The three major players in the soft drink market are PepsiCo, Inc., the Coca-Cola Company, and the Dr. Pepper Snapple Group (Change Lab Solutions, n.d.). All of them use effective market segmentation to target specific markets. Effective target marketing requires that marketers, segment the market, by identifying and profiling to find a distinct group of buyers who differ in their wants and needs (Kotler & Keller, 2012). They target their specific product to one or more market segments they have identified, and for each target segment establish and communicate the distinctive benefit of the company’s products to position themselves in the market. Coca-Cola and Pepsi-Cola retain the first and second position in the soft drink market. By identifying the characteristics of Pepsi’s target market, and how they segment, we may be able to identify why they retain the second position.
Market Segmentation and Target Markets
Geographic segmentation can divide the market into larger and then smaller units. It can start with nations, states, regions, counties, cities, and finally neighborhoods (Kotler & Keller, 2012). Pepsi operates in all of these geographic segments; however, they do change tastes and packaging depending on the ethnic group or nation they are targeting. In Mexico, they sell cookies under the brand name Gamesa, chips and other snack foods are under the brand name Sabritas (PepsiCo, n.d.). PepsiCo’s global units are broken down into four segments; PepsiCo Americas Beverages, PepsiCo Americas Foods, PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (PepsiCo, n.d.).
Demographic segmentation divides the market by age, family size, family life cycle, gender, income, occupation, education, religion, generation, nationality, and social class (Kotler & Keller, 2012). PepsiCo is one of the largest food and beverage companies in the world. Areas of growing interest are the African-American and Hispanic markets, which have been identified as a key consumer and growth market (Change Lab Solutions, n.d.). PepsiCo was smart in diversifying into many different kinds of drinks that target different parts of the market, and their products include something for everyone between salty, sweet, and grain-based snacks (Change Lab Solutions, n.d.).
Primarily the target market for PepsiCo products is anyone they can reach in the market. However, the target market for juices, waters, and soda is anyone. It is important to note, as part of responsible marketing, PepsiCo helped find the International Food and Beverage Alliance. They are committed to not advertising to children under the age of 12 products that do not meet healthy nutritional criteria (PepsiCo, n.d.). The target market for ready to drink coffee and energy drinks would be workers and college kids, and the target market for sports drinks is athletes.
Psychographic segmentation divides buyers into different groups based on psychological/personality traits, lifestyle, or values. The four groups with the highest resources are innovators, thinkers, achievers, and experiencers. The four groups with the lower resources are believers, strivers, makers, and survivors (Kotler & Keller, 2012). Innovators and achievers would be the target markets for Starbucks products, and thinkers who are looking for value would be looking for Pepsi items that are on sale or bought through Costco or another buying club so they could get the best price. Experiencers who spend a great deal of income and time on entertainment and socializing would be the target market for energy drinks and Starbucks products. Believers and survivors of the older generations would be the most difficult to switch to a Pepsi product.
This generation is part of the reason that PepsiCo is in the number two position. Pepsi’s marketing in the past of being for the new generation, may have hurt them in that target market. The strivers and the makers would be the target market for juices, waters, and soda. Snacking is a national pastime, so the snack foods: pretzels, chips, multi-grain snacks, granola bars, cookies cereal, rice sides, eat-and-heat foods, would target all markets.
Behavioral segmentation divides buyers into groups based on their knowledge, attitude towards, use of, or response to a product (Kotler & Keller, 2012). When it comes to needs and benefits, you would primarily see health conscious individuals or parents buying for their families; water, healthy oatmeal, juices, maybe diet soda, multi-grain snacks, and Quaker granola bars. In the decision role, we have the initiator, influencer, decider, buyer, and user (Kotler & Keller, 2012). In most families everyone has a thought or opinion; however, in the end the buyer who does the grocery shopping makes the final decision. All of the products in the PepsiCo beverage and food line are for all occasions, a user would be any consumer wishing to make a purchase, and the usage rate would vary as much as the type of food or beverage would vary.
Loyalty status is a place where with the right advertising and marketing, PepsiCo could possibly position themselves to the number one position. Loyal Coca-Cola drinkers are a large target market, but getting them to choose a different brand over the one they have been loyal to for a lifetime takes some work. When Coca-Cola made the mistake of changing their recipe for a short time, this gave Pepsi a chance to steal some of those customers away. The Pepsi challenge, which has been a very successful marketing campaign, has been able to win over some die-hard Coca-Cola customers. The split loyals and switchers group normally buys whatever is on sale that week because price is more important than taste.
Effective Target Market Segmentation
For Pepsi to understand which products should be targeted, at which customers, they need to rate five criteria. The size, purchasing power, and characteristics of the segments must be measurable. The size of the segments must be substantial enough to earn the company profit. The market being targeted should be in a geographic region that can be accessible. If the segments were differentiable, and would respond to different marketing campaigns, different programs must be taken into consideration. The programs must be actionable to attract and serve the targeted market (Kotler & Keller, 2012).
