This project aims to analyse the diversification strategy of PepsiCo in 2008. PepsiCo is the second largest food and beverage business in the world. The benefits of PepsiCo’s diversification strategies are identified. The business strategy is analysed to determine its efficacy across PepsiCo’s consumer business segments and product portfolio. The value chain match ups are determined and analysed to ascertain their relevance to the success of PepsiCo’s strategy. The competitive strengths of PepsiCo’s three structural divisions and six reporting segments are assessed and related to relevant theories and strategy tools.
The diversification path utilised by PepsiCo is by related business acquisitions. PepsiCo has a “...valuable cross business relationship...” opportunity, utilising their core focus in the food and beverage industry business (Thompson, A, Strickland, A, Gamble, J 2010). PepsiCo utilisied multiple related diversification strategies including research and development, to manufacture innovative products, effective distribution management, expansion through strategic acquisitions and expansion into international markets (Thompson, et.al, 2010). PepsiCo successfully diversified into North America and planned to further diversify into international markets.
The major benefit to PepsiCo of diversification in a related business is the ability to leverage the cross business and gain plus maintain competitive advantage, which also manifests into increased shareholder value and company performance. Figure 1.1 explains the benefits of diversification strategy options in related and unrelated businesses.
Benefit 1 research and development:
Research and development of PepsiCo remains within their core business focus of food and beverage product lines; this enables the sharing of research and development technology and advances in technical knowledge. The organisation is also able to share expenses of research and development for a cost effective approach. Lead times to manufacturing outcomes may also be shortened. Advances and innovations in technology can also be shared across related products to offer benefits to all businesses. For example PepsiCo’s “product reformations to make snack foods and beverages less unhealthy” utilises shared research and development technology across businesses or product lines.
Benefit 2 sales and marketing:
PepsiCo’s related diversification path enables the integration of sales and marketing to share resources to be more effective and efficient. PepsiCo’s Power of One retailer alliance strategy benefits the organisation by increasing volume and identification of product fit meeting consumer wants and more product on retailer shelves, “Under the Power of One strategy, PepsiCo’s marketers and retailers collaborated in stores and during offsite summits to devise tactics to increase consumers tendency to purchase more than one product offered by PepsiCo during a store visit.” The Power of One strategy offers sales cost savings as customers are purchasing multiple product lines which would be covered by one sales person verses the expense of multiple sales persons. The Power of One strategy also enables distribution and merchandising cost savings by utilising shared warehousing, supply chain and logistics to decrease costs.
Advertising media including web based advertising, can be shared across PepsiCo’s multiple related food and beverage product lines, which is a more cost effective option and also offers a larger target market for transfer selling.
Benefit 3 manufacturing:
Manufacturing cross related product lines and sharing of production expenses by consolidating manufacturing resources offers significant cost benefits. PepsiCo was “…organised into three business divisions…” (Thompson et.al 2010, p.C-350). The three business divisions would assist in enabling the sharing of manufacturing...