Cola Wars Continue: Coke and Pepsi in 2006

Marketing Management 2

Submitted By:Group 8 (FMG24 C)Sahil Guglani 241122Saket Agrawal 241124Shashwat Narayan 241133Sheetal Jaimalani 241134Tanvi Jaipuriar 241156

1. Profitability

Concentrate Producer

Bottler0%

10%

20%

30%

40%

50%

60%

70%

17%

60%

Cost of Sales

Concentrate Producer

Bottler0%

5%

10%

15%

20%

25%

30%

35%30%

9%

Pretax Profit

4%

81%

15%

Concentrate Producer

Selling and de-liveryAdvertising and marketingGeneral and administration

81%

6%

13%

Bottlers

Selling and de-liveryAdvertising and marketingGeneral and administration

2. Barriers to Entry

Concentrate Producers(High)

Heavy advertising and promotional expenditure

Existing competition with 2 major players consisting of 78.4% of Market

share and many other private producers

Long term agreements with bottlers

Bottlers(High)

Capital intensive and requires high speed production lines

Existence of exclusive geographic territory and franchisee agreements of

the existing players

Operating margins as low as 7-9%

3. Need for Vertical Integration and Fall-out

Reasons

Bottlers not willing to cooperate in marketing and promotion programs

Small and independent bottlers could not perform amidst the cola war

Fall-out

Formation of CCE and PBG

Coke’s debt increased to approximately $1 bn

Bottler consolidation made small concentrate producers dependent on Pepsi and Coke bottling networks

4. Competitive Rivalry

43%

32%

14%

6%5%

Market Share as by Case Volume (2004)

Coca-Cola CompanyPepsiCo, Inc.Cadbury SchweppesbCott CorporationOther companies

1966 1970 1975 1980 1985 1990 1995 2000 2004E0

10

20

30

40

50

33.4 34.7 35.3 35.939.5 41.1 42.3 44.1 43.1

Coca-Cola Company (Market Share)

1966 1970 1975 1980 1985 1990 1995 2000 2004E05

101520253035

20.4 19.8 21.1

27.830.3 32.4 30.9 31.4 31.7

PepsiCo, Inc. (Market Share)

5. Marketing MixProduct Portfolio

42%

23%

15%

5%

3%3%

1% 10%

Coca Cola Company

Coke Classic Diet CokeSprite and Diet Sprite Caffeine Free Coke, Diet Coke, TabFantaa Barq's and Diet Barq'sMinute Maid brands Others

36%

20%

19%

4%

4%

4%

2%

2%1% 1%

5%

PepsiCo, Inc.

Pepsi-Cola Mountain Dew Diet Pepsi

Sierra Mist Diet Mountain Dew Caffeine Free Pepsi, and Diet Pepsi

Mug Root Beer Wild Cherry Pepsi (reg and diet) Mountain Dew Code Red

Slice and Diet Slice Others

Price• Both Coke and Pepsi discounted their retail prices to be in

competition.• Mass merchandisers were given special discounts.• 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.

Place• Coke had dominated Fountain sales• Pepsi had focused on sales through

retail outlets• Both Coke and Pepsi moved on to

acquiring the restaurant business as a new channel of distribution.• Also both were the largest suppliers

of CSDs to vending channel.

32.90%

23.40%

14.50%

11.80%

7.90%

9.50%

Distribution of CSDs

SupermarketsFountain OutletsVending MachinesMass MerhcandizerConvenience StoresOthers

Promotion

Sales Promotion by giving discounts to retailers

Focused on branding and used attractive taglines like ‘America’s preferred taste’

Major advertising campaign called ‘The Coke Side of Life’

CokeSales promotion by giving discounts

Promotional campaigns launched like Pepsi Challenge and Pepsi generation

Market strategy based on the theme of ‘Twice as much for a nickel, too’

Pepsi

Who were the real winners?

• The market remains as a Duopoly• Coca Cola Company and PepsiCo, Inc. are the two major players with

highest market share• No Clear winner

6. Suggested Strategies

More focus on the health drinks owing to the changing consumer preferences

Disinvest from the non performing products or the products forming an insignificant part of their

portfolio

Focus on the products preferred in the local Non-US markets like Japan and Mexico.

7. International Strategies Adopted

• After achieving success in U.S. CSD market, Coke and Pepsi tried to expand their horizons. Coke and Pepsi tried to broaden their base of innovation in order to reach out to non-U.S. markets. • Coke introduced a network of vending machines in Japan that accounted

for more than half of the company’s Japanese sales.• 200 plus Coke items were launched including Tea, Coffee, Juices and

Flavoured water in Japan to become a full fledged beverage brand.• 20 new products were launched with an emphasis on health and diet in

Mexico.• In Poor economies like China and India, returnable glass bottles were used

to reach out to rural consumers at a very low price.