CASE STUDY : COLA WARS CONTINUE : COKE AND PEPSI IN 2006 The case study Cola Wars Continue:

Coke and Pepsi in 2006 focuses on describing Coke and Pepsi within the CSD industry by providing detailed statements about the companies accounts and strategies to increase their market share. Cola war is the term used to describe the campaign of mutually targeted television advertisement & marketing campaigns between Coke & Pepsi. Furthermore, the case also focuses on the Coke vs. Pepsi goods which target similar groups of costumers, and how these companies have had and still have great reputation and continue to take risks due to their high capital. Both Coke & Pepsi have segmented the soft drink industry into two divisions, via 1.Production of soft drink syrup. 2.Manufacturing & distribution of soft drinks at retail level. Coke & Pepsi have chosen to operate primarily on the production of soft drinks syrup,while leaving independent bottlers with more competitive segment of the industry.The purpose of this report is to gain insight into the possible strategies that can be applied, in order to expand the overall throat share in the future. History revealed that a highly competitive strategy that was utilized in the past by both companies resulted in cannibalization. Because of this, the report is described from the perspective of both Coca-Cola and Pepsi. This report focuses on increasing the overall share and finding new opportunities in the unrevealed markets. STRUCTURE OF THE SOFT DRINK INDUSTRY : 1. Concentrated Producers Main activities includes : Blending new material ingredients , packaging in plastic containers, shipmen 2. Developing the program includes product planning, marketing research, advertising. 3. Main activities includes combine carbonated water and syrup , bottling/ canning, delivery to customers. 4. Focus lies on product management, product positioning, continual brand availability, maintenance. OVERVIEW OF THE CASE : Major players of the soft drink industry were 1. Concentrated producers 2. Bottlers 3. Retail channels 4. Suppliers Concentrated producers * Blended raw materials ingredients packed the mixture and shipped these containers to bottlers. * Key investment in machinery, overhead or labor. * Significant costs for advertising, promotion and marketing research. * Coca Cola & Pepsi Co.claimed a combined 76% of the U.S CSD market, in sales. Bottlers * Purchasing concentrate. * Adding carbonated water & high fructose corn syrup. * Bottled or canned the product. * Delivery to customer.

* Capital intensive process. * Direct store door delivery. * Coopeorative merchandizing agreements, key factor of soft drink sales. Retail channels * Super markets * Vending machines * Convenience stores * Gas stations Suppliers * Coca cola & Pepsi were among the metal can industry largest customers. * Major can producers were American National Can, Crown Cork & Seal and Reynolds Metals THE COLA WAR BEGINS MARKET CAMPAIGNS Pepsi | Coca Cola | Beat Coke | Americans preferred taste | Pepsi Generation | No wonder Coke refreshes best | Young at heart | | PRODUCT PORTFOLIO DIVERSIFICATION Pepsi | Coca Cola | Teem (1960) | Fanta (1960) | Mountain dew (1964) | Sprite (1961) | Diet Pepsi (1964) | Low calorie tab (1963) | Non CSD (Merger) | Non CSD ( Purchased) | Frito Lay | Minute Maid | | Duncan Foods | | Belmont Springs Water | PEPSI CO. CHALLENGE Pepsi Co | Coca Cola | Blind taste test | Rebates | Eroded Cokes market share | Retails price cuts | | Advertisement questioning test validity | | Re-negotiation of contract with franchisee bottles | About 70% of Cokes sales and about 80% of its profits came from outside the U.S only about 1/3rd of Pepsi leverage sales took place overseas. PRODUCT LAUNCH Pepsi | Coca Cola |

