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Cola Wars

Cola Wars

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  • During 60s, Coke wrongly believed that US market has saturated at 22.7 gallons per capita, which paved way for Pepsi to double its share.
  • Transcript

    1. COLA WARS CONTINUE: COKE AND PEPSI IN THE TWENTY-FIRST CENTURY By, Group 6 G. VAIBHAV KUMAR REDDY (P111012) P. PRAVEEN (P111033) PRAGYA JAISWAL (P111037) RAKESH NAVAL (P111039) GREAT LAKES INSTITUTE OF ENERGY MANAGEMENT AND RESEARCH, GURGOAN
    2. www.thecoca-colacompany.com www.pepsico.com
    3. CONCENTRATE PRODUCER AND BOTTLERS Concentrate Producer 1993 Net Sales Dollars per Case Bottler Percent of Total Dollars per Case Percent of Total 0.66 100% 2.99 100% Cost of sales 0.11 17% 1.69 57% Gross profit 0.55 83% 1.30 43% Selling and delivery 0.01 2% 0.85 28% Advertising and marketing 0.26 39% 0.05 2% General and administrative 0.05 13% 0.13 4% Pretax profit 0.23 29% 0.27 9%
    4. Concentrate Producer 2000 Bottler Dollars per Case Percent of Total Dollars per Case Percent of Total Net Sales 0.71 100% 5.80 100% Cost of sales 0.12 17% 3.77 65% Gross profit 0.59 83% 2.03 35% Selling and delivery 0.01 2% 1.22 21% Advertising and marketing 0.28 39% 0.12 2% General and administrative 0.06 8% 0.23 4% Pretax profit 0.25 35% 0.52 9%
    5. RETAIL CHANNELS % of Industry Volume Coca-Cola 1993 2000 Pepsi-Cola Coca-Cola Pepsi-Cola Food Stores 32.8% 28.5% 36.1% 32.2% Convenience and Gas 29.6% 37.4% 35.7% 41.5% Fountain 58.9% 27% 65% 21% Vending 48.6% 40.6% 50% 40% Other 45.4% 32.5% 35.5% 33.3% Total 40.7% 31.3% 44.1% 31.4%
    6. STRATEGIC PATH COCA-COLA PEPSI-COLA • Franchise bottling system , reaching 370 franchises by 1910 • Franchise bottling system , reaching 270 franchises by 1910 • During 1920s and 30s, introduction of open-top coolers to storekeepers, automatic fountain dispensers, vending machines. •In 1920s, lowered the price for its 12ounce bottle. • Introduced Teem (1960), Mountain • Introduced Fanta (1960), Sprite (1961), low- Dew (1964), Diet Pepsi (1964). Worked calorie Tab (1963). with bottlers to modernize and improve services. • Purchased Minute Maid (fruit juice), Duncan Foods (coffee, tea, hot chocolate), •In 1963, launched the ”Pepsi Generation” Belmont Springs Water. campaign targeting the youth, which helped narrow coke’s lead to 2-to-1 • Coke countered “Pepsi Challenge” with margin. rebates, price cuts and price discounts. • In 1974, introduced the “Pepsi Challenge”.
    7. COCA-COLA PEPSI-COLA • In 1978, hike in concentrate price after securing bottler approval. • In 1970s, sold concentrate to bottlers @ 20% lower than coke. • In 1980, switched from sugar to lowerpriced high fructose corn soup. •Merged with Frito-lay in 1965. • Increased advertising expenditure. • In 1978, 15% increase in price of concentrate. • Sold off most of non-CSD businesses i.e. wine, coffee, tea etc. • Emulated the move of fructose corn soup in 1983. • Introduced Diet Coke in 1982 – huge success. • Increased advertising expenditure. • Change in formula in 1985 – major setback. Reintroduced original formula in the name of Coca-Cola Classic after 3 months. • In 80s, introduced 11 new CSD brands. • In 80s, introduced 13 new CSD products.
    8. COCA-COLA • In 1980, refranchised bottling operations-helped in expansion. PEPSI-COLA • In late 80s, acquired MEI bottling, Grand Metropolitan’s bottling operations and General Cinima’s bottling operations. •Created independent bottling subsidiary, Coca-Cola Enterprises (CCE) in 1986. • In 1999, created Pepsi Bottling Group (PBG). •Employed low-price strategy. •Employed low-price strategy. • Marketing agreements with celebs Harry Potter . • Marketing agreements with celebs – Britney Spears, Jackson. • Introduced PowerAde, Nestea, Dasani in 1998, 1999 in response to Pepsi. • By end of 90s, reintroduced “Pepsi Challenge”. • Started acquiring international markets in more structured way. • Non-Cola Beverages – introduced Aquafina (1998), Tropicana (1998), Gatorade and SoBe (2000). • Started acquiring international markets in more structured way.