Five forces that determine the intrinsic long-run attractiveness of the market or market segments are industry competitors, potential entrants, substitutes, buyers, and suppliers (Kotler & Keller, 2012). When it comes to industry competitors PepsiCo is up against number one Coca-Cola, and in the number three position the Dr. Pepper Snapple Group (Change Lab Solutions, n.d.). The threat of new entrants that could take away a significant share from these three top major players in minimal. The threat of substitute products, like store brands, is just a force that has to be recognized; however, proper promotion, shelf space (positioning), and discounts to the contract owner make it profitable for them to push a certain product.
For example, if Kroger’s has a contract with PepsiCo, and receives funding for every marketing promotion they do, every case, 12-pack, 6-pack, and bottle they sell, they are more likely to push Pepsi products over their own store brand. The store brand, being much cheaper has a different target audience, than the more expensive Pepsi. PepsiCo may select buyers that have the least power to negotiate and drive the profit down, or are unable to switch suppliers based on location. PepsiCo owns the majority of their bottling plants, so the threat of their supplier having bargaining power is negligible.
Message Generation and Evaluation
According to PepsiCo’s website (n.d.) their mission statement is “to be the world’s premier consumer products company focused on convenience 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, strive for honesty, fairness, and integrity”.
Previously it was mentioned that PepsiCo helped find the International Food and Beverage Alliance as a commitment not to advertise to children under the age of 12, products that did not meet healthy nutritional criteria (PepsiCo, n.d.). In addition, many Pepsi-owned bottlers have helped to remove full calorie soft drinks from primary and secondary schools, and are working with local communities to promote better nutrition. This program involves focusing on the health benefits of water, juices, milk, and low-calories beverages. PepsiCo believes that this philosophy protects the equity in their brands, trademarks, and goodwill (PepsiCo, n.d.).
Creative Development and Execution
Every morning I drive on highway 52 North, and I see at least three Coca-Cola ads. It makes me wonder where the Pepsi ads are. Pepsi is well known for their television advertisements featuring singers like Beyoncé, Britney Spears, and even the late Michael Jackson. These messages are for the “next” generation that the market targets. Pepsi is normally featured in print ads in your Wednesday newspaper section of grocery ads. Product placement is a segment that marketers have recently become more concerned about. Because PepsiCo sells beverages and snacks, they are trying to cross-promote these items in the grocery, convenience stores, and vending machines. At most grocery stores you will see refrigerators with cold soda in them, just waiting for you to pick one up while waiting in one of those long lines. Sales promotions such as Buy 2 Get 3 free promotions are a huge hit with consumers; however, these normally attract only the split-loyals and switchers.
Legal and Social Issues
The most recent social issue is the amount of sugar and the fat content in sodas and snack foods. After a great deal of information disseminated by newspapers, magazines, books, and television programs about obesity in our young children and teenagers, soda companies have been the target of negative campaigns. This is the reason that PepsiCo backs this social issue and has been trying to deal with concerns regarding the artificial sweetener aspartame in their diet soft drinks. PepsiCo is looking for an all-sugar solution that could improve soda sales (Forbes, 2014).
The way for PepsiCo to retain their current market share, and earn profits for their investors is to stick with their program of diversifying. They not only have diversified into new product markets, but are quickly expanding into underdeveloped countries. By promoting themselves as a company that cares about nutrition, and advocates being health conscious they have gained new market share. By diversifying, they are growing every day. They are innovators, and have strong partnerships and alliances with companies like IBM. Their mission statement is strong and they stand behind it. With all their different products, they hit several different target segments and markets. From what I have observed, I think they could do a better job of advertising, unless they feel comfortable staying in the number two position.
Change Lab Solutions. (n.d.). Breaking Down the Chain: A Guide to the Soft Drink Industry. Retrieved from http://changelabsolutions.org/sites/default/files/ChangeLab-Beverage_Industry_Report-FINAL_(CLS-20120530)_201109.pdf Forbes. (2014). PepsiCo Earnings Preview: Soft Drinks To Underperform Once Again. Retrieved from http://www.forbes.com/sites/greatspeculations/2014/04/15/pepsico-earnings-preview-soft-drinks-to-underperform-once-again/2/ Kotler, P., & Keller, K. L. (2012). Marketing management (14th ed.). Upper Saddle River, NJ: Pearson Prentice Hall. PepsiCo. (n.d.). Advertising. Retrieved from http://www.pepsico.com/Purpose/Human-Sustainability/Responsible-Marketing PepsiCo. (n.d.). Global Business Units. Retrieved from http://www.pepsico.com/Company/Global-Business-Units