Update to Summarized Strategic Analytical Overview of PepsiCo Southern African Beverage Division.

By Faraaz Gani BAccSc (Wits) Cima Adv Dip MA Tel: 078 651 9292 Email: faraaz.gani@gmail.com

Title and Content Layout

• Introduction.

• Description of design syntactics theory.

• Application of design syntactics theory to existing PepsiCo Beverage ‘Metal Can’ and ‘PET’ range of products. > Product Element Reorganization. > Product Design Changes. > Design change recommendations. > Design Change Strategic Options. > Design change Conclusions.

• Overall Conclusion.

Introduction An Alternate approach to achieving competitive advantage in both the formal and informal sector.

Alternative “NEW” Approach:

• The previous report focused almost exclusively on the Branding and Marketing (notably the 4P’s of the marketing mix) challenges faced by Pepsico SA beverage division.

• It alluded that these areas were the main sources to draw competitive advantage from and that the lack of focus of these areas within the corporate strategy of the organization were the root cause of its inability to compete optimally with its main rivals in the South African Carbonated non-alcoholic Beverage Sector.

• This updated report considers an alternate approach analogous to the cost accounting term of ‘Functional Analysis’.

• This alternate approach makes the assumption that the branding/marketing and other recommendations or strategies proposed by the previous report cannot be pursued either wholly or in part. It purports that the only medium through which Pepsico SA can improve its position in the Beverage Sector (CSD), is through improvements to the physical aspects (excluding improvements to the print graphics on the metal cans or PET bottle labels) of its products it currently offers. Specific attention is drawn to individual products and product grouping features. Therefore this approach thus isolates all other alternatives and takes a distinct view on achieving objectives.

• This distinct view dictates that product design and features may be the best way of communicating the Pepsi marketing message, creating points of differentiation and creating customer novelty desires.

• This new approach will hence forth be entitled: ‘Product Element Reorganization’.

Design Syntactics Theory:

• Achieving an aesthetically appealing product appearance is of increasing importance for attracting customers and creating valuable product experiences.

• Emphasis is on assessing the relation between visual product form and aesthetic appreciation.

• Design syntactics theory describes the visuo-spatial and content of product from, denoted from syntactics, and explains the visual effect of the product form with the functional and perception theory, the syntactic functionality.

• Design syntactics theory aims at providing a formal and objective explanation of formal aesthetics.

• According to design syntactics theory, all elements of a product form are part of a visual system. Changing one design element unconditionally affects the visual appreciation of the whole system that is the surrounding design elements and the whole product configuration. Furthermore according to the theory, every single design element has at least one syntactic function. As part of a system of visually interacting design elements, each design element also contributes to syntactic functionality on a superior system level.

• The syntactic functionality of the product form creates the visual effects, which are perceived by the human observer during aesthetic appreciation. Such visual effects are for example, the perception of balance, groupings, or visual continuity in the product form. A more significant design element has a stronger syntactic function (it fulfils more visual ‘performance’ criteria)

Abstract.

General Description of

Design Syntactics

Theory.

Design Syntactics Theory continued:

• The product form is defined as consisting of geometrical shape, dimensions, compositional structure, and surface characteristics.

• The results of the product form analysis can be used for operational design planning as well as for strategic development purposes, such as visual positioning in relation to competing products on the market.

• The main objective of the form syntactic analysis is to clarify the visual effect of constituent design elements of the analyzed product, in order to identify the syntactic functionality of the form.

Description of the form syntactics

methodology.

Form syntactic analysis.

Academic Disclaimer: The above design syntactics theory are extracts verbatim from a paper by Anders WARELL entitled Towards a theory-based method for evaluation of visual

form syntactics. For further/advanced reading please refer to the mentioned paper title, publicly published and freely available on the web.

Application of Design Syntactics Theory to PepsiCo Beverage ‘Metal Can’ and ‘PET’ range of products.

• As this report is titled as ‘summarized’, application of only some elements of the design syntactics theory will be used, and in a simplistic fashion so as to not get the proposed alternate approach ‘muddled’ up in a plethora of complex theory.

