Cola wars


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  • Differentiation based on 1)lifestyle product attributes 2) direct differentition on taste
  • Cola wars

    1. 1. Cola Wars!!
    2. 2. Stage 1 – 1950 - 1970
    3. 3. Brief History (coke)• Formulated at the Eagle Drug and Chemical Company• Initially sold as a patent medicine for 5 cents (1886)• A cure for head ache and impotence• By 1935 coke had achieved status of a national icon
    4. 4. History (Pepsi)• 1931: Bought sole right of Pepsi for $10,500 – Charles Guth• Grew with the growth of super markets (1945-62)• Young at heart campaign• A buy out by coke refused• Strategy to target the African Americans (feature noble prize winners) :ads targeted specifically at them• “Starting to get termed as a Niger drink” and thus fall back on that strategy.
    5. 5. New products through 1950-70• Coke:
    6. 6. New products through 1950-70• Pepsi
    7. 7. Relative strategies implemented..• Coke started to focus on the over seas markets (1960)• Coke assumed American consumption was reaching saturation point• Pepsi doubled its consumers in the US in the same period ( more bottlers and reduced price of concentrate)• Thus Pepsi decided to attack Coke on the home turf
    8. 8. What Coke could have done ..back then• Realize importance of the highly westernized US market accounting for high consumption.• Retain its market share• Flank Pepsi by competing in the other businesses as well diverting their attention from Cola drinks• Threaten Pepsi with a buy out , so that Pepsi does not get the leverage to think freely
    9. 9. Stage 2 – 1970 - 1990
    10. 10. Major Events• CSD market share 71% in beverages• Pepsi diversified in food industry – Pizza Hut, KFC,Taco Bell• Pepsi had more bottlers than coke• Coke had fragmented bottlers, >800 franchised• Pepsi challenge – 1974 blind test in Dallas, Texas – Publically demonstrated
    11. 11. US Soft Drink Market Share By Case Volume (%) Market share 45 41.1 39.5 40 35.3 35.9 34.7 35 32.4 30.3 30 27.8Percentage 25 21.1 19.8 Coca Cola 20 PepesiCo 15 10 5 0 1970 1975 1980 1985 1990
    12. 12. Strategies Followed Coca cola Pepsi• Product Development and • Product development and line extension line extension – Introduction of 11 new – Introduction of 11 new products products• Divestiture • Forward Integration – Non CSD businesses were – PBG established sold off • Concentric Diversification• Forward integration – Acquired Pizza Hut, KFC, Taco – CCE, independent bottling Bell subsidiary of Coke
    13. 13. Competitors• Shelf space decreased• Shuffle of smaller brands from one owner to another• Dr.Pepper was sold several times, canada dry twice• Philip Morris acquired 7up 1978, losses,1980’s left business• Cadbury Schweppes emerged as third largest competitor
    14. 14. • In short both were capable to imitate each other in every dimension• Lifestyle based advertisement and brand name• Perceived differences created through advertisements• 1971 I’d like to buy the • 1970 Join the pepsi world of coke people• 1979 Have a Coke and a • 1980 Catch the pepsi Smile spirit• 1989 Can’t beat the • 1990 Pepsi ‘The choice feeling of new Generation’
    15. 15. Stage 3 ( 1990 – 2006)
    16. 16. Challenges Faced1. US sales volume grew at a rate less than 1% during 1998 - 2004 – Worldwide demand for CSDs remained flat – Decline in annual per capital consumption from 125 to 119 servings2. Association of CSDs to obesity – New federal nutrition guideline – Ban of CSD in Schools – Morgan Stanley Survey3. Concentrate providers gain at the cost of Bottlers profitability – Huge debts from consolidation and infrastructure investment – Change in the product portfolio resulted in additional costs for the bottlers – Rapid growth of mass merchandiser channel like Wal-Mart and various other club stores posed a new threat to the profitability
    17. 17. Challenges specific to Coke• Performance and Execution – Key strategic relationship with CCE – Providing alternative beverages• Legal Issues – Contamination scare in Belgium – A law suit filed by Burger King worth $ 21 Mil – Channel Stuffing charges• Currency Crisis in Russia and Asia
    18. 18. Challenges specific to Pepsi• Venezuela Crisis (1996) - Reduced the market share of Pepsi from 45% to 5 %• Challenges of internationalization
