Analysis of Product Marketing
Analysis of Product Marketing
- Product Macro and Competitive Environments
- Product Description
The product chosen for analysis is crunch breakfast cereal “Cap'n Crunch” made of sweetened corn and pieces of oat. The product is produced by Quaker Oats Company (PepsiCo), located in the US. Cap'n Crunch cereal is very popular in US on the market of breakfast cereals that generated approximately $118.6 in sales in 2010 from supermarkets, mass-market retailers, and drugstores (Joyner, 2011). However, US sales of the company dropped in 2010 by 6.8% because of health activists and government pressure connected with health issues and peddling PepsiCo’s products to kids (Joyner, 2011).
- Company and Industry Analysis
The product is promoted in the Great Britain and net revenues generated in the UK made up 20% of total net revenue of PepsiCo in 2012. Within the framework of the brand building campaign, PepsiCo launched new brand positioning based on digital marketing. Meanwhile, imports of cereals dropped to 1,958 thousand tonnes in 2008-2009 in comparison to 2,619 thousand tonnes imported in 2003-2008 (Bridge and Johnson, 2009).
The UK market of breakfast cereals represents huge potential for PepsiCo generating total yearly revenues of $2.3 billion as of 2010 with compound growth rate of 2.1% for 2006-2010 (Datamonitor, 2011).
The projections for the performance of breakfast cereal market are encouraging: GAGR is supposed to reach 4.8% between 2011 and 2016 driving market to $3,185 million by the end of this period (The Grocer, 2013). According to the Mintel Report (2012) eight in ten consumers are interested to buy cereals. The interest in buying cold cereals is conditioned by increase in healthy lifestyle and diet nutrition. However, the market of breakfast cereals is highly competitive including both national and foreign market players. Currently, much attention is paid to promotional activity, product development, and marketing (Askew, 2013).
1.4 PESTEL Analysis
1.4.1 Political Analysis
Recently, PepsiCo and Cap’n Crunch subject to pressure from US health institutions forcing food companies to make their products healthier. In UK, government shows responsibility regarding food manufacturing. UK government established a system of strict fines applied to the companies breaking the law. PepsiCo ensures strict quality controls to meet quality standards. It means that the risk of being fined is low. Another issue is ecological legislation as PepsiCo was accused in using too much water for manufacturing its products. Comprising changes in taxation and accounting standards may affect selling price of Cap’n Crunch. Political conditions in UK are stable comparing to other countries where PepsiCo markets its products (PepsiCo, 2012).
The price for the product is competitive, but sometimes is seen as low. Therefore, Cap’n Crunch is sometimes considered low quality product. Thus, price fixing as government tool cannot affect share value of the company. Barriers to entry are low giving PepsiCo the opportunity to come up, but the market is not as capacious as in the developing countries.
1.4.2 Economic Analysis
Economic situation in UK is stable, but was recently affected by European bond crisis making negative impact on sales volume through decreased purchasing ability. Also, PepsiCo was affected by the consequences of global recession that made negative impact on the US economy. However, Federal Reserve helped sustain positive growth of economy affecting manufacturing activity of PepsiCo (PepsiCo, 2012).
Besides, performance of the company depends on the interest rate that gives an opportunity to invest in the new products. As the interests rates were cut down recently to 3%, PepsiCo can invest in the development of Cap’n Crunch with different flavors to market this product in UK.
Inflation in UK was recorded in 2013 on the moderate level of 2.8%. Thus, fear for inflation would not likely affect sales. The market is characterized by low customer confidence, but Cap’n Crunch is the product of daily use of low price. Therefore, low customer confidence will not have significant effect on sales as well.
1.4.3 Social Analysis
More UK citizens started to practice healthier style of life. The necessity for healthy products is important in the standard daily routine. The impact on food industry is that customers switching to increased consumption of cereals. However, some of them prefer buying hot cereals thus increasing competition inside the food market and threat of substitutes. Consumers aged from 40 to 55 become more concerned with their nourishment. Growing older, most of the customers are worried with making their life longer. Customers prefer buying cereals with short shelf life. These trends are supposed to increase demand for healthy nutrition (PepsiCo, 2012).