• The intentional usage of the design syntactics theory is thus to add academic insight to the proposed alternate approach to rejuvenate/reboot the Pepsi Product range.

• Drawing on the statements established under the headings: ‘Abstract’ and ‘Description of the Form syntactics methodology’, two important factors/objectives of focus are of pivotal importance to the new proposed approach with regard to Pepsi ‘CAN’ and ‘PET’ range of products.

• These factors/objectives include: 1. Attracting customers (at store ‘shelf’ level) and creating valuable product experiences (individual level). 2. Visual positioning in relation to competing products on the market (again at store ‘shelf’ and individual consumer level).

• Applying the above factors in the ‘Product Element Reorganization’ new proposed approach:

Product Element Reorganization:

• To achieve objectives mentioned earlier, the Product Element Reorganization intends to focus on three product features which Pepsico SA Beverage Division can enact independently to its products without fear of infringing its parent: Pepsico internationals’ brand image or product standardization guidelines.

• The proposed changes to the Pepsi product range are: 1. Introduction of tin foil /aluminium covered tops (anti-tampering device) for the ‘metal can’ product packaging variants. 2. Introduction of plastic ring holders carriers as the preferred multipack grouping medium for both Metal Can and PET ranges. 3. Introduction of the resealable can closure feature into its extra-value 440ml - 500ml Metal CAN product variants.

Product Design Changes: 1. Tin/Aluminium foil covered tops (anti-tampering device)

Pepsi Product with added tin foil covering feature and other product illustrations:

Tin/Aluminium foil Covering Feature examination:

Advantages: • Strong hygienic connotations which dispels popular rumors that rats and mice urinating on cans in warehouses and store packers, packing lose cans with bare

hands.

• Proven product feature viability both Economically and Environmentally via case studies such as San Pellegrino Beverage and Pepsi international products

• Establishes its power as a talking point among consumers, creates an experiential link between Pepsi and its consumers (Pepsi shows care for its consumers) and establishes a degree of differentiation/innovation in a commoditized industry.

• Extends product experience and product interaction such that the consumer must glance at the print on the tin foil and consciously lift the tin foil to access the product. After lifting the tin foil, the consumer may again glance at the back of the tin foil.

• It is not Sector Sensitive product feature, it can be used as a one holistic strategic drive for both the Formal and Informal Sectors respectively.

• The tin foil covering main attribute is that it represents an additional Marketing Platform in that it allows for the following to be initiated: 1. Brand and logo reinforcement – the consumer will be forced to view the Pepsi name and logo for an n’th time. 2. Sales and impulse buy reinforcement – the tin foil can be adapted to suit any particular marketing campaign examples include: enforcing the recommended retail price without having to print special production run of cans, Pepsi new slogan introduction, free coupon rebate, act as a redeemable collectible icons, a means of target marketing, specific promotion medium e.g. Christmas insignia, Easter, non specific promotional medium e.g. celebrating Mandela Day and most importantly act as a competition facilitator such as revealing the ‘Pepsi Gold Can’ (see picture in next slides).

Tin/Aluminium Covering Feature examination cont’d:

Disadvantages: • Can be seen as over-engineered feature - the shrink pack plastic achieves the tin foils functional purpose and some of its visual distinction (However the tin

foil covering feature goes hand in hand with another feature that does away with the shrink pack plastic which is later explained)

• Can be perceived as an unnecessary direct unit cost.

• Can be costly to implement with regards to initial capital investment in specialized equipment and obtaining specialized suppliers to manufacture the tin foil covering with its printing.

• Consumers may find interaction and removal of the tin foil covering as being an irate feature.

Recommendation on Tin/Aluminium foil Covering Feature:

‘YES’ or ‘NO’ to incorporation of the feature:

• Both the advantages and the disadvantages highlight important facts, however the long term advantages outweigh the short term sighted disadvantages.

