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Coca Cola vs Pepsi
 

Coca Cola vs Pepsi

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  • CSD’s market share in 1990: 71% vs. 2004:60%<1% growth 1998 – 2004 vs 3% - 7% in 1980s/early 1990s2003 – 1004: proportion of Americans who said cola was “too fattening” increased from 48% - 59%
  • Water: low brand loyalty & high price sensitivity (vs. CSD)Therefore, expanding into other “non-carb” drinks not the answer

Coca Cola vs Pepsi Coca Cola vs Pepsi Presentation Transcript

  • Coca Cola vs Pepsi And the Soft Drinks Industry Presented by Group 17
  • Questions Using Porter’s Framework - Analyse the concentrate producers over the years? What makes them so special on most economic performance parameters? How the major developments in the last few decades affect the fortunes of smaller players? What should coca cola do next in India?
  • OverviewIndustry analysis using Porter’s 5-Forces Model Bargaining power of buyers and sellers Threats of new entrants and substitutes Competitive rivalry within industry Level of rivalry given strengths of other industry forces Force that is changing the most in the industry
  • Industry 5 forces Change Rec.Industry background 1886: John 1893: Caleb Pemberton Bradham Production and Distribution Concentrate Retail Bottler Supplier producer Channel
  • Industry 5 forces Change Rec.Industry background (Contd.) Industry $66 billion carbonated soft drink (CSD) industry Growth Between 1975 Customer and the mid Americans 1990s Pepsi and consumed 23 Coca-Cola had an gallons of CSDs in average growth 1970 of 10%
  • Industry 5 forces Change Rec.Problems Growth in sales falls Is the war still short of about ‘cola’? investors’ expectations Need for new Is there a products to new form of keep up with rivalry? the current health craze?
  • Industry 5 forces Change Rec.Supplier Power Commodities: easily Choose suppliers available in the based on needs and market costs Raw materials required: Caramel Low switching cost coloring, critic of suppliers acid, natural flavors, caffeine Low Supplier Bargaining power
  • Supplier Power (Contd.) Low bargaining power Raw materials required in the production of CSD: Caramel coloring, phosphoric or critic acid, natural flavors, and caffeine Commodities and easy to purchase in the market Choose their suppliers based on their needs and costs Low switching cost of suppliers
  • Industry 5 forces Change Rec.Buyer Power Major buyers of CSD are bottlers and fast-food restaurants Bottlers- Franchise Fast-food restaurants – Agreements Acquisitions • Coke’s Master Bottler • Coke retained exclusively Contract – Coke deal with Burger King and determines concentrate McDonald price and other terms of • Pepsi acquired Pizza Hut sales (1978), Taco Bell • Pepsi’s Master Bottler (1986), and KFC (1986) Contract - Pepsi can force bottlers to purchase raw materials from Pepsi at prices and conditions determined by Pepsi Low bargaining power
  • Buyer Power (Contd.) Low bargaining power Major buyers of CSD: bottlers and fast-food restaurants Weaken the bargaining power of bottlers by having a franchise agreement with them  Coke’s Master Bottler Contract granted Coke the right to determine concentrate price and other terms of sales  Pepsi’s Master Bottler Contract granted Pepsi the right to force its bottlers to purchase raw materials from Pepsi at prices, and on terms and conditions, determined by Pepsi Weaken the bargaining power of big fast-food restaurants by acquisition  Pepsi acquired Pizza Hut (1978), Taco Bell (1986), and KFC (1986)  Coke retained exclusively deal with Burger King and McDonald
  • Industry 5 forces Change Rec.The Threat Of Substitutes  Ease of substitution is high  Many alternatives to CSDs  Different diet brands  Customer switching costs are low Bottled Water Wine Sports Drinks Milk Beer Energy Drinks Juice Powdered Drinks Coffee Tea Distilled Spirits Tap water
  • The Threat Of Substitutes Alternatives to CSDs  Beer, Milk, Coffee, Bottled Water, Juice, Tea, Powdered Drinks, Wine, Sports Drinks, Distilled Spirits, Energy Drinks, and Tap Water.  Different diet brands  Diet, With Artificial Sweeteners, No Caffeine.  Customer switching costs are low.  Ease of substitution is high.
  • Historic Carbonated Soft Drink Consumption
  • Industry 5 forces Change Rec.The Threat Of New Entry High Competition in bottling High investment Shelf space costs for competition bottling This industry force is low Leveled off High prices demand for for CSD concentrate Trademark Infringement s
  • The Threat Of New Entry High investment costs to build a concentrate manufacturing plant and bottling processes. Soft Drink bottlers fell from 2,000 to fewer than 300 in 2004. (High Competition.) Competition for shelf space. Concentrate makers raised prices. Trademark Infringements. Demand for CSDs seemed to have leveled off. This industry force is low
  • Threat Of Rivals Number of 2 major players: Coke, Pepsi competitors Combine market share: 74.8% Competitive Focused on advertising and promotion strategy Main strengths from advertising campaigns Industry Average of 10% till 1990s and then demand leveled off Growth Diversify to address beverage need Competitor Coke and Pepsi are very similar products Diversity Similar changes made Relatively low costs to exit Exit Barriers Contractual agreements with bottling companies Proprietary Secret and famous cola recipe for both Coke and Pepsi Information Difficult to copy by other firms Competitive Famous, international brands Advantage Partnered with fast food franchises as well
  • Industry 5 forces Change Rec.Rivalry Conclusions Competition is Market share Industry is Large amount of Industry rivalry is based on price captured by 2 dominated by two capital is required to high (premium) but even players -74.8% major players compete more on branding This level of rivalry is expected given the strength of other forces
  • Scope of Smaller Players High intensity of rivalry due to slow industry growth and two equal sized, highly committed rivals Pepsi and Coca-Cola that strive for leadership, is questioning the existence of smaller players. High capital investments required for research, branding, advertising etc. and unequal access to distribution channels are forcing smaller players to depend on bottler networks of Coke & Pepsi. When Coca Cola or Pepsi view a smaller player as a potential threat, they retaliate by reducing the price, providing incentives to bottlers and retailers to kill it. Starting in late 1990s, demand seemed to have leveled off CSDs were believed to be unhealthy and the largest source of obesity causing sugars in the American diet
  • Industry 5 forces Change Rec.Recommendation – What should Coca Cola do in India? Adjust strategy to align with new climate A vast portion of market untouched (esp. rural market) Develop Consolidation “nutritious” of bottlers CSD’s Change “unhealthy” stigma via marketing campaign
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