Coca Cola Pepsi Cola

Coca Cola & Pepsi Cola Submission Date:14/04/2009

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CONTENTS

1.

Executive Summary ………………………………………………………………….4

2.

Aims and Objectives …………………………………………………………………4

3.

Methodology ………………………………………………………………………….4

4.

History of Coca Cola and Pepsi Cola ……………………………………………….5 4.1.Coca Cola International …………………………………………………………5 4.1.1.History: …………………………………………………………………………5 4.2.Pepsi International ………………………………………………………………5 4.2.1.History ………………………………………………………………………….5

5.

Target Market ……………………………………………………………………….6

6.

Major Segments ……………………………………………………………………..6

7.

Factors Effecting Sales ……………………………………………………………...6

8.

Per Capital Income ………………………………………………………………….6

9.

Competitors …………………………………………………………………………7

10.

Weather ………………………………………………………………………………7

11.

Major Customers Need ......…………………………………………………………7 11.1.Major Competitors …………………………….………………………………7 11.2.Threats From Competitors ……………………………………………………8

12.

Expanding Target Market ………………………………………………………….8

13

Consumer Has Got Choice ………………………………………………………….8

14.

Attractive Brand Name ……………………………………………………………..8

15.

Brand Differentiation ……………………………………………………………….8

16.

Coca Cola’s Brand ………………………………………………………………….8

17.

Pepsi’s Brand…………………………………………………………………………9 -2-

18.

SWOT Analysis………………………………………………………………………9 18.1.Strength………………………………………………………………………….9 18.2.Weakness…………………………………………………………………………9 18.3.Opportunity………………………………………………………………………..9 18.4.Threat ……………………………………………………………………………..9 18.1.1.Brand Equity…………………………………………………………………….9 18.1.2.Wide World Market…………………………………………………………….10 18.1.3.Brand Attachment ………………………………………………………………10 18.1.4.Competitive Advantage………………………………....………………………10 18.2.1.Strong Competition ……………………………………………………………..10 18.2.2.Alternative ……………………………………………………………………….10 18.3.1.Introduce New Brands …………………………………………………………..10 18.3.2.Segment ………………………………………………………………………..…11 18.5.Problems & Solution……………………………………………………………….11

19. Macro Environment of Coke and Pepsi………………………………………………..12 19.1.Demographic Forces……………………………………………………………….12 19.2.Economical Forces………………………………………………………………....13 19.3.Natural Forces..........................................................................................................13

19.4.Technology Forces...................................................................................................13 19.5.Political and Legal....................................................................................................13 19.6.Cultural Forces.........................................................................................................13 20 Recommendations……………………………………………………………………….14 21

References……………………………………………………………………………….15

22

Bibliography…………………………………………………………………………….17 -3-

1.Executive Summary Prior versions of the case have been used to teach various subjects, including industry analysis, competitive dynamics, and vertical integration. While this case tries to incorporate some of the essential elements about the history of competitive dynamics and the historical patterns of vertical integration the primary teaching purpose of this case is to discuss the economics of the U.S. soft drink industry. Concentrate producers (CPs) sold syrup and concentrate to franchised of company owned bottlers, and made gross margins of 83% and a pretax profit margin of 30%. The best-know CPs were Coke and Pepsi. Historically, Coke and Pepsi were also major bottlers, but in the mid-to late 1990s, both had divested their bottling operations while maintaining significant equity ownership and indirect control of bottling networks. CPs invested heavily in advertising and marketing. One of the key issues for students to understand is why most of the profits in this industry are earned upstream in the concentrate business. The bottling business was much less profitable than concentrate, particularly in the mid1990s. Bottling profits improved somewhat in recent years, in part because the concentrate manufacturers could no longer squeeze the bottlers without disrupting their own distribution. Bottlers invested in bottling and caning lines, trucks, and warehouses and earned gross margins 40% and pretax profit of 9%. Coke and Pepsi bottlers delivered their products directly to the store which was part of their strategy for differentiation over private label. Private label offered warehousedelivered product. Historically, bottling had been a very good business: Franchised bottling contracts were very generous to the bottler. Coke and Pepsi had given bottles franchises in perpetuity, allowed bottlers the final say on pricing and gave bottlers significant influence over whether to participate in local advertising campaigns promotions new packages and product introductions. In additions bottlers could carry allied brands as long as they did not compete with Coke or Pepsi brand. 2. Aims and Objectives The target of this research is to identify and discuss the two global companies, Coca Cola and Pepsi Cola, which succeed to be the most known soft drinks companies in the world. 3. Methodology In this research, lots of methods were used to find out information about , Coca Cola and Pepsi Cola and general soft drinks industry situation. British Library, London School of Economy’s Library and school library were visited and collected data. In addition, Financial Times and The Times Newspapers were searched worldwide by online. -4-

