1.1 THE INTERNAL FACTORS EVALUATION (IFE) MATRIX.

The IFE matrix is a summary step in conducting an internal strategic management audit of

the PepsiCo. This strategies-formulated tool is to summarize and evaluates the major strengths

and weaknesses in the functional areas of business. It also provides a basis for identifying and

evaluating relationship among those areas of a business.

1.1.1 Internal strength

One of the strengths that can be found in PepsiCo is in term of strong brand equity. PepsiCo

has a strong brand name in the world place and the company is well-known worldwide. This

company is the best global brand in the world in terms of value of net revenue $43,251 million in

the year of 2008. The company has a very recognized and well-known name. Other than that, the

company also has a good reputation in most of every country including Japan, China, India,

Europe, Mexico and Latin America. For that reason, PepsiCo is an international company and it

has a very strong position internationally.

Next, another internal factor is PepsiCo has strong advertising company with more than 40

slogans and sponsoring event. The company believes that the image of good relation with

franchise market share large number of diversity businesses and socially responsible are

important. PepsiCo has well-built marketing and strong advertising. In addition, the company has

the most broad beverage distribution channel. One of the infinite distribution channel for

PepsiCo is YouTube because it is easy and available everywhere. PepsiCo marketing strategy is

highly dependent on development of catchy slogan. For example, the slogan Pepsi has in is

“Every Generation Refreshes the World” in the year of 2009. Besides that, PepsiCo is sponsoring

sports, musical concerts and walks which especially involve young generation.

Moreover, PepsiCo as the biggest part of the market share after Coca-Cola is another strength

that the company has. It gives the company a comparative advantage in the marketplace. The

financial data of PepsiCo appear very good with revenues increasing from just over $35 billion

in 2006 to over $43 billion in 2008. Besides, Euromonitor International stated that PepsiCo’s

strategy in China is to overtake Coke, which has 47.3 percent market share in the country’s Cola

1

market versus Pepsi which hold 44.5 percent. Pepsi has large market share than its competitors

as the target customers of Pepsi is young age group, Pepsi has more brand loyal customers.

Last but not least, the internal strength of PepsiCo is an innovating company. PepsiCo owns a

wide diversity of smaller brands which able them to offer a large product range from beverages

to snacks high-quality products and gain the customer loyalty. PepsiCo also has high bargaining

power over their suppliers. PepsiCo also has their own Research and Development Department

which innovating new food products and acquiring company such as Quaker Oats, Cap’ N

Crunch cereal, Mountain Dew, Tropicana juice, Gatorade or Doritos chips. Moreover, PepsiCo

has innovated sports and energy drinks which shows the largest growth in the world demand.

These ideas are the reasons for PepsiCo to have a competitive advantage over its competitors.

1.1.2 Internal weakness

First of all, one of the weaknesses of PepsiCo is that this company production is really

expensive. This is because of the need to constantly develop new products to meet the changing

customer’s demands. According to income statement of PepsiCo in the year of 2009, the cost of

sales has increased from 41.3 percent to 43.43 percent and the net income of the company has

decreased from $5.6 billion to $5.1 billion. In addition, in order to create more products, the

company had borrowed a lot of money from the financial institution. The amount of PepsiCo

long term debt has increased from $4.203 billion in 2007 to $7.858 billion in 2008.

Other than that, the internal weakness of PepsiCo is in term of profitability which this

company number two profitable companies than Coca-Cola in the international market. Pepsi

does not offer any sort of incentive or discount to its retailers. As mention before, Coca-cola has

47.3 percent market share in the country’s cola market versus Pepsi which hold 44.5 percent.

Coca-cola is also the brand known around the worlds, which are the largest producer and

distributor of ark colas in the world. Even in the current monetary crisis, the company continues

to expand and the financial position shows that Coca-cola has a strong cash position in compare

to PepsiCo which the long term debt of PepsiCo is so high.

2

Besides that, another internal weakness of PepsiCo is overdependence on Wal-Mart.

Wal-Mart is the largest warehouse and supermarket. Unfortunately, more than 13% of PepsiCo

business revenues come from Wal-Mart store chain. Wal-Mart has a significant buyer power and

can easily dictate prices over PepsiCo leaving it with very small margins. On top, PepsiCo would

lose 13% of its revenue and competitive advantage if the company loses Wal-Mart. Therefore, it

can be understand that PepsiCo depends too much on the US market. This is one of the

weaknesses that PepsiCo needs to overcome as the external factors such as inflation can also

affect the company if the company cannot be independent.

Lastly, the internal weakness of PepsiCo is that the company is facing a negative

publicity. There are doubtful practices which accused PepsiCo is using and selling tap water.

However, the company places view of mountains on its water bottle labels. The public claim that

the company deceiving people to believe it is mountain spring water when it is not. Furthermore,

PepsiCo has also been criticized for using water in India with higher than allowed amount of

pesticides in it. Because of this problem, it has lead to the brand failure in the certain products. It

is a big problem when a certain brand name is damage. This can also effect the customers loyalty

towards the brand.

Therefore, from the IFE Matrix, it can be understand that PepsiCo have strong internal

position. The company’s strategies effectively take advantage of existing strength and the

company also has to be able to minimize its weakness.

KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE

STRENGTH

1 Strong brand equity 0.14 4 0.56

2 Largest part of the market share after Coca-Cola 0.07 3 0.21

3 Strong advertising company with more than 40 slogans and sponsoring event

0.10 4 0.40

4 An innovating company 0.19 4 0.76

3

Table 1.1: Key Internal Factors of PepsiCo

2.1 THE EXTERNAL FACTOR EVALUATION (EFE) MATRIX

Besides IFE Matrix, EFE Matrix can be used by organizations or companies. The EFE

Matrix is used to summarize and evaluate economic, social, cultural, demographic,

environmental, political, governmental, technological and competitive information. Generally,

this strategies-formulated tool is the matrix for external opportunity and threat.

