Case Study: "Cola Wars Continue" from Harvard Business Review (Group Project) UC Berkeley Extension - Marketing Strategy - Jim Prost

1. VS
Cola Wars Continue:
Coke andPepsi in 2010
Marketing Strategy – Jim Prost
Pamela Belluomini, Hristina Bencheva, Julia Kocs, Brianna Randall and Angela Teodoro

2. Situation Audit
2
Between 1975 and the mid-
1990s the most intense battles
in the Coke and Pepsi COLA
WARS were fought over the
$74 billion carbonated soft
drink (CSD) industry
Coke and Pepsi claimed
72% of CSD market sales
The CSD industry achieved an
average annual growth of
approximately 10% in the U.S. and
was dominated by the cola segment
In the early 2000’s the per
capita CSD consumption
started to decline from 53
gallons in 2000 (71% of market)
to 46 gallons (55% of market) in
2009
The decline in CSD
consumption was mirrored by an
increase in consumer demand
for non-CSD beverages

3. 3
0
10
20
30
40
50
60
1970 1975 1981 1985 1990 1995 2000 2005 2007 2008 2009
Gallons/capita
U.S. Beverage Consumption
Coffee
Beer
CSD
Milk
Bottled Water

4. Historical Timeline (Pre-Cola Wars)
4
1886-1899 1900-1929 1930-1959 1960-1973
1886-John S.
Pemberton
develops original
recipe
1898-Caleb
Brodham creates
Pepsi
• Big name
endorsements
• Iconic contour
bottle
• Bottling plants in
Europe and the
Philippines
• Robert Woodruff
named CEO
• Franchises in 24
states
• Files for
bankruptcy
• Second bankruptcy
• Acquires sugar
plantation in Cuba
• Rebounds by
marketing product
value
• Becomes second in
the cola market
• “Beat Coke”
campaign
• Emerges as cola market
front-runner
• Cregistered trademark
• Price raised from a
nickel to a dime
• Diversifies offerings
(Sprite, Tab)
• Remains #1 in national
cola sales
• Diversifies offerings
(Mountain Dew)
• Merges with Frito-Lay
(PepsiCo) & expands
into the snack food
business

5. Historical Timeline (Cola Wars and Beyond)
5
COLA War Years 1974-1999 2000-2010
• In response to federal nutrition
guidelines and public concern with diet
and obesity offers alternative low calorie
beverages
• Wins Subway account, retains exclusive
deals with Burger King and McDonalds
• Holds big lead over Pepsi in cola market
• In response to federal nutrition
guidelines and public concern with
diet and obesity offers alternative low
calorie beverages
• Supplies all Taco Bell, KFCs and
most Pizza Huts
• Snack food lines very profitable
• High-fructose corn syrup replaces sugar
• Diet Coke introduced, boosts profits
• New Coke fails, Coca Cola Classic
returns
• Coca Cola Enterprises established
• Maintains lead in cola market share
• The “Pepsi Challenge”
• Pepsi Lite (1 Calorie) introduced
• Enters fast-food business
• Outpaces Coke in food store sales
• High-fructose corn syrup replaces
sugar
• Pepsi Bottling Company goes public

6. 4Ps Analysis
6
PRODUCT
• Carbonated
soft drinks
• Non-
carbonated
soft drinks
PRICE
• Pepsi value
proposition
• Coke the
“premium” brand
PROMOTION
• Investment in
Trademarks
• Retail Shelf Space
• Ad Campaigns
PLACE
• Retail channels
• Fountain
Outlets
• Vending
Machines
• Mass
merchandise

7. Problem Statement
7
Changes in U.S. consumer preferences lead to a decline in CSD
sales and the emergence of non-CSDs.
1. How should Coke and Pepsi respond to these changes in
consumer preferences?
2. In what ways can Coke and Pepsi boost CSD sales while
competing in the growing non-CSD category, thereby ensuring
sustainable growth and profitability?

