INTRODUCTION

At the end of the 1960s, Bruce Henderson, founder of the Boston Consulting
Group, BCG, developed his portfolio matrix. The effect on the business
world was dramatic.

Henderson first came up with the concept of an experience curve, which

differs widely from the learning curve, a concept formulated many years
before and which states that staff productivity increases according to the
number of times a particular work task is carried out.

The experience curve does not have the inherent threshold effects of the
learning curve. The experience curve states that when a particular task is
duplicated, the cost of carrying it out the second time will fall by about 20
per cent. Thus, by doubling our sales force, customer sales costs will fall by
about 20 per cent. The same thing applies to invoicing, production, etc. For
more on this, see the entry Experience curve.

The other important principle in the BCG concept was relative market share,
which was calculated in relation to the biggest competitor.

The experience curve was combined with relative market share and the life
cycle curve in the well-known BCG matrix shown in the figure below.

The matrix was popularized by the use of symbols mainly representing

animals. Such terms as ‘dogs’, ‘wildcats’, ‘star’ and ‘cash cow’ subsequently
came into business use, whereupon the Boston matrix was referred to as the
‘BCG zoo’.
 If we look at the four squares of the BCG zoo and try to predict cash flow for
the next 3.5 years, we begin to make out certain patterns. The dog or the star
should have a minimal positive or negative cash flow. The cash cowdelivers
very positive cash flow, while the wildcat has negative cash flow.

When portfolio strategy was in its infancy, balancing the cash flow was one
of group management’s most important functions. The theory was that cash
flow should be created in the cash cow and invested in the wildcatting order
to increase market share and reach a strong competitive position. This would
then bring the unit into the star square. When the market gradually stopped
growing, the star business would tumble into the cash cow.

The underlying idea of the BCG matrix is that the best strategy is to
dominate market share when the market is mature. The thinking goes like
this:

1. Profitability is greatest when the market matures.

2. A dominating market share gives the highest accumulated production

volume.
3. According to the experience curve, high volume leads to lower production

costs.
4. Low production costs can either be used to lower prices and take market

share, or to increase profit margins.

MAIN ASPECTS OF THE BCG GROWTH-SHARE MATRIX

The BCG Growth-Share Matrix is based on two dimensional variables:

relative market share and market growth. They often are pointers to
healthiness of a business (Kotler 2003; McDonald 2003). In other words,
products with greater market share or within a fast growing market are
expected to wield relatively greater profit margins. The reverse is also true.

The BCG matrix or also called BCG model relates to marketing. The BCG
model is a well-known portfolio management tool used in product life cycle
theory. BCG matrix is often used to prioritize which products within
company product mix get more funding and attention.

The BCG matrix model is a portfolio planning model developed by Bruce

Henderson of the Boston Consulting Group in the early 1970's.

The BCG model is based on classification of products (and implicitly also

company business units) into four categories based on combinations of
market growth and market share relative to the largest competitor.

When should I use the BCG matrix model?

Each product has its product life cycle, and each stage in product's life-cycle
represents a different profile of risk and return. In general, a company should
maintain a balanced portfolio of products. Having a balanced product
portfolio includes both high-growth products as well as low-growth
products.

A low-growth product is for example an established product known by the

market. Characteristics of this product do not change much, customers know
what they are getting, and the price does not change much either. This
product has only limited budget for marketing. The is the milking cow that
brings in the constant flow of cash. An example of this product would be a
regular Colgate toothpaste.
 But the question is, how do we exactly find out what phase our product is in,
and how do we classify what we sell? Furthermore, we also ask, where does
each of our products fit into our product mix? Should we promote one
product more than the other one? The BCG matrix can help with this.

The BCG matrix reaches further behind product mix. Knowing what we are
selling helps managers to make decisions about what priorities to assign to
not only products but also company departments and business units.

These groups are explained below:

 BCG STARS (high growth, high market share)

Here you're well-established, and growth is exciting! These are fantastic

opportunities, and you should work hard to realize them.

