Smart Strategy: Segmenting Your Pricing

PepsiCo's CFO, Hugh Johnston, recently spoke to an investors' conference about the company's segmented pricing strategy. Johnston explained that PepsiCo must "meet the needs of the widening gap between value, middle, and premium consumers" while simultaneously being responsive to higher price sensitivity among all segments.

So what's PepsiCo doing? Instead of adjusting pricing across the board to account for higher costs, the company has segmented its markets by channel, consumption occasion, and consumption needs.

For example, it offers 99-cent/1.5 liter bottles for consumption at home by smaller households and offers 20-packs of cans for special occasions when people gather, such as holidays or birthdays. It also offers 99-cent/16 oz. bottles in convenience stores and gas station markets for consumers in a hurry to grab and go. And it created a 7.5 oz. can for consumers who are "light users" of carbonated soft drinks at home--a tactic that lets Pepsi charge more per ounce while adding value by helping consumers limit the amount they drink.

Meanwhile, PepsiCo's ongoing rivalry with Coca-Cola is even fiercer, with US sales of carbonated beverages stagnating and consumers not spending as freely on extras as in pre-recession days. That's why Pepsi is also kicking its promotions into high gear, on Facebook, Twitter, and Youtube.