Teem (1960) | Fanta (1960) | Mountain Dew (1964) | Sprite (1961) | Diet Pepsi (1964) | Low calorie cola tab (1963) | Lemon Lime Slice( 1984) | Diet coke (1982) | Caffeine free cola (1987) | Caffeine free coke (1983) | Sierra Mist (2000) | Coca cola classic (1985) | Mountain dew code red (2001) | New coke (1985) | Pepsi one (2005) | Cherry coke( 1985) | EXPANSIONS Pepsi | Coca cola | Acquired pizza hut (1978), Tacco Bell (1986) | Exclusive deal with Burger King, Mc Donald | Merged with Frito Lay to form Pepsi Co | Purchased Minute Maid, Duncan foods, Belmont spring water | Purchased Quaker Oats | Acquired planet Java coffee drink brand | | Acquired Mad River juices & tea | CHALLENGES TO SOFT DRINK INDUSTRY : 1. Flat demand during 1998-2004 2. Contamination scare at India 3. Obesity issues 4. Challenges to Internationalisation CHALLENGES TO COCA COLA 1. Performance and execution On providing alternative beverages. On adjusting key strategic relationships. On cultivating international market. 2.Currency crisis in Asia & Russia. 3.Series of legal problem REVERSAL OF FORTUNE (1996-2004) Pepsi | Coke | Pepsi flourished | Coke struggled | Acquisitions of Quaker oat | Flat growth | Net income rose by 17.6% per year | Annual growth in net income falls to 4.2% from 18% (1990-1996) | ROI 29.3% from 9.5% (1996) | Share holders return 26% | MARKET SHARE Product | 2000 year | 2004 year | CSD | 80 | 73 | Diet soda | 24.6 (1997) | 29 | Bottle water | 6.6 | 13 | Non CSD | 12.6 | 13.7 | EVOLVING STRUCTURE AND STRATEGIES

* System profitability * Low cost strategy by bottlers * Incidence pricing * Retailers series price increase. * Cokes dysfunctional relation with bottlers INTERNATIONALISATION * Mexico, Brazil, China n Asia & Eastern Europe are the next big markets. * Coke is dominant in Western Europe and much of Latin America whereas * Pepsi is dominant in Middle East & Southern Asia. * Coca Cola became synonym with American culture PROFITABILITY Concentrate producers earn more profit than bottlers, also cost of sale is more in bottlers. SWOT ANALYSIS (PEPSI CO) Strengths : * High profile global presence * Worlds 2nd best selling soft drink brand * Constant product innovation * Aggressive marketing strategy using celebrities * Broad product portfolio Weakness : * Carbonated soft drink market is declining * Only target young people Opportunities : * Increasd customer concern regarding drinking water * Growth in healthier beverages * Growth in Asian beverages * Growth in functional drink industry Threats : * Obesity * Coca cola increases spending on marketing & innovation * Relying only North America is bad SWOT ANALYSIS ( COCA COLA ) Strength : * High profile glabal presence * 4 of top 5 leading brands * Broad based bottling strategy * 47% of global volume sales in carbonates

Weaknesses: * Carbonated soft drink market is declining * Over complexity of relationships with bottlers in North America * Execution ability Opportunities : * Soft drink volume in the Asia Pacific region forecast to increase by over 45% * Wise & health concerned positioning brands like Minute Maid & Minute Light * Use distribution strengths in Eastern Europe & Latin America Threats : * Obesity & health concern * Tropicana & Aquafina from Pepsi * Protest in India * Negative publicity by Pepsi ISSUES IN THE CASE & RECOMMENDATIONS 1. Who has been losing ? Smaller brands are losing because of entry barriers and duopoly. 2. Who is winning the war ? Year | Coke (%) | Pepsi (%) | 1950 | 47 | 10 | 1970 | 35 | 29 | 1990 | 41 | 32 | 2000 | 44 | 31.4 | 2006 | 43.1 | 31.7 | 3. Could they boost flagging domestic CSD sales ? * Through product innovation * Aggressive marketing and promotion * Packaging innovation 4. Would newly popular beverages provide them with new and profitable revenue streams * Yes * Non carbonated & bottled water contributed to total volume growth,approximately 100% for coke & 75% for Pepsi. * Contamination issue & obesity issue. 5. Can Coke & Pepsi sustain their profit in wake of flattening demand & the growing popularity of Non CSDs? * Coke and Pepsi didnt just inherit this business; they created it.

* By Diversification * Innovation eg. Diet Coke