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. 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.
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. 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
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
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. 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. • 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’
16. Challenges Faced
1. 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 servings
2. Association of CSDs to obesity
– New federal nutrition guideline
– Ban of CSD in Schools
– Morgan Stanley Survey
3. 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. 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. Challenges specific to Pepsi
• Venezuela Crisis (1996) - Reduced the market
share of Pepsi from 45% to 5 %
• Challenges of internationalization
19. Strategies Adopted
1. Flat Demand During 1998 – 2004
Pepsi
– 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. Strategies Adopted
2. Association of CSDs to obesity
Coca 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. 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.)
23. Porter’s Five Force Analysis
Threat of new entrants:
- Huge Capital requirements
- Strong bottling networks
- Brand loyalty
- Strong distribution links
- Market Saturation
24. Threat of Substitutes:
- Shift in demand towards non-CSD products in early 2000s on
health-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. 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. Buyers’ bargaining power:
• Bottlers
Sales
- High switching costs
Supermarkets
- Tied by contracts
• Retail channels 9.5%
Fountain
7.9%
outlets
- Supermarkets and 32.9%
Vending
Fountain outlets-high 11.8% machines
bargaining power Mass
merchandisers
14.5%
- Low for vending 23.4%
Convenience
machines and stores
Others
Convenience stores
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. 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. 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
Notas do Editor
Differentiation based on 1)lifestyle product attributes 2) direct differentition on taste
