Analyzing an e-Business - how PepsiCo did it

Electronic commerce consists of the buying and selling of products and services through electronic systems, majorly the Internet and other computer networks. It also involves the entire online process of developing, ordering, marketing, distributing, selling, delivering, servicing, and paying for products and services. In the recent past, electronic trading has grown tremendously with widespread adoption and use of Internet. This is because the use of internet allows better and faster connectivity among individuals and companies and has made the transaction process shorter than before. Ecommerce and e-business involve electronic funds transfer and electronic data interchange. Ecommerce also involves supply chain management, Internet marketing, and inventory management systems, through the World Wide Web for virtual items. PepsiCo is one on the companies that have adopted the use ecommerce in the recent past. The company has embraced internet advertising to reach more customers through collaborating with Yahoo—, which is one of the most popular internet sites—to endorse PepsiCo’s web sites only (Business Day, 2000). This report revolves about the implementation of ecommerce by PepsiCo and the impacts of the changeover. The business model that was in use before the PepsiCo’s implementation of ecommerce was offline business. Hence, this report analyzes possible strategies that need be employed for successful implementation of the e-business, in addition to examining the reasons that led to PepsiCo’s successful change over to ecommerce.

Introduction

PepsiCo is an American multinational corporation that formed in 1965 with the merger of Pepsi-Cola and Frito-Lay, Inc. and deals with production, marketing, and distribution of beverages and grain based snack foods. PepsiCo has its headquarters in Harrison, New York with its presence in four major divisions (PepsiCo Inc., 2010). In 2009, PepsiCo Americas Foods, which deals in foods and snacks in North and South America, contributed 43% of the total PepsiCo net profit (PepsiCo Inc., 2010).. There is also PepsiCo America Beverages, a division that markets both carbonated and non-carbonated beverages in North and South America. Other divisions include PepsiCo Europe and PepsiCo Asia, Middle East and Africa. Globally, the company is the second largest food and beverages’ company and it operates in more than 200 countries (Marshall, 2010). In 2009, PepsiCo collected total revenue of $43.3 billion, and was rated the largest food and beverages company in North America.

Pepsi Corporation distributes a number of brands, the key ones being those that generate annual sales of more than $1 billion each. These brands include Pepsi-Cola, 7Up, Fritos Mountain Dew, Gatorade, Doritos, Pepsi Max, Quaker Foods, Tropicana Cheetos, Miranda, Ruffles, Aquafina, Tostitos, Sierra Mist, Walker’s, and Lay’s Lipton (UBM, 2010). Amid distribution of the brands, PepsiCo engages in charitable activities and environmental conservation programs like water usage in U.S, India and U.K, packaging and recycling, energy usage as well as pesticide regulation in India to ensure that the environment and the available resources are utilized properly. PepsiCo’s advancement in ecommerce has been evident, and that is the focus of this report (Romanik, 2007).

Project and Its Place within the Organization

Changing to ecommerce involves fully understanding the normal offline transactions and applying the principals of electronic funds transfer and electronic data interchange. Ecommerce also includes Internet marketing and inventory management systems through the World Wide Web, especially for virtual items. Changing to ecommerce entails complete overhaul of marketing techniques to accommodate new internet marketing strategies, electronic payments and training of employees to match the new electronic commerce and business.

PepsiCo’s adoption of ecommerce led to the collaboration with Yahoo. In the deal, PepsiCo would promote Yahoo on 1.5 billion soft drinks bottles displayed in 50,000 stores (Business Day, 2000). In return, Yahoo would promote PepsiCo products on Yahoo cobranded site called Pepsistuff.com (Gerstman & Meyers, 2002). This promotion started in August 2000 and has since led to advertisement cost minimization due to its ability to reach more people at ago through the website (Business Day, 2000). What does not work, according to Burwick, PepsiCo’s former marketing manager, is an advertising approach on television that in his view only entertains and moves.