Stars are defined by having high market share in a growing market.

• Stars are the leaders in the business but still need a lot of support for
promotion a placement.
• If market share is kept, Stars are likely to grow into cash cows.

BCG QUESTION MARKS (high growth, low market share)

These are the opportunities no one knows what to do with. They aren't
generating much revenue right now because you don't have a large market
share. But, they are in high growth markets so the potential to make money
is there.

Question Marks might become Stars and eventual Cash Cows, but they
could just as easily absorb effort with little return. These opportunities need
serious thought as to whether increased investment is warranted.

• These products are in growing markets but have low market share.
• Question marks are essentially new products where buyers have yet to
discover them.
• The marketing strategy is to get markets to adopt these products.
• Question marks have high demands and low returns due to low market share.
• These products need to increase their market share quickly or they become
dogs.
• The best way to handle Question marks is to either invest heavily in them to
gain market share or to sell them.
 BCG CASH COWS (low growth, high market share)

Here, you're well-established, so it's easy to get attention and exploit new
opportunities. However it's only worth expending a certain amount of effort,
because the market isn't growing and your opportunities are limited.

• Cash cows are in a position of high market share in a mature market.

• If competitive advantage has been achieved, cash cows have high profit
margins and generate a lot of cash flow.
• Because of the low growth, promotion and placement investments are low.
• Investments into supporting infrastructure can improve efficiency and
increase cash flow more.
• Cash cows are the products that businesses strive for.

 BCG DOGS (low growth, low market share)

In these areas, your market presence is weak, so it's going to take a lot of
hard work to get noticed. Also, you won't enjoy the scale economies of the
larger players, so it's going to be difficult to make a profit.

• Dogs are in low growth markets and have low market share.
• Dogs should be avoided and minimized.
• Expensive turn-around plans usually do not help.
 Some limitations of the BCG matrix model include:

o The first problem can be how we define market and how we get data about
market share
o A high market share does not necessarily lead to profitability at all times
o The model employs only two dimensions – market share and product or
service growth rate
o Low share or niche businesses can be profitable too (some Dogs can be more
profitable than cash Cows)
o The model does not reflect growth rates of the overall market
o The model neglects the effects of synergy between business units
o Market growth is not the only indicator for attractiveness of a market

There are probably even more aspects that need to be considered in a

particular use of the BCG model.

Market Share and Market Growth

To understand the Boston Matrix you need to understand how market share
and market growth interrelate.

Market share is the percentage of the total market that is being serviced by
your company, measured either in revenue terms or unit volume terms. The
higher your market share, the higher proportion of the market you control.
The Boston Matrix assumes that if you enjoy a high market share you will
normally be making money (this assumption is based on the idea that you
will have been in the market long enough to have learned how to be
profitable, and will be enjoying scale economies that give you an
advantage).
The question it asks is, "Should you be investing your resources into that
product line just because it is making you money?" The answer is, "not
necessarily."
This is where market growth comes into play. Market growth is used as a
measure of a market's attractiveness. Markets experiencing high growth are
ones where the total market is expanding, which should provide the
opportunity for businesses to make more money, even if their market share
remains stable.

By contrast, competition in low growth markets is often bitter, and while

you might have high market share now, what will the situation look like in a
few months or a few years? This makes low growth markets less attractive.
BCG MATRIX ON PEPSI COMPANY

Introduction

Business organizations are subject to different aspects which affect the

function and operations of the firm as a whole. In this regard, there are
specific ways or techniques which can be noted in order to emerge and
continue to be competitive in the market environment. The marketing
context have been noted as the key factor to achieve company objectives and
the marketing aspect rests on customer-orientation, market focus and
coordinated marketing as well as profitability. In profit making business, the
firm obviously has to do their best to achieve the level of customer
satisfaction as a manner of staying ahead of the competitive position and
making a profit.

