Factors Impacting the Consumer Demand of Pepsi

Author- | Posted- | Updated: November 16, 2018 |

What factors impact the demand of Pepsi/Coca Cola directly or indirectly?

 

The creator of Pepsi Cola was Caleb Bradham who prepared and sold the syrup like drink during the 1890s. From its foundation till now, Pepsi has been through a long journey and reached the position of a leader in the beverages industry. The name of the company that makes Pepsi Cola is Pepsico. The company utilizes unique advertising and marketing strategies that have been highly effective and generate high revenue. Apart from it Pepsi has very few rivals in the industry.  The level of loyalty and popularity it enjoys can be challenged by pretty few brands.

Pepsi is among the most well-known brands in the carbonated beverages industry. The brand is present in more than 200 countries across the globe. Its brand presence and loyalty both are high. Its product portfolio is made up of more than 22 products that bring more than a billion in yearly revenue. Some well-known brands in its portfolio are Pepsi, Mountain Dew, 7up, Tropicana, and frito lays. Its Pepsi and Max enjoy particularly very high popularity. Aquafina is also near the top in terms of market share with around 10% market share. Gatorade from Pepsi leads the sports drinks category and accounts for nearly 70% sales in the sports drinks market. A large part of Pepsi’s revenue comes from the sales of soft drinks. Challenged only by Coca Cola, it is among the industry leaders in the beverages sector. However, Pepsi also produces and sells snacks. In terms of competition, Pepsi is second only to Coca Cola.

 

Bradham invented Pepsi in 1890 but the incorporation of the company took place in 1919 and then again in 1986 in North Carolina.  The company’s merger with Frito Lays in 1960 led to the brand’s entry into the snacks industry. Overtime, the company also made a large number of acquisitions including that of Tropicana and Gatorade. However, the journey is not yet over and the company is looking for new opportunities of expansion. Pepsi’s market share in the US carbonated beverages market is at close to 30%. Behind it, is the power of marketing that Pepsi has utilized perfectly.

Changing consumer preferences:

There are several factors that impact the demand for Pepsi. First of all, it is the consumer’s own preference that has an impact on it. If the consumer preference is for Pepsi, the brand enjoys high popularity and demand.  However, consumer preference can also change owing to certain factors. Most common factors that affect consumers’ preference are lifestyle factors, health factors and economic factors. However, Pepsi has priced its products in most markets in a manner that suits its consumers’ pockets.  So, pricing is not a factor that would make its consumers switch preferences.  However, in terms of health, Pepsi would not be considered a very hygienic product or the one suited to the taste of health conscious. When it comes to lifestyle, the emphasis is on promoting it as a product for the youngsters. Pepsi is innovative in terms of marketing and the heavy expenditure it incurs in this area is not without a reason.

 

Reputation of the brand:

Damage to reputation can also affect the demand for Pepsi among its customers. The brands which have a great relationship with their customers rule the market. This relationship can grow weaker if the brand’s reputation is damaged. The market is highly competitive and the brands have to continually focus on customer engagement. Pepsi is adept at doing its job in this area. Its marketing and advertising campaigns are directed at engaging customers efficiently. However, people must not have forgotten the Cola wars and why they were called the cola wars. When a brand takes the size of a war it implies the brand has shined and is rising on the consumers’ perception. Now, customer perception is shaped by so many things and a damage to reputation is bound to affect it negatively.  A damage to reputation can happen from various sources. It can happen due to legal issues or sometimes even due to product quality. Pepsi is facing legal challenges. The legal battles it is engaged in do not get to end. Product quality issues are and will remain an important issue always.  Pepsi is in the food and beverages sector and if there is any issue with the quality of its products, the result will be legal challenges and damage to reputation.  Pepsi can in no condition ignore the quality issue.  It is a top priority for any brand in the food and beverages sector. However, both Pepsi and Coca Cola have faced challenges because of the presence of harmful products including pesticides in their products. Moreover, for both Pepsi and Coca Cola have a major stake in the US market. A sizable part of their revenue comes from US where the laws related to product quality are relatively stringent. So, both law and quality factors have a major influence on Pepsi’s demand.

