Competition in Energy Drinks, Sports Drinks & Vitamin Enhanced Beverages – PepsiCo
Background material
The soft drink industry has been dominated by some major companies like the Coca-Cola Company and PepsiCo. Before the 21st century, these companies concentrated in the processing of carbonated drinks. The drinks had a very high demand and companies that processed such drinks flourished by making enormous sales. However, as consumers have been informed on the dangers or health risks associated with the consumption of carbonated drinks, they have shifted their attentions to other drinks. As the demand for soft drinks continued to rise, dominant companies took advantage of this and hiked the prices of these drinks. All these contributed to a shift in consumption of the drinks as consumers sought for alternative drinks. Therefore, alternative drinks came not only as an option but also as a change in strategy for beverage companies to address the needs of customers (Gamble, 2012).
From the beginning of the 21st century, Coca-Cola, PepsiCo as well as other beverage companies ventured in the processing of alternative beverage drinks. These drinks include sports drinks, energy drinks and vitamin-enhanced beverages. Because of the high demand for alternative beverages, many companies ventured into the processing of these drinks. The sale of alternative beverage drinks gained momentum in the mid of the 2000 decade. Companies which have been ripping lots of profits from sales of alternative beverages and drinks are Hansen Natural Corporation, Living Essentials, Red Bull GmbH and Rockstar Incorporated among many others. These companies have been making multimillions from the manufacture and sale of alternative beverages. From the year 2000, the alternative beverage market has been very active with many companies coming into the alternative beverage industry. However, the international market for alternative beverages was immensely affected by the economic recession 0f 2008 – 2009. The United States which is the major market for the alternative drink recorded significant drop in the sale of alternative beverages and drinks. There was a 12.3 percent drop in the sale of sports drinks between 2008 and 2009. During the same period, vitamin-enhanced waters recorded a 12.5 percent decline in sales. It is only the energy drinks which recorded a rise in sales during the recession period. The sales rose by 0.2 percent (Gamble, 2012).
Beverage producing companies capitalized fully on the demand growth by extending their products. Many companies have been developing new products as well as diversifying their existing products so as to capture a bigger share of the market. PepsiCo is an example of companies that extended their brands so as to capture the market. It tailored its Amp Energy drink into twelve different flavors while the SoBe Vitamin-enhanced beverage was extended into 28 flavors. Beverage companies sought to further extend and venture into the manufacture and processing of relaxation drinks to address the needs of the depressed people. Therefore, the alternative beverage industry has been marked with high scale competition. There exist too many alternative beverages and drinks in the market now (Katz, 2010).
The major strategy of the beverage companies has been to diversify and make enormous extension of their brands in the market. Increased competition has resulted in unhealthy or unethical business practices in the alternative beverage and drinks industry. Market capture and expansion has been the major objective of the beverage companies. They do not pay much attention to the aspects of sustainability in the market. A number of companies have ben receiving criticisms owing to the effects of their products to the health of those who consume them. Some products like the beverages with high caffeine content were critiqued of promoting unhealthy consumption patterns among the consumers. Companies do not let the consumers know the patterns of consuming these beverages and drinks. Some companies do not also expose the contents and the side effects of these contents to the consumers. Physicians have been warning consumers of the dangers of some of the ingredients in these drinks like kava and melatonin. Generally, business ethics in the alternative beverage and drink industry is being ignored with all the companies only focusing on making more sales (Gamble, 2012).
The global beverage industry is still projected to grow as the beverage companies are sprouting and finding new markets across the globe. Therefore better strategies have to be adopted by the companies in the beverage industry which will assure them of market sustenance (Gamble, 2012).
