Uploaded byJatin Mendiratta
Cola Wars
The document discusses the historical rivalry between Coca-Cola and Pepsi-Cola, known as the 'cola wars,' highlighting various factors in their competition, marketing strategies, and market trends from their inception to 2006. It details the evolution, strengths, weaknesses, and the impact of consumer preferences on their products, along with challenges such as health trends and market saturation. Ultimately, it suggests that while Coke had early advantages, Pepsi's strategic moves and diversification into non-carbonated beverages have intensified the competition in recent years.
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Cola Wars
- 1. COLA WARS Continue:Coke and Pepsi in 2006
- 2. Evolution of Coca-ColaEvolution 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 Materialfor 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 ofCola 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 Twiceas 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 ofFortune 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 CocaCola and Pepsi Merged with Frito Lay to form PepsiCo Quaker Oats purchased for 14Billion$ 1978 1986 1986 Purchases Acquisitions Associations
- 8. Charismatic Leadership 2001- SteveReinumund ✓ “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 amongstthe 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 portfolioof 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 winningthe 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 beenlosing 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 thereasons 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 boostflagging 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 popularbeverages 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 fundamentalnature 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 MarketingPractices and Implementation, MDI Gurgaon