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INTL 3306 Social Externalities Study Notes

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Lecture 2: Social Externalities
Growing Prevalence of Obesity and Food Related Diseases
Customer irresponsibility
Lifestyle choices
Exercise deficit
Heavy marketing campaign from the F&B industry
Dominance of fast food companies
Dominance of processed food
Psychological addictiveness of salt, sugar and fat
PepsiCo
Leading F&B companies play an important role in helping people lead healthier lives
Performance with purpose
“As an industry leader, we have a resposibility to help develop solutions to key global
challenges, such as obesity”
PRO constructive role for Pepsi:
o Best positioned to innovate for healthy food
o It is in their best interests:
Highly dependent on a healthy society
Evidence of growing demand for healthier products
o Could play a proactive role:
Restrict child marketing
Use marketing to inform consumers
AGAINST constructive role for Pepsi:
o Eating less, smaller portions goes against business fundamentals
o No profit in selling fruits and vegetables
o Undermines the model that made them very profitable
o Shareholder expectations vs. finite stomach sizes
o “Eat more” campaigns, larger portions, frequent snacking
o More calories per $ for unhealthy food entices consumers
Business Strategy
Integrity of any strategy is a function of the strength and alignment of:
1. Competitive positioning
2. Core competencies
3. Culture and identity
Competitive positioning:
o Unique consumer value proposition that sets the firm apart from its competitors
(e.g. low-cost, no-frill airlines)
o Objective = position firm somewhere few competitors exist
Core competencies:

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o Resources (tangible and intangible) that are valuable and very difficult for
competitors to imitate/substitute (e.g. efficient manufacturing processes)
o Objective = build capabilities that take a long time/are cmoplex
Culture/identity:
o Accepted beliefs in organization about who they are/who they are not supported
by processes, procedures and policies
o Objective = build a strong cohesive culture that motivates employees to excel in
competencies and positioning
Business strategies for sustainability:
Positioning
Competencies
Culture/Identity
Denial
Sustainability absent,
unrelated philanthropy
Responsible for
system degradation
No relevance of
sustainability in
organization
Defense
Related philanthropy,
corporate citizen
Strong citizen
brand, resource
efficiency
Employees aware of
philanthropy, but not
involved
Isolated
Particular
product/processes
positioned
Innovation in
product/process
Identity conflict,
departmental variation
Embedded
As leader, seet apart
from competitors
(value alignment with
consumers)
Product/process
innovation, culture,
brand, philosophy
Sustainability DNA of the
firm, processes aligned
Transformation
Industry changer
(quasi-regulatory role)
Relationships,
network creation,
political skills
Part of something bigger,
meta-organizations
Denial strategy Exxon
o Exxon knew of the realities of human-induced climate change in the 1970s
Warned of the potential impact
Led research efforts to study CO2 in air
o By the 1980s, Exxon changed course millions to fund efforts to reject the
findings of its own science
Defense strategy Coca-Cola
o Begun to acknowledge linkages between obesity and F/B consumption
o Advertisements to convince consumers that despite this problem Coca-Cola
makes people happy and is a reward for those who exercise
Isolated Strategy Volkswagen
o Take environmental consideration in its product development natural-gas
vehicles, all electric vehicles, hybrid vehicles
o 500 000 diesel-powered VWs were programmed to provide false emission data
during testing

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Lecture 2: Social Externalities Growing Prevalence of Obesity and Food Related Diseases • Customer irresponsibility • Lifestyle choices • Exercise deficit • Heavy marketing campaign from the F&B industry • Dominance of fast food companies • Dominance of processed food • Psychological addictiveness of salt, sugar and fat PepsiCo • Leading F&B companies play an important role in helping people lead healthier lives • Performance with purpose • “As an industry leader, we have a resposibility to help develop solutions to key global challenges, such as obesity” • PRO constructive role for Pepsi: o Best positioned to innovate for healthy food o It is in their best interests: ➢ Highly dependent on a healthy society ➢ Evidence of growing demand for healthier products o Could play a proactive role: ➢ Restrict child marketing ➢ Use marketing to inform consumers • AGAINST constructive role for Pepsi: o Eating less, smaller portions goes against business fundamentals o No profit in selling fruits and vegetables o Undermines the model that made them very profitable o Shareholder expectations vs. finite stomach sizes o “Eat more” campaigns, larger portions, frequent snacking o More calories per $ for unhealthy food entices consumers Business Strategy • Integrity of any strategy is a function of the strength and alignment of: 1. Competitive positioning 2. Core competencies 3. Culture and identity • Competitive positioning: o Unique consumer value p ...
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