.PepsiCo, Two companies have been competing powerfully

.PepsiCo,
Inc is one of the world’s top consumer product companies with many of the
world’s most important and valuable trademarks. Its Pepsi-Cola Company division
incorporated in the United States of America in 1898 is the second largest soft
drink business in the world, with a 21 percent share of the carbonated soft
drink market worldwide. It Contains 18 brands and 163 varieties.

 Types of product of Pepsico.Inc

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In the carbonated soft drinks
industry, when we confine to the cola market there are still a number of cola
sellers in the market but Coca-cola and Pepsi-cola seems to be the dinosaurs
that capture majority of the market shares, thus they are known as oligopolists.They
might seem like identical companies since they dominate the global soda
industry. These Two
companies have been competing powerfully against each other for decades.

 They are selling cola drinks with similar
taste and color, Hence they are perfect substitutes. The market is conquered by
these two industry leaders with a total market share of 72%.

Coke’s market share is 42% and
Pepsi’s 30% ( (Russell, 2012)

This is known as an oligopoly market;
where there are a small number of large firms competing with each other in the
industry (McConnell et al., 2009). 

 

 

 

 

Demand and supply trend of Pepsico.Inc

Since Pepsi are perfect substitutes,
the price elasticity of demand should be perfectly elastic. Rival firms within
the oligopolistic industry, firms are mutual interdependence, where the profit
gained is depending not only on the prices but on the other firms (McConnell et
al., 2009).

The assumption is that firms in an
oligopoly are looking to protect and
maintain Pepsi-cola market share and that rival firms are unlikely to match another’s price increase but may match a price fall. If Pepsi-cola raises
price and others leave their prices constant, then we can expect quite a large substitution effect making demand relatively price elastic.
Pepsi-cola would then lose market share and expect to see a fall in its total revenue.
They have to consider the reaction of each other when one of them wants to make
a move. They are both engaging in strategic behavior, where both of them have
to think before making a move and be aware of the reactions of another that
might affect the company’s profitability.

 

 

         
     In an oligopoly, there is an assumption that when one firm
increases the price, the competitor does not follow because it will gain more
customers with its price; when one firm decreases the price, the competitor
will follow to avoid losing customers. The market demand is elastic above P1
because customers will switch to competitor’s brand; it is inelastic
below P1 because firms decrease price together and it will not
affect the demand. This results in a kinked demand curve which is uniquely
applied to oligopolistic market only. Oligopolistic firms are not allocatively
efficient because the price is always above the marginal cost. The price is
always higher than perfect competition because oligopoly does not apply the
profit maximizing rule of marginal revenue equals to marginal cost in perfect
competition. Coke and Pepsi are the two main giants that control the industry;
they have the power to set the price higher to maximize profits. Moreover, when
the price is higher than marginal cost, the output will automatically lower
than the minimum average total cost and this explains they are not productively
efficient as compared to perfect competition where Price = min ATC. Both the
companies will restrict output to make greater profits. The efficiencies above
prove that both Pepsi-cola and competitor coca-cola enjoys supernormal profits
in the long run.

 

 

Pricing strategy of the company

 

As an alternative of having price
cuts, oligopolists tend to have non-price competition. Both the companies will
invest a lot on extensive advertising to differentiate their products and gain
higher sales. There are minor differences between them.

Pepsi-cola and Coca-cola, these two
giants have the power of control over price. They can decide on setting the
prices and outputs levels to capitalize on their profits, and also they are the
price makers in the trade. They tend to get positive economic earnings in the
long run by setting the prices on their own.

 

 

 

 

 

Marketing and advertising strategy of Pepsi-cola

 

Pepsi-cola uses mass marketing strategy
to target the
groups of the customers of different demographics and geographic
regions. Segmentation
is the important strategy
OF Pepsi-cola.Pepsi-cola is a mass market product which uses
undifferentiated targeting strategies in order to be competitive and increase
its sales.

Pepsi’s brand image is its hip,
cool, lively and refreshing attitude. Pepsi-cola focuses on celebrities to
promote its products.

Pepsi’s target audiences are mostly
teens and young adults. Pepsi-cola advertising is very creative and has
different elements such as music and sports and through pepsi.com also they
give access to options such as downloading gaming, and mixing applications to
attract their target audience.

 

Conclusion

The oligopoly market structure is
very apparent in the soft drink industry. Pepsi-cola maintain a dominant role
in the industry. High barriers to entry prevent smaller firms from making a
large impact. This allows these two firms to compete on area other than price
in attempt to maximize profits. The principal drivers of success come in the
form of product differentiation, which is achieved with brand advertising and
product packaging.