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STRATEGIC MANAGEMENT_PEPSI

Posted on: September 11, 2011


 

 STRATEGIC MANAGEMENT

CASE: 3

PEPSI CO AND QUAKER OATS

 Determine the present strategy (related, unrelated diversification, scope  domestic or global for each division, what moves have been made recently to add new business, rationale underlying recent divestures, the nature of any efforts to capture strategic fits and create competitive advantage based on economies of scope and other resources)

 

Present Strategy

Roger Enrico the CEO of PepsiCo  (1996-2001)  got involved in  restructuring PepsiCo’s business portfolio. Company had 3 business segments restaurants, beverages and snack foods. Enrico found that there are number of fairly serious problems at PepsiCo. The company’s beverage business began to fall behind Coca Cola (competitor) by a growing margin  in both domestic and international markets. The restaurant’s business was declining and profit margins were narrowing.

Amid of all these problems Enrico developed a restructuring strategy, which is as follows:

  •  Related Diversification:

The restaurants limited investment in the company’s snack food and beverage business and severely impaired the corporation’s overall operating and profit margins. Considering these facts the restaurants which included Pizza Hut, KFC and Taco Bell were eliminated from the company’s portfolio of business and the three main restaurants were spun off as an independent publicly traded company , the divestitures was completed with a creation of Tricon Global Restaurants. Company was focusing on related diversification and spun off business unit which were unrelated to the core business of beverages and snacks.

  • Maintenance  of one Culture: PepsiCo ‘s new strategy was to maintain a single culture which is dominant and which was Frito-Pepsi culture.
  • Acquisitions for Related Diversification: PepsiCo as part of its new restructuring strategy acquired Borden food’s snack mix of  candy coated popcorn and peanuts Cracker Jack, Tropicana from Seagram Company (orange juices) and Quaker Oatmeal the number one brand of hot cereals. Company had its own distribution network to promote these products and to increase the availability of these products.

 Outsourcing of Bottling Operations:  company spun off  more than 50% of its bottling operations around the world and gained a 1million$ gain on the initial public offering. This was done so that the company could be more focused and specialized in the development of new products and marketing programs to support them.

  • Value Chain alignment between PepsiCo Brands and Products to maintain economies of scope and to gain competitive advantage:

  

The recent strategy was to achieve annual cost savings by reorganization of activities in the value chain of the company’s snack and beverage businesses. This included combined corporate worldwide procurement, combination of Gatorade and Tropicana hot fills, joint distribution of Quaker snacks and Frito Lays products and synergies between Frito Lays international and PepsiCo beverages.

 

 All this resulted in tremendous growth of PepsiCo, as it became the second largest food products company inUnited States. Company was diversified into salty and sweet snacks, soft drinks, orange juice, bottled water, ready to drink teas and coffees, nutraceutical and isotonic beverages, hot and ready to eat breakfast cereals. All these brands held number one or tow positions in their respective food and beverage categories. PepsiCo is operational globally and all the divisions are competing in  domestic and international markets.

Thus these are the above-mentioned steps, which are undertaken by the current management to exploit the opportunities and to restructure the company.

  • Rationale underlying recent divestures

1.Divesting of Restaurant business:

PepsiCo’s competitive success in its 3 industries was due to its ability to create a distinctive image and to develop innovative and tasty new products. The inclusion of quick service restaurants was the most distinctive characteristic of PepsiCo ‘s business portfolio. Company formed the largest restaurant conglomerate in the world, KFC, Pizza Hut and Taco Bell, collectively had worldwide sales of $11.5 billion in 1995. Company had the strategy of acquiring established market leaders but later it also acquired small, relatively unknown companies.

This industry was appealing because the changing demographic factors like two income families increase in the number of households made up of singles mad eating out an attractive alternative. US fast food sales grew at an annual rate of 6% between 1990-1996 but this also lead to increased competition and price wars.

 

 PepsiCo decided to spin off the restaurant business for the following reasons:

External Factors:

  • Increased price competition and market saturation. There was growing numbers of fast food restaurants with an increased reliance on value meals to increase the volume at the expense of margins.
  •  There was scope in the international market but there were number of risks associated with entering international markets. Local government restrictions, international taste preferences, site development costs and unavailability of qualified suppliers all posed entry barriers in the international market.
  • In 1996 attractiveness in global fast food industry declined.

