Sei sulla pagina 1di 19

The last time I saw the clash of the two soft drink giants was in the advertisements they

promoted where each of them came out of their ethical way in promoting their products though

the media for an international cricket tournament few years back. This paper doesn’t involve the

clashes but only compares the two on all the aspects where the strategies were implemented. This

paper speaks of the details of both companies one after another in each of the segments.

Company Information:

COCA COLA:

Company History:

(http://www.thecoca-colacompany.com/heritage/ourheritage.html)

The complete history of the company can be set into three stages:

1) Era of Birth of the giant soft drink and its development (1886-1918): Dr. John Stith

Pemberton a local Pharmacist basically from Georgia developed syrup in 1886, which

entered the market in the form of a soda fountain drink later to which carbonated water

was added which led to the origin of the giant soft drink Coca Cola. He later sold his

secret recipe to various partners of whom Asa Candler was one who turned out to be the

sole proprietor of Coca Cola.

2) Era of renaissance in the Company (1919-1941): In 1919 two gentlemen Ernest Woodruff

and W C Bradley along with a group of investors purchased the Coca Cola company for

$25 million. Later Woodruffs son and his successor to the company Robert Woodruff is

1
the one to be credited for this soft drink firm to reach to the zenith. This Era saw the

completion of 50 years for Coca Cola in 1936 .The Company also got a registered

trademark as Coke in the year 1941.

3) Era of competence and Competing strategies (1942-Present): New competitors started

early but this time saw a lot of competition for Coke. To sustain its top slot and also

maintain its quality simultaneously Coca Cola had to make strategic decisions right from

producing the product to the satisfaction of the end customer.

MAJOR PRODUCTS AND SERVICES (company website)

The company diversified into many beverage markets throughout these years. The various

products the company offers are Energy drinks, Juices/Juice drinks, Soft Drinks, Sports Drinks,

Tea and coffee, Water and the like.

And the number of varied ranges of the drinks based on different flavors can be seen in table 1.

The financial performance of the company for the year 2007 was pretty good. The revenues for

the company increased by 20 percent for the year 2007.The chairman of the company Neville

Isdell , says that “ by successfully executing our clearly defined strategies with our bottling

partners ,we delivered six percent unit case volume growth for the year and four consecutive

quarters of double digit earning per share growth”( Elizabeth Fuhrman, March 2008,)

PEPSI CO:

Just following the heels of the Coca Cola another Pharmacist named Caleb Bradham who

experimented various concentrations of soft drinks came up with a drink named “ Brads drink”
2
later in 1898 the name changed to “Pepsi Cola”. In 1923 the company faced a crisis where it had

to sell its assets to North Carolina concern, Cravn Holding Corporation for $ 30,000.1934 was a

land mark year for Pepsi as the drink became a hit .In 1941 during the World War II as a symbol

of support to the home nation Pepsi colored its bottles crowns with red, White and blue Colors.

In 1984 it was Michael Jackson who took the world for a ride with his advertising for Pepsi. The

slogan was “Pepsi! The choice of the new Generation”. In one way Pepsi boasts of producing the

best Soft drinks ever. Pepsi never left the race behind compared to its strong competitor Coca

Cola. It has varied products. The list can be seen in appendix 2.

Coming to the financial aspect of the company, Pepsi co reported many positive findings in its

recent results. Net revenues increased to 13 percent and net operating profit increased by 9

percent and division operating profit both grew by 10 percent.( http://phx.corporate-

ir.net/phoenix.zhtml?c=78265&p=irol-newsArticle&ID=1134344&highlight=).The growth

in the market for PepsiCo can be seen more evidently especially in the Middle east , China ,

Brazil, Argentina, India and Russia.

Industry Analysis: The soft drink industry saw a decrease in the sales when the last reports

came in according to the Beverages industry magazine report. Many issues were attributed to the

decrease in the sales of the company.

Porters’ Five Forces Model:

3
Barriers to New Entrants: The barriers to entry for the soft drink industry are not a matter of

concern for the new entrants. But after PepsiCo and Coca Cola entered into Legal trouble in

India and other countries , many pre requisites were needed to be considered like the

environmental factors , the local government permission, permission from the country’s food

authority whether the products being used are hazardous to the people who consume it and the

like. The capital required to put up an industry is again not that much of a problem. Considering

the capital attribute, entering into the soft drink industry is not a problem. But to gain sales and

beat the top giants like Coca Cola and PepsiCo is not that easy and to grab the market share of

these giants is also not that effortless. As these two giants have the brand loyalty which cannot be

taken by any new entrant it’s not a cake walk if this attribute is considered.

