Presentation on Cola Wars between Coke and Pepsi (Presented in Marketing Planning and Implementation-1 Course at MDI Gurgaon) P.S- Please feel free to share your views in comments.

1. COLA WARS Continue: Coke and Pepsi in 2006

2. Evolution of Coca-Cola Evolution of Pepsi
• Formulated in 1886 by John
Pemberton in Georgia
• Sold it at drug store soda
fountains as a “potion for mental
and physical disorders.
• Formula for Coca-Syrup is kept
secret in Atlanta and coined
‘Merchandize 7X’
• In 1891, Asa Candler acquired the
formula, established a sales force
and began brand advertising
• Invented in 1893 in New Bern,
North Carolina by pharmacist
Caleb Bradham
• By 1910, Pepsi built a network of
270 bottlers
• Business began to grow during
the Great Depression
• Pepsi built a marketing strategy
around the theme of its famous
radio jingle - “Twice as much for
a nickel, too.”

3. Suppliers
• Raw Material for
concentrate
• Packaging Material
• Sweeteners
Concentrate
Producers
•Blended Raw Materials
•Advertisement and
Marketing
•Bottler Support
Bottlers
• Packaging
• Franchise
Agreements
• Retail Pricing
Retail
Channels
• Retail Vs Fountain
• Delivery to stores
• Vending Channel
The Supply Chain for Carbonated Soft Drinks Industry

4. The Circle of Cola Wars
•Strained Relationship
•Bottler Acquisitions
•Formation of CCE
and PBG
•Coke Stumbled
•Clumsy execution
•Pepsi Beat Coke on
returns
•High advertising-
Pepsi
•Experimenting with
formula
•Diversified portfolio
•Extend Bottling
•Lower Pricing
•Beat coke strategy
Cola War
Begins
Cola War
Heats Up
Bottler
Consolida
-tion
Reversal
of
Fortune

5. Cola Wars Begin
Twice as much for a nickel, too
1) Price of Pepsi 12-oz bottle is equal to Coke 6.5-oz
bottle
2) Helped Pepsi become #2 player even after 2
bankruptcies in a decade
3) Impact – tempted customer to switch brand loyalty
Pepsi Generation
1) Targeted Youth and Young at heart
2) Narrowed Pepsi’s to Coke margin by 2-to-1
Pepsi Challenge
1) Blind Tests launched in Dallas which is strong hold of
Coke.
2) Demonstrated that consumers actually preferred Pepsi
to Coke
3) Campaign was a success and eroded Coke’s market
share
American’s Preferred Taste (1955)
Coca-Cola acknowledges Pepsi as a competitor for
the first time.
No Wonder Coke Refreshes Best(1960)
Slogan for Coca-Cola hinting at presence of
competition in the market
Coke Side of Life
Global advertising campaign that 'correct
misperceptions' about the brand and increase
flagging sales.

6. The Reversal of Fortune between year 1996 -2004
✓ Pepsi saw unparalleled growth during this
period as Coke stumbled down the spiral
losing share.
✓ Pepsi added new CSDs such as Sierra Mist
(2000), Mountain Dew Code Red (2001)
✓ Pepsi beat Coke to acquire Quaker Oats in
2000 who were makers of Gatorade
✓ Pepsi Co’s net income saw an average rise of
17.6% YoY between this period.
✓ In 2003, Pepsi recorded a return on invested
capital of 29.3%, up from 9.5% in 1996.
✓ Death of CEO Robert Goizeta died unexpectedly
in 1997 pushing Coke into a spin-off for close to
a decade after 16 years of rise.
✓ Largest recall happened around 1998 in Belgium
due to a contamination scare.
✓ Similar contamination scares in Dasani water
brand Europe and in India around 2004 hurt the
brand image.
✓ US Justice Department was running series of
investigations alleging of “channel stuffing”
✓ Between 1996 and 2004, Coca-Cola logged an
average annual growth in net income of 4.2%—a
huge drop from the 18% average growth of the
years 1990–1997.
✓ Coke shareholders suffered a ROI drop to -26%.

7. Expansions by Coca Cola and Pepsi
Merged with Frito
Lay to form PepsiCo Quaker Oats
purchased for
14Billion$
1978
1986 1986
Purchases
Acquisitions
Associations

8. Charismatic Leadership
2001- Steve Reinumund
✓ “Grow the core and add some
more”
✓ Launched new CSD Products like
Sierra Mist, Mountain Dew Code
Red
✓ Acquired Quaker Oats, producer of
Gatorade
✓ ROI capital went up to 29.3%(2003)
from 9.5% (1995)
✓ Average income rise by 17.6% per
year
1980- Roberto Goizueta
✓ Coke became the Most
valuable brand
✓ Used low price corn syrup
against sugar
✓ Double spending on ads in
1981-84
✓ Introduced Diet Coke
✓ Started raising sales of Non-
CSD business

