Pepsi Cola

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Pepsi Cola

• Sarah Vasko
• John Mele
• Aaron DiNardoBob Rose
• Charlotte Lucas

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Table of Contents

• Charlotte
• Pepsi History
• Factors of Production
• Opportunity Cost
• Bob
• Substitutes and Compliments
• Implicit and Explicit Costs

• Aaron
• 2 Types of Profit
• Advertising and Marketing
• Sarah
• Oligopoly
• Monopoly
• Perfect Competition
• John
• Price Elasticity
• Marginal Revenue

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Pepsi History

• PepsiCo traces its origins to 1898.
• 1902 Caleb Bradham..
• In 1905, A new logo appears..
• In 1940, Pepsi makes advertising history!

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Pepsi History Continued

• In 1947, International profits reached
  6,769,000.
• In 1990 Pepsi-Cola unveiled its new logo.
• In 2004, Pepsi unveils..

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Where Can you Find Pepsi?
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International Market

• PepsiCo, Inc. also has a strong presence in
  international markets. Saudi Arabian men purchase
  Pepsi soft drinks from a vending machine in
  Riyadh.

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Factors of Production

• Land The Physical space which production occurs
  and the natural resources that come with it.
• Entrepreneurial Activity Founder of Pepsi Caleb
  Bradham and the current Pepsi Corporation
• Pepsi Corporation provides a variety of beverages
  and snack food.

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Factors of Production Cont.

• Capital
• Labor In 2003 Pepsi was employing 142,000 people
  
• Human Capital
• Physical Capital In 2003 the value of Plant and
  equipment was 7,828(million). 2002, was valued
  at 7,390 (million)

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Opportunity Cost

• Opportunity Cost
• Opportunity Costs of Pepsi Corporation
• Revenue In 2003 Pepsi reported net revenue 26,
  971(million). 2002 revenue was 25,112(million).

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Substitute Goods

• Good used in place of another good fulfills more
  or less same purpose
• Pepsi controls 32 of beverage market
• Biggest competitor, Coca-Cola manages 44
• Therefore, the most substitutable product for
  Pepsi are Coke products

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VS.
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Substitute Goods

• If Pepsi decides to raise their beverage vending
  machine prices-from 0.50/can to 1.50/can-
  demand for Pepsi products will decrease.
• Thus, the demand for the substitute good- Coke
  Products will increase.

PRICE
S1
D1
D2
QUANTITY
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Complement Goods
S1

• A good that is used together with some other good
  
• If a recent study concluded Pepsi was only
  consumed with purchases of Pizza Pepsi Pizza
  would be complement goods
• This is why we expect a higher price for Pepsi to
  decrease the demand for Pizza

P R I C E
D1
D2
QUANTITY

• Increased Price of Pepsi causes
• Decreased Demand for Pizza

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Implicit Costs

• Implicit Costs are the costs of inputs for which
  there is no direct money payment
• IE Opportunity Costs
• Caleb Bradhams (Founder) wages he forgave to
  start up Pepsi serve as implicit costs

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Explicit Costs

• Explicit costs is the money actually paid out for
  inputs and/or to run the business
• 2003- Pepsis cost of goods sold totaled
  12,379,000
• Included in the COGS are the cost of ingredients
  and bottling expenses

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Price Elasticity of Demand for Pepsi

• Price Elasticity is the percentage change in
  quantity demanded divided by the percentage
  change in price.
• Price elasticity's are calculated for a specific
  range of prices that have been observed in the
  past.

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Price Elasticity of Demand for Pepsi

• Price Elasticity of Demand -2.08
• The Elasticity for Pepsi is negative.
• Several less common substitutes

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Price Elasticity of Demand for Pepsi

• Price of Pepsi rises and substitutes stay the
  same.
• The quantity demanded will decrease by a fairly
  large amount.

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Marginal Revenue for Pepsi

• Marginal Revenue is the change in total revenue
  from producing one more unit of output. Divide
  the change in total revenue by the change in
  output
• When MR is positive, an increase in output causes
  total revenue to rise.
• When MR is negative, an increase in output causes
  total revenue to fall.
• MR?TR/?Q

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Price Comparison Chart
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Marginal Revenue for Pepsi

• Increase in output will always raise profit as
  long as marginal revenue is greater than marginal
  cost (MRMC).
• An increase in output will always lower profit
  whenever marginal revenue is less than marginal
  cost (MR
• To find the profit maximizing output level.

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Advertising

• Pepsi has developed different versions of soft
  drinks to appeal to different consumers such as
  Pepsi One, Pepsi Blue, Diet Pepsi, Vanilla Pepsi,
  Wild Cherry Pepsi, and Pepsi Twist.

• In order to differentiate its products from the
  other companies, Pepsi has used many
  advertisements especially with its new products.

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Different Examples

• One example that shows how Pepsi used a new
  product that worked is Wild Cherry Pepsi.
• One example where Pepsi tried a new product that
  didnt work is Crystal Clear Pepsi.

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Two Types of Profit

• Accounting profit
• PTR-TEC where
• TECtotal explicit costs

• Economic profit
• PTR-TC where
• TCtotal explicit costs total implicit costs

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Pepsis Accounting Profit(Dollars in
millions)http//www.og2fg.net/ccbn/7/247/257/
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Pepsis Economic Profit

• In order to obtain Pepsis economic profit, we
  must also subtract the implicit costs from the
  total revenue
• Implicit Costs include
• Implicit Rent
• Implicit Wages
• Implicit Interest
• Implicit Profit

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Pepsis Economic Profit (cont.)

• Therefore, Pepsis economic profit accounting
  profit - the foregone rent they could receive on
  their capital, the salary if they had a different
  job, interest if they invested money in the bank
  or elsewhere, and the profit earned with another
  business.

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Random Marketing Facts

• Pepsi has a new campaign focusing on the
  products taste.
• Most great consumer marketing is rooted in
  product benefits.
• Pepsi ads strive to be funny.
• This is a great way to attract consumers, but
  cannot be the only message of an effective ad.
• Britney Spears as a spokesperson says If you
  want to have fun and be young drink Pepsi no
  matter how old you are.
• 39 of income and 31 of Pepsis profit is from
  soft drinks

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What is an Oligopoly?
Oligopoly A market structure in which a small
number of firms are strategically interdependent.

• Pepsi has to take into account how other
  companies such as Coca-Cola are advertising,
  marketing and pricing their products.

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Why do oligopolies exist?

• Economies of scale Natural Oligopolies

• Reputation as a barrier

• Strategic barriers

• Government created barriers

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Is Pepsi a Monopoly?
NO!
WHY?
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Monopoly

• One seller of a product with no close substitutes

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Why be a monopoly?

• To maximize profit

• Profit TR - TC

• Difference lies in either TR or TC

• Opportunity Cost are the same for PC firm as
  they are for the monopolist

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Perfect Competition

• There are large numbers of buyers and sellers
  and each buys or sells only a tiny fraction of
  the total quantity in the market.

• Sellers offer a standardized product.

• Sellers can easily enter or exit from the market

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Conclusion

• Pepsi proved to be and outstanding product to
  analyze the economic principles.
• Elasticity
• Perfect Competition

• The future for Pepsi seems optimistic and Pepsi
  is a consumer favorite for years to come.

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Any Questions?