Internal Factors:

  • Restaurant business severely impaired investment and overall operating and profit margins in the company’s snack and beverage business
  • Restaurant business required expertise in the operating side of the business like customer service, quality of product and value equation. PepsiCo lacked this culture.
  • 2.Spinning of Bottling Plant: :

 Company spun off more than 50% of its bottling operations around the world and gained a 1million$ gain on the initial public offering. This was done so that the company could be more focused and specialized in the development of new products and marketing programs to support them.

 

 Determine the competitive advantage potential of any value chain relationship and strategic fits among existing business:

1.Firm’s infrastructure:

 General Management: Enrico 56 year old CEO of the company retired in 2001 , he was succeeded by Steve Reinemund  who joined PepsiCo in 1984 as a Chief of the Pizza Hut business.

Finance: PepsiCo was the fifth largest food and beverage company in the world. Value of its shares improved from about 30$ annually in 1997 to over 45$ in late 2001.

Strategic planning:  PepsiCo was operating in three businesses, beverages, snacks and restaurants. Enrico the CEO of PepsiCo (1996-2001) proposed to spin-off the restaurant business, as it had nothing to do with the snack and beverage business of the company. The restructuring of the company laid emphasis on related diversification in cereals and juice industry.

2.Human resource development: The best managers of the company were rotated from positions in one business unit to assignments in the other two business segments to promote the transfer of skills, practices, know-how and innovative ideas from one business to another. It kept the managers’ thinking fresh and innovative and developed the skills of the employees.

3.Technological development: PepsiCo is restructuring its value chain activities by combining the snacks and beverage’s manufacturing process. This would result in achieving economies of scope and will give the company competitive advantage. It had its own agriculturists who helped guide the farmers / suppliers of potatoes  about the agricultural techniques .  It had its own proprietary agro technology.

4.Procurement: PepsiCo has also developed a sophisticated value chain alignment tracking process that utilizes online scorecards. These cards are updated monthly to track over 130 individual projects designed to capture synergistic benefits and to record the supplies of each product. Company was starting off with combined procurement of all its business products for ingredients and packaging materials which would result in an estimated $160 million in cost savings by 2005.

  • It created a North American hot fill manufacturing unit and formed a world wide procurement unit.

     SUPPORT ACTIVITIE

 

 

  1. Inbound Logistics: Frito-Lay, snack business of the company formed joint ventures and acquired chips manufacturing companies , it had its own agricultural experts who worked with the farmers to ensure the supply of  consistent and high quality potatoes for its snacks business. Company had its own proprietary agro technology and maintained strict standards of quality while choosing a supplier.
  1. Operations:  
  • PepsiCo was starting off with the reorganization of its operational activities by combining its snacks and beverages unit’s production.
  • It was also combining Gatorade(isotonic drink) and Tropicana (juices) hot fill operations to save 120$million  savings .Thus the company was finding synergies in its business operations to achieve economies of scope which would give a competitive advantage to PepsiCo in the industry.
  1. Outbound Logistics: 
  • Joint distribution of Quaker snacks and Frito-Lay products would result in the reduction of distribution expenses by $40 million by 2005
  • Synergies between Frito Lays and PepsiCo beverages international were another strategy to reduce the cost and increase revenue by2005.
  • :  PepsiCo had a very good marketing strategy; it used celebrities’ endorsers in its soft drinks advertisement to entice the viewers.
  • The administrative and advertising expertise was used to promote and sell Quaker Oats and Tropicana. Sales force of Tropicana and Gatorade were combined to achieve economies of scope and cost savings.
  1. Marketing and Sales

PRIMARY ACTIVITES

 

 Key Success Factors for Each SBU’

Frito Lays Brands

 

  • Increasing Growth Rate

The industry for Frito Lays is in growing stage and there is a high potential for the companies to grow well in the region.

 

  • Acquisition And International Joint Ventures

The acquisition and the joint ventures  is helping the company to do well, acquiring the small firms and developing joint ventures will increases the opportunity for the Frito Lays to become the market leader.