Strategy identification
It is evident that there exists high competition in the alternative beverage and drinks industry in the US market and the world at large. The major competitor companies of PepsiCo are the Coca-Cola Company and Red Bull GmbH. This industry has both the ancient and stronghold companies that have dealt in the manufacture of soft drinks for long like PepsiCo. There are also many other players which have come into the industry not long ago. PepsiCo has been a major force in in the alternative beverage industry in the world. To survive in the competitive alternative beverage and drink industry, the company has employed several competitive strategies. One of the major competitive strategies has been brand extension and brand diversification. There are several strategies that have been developed to offer companies with options of developing strategies to adopt to competition. However similar competitive strategies may seem to be for different companies, they are applied differently by each company (Shankar & Carpenter, 2012).
There are different approaches or strategies to competition. The five main strategies to competition are focused low-cost strategy, focused broad differentiation strategy, a market niche strategy based on low cost. Others are a focused market strategy which is based on differentiation and a best-cost provider strategy. Some companies do apply a mix of these strategies. It is however advisable for companies to choose and pursue a single strategy. The pursuance of one policy helps in easing the positioning of a company. It helps in eliminating the complexities that may arise from integrating the varied strategies (Katz, 2010).
For a long time, PepsiCo has been using broad differentiation strategies in dealing with competition in the market. This strategy has many advantages to aggressive companies. It is most applicable to a market where the customers have diverse needs for products. Customers in the soft drink industry demanded for other products apart from the carbonated soft drinks that were being offered in the market by the beverage companies. Therefore, this created a demand for many other drinks in the market. As one of the biggest beverage companies, PepsiCo noted this demand and ventured into processing the different brands. The advantage of broad brand distribution is that it offers a big range of options for customers. Customers will often get something to identify with in the product or product delivery by the company. PepsiCo has over twenty brands of products which include the energy drinks, vitamin enhanced beverages and sports drinks. The company has further expanded these brands into different flavors. Brand differentiation and extension has been the major force behind the performance of the company in the competitive industry and market (Katz, 2010).
For a company to beat competition in the market it must first understand and pursue a strategy. The company must understand well the industry in which it is competing as this is the main source of competition. Also, a company has to know all the rues that are governing competition within the industry in which it is operating. There have been many players in the beverage industry in the world. PepsiCo is one of the main players in the beverage industry. More companies have been coming into the industry because of the emergence of new demand. This means that there are more other smaller companies in the alternative beverage industry. New beverages and drinks are being produced in the industry by different companies. Despite this, only a few well known brands like Pepsi have dominated the market. In 2009, sports drinks accounted for a larger portion of sales of alternative drinks. PepsiCo is one of the major processors of sports drinks like Pepsi. The company appreciates the fact that competition exists in the industry which is the reason why it has been working on releasing many brands to the market (Katz, 2010).
Through the use of alternative beverage drinks has gained prominence in the beverage industry, carbonated soft drinks are still the key substitutes. In 2009 for instance, carbonated drinks had the largest market share in the beverage industry. The sales of these drinks amounted to almost half of the market share. It was at 48.2 percent. Also, products that are made by competitors are substitutes to the products that are processed by PepsiCo. When there are many substitute products in the market, the company must seek ways of ensuring that its products remain competitive in the market. The competitive strategy becomes more important here as it has to offer an alternative to beating competition. The products of the company include food products which are meant to be consumed together with the beverage drinks (Gamble, 2012).
The company has many customers ad has a wide customer base. When there are many competitors in the market, the customers or buyers of the company have to be guarded. This can be done in a number of ways basing on a competition strategy adapted by the company. PepsiCo maintains its buyers by maintaining fair prices for its products as well as ensuring continuous supply and variety in products. The company also ensures that the products are availed to the customers at different places. Alternative beverages are purchased from different points which include supermarkets, natural food stores, supercenters, convenience stores and wholesale clubs. Convenience stores are the most preferred distribution stores for alternative beverages like sports and energizing drinks. These products are purchased for immediate consumption by the buyers. This can only be achieved when the company has trusted suppliers. The company must also have trusted suppliers who help in distributing the products to the customers in time. The products of in all the distribution places named here. This means that the company has a good supply strategy (Trigg, Himmelweit & Simonetti, 2002).
