Description
case study on cola wars
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Coca Cola Company and Pepsi Co. are the largest players in the Carbonated Soft Drinks (CSD) industry. Cola war is the term used to describe the campaign of mutually targeted television advertisement & marketing campaigns between Coke & Pepsi. 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.
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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 This report focuses on increasing the overall share and finding new opportunities in the unrevealed markets Highly competitive strategies were utilized in the past by both companies which resulted in cannibalization
Gaining Hold
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Bottling Pricing Brand Strategies To emerge in international markets, they expanded their brand portfolios to include non carb beverages like Tea, Juice, Sports Drink and Bottled Water
Structure of soft drink industry
Concentrate Producers
Soft drink
Company Bottlers
Challenges to soft drink industry
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Flat demand during 1998 – 2004. Contaminations scare in India. Obesity issues. Challenges of internationalization.
Company Profile
The Coca-Cola Company was originally established as the J. S. Pemberton Medicine Company, a co-partnership between Dr. John Stith Pemberton and Ed Holland. Dr. John Stith Pemberton for the first time produced the syrup for Coca-Cola on May 8, 1886
The company was formed to sell three main products. 1. Pemberton's French Wine of Cola (later known as Coca-Cola). 2. Pemberton's Indian Queen Hair Dye, 3. Pemberton's Globe Flower Cough Syrup.
Interbrand’s Global Brand Scorecard for 2003 ranked Coca-Cola the #1 Brand in the World and estimated its brand value at $70.45 billion
BOARD OF DIRECTORS
Brian L. Barber - Vice Chairman; Donald R. Ching - Director; Lorraine Sali - Director; Thomas A. Shepherd- Director; Grant J. Kook - President/CEO/Director; Bob Ellard Director; Ronald S. Waldman - Director; Douglas W. Banzet- CFO/Director; Honourable William McKnight- Chairman
Coca Cola Products and Brands
The Coca-Cola Company offers nearly 400 brands in over 200 countries
Diet Coke (introduced in 1982) Diet Coke Caffeine-Free Cherry Coke (1985) Diet Cherry Coke (1986) Coke with Lemon (2001) Diet Coke with Lemon (2001) Vanilla Coke (2002) Coca-Cola C2 (2004) Aquarius Mineral Water (2004) Diet Coke with Lime (2004) Diet Coke Sweetened with Splenda
(2005)
Coca-Cola Zero (2005) Coca-Cola Black Cherry Vanilla (2006) Diet Coca-Cola Black Cherry Vanilla (2006) Coca-Cola Bl?K (2006) Diet Coke Plus (2007) Coca-Cola Orange (2007)
COCA-COLA
• • • • • • • • • Coca-Cola Thums-up Fanta Limca Sprite Maaza Kinley Georgia Minute Maid
COCA-COLA FAST COMPETETOR
• PEPSI • NESTLE • DABUR
Manufacturing Process
• Ingredient Delivery
• • • • • • • • •
Washing and Rinsing Mixing and Blending Filling Capping Labelling Coding Inspection Packaging Warehousing and delivery
COMPANY QUALITY PROCESS
QUALITY IS OUR HIGHEST BUSINESS OBJECTIVE The Coca-Cola Company exists to benefit and refresh everyone it touches. For us, Quality is more than just something we taste or see or measure. It shows in our every action.
PEPSI'S BEGINNINGS
AS USUAL, WAS HOT AND HUMID IN NEW BERN, NORTH CAROLINA. SO A YOUNG PHARMACIST NAMED CALEB BRADHAM BEGAN EXPERIMENTING WITH COMBINATIONS OF SPICES, JUICES AND SYRUPS, TRYING TO CREATE A REFRESHING NEW DRINK TO SERVE TO HIS CUSTOMERS. HE SUCCEEDED BEYOND ALL EXPECTATIONS, INVENTING THE BEVERAGE NOW KNOWN AROUND THE WORLD AS...PEPSICOLA.
BUILDING THE BUSINESS
Advertising Pepsi-Cola as "Exhilarating, Invigorating, Aids Digestion," the business began to grow. Caleb sold 7,968 gallons of syrup in 1903. Two years later, he awarded two franchises to bottle Pepsi- Cola to independent investors in Charlotte and Durham, North Carolina. In 1906, the number of franchises grew to 15, and leapt to 40 by 1907. By the end of 1910, there were Pepsi-Cola franchises in 24 states, and the company was selling more than 100,000 gallons of syrup per year.
Building a strong franchise system was one of Caleb's greatest achievements.