1.4.4 Technology Analysis
PepsiCo is using advanced technology when marketing, advertising, and promoting its products. Using recent development of internet and television and HD graphics, PepsiCo succeeded to arrange attractive look of the product convincing customers and increasing sales. Handy package used for packaging Cap’n Crunch helped increase sales because it can be easily carried and disposed after using. The introduction of new equipment allowed reduction of labor costs. The factories producing cereals for UK customers use advanced food technology to ensure excellent quality of products and fast delivery. PepsiCo invests in improving machinery as soon as technology advances emerge in the market aiming to increase product sales. The company also invests in product development and packaging design (PepsiCo, 2012).
1.4.5 Environment Analysis
PepsiCo pays a lot of attention to environmental sustainability of production, promotion, and marketing products. The company is finding innovative ways of cutting costs aiming to minimize impact on the environment. The company implemented a number of initiatives directed at reduction of packaging volume and minimization of water and energy consumption as the response to the claims set up by the government and health institutions Thus, water consumption was reduced 20 percent in 2012 (PepsiCo, 2012).
1.4.6 Legal Environment Analysis
Changes in regulations and legal environment could make an impact on PepsiCo business activities by increasing operating costs, result in litigation, or reduce demand for Cap’n Crunch. The processes including production, sales, advertising, marketing, packaging, labeling, and transportation are subject to various UK laws and regulations. PepsiCo is currently operating in fierce legal environment because many laws and regulations are issued recently with regard to the demands to quality of the ingredients of the products including saturated fat and added sugar. Aiming to comply with emerging regulations may increase costs and liabilities being reflected on the price of Cap’n Crunch.
2. The Marketing Programme Elements
2.1 Marketing Mix (4 P’s)
2.1.1 Product
Cap’m Crunch is a line of products made of sweetened oat and corn breakfast cereals manufactured by a division of PepsiCo - Quaker Oats Company. The product is very popular in US and in UK generating substantial sales (PepsiCo, 2012). The product mascot is an image of Cap’n Crunch named after real captain Horatio Magellan Crunch wearing “Napoleone-style” hat. The product represents an excellent alternative for breakfast that complies with English traditions. The product is mass-market oriented. The product was marketed for children in US, but in UK it is proposed to the wide circle of customers.
2.1.2 Price
Providing high-quality and low-cost product is the main concern of PepsiCo. However, low price is sometimes associated with low quality. Aiming to make manufacturing of the product cheaper, PepsiCo uses recyclable materials. Investment in machinery contributes to variable costs reduction. The low price of the product is conditioned by using pricing strategies called economies of scales. The design of packaging is quite simple that contributes to cost saving as well. Seasonal discounts are available because the product has short shelf life.
2.1.3 Place
PepsiCo offers a wide variety of breakfast cereals that are mostly sold with the help of supermarket chains, mass-market retailers, and drugstores. Wal-Mart is one of the main distribution channels of PepsiCo. However, Wal-Mart bargains prices leaving minimum profit margin for PepsiCo. Another distribution channel is internet including Amazon.com.uk and eBay. Wholesalers, as well as retail customers, can purchase Cap’n Crunch with the help of internet websites. This approach to product distribution is very comfortable for both seller and buyer because seller does not incur additional costs for storage and transportation to a shop while buyer receives the product spending minimum efforts.
2.1.4 Promotion
PepsiCo uses multiple methods to promote its products. The most common way of promotion is television, newspapers, celebrity endorsement, sponsorships, and internet advertising. PepsiCo uses latest technology advancements when promoting its products providing itself with significant competitive advantage in the food market.
2.2 Marketing Mix Analysis
The most important aspect of PepsiCo success is market positioning. The products of the company are diversified that allows it not to rely on key products or seasonality. The company employs strategy of supplementary sales: when buying beverages customers also buy cereals. In addition, PepsiCo is a progressive food company implementing innovative technologies and products. There are several types of breakfast cereal meals offered by PepsiCo. The demand is insignificantly affected by changes in customer preferences. Extensive distribution channels allow the company serving 10 million stores in 200 countries. PepsiCo is socially responsible company including water usage reduction, recycling, obesity fighting, and education programmes.
