Coca-Cola vs. Pepsi: Marketing and Strategy

Coca-Cola sells a billion servings daily in cans, bottles, and glasses, available in almost 200 countries.

Pepsi, Coca-Cola's main rival, is not far behind in popularity.

The competition between Coke and Pepsi is not just about money but also about winning the hearts and minds of customers.

Companies must adapt as the environment changes, often facing challenges.

PepsiCo's sales dropped from $31 billion in 1999 to $25 billion in 2002, requiring a transformation to meet new industry realities.

Indra Nooyi, Pepsi's President and CEO, described the restructuring process as difficult and not seamless.

The soft drink industry has been highly profitable for generations, with gross margins estimated at 83% and net margins at 35%.

Coke was historically the dominant player, while Pepsi worked to increase its market share.

Pepsi entered the restaurant business by acquiring Taco Bell, Pizza Hut, and KFC to prevent Coke from gaining more in the fountain market.

Coke dominated the fountain market through a strategic partnership with McDonalds, accounting for 75-100 million gallons of Coke sold annually in the U.S.

Pepsi's acquisition of the restaurant chains brought it into an unfamiliar industry and began to hurt profits.

Nooyi created Yum Brands from the three restaurant chains and sold it off because Pepsi was not a retailer and lacked the necessary expertise.

Both Coke and Pepsi face challenges as consumers become more health-conscious and substitute juice and water for soda.

Coca-Cola's Chairman-CEO Neville Isdell shifted from using "carbonated" to "sparkling" to describe beverages and "still" instead of "noncarbonated."

Industry expert Gary Hemphill sees the change in nomenclature as a shift in the marketplace, with "sparkling" spanning multiple categories.

Pepsi acquired Izze Beverage, known for all-natural, sparkling fruit juices.

Both Coke and Pepsi have started marketing some sodas as sparkling, like Coke's Fresca and Enviga and Pepsi's Tava.

Pepsi's strategy is shifting to address health issues, with at least half of all new products containing "essentially healthy" ingredients or offering "improved health benefits."

Pepsi's North American drinks business is now led by noncarbonated, "healthier" options such as waters, "enhanced" waters, teas, and energy drinks, showing double-digit growth.

PepsiCo's Aquafina is the number-one bottled water in the U.S. and has functional variants like B-Power, Calcium+, Daily C, and Multi-V in 20-ounce bottles.

Despite the new strategy, Nooyi recognizes that strategic wins are always changing.

Coke planned to invest an additional $400 million annually in 2005 on innovation, trademarking a fortified fruit drink and energy-enhanced diet drink, in response to the cola war.

The roots of the cola wars trace back to 1886, when an Atlanta pharmacist created a headache tonic sold for five cents a glass eventually named "Coca-Cola".

A decade later, another pharmacist in New Bern, North Carolina, created Pepsi Cola.

Americans consume 53 gallons of carbonated beverages per year, about 29% of all liquids.

Gross margins on soft drink concentrate can be as high as 83%, leading to potentially enormous profits.

In 1950, Pepsi recruited a former Coke marketing manager and started the "Beat Coke" campaign.

The "Pepsi Generation" campaign targeted younger buyers in the 1960s.

In the mid-1970s, Pepsi launched a nationwide "Pepsi Challenge" after successful blind taste tests in Texas.

Coke countered with tactics like retail price cuts and aggressive advertising.

After Roberto Goizueta became CEO in 1981, Coke more than doubled advertising, switched to lower-priced sweeteners, sold off noncarbonated beverage businesses, and introduced new flavors and diet versions.

Coke made a tactical error by reformulating its 100-year-old recipe, leading to consumer rebellion and a return to the original formula.

Pepsi framed Coke's reformulation as an admission of Pepsi's superior taste.

Value-chain activities for carbonated beverages are centered on production, marketing, packaging, and distribution.

Concentrate, the syrup that provides distinctive flavor, production and marketing were the major beverage businesses focus.

Independent regional bottlers packaged and distributed soft drinks, mixing concentrate with sweetener and carbonated water.

Both Coke and Pepsi expanded by granting franchises to independent bottlers, avoiding capital-intensive bottling operations.

Trends in the bottling industry led to changes.

Bottling companies bought up local franchises in adjacent markets and built large plants with economies of scale, leading to increased power relative to Coke and Pepsi.

Coke and Pepsi entered the bottling industry, buying up independent bottling operations, consolidating territories, and building newer, more efficient facilities.

This move improved overall performance by purchasing bottling operations based on existing profitability and restructuring operations to make them more efficient.

Both Coke and Pepsi divested part of their holdings by spinning off bottling subsidiaries while retaining significant holdings.

These positions enabled them to counteract power that these operations may have had if independently owned and operated.

Coke and Pepsi have increased market share by about 11% since the mid-1960s and enjoy healthy profits.

Entry barriers created by brand equity,control of regional bottlers, and large market shares explain much of this profitability.

The increased market share was captured from weaker rivals, although competitors like Cadbury Schweppes and private label suppliers are improving also.

The global battle between the two superpowers is ongoing.

The external environment consists of economic and sociopolitical factors.

The external environment is the specific market arenas the firm has strategy chosen.

External environment provides business opportunities and threats that may impede the successful implementation of a strategy.

The external environment influences firms' profitability.

