problem to set price for all commodity based firm.

Here, we have sorted all information about pricing of PepsiCo Limited, Bangladesh according to our textbook to make easy our discussion.

At first, we considered factors that PepsiCo Limited consider when setting price of their products. We classified PepsiCo Limited’s considering factors into 2 broad classes. They areInternal factors, & External factors.

Now let’s look, what are the factors that affect PepsiCo Limited’s pricing decisions3.1 Internal factors The factors that are considered as internal factors by PepsiCo Limited are as below(a) Their marketing objectivesPepsiCo Limited has some marketing objectives. These objectives have changed for several times due to market conditions and market trend. Their first objective is to survive in this present competitive market condition. Because, for last 5 years in Bangladesh, some potential firms have come into beverage industry with many new products and these new products make competition for PepsiCo Limited harder to survive in the beverage industry with their present market share.

PepsiCo Limited now trying to keep their market share unchanged. That’s why PepsiCo Limited cannot change their current price.

Second marketing objective of PepsiCo Limited is to maximize current profit. In Bangladesh, Tk.10 to Tk.12 per unit price is the trend for all beverage firms. For this reason PepsiCo Limited cannot increase their unit price. On the other hand, for increasing price of raw material, PepsiCo Limited cannot decrease their unit price. For this circumstance, PepsiCo Limited is trying to minimize their overhead cost and other cost which will result the maximization current profit with current capacity. b. Marketing mix strategy – We know there are 4 elements of marketing mix are- Product, Price, Place and Promotion. Price is only one of the marketing mix tools that a company uses to

achieve its marketing objectives. We have earlier mentioned, Tk.10 per unit is the trend in Bangladesh. Beside it, Tk.30 for 1 liter and Tk.50 for 2 liter are almost fixed for all firms. So, price and product are not always considered for marketing mix decisions. For this reason PepsiCo Limited always consider promotional advertisement and distributor to promote and place their product. (c) Costs – Third element of internal factor is cost. We already mentioned PepsiCo Limited is trying to minimize their cist so that they can maximize their current profit. Management of PepsiCo Limited cannot reduce the price of their product due to the increase in per unit cost.

3.2 External factors Now let’s go to know about external factors that affect pricing – The market and demand Beverage market in Bangladesh is oligopolistic competition market. There is almost a uniformed price is used and the competitors are sensitive to each other’s price. So the market demand fluctuation depending on pricing decision. In the decade of 1980’s, the per unit price of per 250ml bottle was Tk.7 and then increased to Tk.8. After that, in 1990’s the price went to Tk.10. this increase was due to increased price of chemical elements such as Total Carbohydrates, Potassium Benzoate and natural flavors etc. All beverage firms use these elements. For this reason the per unit price was also increased uninformed way. The competitor firms are not interested to increase price but they cannot decrease price for cost. This two-side pressure keeps price almost constant.

These are all about the factors that PepsiCo Limited considers when they set price of their products.

3.3 Pricing Approach Now the question is – which approach PepsiCo Limited follow to determine price?

We have learnt from our textbook that there are 3 pricing approach – Cost-based pricing, Value-based pricing and Competition-based pricing. Burning question is which PepsiCo Limited follows or do they follow their customized way? The answer is – PepsiCo Limited follow Competition-based pricing.

From our above discussion about factors, it is easily understandable that price is very much sensitive and it is very competitive nature. Experiment on pricing may cause big loss for PepsiCo Limited. Because higher price reduce their market share and lower price is not supported by production cost. So it is wise for PepsiCo Limited to follow goingrate price. This approach allows them to maintain their market share as well as they can compete with competitors by offering additional benefit. As existing in oligopolistic

competition market, PepsiCo Limited is bound to follow going-rate price. They have no other way.

3.4 New Product Pricing Here we have another burning question in front us – How PepsiCo Limited set prices of new product?

Some firm can follow Market-skimming pricing to make maximum revenue or some can follow Market-penetration pricing to take maximum market share and be a market leader.

But these two approaches are not supportable by present market condition in Bangladesh.

PepsiCo Limited is following traditional approach. We know, PepsiCo Limited’s new product is ‘Pepsi blue’. Its price is same as all other products of PepsiCo Limited. If its demand increases then PepsiCo Limited will produce it largely. But they have no intention to change price of it.