 

Aging and other factors

However, this was just a part of the picture. Lifestyle can also be affected by certain other factors. Aging is a factor that directly impacts the lifestyle of people. Moreover, the population of America is aging fast so this will have an impact on product demand of Pepsi. However, such factors are outside the control of Pepsi and therefore the focus of the brand must remain on the remaining consumer segment it can still depend upon. However, the millennial generation cannot be reached with traditional techniques. Pepsi must continuously focus upon innovative and outside the box marketing practices. Marketing handles a considerable  part of the brand’s burden. The recession has led to a slowdown in the soda industry. (Check this swot analysis of Pepsi to see how its revenue and profits have fallen) However, if CEO Indra Nooyi is still not disheartened then it is because the brand has some key strengths and a competitive advantage. So really, much of the focus of Pepsi has to be on marketing to the millenials.

 

Economic and legal factors

The global recession has had a major impact on the consumer demand of Pepsi.  As the economic conditions saw a downturn, the market of Pepsi saw a hard decline. However, the trouble has been faced by rivals too including Coca Cola. The dollar has grown stronger since the recession adding to the problems of Pepsi. It cannot depend on the markets outside US for its revenue. Economic conditions too are outside the control of Pepsi and if market conditions change swiftly and the dollar falls, might be Pepsi’s days could return faster. Company’s finances are affected by other factors too that include interest rates and taxes as well. Any change in the financial factors too might have a major affect on the bottom line of Pepsi. Legal and regulatory changes can also add to the operating costs. While it might not affect demand, the profits are still affected.   However, laws can sometimes be a big pain for brands. Whether it is marketing, advertising, labeling, or any other part of business operations laws can make it costlier for the brands to run the business. Even if these factors do not impact demand directly, an indirect effect can still be recognized.

 

Natural factors

There are even natural factors behind demand and supply. Climate change, sustainability, water scarcity are all factors that despite not being related directly can impact demand and supply. However, sometimes their impact can be direct when they shift the consumers’ focus towards other things. Natural disasters, global warming, water shortage, decreased agricultural output etc are not small concerns. These factors can impact the pricing and then create a downward pressure on demand.  If the impact is on supply, demand is going to be affected. If the supply of raw materials is low, like decreased availability of water, sugarcane or corn, its effect will be felt on production. Low production means low supply and in turn it means a pressure on brand to raise the prices to match the expected revenue.

 

Cultural Factors

If you analyse carefully, the social and cultural factors too influence demand. Why the demand in the US market is high whereas it is lower in the other countries? Culture is the reason. Pepsi is a brand that is associated in most markets with the Western culture. In the Eastern culture unless Pepsi is successful at localizing its brand image, the demand will remain low. Societies throughout the world have their own perceptions of the brand. Culture is the prism through which the people have seen things around them. The perception of a US consumer of things happening around him would be different than the average US consumer. It is why in the other markets a consumer would find it a bit difficult to associate Pepsi with his lifestyle. The effect of all these factors has to be kept in mind to assess the market demand of Pepsi.

 

Effect of Competition

All these things apart, there is the effect of competition. The main competitors of Pepsi include Coca Cola and Dr Pepper Snapple. The Cola wars are said to be continuing still. Pepsi and Coca Cola are always engaged in a fierce battle. The battle grows fiercer because the level of loyalty the two brands enjoy is high. Sometimes, the rising popularity of one brand can affect the demand of the other. Moreover, competition at times can be the most difficult factor to manage. If brands like Coca Cola and Pepsi spend too much on marketing, they know they cannot let the consumer go. Customer engagement requires such intense focus. The effect of competition is also very deep to be assessed fully.  Coca Cola leads the US market with 43% share followed by Pepsi at 30%. However, in several other parts of the world Pepsi has proved cleverer and been able to grab a better share. Still, that does not reduce the importance of the US market.

So, you can see that customer demand is a significant factor related to the bottom line of the brand. It is affected by several factors. Brands need to manage these factors to have a favorable bottom line. There are several direct and several indirect competitors of Pepsi. While marketing can help it handle several of the pressures, some factors are still not in Pepsi’s control. Much if its  fate will depend on the changes it has made to its product portfolio. However, since Pepsi and Coca Cola are close competitors, the same factors affect the consumer demand of Coca Cola too.

 

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.