9. S
Strength
• Fourth amongst the top five leading brands
• Global Presence and market share
• Dominates Sales through Fountain
• 47% of global volume sales in carbonates
• Market Shares increasing almost consistently
• Increasing Operating Profit Margins
Weakness
• Carbonates Market is in Decline
• Stressed relationship with bottlers in North
America
• Susceptible to Financial shocks by currency
fluctuations
• Inefficient execution of business
Opportunity
• Diversification into health beverages and snacks
industry
• Marketing of the less known products
• Soft drinks volumes in the Asia-Pacific region
forecast to increase by over 45%
• Use distribution strengths in Eastern Europe and
Latin America
• Supply chain improvement
Threat
• Growing "health-conscience" society
• Boycotts in the Middle East
• Protest against Coke in India due to presence of
traces of pesticides
• Negative publicity in Western Europe causing
Coca Cola to pull out Dassani waters
SWOT Analysis of Coca Cola

10. Strengths
• Diverse portfolio of products in non-
CSD and snacks.
• Enjoys a High-Profile Global
Presence
• Constant Product Innovation
• Aggressive Marketing Strategies
Weakness
• Carbonates Market is in Decline
• Pepsi is strongest in North America
• Less international presence than
coke
Opportunities
• Growth in Healthier Beverages
• Tea and Asian Beverages
• Functional Beverages Industry
Threats
• Increasing demand for healthy
substitutes.
• Increased marketing and innovation
spending by Coke
• Saturation of US consumption.
SWOT Analysis of Pepsi

11. Who was winning the Cola Wars?
Coke had the first mover
advantage of a decade
over Pepsi but it was
only post 1940s that
Pepsi actually started
fighting coke for the
market space and since
then though its clear
from the graph that
COKEhas had an
upper hand, the war is
still on!

12. Who has been losing the Cola Wars?
Smaller brands like Dr. Pepper and Cadbury Schweppes could never
compete with these giants.
Entering into this market became difficult with Coke and Pepsi
acquiring the new players and making it a duopoly.

13. What are the reasons of success of carbonated soft drinks over
other drinks ?
Taste preference – Artificially created formula evolved
Brand Value and the image associated
Homogeneous taste throughout the year
Sweetener - attracted customers
Sales were driven by super markets
Strong tie up with KFC/McDonald’s/ Burger King/ Subway
Innovation in packaging to meet the needs – Family Pack
Changed to plastic bottles for variety in the size of the packs
Introduced returnable glass bottles for India needs
Brand Value
Tie Ups
Innovation

14. Should they boost flagging CSD sales or concentrate on
diversification?
✓ CSD sales have gone
stagnant now and
may fall in future
with people
becoming more
health conscious
✓ Diversifying into
other beverages is
the way ahead
12.40%
14.40%
18.70%
22.10%
25.70%
27.40%
28.50%
29.60%
29.00%
28.80%
28.70%
28.70%
1970 1975 1981 1985 1990 1994 1996 1998 2000 2002 2003 2004
Year
Market Share of CSD

15. Would newly popular beverages provide them with new and
profitable revenue streams?
• Introduction of new brands
In 2001, non-carbs and bottled water together contributed more than 100% of Coke’s total volume growth and roughly
three-fourths of Pepsi’s volume growth.
• Pepsi outstrips Coke in non-CSD category
Pepsi developed a portfolio of non-CSD products that outsold Coke’s rival product in each key category:
• Entry into Water Bottle Segment
Both Pepsi (with Aquafina, 1998) and Coke (with Dasani, 1999) had introduced purified-water products. By 2004, Aquafina
(13.6%) led the segment in market share, with Dasani (12.1%) trailing close behind.
VERDICT- Yes, popular beverages provide Coca Cola and Pepsi the option to diversify their portfolio. Moreover, with
significant market share already in their kitty, a well sustained revenue stream is already been set.
Market Segment Revenue Pepsi Coca Cola
Sports Drink $5.4 Billion Gatorade (80.4%) PowerAde (18.1%)
Tea-Based Drink $3.2 billion Lipton (35.2%) Nestea (23.9%)
Refrigerated Juice $3.8 billion Tropicana (26.8%) Minute Maid (14.8%)
Non-Carb Market Overall - 47.3% 27.0%

16. Was the fundamental nature of the Cola Wars changing
towards the 21st century ?
Consumer
Preferences
• A significant shift in consumer preferences away from sweetened beverages and towards health conscious products.
• Increased awareness about diet patterns and obesity risks due to cola pose a significant challenge
Market
Stagnation
• Growth for CSD consumption began shifting from US markets to International markets in emerging countries
• Faced regulatory challenges, advertising restrictions, political instability and lack of infrastructure
Infrastructu
-re Issues
• Increasing disagreements between Coke and its bottlers
• Inability of bottlers to pass on increased costs to consumers due to high price sensitivity
Threat of
Substitues
• Alternative beverages complicated CSD makers’ traditional production and distribution practices.
• Whether the wars were still about “cola” and if anyone certainly knew where battlefields were located?
VERDICT - The nature of wars were affected but not significantly. The competition is perennial however
the diversification of markets and health segment has provided new avenues. It is another stepping
stone in the both brands’ quest for innovation.

17. Thank You!
©Jatin Mendiratta
Marketing Practices and Implementation,
MDI Gurgaon