Analysis of performance of the broad differentiation strategy by PepsiCo
Just like many other strategies, differentiation strategies are aimed at maximizing profits in companies. It enables firms to raise the unit of sales, gain the loyalty from their customers and commanding a premium price for company products. When all this has been achieved, the company gains competitive advantage over its competitors in the market (Shankar & Carpenter, 2012). PepsiCo gained access into the alternative beverage market by virtue of having dealt in the soft drink industry for a long time. The broad brand differentiation strategy has been argued to be the main reason why the company has been ranked first in the alternative beverage industry globally (Gamble, 2012).
PepsiCo has been very innovative knowing the amount of efforts that are being employed by its competitors like Coca-Cola and Red Bull. The company formed vast distribution systems for its carbonated soft drinks like Pepsi-Colas. As it introduced its new brands of the alternative beverages, it ensured that the new brands were found where in the distribution centers for its famous brands. Therefore, as people purchased these products, they came across the new products. PepsiCo has over one hundred sub – brands of brands in the market which have been developed from the main brands. The first aspect of differentiation in the company was the venturing into the production of alternative beverage drinks. At one point PepsiCo has managed to come up with over 12 different flavors of products from a single product. There are different methods or approaches of differentiating products in a competitive market (Gamble, 2012).
Differentiation can focus on either the main products or even on other aspects of product marketing like pricing and other marketing approaches (Keller, 1998). PepsiCo has concentrated much on diversifying its alternative beverage drinks. This forms the core of its differentiation strategy. The company has many alternative beverage drinks in the market which means that it attests to the differing tests of customers. This also aids the company to have a wider market relative to its competitors thus a competitive advantage to PepsiCo. A company can choose to pursue brand differentiation in multiple ways. This gives the company a stronger platform on which to compete with its competitors. However, it is good for a company to identify its strong pointer in differentiation as this will serve the company best when competitive pressures mount (Kotler & Pförtsch, 2006).
Differentiation is a very broad strategy. For a company to fully realize the benefits of differentiation strategy, it has to incorporate differentiation activities in its supply chain. A strong and differentiated supply chain ensures that products reach customers in time and in required qualities and quantities (Kotler & Pförtsch, 2006). PepsiCo has done well in sustaining its supply chain by enhancing its distribution channels and points. Its products are easily found in the larger market. This boosts the sale of the products. Research and development have also helped the company in its initiatives of brand diversity. With more products in the market the company has to shift its attention to active marketing practices like advertising and promotional activities. There are many products from the company which are not yet known by many potential customers. The brands which have been developed in the recent years need to be made known to the many customers of the company (Gamble, 2012).
Recommendations for future decisions
When a company chooses to pursue a particular competitive strategy, it does not imply that it has to work with the strategy in an isolated manner. Strategies do not work in isolation just as it is in business. To strengthen the working of the main strategy, other strategies have to be incorporated into the main competitive strategy to make it work efficiently. Each strategy has its advantages as well as disadvantages to the company. Therefore, it is upon the company to ensure that it maximizes on the strengths of a strategy. Capitalization on the strengths of a strategy helps in drawing away the negative effects of a strategy. The broad brand differentiation strategies have been applied in greater heights. As explained earlier, PepsiCo concentrated on only one component of differentiation which is developing more product variation in the market. While this has worked to its advantage, more will still need to be done. As competition mounts, the company needs to embark on other aspects of brand differentiation (Yoffie & Kwak, 2001).
The company has to monitor the different companies and capitalize of the aspects of weakness in its competitors. As a company develops more in the market it has to monitor competition both from within and without the organization. The company must fully understand its competitors so that it can choose on the best strategies to out-compete the competitors. As a market leader, a company is always prone to scrutiny from other firms. This is why it has to monitor its competitors and adjust its strategies accordingly (Yoffie & Kwak, 2001).
The adoption of blue ocean market strategy could also be more favorable to the company. The beverage industry is marked by similar products with only slight differences in flavor. This can be effectively applied in marketing by choosing inventive strategies which will help the company set itself above the other companies (Kim & Mauborgne, 2005).
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