2.1.1 External Opportunity

The first external opportunity of PepsiCo is growing beverages and snacks consumption and

spending in emerging markets. PepsiCo has made large investments in many countries such as

India, China and Europe in order to expand its market share as these countries represent the

fastest growing food and beverages markets in the world. If PepsiCo is successful, it will

increase its revenues and global market share significantly. With this opportunity, the company

will be able to rely less on United States market. Besides that, there are growth opportunities in

developed countries as well as international non-established countries.

Secondly, the company will acquire potential company to increase profit. Pepsi recently

reacquired ownership of its two largest bottlers, Pepsi Bottling Group (PBG) and PepsiAmericas

(PAS). PepsiCo offered $6 billion retake the ownership. Non-carbonated products are today

about 40 percent of Pepsi-Cola volume, versus less than 15 percent 10 years ago. PBG and PAS

distribute nearly 75 percent of Pepsi drinks in the United States. In addition, PepsiCo had acquire

many other potential company such as Quaker to compete with the major competitors in the

breakfast cereal market which includes Kellogg and General Mills.

4

WEAKNESS5 PepsiCo production is really expensive because of the

need to constantly develop new products to meet the changing customer’s demands

0.17 2 0.34

6 PepsiCo is number two profitable companies than Coca-Cola in the international market

0.17 2 0.34

7 Overdependence on Wal-Mart 0.10 1 0.108 Facing a negative publicity 0.06 1 0.06

TOTAL 1.00 2.77

Thirdly, promote products through sponsoring. Nowadays, there is high increase interest of

people in musical groups, cultural shows and sports have provided an opportunity for PepsiCo to

increase its sales through them. Furthermore, due to many reality programs in television shows is

to fight obesity, the demand for healthy food and beverages has increased drastically. PepsiCo

has an opportunity to further expand its product range with beverages and snacks that have low

amount of sugar and calories.

Fourthly, opening product in market for less costly products and lower price than the

competitor. In the current situation, PepsiCo are assuming that the usage of products among

target market consisting young generation has been increasing day by day. Therefore, it is

important for the company to put the lowest prices in their products to ensure their product is

marketable and affordable. For example, the prices for Pepsi per can are $4.00 per fl.oz. in

compare to coke $4.33 per fl.oz. which is slightly higher. This will enable the company entering

rural areas also.

2.1.2 External Threat

First of all, the external threat that can be identified in PepsiCo is the change in customer

lifestyle and pattern. The economic successes in developing and developed countries have

resulted in considerable improvements of people quality of life. Customers are demanding for

higher technology to access the product to serve their needs. Customers are one of the

stakeholders who control the external movement of the companies which affect the company’s

financial position as they are the buyer of the company’s product. PepsiCo must adapt with the

modern lifestyle from their traditional way of doing business such as providing online purchases.

Because of the recession, customers are finding cheaper alternatives to the national brands.

Secondly, PepsiCo fierce competition from Coca-Cola, which owns the largest piece of

the market share. Coca-cola has 47.3 percent market share in the country’s cola market versus

Pepsi which hold 44.5 percent. Coca-cola is the brand known around the worlds, which are the

largest producer and distributor of ark colas in the world. PepsiCo are facing decreasing gross

profit and net profit margins during the current monetary crisis in the year of 2008 while Coca-

cola are not affected and the companies continue to expand at the time.

5

Thirdly, the changes in consumer taste can be an external threat to companies like

PepsiCo. In these days, the consumers around the world become more health conscious and

reduce their consumption of carbonated drinks. It is known that carbonated drinks have large

amounts of sugar, calories and fat. Customers are getting more conscious and concerned about

their eating habits and general health. Carbonated drinks are not good for the health so the

awareness level of the people is increasing which is a big threat to the company. They are

changing towards light, calorie free, sugar free, caffeine free, sports and energy directed.

Last but not least, another external threat of PepsiCo is the problem of water scarcity.

Nowadays, water is becoming scarcer around the world and increases in both cost and criticism

for PepsiCo over the large amounts of water used for their production. PepsiCo are highly

dependent on supplies of clean water in order to prevent infectivity. Working together with

Water.Org, PepsiCo Foundation commits to accelerating greater access to safe water and

sanitation for those currently living without these basic necessities in India. This goal is being

met through programs delivered via grants and WaterCredit, an innovative initiative that

facilitates microcredit loans for water and sanitation.

Therefore PepsiCo are responding towards their opportunity and threats. The company

should effectively and efficiently take advantage of their existing opportunity and should be able

to come out with the strategies to minimize their threat.

KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE

OPPORTUNITY

1 Growing beverages and snacks consumption in

emerging markets

0.18 4 0.72

2 The company will acquire potential company to increase profit

0.10 2 0.20

3 Promote products through sponsoring 0.15 3 0.45

4 Opening product in market for less costly products and lower price than the competitor

0.15 3 0.45

6

Table 1.2: Key Internal Factors of PepsiCo

7

THREAT

5 Change in customer lifestyle and pattern 0.15 4 0.60

6 PepsiCo fierce competition from Coca-Cola Change in

customer lifestyle or pattern

0.08 2 0.16

7 Changes in consumer tastes 0.11 3 0.33

8 The problem of water scarcity 0.08 2 0.16

TOTAL 1.00 3.07