PEPSI-COLA HITS THE SPOT
Times were tough and five cents was a lot to pay for a sixounce soft drink. So, Guth decided to make Pepsi- Cola a great value for hard-pressed consumers. In Baltimore, he offered twice as much Pepsi for the same price as other soft drinks—a 12-ounce bottle of cola for just a Nickel- and it was a big hit.
BROADENING APPEAL
During its first 65 years, Pepsi Cola Company sold only one product – Pepsi.
In 1965, the Pepsi-Cola Company merged with a successful Dallas, Texas, marketer of salty snacks, Frito-Lay, Inc., to form PepsiCo, Inc.—one of the great consumer products companies on the U.S.
Since Then, PepsiCo, Inc has continued to grow,adding new product lines. Tropicana Products,Inc. joined the Pepsi portfolio in 1998 and gives PepsiCo the strongest brand name in Juice.
The Cola war begins
MARKET CAMPAIGNS
PEPSI
Beat Coke Pepsi generation Young at heart Pepsi, the Choice of a New Generation
COCA-COLA
Americans preferred taste No wonder Coke refreshes Best You can`t beat the real thing Taste it All
Product Portfolio diversification
PEPSI
Teem (1960)
Mountain dew (1964) Diet Pepsi (1964)
COCA -COLA
Fanta (1960)
Sprite (1961) Low calorie Tab (1963)
Non CSD (Merger)
Frito Lay
Non CSD (Purchased)
Minute Maid Duncan Foods Belmont Springs Water
Product launch
Pepsi Teem (1960) Mountain Dew (1964) Diet Pepsi (1964) Lemon Lime Slice (1984) Caffeine free Cola (1987) Sierra Mist (2000) Mountain Dew Code Red (2001) Pepsi One (2005) Coca Cola Fanta (1960) Sprite (1961) Low calorie cola tab (1963) Diet Coke (1982) Caffeine free Coke (1983) Coca Cola Classic (1985) New Coke (1985) Cherry Coke (1985)
Expansions
Pepsi Acquired Pizza Hut (1978), Taco Bell (1986) Merged with Frito Lay to form Pepsi Co. Purchased Quaker Oats Coca Cola Exclusive deal with Burger King, Mc Donald Purchased Minute Maid, Duncan foods, Belmont Spring Water Acquired planet Java coffee drink brand Acquired Mad River juices & Tea
ADVERTISING
Pepsi: ? Leaned towards the appeal of celebrities, popular music, and young people in television commercials Coke ? Relies more heavily on images of happiness and togetherness, tradition, and nationalism
CELEBRITIES PLAYING PART IN THE SALES PROMOTION OF THE PRODUCT
Coca-Cola
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Pepsi
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SALMAN KHAN AISHWARYA RAI AAMIR KHAN VIVEK OBEROI BIPASHA BASU AKSHAY KUMAR IMRAN KHAN KALKI
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AMITABH BACHHAN SHAHRUKH KHAN PRIETY ZINTA SACHIN TENDULKAR SAIF ALI KHAN SOURAV GANGULY RAHUL DRAVID MOHD. KAIF ZAHEER KHAN HARBHAJAN SINGH YUVRAJ SINGH RANBIR KAPOOR DEEPIKA PADUKONE
The Cola War
The Warfare must be percieved as a continuing battle without blood. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be. If the Coca Cola company did not exist, we’d pray for someone to invent them. And on the other side of the fence, I’m sure the folks at coke would say that nothing contributes to their present day success than Pepsi… - Roger Enrico, former CEO of Pepsi
Economics of U.S. CSD Industry
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In 1970, average consumption 23 gallons 3% growth every year Many alternatives – yet CSDs highest consumed drink Cola segment of CSD industry dominated
Major participants of the soft drink industry
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Concentrate producers Bottlers Retail channels Suppliers
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Concentrate Producers
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Raw material- blended and packaged in plastic canisters Low capital investment in labor, machinery, overhead Manufacturing plant cost $25 to 50 million- 1 plant could serve the entire US Significant costs include
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Advertising Promotion Market Research Bottler Relations
Concentrate Producers Contd..
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Marketing programs financed jointly by concentrate producers and bottlers Concentrate producers helped bottlers
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to improve their performance negotiations with their suppliers to ensure reliable supply at lower prices
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Coke & Pepsi CPs combined market share76%
Bottlers
BUY CONCENTRA TE
CARBONAT ED WATER
BOTTLER
HIGH FRUCTOSE CORN SYRUP
BOTTLED OR CANNED
Bottlers
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DSD delivery
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Product stacking Positioning the trademarked label Cleaning the packeages and shelves Point-of-purchase & end-of-aisle displays
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Capital-intensive- bottling plant cost $25mn to $75 mn 80-85 plants required for full distribution across US
Bottlers Contd..