• PepsiCo SA’s main hurdle is market share and not cost control or cost reduction. The advantages of the tin foil covering feature are analogous to a market share orientation and focus on Economic Profit. The disadvantages seem focused purely on the financial ramifications of incorporating this feature and the implications on Accounting Profit.

• A probable ‘YES’ to the implementation of the tin foil covering feature.

Strategic Option 1

Strategic Option 2

Strategic Option 3

Strategy to implementing Recommendation on Tin foil Covering Feature:

Restructure Joint –Venture Agreement with Pioneer Foods. Amended JV conditions: PepsiCo SA will provide funding for the tin foil covering machine applicator from KRONES AG Southern Africa. It will also supply the physical tin foil coverings for Pioneer Foods to use. Pioneer Foods must incorporate this machine into the production process of Pepsi products and bear full maintenance and usage responsibility of the machine.

Distribution and Repackaging Centre of Imported PepsiCo Beverages (per report 1). New Joint-Venture with Dubai Refreshments Co./ Saudi Industrial Projects Co. Jeddah or DIS VB Sittard Netherlands: PepsiCo SA funds the tin foil covering machine applicator from KRONES AG Southern Africa and also supplies tin foil physical coverings. Pepsi imported products arrive in pallets consisting of single lose product to be refitted with foil covering ready for re-distribution either in-house by PepsiCo SA or through Pioneer Foods distribution network.

Pepsi Product in-house Production Commission a self owned PepsiCo SA Beverage production facility and High-Bay warehouse with KRONES AG in a full turn-key green field project. Negotiate Joint Venture with department of Trade and Industry for funding of the tin foil applicator from KRONES AG and revert back to Strategy 1

Conclusion on Tin foil Covering Feature:

• Strategic Option 1 and Strategic Option 2 appear to be the most favouorable.

• Strategic Option 1 being most favouorable for quick immediate implementation and results in the Short Term.

• Strategic Option 2 is most favourable for the long term as part of a holistic approach in-line with other corporate objectives.

• Either strategy may be pursued pending further advanced financial modeling and macro feasibility analyses.

Product Design Changes: 2. Plastic ring holders multipack medium for all ‘metal can’

and ‘PET’ product ranges.

Ring Holder Plastic Multipack feature illustrations:

Ring Holder Multipack feature examination:

Minimal Packaging: Minimal packaging - the optimal packaging technology allows companies and consumers maximum packaging benefit with minimal impact and waste.

Displays the Primary Product: Consumers buy products, not what they are wrapped in. Consumers would prefer ring holders because it allows them to see what they want to see; the product they want to purchase. Displays the Primary Container: Plastic Ring holders showcase a Pepsi’s unique container designs; sleek and contemporary or classic and traditional. Focuses on Pepsi’s primary packaging, showcased in ring holder Carrier to encourage purchases. Sustainability: With minimal material, non-toxic formulation, minimal energy use in transportation and application, and minimal total impact in a life cycle analysis, ring holder multipack carriers are the superior choice. Photo-degradability: Ring holder carriers are manufactured with materials that degrade in ultraviolet light, such as sunlight. Over time, they become brittle and breakdown into smaller pieces of inert, nontoxic pieces. Recyclability: Ring holder carriers are recyclable wherever low density polyethylene is collected to minimize impact on the waste stream. Proven Concept: The ring holder carriers have been used internationally for a very long time and have a proven success track record in foreign markets.

Advantages:

Ring Holder Multipack feature examination:

Pack Integrity: Carriers have been tested in labs and in the real world to contain and protect product in easy-to-carry multipacks. Moisture-Resistance: Consumers can put ring holder carriers straight on ice or in the fridge without worries about moisture. When the entire multipack is chilled, sales and consumption increase. Promotional Panels: It is easy to introduce special messages, promotions, instant redemption coupons, and other rebates into the field. Communicate without the need for additional materials, effort, or lead time. Quick Chill: With a design that puts the primary container directly on ice into the refrigerator, consumers know that their multipacks can be chilled without removing them from secondary packaging.