3.5 Adjustment of Pricing Strategy Up to this point what we have discussed is about how PepsiCo Limited set their product price. But some times PepsiCo Limited needs to adjust their pricing strategy. Every competitor firm in every moment is trying to increase their sales as well as their market share by increasing promotional activities. PepsiCo Limited also needs to take some action. Price adjustment strategy is such kind of promotional activities. Here price adjustment strategy means offering some discount to consumer, retailer and distributor.

PepsiCo Limited generally offers two types of discount. One is seasonal discount another is functional discount or trade discount.

3.6 Seasonal discount In Bangladesh there are two big festivals – Eid-ul-fittre and Eid-ul-azha. In this two festival PepsiCo Limited offer Tk.3 to Tk.5 price cut per unit. This discount is very important for PepsiCo Limited to increase revenue.

3.7 Functional discount: There is another discount for distributor and wholesaler, which is called, trade discount.

In this discount PepsiCo Limited offer 2 or 3 bottles free for each case (containing 24 bottles). This trade discount indirectly offer price discount.

This two price adjusted strategy is very much important for PepsiCo Limited. Another thing to be noted that when one competitor offer some discount PepsiCo Limited does not react immediately. They wait and observe market condition and movement to offer some discount if there exist any scope to grab some extra market share. But their immediate reaction result is increasing other marketing promotional activities other than price adjustment strategy.

This is all about pricing decision of PepsiCo Limited Co. Bangladesh.

4.1 Distribution channels and logistics management: Pepsi Co. is a world leader in convenient foods and beverages, with revenues of about $25 billion. Today consumers spend about $33 billion on Pepsi-Cola beverages. This type of huge sell is possible only through efficient and effective logistic support.

PepsiCo Limited is a franchise organization; the franchiser is Transcom beverage BD. LTD. who links the several stages of production and distribution process in BD. Under Transcom Beverage Pepsi Co. BD. Ltd. works as an independent organization. Transcom beverage LTD. follows manufacturer- sponsored wholesaler franchise system.

PepsiCo Limited firstly divides the whole Bangladesh into four zones those are Dhaka, Chittagong, Rajshahi and Khulna.

In each of these zones two or three zonal distributors are selected. They can also be mentioned as wholesalers. PepsiCo Limited supplies their soft drinks these distributors by their own transportation service. It can be mentioned here that for transportation purpose they have twenty nine trucks. Retailers of each separate zone contact with the zonal distributor and ask them to supply according to their demand. To be a distributor of PepsiCo Limited an individual or organization must have some criteria that given bellow The person or company must have experience or to relate with dealership business.

He or it must have to be financially solvent with TK.1,00,0000 (10 Lakh).

Must have auto vehicles and employees.

Regular goods order must have to be maintained.

A security of TK.1,000,00 Have to keep to Pepsi for six (6) months.

Zonal distributors sometime appoint more distributors on a locality basis such as in Dhaka and Chittagong. These distributors supply the product according to the retailers demand. Mostly this transportation is done by the distributors’ own vehicles such as van, pickup etc. they visit each retailers shop usually twice a week. But in case of summer season suppliers can provide the product even seven days a week based on sales of the retailers.

Pepsi applies some motivation system to motivate their distributors. These includes if the distributors makes a good regular goods order and sale exceeds above target then Pepsi gives financial rewards to them and also some cases of goods are given free to them. But if there is any mismanagement there is also some punishment for the distributors such as if distributors fail to make minimum target of order or a least target of sale then Pepsi cancels their distributorship.

4.2 Number of channels: Pepsi Co. BD. LTD. follows indirect marketing channel. That means a marketing channel that has two or more intermediaries as wholesaler and retailers. Firstly the distributor collects the product from the franchise org. and then supplies it to the retailers.

Manufactur er

Distributor

Retailer

Customer

4.3 Channel behavior and organization Pepsi Co. BD. LTD. binds by the channel behavior of Conventional vertical marketing system. Transcom beverage ltd. though the franchiser but under it Pepsi works as independently as conventional vertical marketing system

Manufacturer

Distributors

Retailer

Consumer

4.4 Setting channel objectives For setting channels Objectives by considering the factors of each zones Pepsi first determines the customer service that what targeted customer it wants from its channels.

