Cola wars continue - Coke and Pepsi 2010

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Case Study: "Cola Wars Continue" from Harvard Business Review (Group Project)

UC Berkeley Extension - Marketing Strategy - Jim Prost

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Cola wars continue - Coke and Pepsi 2010

  1. 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. 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. 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. 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. 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. 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. 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. 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. 9. U.S. Non-alcoholic beverage volume (%) 9 0 20 40 60 80 100 120 2000 2009 Non-Carbs Water CSD
  10. 10. Strategic Analysis - S.W.O.T 10 strengths opportunities weakness threats
  11. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 21. Where are they now? 21
  22. 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. 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. 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. 25. Pepsi Co  Portfolio  Product mix: 63% food 37% beverage  22 brands that generates 1bi in retail sales each 25
  26. 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. 27. Can and ever be friends? 27
  28. 28. 28
  29. 29. 29 Thankyou Q&A
  30. 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/ 30

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