Threat of Substitutes: The threat of substitutes is not a matter of concern for the existing brands

till recently. These brands had and still have a high level of brand loyalty, which makes it less

possible for the customers to switch to other brands. This has been the scenario till recent. But

the recent reports in the Beverage Digest show that the customers are not that brand loyal as

before. Also the risks associated to the carbonated drinks have made customers to switch to other

products like bottled water, tea, coffee, energy drinks and the like.

Growth in the industry: There was a considerable growth of the sales of the non carbonated

drinks and flavored water( inc to what volume) .The other and the most major contribution was

from the carbonated drinks .( inc in this what percent ).Both Coca Cola and Pepsi Co showed

an expansion in the product line of the soft drink industry. Coca cola which did not have any

positive growth in the Tea sector decided to emphasize on this sector as well. The company later

invested 40 percent in Honest Tea.( Sarah Theodore, march 2008). Statistically speaking the

result for carbonated soft drinks showed a positive result. But the soft drinks sales were positive
4
in most of the countries other than north America.The overall results were a matter of threat to

the carbonated soft drinks (CSD). Much promising results were seen in the bottled water, energy

drinks, tea and the like. Also the diet CSDs has declined in the total volume of sales by 5 percent

(beverage industry report) .This is not an expected outcome from the Diet CSD segment. So the

growth entered a saturation point in North America and diversification of the product line was

the only option available to keep track of the profits.

Rivalry among Competitors: The industry has three main competitors .They are PepsiCo, Coca

Cola and Cadbury Schweppes. The competition between PepsiCo and Coca Cola is considered to

be neck to neck followed by Cadbury Schweppes which also has a global footage similar to the

top two giants but not to that extent. According to beverage digest (Edition), the market share in

2007 for the soft drink industry in the US shows that Coca Cola has 42.8 percent of the share

followed by PepsiCo which occupies 31.1 percent of the market share. ( http://www.mind-

advertising.com/sectors/sector_softdrinks.htm). If we look at the brand loyalty factor which

plays a major role in the soft drink industry shows that PepsiCo ranks more in brand loyalty

compared to the other soft drink giant Coca Cola. Also the recent market trends show that

PepsiCo is getting into much diversification of products, the reason for it to be a strong

contender to be in competition with Coca Cola.

Bargaining Power of Customers: The bargaining power of the customers is medium according

to my observation. The end customer in most of the Asian countries doesn’t consume large

quantities of soft drinks compared to the Western countries like North America, Canada and the

like. So the bargaining power is not great in such countries. But if we consider the case of North

America the consumption level of such drinks is very high .And mediocre like Wal-Mart

5
purchase a large volume of soft drinks, making them have a high bargaining power. That is the

way Wal-Mart has reduced prices compared to the rest.

The end customer was the house hold individual .But to reach the end customer the soft drink

companies had to make use of some intermediaries. The intermediaries for this industry are super

markets, gas stations, food chains and the like. So if the end individual is considered, the

individual doesn’t have much bargaining power. The recent reports for 2007 from Euro Monitor

(http://0-ww.portal.euromonitor.com.catalog.lib.cmich.edu/portal/server.pt?

control=SetCommunity&CommunityID=207&PageID=720&cached=false&space=CommunityP

age) show that the major division of the end customers is teens followed by pensioners. The

statistics for the customer segmentation calculated in ‘000 were 860,930.2 for teens and

695,392.9 for pensioners.

Products/ services:

Bargaining power of Suppliers: The suppliers for the soft drink industry mainly consist of

sugar industry and other sweeteners like corn syrup which act as substitutes for syrup, bottlers.