 

  • Agro technology / high quality potatoes 

For the chips industry it is necessary to have a high quality of potatoes available in the market because to have a good quality chips the high quality of potatoes should be required and companies which have good agro technology can succeed in this industry.

 

  • Innovative And New Tasty Products

Innovative new tasty products are required to sustain in this industry and is the key success factors of the major companies.

 

  • Product Differentiation

The product differentiation is one of the most important success factors because it gives a competitive edge.

 

 

  • Economies of scope:

Companies, which can merge their manufacturing activities of various product lines into one to acquire low cost leadership, are successful in this industry.

  • Advertising

    Introducing renowned celebrities in the advertisements of snack food is one of the leading factors for the companies.

 

  • Global Expansion

As there are more chances for the snack food manufacturers to sell their products in new markets likeEast Asia,North AmericaandEurope, companies have a big market to cater

 

 

Key Success Factors for PEPSI

 

  • Global Expansion

There are more chances for the companies to sell their products in new markets likeEast Asia,North AmericaandEurope, and also inNorth Africacompanies have a big market to cater.

  • Control Over Distribution And Production

The distribution channels and the production should be optimized in such an efficient way that whenever there is a required demand, it should be fulfilled on time basis.

  • Advertising

Introducing renowned celebrities in the advertisements of beverage ads  is one of the leading factors for the companies to succeed in the market.

 

  • Health Consciousness

Most of the people are health consciousness about their health and light beverages is a growing market for this segment.

 

 

Key Success Factors For Gatorade Brands \ Quaker Oats

Advertising

Introducing renowned celebrities in the advertisements of cereals ads  is one of the leading factors for the companies to succeed in the market.

 

 

Distribution:

Companies which have a wide distribution network are more successful in this industry , making their brand easily available to the consumers.

Brand loyalty

The brand loyalty is an important factor for the companies  because most of the people only those brands which they were consuming ever since they were kids.

Health consciousness

Most of the people are health consciousness with their health and like to have healthy snacks and breakfasts which include rice and wheat products.

Global expansion

There are more chances for the companies to sell their products in new markets likeEast Asia,North AmericaandEurope, and also inNorth Africacompanies have a big market to cater.

 

 FINANCIAL ANALYSIS OF PEPSI CO:

 

 PepsiCo.Inc.’s

 

|||

Quaker Oats

 

 

2000

1999

1998

 

2000

1999

1998

Net Sales

$20,438

$20,367

$22,348

 

$5,041

$4,725

$4,843

Operating Profits

$3,225

$2,818

$2,584

 

$2,753

$2,588

$2,468

Net Income

$2,183

$2,050

$1,993

 

$361

$455

$284

Total Current Asset

$4,604

$4,179

 

 

$1,014

$997

 

Total Current Liabilities

$3,935

$3,788

 

 

$860

$938

 

Total Debt

$2,346

$2,812

$4,028

 

$664

$715

$795

Total Equity

$7,249

$6,881

 

 

$355

$197

 

Total Assets

$18,339

$17,551

$22,660

 

$2,419

$2,396

$2,510

Inventories

$905

$899

 

 

$287

$266

 

Gross Profit Margin

15.78%

13.84%

12%

 

54.61%

55%

50.97%

Net Profit Margin

10.68%

10.07%

9%

 

7.15%

10%

5.86%

Current Ratio

1.17

1.10

 

 

1.18

1.06

 

Quick Ratio

0.94

0.87

 

 

0.84

0.78

 

Debt To Equity Ratio

0.324

0.409

 

 

1.872

3.624

 

Return On Assets

11.90%

11.68%

8.80%

 

14.91%

18.99%

11.31%

Return On Equity

30.11%

29.79%

 

 

101.66%

230.61%

 

 

Analysis

The PEPSI Co 3years analysis is concluded as:

P Sales of the company are increasing because new products (isotonic drinks, juices, light Pepsi etc)  are coming and performing well in the market.

P Net income of the Pepsi Co. is increasing by 10 % from last three years.

P Current ratio is steady at 1.17; their current assets are slightly higher then current liabilities. The major portion of current assets is the accounts and notes receivables, whereas the major portion in current liabilities is the account payables.

P Quick ratio; the inventory level is not so much high, theCO. having the appropriate level of inventory on hand.

