Companies are always looking for opportunities that allow their business to create a sustainable competitive advantage so that the business is sustained. To do this they have to evaluate what their customers view in their value chain activities as distinguishing factors compared to their competitors. PepsiCo’s traditional core business was in beverages where it faced strong competition from Coca Cola. To create value in its business PepsiCo had to:
Differentiate the business from competitors: finding ways to differentiate the company’s product offerings and gain market penetration. And/or differentiate itself through product development.
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Review its business cost structure
Evaluate the industry growth rate
Evaluate its firms position in the market
The evaluation of PepsiCo strategy led to PepsiCo organizing itself into three divisions: soft drinks, snack foods and restaurants. The value created by the acquisition of KFC was:
According to the case study, the marketing of fast food followed the same patterns as the marketing of cold drinks and snack foods. This allowed for the marketing of soft drinks and fast food products in the same television and radio segments thereby providing higher returns for each advertising dollar (This improves business cost structure and ensures that its internal processes are efficiently configured to support its value creation efforts). As a result a competitive advantage was created through taking advantage economies of scope.
KFC restaurant chains also provided an additional outlet for the sale of Pepsi drinks. This provided an efficient distribution network which can highly reduce cost.
Through PepsiCo management, KFC was able to gain access to large capital resources which enhanced its strategy of expansion which is key to the success of KFC.
By being under the PepsiCo umbrella, KFC was able to learn form PepsiCo performance driven culture. The two organisations benefited from the shared learning in differences in Organisational and managerial processes and systems.
The use of KFC brand allowed PepsiCo against committing huge resources in markets that the company does not understand well and have no experience in, thus not gaining the required customers. KFC had a well established international presence; utilizing this experience, PepsiCo will easily gain access to distribute their product and gain market share. Another advantage is due to the huge cost and risk of entering a foreign market e.g. the restaurant market. The acquisition allowed PepsiCo to basically leverage costs and risks.
To determine the strategic issues faced by KFC,
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