Strategic Marketing Management cola wars

1. COLA WARS CONTINUE :
COKE AND PEPSI IN 2010
PRESENTED BY:
ASHA PAKKI
JAY KRISHNA
DIPINTHI
POORNIMA
GANESH
PHANINDRA
OM PALANI RAJA
ABHILASHA AGARWAL

2. COURTESY :
PEPSI CO
COCA COLA
google.com
slideshare.com

3. How do you Open Happiness?
• Coca-Cola was formulated in 1886 by pharmacist
John Pemperton who sold the product at drug
stores as “potion for mental and physical
disorders.”
• In 1891, Asa Candler acquired the formula,
established a sales force and began brand
advertising of Coca-Cola.
• In 1919, went public under control of Robert
Woodruff expanded and developed in national
and international markets
• Successful during WWII with the high CSD
consumption from the U.S soldiers

4. Who made the Generation Next?
• Pepsi was created in 1893 in North Carolina by
Pharmacist Caleb Bradham.
• By 1910 Pepsi had built a network of 270
bottlers.
• Pepsi struggled and declared bankruptcy twice
• During Great Depression grew in popularity
due to price decrease to a nickel.
• In 1938, Coke sued Pepsi-Cola brand for
infringement on Coca-Cola’s trademark.

5. Economics of the U.S. CSD
industry
• Americans consumed 23 gallons of CSDs annually in
1970
• Consumption grew by 3% per year over the next 3
decades
• Increasing availability of CSDs and introduction of
diet and flavored varieties
• Non-cola CSDs were introduced

6. Concentrate Producer
• Blended raw material ingredients, packaged the
mixture, shipped those container to the bottler.
• Key production investment areas
- machinery, overhead and labor.
• A typical manufacturing plant
cost - $25 million to $50 million
• CDA’s with retailers like Wal-Mart

7. Concentrate Producer
• Significant costs were for
advertising, promotion,
market research.
• Coca-Cola and PepsiCola claimed a
combined 74.8% of the
U.S. CSD market in sales
volume in 2004

8. Production & distribution of CSD
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•
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Concentrate producers
Bottlers
Retail channels
Suppliers

9. Bottlers
Purchased concentrate
Added carbonated water and high-fructose corn syrup
Bottled or canned the resulting CSD product
Delivered it to customer account
Bottling process is capital intensive.
Packaging accounted for 40% to 45% of sales, same for
concentrate and sweeteners for 5% to 10%.
• Coke and Pepsi bottlers offered “direct store door”
delivery.
• Cooperative merchandizing agreements is a key
ingredient of soft drink sales.
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10. Retail channel
•
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•
•
In 2009 distribution of CSDs in U.S.
was through:
Super Markets (29.1%)
Fountain outlets(23.1%)
Vending Machines(12.5%)
Mass Merchandisers(16.7%)
Convenience Stores &Gas
Stations(10.8%)
Other outlets(7.8%)

11. Production & distribution of CSD
• Sales through Retail Channel
Supermarkets
7.80%
10.80%
29.1%
Fountain Outlets
Vending Machines
Mass Merchandisers
16.70%
Convenience stores and Gas
Stations
12.50%
23.1%
Other Outlets

12. Suppliers to Bottlers
• Coke and Pepsi were
among the Metal Can
industry’s largest
customers.
• Major Can producersBall, Rexam, Crown
Cork & Seal

13. EVOLUTION of COKE
• Formulated in 1886 by John Pemberton, a pharmacist in Atlanta, Georgia
• Sold it at a drug store soda fountains as “ a potion for mental and physical
disorders”
• In 1891, Asa Candler acquired the formula, established a sales force and
began brand advertising
• The formula for Coca-Cola syrup known as “Merchandise 7X” remained a
secret

14. THE EVOLUTION OF THE COKE BOTTLE
•
http://www.thedieline.com/blog/2009/11/17/the-evolution-of-the-coca-colacontour-bottle.html

15. EVOLUTION OF PEPSI
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Invented in 1893 in New Bern, North Carolina by pharmacist Caleb Bradham
In 1910 built a network of 270 bottlers
Declared bankruptcy in 1923 and 1932
Business began to grow during the Great Depression
Pepsi lowered price of its 12 –oz bottle to a Nickel – the same price Coke charged
for its 6.5-oz bottle

16. THE EVOLUTION OF THE PEPSI BOTTLE
•The 6 oz. Bottle Era [1905-1933]
•The 12oz. Bottle Era [1934-1960]
•The Non-returnable Bottle Era
[1964-Present]
Source http://bottlebonanza.wordpress.com/2010/11/29/journey-a-look-at-the-history-ofpepsi-bottles/:

17. Coke’s downfall vs Pepsi’s uprise
Coke
• Unsuccessful execution
of several initiatives
– Failed joint ventures with
P&G and Quaker Oats
(the latter was later
purchased by PEPSI)
• Disagreement among
internal top management
and radical shifts in
company policies
Pepsi
• “Grow the core and add some
more” – Pepsi CEO
– Diversified portfolio of Products
– Launch of new CSDs like
Sierra Mist and Mountain
Dew and expanding into
other beverage categories
like Getorade
– Volume growth by 3% in 2004
• Proactive to consumer
demand
– Pepsi distributed its focus
to DIET PEPSI to cater the
increasing popularity of
alternative beverages