P The gross profit margin is low, it should be higher.

P The net income is increasing which is a good sign for the company and their shareholder and it’s mainly because of the increasing sales and the reduction in the operating expenses.

P Return on assets is around 12% which is a positive sign.

P The return on equity is increasing and it is around 30% and its mainly because of the increase of the net income of the company

 

 The Quaker Oats 3 years analysis is concluded as:

P Sales of the Quaker Oats are increasing

P Net income of the Quaker Oats of the company has been going  down over the years showing decline in the overall industry.

P Current ratio is steady at 1.18,and the current ratio is increasing because of the increasing in other current assets 

P Quick ratio; the inventory level is not so much high, theCO. having the appropriate level of inventory on hand.

P The gross profit margin is high, and they are trying hard to maintain.

P The net profit margins is decreasing which is because of the increase of operating expenses.

P Return on assets; the Quaker Oats are earning good return on assets

 

 Evaluate the relative competitive position  and business strength of each company company’s business unit

 

There are 6 business units of the company and the performance is as follows:

 

Frito-Lay North America

 

In 2000 Frito-Lay brands accounted for 58% of the sales of snack chips in the $20.6 billionU.S.salty snack industry. The volume growth rate was around 4% and revenue growth was around 7%. The total industry growth rate inU.S.was around 6.4%. it shows that Frito-Lay brands have high related competitive position, as compare to their competitors. Their distribution network and advertising are the key strengths.

 

Frito-Lay International

 

Frito-Lay was the largest snack chip company in the world, with sales of more than $5.9 billion outside theUSAand a 28% share of the international snack chip industry in 2000. Frito-Lay’s volume growth rate was around 13%, 14% revenue growth rate, and 19% growth in operating profits in 2000. Frito-Lay not only marketed only its own products in international markets but also entered into international joint ventures and acquired established chip companies outside theUSAto future increase sales and market shares within vary country markets. Their distribution network, acquisitions and advertising are the key strengths.

 

 Pepsi-ColaNorth America

 Pepsi-Cola holds second best position in soft drink industry, after Coca-Cola. Pepsi’s most successful strategies to build volume and share in soft drinks was its power of One Strategy, which attempted to achieve the synergistic benefits of a combined Pepsi-Cola and Frito-Lay envisioned. Pepsi-Cola found that chips and soft drinks were consumed together much of the time. Pepsi-Cola and Frito-Lay products were consumed together 58%of the time, they were purchased together only 22% of time. The Power of One Strategy called for supermarkets to place Pepsi and Frito-Lay products side-by-side on shelves in the stores.

 

PepsiCo Beverages International

 

After using the “Power of One Strategy” inUSA, Pepsi found that they can grow international sales through the same strategy. A Pepsi-Cola executive explained how the company’s soft-drink business could gain shelf space through the strength of Frito-Lay brands: “You go toChile, where Frito-Lay has over 90% of the market, but Pepsi is in lousy shape. Frito-Lay can help Pepsi change that”.

Along with this strategy, Pepsi-Cola also focused on its international bottling operations and making successful local business owners franchisees to distribute soft drinks in sometimes nontraditional manners. Their distribution network and advertising are the key strengths.

 Gatorade/Tropicana

 

Tropicana is a number one brand in orange juice. It achieved double-digit volume growth during 2000. Although the growth rate was only 1.4% in 2000, Tropicana continuously introduce new product’s featuring, such as, no-pulp, low-acid, and calcium-fortified formulations.

Gatorade surpassed the $2 billion global sales mark in 2000, when its sales grew by 15%. This brand had grown by more than $500 million since 1998 and had recorded 16 consecutive years of growth with the introduction of new flavors, new containers sizes and designs, new multipacks, and world-class advertising and added points of distribution.      

Pepsi-Cola management is looking for new retail locations for Tropicana, because they figured out that this step will increase 10% volume of Tropicana.       

     

Quaker FoodsNorth America

 

Quaker Oats was the leading producer in breakfast industry, with new products innovations that included new flavor, microwavable cups, and vitamin-fortified formulations, inUSAandCanada, with 2000 sales of $2.9 billion. Quaker held a 10% share of the $7.5 billionUSAcereal market and relied heavily on price promotions to increase sales.   