Relationship with the bottlers should be a cordial one, as they a major role in supplying of the

cases. When a company tries to have a deal with the bottlers, they should have a check on the

bottlers’ financial stability .The bargaining power for the sweeteners industry is less as they have

very few customers for their products. Whereas the bottlers on the other hand have a more

bargaining power and some of them being publicly traded companies, the bargaining power of

such companies is even higher. Also the profitability of the bottlers should be taken care of or

else the business of the soft drink company could be at stake. The bargaining power of the bottler

6
industry could be high because of the above stated facts. But the bargaining power of the

sweeteners is low as, the industry has many substitutes for them. They have less bargaining

power as they are not many takers except for a few.

Opportunities: The current trend in the industry shows that there are many threats. To overcome

all these threats would be a challenge in itself.

1. One opportunity would be to come up with innovated product line which could act as a perfect

substitute to the existing line of carbonated drinks. This not only helps the soft drink industry to

come out of its reducing sales but also helps in increasing the revenues. The diversification in the

product line like flavored water, energy drinks did see a considerable increase in the overall sales

of the soft drink companies.

2. The top giants in the soft drink industry have been making good use of the media to promote

their products. The new technology of internet has been the new segment to target the audience.

Most of the nations have been seeing the new trend of soft drink companies trying to promote

their products. This is a welcome step to the industry to increase its sales which have shown a

lull in 2007.

3. Merging with substitute drink product companies like tea and coffee can provide a new

platform for the existing companies.

4. Trends have been changing in most of the developing countries and most of the market is

untapped. So entering into such markets is an opportunity for the companies.

7
5. The accessibility to soft drinks in most of the Asian countries is not to same extent as in the

US. By providing suppliers or vending machines in busy places like malls, colleges and markets

can help the soft drinks companies to boost up their sales.

Threats: The current situation shows that the threats could surpass the opportunities .But taken

these threats as opportunities the companies can survive the reduction in the profits in the years

to come.

1.The Decline in the Diet carbonated Soft Drink segment showed that there is a reduction of 5

percent in the sales in all companies for the year 2007.This could reduce even further for the

coming years . The reason for the decline should be investigated and a solution should be

obtained to reduce any further damage to the Diet CSD.

2. The recent report has shown that the brand loyalty of the consumers has decreased over the

years. So there could be a shift in the tastes for other soft drinks or other drinks like energy

drinks, flavored water and the like. This could seriously cause a threat to the CSD as the recent

sales also have not been promising which could lead to more reduction in the sales.

3. The recent economic crisis has increased in the price of all the basic commodities like

Aluminum, sugar and the like which are used in manufacturing the soft drinks and their cans.

This has become an issue of concern for the companies who are bearing the heat of this increase.

The only option available is to increase the price. But in the current situation, increasing the price

is a kind of risk to the companies. But how they come out with a solution is the one to wait and

watch.

4. The propaganda of people becoming obese due to the intake of soft drinks has been seeing

much unconstructive outcome to the soft drink Industry. In India most of the schools have
8
stopped the use of Soft Drinks and also discouraged students to stop drinking them. Even in the

US initially the soft drink advertisements targeted the kids. But rumors like obesity coming up

the ads stopped targeting kids’ .But, the overall result is a threat to the Soft Drink industry.

5 .The beginning of this century saw much problem to the soft drink industry in India. Reports

showed that pesticides were used in soft drinks like Coke and Pepsi which were harmful for the

people. Later huge protests were carried out against the ban on soft drinks in India. This was the

time which saw the meet between the two soft drink giants who discussed on the crisis situation

in India. It took a lot for these companies to come out of their negative image and keep going.

The sales of soft drinks have stopped drastically during that time. Situations like this are a very

serious threat to the growth of the industry.

Macro Environment Analysis:

1. Changing trends: Most of the third world countries have shown good progress economically.

The standards have increased which automatically increase the consumer spending level. So the

changing trends in all such countries have an effect on the soft drink industry.

2. Taste Preferences: The taste preferences also are of prior importance. The tastes of people in

one country differ in the tastes of another. The minute maid orange juice product in India tastes

differently from the same product in the US. So considering the tastes is an important criterion.

3. Government policies: After the issues faced by the soft drinks in India, most of the countries

are rechecking their policies making it safer for the people to consume the products. Also to put

up a soft drink industry various aspects needed to be considered like the environmental factors so

that the plant doesn’t pollute the environment around it .

9
4. Quality of Water: Water is an important ingredient in preparing soft drinks. But water is not

available in plenty. So how do soft drink manufacturers come about solving the problem without

compromising on the quality is the one to watch out for?