30. Adapting to the Times
• New challenges faced by the CSD Industry
from 90’s onwards
– Core product demand was leveling down
– Sales volume grew at a meager rate of 1% or less
between 1998 to 2004 in contrast to 3% to 7%
during the 1980’s and early 1990’s
– Global CSD demand remained flat increasing only
0.26 billion during 1999 and 2003

31. Adapting to the Times
• Challenges related to performance and
execution were addressed by
– Providing alternatives beverages to the health
conscious consumers
– Adjusting key strategic relationships
– Cultivating international markets

32. Strengths
•
•
PEPSI
PepsiCo Brands Enjoy a HighProfile Global Presence
•
Pepsi Owns the World’s 2nd BestSelling Soft Drinks Brand
Constant Product Innovation
•
•
Aggressive Marketing Strategies
Using Famous Celebrities
•
A Broad Portfolio of Products
• COKE
• Coke Brands Enjoy a
High-Profile Global
Presence
• Four of the top five
leading brands
• Broad-based bottling
strategy
• 47% of global volume
sales in carbonates

33. Weaknesses
• PEPSI
• Carbonates Market is
in Decline
• Pepsi is Strongest in
North America
• They Only Target
Young People
• COKE
• Carbonates Market is
in Decline
• Over-complexity of
relationship with
bottlers in North
America
• Execution ability

34. Opportunities
• PEPSI
• Increased Consumer
Concerns with Regard to
Drinking Water
• Growth in Healthier
Beverages
• Growth in RTD Tea and
Asian Beverages
• Growth in the Functional
Drinks Industry
• COKE
• Soft drinks volumes in the
Asia-Pacific region forecast
to increase by over 45%
• Brands like Minute Maid
Light and Minute Maid
Premium Heart Wise are
positioned well with the
“Health-concerned” market
• Use distribution strengths in
Eastern Europe and Latin
America

35. Threats
• PEPSI
• Obesity and Health
Concerns
• Coca-Cola Increases
Marketing and Innovation
Spending to $400M
Globally
• Relying on North
America only is Bad
• COKE
• Growing "healthconscience" society
• PepsiCo’s
Gatorade, Tropicana and
Aquafina are stronger
brands
• Boycott in the Middle East
• Protest against Coke in
India
• Negative publicity in
Western Europe

36. PORTER’S FIVE FORCE MODEL - COKE
SUPPLIER POWER
THREAT OF ENTRY
•CSD market
•More profitable to produce
CSDs other than cola
•Time and capital
requirements for building of
brand image / recognition
/Customer loyalties
•Economies of scale
•High profit margins compared
to bottlers
•Switching costs
•Product differentiation and
positioning for success
•Access to distribution
channels, contracts,
retaliation
•Legal/ regulatory barriers
•Cost disadvantages
dependent on scales
• Suppliers of ingredients / raw
material
•Not very high supplier power
•Suppliers’ price sensitivity
• Relative bargaining power
INDUSTRY RIVALRY
•Concentration
•Competitors: All CSDs
(red bull…)
•Coca Cola and Pepsi are
market leaders brands
•Diversity of
competitors
•Product differentiation
•Excess capacity &
exit barriers
•Cost conditions for
competition (advertising…)
BUYER POWER
• Buyers’ price sensitivity
•Low price, fast decision making
•Large customer base
• Relative bargaining power
SUBSTITUTE
COMPETITION
• Buyers’ propensity
to substitute
•Substitutes: non alcoholic
Beverages ( tea, coffee…)
•Relative prices &
performance of
substitutes

37. PEPSI
SUPPLIER POWER
THREAT OF ENTRY
•Producers started to launch
bottling business: Pepsi Bottling
•Switching barriers
•Contracts with producers
•Relationships with material
suppliers
•Economic conditions, high costs of
sale
•Packaging technology and cost
threats
• Two or three can
manufacturers competed for a
single contract
Buyers
•Long term relationship with
customers
•Dependence on suppliers
INDUSTRY RIVALRY
•Producers have more than
one bottling suppliers
•Competition based on
relationships
BUYER POWER
• Long term relationship with
producers
•Relationship based
SUBSTITUTE
COMPETITION
•Relative prices &
performance of
substitutes
•Restaurants automatic
dispensers (Mc
Donalds…)

38. Challenges to Coca-Cola
• Performance & execution:
on providing alternative beverages
on adjusting key strategic relationships,
on cultivating international markets
• Currency crisis in Asia and Russia
• Recall in Belgium – (public relations disaster)
• Series of legal problems

39. Quest for alternatives
Market share:
• CSD- 80%(2000) to 73.1%(2004)
• Diet soda- 24.6%(1997) to 29.1%(2004)
• Bottled water 6.6%(2000) to 13.2%(2004)
• Non-carbs 12.6%(2000) to 13.7%(2004)
• Non-carbs & bottled water contribution to volume
growth – coke 100% & Pepsi 75%

40. Quest for alternatives
• PEPSI
• No longer designing of
marketing course
• Diet Pepsi, Pepsi One, Diet
Coke with slpenda
• Diet Pepsi as flagship brand
• Non-CSD: total beverage
company
• COKE
• Reluctant to diversify

41. EXHIBITS

42. Production & distribution of CSD
• Suppliers to Concentrate producers & Bottlers
2%
42%
Metal Cans
56%
Plastic bottle
Glass bottle

43. CURRENT UPDATES
PEPSI
CEO
NET OPERATING
REVENUES (2009)
(millions of $)
COCA-COLA
INDRA K.NOOYI
MUHTAR
KENT
$31,990
(exhibit 3 a)
$43,232
(exhibit 3 a)