4. History of Coca Cola and Pepsi Cola 4.1.Coca Cola International 4.1.1.History: Type of the company: Public Website: http://www.cocacola.com Employees: 71000 (2006) The Coca-Cola Company traces it’s beginning to 1886, when an Atlanta pharmacist, Dr. John Pemberton, began to produce Coca-Cola syrup for sale in fountain drinks. However the bottling business began in 1899 when two Chattanooga businessmen, Benjamin F. Thomas and Joseph B. Whitehead, secured the exclusive rights to bottle and sell Coca-Cola for most of the United States from The Coca-Cola Company. (LONNIE, 2003) The Coca-Cola bottling system continued to operate as independent, local businesses until the early 1980s when bottling franchises began to consolidate. In 1986, The Coca-Cola Company merged some of its company-owned operations with two large ownership groups that were for sale, the John T. Lupton franchises and BCI Holding Corporation's bottling holdings, to form Coca-Cola Enterprises Inc. The Company offered its stock to the public on November 21, 1986, at a splitadjusted price of $5.50 a share. On an annual basis, total unit case sales were 880,000 in 1986. (LONNIE, 2003) In December 1991, a merger between Coca-Cola Enterprises and the Johnston Coca-Cola Bottling Group, Inc. (Johnston) created a larger, stronger Company, again helping accelerate bottler consolidation. As part of the merger, the senior management team of Johnston assumed responsibility for managing the Company, and began a dramatic, successful restructuring in 1992.Unit case sales had climbed to 1.4 billion, and total revenues were $5 billion.(LONNIE, 2003) 4.2.Pepsi International 4.2.1.History Type of the company: Public Website: http://www.pepsi.com Employees: 143,000 (2002) Caleb Bradham knew that to keep people returning to his pharmacy, he would have to turn it into a gathering place. Like many pharmacists at the turn of the century, he had a soda fountain in his -5-

drugstore, where he served his customers refreshing drinks that he created himself. His most popular creation was a unique mixture of carbonated water, kola nuts, vanilla and rare oils, named “Brad’s Drink” by his customers. Caleb decided to rename it “Pepsi-Cola,” and advertised his new soft drink to enthusiastic customers. Sales of Pepsi-Cola started to grow, convincing him to form a company and market the new beverage. In 1902, he launched the Pepsi-Cola Company in the back room of his pharmacy, and applied to the U.S. Patent Office for a trademark. An official patent was awarded on June 16, 1903. At first, he mixed the syrup himself and sold it exclusively through soda fountains. But soon Caleb recognized that a greater opportunity existed—to bottle Pepsi-Cola so that people everywhere could enjoy it. (Harvey, 1980)

5.Target Market Coke’s commercials basically based on young generations, So, the young generation is the target market of Coke because they want to represent Coke with the youth and energy but they also consider about the old people they take then as a co-target market. (RONALD,1998) 6.Major Segments Major segments are basically those people who take this drink daily and those areas where the demands is higher then the other areas. There are so many people who take this drink daily and those people who take weekly and those who take less often are always there as well. So, their basic segments are those people who take this drink regularly. (RONALD,1998) 7.Factors Effecting Sales There are so many factors, which affects the sale of coke. Here we are discussing three major factors which effects coke. • Per capita income • Competitors • Weather 8.Per Capita Income First we will discuss about “ Per capita income”. This is major factor that affects the sale of this soft drink. Because which every passing year budgets are becoming very strict and tight in order to purchase things. So the disposable incomes of the people are coming down. They spend -6-