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Bottlers cost of goods sold
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Additional investment in trucks and distribution networks Bottlers
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Packaging 50% Concentrate 33% Sweeteners 10% Lobor 7%
2000 in 1970 300 in 2000
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Original 1899 Coca Cola franchise contract- a fix price contract, even if ingredient cost changed 1987 Master bottler contract used pricing formula that changed quarterly Franchise agreements of both Pepsi & Coke allowed bottlers
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To handle non cola brands of other CPs Choice to introduce new beverages introduced by CPs But bottlers could not carry directly competing brands
Exclusive territories
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Soft drink Intrabrand Competition Act, 1980
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Retail Channels
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Distribution of CSDs in US
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Food stores 35% Fountain outlets 23% Vending machines 14% Convinience stores 9% Other outlets 20%
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CSDs largest selling product in SUPERMARKETS
Retail Channels Contd.
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Coca Cola Dominated fountain sales- 65% in 2000 Fountain sales for restaurants- profitable
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McDonalds Burger King
Pepsi Focused on retail outlets Entered Fast food restaurant business to increase fountain outlets
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Fountain accounts handled by national franchiser companies
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Pizza hut Taco bell Kentuky fried chicken
Suppliers
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Raw material for Concentrate
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Raw material for bottlers
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Caramel coloring Phosphoric/citric acid Natural flavors Caffeine Artificial sweetener
Packaging
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Sweeteners
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Cans 60% Plastic bottles 38% Glass bottles 2% Sugar high fructose corn syrup
BEGINS :
Alferd Steele , a former Coca-Cola marketing executive, became Pepsi’s CEO. Steele made “Beat Coke” his theme.
Encouraged bottlers to focus on take – home sales through super markets.
1950
Launched 26 ounce bottles, targeting family consumption.
1950
Coke stayed with 6.5 ounce bottles
1950
Launched Pepsi Generation
• New CEO Donald Kendell • Intense commercial using sports cars etc and catchy slogans. • Targetted young people.
• narrowed Coke’s lead to a 2 to 1 margin.
1963
Worked with bottlers to modernize plants and improve store delivery services. Pepsi’s bottlers became larger than Coke.
1963
Began advertising: American’s Preferred Taste.(1955)
No Wonder Coke Refreshes Best (1960)
Coke’s bottling network remained fragmented. 800 independent franchised bottlers in 50,000 cities.
Pepsi sold concentrate at a price 20% lower than Coke
FANTA (1960) SPRITE (1961) LOW CALORIE TAB (1963)
PRODUCT PORTFOLIO DIVERSIFICATION
TEEM (1960) MOUNTAIN DEW (1964) DIET PEPSI (1964)
NON CSD ( PURCHASED)
MINUTE MAID DUNCON FOODS BELMONT SPRINGS WATER
NON CSD (MERGER)
FRITO LAY
EXPANSIONS
EXCLUSIVE DEAL WITH BURGER KING, MC DONALD ACQUIRED PLANET JAVA COFFEE ACQUIRED MAD RIVER JUICES AND TEA
ACQUIRED PIZZA HUT (1978), TACO BELL (1986)
MERGED WITH FRITO LAY AND FORMED PEPSI CO. PURCHASED QUAKER OATS
THE PEPSI CHALLENGE:
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Launched Pepsi Challenge in Texas. Blind taste test. Coke countered with rebates, rival claims, retail price cuts and series of advertisements questioning the tests validity.
Cola war heats up :
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Coke switched from sugar to lower priced high fructose corn soup. Diet coke was introduced.
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Market efforts were also intensified. Coke elevated its advertising expenditure from $74 m to $ 181 m. pepsi dis it from $ 66 m to $125 m. 1985, coke announced its change of 99 year formula.
Cola war heats up :
Coke introduced 11 new products.
Pepsi introduced 13 products.
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SMALLER CONCENTRATE PRODUCERS WERE INCREASINGLY SQUEEZED.
BOTTLER CONSOLIDATION AND SPIN OFF:
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Coke’s strained relations with its bottlers. Coke began buying up poorly manged bottlers, infusing capital and quikly reselling them to better bottlers. Pepsi also followed coke and aquired MEI bottling for $ 591 m. After 10 years, pepsi changed the course and adopted the anchor bottle model.
Adapting to the times:
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Balancing market growth Market share Profitibilty Rise of non-cola beverages.
