FAR EASTERN UNIVERSITY

Makati City

Master in Business Administration

PEPSICO:
POISED TO DEAL WITH THE NEXT GENERATION

SUBMITTED TO:
DEAN ANDRES C. SAN MATEO
Professor

PREPARED BY:
ROWENA DELA CRUZ BAUTISTA

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR ETHICS AND

CORPORATE RESPONSIBILITY
Introduction

Company and Marketing History

- PepsiCo is one of the largest food and beverage companies in the world
- It manufactures and sells 22 brands of beverages and snacks that generate
over $1B in retail sales
- Brands include Pepsi Cola, Frito Lay, Tropicana, Quaker and Gatorade
- Has received many brand awards including being ranked as 25 of the best
global brands and earning the Green Award by the Environmental Protection
Agency
- Pepsi recipe was developed by pharmacist Caleb Bradham in the 1890’s
- Originally marketed under the unassuming name “Brad’s Drink”.
- Bradham’s creation was renamed Pepsi-Cola in 1898 because of the pepsin
and kola nut ingredients used.
- In 1903, the patent became official
- In 1923 Bradham sold the trademark to Craven’s Holding Corp., who shortly
after sold it to a New York stockbroker named Roy C. Megargel
- In 1931 The Pepsi-Cola Company underwent its second bankruptcy
- Candy manufacturer Charles Guth saw Pepsi-Cola as a great investment and
decided to purchase the company

Building a Brand
- Pepsi carefully positioned itself as a low-cost leader and made advertising
history when it released the nation’s first jingle “nickel, nickel”
- With financially strapped customers reluctant to pay a nickel for a drink, Guth
began offering twice the amount of Pepsi for the price, a tactic that meet a
resounding success
- It’s marketing campaigns and brand design helped Pepsi make it through the
difficult period.
- It changed the colors on the label to be red, white, and blue to show patriotism
- Pepsi’s success allowed it to begin marketing internationally in 1945
- It introduced slogans such as “The Light Refreshment” and “Refreshing
without Filling”
- In 1964 Pepsi introduced the Diet Pepsi in response to the nation’s noticeable
lifestyle change toward health, along with Mountain Dew brand
- In 2017 it created a strategic alliance with Chinese firm Alibaba

Celebrity Endorsements
- In more recent years, Pepsi used celebrity branding to build upon the Pepsi
brand such as Tina Turner, Michael J. Fox, Gloria Stefan, David Bowie, and
Michael Jackson

Recent Years
- PepsiCo has continued to used celebrity marketing throughout the 1990s and
early 2000s including Ray Charles, Cindy Crawford, and Britney Spear,
Shaquille O’Neal and Jeff Gordon
 - In 2017 PepsiCo pulled an advertisement featuring Kendall Jenner, the ad
generated a high negative response rate on social media since critics felt the
ad trivialized the “Black Lives Matter”
- While it continues its long-standing trend of celebrity advertising, PepsiCo has
started to move away from its signature cola drink in favor of more divers
products
- In 2006 PepsiCo got a new CEO, Indra Nooyi, who began reorganizing the
company to focus on several initiatives including focusing more on countries
outside the US, developing healthier snacks, having a net-zero impact on the
environment, and creating a better working environment.

Challenges and Ethical Dilemmas

India
- The company and other competitors in the industry have been heavily
criticized about the quality and quantity of the water used in their products
- In 2003 the Centre for Science and Environment (CSE) claimed the water
which the company and other beverage companies in India were using
contained toxins
- Although there is not yet a law in place, PepsiCo found it could still face
considerable repercussions for what its stakeholders perceived to be
unethical activities
- Another major concern in India cited by farmers is that the Pepsi
manufacturing plants are polluting the land, making it less fertile for growing
crops.
- In 2009 it announced that it had replenished more water in India than it
removed.
- It also partnered with a number of organization s committed to water
conservation.

Health
- Some of the health concerns of drinking soda include the increased caloric
intake, the possibility of tooth decay due to soda’s acidity, caffeine
dependence, and weaker bones.
- Pepsi fought back accusations by creating sodas that have low calorie and
sugar content
- It has also faced battles from regulatory areas such as New York City where
the city mayor attempted to institute a sugar tax on 16oz. cup sizes
- In Mexico the government instituted a 1-peso tax per liter of sugary beverages
as well as a tax on junk foods
- Similar criticisms were met with its traditional snack items from health care
professionals due to the high amount of sodium and sugar on most of its
products
- Due to concerns in health issues, in 2012 return on capital decreased to about
11.1 percent which is the lowest in 5 years
- Investors became worries that sales would continue to plunge
- Management headed by CEO Nooyi remained firm in her stance toward
healthier food alternatives which eventually paid off.

Labelling and Packaging Issue

 - In 2007 the public’s attention was drawn to Aquafina when the watchdog
group Corporate Accountability International claimed the company used tap
water to fill the water bottles being sold.
- The was not regular tap water but came from a public water supply before
processing.
- Aquafina was accused of not being transparent in its business process
- PepsiCo is now required to put the words “Public Water Source” on the label.
- In 2013 PepsiCo paid $9M to settle a lawsuit alleging that it has mislead
consumers about its Naked Juice products
- A few years later

On The Bright Side

Social Responsibility and Sustainability
PepsiCo Guiding Principles
Sustainability
Employee Commitment
PepsiCo Foundation
Recycling Initiatives

Define the Problem

What should PepsiCo consider in order to continue doing business in the future? Or
How will they be able to achieve sustainability in the future?

Identify the Stakeholders and Get the Facts

Key Stakeholders Vested Interest
Investors/ Shareholders Financial sustainability, return on
capital, continuity of the company
Management Drive of leaders towards healthier
products
Customers Supply of products, variations, healthier
options
Regulatory Bodies Compliance with existing laws and
regulations

In order to attain sustainability, the company should first identify key stakeholders.
From there, they should incorporate a review of their mission-vision strategy in order
to determine what needs to be done in order to continue operations for the next
generations.

Identify Alternatives

Option 1 – Focus on Healthier Products to Cope with Existing Customer Demands

Option 2 – Continue with Existing Products but Be Ready for Possible Lawsuits and
Criticisms
Evaluate Alternatives
Alternatives Pro Con
Focus on Healthier - Continued support of - Change of product
Products to Cope with existing consumers portfolio to adapt to
Existing Customer - Sustainability of changing customer
Demands operations demands
- Financial stability - Change in ways of
through profits working or doing
- Lesser pressure from business
stakeholders/ investors - Deviation from the
- Lessen external criticism original business plan or
of food due to unhealthy model
content
- Minimize lawsuits from
various external parties

Continue with Existing - Continuity with the - Possibility to lose some

Products but Be Ready
for Possible Lawsuits
and Criticisms
traditional business customers due to
model of the company unhealthy products
- Market share may shrink
- Investors may flee from
the company

Make A Decision
Based on the above table, it would be at the best interest of the company to choose
the first option. This shows more advantage for the company than disadvantage in
so many ways.

Implementation Plan of the Decision

The implementation will need to be discussed with the board since this will involve
budget for implementation. However, this will not be difficult as the company has
already started towards healthier choices and the strong leadership of Nooyi who
also advocates healthier choices is also geared towards such choices.

Method of Evaluation
Focus on Healthier Continue with Existing
Products to Cope with Products but Be Ready
Existing Customer for Possible Lawsuits and
Demands Criticisms

Yes Yes
Is it Legal?

Yes No
Is it Moral?

Yes No
Is it Ethical?