Low prices for breakfast cereals are associated with low quality. For example, a box of Cap'n Crunch of 398g (Short Dated) costs £4.55 in the UK market. Questionable practices are connected with ethical issues when the company uses unfair advertising techniques. Also, low brand awareness comparatively to other breakfast cereal manufacturers places PepsiCo at competitive disadvantage. PepsiCo has comparatively low profit margin of 9.7% while Nestle has 11%. Low profit margins may result in low innovation investing thus posing challenge for future success of the company.
The company is known by its successful advertising and marketing campaigns allocating significant funds for this purpose. Thus, PepsiCo spent $2 billion on advertising in 2012 that resulted in growing market share (Jurevicius, 2013).
Approximately 13% of PepsiCo sales and revenues comes from Wal-Mart of marketing products. The main weakness of this distribution approach is overdependence on Wal-Mart store chain (Jurevicius, 2013).
One of the most serious threats is changes in consumer preferences. Consumers are becoming more health conscious reducing consumption of fat, sugar, and calories. Another threat is water scarcity leading to criticism of the company for high volumes of water consumption. Profit margin of the company decreases because of high water consumption that leads to high costs of raw materials. Legal requirements for food industry are becoming tougher in UK. Some products produced by PepsiCo are perceived to contain dangerous elements causing cancer that could influence customer opinion. Increased competition from Kellogg, General Mills, and Weetabix hampers expanding UK market share.
2.3 Application of Marketing Theories
Following the functional approach, McGarry reconsidered the purpose of marketing activity and outlined six functions of marketing, namely: contractual, merchandising, propaganda, physical distribution, and termination (Shaw and Jones, 2005).
PepsiCo marketing strategy can be analyzed from this perspective as well. Contractual function supposed to search buyers is realized through implementation of different marketing strategies for different markets. For example, PepsiCo promoted Cap’n Crunch as product manufactured for children. After the scandal related quality of the products PepsiCo stopped positioning Cap’n Crunch as the product designed for children. Currently, PepsiCo does not emphasize appropriation of this product in the UK market. Merchandising means fitting goods to market requirements. Therefore, after government requirement PepsiCo reconsidered standards for the product and reduced fat and sugar in the product. Thus, marketing strategy utilized by PepsiCo in the UK market can be considered successful.
The theory of consumer behavior developed by Cohen is illustrated in PepsiCo’s approach as well (Shaw and Jones, 2005). Thus, using the image of legendary captain conjures up associations of being brave and courageous. Consumers buying Cap’n Crunch think of themselves like they are brave soldiers who are ready to fight for their freedoms. Connecting the image of captain with breakfast cereal PepsiCo succeeded to increase its sales through creative thinking using emotional motives of buyers.
According to Bucklin, using appropriate distribution channels may help saving significant transportation and storage costs. Using Wal-Mart as one of the main channels of distribution helps PepsiCo maintain continuous sales volumes and save variable costs (Shaw and Jones, 2005).
3. Revised Marketing Programme and Recommendations
3.1 Revised Marketing Programme
The current marketing programme used in UK should be revised with respect to the following marketing elements: product, price, place, and promotion.
Cap’n Crunch is a good product that proved its sustainability in US market and possesses huge potential in UK market. The market is characterized by high demand for healthy nutrition based on traditions of healthy eating (Datamonitor, 2011). However, the product is perceived as outdated because it was created in 60’s. Besides, the product is sometimes perceived as not healthy because of its price. There is a need to increase awareness of healthy nutrition and change the image of the product (Shaw and Jones, 2005).
The price of the product can be increased based on inclusion of organic components. The market of organic food is developing and increasing customer awareness related healthy nutrition will give PepsiCo the opportunity to increase prices, and, as a result, increase profitability.
PepsiCo is using supermarket chains to distribute its products. However, the company is excessively dependent on Wal-Mart. Meanwhile, Wal-Mart is not so popular in UK in comparison to other food supermarkets. There is an opportunity to change distribution channel in UK in order to increase profit margin. This path will help significantly increase profitability of the company in UK market.