Internationalization
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Mexico, Brazil, China, India and Eastern Europe were the next big markets. Coke was dominant in Western Europe and much of Latin America Pepsi was dominant in Middle East & Southern Asia American drank 874 eight ounce cans of CSDs in 1999, Chinese drank 22
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Coca Cola became popular after World War II Became synonymous with American Culture Pepsi laid less emphasis on international operations Markey share was 62% for coke and 20% for Pepsi in 1980s Pepsi utilized Niche Strategies and targeted “Coke Fortresses” in 1990s
Problems faced
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Cultural differences, political instability, regulations, price control, advertising restrictions and lack of infrastructure Coke set up vending machines and Pepsi gave exclusive distribution rights to businessmen in towns Also explored market for non cola drinks Crisis led to annual growth of less than 3% in 1990s Introduced Refundable Glass Packaging and cheaper 6.5 ounce bottles Profitability - Concentrate producers earned more profit than bottlers
PEPSI Co. Challenge
Pepsi Co. Coca Cola
Blind taste test
Eroded Coke’s market share
Rebates
Retail price cuts Advertisement questioning test validity Re- negotiation of contract with franchisee bottlers
About 70% of Coke’s sales & about 80% of its profit came from outside the U.S.; onl about 1/3rd of Pepsi leverage sales took place overseas.
Reversal of Fortune – (1996 2004)
Pepsi
Pepsi flourished Acquisition of Quakers oat Net income rose by 17.6% per year
Coke
Coke struggled Flat growth Annual growth in net income falls to 4.2% from 18% (1990 - 1996)
ROI 29.3% from 9.5% (1996)
Share holder’s return 26%
SWOT Analysis
Pepsi Co.
• High profile global presence • World’s 2nd best selling soft drink brand • Constant product innovation • Aggressive marketing strategy using celebrities • Broad product portfolio
• Carbonated soft drink market is declining • Only target young people.
Strength
Weakness
Opportunity
•Increased customer concern regarding drinking water •Growth in healthier beverages •Growth in Asian beverages •Growth in functional drink industry
Threat
• Obesity & health concern • Coca Cola increases spending on marketing and innovation • Relying only on North America is bad
SWOT Analysis
Coca Cola
• High profile global presence • 4 0fBroad based bottling strategy • 47% of global volume sales in carbonates top 5 leading brands
• Carbonated soft drink market is • declining • Over complexity of relationships • with bottlers in North America • · Execution ability
Strength
Weakness
Opportunity
•Soft drink volume in the Asia Pacific region forecast to increase by over 45% •Wise & Health concerned positioning of brands like Minute Maid & Minute Light. •Use distribution strengths in Eastern Europe & Latin America.
Threat
• Obesity & health concern • Tropicana & Aquafina from Pepsi • Protest in India • Negative publicity by Pepsi
Porter’s Five Forces Analysis
Barriers to entry
• Exclusive territories • Substantial investment • Current market performance • Fear of retaliation
Power of buyers
• Super markets • Mass • merchandiser
Power of Suppliers
• Sugar • Packaging • Weak as only basic commodity ingredients are required
Substitutes
Rivalry
Alliances Pepsi Coca Cola · Acquisitions · Product
Who has been losing?
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Smaller brands are losing Entry barriers Duopoly
Hence these brands merge into bigger brands or are acquired by bigger brands
Who is winning the war?
Year
Pepsi(%)
Coca-Cola(%)
1950
1970 1990 2000 2006
10
29 32 31.4 31.7
17
35 41 44 43.1
Market share
Could they boost flagging domestic CSD sales?
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Through product innovation – Aggressive marketing and promotion – Packaging innovation
Would newly popular beverages provide them with new and profitable revenue streams?
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Yes – Non carbonated & bottled water contributed to total volume growth, approximately 100% for coke & 75% for Pepsi. – Contamination issue & obesity issue
Can Coke & Pepsi sustain their profit in wake of flattening demand & the growing popularity of Non CSD’s?
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– By Diversification – Innovation eg. Diet Coke Tie ups with eating outlets and retailers
PREFERENCE TO THE BRAND
To give preferences
PARAMETERS Taste Packaging Price Popularity RESPONSE(%) 70 10 10 10
Changing the brand on basis of price reduction
YES NO 51 % 49 %
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People found both companies` advertisements innovative Pepsi won over in terms of Exciting Offers Television Ads have a major impact on Sales
CONCLUSIONS
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Both companies will lay emphasis on Taste Companies will concentrate more on Advertising. Events and exhibitions will be on high. Companies would take unethical steps in future. Pricing strategies will be reconsidered. Companies may widen their portfolio to
doc_610734743.ppt
case study on cola wars
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?
?