heavily on rents, utilities, and education and basic necessities and after that when they get extra money they think about this soft drink .So the decreasing per capita income effects badly in selling and production of this soft drink. 9.Competitors Coke’s major competitor is “PEPSI” and there is no hesitation to say this because every one knows that and all the other cold drinks and water, coffee, tea are the competitors.(WARREN, 2001) 10.Weather Weather is the third major factor in effecting the Coke’s selling. This is underdeveloped market so the coke’s consumption in summers is 60% and in winters is 40%.(WARREN, 2001) 11.Major Customers Need First of all the majority don’t care that what they are going to have. In other words, they don’t care before drinking that whether it is “Pepsi” or “coke”. They don’t actually differentiate between these two brands in order to their tastes. Consumers basically drink what they get. They believe on “WHAT COLD THEY SOLD” Consumer’s availability in brands is basically works like: Push availability Pull consumer’s demand. For this reason Coca-Cola have provided their coolers and freezers in the market. They have maximum number of coolers and freezers in the market. They provide this infrastructure free of cost just to provide child coke to their customer, which they want to be purchase. Their salesman and mechanics regularly visit all the shops where coke has its infrastructure to check that either it is in proper condition or not, if not then they immediately change or repair it. 11.1.Major Competitors Consumers firstly decide that they are going to have a soft drink. Then they compete brands with each other. Like they compete Coke with Pepsi and Sprite with 7up and team .So the major competitor of Coke is Pepsi. When they motivate to any other brand or on Coke it’s in instinct basically that based on messages derive certain feelings. -7-

But Coca Cola thinks in a different way, they believe that RC Cola, new coming AMRAT Cola, and all juices, even they take water and tea as their competitors. (WARREN, 2001) 11.2.Threats From Competitors Threats are well planned. Price is the major threat. When price goes certain beyond the exact price whether come down or go higher its effects the consumption of soft drink. Because when the price go higher people go for the substitute of “coke” i.e. Pepsi. And when price goes down they think that there is must be some thing wrong in it. In short it all depends on customer’s perception. 12.Expanding Target Market In last 2 years Coke has come back in aggressive manner. (MARCIA, 2000) • Consumer has choice • Attractive brand name • Brand differentiating 13.Consumer Has Got Choice Now the consumer has got choice. Because now they know the name of another big brand, though coke is the 2nd best name but it can get a better position after some time 14.Attractive Brand Name Now the consumers know the Name of Coke, because Coke is the name, which is the most popular after the word “ok”. So people can better differentiate brands with each other. 15.Brand Differentiation Now different companies have got different brand names. So, people can distinguish between brands. Two major brands “coke” and “Pepsi” also have brand names. 16.Coca Cola’s Brand Coca cola is “US” brand. Because they believe in the togetherness, being people together and friends are being together. Coca Cola strongly believes that Pakistani temperament is “US” not “ME” -8-

17.Pepsi’s Brand Pepsi’s brand is basically is basically “ME” branded. They use the temperament of “ME”. In contrast to Coke they believe on individual struggle.

18.SWOT Analysis 18.1.Strength •

Brand Equity

•

Wide World Market

•

Brand Attachment

•

Competitive Advantage

18.2.Weakness •

Strong Competition

•

Alternative

•

Change Failover

18.3.Opportunity •

Introduce New Failover

•

Segment

•

Encourage their supplier

•

Take More Profited

18.4.Threat •

Substitution

•

Suppliers -9-

•

Buyers

18.1.1.Brand Equity •

According to this case Coke and Pepsi both cumulative spending on advertising.

•

Coke and Pepsi established brand identity over a long period of time. Now these brand become

culture of almost every countries and in the case of Coke become part of World Culture •

So this is very strong point of the these brand for establish their identity and their consumer

attachment . (RONALD,1998) 18.1.2.Wide World Market •

According to the case Coke and Pepsi capture wide world market. Its impact on globalization.

•

These both brand hold global market, and other brand just capture just their areas market.

(RONALD,1998 18.1.3.Brand Attachment •

Coke and Pepsi both establish almost for more than a century and consumers have emotional

attachment with these two brands. •

Consumers identify these two brands for distance, these all things are the brand strategies.

•

Advertisement create cozy relationship with their consumers they feel relax to use these brands.

(RONALD,1998 18.1.4.Competitive Advantage •

In these both companies they invests heave amount which other competitor do not

invest in

their company. 18.2.1.Strong Competition •

According to this case the first and biggest week point both brand is strong competition between

Coke and Pepsi. •

Much expansive advertisement for their brand equity

18.2.2.Alternative •

In this case the second important thing is that the alternative of the CSDs. The local brand in

different areas available and these local brands are very low cost and low price. •

Consumers using non-CSDs brand. They are moving non-CSDs brands.

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18.3.1.Introduce New Brands •

For Coke and Pepsi have more opportunity to introduce new brands in different taste. These both

brand Coke and Pepsi have very strong brand. •

Consumers have interest in both brands, and each new brand have market value very strong then

other. •

Coke and Pepsi have almost world culture and some new strategy they can easily capture the

market. 18.3.2.Segment •

Coke and Pepsi have focus on customer segmentation, for each segment they can easily serve.