   

 Evaluate the long term effectiveness of each industry the company is in.

 

SNACK FOOD INDUSTRY:

  • Frito Lay North America:

 

Frito lay was a highly successful business inNorth Americawith 58% of sale and 6.4% industry growth rate in the salty snack industry. The salty snack industry was flourished industry in theNorth America, which was flourishing with the passage of time.

 

Frito Lay was rapidly growing in the snack business with the introduction of new snack kit, snack mix product and natural beef jerky snacks.

 

The new products of Frito Lay were very popular among the preteen and teen age group because of their bold flavor and with dieting adults since they were low in fats and carbohydrates.

 

According to current performance it is expected that industry will grow more, the company should focus on the same strategies to promote the business in arena.

 

 

  • Frito Lay International:

 

Frito Lay international was also successfully operating in many countries around the globe. Frito Lay was the largest chip company in the world with 28% share of the international snacks industry. Market share of Frito Lay was increasing gradually and it was expanding its business in many countries through acquisitions joint ventures.   

 

With the current performance of the business it’s predicted that Frito lay’s business will grow more and will expand in the new areas of the world. To increase the business in the rest of the world it’s suggested that the company should foucs on joint venture and acquisitions to enter in new markets.

 

BEVERAGES INDUSTRY:

  • Pepsi-Cola North America:

 

Pepsi-Cola was the runner up to soft-drink leader Coca-Cola, but during the mid 1990s Pepsi fell behind its chief rival in the industry at a disturbing rate. The main reason for falling behind its rival was improper strategy to fight its rival Coca-Cola.

To get back from ill situation of the company, Pepsi’s management engineered a dramatic plan i.e. “power of one strategy” and stressed for rapid implementation rather than spending years developing and testing new products. This strategy attempted to achieve the synergies benefits of a combined Pepsi-cola and Frito lay’s products side by side on shelves. This strategy proved successful to come back from the bad situation of the company. Beside this strategy the company decided to capture market share from other areas of the business like bottled water, tea and coffee. Bottled water was particularly attractive segment for Pepsi Co since U.S bottled water consumption had increased from 2.2 billion gallon in 1990 to 6.8 billion gallon in 1999. Pepsi had also beat Coca cola into beverage category i.e. Furappucino and Lipton  tea that had become category leader. 

 

 Pepsi as runner up in soft drink industry should avoid head on strategy; it is difficult to face aggressive strategy of market leader which had a plan to achieve to capture 50% of the market. Pepsi can compete its rival through focusing on the other areas of the business like bottled water, tea, and coffee. 

 

 PepsiCo Beverages International:

 

PepsiCo found that it could grow international sale through its “Power of One strategy”. By adopting “Power of One strategy” Pepsi cola’s sale increased by 26% inMexicoas 8000 retail adopted “Power of One strategy”. To capture the untapped market Pepsi also shifted the international beverage division’s growth strategy from a broad global span to picking emerging markets where leader was yet to be decided. In 2000 Pepsi cola’s greatest international growth was inRussia,China,India,ThailandandMexico, where it recorded double-digit growth.

 

By adopting “Power of One strategy” Pepsi recovered its losing position. 

  • Tropicana/Gatorade:

Tropicana was the number one brand and fastest growing major brand of orange juice, and achieved double digit volume growth during 2000 to become the third largest brand among all juice products sold in U.S supermarkets.

 

The Gatorade ( isotonic drink)  was an outpaced product of Pepsi which helped to increase its sale.  Gatorade surpassed the $2 billion global sales marked in 2000 when its sales grew by 15%. Some analysts were skeptical that Gatorade’s inclusion in Pepsi would bring the expected growth in revenues and profits

 

 CEREALS FOOD INDUSTRY:

  • Quaker Foods North America:

 

Quaker oats was the leading producer of hot and ready to eat cereals, grain-based snacks, and rice and pasta side dishes in theUnited statesandCanada.  Quaker dominated the oatmeal category of the breakfast food industry with new product innovation that included new flavors, microwave able cups and vitamin-fortified formulation.

 

 Determine whether the firm resources strengths matches the resource requirements its present business lineup.

