Summary:
"Cola Wars Continue: Coke and Pepsi in the
21st Century” explains the economics of the soft drink industry and its
relation with profits, taking into account all stages of the value chain of the
soft drink industry. By focusing on the war between Coca-Cola and PepsiCo as
market leaders in this industry – with a 90% market share in carbonated
beverages – the study analyses the different stages of the value chain (concentrate
producers, bottlers, retail channels, suppliers) and the impact of the modern
times and globalization on competition and interaction in the industry.
Analysis:
It is quite clear that there was a “war"
between Coca-Cola and PepsiCo: not only have they been rivals for ages but they
have always followed each other’s moves. In the late 1950s, the beginning of
World War II, both companies started to make it clear in their advertising that
competition existed between them, creating campaigns that recognized the
existence of competitors. However, according to Roger Enrico, former CEO of
PepsiCo, the brand would have a tough time being an original and lively
competitor if it wasn't for Coke. In fact, this statement proves the existence
of a war, but it also proves that both companies actually benefitted from this
war.
The warfare must be perceived as a continuing
battle without blood. Without Coke, Pepsi would have a tough time being an
original and lively competitor. The more successful they are, the sharper we
have to be. If the Coca-Cola company didn't exist, we would pray for someone to
invent them. And on the other side of the fence, I'm sure the folks at Coke
would say that nothing contributes as much to the present-day success of the Coca-Cola
Company than...Pepsi.
To understand the
profitability of the industry, I used the Porter Framework, where I identified
the forces close to the firms affecting their ability to serve customers and
make a profit: threat of substitute products, threat of new entrants,
bargaining power of suppliers, bargaining power of buyers, and competition from
internal rivals.
Porter’s Five Force Analysis
Issues and Recommendation:
The main issue with CSD industry is that the
smaller brands are loosing because of the entry barriers. Smaller brand,
sometimes even better in taste, can fail miserable due the amount of marketing
efforts and investment in distribution channels done by Coke and Pepsi.
Innovation is the key to success but not for the
price of losing the current loyal customer. A Positive Innovation always helps
in improving the current market. Coke and Pepsi should always try to positively
innovate their product through different campaigns and strategies. The move by
Coke to introduce new favor in the market was completely a negative innovative
strategy. Instead they could have invested more on marketing strategies and
increased their distribution channel or provided promotion in sales. Brand name
is the most important factor for profitability and that comes for loyal
customers following the brand. Consumer might be willing to pay a premium price
to get their favorite drink but wont appreciate any change in the most liked
product.
The concentrate business is more profitable than
the bottling business and bottlers are vulnerable to the decisions taken by the
concentrate business. It is not so clear whether the cola wars really took
place and that both businesses profited from that. The tools used in this war
were ranging from marketing campaigns to the enhancement of the delivery
services and the modernization of plants, introducing new flavors and packing.
The effects of this war were on the industry's
profitability. The competition for supermarket shelf space led to a decrease in
retail prices and as a result of intense competition, bottlers saw an increase
in capital requirements followed by a decrease in margins. Sustaining profits
in a market which is giving more and more importance to the non-carbonated
drinks can be difficult task to achieve, but there are some measures that could
help both companies in reaching it: diversification, marketing, focus on core
products, emerging markets, innovation, market research etc.