    19. 19. Strategies Adopted1. Flat Demand During 1998 – 2004Pepsi– Concentric Diversification − Acquired Quaker Oats( 2000) − Acquired South Beach Beverage & Co (2001)− Product Development − Aquafina (1998)– Market Development − Introduced CSD variants like Sierra Mist (2000) and Mountain Dew Code Red (2001) − “Grow the core and add some more”Coke– Although Pepsi swept away the new evolving markets, Coke fared better in the bottled water category after introducing Dasani in 1999.– Packaging Innovation: Fridge Pack (2001), replaced 2 ltr with 1.5 ltr which was later imitated by Pepsi
    20. 20. Strategies Adopted2. Association of CSDs to obesityCoca Cola − Introduced new or renamed products − Diet Coke with Splenda (2005) and Coca Cola Zero ( 2005)Pepsi − Sierra Mist Free (2004) and Pepsi One (2005) − Pepsi declared itself as a total beverage company and move more aggressively than Coke to the non CSDs segment − By 2004, Pepsi had a market share of 47.3 % in the US non Carb market compare to Coke’s share of 27.0 % − Treating Diet Pepsi as its flagship brand
    21. 21. On Stranger Tides• Coke flourished in international market and also relied upon them far more then Pepsi.• About 70 % of the revenue of Coke came from non US markets compared to 33 % of Pepsi• Coke’s share of global beverages market stood at 51.4 % followed by Pepsi at 21.8 %• Some of the reasons behind Coca Cola’s success in the international markets was due to its ability to understand and defend its positions really well (except the exclusion from the ME and Soviet bloc.)
    22. 22. US Soft Drink Market Share By Case Volume (%)50 44.1 43.145 41.1 42.34035 32.4 30.9 31.4 31.730 Coke25 Pepsi20 15.1 14.7 14.5 Cadbury Schweppes15105 3.20 1990 1995 2000 2004E
    23. 23. Porter’s Five Force AnalysisThreat of new entrants:- Huge Capital requirements- Strong bottling networks- Brand loyalty- Strong distribution links- Market Saturation
    24. 24. Threat of Substitutes:- Shift in demand towards non-CSD products in early 2000s onhealth-related concerns- Main substitutes included juices, sports drinks, energy drinks, tea-based drinks and bottled water- Pepsi more aggressive in shifting to non CSDs- Low switching costs for consumers
    25. 25. Suppliers’ bargaining power:- Few inputs required for concentrate producers- Inputs for bottlers-packaging and sweeteners- Coke and Pepsi-largest customers of metal can industry
    26. 26. Buyers’ bargaining power:• Bottlers Sales- High switching costs Supermarkets- Tied by contracts• Retail channels 9.5% Fountain 7.9% outlets- Supermarkets and 32.9% VendingFountain outlets-high 11.8% machinesbargaining power Mass merchandisers 14.5%- Low for vending 23.4% Conveniencemachines and stores OthersConvenience stores
    27. 27. Intensity of competitive rivalry:- Pepsi and Coca Cola key players contributing to about 75% of market share- Plank for achieving competitive advantage:• Product differentiation - Combative advertising - Direct product comparison based on a real attribute: taste
    28. 28. SWOT Analysis: Pepsi Weakness• Enjoys a High-Profile Global Presence • Carbonates Market is in Decline• Owns the World’s 2nd Best-Selling Soft • Pepsi is Strongest in only North America Drinks Brand • They Only Target Young People• Constant Product Innovation• Aggressive Marketing Strategies• A Broad Portfolio of Products Opportunity Threat• Increased Consumer Concerns in • Obesity and Health Concerns comparison to bottled water • Increased Marketing and Innovation• Growth in Healthier Beverages Spending by Coke• Growth in Tea and Asian Beverages • Restriction to only North America as target market
    29. 29. SWOT Analysis: Coke Strength Weakness• Enjoys a High-Profile Global Presence • Carbonates Market is in Decline• Fourth amongst the top five leading brands • Over-complexity of relationship with• Broad-based bottling strategy bottlers• 47% of global volume sales in carbonates • Inefficient execution of business Opportunity Threat• Soft drinks volumes in the Asia-Pacific • Growing "health-conscience" society region forecast to increase by over 45% • PepsiCo’s Gatorade, Tropicana and Aquafina• Brands like Minute Maid Light and Minute are stronger brands Maid Premium Heart Wise are positioned • Boycott in the Middle East well with the “Health-concerned” market • Protest against Coke in India• Use distribution strengths in Eastern Europe and Latin America