Demand of Pepsi[size=0.9em]Jun 3, 2012 [size=0.9em]1228 Words [size=0.9em]5 Pages
[size=1.25em]Demand of Pepsi
Julliet
Indiana Wesleyan University
February 21, 2012
Abstract
Pepsi is a popular cola brand that is available for purchase at many convenient stores, grocery stores, department store, vending machines and restaurants. It is in an Oligopoly industry. One market place can have a stronger market share than another market place. There are several determinants of demand which can influence the shift in the demand curve left or right or decrease or increase in the demand.
Demand of Pepsi
Pepsi cola is a cola/soda-pop beverage brand from PepsiCo. PepisCo is known as an Oligopolistic industry. There aren’t that many firms the market that Pepsi cola is in. Pepsi cola first made a public appearance in the 1890s as “Brad’s Drink”. It later became known as Pepsi. It was trademarked on June 16, 1903 and its first logo in 1905. Pepsi made a world appearance in 1909 with the first celebrity endorser, Barney Oldfield. Due to the high price of sugar, which was in high demand, during WW1, Pepsi Cola Company went into bankruptcy. It bounced back in 1936 and started to sell a 12-ounce bottle for 10 cents. Because price is a main determinant of demand, the price was then drop to 5 cents. This price boosted the sales for the company. The company started to market to African Americans. The strategy was done to help market to others who can enjoy and contribute to the brand and the new popularity of Pepsi. In 1975, Pepsi was voted most favorite beating out its rival Coca-Cola (lifestyle.iloveindia.com).
There are many determinants of demand. These determinants can include price, price of other goods, income of the consumer, future expectations, tastes and preferences, and the number of buyers (Farnham, 2010, p. 19,20,21,22). “Demand is the relationship between the price of a good and the quantity demanded of that good” (Wikia.com). Price can determine the shift in demand. If the price of Pepsi rises, then there is a possibility that the demand for Pepsi cola can decrease. The example of price was relevant to Pepsi Company in 1936 when they decided to decrease the price from 10 cent to 5 cent. When the price of the 12-ounce bottles price dropped, the demand of the product increased. Price of other goods or in Pepsi’s case, substitute goods, can also have an effect of the price of Pepsi cola. The prices of substitute goods can cause an increase on demand. Coca-Cola is a substitute good to Pepsi. So if Coca-Cola decided to raise prices, then the demand of Pepsi will raise and vice versa. This may be a reason why consumers see the same price in Pepsi cola and Coca-Cola. Changes in income of the consumer can increase or decrease the demand of Pepsi. If a consumer income decreases, then the consumer can either buy whatever cola product is on sale or at a cheaper price, or stop buying cola all in general. If the income of a consumer increases, then it is possible that the consumer can purchase any type of size Pepsi cola of their liking; rather it’s a 20-ounce bottle at $1.49 or a 2 liter at $1.25. “Expectations about future prices also play a role in influencing current demand. If consumers expect prices to be lower in the future, they may have less current demand then if they did not have those expectations” (Farnham, 2010, p. 22). This can also be true if a consumer feels that Pepsi cola won’t be at the low price it’s at now, so the consumer stocks up on Pepsi cola at the current time pushing the demand curve shift to the right. The demand of Pepsi can change due to the taste and preference of the consumers. Consumers do have taste buds that can either break or make Pepsi cola. The demand curve can shift due to the changes of taste of a particular time period. Because Pepsi cola has caffeine in it, it can be determined that Pepsi cola is drunk at a particular time in day. That time of day is when a consumer either needs a pick-me-up or something that is good on the taste buds that may not be plain water. Taste and preference can also cause the making of different flavor Pepsi cola. The number of consumers has an impact on the demand of Pepsi cola. The company’s strategy in marketing helps find new groups of consumers that can and will purchase Pepsi cola. This marketing strategy was done by Pepsi Cola Company to attract the African American population. This newfound consumer group increases demand for Pepsi cola.
PepsiCo had to do many changes to keep up with market demand and market competition. To keep up with market shares and competitors, different carbonated drinks were produce other than Pepsi cola. The verity in products gives a competitive edge to the company. Not only does the bottle or can design change, but what the bottle or can is made out of can be found appeasing to a certain market group. PepsiCo not only made carbonated drinks, but also taped in other drink markets like water, tea and coffee drinks.
Marketing has a major impact on the shift of demand for Pepsi cola. PepsiCo partners with a popular tend to help improve and enter another consumer group. A good example of this was featuring Star War characters on cans and bottles in Japan. Due to the popularity of Star Wars in Japan, Pepsi boosted its market share from 13% to 30% (Jiji Press, 1999). Entering in to another market group can also have a negative effect of a product. PepsiCo experienced this when moving in to the Brazil and South American market. “Pepsi's latest, over ambitious charge into the country was focused on pumping up sales and outshining the competition rather than on building brand loyalty and long-term profitability” (Wall Street Journal, 1996, p. A.1-A1). Because there was a decrease in demand, the demand curve shifts to the left.
To tap into a new market, PepsiCo should analysis the market and the market share that is to be gain. It needs to determine the competitor’s price and determine its price. To gain more consumers and entry in the new market, a lower entry price can attract new people to the product. This will cause an increase in demand and also an increase in supply. Once the price is raised to the market price, the product will then be subject to determinants of demand.
Reference:
lifestyle.iloveindia.com
Wikia.com
"Star wars" sparks fizz in pepsi cola demand in japan. (1999, Jul 09). Jiji Press English News Service, pp. 1-1. Retrieved from http://0-search.proquest.com.oak ... 4802?accountid=6363
Cola-war casualty: How pepsis charge into brazil fell short of its ambitious goals --- trying to beat coke quickly, it failed to build brand, had executive problems --- A key bottler is in trouble. (1996, Aug 30). Wall Street Journal, pp. A.1-A1. Retrieved from http://0-search.proquest.com.oak ... 1549?accountid=6363
Farnham, G. (2010). Economics for managers. (2 ed.). Upper Saddle River, New Jersey: Prentice Hall.
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