8. Critical Issues
8
• Declining CSD sales, including Cola in the US
• Emerge of private labels
• Health Issues
Sales
• Price pressure from the mass merchandises
• More product variety = increase in distribution
and sales costs
Profitability
• New products: cannibalism
• Each local market is different
Market
Growth

9. U.S. Non-alcoholic beverage volume (%)
9
0
20
40
60
80
100
120
2000 2009
Non-Carbs
Water
CSD

10. Strategic Analysis - S.W.O.T
10
strengths
opportunities
weakness
threats

11. S.W.O.T - Strengths
 Most valuable brand for 13 years
 Worlds largest in beverages: 15bi
dollar brands
 Diversification: 500+ brands, 200
countries
 Extensive global dist. network
 Leader in fountain accounts
 Forward integration: power of
supplier and buyer (90%)
 Strong in emerging markets: China,
Brazil, Eastern Europe
 22nd most valuable brand
 2nd largest F&B in the world, 22 bi
dollar brands
 Diversification: “The power of one”
 Extensive global dist. network
 Leader in non-CSD
 Forward integration: 80 %
 Successful marketing campaigns:
celebrity endorsements
11

12. S.W.O.T - Weaknesses
 Declining market share since 2000
 Negative publicity
 CSD focus: only 32% non-CSD
share
 Price pressure from mass retailers
(Wal-Mart) : 40% of U.S. packaged
sales
 Declining market share in bev.
 Negative publicity
 Overdependence on U.S. markets:
50% of total sales
 Low market share in fountain
accounts: 20% vs. Coke’s 69%
 Price pressure from mass retailers:
12% of revenue(Wal-Mart)
12

13. S.W.O.T - Opportunities
 Expand non-CSD: juice, sport, energy, bottled water
VitaminWater, Odwalla (Coke), Gatorade, Naked (Pepsi)
 Expand and modify CSD line: Stevia
Sprite Green (Coke), Pepsi Next, Trop50 (Pepsi)
 Global expansion in emerging markets: India, China, Brazil (Coke) Russia
(Pepsi)
 Innovative offerings tailored to local tastes
Sprite Tea (Coke), herb drinks (Pepsi)
 Growing nutritious snacks product markets
13

14. S.W.O.T - Threats
 Changing consumer tastes and preferences
 Competition with each other
 Threat of substitutes
 Price pressure from mass retailers
 Price pressure from int'l bottlers
 Government restrictions in U.S. and abroad
14

15. Identification of Alternatives
15
Investment Strategy Action
1. Status Quo
Maintain status Quo
“Milk” CSD
2. Market Development
Focus abroad
Bottler control/ownership
Streamline
“Milk” CSD
3. Product Development
Diversify lines
Modify CSD, re-position
Develop “complements”
“Milk” CSD and discontinue “dogs”
4. Market Penetration &
Market Development &
Product Development All of the above

16. Analysis of Alternatives
16
Criteria Weight
(1)
Status Quo
(2)
Market
Development
(3)
Product
Development
(4)
Market
Penetration
+ 2 + 3
Profitability 0.15 4 4 3 4
Sales and market share 0.25 3 5 4 5
Customer needs 0.25 2 3 5 5
Brand Image/
Corporate Image 0.20 2 3 4 5
Corporate Mission & Vision:
“6Ps”
“Performance with Purpose” 0.15 1 2 4 5
Total: 1 2.4 3.5 4.1 4.85

17. Recommendations CSD Market
17
.
• Company image+ “healthy”
choices
• Focus on core products:
• US Market: Zero/Diet + Lite
• Global market: leverage Classic
brand
• Access to distribution overseas

18. Recommendations non-CSD Market
18
.
• Sports and energy drinks
• Re-ignite/innovate bottled water
• Engage the “green” consumer
• Control of production and
distribution
• Healthy+ convenient choices
for busy lifestyles

19. Implementation
19
• Cost control measures (plants, process management,
consolidation)
• Ads aimed at re-capturing gender/generational market share
• Diet/Zero and other lower-calorie CSD products in EU + Asia
• Remove questionable ingredients from products sold in the US
• Pursue high visibility sponsorships
Non-CSD
• Health education campaign on non-CSD products
• Improve image + environmental-friendly packaging
• CSR reports and CSR transparency
• Market research: innovation + product development
opportunities
• Access to distribution
CSD
Market
Non-
CSD
Market