In traditional ways, marketing has been used by different firms to be able to

increase the capabilities of the company in the market. Its concept can be
considered as one of the most essential element underpinning the success of
business (1994). In the competitive market environment, connecting with the
target market is getting more complicated for different industries (2003).
Accordingly, it takes an effective management and approaches to win over
the skeptical target market which suggest that it is the moment to forget
everything that has been learned regarding marketing and branding (2003). It
is mentioned that it is the target market that is in control of improving the
power of the products or brands. In this regard, it is not the company who
brand their target market, but the clients are the one which brands the
company and their products and services offered.
The main goal of this report is to provide an in-depth analysis about the
products of PepsiCo. In addition, these will also analyse the marketing
strategies used by the company to compete with each other and aims on
discussing if customer services is a most important part which let the
company setting on the leading post in the market segment. In order to
analyze the company, the use of BCG matrix will be considered.

Overview of the Company

PepsiCo Inc. is one of the world’s leading food and Beverage Company.
PepsiCo started on 1965, during that time Pepsi-Cola’s CEO and President
approached , Chairman and CEO with a proposition of merging the two
company in providing food and beverage with complementary products that
would give a lesser opportunity for cost sharing, joint merchandising and
knowledge and skill transfer. Its expertise is to create different food and
beverage products that would soothe the taste of its consumer. The new
company was founded with annual revenues of $510 million and such well-
known brands as Pepsi-Cola, Mountain Dew, Fritos, Lay’s, Chee-tos,
Ruffles, and Rold Gold. PepsiCo’s roots can be traced to 1898, when , a
pharmacist in New Bern, North Carolina, created the formula for a
carbonated beverage he named Pepsi-Cola. The reinvention of different
products, the introduction of new product, expansion into international
markets and clever advertising campaigns are the primary focus of PepsiCo
Inc. PepsiCo’s considerable marketing expertise could be leveraged in the
marketing of fried chicken, pizza, and Mexican fast foods.

In 2001, PepsiCo was the second-largest food products company in the

United States (behind Kraft Foods) and was diversified into salty and sweet
snacks, soft drinks, orange juice, bottled water, ready-to-drink teas and
coffees, nutraceutical and isotonic beverages, hot and ready-to-eat breakfast
cereals, grain-based products, and breakfast condiments. Many PepsiCo
brands held number one or number two positions in their respective food and
beverage categories (2008).

PepsiCo Inc. became the first foreign product sold in the Soviet Union in
1972, expanded into China in 1982, and by 1984 sold products in nearly 150
countries and territories. The company enters the Soviet Union market by
having trade relations with the USSR, giving PepsiCo exclusive rights to
import Stolichnaya Russian vodka in the US while letting the products of
PepsiCo be promoted in the nation. On the other hand, the company has
entered the Chinese market by investing in the country and having a
business operation in the nation. New brands launched under tenure as
president and CEO included Pepsi Light in 1975, Grandma’s cookies in
1980, Tostitos in 1981, Pepsi Free in 1982, and Slice in 1984. In addition,
Pearson crafted a corporate strategy that called for PepsiCo’s diversification
into quick service restaurants. PepsiCo Inc. had diversified beyond snack
foods and soft drinks with the acquisitions of North American Van Lines in
1968 and Wilson Sporting Goods in 1970, but the company’s acquisition of
Pizza Hut in 1977 significantly shaped the strategic direction of PepsiCo for
the next years to come.

The acquisition of different companies for the expansion of PepsiCo was

believed by and that whereas soft drinks and snack foods were
complementary businesses offering skills transfer and cost sharing benefits,
quick-service restaurants offered a captive market for Pepsi-Cola’s fountain
drinks will positioned the company in an additional high-growth industry.
During the late 1990s, PepsiCo acquired Cracker Jack from Borden Foods,
Tropicana from Seagram Company Ltd., and Smith’s Snack food Company
in Australia from United Biscuits Holdings. The company also introduced
Doritos 3D’s tortilla chips and Pepsi One during the 1990s. In 2000,
PepsiCo launched its Fruit Works line of fruit drinks and Sierra Mist lemon-
lime soda, and Aquafina became the number one brand of bottled water sold
in the United States. South Beach Beverage Company, the maker of SoBe
teas and alternative beverages; Tasali Snack Foods, the leader in the Saudi
Arabian salty snack market; and the Quaker Oats Company were acquired
by PepsiCo in 2001.

