The Pepsi Generation (of Profits)

For major corporations, competition through the marketing race is the preferred alternative to the old-school price competition that was supposedly an unavoidable part of capitalism, but turned out to be both despised by actual capitalists and controllable via corporate oligopoly. Why the preference for expensive marketing efforts over unfettered Adam Smithian price cutting?

The answer? Cutting prices almost always hurts profits, while the pricing power bestowed by an organization enjoying oligopolistic market power ordinarily permits both increased brainwashing outlays and increased profits.

Exhibit A: “Higher Prices Profit Pepsico,” a report from today’s edition of Advertising Age.

PepsiCo, the world’s largest snack-food maker, posted a 4% jump in third-quarter profits, aided by price increases on snack and beverage products around the world.

“PepsiCo has been more aggressive raising prices than they have in a long time,” said Jack Russo, an analyst with Edward Jones & Co. in St. Louis, Missouri. “All the staples companies are seeing cost pressures.”

Despite its long-standing projection of a youthful, silly, fun-loving image in its numerous marketing campaigns for its various junk food products, Pepsico is about as stolid a corporate capitalist cash engine as you can find. Its board of directors includes a Rockefeller and ye olde John Sculley.

Hence, the advancing profitability of operations like Pepsico is the main reason the overclass continues to hoard cash amid the jobless “recovery.” Indeed, such is the very heart of the reason large corporations remain the clear core of the system, despite the more publicized continuing expansion of the financial sector. As a big-time investor, you can’t beat them, in boom times or bust.  They continue to pump out the dough that ends up in third homes, private jets, and hedge funds.

And just how does Pepsico pull it all off financially, hiking both marketing spending and returns to shareholders?

According to Ad Age, Pepsico’s third-quarter sales were $17.6 billion. Its third-quarter 2011 cost of goods sold, the amount it had to pay for the raw materials and labor that went into making (as opposed to marketing) what it sold? $8.45 billion, less than half its sales revenue, says Ad Age.  (Note: Because some of the COGS costs, of course, are marketing-mandated expenses — the costs of labels, specialized packages, etc. — this comparison actually understates the degree to which basic labor exploitation funds the whole marketing endeavor.)

And they say Karl Marx was wrong…