Market Penetration strategy of Pepsi Co in Nigeria

We all know that there is no bigger rivalry in the beverage (Soft drinks) industry than the rivalry between the two giants, Coca Cola and Pepsi co. In fact, you can hardly see any rivalry bigger than that in any other industry In the world; except maybe the rivalry between Real Madrid and Fc Barcelona, but those are football clubs. I am writing this post to analyze the strategy Pepsi co is undertaking in Nigeria to match the competitive price introduced by the new entrant into the industry (Big cola) and in the process steal some market share from Coca Cola. The strategy is in the form of the introduction of a revamped Pepsi cola it calls the Pepsi Long throat.

Market Penetration Strategy of Pepsi

Pepsi co in the latter stages of 2015 increased the volume of its already existing product, in a bid to counter the aggressive strategy taken by Big cola earlier in 2015. They repackaged the bottle by making it bigger inorder to contain the increased volume of its product; they named it Pepsi Long throat and aggressively advertised it to the public by using celebrities such as Seyi shay, Wiz kid and Tiwa Savage.

What is the Pepsi long throat?

Pepsi Long throat is a revamped product by the Pepsi co in Nigeria. It is a market penetration strategy being utilized by Pepsi co in order to increase its market share in the beverage (soft drink) industry in Nigeria. Market penetration is a growth strategy; it involves marketing the same product within the same market it has been using by given incentives to existing and potential customers to choose theirs over those of the competitors. Incentives could be in the form of a reduction in the price, or an increase in the volume of the product being sold.

Pepsi Co is presently practicing the latter in the Nigerian market. It seeks to gain market share from its competitors by increasing volume at the same price. This gives real incentives for consumers to pick theirs over coke or Big cola for example which is their major competitor. The Pepsi Long throat is a 60 cl bottle of Pepsi cola (Previously 50cl) which sells for 100NGN.

Even though the strategy is a smart one and it is appealing to consumers like me, it may have some negative effect on Pepsi co and the beverage (soft drink) industry in general if Coca Cola decides to react. Let us look at how this could happen by first comparing the giants by analyzing their present performance worldwide and also by looking at any adverse effect that may ensue as a result of the strategy being pursued by Pepsi Co.

It should be noted that this strategy ensued as a result of a threat to both Pepsi co and Coca Cola. There was a new entry into an industry everyone thought was closed to new entrants. It was in the form of Big cola, an imitation of Coca cola and Pepsi which offered more at an incredibly low rate. It offered its variant of the cola and orange version at 65cl for 100 NGN.

Pepsi co was the quicker of the two (Pepsi & Coca cola) to react to the threat of a new entrant. They knew that if they did not respond to the threat, it would only be a matter of time before Big Cola steals a substantial amount of their market share in Nigeria. It is safe to say Coca Cola and Pepsi co are the leading brands in Nigeria and cannot be dethroned by Big Cola because of the good will they have built through out the years, and also because of the quality their Nigerian customers have been accustomed to.

Big Cola adopted a frontal attack marketing strategy on both Coca Cola and Pepsi co. A frontal attack is specifically designed to engage the opposition with a head on frontal assault. It involves the heavy use of resources and financial commitment to take on competitors in a bid to weaken their market share and margins, and make their consumers question their loyalty to the brand or product.  Pepsi co was quick enough to adopt a counter offence strategy. This involves “attacking the attacker”. They countered Big Cola’s strategy by using the product improvement strategy, and with Pepsi co having more goodwill and reputation, Big cola was no match for them.

This research is to check the spill over effect the move by Pepsi co would have on its biggest competitor (Coca Cola). They are the biggest market share holders in the soft drink industry in Nigeria. Although big Cola might succeed in stealing some market share, the major focus would be on pepsi co vs Coca cola because pepsi co has more brand reputation in Nigeria, and a change in product volume or price would have more effect on the market than Big cola would. I hope you enjoy this analysis. Let us start with an overview of the beverage industry in Nigeria.

 

Overview of the Beverage Industry in Nigeria

The beverage industry in Nigeria is expected to continue in growth, amidst uncertainties in the Nigerian economy. The Nigerian economy is in a beleaguered state as a result of a host of macroeconomic headwinds which includes the drop of global oil prices due to the Worldwide oil supply glut, falling naira in comparison to the dollar, rising inflation, sustained insurgency in the northern areas of Nigeria (now in its eight year), a deflated consumer confidence, and foreign investors delisting Nigeria as a destination for investing in. With that said, we still believe that the beverage industry has a bright prospect.

Products in the beverage industry ranges from soft drinks to beer, bottle water, fruit juice, wines and spirits, energy and sports drinks and diary.

Beer

According to BMI Research Group, a Fitch Group company, growth in premium beer will be flat as inflation and worsening confidence eats into consumer disposable income. It is projected that although the rising inflation and worsening consumer confidence would eat into the growth of premium beer, we still anticipate a modest growth in sales in the beer industry. This is because opportunities exist in a relatively underdeveloped value beer category. Producers of value beer such as SAB Miller may profit as a result of consumer’s shift to cheaper brands due to the inflation rate and a decrease in disposable income.

The two dominant premium beer manufacturers – Nigerian Breweries (a Heineken subsidiary) and Guinness Nigeria (a Diageo subsidiary) will experience the effect of the economy the most on beer sales. BMI is forecasting a 0.5% year-on-year growth as against 2.0% that was initially forecasted.

Bottled Water

The bottled water industry is a rare gem in the beverage industry;  this is evident in its growth of over 31% in over 10 years. Manufacturers of bottled water profit heavily from it because unlike the soft drinks or beer industry, there is no risk of diabetes by consuming water. Health conscious consumers would pick water over sugary drinks and sodas when looking to quench their thirst.

The Market is segmented into large multi-national companies, large corporate firms and a copious number of Small and Medium enterprises actively involved in the production and distribution of bottled water.  Analysts (BMI) predict that the growth rate would reach 8.5% per capita in 2016.  At that rate, it is expected that the sale of bottled water will overtake carbonates as the most widely consumed beverage by volume. Growth drivers for the bottled water industry are the hot weather, growing population and health considerations.