Coca Cola Company and Pepsi Co. are the largest players in the Carbonated Soft Drinks (CSD) industry. Cola war is the term used to describe the campaign of mutually targeted television advertisement & marketing campaigns between Coke & Pepsi. 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 This report focuses on increasing the overall share and finding new opportunities in the unrevealed markets Highly competitive strategies were utilized in the past by both companies which resulted in cannibalization
Gaining Hold
?
?
? ?
Bottling Pricing Brand Strategies To emerge in international markets, they expanded their brand portfolios to include non carb beverages like Tea, Juice, Sports Drink and Bottled Water
Structure of soft drink industry
Concentrate Producers
Soft drink
Company Bottlers
Challenges to soft drink industry
? ? ? ?
Flat demand during 1998 – 2004. Contaminations scare in India. Obesity issues. Challenges of internationalization.
Company Profile
The Coca-Cola Company was originally established as the J. S. Pemberton Medicine Company, a co-partnership between Dr. John Stith Pemberton and Ed Holland. Dr. John Stith Pemberton for the first time produced the syrup for Coca-Cola on May 8, 1886
The company was formed to sell three main products. 1. Pemberton's French Wine of Cola (later known as Coca-Cola). 2. Pemberton's Indian Queen Hair Dye, 3. Pemberton's Globe Flower Cough Syrup.
Interbrand’s Global Brand Scorecard for 2003 ranked Coca-Cola the #1 Brand in the World and estimated its brand value at $70.45 billion
BOARD OF DIRECTORS
Brian L. Barber - Vice Chairman; Donald R. Ching - Director; Lorraine Sali - Director; Thomas A. Shepherd- Director; Grant J. Kook - President/CEO/Director; Bob Ellard Director; Ronald S. Waldman - Director; Douglas W. Banzet- CFO/Director; Honourable William McKnight- Chairman
Coca Cola Products and Brands
The Coca-Cola Company offers nearly 400 brands in over 200 countries
Diet Coke (introduced in 1982) Diet Coke Caffeine-Free Cherry Coke (1985) Diet Cherry Coke (1986) Coke with Lemon (2001) Diet Coke with Lemon (2001) Vanilla Coke (2002) Coca-Cola C2 (2004) Aquarius Mineral Water (2004) Diet Coke with Lime (2004) Diet Coke Sweetened with Splenda
(2005)
Coca-Cola Zero (2005) Coca-Cola Black Cherry Vanilla (2006) Diet Coca-Cola Black Cherry Vanilla (2006) Coca-Cola Bl?K (2006) Diet Coke Plus (2007) Coca-Cola Orange (2007)
COCA-COLA
• • • • • • • • • Coca-Cola Thums-up Fanta Limca Sprite Maaza Kinley Georgia Minute Maid
COCA-COLA FAST COMPETETOR
• PEPSI • NESTLE • DABUR
Manufacturing Process
• Ingredient Delivery
• • • • • • • • •
Washing and Rinsing Mixing and Blending Filling Capping Labelling Coding Inspection Packaging Warehousing and delivery
COMPANY QUALITY PROCESS
QUALITY IS OUR HIGHEST BUSINESS OBJECTIVE The Coca-Cola Company exists to benefit and refresh everyone it touches. For us, Quality is more than just something we taste or see or measure. It shows in our every action.
PEPSI'S BEGINNINGS
AS USUAL, WAS HOT AND HUMID IN NEW BERN, NORTH CAROLINA. SO A YOUNG PHARMACIST NAMED CALEB BRADHAM BEGAN EXPERIMENTING WITH COMBINATIONS OF SPICES, JUICES AND SYRUPS, TRYING TO CREATE A REFRESHING NEW DRINK TO SERVE TO HIS CUSTOMERS. HE SUCCEEDED BEYOND ALL EXPECTATIONS, INVENTING THE BEVERAGE NOW KNOWN AROUND THE WORLD AS...PEPSICOLA.
BUILDING THE BUSINESS
Advertising Pepsi-Cola as "Exhilarating, Invigorating, Aids Digestion," the business began to grow. Caleb sold 7,968 gallons of syrup in 1903. Two years later, he awarded two franchises to bottle Pepsi- Cola to independent investors in Charlotte and Durham, North Carolina. In 1906, the number of franchises grew to 15, and leapt to 40 by 1907. By the end of 1910, there were Pepsi-Cola franchises in 24 states, and the company was selling more than 100,000 gallons of syrup per year.
Building a strong franchise system was one of Caleb's greatest achievements.
PEPSI-COLA HITS THE SPOT
Times were tough and five cents was a lot to pay for a sixounce soft drink. So, Guth decided to make Pepsi- Cola a great value for hard-pressed consumers. In Baltimore, he offered twice as much Pepsi for the same price as other soft drinks—a 12-ounce bottle of cola for just a Nickel- and it was a big hit.
