1.VS Cola Wars Continue: Coke andPepsi in 2010 Marketing Strategy Jim Prost Pamela Belluomini, Hristina Bencheva, Julia Kocs, Brianna Randall and Angela Teodoro

2. Situation Audit 2 Between 1975 and the mid- 1990s the most intense battles in the Coke and Pepsi COLA WARS were fought over the $74 billion carbonated soft drink (CSD) industry Coke and Pepsi claimed 72% of CSD market sales The CSD industry achieved an average annual growth of approximately 10% in the U.S. and was dominated by the cola segment In the early 2000s the per capita CSD consumption started to decline from 53 gallons in 2000 (71% of market) to 46 gallons (55% of market) in 2009 The decline in CSD consumption was mirrored by an increase in consumer demand for non-CSD beverages 3. 3 0 10 20 30 40 50 60 1970 1975 1981 1985 1990 1995 2000 2005 2007 2008 2009 Gallons/capita U.S. Beverage Consumption Coffee Beer CSD Milk Bottled Water 4. Historical Timeline (Pre-Cola Wars) 4 1886-1899 1900-1929 1930-1959 1960-1973 1886-John S. Pemberton develops original recipe 1898-Caleb Brodham creates Pepsi Big name endorsements Iconic contour bottle Bottling plants in Europe and the Philippines Robert Woodruff named CEO Franchises in 24 states Files for bankruptcy Second bankruptcy Acquires sugar plantation in Cuba Rebounds by marketing product value Becomes second in the cola market Beat Coke campaign Emerges as cola market front-runner Cregistered trademark Price raised from a nickel to a dime Diversifies offerings (Sprite, Tab) Remains #1 in national cola sales Diversifies offerings (Mountain Dew) Merges with Frito-Lay (PepsiCo) & expands into the snack food business 5. Historical Timeline (Cola Wars and Beyond) 5 COLA War Years 1974-1999 2000-2010 In response to federal nutrition guidelines and public concern with diet and obesity offers alternative low calorie beverages Wins Subway account, retains exclusive deals with Burger King and McDonalds Holds big lead over Pepsi in cola market In response to federal nutrition guidelines and public concern with diet and obesity offers alternative low calorie beverages Supplies all Taco Bell, KFCs and most Pizza Huts Snack food lines very profitable High-fructose corn syrup replaces sugar Diet Coke introduced, boosts profits New Coke fails, Coca Cola Classic returns Coca Cola Enterprises established Maintains lead in cola market share The Pepsi Challenge Pepsi Lite (1 Calorie) introduced Enters fast-food business Outpaces Coke in food store sales High-fructose corn syrup replaces sugar Pepsi Bottling Company goes public 6. 4Ps Analysis 6 PRODUCT Carbonated soft drinks Non- carbonated soft drinks PRICE Pepsi value proposition Coke the premium brand PROMOTION Investment in Trademarks Retail Shelf Space Ad Campaigns PLACE Retail channels Fountain Outlets Vending Machines Mass merchandise 7. Problem Statement 7 Changes in U.S. consumer preferences lead to a decline in CSD sales and the emergence of non-CSDs. 1. How should Coke and Pepsi respond to these changes in consumer preferences? 2. In what ways can Coke and Pepsi boost CSD sales while competing in the growing non-CSD category, thereby ensuring sustainable growth and profitability? 8. Critical Issues 8 Declining CSD sales, including Cola in the US Emerge of private labels Health Issues Sales Price pressure from the mass merchandises More product variety = increase in distribution and sales costs Profitability New products: cannibalism Each local market is different Market Growth 9. U.S. Non-alcoholic beverage volume (%) 9 0 20 40 60 80 100 120 2000 2009 Non-Carbs Water CSD 10. Strategic Analysis - S.W.O.T 10 strengths opportunities weakness threats 11. S.W.O.T - Strengths Most valuable brand for 13 years Worlds largest in beverages: 15bi dollar brands Diversification: 500+ brands, 200 countries Extensive global dist. network Leader in fountain accounts Forward integration: power of supplier and buyer (90%) Strong in emerging markets: China, Brazil, Eastern Europe 22nd most valuable brand 2nd largest F&B in the world, 22 bi dollar brands Diversification: The power of one Extensive global dist. network Leader in non-CSD Forward integration: 80 % Successful marketing campaigns: celebrity endorsements 11 12. S.W.O.T - Weaknesses Declining market share since 2000 Negative publicity CSD focus: only 32% non-CSD share Price pressure from mass retailers (Wal-Mart) : 40% of U.S. packaged sales Declining market share in bev. Negative publicity Overdependence on U.S. markets: 50% of total sales Low market share in fountain accounts: 20% vs. Cokes 69% Price pressure from mass retailers: 12% of revenue(Wal-Mart) 12 13. S.W.O.T - Opportunities Expand non-CSD: juice, sport, energy, bottled water VitaminWater, Odwalla (Coke), Gatorade, Naked (Pepsi) Expand and modify CSD line: Stevia Sprite Green (Coke), Pepsi Next, Trop50 (Pepsi) Global expansion in emerging markets: India, China, Brazil (Coke) Russia (Pepsi) Innovative offerings tailored to local tastes Sprite Tea (Coke), herb drinks (Pepsi) Growing nutritious snacks product markets 13 