Currently, PepsiCo promotes its products with the help of celebrities, such as David Beckham and Ryan Gosling (Ricki, 2013). According to Shaw and Jones (2005) this is very effective promotion tool based on the theory developed by Cohen. Inviting celebrities to advertise its products, PepsiCo uses the theory of symbolism. Choosing celebrities that embody social values help bind personal aspirations with the image of celebrity. The image of a celebrity influence average citizens stimulating them to act like celebrity (Shaw and Jones, 2005). Internet promotion is also a very effective tool of advertising PepsiCo products.
3.2 Recommendations
According to Mintel Report (2012) the market of breakfast cereals remained unchanged in terms of packaging. Changing package for Cap’n Crunch could help boost interest to the product. The research showed that customers are interested to buy cereals in resealable packaging because this type of packaging helps keep cereals fresher for longer time. Changing design and quality of the packaging is a cost-effective method to differentiate in the market. Besides, this type of packaging is reliable and functional (Mintel Report, 2012).
The analysis of the price for the product showed that sometimes low prices are seen by the customers as disadvantage because they are associated with low quality. Currently, the prices for Cap’m Crunch range from £4.55 to £9.99. Increase in price by 10% could help increase profit margin together with advertising campaign promoting healthier product. Increase in price will be conditioned by using healthier (organic) raw materials. PepsiCo should consider the opportunity to enter the market of organic products since this is a very popular marketing direction since the demand for healthy food is increasing. According to Askew (2013) cereal sales in UK grew by 5 percent in 2012. Besides, eating healthy food is a tradition in UK. This path will help the company to increase profitability and increase awareness of making healthy food.
According to Shaw and Jones (2005), marketing activity should bring value added. Collaboration with Wal-Mart is low-profit because this supermarket chain has bargaining power over PepsiCo. Appropriateness of this collaboration should be analyzed with proper conclusions made. Maybe it would be better to collaborate with another chain of supermarkets or emphasize distribution the product through other channels like drugstores and other mass-market retailers – Tesco, Sainsbury’s or SPAR.
The strategy to promote the product with the help of television is a good idea. However, advertising and distribution through internet should be emphasized at the present time. Advertising through newspapers does not bring desirable results because more and more people use internet to receive necessary information (Mintel, 2012). For example, placing banners with links to PepsiCo official site at the most popular health-related websites will help increase awareness of the product. Placing tags with the Cap’n Crunch on the websites related healthy nutrition will help increase sales. Recently, PepsiCo hired Global Nutrition Group to develop new low sugar and low fat products and evaluate the quality of existing products (PepsiCo, 2012). This approach is a sophisticated marketing tool that should be promoted in advertising campaigns of the company. The efforts of nutritionists are directed at increasing awareness of consumers with regard to healthier products produced by PepsiCo.
References
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Bridge, J. and Johnson, N., 2009. Feeding Britain [pdf] Available at: http://www.ahdb.org.uk/publications/documents/feedingbritain.pdf [Accessed 10 August 2013].
Datamonitor, 2011. Breakfast Cereals in the United Kingdom [pdf] Available at: http://www.researchandmarkets.com/reports/219104/breakfast_cereals_in_the_united_kingdom.pdf [Accessed 10 August 2013].
Joyner, J., 2011. Obama Killed Cap’n Crunch, Outsidethebeltway, [online] Available at: · http://www.outsidethebeltway.com/obama-killed-capn-crunch/ [Accessed 10 August 2013].
PepsiCo, 2012. Annual report 2012. [online] Available at: http://www.pepsico.com/annual12/#new-capabilities [Accessed 10 August 2013].
Ricki, 2013. Cap'n Crunch moves quickly to capitalise on the 'Ryan Gosling won't eat his cereal' popular meme, Campaignbrief, [online] Available at: http://www.campaignbrief.co.uk/2013/05/capn-crunch-moves-quickly-on-t.html [Accessed 10 August 2013].
Shaw, E.H. and Jones, D.G.B., 2005. A history of schools of marketing thought, Marketing Theory, [online] Available at: http://www.sagepub.com/clow/study/articles/PDFs/01_Shaw.pdf [Accessed 10 August 2013].
The Grocer, 2013. United Kingdom – breakfast cereals, The Grocer, [online] Available at: http://www.thegrocer.co.uk/reports-and-advice/third-party-reports/united-kingdom-breakfast-cereals/348120.article [Accessed 10 August 2013].
