Module 3 Case Analysis: Product Mix and New Product Development Strategy

MKT 501

Module 3 Case Analysis: Product Mix and New Product Development Strategy

INTRODUCTION

Companies in many markets today face massive amounts of competition. No longer can a company continue to make the same product for 50 years and have people purchase it because of brand loyalty. Many lament the loss of business in "downtown areas" because of the "big box" retailers; this same group shops at Wal-Mart or Target. While brand loyalty is not totally a thing of the past, companies today face the challenge of offering a good product at a competitive price. Because of this, many companies are constantly looking for new markets to expand into or looking to develop new products for underserved markets. Pepsi is a great example of a large corporation that remains nimble in a highly competitive industry. Not only do they have a large share of the soft drink and potato chip markets, Pepsi recently expanded into the non-carbonated drink market. While Coke dominates the soft drink market, it has been slow to expand its market share outside their core products.

In this paper I will explain how Pepsi uses the Product, Target, Segmentation, Targets and Product Development (PTSTP) model to develop new products to serve new customers. Next I will explore the impact this strategy will likely have on Pepsi's product mix. Let me begin with a discussion of Pepsi and their marketing strategies.

Pepsi and the PTSTP Model

As stated earlier, Pepsi is constantly searching for markets and the products to serve them. Diane Brady summed this obsession up nicely when she said, "Few companies seem as pained by the thought of missing a customer as PepsiCo. Every year, the food and beverage giant adds more than 200 product variations to its vast global portfolio..." (Brady, 2004). This statement shows just how much effort Pepsi puts into the PTSTP model. Pepsi is constantly examining all products in a product line and searching for new or underserved markets. In my research, I was truly amazed at the way Pepsi jumped into the non-carbonated drink market long before Coke. Coke seemed content to win the "cola wars." Only recently did their management seem to really concentrate on their non-carbonated beverage product line. (Foust, 2004).

In order to fully explore Pepsi's PTSTP model, let me explore how they expanded their market share of the non-carbonated beverage market. Coke was dominating the cola wars in 2003 by selling 44% of all soda in the US. Pepsi held just a 32% market share. Yet Coke's commanding -lead over PepsiCo in U.S. soda sales compared with a 16%-to-24% deficit against its rival in the $27 billion non-carbonated beverage market, says consultant Beverage Marketing Corp. (Foust, 2004). Pepsi had been doing research on the herbally enhanced drink market. When they saw the opportunity, Pepsi outbid Coke to purchase SoBe Beverages in 2001. (Brady, 2004). Since then, Pepsi has added several new products that increased sales. One of the most significant for our study here is SoBe Fuerte, aimed at the Hispanic market. This is noteworthy since Pepsi saw the growing Hispanic community that was being underserved by American companies. Frito-Lay which is also owned by Pepsi did the same thing with the potato chip market by buying a popular Mexican chip maker so as not to take away from their $9 billion domestic chip market. (Brady, 2004). Pepsi made these changes based in large