BROADENING APPEAL
During its first 65 years, Pepsi Cola Company sold only one product – Pepsi.
In 1965, the Pepsi-Cola Company merged with a successful Dallas, Texas, marketer of salty snacks, Frito-Lay, Inc., to form PepsiCo, Inc.—one of the great consumer products companies on the U.S.
Since Then, PepsiCo, Inc has continued to grow,adding new product lines. Tropicana Products,Inc. joined the Pepsi portfolio in 1998 and gives PepsiCo the strongest brand name in Juice.
The Cola war begins
MARKET CAMPAIGNS
PEPSI
Beat Coke Pepsi generation Young at heart Pepsi, the Choice of a New Generation
COCA-COLA
Americans preferred taste No wonder Coke refreshes Best You can`t beat the real thing Taste it All
Product Portfolio diversification
PEPSI
Teem (1960)
Mountain dew (1964) Diet Pepsi (1964)
COCA -COLA
Fanta (1960)
Sprite (1961) Low calorie Tab (1963)
Non CSD (Merger)
Frito Lay
Non CSD (Purchased)
Minute Maid Duncan Foods Belmont Springs Water
Product launch
Pepsi Teem (1960) Mountain Dew (1964) Diet Pepsi (1964) Lemon Lime Slice (1984) Caffeine free Cola (1987) Sierra Mist (2000) Mountain Dew Code Red (2001) Pepsi One (2005) Coca Cola Fanta (1960) Sprite (1961) Low calorie cola tab (1963) Diet Coke (1982) Caffeine free Coke (1983) Coca Cola Classic (1985) New Coke (1985) Cherry Coke (1985)
Expansions
Pepsi Acquired Pizza Hut (1978), Taco Bell (1986) Merged with Frito Lay to form Pepsi Co. Purchased Quaker Oats Coca Cola Exclusive deal with Burger King, Mc Donald Purchased Minute Maid, Duncan foods, Belmont Spring Water Acquired planet Java coffee drink brand Acquired Mad River juices & Tea
ADVERTISING
Pepsi: ? Leaned towards the appeal of celebrities, popular music, and young people in television commercials Coke ? Relies more heavily on images of happiness and togetherness, tradition, and nationalism
CELEBRITIES PLAYING PART IN THE SALES PROMOTION OF THE PRODUCT
Coca-Cola
? ? ? ? ? ?
Pepsi
? ? ? ? ? ? ?
?
?
SALMAN KHAN AISHWARYA RAI AAMIR KHAN VIVEK OBEROI BIPASHA BASU AKSHAY KUMAR IMRAN KHAN KALKI
?
? ? ? ? ?
AMITABH BACHHAN SHAHRUKH KHAN PRIETY ZINTA SACHIN TENDULKAR SAIF ALI KHAN SOURAV GANGULY RAHUL DRAVID MOHD. KAIF ZAHEER KHAN HARBHAJAN SINGH YUVRAJ SINGH RANBIR KAPOOR DEEPIKA PADUKONE
The Cola War
The Warfare must be percieved as a continuing battle without blood. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be. If the Coca Cola company did not exist, we’d pray for someone to invent them. And on the other side of the fence, I’m sure the folks at coke would say that nothing contributes to their present day success than Pepsi… - Roger Enrico, former CEO of Pepsi
Economics of U.S. CSD Industry
?
?
?
?
In 1970, average consumption 23 gallons 3% growth every year Many alternatives – yet CSDs highest consumed drink Cola segment of CSD industry dominated
Major participants of the soft drink industry
? ? ?
Concentrate producers Bottlers Retail channels Suppliers
?
Concentrate Producers
?
?
?
Raw material- blended and packaged in plastic canisters Low capital investment in labor, machinery, overhead Manufacturing plant cost $25 to 50 million- 1 plant could serve the entire US Significant costs include
? ?
?
?
?
Advertising Promotion Market Research Bottler Relations
Concentrate Producers Contd..
? ?
Marketing programs financed jointly by concentrate producers and bottlers Concentrate producers helped bottlers
? ?
to improve their performance negotiations with their suppliers to ensure reliable supply at lower prices
?
Coke & Pepsi CPs combined market share76%
Bottlers
BUY CONCENTRA TE
CARBONAT ED WATER
BOTTLER
HIGH FRUCTOSE CORN SYRUP
BOTTLED OR CANNED
Bottlers
?
DSD delivery
? ? ? ?
Product stacking Positioning the trademarked label Cleaning the packeages and shelves Point-of-purchase & end-of-aisle displays
?
?