  • SNACK FOOD

Frito Lay North America:

 

Frito lay has sufficient resources to meet the requirements of the industry i.e. Frito Lay owned top selling chip brand in each U.S salty snack category as it has claimed that it has nine of the ten top selling brands.

 

Frito Lay International:

 

To meet the requirements and fulfill the demand of international customers it has affluent resources as it entered into joint ventures and had acquired established chip companies outside the U.S i.e. Frito lay increased market share in Columbia from 21% to 50% with the acquisition of Margarita snacks, became snack leader in India with the purchase of Uncle chips, built state of the art manufacturing facility in Russia support distribution system to reach over 70% of the country. The company’s joint ventures and acquisitions made it number snack company in over 30 countries.

 

  • BEVERAGES:
  • Pepsi-Cola North America:

 

Pepsi had not affluent resources to compete it rival that’s why it was losing its market share, but its ability to fight or survive in the industry is not ending in the near future. To survive in the industry Pepsi decided to utilize those resources where it was affluent enough, like Pepsi was considered the complimentary product with chips and snacks. The company decided to introduce power of one strategy which helped to increase the company sale and market share. Pepsi also entered bottled water, coffee and tea beverage segment in which it was effluent enough to meet the requirements of its industry.  

  

 

  • PepsiCo Beverages International:

 

Pepsi was emerging successfully in the untapped markets (internationally), as Pepsi’s greatest international growth was inRussia, China India,ThailandandMexico. Pepsi also benefited from its reorganization of its international bottling operations, it also gained market share in developing markets by making successful local business owners franchisees to distribute soft drinks in nontraditional manners. 

Pepsi’s international beverages business had grown faster than coca-cola in international markets for 9 of the 10 most recent quarters.

 

  • Tropicana/Gatorade:

Tropicana was the number one brand and fastest growing major brand of orange juice, and achieved double digit volume growth during 2000 to become the third largest brand among all products sold in U.S supermarkets.

 

The Gatorade was an outpaced product of Pepsi which helped to increase its sale.  Gatorade surpassed the $2 billion global sales marked in 2000 when its sales grew by 15%. Some analysts were skeptical that Gatorade’s inclusion in Pepsi would bring the expected growth in revenues and profits and profits.

 

  • SNACK FOODS:

Quaker Foods North America:

 

Quaker oats was the leading producer of hot and ready to eat cereals, grain-based snacks, and rice and pasta side dishes in theUnited StatesandCanada.  Quaker dominated the oatmeal category of the breakfast food industry with new product innovation that included new flavors, microwaveable cups and vitamin-fortified formulation.

 

BCG Matrix

 

The BCG Matrix for the following SBU’s are as follow

SNACK FOOD:

Profits and Revenues are in terms of million of dollars

 

Frito lays l

market share

58%

Growth Rate

10.00%

Revenue

4319

Profits

493

Profits and Revenues are in terms of million of dollars

CEREALS:

Quaker OatsNorth America

market share

10%

Growth Rate

3.00%

Revenue

5041

Profits

2753

 

 

 

 

 

Profits and Revenues are in terms of million of dollars

BEVERAGES:

Pepsi Co.North America

market share

31%

Growth Rate

0.50%

Revenue

3289

Profits

833

Profits and Revenues are in terms of million of dollars

 

 

 

 

 

 

B C G GROWTH-SHARE MATRIX

 

 

20%

 

 

 

 

15%

 

 

 

 

10%

 

 

 

 

5%

 

 

 

 

 

0%

 

 

 

 

 

0%

 

 

 

 

 

 

 

 

                                                        

 

           High

 

 

 

MARKET

GROWTH

RATE

 

 

 

 

 

           Low

 

 

 

 

 

     

 

 

 

 

       
     
 
   

 

 

             

             10    4X     2X  1.5 x    0.5   0.4X 0.3X 0.2X   0.1X

                                             High                           Low

RELATIVE MARKET SHARE

 

SNACK FOOD:

Frito Lay is the leader in snack food industry and its at the peak of the product life cycle. It’s a star. It has generated cash to maintain high share in the market. Investment in advertising and new products, packaging is required to sustain and maintain the position in the industry.

 

 

 

CEREALS:

Quaker Oats division is a dog. It has a low market share as compared to the top 3 brands and as the sales are declining company should carefully manage the small amount of cash this unit can generate in theNorth AmericaandCanadamarket.