Pack Size Flexibility: Ring holder carriers and equipment allow companies to pack multiple pack sizes with minimal effort and packaging inventory. Hot Stamp Ability: Carriers can be easily marked to share consumer messages easily and quickly without secondary materials. Ring holder carriers lets the multipack do the talking.

Advantages Continued:

Ring Holder Multipack feature examination Disadvantages:

Recycling for this product may not exist in South Africa. Packaging may be Sector Sensitive – ring holder carriers will work well in the formal sector where good standards of hygiene are maintained so the canned or PET products will not be extensively exposed to elements of dust, water and general grime however in the informal sector where the handling of stock does not follow recommended handling, it could lead to stock damages or impairments through dust etc. The application of Ring Holder requires specialized kit which represents a large Capital investment to implement this type of packaging. Vendor/consumer acceptance may be unpredictable - Ring holder Packaging is unknown in the South African Wholesale or Retail sectors

Cost Benefit may not outweigh the plastic shrink pack multipack medium currently in usage. Securing a South African Supplier of the Ring holders may be problematic.

Recommendation on Plastic Ring Holder Packaging: ‘YES’ or ‘NO’ to incorporation of the feature:

• The ring holder grouping medium represents definite cost savings and marketing features that may well improve Pepsi’s competitive advantage.

• PepsiCo SA’s main hurdle is market share and not necessarily exclusive cost control or cost reduction. The advantages of the plastic ring holder carrier is analogous to a market share orientation and focus on Economic Profit. The disadvantages seem focused purely on the financial ramifications of incorporating this feature and the negative implications on Accounting Profit while at the same time the ring holder carrier would mitigate against this via reductions to direct unit packaging costs in the long term.

• A probable ‘YES’ to the implementation of the plastic ring holder carrier feature.

Restructure Joint –Venture Agreement with Pioneer Foods. Amended JV conditions: PepsiCo SA will provide funding for the ring holder carrier machine applicator from HI-CONE USA as well as physical ring holder carrier units. Pioneer Foods must incorporate this machine into the production process of Pepsi products and bear full maintenance and usage responsibility of the machine.

Distribution and Repackaging Centre of Imported PepsiCo Beverages (per rep. 1) New Joint-Venture with Dubai Refreshments Co./ Saudi Industrial Projects Co. Jeddah or DIS VB Sittard Netherlands: PepsiCo SA funds the Ring holder carrier machine applicator from Hi-CONE USA as well as physical ring holder carrier units. Pepsi imported products arrive in pallets consisting of single lose product to be refitted with foil covering ready for re-distribution either in-house by PepsiCo SA or through Pioneer Foods distribution network.

Pepsi Product in-house Production Commission a self owned PepsiCo SA Beverage production facility and High-Bay warehouse with KRONES AG in a full turn-key green field project. Negotiate Joint Venture with department of Trade and Industry for funding of the Ring Holder machine applicator and physical ring holder carrier units from HI-CONE USA and revert back to Strategy 1

Strategic Option 1

Strategic Option 2

Strategic Option 3

Strategy to implementing Recommendation on Ring Holder Carrier:

• Strategic Option 1 and Strategic Option 2 appear to be the most favouorable.

• Strategic Option 1 being most favouorable for quick immediate implementation and results in the Short Term.

• Strategic Option 2 is most favourable for the long term as part of a holistic approach in-line with other corporate objectives.

• Either strategy may be pursued pending further advanced financial modeling and macro feasibility analyses.

Conclusion on Plastic Ring Holder Multipack feature:

Product Design Changes: 3.Resealable Can feature for 440ml – 500ml variants.

Resealable Can feature feature illustrations:

Resealable Can Closure feature examination:

The can is resealable (completely gas tight) and thus the beverage remains fresh to the last mouthful.

Easy for consumers to transport because air and drip tight when it has been resealed.

Ideal for consumption on the move.

Includes a tamper-proof feature i.e. the consumer can easily verify that the seal has not been broken.

Feature new to the South African Beverage market and represents definite point of differentiation against competitors.

