Porter’s Five Forces Analysis of PepsiCo

PepsiCo has secured success in the food and beverages industry due to its capabilities by which it overcomes challenges, as shown in this analysis. Michael Porter designed this analytical tool to identify the influence of external factors prevailing in the way of PepsiCo’s business environment. As the company is retaining the second-highest position in the food and beverages industries, it should mitigate negative influences exerted by forces on its external business environment to continue dominating the industry. Therefore, it is significant for the industry to adjust its strategic decisions to the dynamic external factors. This Five Forces Model helps to identify the threats posed by these forces and their respective intensities.

The analysis highlighted the significance of PepsiCo’s long-term effective strategies. It suggests that it must cope with the rising influence of competition and the impacts of substitutes and consumers.

An Overview

The company is facing multiple external factors prevailing in the business environment due to the global scope of PepsiCo’s operations. Nevertheless, the overall influence of these forces, along with their intensities, is given in the following discussion. These five forces, along with their intensities, are:

• Competition or Competitive Rivalry (strong force)
• Customers or buyers’ bargaining power (strong force)
• Suppliers’ bargaining power (weak force)
• The threat of substitution or substitutes (strong force)
• New entrants or new entry threat (moderate force)

Competition or Competitive Rivalry (strong force)

Despite Coca-Cola being the strongest competitor in the business market, there are still many other factors that are influencing and intensifying the forces of competitive rivalry. The most noteworthy external factors that are contributing to intensifying this force are given below:

1. Aggressiveness of competition among firms (strong force)
2. Low costs for switching (strong force)
3. Presence of numerous industries (moderate force)

Companies in the food and beverages industry are executing strong competition through various means. The intense marketing and innovation strategies enhance the brand image and thereby capture market share. In the same way, competition is further pushed when customers have an easy switch from one brand to the other. Moreover, the company is facing competition from a large number of companies, including Coca-Cola and many other small-scale firms. In brief, aggressive competition is prevalent in the external business environment, as determined in this section of Porter’s Model.

Customers’ or buyers’ bargaining power (strong force)

The consumers’ satiation has been the priority of the company as incorporated in the company’s vision. The impact of this force, along with the intensity, is discussed in this section of the analysis. The notable external factors contributing to this strong power of bargaining are determined below:

1. Low costs for switching (strong force)
2. High accessible information about products (strong force)
3. Highly available substitutes (strong force)

The easy shift of consumers from one substitute to the other makes it a strong force. It strengthens consumers’ bargaining power. Moreover, the excess of information available to the consumers gives them insight into the available alternative products in the market. Furthermore, substitutes enable many perks for the customers to stay away from PepsiCo’s products. As revealed in this section of the analysis, PepsiCo needs to maximize customer satisfaction.

Suppliers’ bargaining power (weak force)

The company must keep profitable relationships mainly with suppliers. This section of the Five Forces Analysis enlists the influence of suppliers on the company’s external environment. However, the intensity of this force is weak based on the succeeding factors:

1. High supply overall (weak force)
2. Suppliers lowered forward integration (weak force)
3. Modest size of suppliers (moderate force)

Suppliers’ bargaining power is increasing due to the high availability of raw materials. This factor contributes to the weak force of suppliers’ bargaining power. Moreover, this force is also limited by their lowered forward integration, and thereby, suppliers are unable to control the company’s supply chain. These externally prevailing factors exert a weak force on the company’s external business environment.

The threat of substitution or substitutes (strong force)

The company is vulnerable to the threat of substitution or substitutes. This detailed analysis of the influence of this force is covered in this aspect of the analysis. The subsequently discussed external factors are responsible for shaping this force:

1. Quality substitutes availability (strong force)
2. Low costs for switching (strong force)
3. Substitutes excessive availability (strong force)

The company is vulnerable to the availability of substitutes as most of them are providing quality beverages like fruit juices or brewed coffee rather than drinking Tropicana or Pepsi products. Therefore, the consumers have no issues in shifting their brands. The easy access and affordability of substitutes constitute its strong force exertion on the external environment of the company. Analyzed in this section, the threat of substitutes or substitution exerts a strong force on the external business environment.

New entrants or new entry threat (moderate force)

PepsiCo needs to stand firmly in the aggressive competitive market. This section of the analysis covers the influence of new entrants or new entries on the business and revenue of PepsiCo. Those external factors which contribute to the moderate impact of this force are discussed below:

1. Low Costs for switching (strong force)
2. Moderate loyalty of customers (moderate force)
3. Costly brand development process (weak force)

The company faces a significant threat of new entrants in the business industry as consumers can easily switch from one brand to another; nonetheless, PepsiCo has some protection from this threat due to the moderate level of brand loyalty. Furthermore, the costly brand development makes it difficult for the new entrants to directly compete against the company. Therefore, this aspect of the Five Forces Analysis reveals that PepsiCo has a moderate threat of new entrants or new entries.

Recommendations

This analysis revealed that the competition and competitional rivalry exerts a strong force of threat on the company’s business. Similarly, the customers’ and suppliers’ bargaining power exerts a strong force on the business environment. To ameliorate these influences, the company needs to prioritize competitiveness through the tools of marketing and innovation. While innovating products, PepsiCo must bear in mind the latest trends of healthy lifestyles and environmentalism.