•

They can easily search new segment for their products.

•

Franchise system is the best way to search new segmentation, which have very strong segment?

And how can they serve in those segments. •

Segmentation proved very easily approach for their targeted customers. (RONALD,1998)

18.5.Problems & Solution Q: What are the challenges to the stability of the industry structure in the coming decade? -Globalization -Demographics or Flattening Demand -Non-CSD Beverages Regarding non-CSD beverage Coke and Pepsi are attacking these categories themselves, with each trying to become a total beverage company. Pepsi so far has had more success and has been more aggressive with non-CSDs. From pages 11-14 we know that the business model for CSDs is somewhat different from the classic CSD model. The supply chain and bottling requirements add complexity to the value chain, compared with the relatively simple CSD model. Nonetheless the basic principles of the business remain the same. Coke and Pepsi own the brand and control product development their dedicated bottlers leverage economies of scope in distribution. However there are exceptions Gatorade is delivery through food wholesalers. Meanwhile as niche products non-CSD carried prices and margins that are higher for everyone in the value chain. Q: Who has been losing? Smaller Brands: Historically they could piggyback on Coke and Pepsi bottler systems. - 11 -

Historically little head-to-head competition 1990s and after: Coke and Pepsi profitable product -Force head-to-head competition. Coke and Pepsi fill shelf space push small brands off the shelf Industry is consolidating smaller brands sell to Cadbury. These all things focus on that Coke and Pepsi are wining and the other local brands and substitutes. Q-Can Pepsi and Coke sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs? For example water, coffee, fruit juice, and etc Most of the substitutes are free or much less costly per ounce than CSDs. Americans drink more soft drinks than any other beverage by a huge margin. Coke and Pepsi did not just inherit this business they created it. Part of their own going success will be a function of their ability of structures not only their businesses but the industry as a whole. In other words industry structure is not always exogenous, it can be endogenous. Q-Who has been wining the war? If we see the exhibit 2, we can easily observed  1950: Coke have 47% and Pepsi have 10%  1970: Coke have 35% and Pepsi have 29%  1990: Coke have 41% and Pepsi have 32%  2000:Coke have 44%Pepsi have31.4% other beverage Cadbury Schweppes 14.7%  2006:Coke have 43.1% Pepsi have 31.7% Cadbury Schweppes 14.5% Initially through the early 1960s Coke was the winner. The reason was the extensive bottling franchise. And the second most important is its brand name. (WARREN, 2001) But passage of the time Pepsi creates strong hold on the market. If we see 1950 to 1960 Coke was the leader but after 1970 to 1990 Pepsi capture the market. Then Pepsi gained significant share: to selective discounts in distribution outlets, targeted growing take-home market, and targeted younger consumers like “PEPSI GENERATION “ Motivated its bottlers like bottler size, concentrate pricing etc. Competed on package size and advertising not price. - 12 -

Coke was focused on overseas markets, while Pepsi focused on the US grocery channel. And they are trying to hold on all the market. In other side Coke was the winner in 1970s its share was down but Coke to sustain their growth and after 1970s Coke have capture their market. Coke and Pepsi hold almost 75% the whole market and 25% have other local CSDs or non CSDs brands. 19.Macro Environment of Coke and Pepsi 19.1.Demographic Forces Age: The potential customers of Coke and Pepsi would be of age group of 14 – 30 years. Income: As for the income levels, Coke and Pepsi target the middle class to the upper class. (RONALD,1998) 19.2.Economical Forces When the economy of the consumer is low and the expenses becomes high so that consumers move towards another product which is lower in price than the Coke and Pepsi product. (RONALD,1998) 19.3.Natural Forces Due to any disaster, earthquake and some shortage by the markets or suppliers so it’s affected their product and market. (RONALD,1998) 19.4.Technology Forces There is huge investment from the goverment to develop the infrastructure, opportunities and the creation of new products such as new advanced formulas, new technological factors change so that it is very much effected by their product. (RONALD,1998) 19.5.Political and Legal Some country have a politically stable economy; such as Pakistan, as a result foreign investors are attracted to Pakistan as diversification strategies.The Pakistani government is on a regular effort improving business relations with trade and investment partners in US and Asia. (RONALD,1998) 19.6.Cultural Forces Every different country has different culture, for example; In TURKEY, due to Islamic Cultural values people prefer to use product made from Halal ingredients. (RONALD,1998)

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20.Recommendations After completing my project i have concluded some recommendation for the coca cola company, which are following. •

Coca Cola Company should try to emphasis more on providing their infrastructure in the market

to facilitate their customers. •

According to the survey, conducted by the international firm some people like little bit sweeter

cola drink. So for this coca cola company should produce their product according to the local demand. •

Marketing team should try to increase the availability of Coke in rural areas.

