Elasticity of Pepsi

1472 WordsJun 13, 20086 Pages
Introduction: Firm profile and product selection The origins of Pepsi-cola started in the late 1890s through an invention by Caleb Bradham, a pharmacist, who like all pharmacist had soda fountains in their store. His most famous concoction was a soda that contained pepsin. This was initially called brads drink before he changed the name to Pepsi. Over the years subsequent mergers and acquisitions Pepsi-cola merged with Frito-Lays, and a new company, PepsiCo, was created. Currently, PepsiCo is divided into four divisions: Frito-Lay North America, PepsiCo Beverages North America (PBNA), PepsiCo International (PI) and Quaker Foods North America (QFNA). The Pepsi Bottling Group is the company that packages and distributes Pepsi products…show more content…
This helped offset the decline in Pepsi. Net revenue grew as a positive mix of revenue growth from sales of non-carbonated beverages. Net revenue also grew by effective net pricing in 2006 on Tropicana (Pepsico, 2008). Additionally, historical data shows that an increase in price has also increased revenue. Due to the number of available competitive markets, the behavior of this product over an extended period will be elastic. The product Pepsi over this period was classified as an inferior good since the results yielded a negative answer. This is based on the theory that consumers will purchase other higher priced goods now that they can afford them. The growing rise in health concerns and childhood obesity are probable reasons to the decline. More disposable income will allow purchases of higher quality and better healthful substitutes. However “with sports drink, Gatorade, a wide and varied Tropicana portfolio, and with RTD tea and coffee brands such as the Starbucks drinks, PepsiCo does not need to rely as heavily on its mainstay Pepsi brand” as it has in the past (Sadler, 2006, p31). Conclusion and recommendation to company The -4.8% change in quantity from 2006 to 2007 while price increased by 10.1% demonstrated inelastic behavior. However, due to the numbers of competitive markets, the product will be considered elastic over time. The calculations also classified the good as inferior which means as income increase the
Open Document