5. Globalisation: The world is becoming flatter day by day. This helps the soft drink companies

to venture into new countries and markets to boost up their sales.

Strategic groups: The two brands considered in this paper are PepsiCo and Coca Cola .Both are

globally acclaimed brands .To graph them on 2 particular attributes is the crux of the below

diagram:

ANALYSIS OF THE STRENGHTS AND WEAKNESSES:


COCA COLA:

10
Coca Cola has undoubtedly been in the forefront in the soft drink industry. Many markets in the

US have reached a saturation point due to which the volume of sales in the region have been

decreasing which is not a encouraging outcome for the company .But according to (

Anonymous, Jan 2008) the author argues that there would be an increase in the sales in the soft

drink industry. Also the company is trying to have the top spot where Pepsi co is on its heels to

head towards the top .The recent list of Fortune 100 shows Coca cola placed in the 83rd position

with its net revenue as $ 28,857 Million and the profit compared to the previous result was $

5,981 million. These statistics show that the company has been showing promising returns in

terms of revenue.

STRENGHTS:

Innovation

1.The strategies which coca cola has implemented in the Latin American countries , by

integrating the roles of the wholesaler and the distributor into one has shown promising results

especially in countries like India and China.( Carlos Niezen, Julio Rodriguez, (2008)).

2. Coca cola has the knack of increasing its sales. Kudos to the marketing firm which coca cola

hired which came up with new techniques to boost its sales. One such result was shown in a Deal

where Coca cola and Subway jointly tried to promote their products .The end result was quite

promising .The revenues for both Coca Cola and Subway increased significantly.( COCA-

COLA SCORES POINTS. (2008, March).

3. The company came up with a museum for itself .One way to increase its revenue I suppose. It

charged a fee for entry into the museum .No matter the management says that it is not for profits,

11
I could well analyze that the company receives huge profits in return.( . Jennifer Wedekind

(2007)).

Quality:

4. The taste of Coca Cola is considered to be the best in its segment. The syrup used in preparing

Coca Cola is often termed as a secret formula. Over the years Coca Cola is able to get through

the competition only based on its quality.

Efficiency:

5. The products of Coca Cola are very much diversified. The company has a been consistent

enough to take care of all the products, their prices, promotion and their presence globally. The

Company has said to be quite efficient in managing its diversified products without

compromising on the quality.

Customer responsiveness:

6. A look at the company’s website shows all the responses to the queries posted by various

parties. It could be individuals, the intermediaries and the like .The company has a very well

organized customer responsive platform which is the reason for the company to be at the top.

Weaknesses:

1. The company tried to portray an excellent picture of itself for the customers by

advertising for the green marketing crush, a way of showing its social responsibility. But

the way the ads came up, boasted completely about Coca Cola and its products. In sense

12
the advertising strategies of Coca cola at times miss the track due to which the company

loses its brand loyalty and goodwill.


2. It is said that after the demise of Cokes CEO in 1997 the company lost hold in promoting

its products in the right way to the customer. There was a lot of perplexity about which

strategies should they implement, when should they implement and how to implement.

The situation at one point of time became very tentative. The reason which could be

analyzed from that crisis situation was due to improper communication gaps and also

reduction in the confidence levels in the strategies made by the company top

management.

PEPSI:

Pepsi the other cola giant in the industry after Coke has a greater brand loyalty compared to Coca

Cola. The innovations in the product line which Pepsi has been coming up with had made Pepsi

see an increase in the sales according to the report in the Beverages Digest (What percent).

The CEO of the company Ms Indra Nooyi was credited with the current strong position in which

the company is in now; the company has been showing persistent growth over the years which

has become a reason for the investors to take a deep breath. The statistics for the Q4 of 2007

showed that the revenue of the company rose to 17 percent. I don’t think Pepsi needs to worry

much more when the analysts of bank Of America stated PepsiCo   "is   demonstrating   great

flexibility   in   a   tough   environment ."(FEBRUARY 19 2008: 4:23 AM EST the   Pepsi

challenge

Can this snack and soda giant go healthy? CEO Indra Nooyi says yes, but cola wars and corn

prices will test her leadership. By Betsy Morris, senior editor)

13
STRENGHTS:
Efficiency:
1. A dynamic management which came up with new strategies has helped Pepsi to increase

its market share and also address issues related to the international markets.
Innovation:
2. Pepsi came up with advertising strategies which helped the company have a good

interaction with the customers. This helped the brand to get a closer relationship with the

customer. This could be one reason why Pepsi has a more Brand Loyalty compared to its

Arch rivals.
3. The company always comes up with new products which have thrown light on the

innovation for new products within the company. The increase in sales for products like

Mountain Dew even when the soft drink industry was facing a lull proves it all.