Chapters on internal and external contexts of strategy are related sections of a single unit

Studying these chapters helps you to analyze a firm's strategy.

Understanding why some industries are more profitable can influence better strategies.

Exhibit 4.1 indicates industries differ in the returns on average industry.

Analysis starts with studying macro environment and firms' industries.

Identifying the industry that the firm competes in is the logical approach.

Fundamental characteristics of an industry are factors relevant to the firms performance.

Industry analysis will includes a firms key stakeholders.

Industry managers should integrate analysis with broader stakeholder analysis.

Questions that helps analyse firms external context is what appears to unstoppable trends and more.

Managers should focus on their goals that will affect their strategy.

External environment is in two parts which is macro and industry.

Industry includes strategic groups, which includes firms that has similarities.

Analysis starts with macro environment that firms are removed and toward micro analysis.

Macro environment refers larger political, environmentl and legal issues the firm confronts.

To analze macro environment PESTEL model is introduced and globalization.

PESTEL analysis for political, economic, sociocultural, technological, environmental, and legal

PESTEL helps build vision of better business landscape and compete profitably.

To ensure strategy is aligned with change managers need to understand the macro environment.

Strategy congruence, PESTEL in home environment cannot guarentee aligned with new geographic areas.

PESTEL analyssi involves three steps by answering the nature of opportunities.

Political environment is a significant influence on business and business spending

Political factors can influence numerous types of policies, regulations and taxation.

Political considerations also has trade treaties.

Long-term effects on strategy is that economic factor managers need.

Factors has things such inflation, teriffs and the national and foreign economies growth.

Socialcultual influences depending on social values, lifestyle and dominate relegions.

The critical role of technology will affect oppurtunites and threats.

Innovation, communication and distrubuition of products are affected by technology.

Raw materials is long standing factor, which affects access to resources.

Direct/indirect operations could potentially impact operating cost pollution.

Many factors are interrelated with the PESTEL model to what and how laws are made.

New markets and open industries is globalization.

Globalization analysis is the subject of PESTEL analysis.

Globalization is evoltion of distant product markets.

Globalization entails exporting goods or services to different countries.

In contrasts global industry is standardized, that uses unique approaches.

These competitive advantage belongs to that industry.

Market, costs, government and competition determine if sector globalizes.

The similar the region becomes then the more the pressure industry has to globalize.

Government helps by setting favorable trade policies.

Government helps by setting regulatory and technological standards.

When competion decides to globalizes those markets, there could be an oppurtunites in those markets.

Industry analysis states that firms should only earn normal profits.

Reason is because there is numerous sellers and buyers.

Firms earning greater then market shares creates competitive industry.

The strategist's goal should be to develop competitive advantage.

In contrast to the conditions of perfect competition, imperfect competition is characterized by relatively few.

Industry analysis helps to determine the source imperfect competition.

How firms perform best selecting strategies that matches industry

What skill/ resources are required for the business should accquire to be called key success factors (KSFs)

Industry need to be have certain characteristics, assets and skills in order be viable.

If all has been in place then that gives a comparative advantage.

Industry analysis focuses the resources required for what is rewarded to be profitable.

Economists states firms should have or sell similar products to the same market.

Do only seller consider an firm is it's own industry?

Industries can range from many sellers to fewer sellers or some powerful firms.

Fragmented spectrum is considered an industry in which there no leader

Concentrated indicates that the industry is in charge of the duopoly.

Tool concentration shows that the sales of all its products as the total.

Level of industry concentration affects the intensity competition.

Product and classification markets can include beverages

Not including everything can omits important structual analysis.

Market borders must include most segments otherwise there will differences

Important factors must not be detected or it might lead to threat.

Industries typically has different segment for its structure

Companies should look for ways to expand not by competing or being diverse.

The beverage business is one of the newst product to come out

To consider a industry the market must know the geographic locations

Concentration ratios can vary segment.

High degrees of rivalry results in lower performance of profitablitl.

What factors tend to increase rivalry

Numerous comparitors is much more intensive with price competition.

Some companies have built with brand equity and market share, where others are not successful.

Industry has a unique degree influence on its product.

Is there a way that new competitors intensfies with rivally?

Industries model has structure can be identified

The next steps to determining the analysis is to identify its characteristics/ structure

Another force can be added for critical analysis which is completmentors.

Industry value chain shows that the industy and buyer/ suppliers can influence one another.

Can be used to test new entrates is there successs or not

Intensity of competition is defined as all the firms in the industry.

Rivalry depends on degrees of completion.

The threat includes new entrants and entry barriers

Supplier power shows that the suppliers should be in charge with contracted terms.

Buyer (channel and and consumer) show that are likely to be switching consumer.

The threat of subsitutes for is cable vs satellited TV vs airlines.

Compelmentors number of completeors relative is what needs to be consider.

New entrants increases profitablitiy attracting attention from other new markets.

High level of perofibilty and difficult to enter.

Can new entry's make rivalry is which known new entraces and barrries to entry.

The absence of being is defined as perfect competition

Entry is limited to capital distribution is what makes companies lose opportunity to hinder and block new entrants

Increasing number of firms for comp is what happens that the competitors.

If there exists that there will be problems in those certain industries

Entry barriers consists of loyalty level, and channels in its market and structure.