Then Pepsi sets objectives for each channel and the objective is to minimize total channel cost of meeting customer service requirements.

Number of marketing intermediaries PepsiCo Limited follows intensive distribution. That is stocking the product as many outlet as possible.

4.5 Logistics management Pepsi has a strong logistics management or marketing logistics that maintain the functions are order processing, it has a warehouse which is a distribution center and Pepsi stock their inventory in that center which is situated in Tejgaon Dhaka. It has its own transportation service as by trucks. Pepsi has 29 trucks in their own for transportation service.

Retailers: On behalf of Pepsi the distributor of Pepsi in each zone supplies to the retailers.

The retailers of Pepsi Co. are the normal shopkeepers as departmental store, fast food shop etc.

Pepsi motivate their retailers by providing them refrigerator, sign board, neon sign and repair of the refrigerators. There are also some punishment for retailers if for their fault Pepsi loose target customers, Pepsi resigned them as their retailer. All these are done by the local distributors on behalf of Pepsi.

5.1 Promotional activities of PepsiCo Limited Pepsi believes that it must do more than make good products and inform consumers about product benefits and carefully position products in consumers’ mind. To do this Pepsi like any other company uses the promotion tools of: Advertising Sales promotion Public relation 5.2 Advertising For over 100 years, Pepsi-Cola has produced some of the finest soft drink ads available anywhere in the world. From today's "Joy of Pepsi," as sung by Britney Spears, to yesterday's "Nickel, Nickel" (1939). They believe that their ads are as memorable as the products they produce. In our country Pepsi-Cola is continuing to produce many local ads for promoting its products. While developing the advertising program Pepsi considers the following aspects: Objectives of the advertising Pepsi does not give much attention for informative advertising because it believes that the consumers have basic knowledge about their products. So it uses basically persuasive and

comparative types of advertising to persuade consumers and to get more competitive advantage.

Budget for advertising Pepsi holds that the more it can spend in advertising purpose will result in high volume of sales. So it spends almost 12% of the total cost for advertising purposes.

Here, the last few years’ actual budget of advertising expense of Pepsi is mentioned: Year 2002 2001 2000 1999

Amount of Tk. (core) 10.5 9 10 8

Advertising media uses by Pepsi: Pepsi uses different media for advertising like- on air advertisement, television, newspaper, magazines, radio & neon-sign etc. Everyday Channel-I telecast a program named “Pepsi Jukebox”.

5.3 Sales promotion: Every year Pepsi introduces short-term incentives to encourage the sales of its product.

These are: Trade promotion: Pepsi offers its distributors two bottles of beverage free with each case of Pepsi irrespective of the size of the bottle.

Sales force promotion: Pepsi provides bonuses, contests, sales rallies etc. to motivate the sales force.

5.4 Public relation: Pepsi has great contribution in case of public relation. Some of these are stated as below: Public affairs Pepsi is always involved in building and maintaining national or local community relations. Every year it organizes several concert, sports and cultural activities in our country.

Press conference: When Pepsi wants to introduce any new product or flavor then it often maintains the press relation to create and place newsworthy information in the media to attend attention. Recently Pepsi have launched their new product named ‘Pepsi-Blue’ and have arranged press conference for the purpose of discussing its various features. .

Product publicity: Pepsi always tries to maintain relationship to general and potential customers through publicity of its product through different types of publicity instruments. Like T-Shirts attached with Pepsi logo, posters on the wall, etc.

Development: It also maintains relations with donors or members of nonprofit organizations to gain financial or volunteer support.

5.5 PERSONAL SELLING For the purpose of making sales and building customer relationship Pepsi follow: #Tele marketing: Pepsi co. do not sale on over telephone but now they are thinking about this. #Online marketing: They do not provide this service for the customer but they have web site named WWW.PepsiCO .COM #Credit sell: Pepsi co. doesn’t sell on credit. They sale their products on cash basis. #Tutorial sales force structure: Actually this co. don’t apply any sales person to sell its product. #Relationship marketing: The Pepsi co. follow the relationship marketing to maintain & enhancing strong value laden relationship with its customer & other stockholders. #Praline: It’s a separate wing. That engaged in communicating the officer, dealer, developer & architect