Quality:

4.according to the American Society for Quality(ASQ) reports for 2006 , Pepsi has led the race

where it got an overall score of 91.The reason behind this was Pepsi acted instinctively to the

changes in the trends in the market.

Customer Responsiveness:

5. PepsiCo has been quite responsive to its customers quite over the years. This could another

attribute for the success of Pepsi on an overall basis. Also compared to its competitor PepsiCo

has more brand loyalty which is very important for a company to survive in the market. PepsiCo

grabbing the top slot in brand loyalty made the company run successfully over the years.

WEAKNESSES:

14
1. The company has been closing some of its plants affecting the employees and their jobs.

This created a mild tension in the company.


2. No matter the company is doing great business in the beverage industry its still lagging in

the overall profits compared to its competitor Coca Cola .Coca Cola has found itself in

the Fortune 100 list , where as Pepsi could not find itself in the Fortune 100 list .
3. Pepsi faced a lot of backlash from India, where a number of non government

organizations have stated that the company was polluting the surroundings of one of its

plants in a village in Kerala making it difficult for people living around the plant .Also

there was a complaint that the water levels have been receding creating a scarcity for

water. It took a lot of time for the company to come out of this problem. This was the

worst ever weakness in the history of the company.

Comparison of strengths and weaknesses between the two companies:

COMPARING THE COMPETITVE ADVANTAGES BETWEEN THE TWO

COMPANIES:

1. PROMOTION AND ADVERTISING STRATEGIES: Pepsi Co has a very strong

advertising strategy both in US and in other foreign countries. It tries to rope in popular

stars of all times into promoting their product. This could be one reason for Pepsi to have

more brand Loyalty than Coca Cola. No matter Coca cola is the number one company in

the soft drink industry, but still Pepsi has been the forerunner in implementing right

advertising strategies.
2. INNOVATING NEW PRODUCT LINE: Pepsi has a very strong innovation team. That

is the reason we can see a vivid variety of Drinks not only in the carbonated segment but

also in the other segments as well. To overcome the threat of decrease in the volume of
15
sales in the carbonated segments the companies were forced to think out of the box. Pepsi

considered this threat to be an opportunity in disguise and reiterated with a diversified

product line i.e., the flavored bottled water segment and the energy drinks segment. Coca

Cola did come up with products in the same segment , but Pepsi was very quick to react

to the threat.
3. MARKETING STRATEGIES: Marketing strategies are equally important for a

company to survive in the competition. Coca Cola has done the same to be at the top

constantly. Not once or twice, Coca cola could be considered to have good marketing

strategies to boost up its sales and remain at the top even when Pepsi has got better

innovation and brand loyalty. The case of integrating the whole seller and the distributor

concept clicked for the company. So did its planning with Subway to increase the sales

for the so drink work in favor of the Giant Beverage Company.


4. DYNAMIC TOP LEVEL MANAGEMENT: The success of any company would

depend on the dynamism portrayed by the top level management of the company . Coca

Cola had a very strong leader Roberto C. Goizueta until 1997. But after the demise of

Roberto the company’s top management was loose threaded. The planning, decision

making and other top level discussions did not have a great impact on the company’s

sales. This became a bottleneck to the company’s further growth. A management which is

very efficient is a prerequisite for the success of any company. But when the top

management lacks the confidence in the decision making process, there is no way the

company can go forward. On the other side, Pepsi has a very dynamic management under

the leadership of the CEO Indra Nooyi who has made Pepsi to go on the success track.

The Indian water pollution crisis, its international hold, everything has been carved out

well by the top management of the company .The recent Times magazine has also

16
credited the CEO of the company to be the reason behind the success of the company in

the international market. She stood first in 50 most powerful women. So a management

which is strong in its decision making processes could be the reason which has the

maximum weight for a company to succeed.