However, Burwick notes that internet advertisement on the website provides a platform for interaction, which is a more active experience that is likely to have a more positive impact on sales (Business Day, 2000). This web advertisement that included music sites, banner advertisement and internet sweepstakes and barter arrangement with Yahoo, helped PepsiCo establish loyalty among its customers, greater brand exposure among its consumers under 25 years old and at the same time obtained relevant data that enabled the company respond to customer demands. Pepsi also uses the extranet strategy where customers flash their names and continue the marketing efforts of tweaking websites.

Other than its websites, PepsiCo has currently upheld its ecommerce strategy on Twitter, Facebook, and YouTube, which are social sites that provide interaction opportunities for millions of potential customers around the world. This has helped improve popularity of the corporation’s 19 major brands in all the four regions, and contributed to the revenue collected in 2009. Marketing the products plays a very important role in the consumer goods companies that consume $40 billion annually on non-internet advertising. Ecommerce in this regard plays a vital role in marketing, distribution, supply chain management, ordering and delivering of the products to the clients in all the four major regions. This strategy helps PepsiCo eliminate intermediaries in its business since consumers can order products directly. The company can also use banners on top of web pages to convey the information about its products. However, this has been eliciting responses that banners are too small and limit the amount of information that can be conveyed through them.

Besides Pepsistuff.com, PepsiCo also uses its website in providing information to all its customers and potential customers on the available products and the ordering and purchasing procedures as well as the charges involved for deliveries (Gerstman & Meyers, 2002). The strategy of e-business is multifarious, is more focused on these internal processes (Romanik, 2007). Its objective is to reduce costs while improving efficiency, as well as reducing costs while improving productivity. E-business includes ecommerce, and both address internal processes and technological infrastructure like application servers, security, databases, and legacy systems. E-commerce and e-business involve generating new value chains amid stakeholders, such as a company like PepsiCo and its clients.

Original Business Model Employed By PepsiCo

PepsiCo initially used non-internet advertisement that included high impact television spots that were prepared to evoke emotional reaction among its customers, appealing to woe customers to purchase. The company also minimally used PowerPoint presentations of its products to that are flashed on the websites. According to Hill & Jones (2008), PepsiCo changed its business model and the manner in which it differentiated its product. Before adoption of the ecommerce initiative, PepsiCo fully depended on five regions that include North America, South America, Europe, and Asia regions (including India) in manufacturing, marketing, and delivering. These activities constituted manual offline transactions (Heinecke, 2011).

Any changes to the business model were necessitated by introduction of the e-Business initiative. The marketing, ordering, inventory management strategies, and the payment methods changed to adopt ecommerce methods. These necessitated change in PepsiCo’s organization structure and reduction of marketing staff and the cost of advertisement reduced by nearly 20% in 2010 (Heinecke, 2011). Through e-business, PepsiCo was able to effectively cut human errors and evade uneconomical duplications of duties that add little or no value to the business. Consequently, this saved the company business time, colossal amounts of resources.

The introduction of ecommerce into PepsiCo also improved the speed, accuracy, and efficiency in which processes are carried out in the corporation, leading to increased productivity. E-business guarantees proficiency in communication within PepsiCo and reduces turnaround time in ordering, delivery, and payment of products, as well as fostering faster decision-making process. The networking brought about by the use of Internet services gave PepsiCo an opportunity to easily compare and rate its products against those from its competitors in terms of quality, availability, and pricing.

Strategic Components of E-business

Planning for the changeover to e-business from the offline business is a strategic component that determines the success of the ecommerce strategy. It involves action plans that include making available the amount of capital required, trained human resource, information technology skills, technology hardware, such as computers and internet connections. This component of e-business dictates the decision on implementation methods and tools used in the changeover, depending on strengths and weaknesses of the business and the opportunities presented by ecommerce according to the vision and mission of the PepsiCo (Cross & Miller, 2009).

