Linked to the concept of Strategic Planning Gap, BCG Matrix and Competitive strategies
After few of the previous analysis of news done covering some basic marketing concepts, here I will tide on to the growth strategies of marketers and strategic planning done by them to adapt to changes around and of course to scale over competition. One news relating to a big brand, we all came across last week was, the selling off of Tropicana by Pepsi, which it owned since 1998.
The 2 Cola supremos, Coke & Pepsi in 1990s acquired different juice brands as soft drink market started shrinking because of customers’ preferences moving towards healthier options. The trade newsletter Beverage Digest had reported the slowing of sales growth in soft drink industry, from 2.8 percent in 1990 to 1.8 percent in 1991. Pepsi acquired Tropicana in 1998, Coke acquired Maaza in 1993 and launched Minute maid Pulpy orange in 2004. Thus, with changing trend, Cola brands diversified their product portfolio.
Kotler in his book ‘Marketing Management’ has provided the concept of Strategic planning Gap, as shown diagrammatically below. It shows the gap which exists between a company’s current portfolio & desired sales. Companies continuously work towards bridging this gap through different growth strategies, though it’s a never-ending process as the curve of desired sales keep going higher for a moving company. And this is what gives momentum to a business. In this case we see diversification growth strategy by Pepsi & Coke (from cola to juices), as discussed above.
(To understand in detail on the different growth strategies, you may read through Asian Paints story Part 1 & Part 2 on the Brand Story section of The Branding Nook)
With the diversified portfolio, the definition & scope of these brands also widened, from being just Cola to becoming beverage brands. This opened up new opportunities for growth.
Very important to be analysed is, that growth comes not just by new acquisitions, new launches and expansion, but also by contraction, withdrawal, as is brought out through the case of Pepsi covered in the news clipping. The brand is aiming at growth through the selling of Tropicana & Naked brands. In 1998, Tropicana was acquired with growth objective and in 2021, it is sold off, again for future growth. What has changed within this period is the definition of health in the minds of customers, more so due to the onslaught of Covid. Customers’ preferences first moved from carbonated drinks to juices and now to low calorie, diet offerings and energy drinks. Brands have to move and adapt accordingly. Agility in adaptation is the success formula for a marketer.
The news story mentions on the decline in the consumption of fruit juices and fruit drinks by 19 percent between 2011 and 2020 and during the same period, PepsiCo’s sales of these products fell by 36 percent. The news clipping also mentions, that in the net revenue of $70 billion of PepsiCo as a whole in 2020, $3 billion was contributed by company’s juice business. And profit margins from juice division were below those of other divisions. These facts indicate that road to growth requires optimising on the investments, in a way which can release funds from low-growth, low-margin businesses to get invested in new growing businesses.
A popular tool, which helps companies in long-term strategic planning is the Boston Consulting group's product portfolio or Growth-Share matrix (BCG matrix). It divides the different businesses or strategic business units (SBUs) of a company on the basis of the market growth rate and relative market share. This business planning tool helps the firm to evaluate the strategic position of its brand portfolio and route its investments in a way which can maximize returns and ensure sustainability in the long run.
Source: Boston Consulting Group Matrix
Relating to the beverage market and the product portfolios of big brands like Pepsi & Coke, it can clearly be analysed, that cola products which were once the strong Star offerings of these companies, found the entry of juices in their portfolio, when cola market started declining in the 90s. Today with big talk around health & environment happening all over, brands are bringing in new healthier, environment friendly products in their portfolio, staking huge investments on them, considering their high growth potential in future. Pepsi’s decision to sell off juice brands definitely indicates their strategic growth plan for long-standing future. Today, newer products like healthy snacks, zero-calorie beverages, SodaStream, fresh-pressed green juices, sports drinks, protein shakes etc. might be in the Question mark quadrant of companies’ portfolio. But brands like Pepsi, with right portfolio analysis, study of current & future markets, are optimising their investments with an aim to convert the Question marks into the Stars. Also such diversified portfolio will help the brand shake off its image of being a cola company.
Optimising investments also entail diverting funds from the businesses which have become cash cows to get invested in growing ones and even harsh actions of divesting the business units which have reached the status of dogs, who drain the profits.
The sale of popular brands can also be considered as a contraction defence and pre-emptive defence strategy by Pepsi. Contracting the product portfolio from the corners which appear future weak, to be able to spend on the corners which need to be built to make entire portfolio strong for long sustenance. The sale can also be analysed, as to how Pepsi pre-empting the future is reshaping its portfolio, also enabling itself to concentrate & strengthen its existing portfolio, before competition poses an attack. Thus, preparing well to gain an edge, to drive incremental growth and profit. Getting rid of weaker lines and investing in stronger, profitable and future-oriented products will also help improving the overall margins, which is a major concern of investors.
Similar steps are being taken by other brands and Pepsi’s main rival Coca-Cola also announced last year the shutting down of dozens of its underperforming brands.
Vast portfolios well calibrated and designed to adapt to changing consumer needs result in healthy outcomes for the brand.
Important to note:
Regarding the deal, a PepsiCo India spokesperson said, “The transaction announced today by PepsiCo applies to the company’s juice brands only in the US, Canada and Europe.”
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