BCG Growth Matrix Analysis

As mentioned above, this study aims on analyzing the products and services
offered by PepsiCo. The BCG matrix approach is based on the product life
cycle concepts which can be utilized to identify what priorities should be
given in the product portfolio of a business level. To make sure that the
company is creating long-term value, an industry should have a portfolio of
products which contains both high-growth products in need of cash inputs as
well as low-growth products which establishes a lot of profit or cash.

BCG matrix relies on 2 dimensions: market growth and market share. The
basic notion behind it is that the higher the market share of a specific
product has or the faster the product’s marketability grows, the better it is for
the industry. Placing appropriate products in the BCG matrix, results in 4
categories, in the business portfolio of an industry. The four categories
include the Stars, cash cows, dogs, question marks. Each of these categories
has their own measurement. First, the stars are considered as those products
which have high market growth and market share. The stars products use
large amounts of cash and considered to have competitive position in the
business which results in generating more profit. The stars products are
frequently noted as rough in balance on net cash flow. But if needed, any
attempt should be created to hold market share to avoid becoming cash cow.

The second category is Cash cows which are commonly considered to have
low growth with high market share. Herein, the profits and generation of
cash are considered high but because of the low market growth, the
investment required should be low. It is said that cash cows should keep the
profit high and is noted to be the foundation of the company. The next
category is Dogs which is low market growth and share. It is noted that an
industry should avoid or reduce the number of dog’s products in the
industry. In addition, the company is also recommended to beware of the
expensive turn around plans. The last category is question markets which is
high growth with low market share. Question marks products are considered
to be the worst cash features of all, because high demands make it to have
low returns due to low market share. Herein, if the company would not be
able to solve the issue of question market products, these may be able to
absorb great amount of cash and may result from stopping dogs to grow.
Accordingly, BCG matrix approach can help the business companies to
understand a frequently made approach mistake. Boston Consulting Group
Matrix is a tool used for product portfolio planning 2005). This tool has two
controlling elements which includes market growth relative market share. In
this manner, the current situation PepsiCo in the standpoint of the market
environment will be analyzed using this marketing tool. This analysis will
give emphasis on the product and service portfolio of PepsiCo. Thus, the
product and services that the company offers will be analyzed using the
following figure.

It can be said that PepsiCo products and business portfolio can be divided in
four major products or services; each service operates in accordance with its
functions along with the products and services in different areas especially
made as a distinction of each division. The PepsiCo analysis will be based in
assessment of the services offered by the company.

BOSTON CONSULTING GROUP MATRIX

The product portfolio analysis of the PepsiCo using BCG Matrix analysis.
Accordingly, PepsiCo is consisted of 5 major brands: Gatorade, Quaker,
Pepsi products, Frito-Lay and Tropicana. As mentioned the assessment has
been based on each products provided by the company. With this, it shows
that the products that belong to the question mark are Gatorade and also
Tropicana. Because of the emergence of different healthy drinks and
beverages in the global market, the market share of Tropicana and Gatorade
are being threatened. Although these brands have already established in the
marketplace, the company still needs to have an effective marketing
approach to increase the sale of these brands or brands. Accordingly,
question mark category means that these products have a low share of a
possible high growth market and may become a star product because of the
positive response of the customers.

As can be seen in the figure, the services that fall in star category are is the
pay-is Pepsi brands. The star category shows the products with a high share
of a gradual growth of market and these products have a tendency to produce
high amount of profits. The next category that can be seen in the figure is the
cash cows. Herein, the products are considered to have a high share of a
slow growth market ( 2005). With regards to the PepsiCo, services that can
be considered in the cash cows are the Quaker. Lastly, it can be seen that
Tropicana, Gatorade and Frito-Lay are products that can be considered in the
dogs’ category.