•

They should also focus the old people.

•

Now young generation has a trend to drink a coke 2 regular bottles at same time, so providing

more satisfaction to them company should introduce ½ liter disposable bottle.

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21.References KOTLER, P & ARMSTRONG, G., 2004. Principles of Marketing.10th ed. New Jersey: Pearson Education Inc. KOTLER, P., 1980.Principles Of Marketing, Englewood Cliffs. London: Prentice-Hali. KOTLER, P., 2003.A Framework For Marketing Management. Harlow: Pearson Prentice Hall. KOTLER, P.,1999. Kotler On Marketing. New York: Free Press. MCCARTHY,E.,1960. Basic Marketing-A Managerial Approach. Illinois: Irwin. PROCTOR,T.,2000. Strategic Marketing. London: Routledge ISOBEL, D., AND ROBIN, L., 2001.International Marketing Strategy. 3rd ed. Italy: G. Canale & C. RONALD, D., M., EDWARD, M., M., 1998. The Food Industry Wars. Illustrated. London: Greenwood Publishing Group STEPHANIE, C., 2007. The Real Pepsi Challenge. İllustrated.: Simon & Schuster MARK, P., 2000. For God, Country and Coca-Cola. 2nd.: Basic Books J., C., L., HARVEY, Y., 1980. The Cola Wars.: Everest House LONNIE, B., 2003. The Story of Coca-Cola. Illustrated.: Black Rabbit Books MATT, H., 2003. Brand Failures.: Kogan Page Publishers

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RANDALL, S., SCHULER, and SUSAN, E., J., 2007. Strategic Human Resource Management. 2nd.: Wiley-Blackwell CAROL, H., T., 2007. Industry and Firm Studies. 4th.: M.E. Sharpe KOTLER, P., 2000. Marketing Management. 3rd. (The Millennium Edition).New Jersey: Prentice Hall WARREN, J., K., and BODO, B., S., 2001. Global Marketing Management. İllustrated.: Pearson Education MARCIA, L., T., 2000. How To Think Like The World's Greatest Marketing Minds. Virginia.: McGraw-Hill PATTI

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2009.

Coca-cola

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push

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Available

22.Bibliography The Evolution Of Coca-Cola Bottling And CCE, http://www.cokecce.com/pages/allContent.asp?page_id=88 (Accessed 3rd April 2009) KOTLER, P., 1980.Principles Of Marketing, Englewood Cliffs. London: Prentice-Hali. KOTLER, P., 2003.A Framework For Marketing Management. Harlow: Pearson Prentice Hall. KOTLER, P.,1999.Kotler On Marketing. New York: Free Press. PATTI

W,

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at: [Accessed 04 April 2009]. MCCARTHY,E.,1960. Basic Marketing-A Managerial Approach. Illinois: Irwin. PROCTOR,T.,2000. Strategic Marketing. London: Routledge ISOBEL, D., AND ROBIN, L., 2001.International Marketing Strategy. 3rd ed. Italy: G. Canale & C. RONALD, D., M., EDWARD, M., M., 1998. The Food Industry Wars. Illustrated. London: Greenwood Publishing Group STEPHANIE, C., 2007. The Real Pepsi Challenge. İllustrated.: Simon & Schuster MARK, P., 2000. For God, Country and Coca-Cola. 2nd.: Basic Books J., C., L., HARVEY, Y., 1980. The Cola Wars.: Everest House

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LONNIE, B., 2003. The Story of Coca-Cola. Illustrated.: Black Rabbit Books MATT, H., 2003. Brand Failures.: Kogan Page Publishers RANDALL, S., SCHULER, and SUSAN, E., J., 2007. Strategic Human Resource Management. 2nd.: Wiley-Blackwell CAROL, H., T., 2007. Industry and Firm Studies. 4th.: M.E. Sharpe WARREN, J., K., and BODO, B., S., 2001. Global Marketing Management. İllustrated.: Pearson Education MARCIA, L., T., 2000. How To Think Like The World's Greatest Marketing Minds. Virginia.: McGraw-Hill

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