1.1THE INTERNAL FACTORS EVALUATION (IFE) MATRIX.
The IFE matrix is a summary step in conducting an internal strategic management audit of the PepsiCo. This strategies-formulated tool is to summarize and evaluates the major strengths and weaknesses in the functional areas of business. It also provides a basis for identifying and evaluating relationship among those areas of a business.
One of the strengths that can be found in PepsiCo is in term of strong brand equity. PepsiCo has a strong brand name in the world place and the company is well-known worldwide. This company is the best global brand in the world in terms of value of net revenue $43,251 million in the year of 2008. The company has a very recognized and well-known name. Other than that, the company also has a good reputation in most of every country including Japan, China, India, Europe, Mexico and Latin America. For that reason, PepsiCo is an international company and it has a very strong position internationally. Next, another internal factor is PepsiCo has strong advertising company with more than 40 slogans and sponsoring event. The company believes that the image of good relation with franchise market share large number of diversity businesses and socially responsible are important.
PepsiCo has well-built marketing and strong advertising. In addition, the company has the most broad beverage distribution channel. One of the infinite distribution channel for PepsiCo is YouTube because it is easy and available everywhere. PepsiCo marketing strategy is highly dependent on development of catchy slogan. For example, the slogan Pepsi has in is “Every Generation Refreshes the World” in the year of 2009. Besides that, PepsiCo is sponsoring sports, musical concerts and walks which especially involve young generation. Moreover, PepsiCo as the biggest part of the market share after Coca-Cola is another strength that the company has. It gives the company a comparative advantage in the marketplace. The financial data of PepsiCo appear very good with revenues increasing from just over $35 billion in 2006 to over $43 billion in 2008. Besides, Euromonitor International stated that PepsiCo’s strategy in China is to overtake Coke, which has 47.3 percent market share in the country’s Cola market versus Pepsi which hold 44.5 percent.
Pepsi has large market share than its competitors as the target customers of Pepsi is young age group, Pepsi has more brand loyal customers. Last but not least, the internal strength of PepsiCo is an innovating company. PepsiCo owns a wide diversity of smaller brands which able them to offer a large product range from beverages to snacks high-quality products and gain the customer loyalty. PepsiCo also has high bargaining power over their suppliers. PepsiCo also has their own Research and Development Department which innovating new food products and acquiring company such as Quaker Oats, Cap’ N Crunch cereal, Mountain Dew, Tropicana juice, Gatorade or Doritos chips. Moreover, PepsiCo has innovated sports and energy drinks which shows the largest growth in the world demand. These ideas are the reasons for PepsiCo to have a competitive advantage over its competitors.
First of all, one of the weaknesses of PepsiCo is that this company production is really expensive. This is because of the need to constantly develop new products to meet the changing customer’s demands. According to income statement of PepsiCo in the year of 2009, the cost of sales has increased from 41.3 percent to 43.43 percent and the net income of the company has decreased from $5.6 billion to $5.1 billion. In addition, in order to create more products, the company had borrowed a lot of money from the financial institution. The amount of PepsiCo long term debt has increased from $4.203 billion in 2007 to $7.858 billion in 2008. Other than that, the internal weakness of PepsiCo is in term of profitability which this company number two profitable companies than Coca-Cola in the international market. Pepsi does not offer any sort of incentive or discount to its retailers. As mention before, Coca-cola has 47.3 percent market share in the country’s cola market versus Pepsi which hold 44.5 percent. Coca-cola is also the brand known around the worlds, which are the largest producer and distributor of ark colas in the world.
Even in the current monetary crisis, the company continues to expand and the financial position shows that Coca-cola has a strong cash position in compare to PepsiCo which the long term debt of PepsiCo is so high. Besides that, another internal weakness of PepsiCo is overdependence on Wal-Mart. Wal-Mart is the largest warehouse and supermarket. Unfortunately, more than 13% of PepsiCo business revenues come from Wal-Mart store chain. Wal-Mart has a significant buyer power and can easily dictate prices over PepsiCo leaving it with very small margins. On top, PepsiCo would lose 13% of its revenue and competitive advantage if the company loses Wal-Mart. Therefore, it can be understand that PepsiCo depends too much on the US market. This is one of the weaknesses that PepsiCo needs to overcome as the external factors such as inflation can also affect the company if the company cannot be independent. Lastly, the internal weakness of PepsiCo is that the company is facing a negative publicity. There are doubtful practices which accused PepsiCo is using and selling tap water.
However, the company places view of mountains on its water bottle labels. The public claim that the company deceiving people to believe it is mountain spring water when it is not. Furthermore, PepsiCo has also been criticized for using water in India with higher than allowed amount of pesticides in it. Because of this problem, it has lead to the brand failure in the certain products. It is a big problem when a certain brand name is damage. This can also effect the customers loyalty towards the brand. Therefore, from the IFE Matrix, it can be understand that PepsiCo have strong internal position. The company’s strategies effectively take advantage of existing strength and the company also has to be able to minimize its weakness.
KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE
1 Strong brand equity 0.14 4 0.56
2 Largest part of the market share after Coca-Cola 0.07 3 0.21
3 Strong advertising company with more than 40 slogans and sponsoring event 0.10 4 0.40 4
An innovating company 0.19 4 0.76
5 PepsiCo production is really expensive because of the need to constantly develop new products to meet the changing customer’s demands 0.17 2 0.34 6 PepsiCo is number two profitable companies than Coca-Cola in the international market 0.17 2 0.34 7 Overdependence on Wal-Mart 0.10 1 0.10
8 Facing a negative publicity 0.06 1 0.06
TOTAL 1.00 2.77
Table 1.1: Key Internal Factors of PepsiCo
2.1THE EXTERNAL FACTOR EVALUATION (EFE) MATRIX
Besides IFE Matrix, EFE Matrix can be used by organizations or companies. The EFE Matrix is used to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, technological and competitive information. Generally, this strategies-formulated tool is the matrix for external opportunity and threat.
The first external opportunity of PepsiCo is growing beverages and snacks consumption and spending in emerging markets. PepsiCo has made large investments in many countries such as India, China and Europe in order to expand its market share as these countries represent the fastest growing food and beverages markets in the world. If PepsiCo is successful, it will increase its revenues and global market share significantly. With this opportunity, the company will be able to rely less on United States market. Besides that, there are growth opportunities in developed countries as well as international non-established countries. Secondly, the company will acquire potential company to increase profit. Pepsi recently reacquired ownership of its two largest bottlers, Pepsi Bottling Group (PBG) and PepsiAmericas (PAS).
PepsiCo offered $6 billion retake the ownership. Non-carbonated products are today about 40 percent of Pepsi-Cola volume, versus less than 15 percent 10 years ago. PBG and PAS distribute nearly 75 percent of Pepsi drinks in the United States. In addition, PepsiCo had acquire many other potential company such as Quaker to compete with the major competitors in the breakfast cereal market which includes Kellogg and General Mills. Thirdly, promote products through sponsoring. Nowadays, there is high increase interest of people in musical groups, cultural shows and sports have provided an opportunity for PepsiCo to increase its sales through them. Furthermore, due to many reality programs in television shows is to fight obesity, the demand for healthy food and beverages has increased drastically.
PepsiCo has an opportunity to further expand its product range with beverages and snacks that have low amount of sugar and calories. Fourthly, opening product in market for less costly products and lower price than the competitor. In the current situation, PepsiCo are assuming that the usage of products among target market consisting young generation has been increasing day by day. Therefore, it is important for the company to put the lowest prices in their products to ensure their product is marketable and affordable. For example, the prices for Pepsi per can are $4.00 per fl.oz. in compare to coke $4.33 per fl.oz. which is slightly higher. This will enable the company entering rural areas also.
First of all, the external threat that can be identified in PepsiCo is the change in customer lifestyle and pattern. The economic successes in developing and developed countries have resulted in considerable improvements of people quality of life. Customers are demanding for higher technology to access the product to serve their needs. Customers are one of the stakeholders who control the external movement of the companies which affect the company’s financial position as they are the buyer of the company’s product. PepsiCo must adapt with the modern lifestyle from their traditional way of doing business such as providing online purchases. Because of the recession, customers are finding cheaper alternatives to the national brands. Secondly, PepsiCo fierce competition from Coca-Cola, which owns the largest piece of the market share. Coca-cola has 47.3 percent market share in the country’s cola market versus Pepsi which hold 44.5 percent. Coca-cola is the brand known around the worlds, which are the largest producer and distributor of ark colas in the world.
PepsiCo are facing decreasing gross profit and net profit margins during the current monetary crisis in the year of 2008 while Coca-cola are not affected and the companies continue to expand at the time. Thirdly, the changes in consumer taste can be an external threat to companies like PepsiCo. In these days, the consumers around the world become more health conscious and reduce their consumption of carbonated drinks. It is known that carbonated drinks have large amounts of sugar, calories and fat. Customers are getting more conscious and concerned about their eating habits and general health. Carbonated drinks are not good for the health so the awareness level of the people is increasing which is a big threat to the company. They are changing towards light, calorie free, sugar free, caffeine free, sports and energy directed. Last but not least, another external threat of PepsiCo is the problem of water scarcity. Nowadays, water is becoming scarcer around the world and increases in both cost and criticism for PepsiCo over the large amounts of water used for their production.
PepsiCo are highly dependent on supplies of clean water in order to prevent infectivity. Working together with Water.Org, PepsiCo Foundation commits to accelerating greater access to safe water and sanitation for those currently living without these basic necessities in India. This goal is being met through programs delivered via grants and WaterCredit, an innovative initiative that facilitates microcredit loans for water and sanitation. Therefore PepsiCo are responding towards their opportunity and threats. The company should effectively and efficiently take advantage of their existing opportunity and should be able to come out with the strategies to minimize their threat.
KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE
1 Growing beverages and snacks consumption in emerging markets 0.18 4 0.72
2 The company will acquire potential company to increase profit 0.10 2 0.20
3 Promote products through sponsoring 0.15 3 0.45
4 Opening product in market for less costly products and lower price than the competitor 0.15 3 0.45 Table
1.2: Key Internal Factors of PepsiCo
5 Change in customer lifestyle and pattern 0.15 4 0.60
6 PepsiCo fierce competition from Coca-Cola Change in customer lifestyle or pattern 0.08 2 0.16 7
Changes in consumer tastes 0.11 3 0.33
8 The problem of water scarcity 0.08 2 0.16
TOTAL 1.00 3.07