Adds a layer of novelty instigating Impulse buying.

Acts as an individual marketing platform as a market penetrative tool to existing Pepsi products and a product development tool for future product introduction such as Pepsi’s AMP energy drink.

The reseable can closure has a proven international success track record, having already been tried and tested by Pepsi’s natural rival Coca Cola and many other large Multi-national Beverage Giants.

Advantages:

Resealable Can Closure feature examination:

The resealable can closure is a costly feature and was successfully implemented in premium priced energy drinks and in limited usage in more general applications. Case studies illustrating this are Coca-Cola’s 440ml Coke product, its International Energy Drink ‘Burn Energy’ and European Import Monster Energy drink.

This feature is industry sector specific. It will most likely do will in the formal sector especially at fuel station forecourts, however the informal sector may not be willing to accept the additional cost or see the value in the feature.

The can closure not in existence in the South African Beverage market and it is likely that obtaining local suppliers of the closure will be difficult or impossible.

PepsiCo SA does not have the necessary product with which the closure may synergize with. Using the closure on the standard 440ml value cans may not be feasible as these cans are often only promotional variants and not perpetually available.

The novelty value created by the closure may be deemed too niche and possibly over-engineered for wide practical usage.

Disadvantages:

Recommendation on Resealable Can Closure Feature: ‘YES’ or ‘NO’ to incorporation of the feature:

• While the advantages associated with the resealable can closure feature may seem convincing, they simply pose an unreasonable amount of risk that has the likelihood of not translating well within the dynamics represented by the South African Carbonated Softdrink Sector.

• The disadvantages outweigh the advantages of this feature in-terms of practical application and overall ‘marketability’.

• A probable ‘NO’ to the implementation of the resealable can feature feature.

• If however, contrary to the above, reputable primary evidence does show some sought of proof that such a feature will work in a Pepsi product; such a products should rather be imported. This would avoid potentially destructive financial costs of launching an entire strategic operation to implement this feature.

• Therefore no Strategic Implementation plan is recommended for this product feature.

Overall Conclusion. The way forward under a “product element reorganization” approach.

Overall Conclusion: • The product feature enhancements proposed under this ‘Product Element Reorganization’ strategy are not novel in the sense that they have been

an international trend for many years although never adopted in South Africa. This makes them novel to the Southern African Market. This fact however is a good thing for PepsiCo SA as it does not have to waste any of its resources in any research and development regarding the above features and reduces the costs of overall implementation of the product features.

• PepsiCo SA Beverage Division can outsource the knowledge of the proposed features from its sister branches in other countries who have successfully implemented such features.

• Implementing the stated product enhancement features via connected sources will initiate Active focus on PepsiCo’s efforts on strengthening the Pepsi brand, improving its’ sales and distribution coverage. This is because this new approach will involve the involvement of every PepsiCo SA employee from, finance, human resources, marketing etc for successful implementation.

• The fact that these feature are not present in the South African market would mean that the PepsiCo could acquire a plethora of media attention which PepsiCo can then back-up with its own spin-off marketing campaigns.

• Even if the attention of the broader media is not garnered but the attention of the a consumer on a subliminal level is garnered from any of the proposed product features, this would be a great success in itself.

• Its is my belief that this strategy has great potential to take the Pepsi brand and its associated sub-brands to new heights.

• What the Product Element Reorganization approach seeks to accomplish with the Pepsi product range is best described by Aristotle 384 – 322 BCE:

“The whole is more than the sum of its parts”

End of Report.

Thank you for viewing/reading. Author’s Disclaimer: The intention of this report/presentaiton was to project my ideas, thoughts and experiences as an Academic and Entrepreneur within Carbonated Soft Drink Beverage sector. I have intentionally negated to include any excessive use of Business Jargon, Business Technical Theory, including Strategic management and development models/frameworks etc. I have tried to keep this presentation very jovial and practical for the end user.

By Faraaz Gani BAccSc (Wits) Cima Adv Dip MA Tel: 078 651 9292 Email: faraaz.gani@gmail.com