Pepsico Case

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Daniels Fund Ethics Initiative University of New Mexico http://danielsethics.mgt.unm.edu

PepsiCo’s Journey Toward an Ethical and Socially Responsible Culture COMPANY OVERVIEW PepsiCo is one of the largest food and beverage companies in the world. It manufactures and sells eighteen brands of beverages and snack foods and generates over $98 billion in retail sales. PepsiCo encompasses the Pepsi Cola, Frito-Lay, Tropicana, Quaker, and Gatorade brands and offers products in over 200 countries. It currently holds 36 percent of the total snack food market share in the U.S. and 25 percent of the market share of the refreshment beverage industry. The company’s headquarters are in New York and employs over 200,000 people. In 2006, Michael D. White became the CEO of PepsiCo International, and in 2007 Indra K. Nooyi became the CEO of PepsiCo. PepsiCo has received many awards and recognitions over the years, including being ranked in the top 25 of the best global brands, ranking number four overall by Diversity Inc, and earning the Green Award by the Environmental Protection Agency. COMPANY AND MARKETING HISTORY The Pepsi recipe was developed by pharmacist Caleb Bradham in the 1890s. Originally marketed under the unassuming name “Brad’s Drink,” Bradham’s creation was renamed Pepsi-Cola in 1898 due to the pepsin and kola nut ingredients used. Awareness of Bradham’s new creation spread quickly, and in 1902 he decided to create the Pepsi-Cola Company so people everywhere could enjoy the drink. In 1903 the patent became official, and by 1910 Pepsi-Cola had franchises in 24 states and sold over 100,000 gallons of the syrup annually. However, the Pepsi brand would encounter several rocky situations before becoming the success that it is today. World War I proved to be an especially turbulent time for Pepsi-Cola. Severe fluctuations in sugar prices caused the company to lose money, and in 1923 Bradham sold the trademark to Craven’s Holding Corp., who shortly after sold it to a New York stockbroker named Roy C. Megargel. Megargel fought to revitalize the company but failed. In 1931 the Pepsi-Cola Company underwent its second bankruptcy. Candy manufacturer Charles Guth, president of Loft Inc., saw Pepsi-Cola as a great investment and decided to purchase the company. Within two years the company was earning over a million dollars and was on its way to making history. Building a Brand Guth had many challenges to overcome in order to save the struggling brand. Through the Great Depression, Pepsi carefully positioned itself as a low cost leader and made advertising history when it released the nation’s first jingle “nickel, nickel,” which was heard across the nation. With financially-strapped customers reluctant to pay a nickel for a drink, Guth began offering twice the amount of Pepsi for the same price, a tactic which met with resounding success. World War II This material was developed by Kendra Berch, Kimberly Montoya, and Jennifer Sawayda under the direction of O.C. Ferrell and Linda Ferrell. It is provided for the Daniels Fund Ethics Initiative at the University of New Mexico and is intended for classroom discussion rather than to illustrate effective or ineffective handling of administrative, ethical, or legal decisions by management. Users of this material are prohibited from claiming this material as their own, emailing it to others, or placing it on the Internet. Please call O.C. Ferrell at 505-277-3468 for more information. (2010)

2 continued to test Pepsi-Cola’s strength with introduced sugar rationing, but Pepsi’s marketing campaigns and brand design helped Pepsi make it through the difficult period. For instance, Pepsi changed the colors on the label to be red, white, and blue to show patriotism and declared that patriotic people drink Pepsi. Pepsi’s success allowed it to begin marketing internationally in 1945. As more people began earning more disposable income, Pepsi-Cola recognized that the marketplace was changing. To...
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