It can be said that PepsiCo has been able to market their products and
increase their market share and market growth by using different strategies
and approaches. The company enhances the market share of their brands by
considering different marketing entry modes. Through collaborative venture
PepsiCo has been able to se merger and acquisition along with joint venture
approach. Furthermore, franchising is another method that PepsiCo used to
enhance the market share of the brands of the company ( 1990). This model
used by (1990) has been utilized by PepsiCo in order to expand its business
portfolio in other regions in the world. In this manner, the management of
PepsiCo considers franchising an existing company in an international
market while applying the methods of collaborative venture.

In order to make this foreign operational mode combination a success,

PepsiCo consider the most suitable and effective expansion strategy. It can
be said that the spread of PepsiCo is truly global. The company has hundreds
of brands, which can be found in almost 200 countries and territories around
the world. Market concentration is the result of interaction between the
market size and a few vital factors. It is said that the industry of Carbonated
Soft Drinks (CSD) is highly concentrated. There are three major industries
that compete in this business (PepsiCo, Coca-Cola and Cadbury
Schweppes). These industries are accounted for more than 90% if market
share per case volume in 1998.

Exhibit 1: Growth of Market share by Case Volume

1990 1995
1998 2000E

Coca Cola Company 41.1% 42.3%

44.5% 44.1%

PepsiCo, Inc 32.4% 30.9%

31.4% 31.4%

Cadbury Schweppes (*) 3.2% 15.1%

14.3% 14.7%

Others 23.3% 11.7%

9.8% 9.8%

This shows that PepsiCo have a high market concentration and has a
strong market share. In this manner, the strategies used PepsiCo in its brands
is a good expansion strategy so as to maintain its position in the global
market. PepsiCo is a global company and one of its strategies is the use of
diversification approach. Aside from this approach, the BCG matrix results
for PepsiCo is also considered to be inspired by the branding strategy of the
company for enhancing the market share and growth of their brands like
Frito-lay, Pepsi, Quaker, Tropicana and Gatorade.

Conclusion

Companies like PepsiCo perceived that their brand and products have some
personalities and characteristics in which clients and customers use as a
channel for expressing themselves or to experience the predicted emotional
benefits that differentiate a specific brand from another. The considered
product characteristics evolved through the different approaches used by the
company and it is the one used for identifying which products should be put
in the stars, dogs, cash cows or question marks categories in the BCG
matrix. Nevertheless, studies on brand personality or characteristics and the
representational utilization of brands has been confined to how target
markets and audiences express themselves by purchasing the brands and has
not given consideration on how the company perceived their brand
characteristics 1998).

Accordingly, there are various management approaches that the company

may use to have a strong and effective brand image and to determine which
brands are more appealing to the market and which brands are not doing
well. In order to build a strong brand and effective image, the management
who of PepsiCo should think of two things in planning a strategy. Such
things are first is to sell the service of the company as a short-term goal and
second is to build a strong brand image in the long run. In time of the
process of promoting the brand name, the industry can apply integrated
marketing communications to ensure the efficient introduction of the quality
of service that the organization stands for (2007).

It can be concluded that through the use of BCG Matrix analysis, companies
like PepsiCo has been able to know which products can be considered as the
foundation of the company and which products needs effective marketing
approach to enhance its market share and growth in the marketplace. All in
all, it can be said that BCG matrix is really a helpful marketing tools for
different companies to know their competitive position in the market. It can
also be said that effective marketing approach is a complex phenomena and
it can easily be understood using metaphors such as understanding the
current situation of the brands in the market. Analysis has shown that to be
able to have a strong and effective brand, it must be able to meet the needs
and demands of the clients and the company itself. In addition, analysis
shows that the use of promotional activities is an important aspect to make
the brand be more attractive and appealing to the target market.