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.
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COLA WARS CONTINUE: COKE AND PEPSIIN THE TWENTY-FIRST CENTURYBy,Group 6G. VAIBHAV KUMAR REDDY (P111012)P. PRAVEEN (P111033)PRAGYA JAISWAL (P111037)RAKESH NAVAL (P111039)GREAT LAKES INSTITUTE OF ENERGY MANAGEMENT AND RESEARCH, GURGOAN
CONCENTRATE PRODUCER ANDBOTTLERS Concentrate Producer Bottler 1993 Dollars per Percent of Dollars per Percent of Case Total Case Total Net Sales 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 0.01 2% 0.85 28% delivery Advertising and 0.26 39% 0.05 2% marketing General and 0.05 13% 0.13 4% administrative Pretax profit 0.23 29% 0.27 9%
Concentrate Producer Bottler 2000 Dollars per Percent of Dollars per Percent of Case Total Case 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 0.28 39% 0.12 2% marketing General and 0.06 8% 0.23 4% administrative Pretax profit 0.25 35% 0.52 9%
STRATEGIC PATH COCA-COLA PEPSI-COLA• Franchise bottling system , reaching 370 • Franchise bottling system , reaching 270franchises by 1910 franchises by 1910• During 1920s and 30s, introduction of •In 1920s, lowered the price for its 12-open-top coolers to storekeepers, automatic ounce bottle.fountain dispensers, vending machines. • Introduced Teem (1960), Mountain• Introduced Fanta (1960), Sprite (1961), low- Dew (1964), Diet Pepsi (1964). Workedcalorie 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”.
COCA-COLA PEPSI-COLA• In 1978, hike in concentrate price after • In 1970s, sold concentrate to bottlerssecuring bottler approval. @ 20% lower than coke.• In 1980, switched from sugar to lower- •Merged with Frito-lay in 1965.priced high fructose corn soup. • In 1978, 15% increase in price of• Increased advertising expenditure. concentrate.• Sold off most of non-CSD businesses • Emulated the move of fructose corni.e. wine, coffee, tea etc. soup in 1983.• Introduced Diet Coke in 1982 – huge • Increased advertising expenditure.success. • In 80s, introduced 13 new CSD• Change in formula in 1985 – major products.setback. Reintroduced original formulain the name of Coca-Cola Classic after 3months.• In 80s, introduced 11 new CSD brands.
COCA-COLA PEPSI-COLA• In 1980, refranchised bottling • In late 80s, acquired MEI bottling,operations-helped in expansion. Grand Metropolitan’s bottling operations and General Cinima’s•Created independent bottling bottling operations.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, Dasaniin 1998, 1999 in response to Pepsi. • By end of 90s, reintroduced “Pepsi Challenge”.• Started acquiring internationalmarkets in more structured way. • Non-Cola Beverages – introduced Aquafina (1998), Tropicana (1998), Gatorade and SoBe (2000). • Started acquiring international markets in more structured way.
SWOT ANALYSIS OF COCA-COLASTRENGTHS WEAKNESS• First mover advantage. • Moving away from core competencies.• More loyal customer base. •Brand Failures• Large market share. •Product Recalls• Economies of Scale.• International Brand recognition.• Huge distribution network.• Strategic move during world wars.• Success of diet coke.• Efficient global operationsOPPORTUNITIES THREATS• Entry into new developing • Barriers of entry in internationalinternational markets. markets.• Introduction of newer brands. • New age beverages.• Innovative advertising strategies. • Fierce competitors in local markets; Private labels at low prices.
SWOT ANALYSIS OF PEPSI-COLASTRENGTHS WEAKNESS• Guerrilla Marketing strategies. • Smaller market than Coke.• More focus on young generation. • Slower take off in international•Economies of Scale. markets.• International Brand recognition. • Imitation of Coca-Cola.• Huge distribution network. •Falling Behind in All-embracing• Innovative advertising strategies. Markets, namely Russia, Venezuela, and• More flexible franchise network. South America.OPPORTUNITIES THREATS• Introduction of “Pepsi Health Drink”. • Fear of losing market share due to• Image of “Total Beverage Company” rapid market fluctuations.• Entry new developing international • Barriers of entry in internationalmarkets. markets.• Introduction of newer brands. • Decreasing brand loyalty among consumers. • New age beverages. • Fierce competitors in local markets; Private labels at low prices.
PORTERS FIVE FORCE ANALYSIS – SOFTDRINK 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.
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.
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%
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.
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.