Cola wars case presentation

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  • Water: low brand loyalty & high price sensitivity (vs. CSD) Therefore, expanding into other “non-carb” drinks not the answer
  • CSD’s market share in 1990: 71% vs. 2004:60% <1% growth 1998 – 2004 vs 3% - 7% in 1980s/early 1990s 2003 – 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
  • CSD’s market share in 1990: 71% vs. 2004:60% <1% growth 1998 – 2004 vs 3% - 7% in 1980s/early 1990s 2003 – 1004: proportion of Americans who said cola was “too fattening” increased from 48% - 59%
  • CSD’s market share in 1990: 71% vs. 2004:60% <1% growth 1998 – 2004 vs 3% - 7% in 1980s/early 1990s 2003 – 1004: proportion of Americans who said cola was “too fattening” increased from 48% - 59%
  • Cola wars case presentation

    1. 1. Cola Wars Coke and Pepsi Deanna Chang Jamie Prescott Jonathan Wong Shaistah Bahrainwala Yau Lo
    2. 3. Overview
    3. 4. Industry Background 1886: John Pemberton 1893: Caleb Bradham Production and Distribution
    4. 5. Industry Background
    5. 6. Problems
    6. 7. Recommendation Focus on advertising and promotion to differentiate from competitor and to change the image and perception of cola to fit the healthy living trend
    7. 8. Supplier Power
    8. 9. Buyer Power <ul><li>Major buyers of CSD are bottlers and fast-food restaurants </li></ul>Low bargaining power
    9. 10. The Threat of Substitutes <ul><li>Ease of substitution is high </li></ul><ul><li>Many alternatives to CSDs </li></ul><ul><li>Different diet brands </li></ul><ul><li>Customer switching costs are low </li></ul><ul><ul><li>. </li></ul></ul>. Beer Milk Coffee Bottled Water Juice Tea Powdered Drinks Wine Sports Drinks Distilled Spirits Energy Drinks Tap water
    10. 11. Historic Carbonated Soft Drink Consumption
    11. 12. The Threat of New Entry
    12. 13. Threat of Rivals
    13. 14. Rivalry Conclusions This level of rivalry is expected given the strength of other forces
    14. 15. Which Force is Changing the Most?
    15. 16. Negative health perception of CSD
    16. 17. Negative health perception of CSD
    17. 18. Recommendation Adjust strategy to align with new climate
    18. 19. QUESTIONS?
    19. 20. APPENDIX
    20. 21. Overview <ul><li>Industry analysis using Porter’s 5-Forces Model </li></ul><ul><ul><li>Bargaining power of buyers and sellers </li></ul></ul><ul><ul><li>Threats of new entrants and substitutes </li></ul></ul><ul><ul><li>Competitive rivalry withing industry </li></ul></ul><ul><li>Level of rivalry given strengths of other industry forces </li></ul><ul><li>Force that is changing the most in the industry </li></ul>
    21. 22. Industry Background <ul><li>Coca-Cola was formulated in 1886 by John Pemberton </li></ul><ul><li>Pepsi Cola was formulated in 1893 by Caleb Bradham </li></ul><ul><li>Production and distriubtion of CSDs involves concentrate producers, bottlers, retail channels, and suppliers </li></ul><ul><ul><li>Both companies developed a franchise bottling system which changed over time </li></ul></ul>
    22. 23. Supplier Power <ul><li>Low bargaining power </li></ul><ul><li>Raw materials required in the production of CSD: Caramel coloring, phosphoric or critic acid, natural flavors, and caffeine </li></ul><ul><li>Commodities and easy to purchase in the market </li></ul><ul><li>Choose their suppliers based on their needs and costs </li></ul><ul><li>Low switching cost of suppliers </li></ul>
    23. 24. Buyer Power <ul><li>Low bargaining power </li></ul><ul><li>Major buyers of CSD: bottlers and fast-food restaurants </li></ul><ul><li>Weaken the bargaining power of bottlers by having a franchise agreement with them </li></ul><ul><ul><li>Coke’s Master Bottler Contract granted Coke the right to determine concentrate price and other terms of sales </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><li>Weaken the bargaining power of big fast-food restaurants by acquisition </li></ul><ul><ul><li>Pepsi acquired Pizza Hut (1978), Taco Bell (1986), and KFC (1986) </li></ul></ul><ul><ul><li>Coke retained exclusively deal with Burger King and McDonald </li></ul></ul>
    24. 25. The Threat of Substitutes <ul><li>Alternatives to CSDs </li></ul><ul><ul><li>Beer, Milk, Coffee, Bottled Water, Juice, Tea, Powdered Drinks, Wine, Sports Drinks, Distilled Spirits, Energy Drinks, and Tap Water. </li></ul></ul><ul><ul><li>Different diet brands </li></ul></ul><ul><ul><ul><li>Diet, With Splenda, No Caffeine. </li></ul></ul></ul><ul><ul><li>Customer switching costs are low. </li></ul></ul><ul><ul><li>Ease of substitution is high. </li></ul></ul>This industry force is high.
    25. 26. Threat of Rivals
    26. 27. The Threat of New Entry <ul><li>High investment costs to build a concentrate manufacturing plant and bottling processes. </li></ul><ul><li>Soft Drink bottlers fell from 2,000 to fewer than 300 in 2004. (High Competition.) </li></ul><ul><li>Competition for shelf space. </li></ul><ul><li>Concentrate makers raised prices. </li></ul><ul><li>Trademark Infringements. </li></ul><ul><li>Demand for CSDs seemed to have leveled off. </li></ul>This industry force is low.
    27. 28. <ul><li>Substitutes! </li></ul><ul><li>Starting in late 1990s, demand seemed to have leveled off </li></ul><ul><li>2005, Federal Nutrition Guidelines identified regular CSDs as the largest source of obesity causing sugars in the American diet </li></ul><ul><li>Schools banned the sale of soft drinks on their premises </li></ul>Which Force is Changing the Most?
    28. 29. <ul><li>Substitutes! </li></ul><ul><li>Starting in late 1990s, demand seemed to have leveled off </li></ul><ul><li>2005, Federal Nutrition Guidelines identified regular CSDs as the largest source of obesity causing sugars in the American diet </li></ul><ul><li>Schools banned the sale of soft drinks on their premises </li></ul>Which Force is Changing the Most?

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