Cola Wars Extended Analysis

Abstract

The case study presented in this paper is an examination of the carbonated beverage structure and marketing. The focus of the study is on two competing global giants- Coca Cola, on one hand, and PepsiCo, on the other- hence the Cola Wars. The case study particularly examines the rivalry and the competitive strategies employed by the two beverage companies hitherto, from their history over the last 100 years or so. During their active wars, the two firms have used a number of strategies, chief of which included bottling modifications, branding and rebranding, and price strategies. These strategies have not only been helpful in stabilizing their products in the US and in the international markets; they have been able to fuel the growth of the two brands and their portfolios in different ways. The strategies have also led to diversification, particularly through the introduction of different noncarbonated products such as juices, bottled water, tea, and sports beverages in order to curtail threats from companies selling noncarbonated drinks and from potential concerns about the effects of carbonated drinks. In effect, the two companies have assumed the competitive edge at some point since the wars started. As the two companies enter the 21st century, their protracted war compels them to adopt various marketing tools to edge each other and other players in the sector. The strategies, which are discussed in this paper, include increasing sales of their domestic cola formulas, researching and adopting new sources and resources for revenue and for remaining competitive.

Introduction

The success of a company within the international soft drink market largely depends on its achievement of a critically large mass consumption alongside developing a system of distribution that strategically aligns its brands to the needs of its targeted market populations. By this standard, Coca Cola is not only qualified- it has close to 90% of the world's soft drink consumers drinking its brands- it is also the historical leader. PepsiCo, on the other hand, boasts of an enormous infrastructural and market resource that rivals (and occasionally outpaces) Coca Cola in the US and in a host of other countries around the globe. This makes it the greatest rival to Coca Cola. Other players, chiefly Cadbury Schweppes, have their performances steadily pursuing the big two. Sadly, they continue to suffer a series of market challenges such as bottler network alignment, branding and logistic challenges. For Coca-Cola and PepsiCo, this strategic positioning means more maneuvering, if only to outpace each other as the global soft drink company of choice. Coca-Cola continues to invest its cash flow, essentially from the developed markets (approximated at 51% of total volume) into emerging and new markets (in which it has up to 43% and 6% in total volume respectively). PepsiCo too has to focus on the emerging markets in which Coca Cola has clear lead (such as in China, India and Russia) (Srivistava, 2010, par 6). These new dimensions and realities define the ongoing Cola wars- a protracted battle for soft drink market leadership that can be traced back to the 1960s. The ensuing sections of this paper offer an extended analysis of the Cola Wars, in recent times, and into the 21st century.

The Cola Wars - Extended Analysis of Case

The origins of Coca-Cola and Pepsi are rather similar. The two companies came into being in the 19th century and were formations of US southern pharmacists. The two companies were also able to outperform their imitators to break even, first into national market and later into international soft drink brands. The two companies also have similar core product, the cola, which is the greatest embodiment of the carbonated soft drink (CSD) industry to date. A countless number of products have sprung up from their formulas. Interestingly, not only until the 1960's did either of the two companies pursue different business goals than their flagship brand developments and markets.

Rising from this shared beginning, the two companies have since engaged in a century long war that is yet unending. In the decades before this, PepsiCo must have been contented trailing Coca Cola as the front-runner in the cola market. Having suffered bankruptcy proceedings that hindered its business between 1923 and 1932, Pepsi reemerged to introduce strategies for boosting its sales (Russell, 2010 par 2-4). It started by marketing the value in its products and offered better pricing- usually twice as much quantity of their products for the price of Coca Cola's single product. They used this to sway loyal Coke drinkers. This, however, did not work until in the 1950s, when again, the company's new CEO Alfred Steele, started on a culture campaign dubbed "Beat Coke" at the company's headquarters. This trained PepsiCo into a new mode of real growth, and an improvement in the company's distribution network. The competition stays, from that juncture on.

Coke and Pepsi- The Current Situation

The performance of the two remains enviable into the 21st century (Yoffie, 2009 p2. The Cola Wars continue, and with it, the two giants face new challenges and renewed competition. Not only are the two struggling against dwindling popularity because of the health concerns associated with carbonated drinks, the two are up against each other and against other players in newly fashioned soft drinks. The two are challenged to sustain their growth and profitability in the changing times. Contrasted with the mid 1990s- when the actual price of cola drinks existed and when many people in America drank more soda than most other soft beverages- there has been a steady rise in the consumption of other drinks. Milk, beer, distilled spirits, bottled water, tea, coffee, juices, wine, powered drinks, tap water and sports drinks among others have become consistent alternatives to cola (Yoffie, 2009 p.12).

Unlike older times when Coca-Cola and Pepsi were the front-runners in the soft drink market, four other major participants are involved in the production and distribution of soft drink brands. These players include concentrate producers, who blend raw material ingredients and package them in plastics, and/or ship to bottlers, or are bottlers who purchase concentrates, add high fructose corn syrup and carbonated water to it, or can the carbonated soft drink before delivering to customers. The third player category is retail channels whose main activities are distribution of soft drinks while the fourth player category is the suppliers who distribute the canned and bottled drinks. These players have continued to challenge Coca Cola and PepsiCo's business strategies (Yoffie, 2009, p13). In