Ecommerce business is an area faced with several risks. Therefore, companies need to understand it well to ensure that they are protected against such risks. PepsiCo faces such risks as well. Some of these risks include loss of merchandise as a result of fraud, misrouting during distribution process to wrong destinations (majorly when the merchants are untrustworthy and untraceable), leading to loss of both goods and money (Cross & Miller, 2009). Any businesses adopting ecommerce should ensure that third party merchants are well known, registered, and traceable to curb the loss of customers’ merchandise and money to potential fraudsters. This is also applicable to the   risks of customers’ disputes of the delivered goods leading to loss of payments. PepsiCo needs to ensure that during ordering, customers provide adequate information to be able to distinguish genuine customers from fraudulent orders. This will reduce the loss money through credit card payments, which poses impacts both on the company and merchants who are forced to pay the bank charges to compensate the losses.

Accuracy in processing the transactions remain key to efficient deals to avoid experiencing chargeback costs that also occur when customers dispute the transactions sometimes due to inaccuracy in the amount involved, errors in processing, authorization errors and fraudulent issues. These costs can be avoided if transactions are accurately and efficiently processed. Therefore, this means that the new ecommerce technology should be well understood before the implementation stage takes effect, to be able to seal all the possible loopholes that are likely to give way to losses (Joseph, 2008). Provision of adequate infrastructure system that warns new clients who are not conversant with purchasing on the Internet is important in proving authenticity of the company. These systems should be in a position of protecting client’s passwords to sensitive personal information like credit cards to avoid exposure to fraudsters and at the same time authenticate transactions when dealing with fresh clients before closing the purchase orders and delivering the products to the customers.

Technological components must also be put in place for a company that needs to grow in the modern business environment that is full of competition through the use of high technology machines (Joseph, 2008). The technological platform where e-Business is carried out involves of technologies that have to be tailor-made, tested out and integrated into the business. This component is one of the essential e-business components that include widely approved technological standards and requirements that generate technical procedures and platforms than computers, but can be used to pass information. Technology infrastructure involves reliable Internet connections and adequate machinery, such as computers and browser connections. Technological constituents, such as middleware, are important since they help build broad and complex e-commerce systems.

Employee development is strategy that works well for many companies, including PepsiCo. Employees first need to be prepared for the change to avoid unnecessary resistance during the implementation stage. Employee development also involves training workers to be technology compliant and improve their IT skills, which are mandatory in ecommerce having in mind that technology innovation and improvement takes place every time (Shajahan & Priyadharshini, 2007). PepsiCo needs to train its clients on how to access information from the company’s websites without risking exposing their information to non-deserving people, such as credit card fraudsters. This training can be done through seminars and online information that can be accessed by all existing and potential customers. Many clients are very skeptical when it comes to online purchases due to the widespread Internet fraud and may only be willing to do business with very organized and secure sites.

PepsiCo also needs to segment its market during marketing and advertisement of the products. This segmentation can be done in terms of age, social class to provide products that all social groups can afford, and ensuring availability of these products from the distribution stores for the retail customers at all times.

Reasons for Success and Of Pepsi

Product Differentiation and positioning

One reason that has led to the success of Pepsi products is the differentiation of its brands that have been established and have built customer loyalty in those regions. Product positioning remains vital in building customer loyalty. This can quickly be done through internet marketing, which reaches more people at ago all over the world.

Planning and New Technology

The company’s first strategy involving agreements with Yahoo picked up well and were very successful because of adequate planning, as well as embracing of the new digital technology. Other reasons include adequate planning, employee development, good management kills, infrastructure, and risk management systems.

Reasons for Lack of Success and Of Pepsi

Fraudulent transactions

Fraudulent transactions that have always mired online transactions that make the merchants and clients lose both merchandise and money are the loopholes that have hampered Pepsi’s success. Thus, they need to be sealed in order to drive businesses to higher levels.