20. Budget
20
0
5
10
15
20
25
2000 2005 2007 2008 2009
Net profit/sales
Coca-Cola
Pepsi
Total Sales
Pepsi
Coca-Cola
$30mm
$43mm
0
1
2
3
4
%
Non CSD shares
Gatorade
Aquafina
Dasani
Powerade

21. Where are they now?
21

22. The Coca-ColaCompany
 Overview
 Still a beverage focused company: 70% of their revenue comes
from CSD sale
 #57 in Fortune 500
 International market corresponds 59% net revenue
 Reached 1.9 billion servings each day
 Present in +200 countries
 #3 best global brand - $79.2 billion value
 1.4%in sales growth
22

23. The Coca-ColaCompany
23
 Portfolio
 +500 non-alcoholic beverage brands
 Acquired Zico Pure Premium Water
 Launched Coca-Cola life in Argentina & Chile: 1st reduced-
calorie cola sweetened w/ a blend of sugar and stevia

24. Pepsi Co
 Overview
 It is a diversified company: beverages, snacks and breakfast
 #43 in Fortune 500
 52% of their net revenue comes from food
 US is still responsible for 51% net revenue
 38% more revenue than Coca in 2011, but only 12bi came from Soda
24

25. Pepsi Co
 Portfolio
 Product mix: 63% food 37% beverage
 22 brands that generates 1bi in retail sales each
25

26. 26
In March 2011 Pepsi feel from the n.2 spot
Ever since, Coca-Cola has reigned supreme with Classic in the No.1
sales spot and Diet Coke as No.2.
1.6
billion
case
927
million
892
million

27. Can and ever be friends?
27

28. 28

29. 29
Thankyou
Q&A

30. Media Credits
 Pepsi or Coke http://www.the-exponent.com/wp-content/uploads/2013/02/coke-or-pepsi.jpg
 Coke vs Pepsi http://createmeaning.com/wp-content/uploads/2011/02/Coke-vs-Pepsi5.jpg
 Coke Logo http://www.dafont.com/forum/attach/orig/3/6/36145.jpg
 PespsiCo Logo http://hdwallpapersrc.com/wp-content/uploads/2013/09/New-Pepsi-Logo.jpeg
 Strength: http://workingwahm.com/wp-content/uploads/2011/11/iStock_000011272144XSmall.jpg
 Weakness: http://truecourseblog.files.wordpress.com/2012/08/istock_000011329650xsmall.jpg
 Opportunities: http://img104.job1001.com/upload/adminnew/2014-03-24/1395635680-HHEWT3O.JPG
 Threats; http://www.gfi.com/blog/wp-content/uploads/2009/06/bomb-300x206.png
 Coke logo w/ bottle: http://www.fishlakerelay.com/sponsors/coke-bottle-round/
 Pepsi & Coke bottle: http://blog.livedoor.jp/clock510/tag/%E7%93%B6?p=3
 Logo history: http://www.create.net/blog/76487-andys-design-tips-how-to-design-a-logo.html
 Logo history: http://www.core77.com/blog/object_culture/will_the_real_coca-
cola_logo_story_please_stand_up_14264.asp
 Pepsi cap: http://www.houzz.com/photos/5345407/Pepsi-Cola-Bottle-Cap-Metal-Sign---Tin-Signs---
RetroPlanet-com---
 where are they now: http://nowiknow.com/soda-jerks/
 Pepsi & Coke friends: http://eyugho.deviantart.com/art/Coke-and-Pepsi-332534678
 Coke bottle cap: http://suncruiserdogsnmore.com/our-menu/
 Coke bottle cap and Pepsi bottle cap: http://money.cnn.com/gallery/news/companies/2013/03/21/greatest-
business-rivalries.fortune/2.html
 Pepsi obesity: http://calorielab.com/news/2009/02/18/americans-trans-fats-peanut-plant-closed-redesigned-
pepsi-logo/
 Coke obesity: http://dalandofatblog.blogspot.com/2011/05/addictive-coke-addictive-diet-coke.html
 Ïllustration: http://jamesdawsonmartin.com/blog/category/free-articles/
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