14. S.W.O.T - Threats Changing consumer tastes and preferences Competition with each other Threat of substitutes Price pressure from mass retailers Price pressure from int'l bottlers Government restrictions in U.S. and abroad 14 15. Identification of Alternatives 15 Investment Strategy Action 1. Status Quo Maintain status Quo Milk CSD 2. Market Development Focus abroad Bottler control/ownership Streamline Milk CSD 3. Product Development Diversify lines Modify CSD, re-position Develop complements Milk CSD and discontinue dogs 4. Market Penetration & Market Development & Product Development All of the above 16. Analysis of Alternatives 16 Criteria Weight (1) Status Quo (2) Market Development (3) Product Development (4) Market Penetration + 2 + 3 Profitability 0.15 4 4 3 4 Sales and market share 0.25 3 5 4 5 Customer needs 0.25 2 3 5 5 Brand Image/ Corporate Image 0.20 2 3 4 5 Corporate Mission & Vision: 6Ps Performance with Purpose 0.15 1 2 4 5 Total: 1 2.4 3.5 4.1 4.85 17. Recommendations CSD Market 17 . Company image+ healthy choices Focus on core products: US Market: Zero/Diet + Lite Global market: leverage Classic brand Access to distribution overseas 18. Recommendations non-CSD Market 18 . Sports and energy drinks Re-ignite/innovate bottled water Engage the green consumer Control of production and distribution Healthy+ convenient choices for busy lifestyles 19. Implementation 19 Cost control measures (plants, process management, consolidation) Ads aimed at re-capturing gender/generational market share Diet/Zero and other lower-calorie CSD products in EU + Asia Remove questionable ingredients from products sold in the US Pursue high visibility sponsorships Non-CSD Health education campaign on non-CSD products Improve image + environmental-friendly packaging CSR reports and CSR transparency Market research: innovation + product development opportunities Access to distribution CSD Market Non- CSD Market 20. Budget 20 0 5 10 15 20 25 2000 2005 2007 2008 2009 Net profit/sales Coca-Cola Pepsi Total Sales Pepsi Coca-Cola $30mm $43mm 0 1 2 3 4 % Non CSD shares Gatorade Aquafina Dasani Powerade 21. Where are they now? 21 22. The Coca-ColaCompany Overview Still a beverage focused company: 70% of their revenue comes from CSD sale #57 in Fortune 500 International market corresponds 59% net revenue Reached 1.9 billion servings each day Present in +200 countries #3 best global brand - $79.2 billion value 1.4%in sales growth 22 23. The Coca-ColaCompany 23 Portfolio +500 non-alcoholic beverage brands Acquired Zico Pure Premium Water Launched Coca-Cola life in Argentina & Chile: 1st reduced- calorie cola sweetened w/ a blend of sugar and stevia 24. Pepsi Co Overview It is a diversified company: beverages, snacks and breakfast #43 in Fortune 500 52% of their net revenue comes from food US is still responsible for 51% net revenue 38% more revenue than Coca in 2011, but only 12bi came from Soda 24 25. Pepsi Co Portfolio Product mix: 63% food 37% beverage 22 brands that generates 1bi in retail sales each 25 26. 26 In March 2011 Pepsi feel from the n.2 spot Ever since, Coca-Cola has reigned supreme with Classic in the No.1 sales spot and Diet Coke as No.2. 1.6 billion case 927 million 892 million 27. Can and ever be friends? 27 28. 28 29. 29 Thankyou Q&A 30. Media Credits Pepsi or Coke http://www.the-exponent.com/wp-content/uploads/2013/02/coke-or-pepsi.jpg Coke vs Pepsi http://createmeaning.com/wp-content/uploads/2011/02/Coke-vs-Pepsi5.jpg Coke Logo http://www.dafont.com/forum/attach/orig/3/6/36145.jpg PespsiCo Logo http://hdwallpapersrc.com/wp-content/uploads/2013/09/New-Pepsi-Logo.jpeg Strength: http://workingwahm.com/wp-content/uploads/2011/11/iStock_000011272144XSmall.jpg Weakness: http://truecourseblog.files.wordpress.com/2012/08/istock_000011329650xsmall.jpg Opportunities: http://img104.job1001.com/upload/adminnew/2014-03-24/1395635680-HHEWT3O.JPG Threats; http://www.gfi.com/blog/wp-content/uploads/2009/06/bomb-300x206.png Coke logo w/ bottle: http://www.fishlakerelay.com/sponsors/coke-bottle-round/ Pepsi & Coke bottle: http://blog.livedoor.jp/clock510/tag/%E7%93%B6?p=3 Logo history: http://www.create.net/blog/76487-andys-design-tips-how-to-design-a-logo.html Logo history: http://www.core77.com/blog/object_culture/will_the_real_coca- cola_logo_story_please_stand_up_14264.asp Pepsi cap: http://www.houzz.com/photos/5345407/Pepsi-Cola-Bottle-Cap-Metal-Sign---Tin-Signs--- RetroPlanet-com--- where are they now: http://nowiknow.com/soda-jerks/ Pepsi & Coke friends: http://eyugho.deviantart.com/art/Coke-and-Pepsi-332534678 Coke bottle cap: http://suncruiserdogsnmore.com/our-menu/ Coke bottle cap and Pepsi bottle cap: http://money.cnn.com/gallery/news/companies/2013/03/21/greatest- business-rivalries.fortune/2.html Pepsi obesity: http://calorielab.com/news/2009/02/18/americans-trans-fats-peanut-plant-closed-redesigned- pepsi-logo/ Coke obesity: http://dalandofatblog.blogspot.com/2011/05/addictive-coke-addictive-diet-coke.html llustration: http://jamesdawsonmartin.com/blog/category/free-articles/ 30