Capital-intensive- bottling plant cost $25mn to $75 mn 80-85 plants required for full distribution across US
Bottlers Contd..
?
Bottlers cost of goods sold
?
? ? ?
? ?
Additional investment in trucks and distribution networks Bottlers
?
?
Packaging 50% Concentrate 33% Sweeteners 10% Lobor 7%
2000 in 1970 300 in 2000
?
?
?
Original 1899 Coca Cola franchise contract- a fix price contract, even if ingredient cost changed 1987 Master bottler contract used pricing formula that changed quarterly Franchise agreements of both Pepsi & Coke allowed bottlers
?
? ?
To handle non cola brands of other CPs Choice to introduce new beverages introduced by CPs But bottlers could not carry directly competing brands
Exclusive territories
?
Soft drink Intrabrand Competition Act, 1980
?
Retail Channels
?
Distribution of CSDs in US
?
? ? ? ?
Food stores 35% Fountain outlets 23% Vending machines 14% Convinience stores 9% Other outlets 20%
?
CSDs largest selling product in SUPERMARKETS
Retail Channels Contd.
?
?
Coca Cola Dominated fountain sales- 65% in 2000 Fountain sales for restaurants- profitable
? ?
?
?
McDonalds Burger King
Pepsi Focused on retail outlets Entered Fast food restaurant business to increase fountain outlets
?
?
Fountain accounts handled by national franchiser companies
?
?
Pizza hut Taco bell Kentuky fried chicken
Suppliers
?
Raw material for Concentrate
? ? ? ? ?
?
Raw material for bottlers
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Caramel coloring Phosphoric/citric acid Natural flavors Caffeine Artificial sweetener
Packaging
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Sweeteners
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Cans 60% Plastic bottles 38% Glass bottles 2% Sugar high fructose corn syrup
BEGINS :
Alferd Steele , a former Coca-Cola marketing executive, became Pepsi’s CEO. Steele made “Beat Coke” his theme.
Encouraged bottlers to focus on take – home sales through super markets.
1950
Launched 26 ounce bottles, targeting family consumption.
1950
Coke stayed with 6.5 ounce bottles
1950
Launched Pepsi Generation
• New CEO Donald Kendell • Intense commercial using sports cars etc and catchy slogans. • Targetted young people.
• narrowed Coke’s lead to a 2 to 1 margin.
1963
Worked with bottlers to modernize plants and improve store delivery services. Pepsi’s bottlers became larger than Coke.
1963
Began advertising: American’s Preferred Taste.(1955)
No Wonder Coke Refreshes Best (1960)
Coke’s bottling network remained fragmented. 800 independent franchised bottlers in 50,000 cities.
Pepsi sold concentrate at a price 20% lower than Coke
FANTA (1960) SPRITE (1961) LOW CALORIE TAB (1963)
PRODUCT PORTFOLIO DIVERSIFICATION
TEEM (1960) MOUNTAIN DEW (1964) DIET PEPSI (1964)
NON CSD ( PURCHASED)
MINUTE MAID DUNCON FOODS BELMONT SPRINGS WATER
NON CSD (MERGER)
FRITO LAY
EXPANSIONS
EXCLUSIVE DEAL WITH BURGER KING, MC DONALD ACQUIRED PLANET JAVA COFFEE ACQUIRED MAD RIVER JUICES AND TEA
ACQUIRED PIZZA HUT (1978), TACO BELL (1986)
MERGED WITH FRITO LAY AND FORMED PEPSI CO. PURCHASED QUAKER OATS
THE PEPSI CHALLENGE:
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Launched Pepsi Challenge in Texas. Blind taste test. Coke countered with rebates, rival claims, retail price cuts and series of advertisements questioning the tests validity.
Cola war heats up :
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Coke switched from sugar to lower priced high fructose corn soup. Diet coke was introduced.
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Market efforts were also intensified. Coke elevated its advertising expenditure from $74 m to $ 181 m. pepsi dis it from $ 66 m to $125 m. 1985, coke announced its change of 99 year formula.
Cola war heats up :
Coke introduced 11 new products.
Pepsi introduced 13 products.
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SMALLER CONCENTRATE PRODUCERS WERE INCREASINGLY SQUEEZED.
BOTTLER CONSOLIDATION AND SPIN OFF:
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Coke’s strained relations with its bottlers. Coke began buying up poorly manged bottlers, infusing capital and quikly reselling them to better bottlers. Pepsi also followed coke and aquired MEI bottling for $ 591 m. After 10 years, pepsi changed the course and adopted the anchor bottle model.
Adapting to the times:
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Balancing market growth Market share Profitibilty Rise of non-cola beverages.