    9. SWOT ANALYSIS OF COCA-COLA STRENGTHS • First mover advantage. • More loyal customer base. • Large market share. • Economies of Scale. • International Brand recognition. • Huge distribution network. • Strategic move during world wars. • Success of diet coke. • Efficient global operations WEAKNESS • Moving away from core competencies. •Brand Failures •Product Recalls OPPORTUNITIES • Entry into new developing international markets. • Introduction of newer brands. • Innovative advertising strategies. THREATS • Barriers of entry in international markets. • New age beverages. • Fierce competitors in local markets; Private labels at low prices.
    10. SWOT ANALYSIS OF PEPSI-COLA STRENGTHS • Guerrilla Marketing strategies. • More focus on young generation. •Economies of Scale. • International Brand recognition. • Huge distribution network. • Innovative advertising strategies. • More flexible franchise network. WEAKNESS • Smaller market than Coke. • Slower take off in international markets. • Imitation of Coca-Cola. •Falling Behind in All-embracing Markets, namely Russia, Venezuela, and South America. OPPORTUNITIES • Introduction of “Pepsi Health Drink”. • Image of “Total Beverage Company” • Entry new developing international markets. • Introduction of newer brands. THREATS • Fear of losing market share due to rapid market fluctuations. • Barriers of entry in international markets. • Decreasing brand loyalty among consumers. • New age beverages. • Fierce competitors in local markets; Private labels at low prices.
    11. PORTERS FIVE FORCE ANALYSIS – SOFT DRINK INDUSTRY  Industry Competitors  Coca-Cola, Pepsi-Cola, Cadbury Schweppes and others.  Threat of New Entrants  High entry costs  High risk for entrants due to diversified nature of Coke and Pepsi.  Government Policy regulations.  Existing Loyal customer base.  Acquisition of major bottling units by existing firms, increases the entry barriers.
    12.  Threat of substitutes  Non-CSD drinks like milk, alcoholic beverages, juices, sports drinks, tea-based, dairy-based drinks  Threat of saturation of consumption in US market thereby leading to increase in the consumption of on-Cola beverages.  Bargaining power of suppliers  Low switching costs.  Huge number of suppliers.  Maintaining the quality and flexibility of supply chain through backward integration i.e. acquiring bottling plants.  Bargaining power of buyers.  Higher buying power – large grocers, discount stores and restaurants buy large volumes demanding a lower price.  Choice of customers is high due to competition and variety in the market.
    13. U.S. Non-Alcoholic Beverage Market Share, % share by volume Company 2005 2009 2011 Coca-Cola 30% 42.8% 43% Pepsi-Cola 22.6% 31.1% 31% Cadbury Schweppes 10.6% 15% 18% Other 36.9% 11.1% 8%
    14. CURRENT FINANCIALS Coca-Cola Pepsi-Cola Market Cap 154.38b 100.48b Revenue Growth 5.20% 11.03% Profit Margin 14.98% 7.02% 0.55 0.52 Beta Source: http://ycharts.com/companies/KO
    15. Coke VS Pepsi Share price
    16. ISSUES TO PONDER for Pepsi  Hard to differentiate products in terms of taste as product variety is very much limited within cola beverages.  Coca-Cola has much stronger loyal customer base.  Consumer market moving from carbonated drinks towards functional soft drinks.  In US, Cadbury Schweppes competing aggressively.
    17. RECOMMENDATIONS  For Pepsi to grab the major pie,  It needs to follow the “Cost Leadership” and “Product Differentiation” Strategies.  i.e. it needs to create a unique customer perception and differentiate one product from another.  Rather than being a price follower, it must face the market by a leading strategy of Price Setter, which can be made possible by improving the production efficiencies and reducing the bottlenecks.  It also needs to focus on strengthening its core competency.
    18. THANK YOU 

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