5. UNETHICAL ADVERTISEMENTS: No matter Pepsi is famous for its Ads, but it at

times came out of its ethical ways to get to the top. A recent ad showed a boy buying two

coke cans and standing on the

(http://crackle.com/c/Commercials/Banned_Pepsi_vs_Coca_Cola/513528) 2 cans to

reach the button to press Pepsi. It’s a complete unethical way .Also a Ad in India of Pepsi,

imitated a famous actor who promoted Coke in the wrong way .a lot of disturbances did

come up after advertising the Ad on the television. Such unethical ways should be

avoided Or else Pepsi could lose its brand image for being unethical.
6. TARGETING THE YOUNGER GENERATION: PepsiCo has been very successful in

attracting the youth by coming up with slogans like “Generation Next” which has been

one of the best slogans of Pepsi. The ad featured the Spice girls which made it more

attractive to the youth. The other competitor Coca Cola tried its best , but could not

attract the youth to the extent of PepsiCo.

References:

COCA COLA: (http://www.thecoca-colacompany.com/heritage/ourheritage.html)

http://www.thecoca-colacompany.com/investors/pdfs/10-K_2007/Coca-Cola_10-

K_Item_01a&b.pdf ( coca cola pdf file on the desktop)

( pg 22 , beverage industry, march 2008, Elizabeth Furhman)

17
( http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-

newsArticle&ID=1134344&highlight=)

Beverage industry, march 2008,pg 6 ,Sarah Thodore

.( http://www.mind-advertising.com/sectors/sector_softdrinks.htm

http://0-www.portal.euromonitor.com.catalog.lib.cmich.edu/portal/server.pt?

control=SetCommunity&CommunityID=207&PageID=720&cached=false&space=CommunityP

age

The Euromonitor International 2008 industry review from just-drinks: Management

briefing: Soft drinks

Anonymous. Just - Drinks. Bromsgrove: Jan 2008. pg. 16, 6 pgs

FEBRUARY 19 2008: 4:23 AM EST The Pepsi challenge

Can this snack and soda giant go healthy? CEO Indra Nooyi says yes, but cola wars and corn

prices will test her leadership.By Betsy Morris, senior editor)

Carlos Niezen, Julio Rodriguez. (2008). Distribution Lessons from Mom and Pop. Harvard
Business Review, 86(4), 23-24. Retrieved April 21, 2008, from ABI/INFORM Global database.
(Document ID: 1452219641).

COCA-COLA SCORES POINTS. (2008, March). Brandweek, 49(12), 12. Retrieved April 21,
2008, from ABI/INFORM Global database. (Document ID: 1461831101).

Jennifer Wedekind (2007). Coke's New World. Multinational Monitor, 28(3), 47. Retrieved April
21, 2008, from ABI/INFORM Global database. (Document ID: 1424759971).

18
. Michael Bush (2008, February). SUSTAINABILITY AND A SMILE. Advertising
Age, 79(8), 1,25. Retrieved April 21, 2008, from ABI/INFORM Global database. (Document
ID: 1436588791).

Why Coca-Cola has lost its fizz. (2006). Strategic Direction, 22(1), 19-21. Retrieved April 21,
2008, from ABI/INFORM Global database. (Document ID: 991035761).
Heather Landi (2008, March). An Honest Stake. Beverage World, 127(1784), 10. Retrieved
April 21, 2008, from ABI/INFORM Global database. (Document ID: 1454492331).

Yan Tian (2006). Communicating with local publics: a case study of Coca-Cola's Chinese web
site. Corporate Communications, 11(1), 13-22. Retrieved April 21, 2008, from ABI/INFORM
Global database. (Document ID: 1017921991).

J Andrew Choi (2008). Executive Interview. International Journal of Sport Finance, 3(1), 3-7.
Retrieved April 21, 2008, from ABI/INFORM Global database. (Document ID: 1429748601).
3.

Betsy McKay (2008, March 13). Soft-Drink Sales Volume Slipped Faster Last Year. Wall Street
Journal (Eastern Edition), p. B.6. Retrieved April 21, 2008, from ABI/INFORM
Global database. (Document ID: 1444854901).

(http://crackle.com/c/Commercials/Banned_Pepsi_vs_Coca_Cola/513528)

19