Post on 17-Jul-2015
Cola Wars Continue:Coke and Pepsi in 2006
Presented by:
Group 1January 22, 2015
Industry Background
CAGR of last 34 years – 2.5%
Economics of Concentrate Business
Cost of Sales
ConcentrateProducer Bottler
Concentrate ProducersBlended, packaged and shipped
Advertising, promotion, market research and bottler relations
Little capital investment in machinery, overhead, or labor
Major investments - trademarks
BottlersCapital intensive
Labor, overhead, trucks and distribution networks were other variable costs.
What were the costs?
BOTTOMLINEConcentrate producers were more profitable than bottlers
Number of bottlers had fallen steadily due to low proitability
It was important for CP to assist bottlers (by marketing support, etc)
HIGH HIGH
Barriers to Entry
Vertical Integration : Thumbs Up or Thumbs down?
• Bottlers were not wiling to cooperate in
Marketing and promotional campaigns Upgrading plant and equipment Supporting new product launches• Product and packaging proliferation
led to increased packaging costs • High discounts led to low profitability• Small family bottlers didn’t have the
resources needed to remain competitive
RESULT ?
Coca-Cola – CCE – Coke’s Largest Bottler in N.A. (2004)
Pepsi – PBG – 57% of pepsico beverages in N.A. (2004)
Was everything so rosy?
Small bottlers went out of business
Small concentrate producers became dependent on bottling networks for distribution of their products
Dependency of coke on a single bottler.
Competitive Rivalry
LOWHIGH
LOW
LOW
Market Share %
Year Coca-Cola PepsiCo Cadbury Schweppes
1950 47% 10% -
1970 35% 20% -
1980 36% 28% -
1990 41% 32% 3.2%
2000 44% 31% 14.7%
2004 43% 32% 14.5%
Results of the Rivalry
Despite a growth in CSD market (CAGR – 2.5%) Coca-Cola lost share to Pepsi and Cadbury Schweppes Pepsi has not been able to increase it’s market share in the last 14 years
Bottomline
Marketing Mix
PRODUCT
Coke introduced 11 and pepsi 13 products to meet the rapidly changing consumer preferences.Both Coke and Pepsi introduced new cola and non cola flavours such as Fanta, Sprite, Mountain Dew, etc.They also ventured into non-CSD such as fruit juices and mineral water to capture the health aware consumers.Coke introduced Diet coke and Coca Cola Zero while Pepsi launched Diet Pepsi as a low calorie variant of their CSDs. They launched energy drinks also.Product packaging also varied ranging from small cans meant for single use to large PET bottles meant for family usage.
PRICE
Both Coke and Pepsi discounted their retail prices to be in competition.
Bottlers followed low cost strategy to retain customer relations. Special discounts to mass merchandisers. Initially Coke followed a fixed price model but later they
established a maximum price and adjusted price quarterly according to changes in sweetener pricing.
In 2003 they switched to Incidence Pricing which varied concentrated prices based on different channels & packages.
Pepsi followed Concentrate pricing based on consumer price index.
Marketing Mix
Pepsi Focused on sales through retail stores while Coke aced in fountain sales.
Both the companies expanded their distribution network by expending in restaurant business. Pepsi acquired Pizza Hut, Taco Bell and KFC whereas Coke tied up with Burger King and McDonalds.
Marketing Mix
PLACE
PROMOTION
The general promotional strategy used by both Pepsi and Coke were retail price cuts and advertisements.Pepsi launched two very successful campaign callled Pepsi Generation and Pepsi challenge.Cokes advertisements indirectly recognised competitors with taglines such as Americans Preferred taste and No wonder coke refreshes best.
Marketing Mix
Who was the real winner??
Both Coke and Pepsi were winners of some of the battles but none was the clear winner of this war.
Coke was clearly ahead of Pepsi till 1996. Post 1996 Pepsi raced ahead.
Americans who said Cola was “too fattening” increased from 48% to 59%
-MORGAN STANLEY
Negative Health perception of CSD
WHAT COULD BE THE WAY AHEAD?
Sustaining Profits • Consumers are looking
for healthier alternatives.
• Change “unhealthy” stigma via marketing campaign
• Shift to non-carbonated beverages (keep up with demand of health conscious society)
Industry CAGR = 0.86%Industry CAGR = 0.86%