Analysis of the PepsiCo Initiative

PepsiCo being the second largest food and Beverage Company has very strong financial base, which is enough to implement the ecommerce strategy. Training of employees on the new internet marketing skills, supply chain management, inventory management. Implementation of the ecommerce Technology in PepsiCo involved provision of the computer gadgets and internet connection that to provide necessary platform for the change to e-Business (Shajahan & Priyadharshini, 2007). PepsiCo also offered in-house trainings to the staff to be technology compliant ready to execute the ecommerce operations.

The major stakeholders of the PepsiCo are the suppliers, customers, government, employees, and the management. The company’s consumers need to utilize the ecommerce platform to order and pay for products conveniently, while maintaining and managing internet security risks. The internal control systems that are used to authenticate transactions need to be fully outlined with clear chain of command. The improvement of the technology has also provided good business growth opportunity enhancing PepsiCo’s strength in the market.

The involvement of the society, production of healthy products with low sugar levels favorable for children, guarding them against health and lifestyle related diseases like obesity, diabetes, and the environmental protection projects, gave PepsiCo business advantage over its competitors, such as the Coca-Cola company. PepsiCo does this by converting its product portfolio, forming global initiatives like calorie labeling to increase nutrition education, and backup up programs that promote physical fitness centers (Romanik, 2007).

Responsible Electronic Marketing

 In the ecommerce, PepsiCo has adopted a responsible electronic marketing strategy that teaches children that good eating habits at an earlier age contribute to their future health. PepsiCo adopted a policy in 2009 not to advertise and sell certain products that do not meet specific nutrition level to children under age 12. The policy took effect in 2009 for beverages globally and all snacks and food in the whole world on January 1, 2011. Pepsi plans to stop selling full sugar soft drinks directly to primary and secondary schools across the world by 2012. This policy is to help schools to provide a wider range of low-calorie and nutritious beverages to their students in primary and secondary schools (Ferrell & Ferrell, 2010).

PepsiCo plans to implement this policy fully by January 1, 2012 and it has announced this interest on the Internet. PepsiCo does not currently sell directly to primary and secondary schools full calorie drinks in Europe, Canada, and a number of countries in the Arabian Peninsula (Ferrell & Ferrell, 2010). Currently the use of iPhone has spread to users many including school going children who can easily access the information. For this reason, PepsiCo implements the responsible e-marketing strategy to ensure that information reaches the only relevant people.

Reasons for Not Adopting the Ecommerce

In as much as technology is acceptable, many online clients have since withdrawn from transacting businesses over the internet due to the widespread internet crimes committed by fraudsters. Many clients have expressed reservations and they prefer offline business transactions to e-business. Bad experience of wrong delivery and erroneous processing of transactions has also contributed to the failure of ecommerce initiative. Pepsi should not just adopt Ecommerce marketing coverage strategy since it focuses on differentiated marketing, they should also consider other aspects that accompany the marketing strategy. Many clients do not have sufficient IT skills that are required in carrying out e-business. This gave the changeover a slow start in some regions, including India, with many insisting on continued offline transaction (Joseph, 2008).

Conclusion

Ecommerce and e-business have become the order of modern business. Many companies than need to compete have adapted the two innovations. Ecommerce and e-business involve the use of the Internet in the transaction of goods and services from production, order, delivery, marketing, and payment for the purchased goods and services. PepsiCo is one of the companies that have adopted ecommerce for about ten years and have used the new technology in inventory management, supply chain management, Internet marketing and electronic funds transfer. PepsiCo is an international company that deals in beverages and foods snacks in four major regions in North America, South America, Europe and Asia and African markets with a number of products like Pepsi-Cola, 7Up, Fritos Mountain Dew, Gatorade, Doritos, Pepsi Max, Quaker Foods, Tropicana Cheetos, Miranda, Ruffles, Aquafina, Tostitos, Sierra Mist, Walker's and Lay's Lipton. The company uses the Internet to market and sell these brands.

Several strategies ensure all the stakeholders are successfully navigated through the navigation period. These include adequate planning, employee development, good management kills, infrastructure, and risk management systems.