The paper 'PepsiCo Diversification Strategy of 2008" is a great example of a management case study. Diversification strategy is a means by which companies and business firms broaden their market base by expanding on the number of products going into the market. The main aim is to increase their sales by getting into new markets and making new products (Ansoff 1957). Firms that have matured and have stable profits and intend to increase their sales and profitability direct their growth into new environments or products through production and marketing strategies. These firms diversify to related or unrelated businesses which are a different approach from market penetration, product development and market development in marketing.
The reasons why firms diversify are many and varied and may range from excess production that may find a newer market beyond the current market boundaries, distribution of risk for example when an ice cream producing company decides to venture into hot chocolate in order to be in business during winter as well. In such a case the company diverts its production due to season changes and the need to be in business during such seasons.
The other reasons may be to extend the reputation of the brand to other market and to also make new customers (Stimpert & Duhaime 1997; Ansoff 1957; Amit & Livnat 2006). PepsiCo is a company which was started in 1965 through a merger of Pepsi Cola and Frito lay (PepsiCo. inc). The business then grew to greater heights making more products in the market. The company has been growing since with a large market share in the global market. The diversification path that PepsiCo took is the horizontal diversification path.
In horizontal diversification path, the film ventures into new products which are still in the confines of the company know-how. This is to mean that for PepsiCo, which is in the food industry, they engaged in new products which are still in the food industry. PepsiCo did so by product and market diversification. In product diversification, PepsiCo engaged in products and products markets which are related in them (Pils 2009). This is shown in the company engaging in a threefold synergy of fast food, beverage or soft drink and thirdly snack foods.
PepsiCo was able to invest in many companies like KFC (Kentucky Fried Chicken) which is fast food, and Quaker foods among many other companies. This is what they referred to as the power-of-one. Market diversification involved moving away from the North American market to other markets globally. The advantages of this horizontal diversification are lofty and range from financial, to market share, to increase in stock and top management controls. PepsiCo was able to take advantage of other products that are well renowned in other markets and have a good share in the market.
A good example is the sale of beverages in line with Frito-Lay products in large supermarkets in what is referred to as product diversification synergies. The second advantage was increased sales and profits with the diversification of the market. There was an increased international expansion to other global markets without necessarily having to start from scratch. Many managers prefer to use an existing market to increase sales of their products than start from scratch and therefore PepsiCo was able to enjoy the benefits of the power-of – one strategy.
Another benefit was the strategic acquisition of companies that were beneficial in the expansion. Thirdly there was increased product innovation and lastly, there were closer relations with the distribution sector to have their responses on consumer purchase in what was dubbed as “ innovation summits” (Pills 2009; Peng 2005).
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