 

BEVERAGES:

Pepsi is in a industry which is declining, market share is also less as compared to Coca Cola which has gained about 50$ of the market. Company has developed Power of One Strategy to combine the consumption of snack foods and Pepsi Cola. Thus the company has selectively managed the resources for the small amount of cash it can generate.

 

 

 

 

 

 

 

1

 

GE MODEL for PEPSI BEVERAGES:

 

The Factors Counted for GE Model

 

 

Business Strengths

 

Weight

 

Rating

 

Value

Quality

0.15

3

0.45

Vertical integration

0.15

3

0.45

Product innovation

0.10

2.5

0.25

Distribution channel

0.20

4

0.80

Outsourcing

0.10

3

0.30

Financial position

0.15

2

0.30

Global Positioning

0.15

3

0.45

 

1.00

 

3.00

 

 

Market Attractiveness

Weight

Rating

Value

Economic development in international market.

0.20

3

0.60

Synergies ( Economies of Scope)

0.15

4

0.60

Joint Ventures

0.15

3

0.45

Increase competition

0.25

1

0.25

Saturated Market

0.25

1

0.25

 

1.00

 

2.15

 

 Snack foods:

GE MODEL for Frito Lay N.A/International

 

The Factors Counted for GE Model

 

 

Business Strengths

 

Weight

 

Rating

 

Value

Acquisitions  & Mergers

0.15

4

0.60

Distribution channel

0.15

4

0.60

Quality

0.20

4

0.80

Vertical Integration

0.15

3

 0.45

Financial Position

0.15

3

 0.525

Global Position

0.15

4

0.80

 

1.00

 

3.77

 

 

 

Market Attractiveness

Weight

Rating

Value

New Emerging Segment

0.25

4

1.00

Product Innovation

0.25

3

0.75

Market Growth

0.15

4

0.60

Govt. Interference

0.10

3

0.30

Competition

0.25

3

0.75

 

1.00

 

3.40

 

GE MODEL for Quaker Oats

CEREALS:

The Factors Counted for GE Model

 

 

 

Business Strengths

 

Weight

 

Rating

 

Value

Brand loyalty

0.20

4

0.80

Demographic Change

0.20

3

0.60

Advertising

0.25

3.5

0.875

Vertical Integration

0.15

3

0.45

International Orientation

0.20

3

0.60

 

1.00

 

3.32

 

 

Market Attractiveness

Weight

Rating

Value

Growth Rate

0.20

3

0.60

Shift  in Demographics

0.15

3

0.45

Health Consciousness

0.15

3

0.45

Competition

0.15

2

0.30

Product innovation

0.10

3

0.30

Price promotion

0.20

3

0.60

Capital Investment

0.05

2

0.10

 

1.00

 

2.80

 

 

 

 

 

THE GENERAL ELECTRIC MODEL

 

 

 

 

= PEPSI

= Frito Lay

= Quaker Oats

 

 

 

 

 

 

Rank the business units in terms of priority for resource allocation and decide whether strategic postures of each business unit should follow aggressive expansion,fortify or defend , overhaul and reposition or harvest?

 

Through G.E and BCG model , we have identified the company’s portfolio i.e. Frito Lay is winner business and Pepsi & Quaker Oats are average businesses.   Frito Lay’s business strength is strong but it is in the medium attractive market segment. Pepsi and Quaker oats both are in medium attractive markets, the business strengths of both are also medium than Frito lay. According to our analysis, the company should Build Selectively for Frito Lay, and should :

 

 

  • Invest heavily in most attractive segments :  acquire and merge with foreign companies to reach new markets and  invest on the agro technology.

 

The company should Selectivity manage for earnings for Pepsi and Quaker Oats, and should follow these steps:

 

1) Protect existing program. Company should remain in the current market and protect it by using its strong advertising and distribution network.

2) Concentrate in segments where profitability is good and risks are relatively low.

 

 

 

 

 

 

COMPETITIVE PROFILE MARTIX OF THE COMPANY FOR THE FOLLOWING INDUSTRIES:

 

 

 

  • Snack food industry
  • Cereal food industry
  • Beverages industry.
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