Internationalization
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Mexico, Brazil, China, India and Eastern Europe were the next big markets. Coke was dominant in Western Europe and much of Latin America Pepsi was dominant in Middle East & Southern Asia American drank 874 eight ounce cans of CSDs in 1999, Chinese drank 22
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Coca Cola became popular after World War II Became synonymous with American Culture Pepsi laid less emphasis on international operations Markey share was 62% for coke and 20% for Pepsi in 1980s Pepsi utilized Niche Strategies and targeted “Coke Fortresses” in 1990s
Problems faced
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Cultural differences, political instability, regulations, price control, advertising restrictions and lack of infrastructure Coke set up vending machines and Pepsi gave exclusive distribution rights to businessmen in towns Also explored market for non cola drinks Crisis led to annual growth of less than 3% in 1990s Introduced Refundable Glass Packaging and cheaper 6.5 ounce bottles Profitability - Concentrate producers earned more profit than bottlers
PEPSI Co. Challenge
Pepsi Co. Coca Cola
Blind taste test
Eroded Coke’s market share
Rebates
Retail price cuts Advertisement questioning test validity Re- negotiation of contract with franchisee bottlers
About 70% of Coke’s sales & about 80% of its profit came from outside the U.S.; onl about 1/3rd of Pepsi leverage sales took place overseas.
Reversal of Fortune – (1996 2004)
Pepsi
Pepsi flourished Acquisition of Quakers oat Net income rose by 17.6% per year
Coke
Coke struggled Flat growth Annual growth in net income falls to 4.2% from 18% (1990 - 1996)
ROI 29.3% from 9.5% (1996)
Share holder’s return 26%
SWOT Analysis
Pepsi Co.
• High profile global presence • World’s 2nd best selling soft drink brand • Constant product innovation • Aggressive marketing strategy using celebrities • Broad product portfolio
• Carbonated soft drink market is declining • Only target young people.
Strength
Weakness
Opportunity
•Increased customer concern regarding drinking water •Growth in healthier beverages •Growth in Asian beverages •Growth in functional drink industry
Threat
• Obesity & health concern • Coca Cola increases spending on marketing and innovation • Relying only on North America is bad
SWOT Analysis
Coca Cola
• High profile global presence • 4 0fBroad based bottling strategy • 47% of global volume sales in carbonates top 5 leading brands
• Carbonated soft drink market is • declining • Over complexity of relationships • with bottlers in North America • · Execution ability
Strength
Weakness
Opportunity
•Soft drink volume in the Asia Pacific region forecast to increase by over 45% •Wise & Health concerned positioning of brands like Minute Maid & Minute Light. •Use distribution strengths in Eastern Europe & Latin America.
Threat
• Obesity & health concern • Tropicana & Aquafina from Pepsi • Protest in India • Negative publicity by Pepsi
Porter’s Five Forces Analysis
Barriers to entry
• Exclusive territories • Substantial investment • Current market performance • Fear of retaliation
Power of buyers
• Super markets • Mass • merchandiser
Power of Suppliers
• Sugar • Packaging • Weak as only basic commodity ingredients are required
Substitutes
Rivalry
Alliances Pepsi Coca Cola · Acquisitions · Product
Who has been losing?
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Smaller brands are losing Entry barriers Duopoly
Hence these brands merge into bigger brands or are acquired by bigger brands
Who is winning the war?
Year
Pepsi(%)
Coca-Cola(%)
1950
1970 1990 2000 2006
10
29 32 31.4 31.7
17
35 41 44 43.1
Market share
Could they boost flagging domestic CSD sales?
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Through product innovation – Aggressive marketing and promotion – Packaging innovation
Would newly popular beverages provide them with new and profitable revenue streams?
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Yes – Non carbonated & bottled water contributed to total volume growth, approximately 100% for coke & 75% for Pepsi. – Contamination issue & obesity issue
Can Coke & Pepsi sustain their profit in wake of flattening demand & the growing popularity of Non CSD’s?
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– By Diversification – Innovation eg. Diet Coke Tie ups with eating outlets and retailers
PREFERENCE TO THE BRAND
To give preferences
PARAMETERS Taste Packaging Price Popularity RESPONSE(%) 70 10 10 10
Changing the brand on basis of price reduction
YES NO 51 % 49 %
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People found both companies` advertisements innovative Pepsi won over in terms of Exciting Offers Television Ads have a major impact on Sales
CONCLUSIONS
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Both companies will lay emphasis on Taste Companies will concentrate more on Advertising. Events and exhibitions will be on high. Companies would take unethical steps in future. Pricing strategies will be reconsidered. Companies may widen their portfolio to
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