...COLA WARS CONTINUE COKE and PEPSI IN 2006 Adityo Wibowo (10 / 310520 / PEK / 15397) Yohan Suryanto P (10 / 310533 / PEK / 15410) Muhammad Jusuf (26E1024) MAGISTER OF BUSINESS ADMINISTRATION FACULTY OF ECONOMICS AND BUSINESS GADJAH MADA UNIVERSITY 2010 PROFIL PERUSAHAAN Pada 8 Mei 1886, Dr.John Stith Pemberton, ahli farmasi berkebangsaan Amerika mencampurkan jenis sirup, obat elixir, French Wine of Coca, Bordeaux, kokain dan kafein (yang berasal dari biji kola). Ramuan itu adalah minuman soda pertama. Saat Atlanta melarang mengkonsumsi alkohol tahun 1885, Pemberton mengganti French Wine of Coca menjadi anggur Prancis biasa lalu menambahkan gula murni, asam sitrat, dan minyak esensial aneka buah ke dalam minumannya. Pemberton menyebutnya Coca-cola. Coca cola menjual empat dari lima top minuman non alkohol sedunia, diantaranya: Coca- cola, Diet coke, Sprite, dan Fanta. Coca cola mempekerjakan 71.000 orang dilebih dari 200 negara, kurang lebih memproduksi 400 merk yang terdiri lebih dari 2600 produk minuman. Produk-produk coca cola didistribusikan melalui restoran dan toko makanan, serta pemasok. Dr. Pemberton menjual ciptaannya dengan harga 5 sen per gelas di apotiknya dan mempromosikan produknya dengan membagi ribuan kupon yang dapat ditukarkan untuk mencicipi satu minuman cuma-cuma. Pada tahun tersebut ia menghabiskan US$46 untuk biaya periklanan. Pada tahun 1892, Pemberton menjual hak cipta Coca - Cola ke Asa G. Chandler yang kemudian mendirikan perusahaan...
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...Cola War Continue: Coke and Pepsi in 2010 1. Over the century the CSD industry has its dominance in the non-alcoholic beverage market. The basic structure of the CSD industry is based on production and distribution, involving four participants: concentrate producers, bottlers, retail channels and suppliers. The concentrated manufacturing process requires a small capital investment for machinery, overhead and labor. They blend raw material ingredients, packaged the mixture and ships to bottlers. They are also in charge of negotiating CDAs with national retailers. The bottlers purchase concentrate, add carbonated water and high-fructose corn syrup, bottle or canned the product and deliveries to customers accounts, managing the CSD brand’s in positioning trademark label, self-space, point-of- purchase displays. Distribution to the retail channels is divided into supermarkets (29.1%), fountain outlets (23.1%), vending machines (12.5%), mass merchandisers (16.7%), convenience stores and gas stations (10.8%) and other outlets (7.8%). Suppliers provide inputs to concentrated producers and bottlers. In the 70’s the annual Americans consumption of CSD was 23 gallons, from that time, the industry grew by an average of 3% per year over the next 3 decades. Market share dropped in 1990 from 71% to 55% in 2009. The shift in consumption evolved in 2005 after CSDs was identified as the largest source of obesity-causing sugars in the Americans diet. To adapt to new time and consumer...
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...Cola Wars Continue Description: The competition between Coke and Pepsi is a classic corporate battle, which began in America at the turn of the century and has expanded into worldwide competitive warfare in the 21st century. We will use the case to examine competition and strategy in the carbonated soft drink industry. 1. Why has the carbonated soft drink (CSD) concentrate industry been so profitable for Coke and Pepsi over many decades? * Soft drinks industries have so profitable because of their market strategies, the cost of the their products/bottlers, and competition with one another. * Pepsi mentioned they would not have been as successful without Coca-Cola and Coca-Cola without Pepsi. * Coca-Cola, was very popular during World War II, offering soldier soft drinks at lower prices. Soft drinks industries constantly adapt to changes with bottling companies, competition and different cultures worldwide. * They also grew the company from primarily CSD to include non CSD, diet soda with less sugar options, and eventually to snack foods. 2. Why was Coke able to dominate the U.S. soft drink industry through the 1950s? How was Pepsi able to catch up in the United States? * The reasons come from internal factors and external environments. Because of Coke’s secret formula and marketing strategy, Coke was considered as a good quality carbonated drink and you can always get a coke since 1920s (very good distribution channels). They quickly grew a franchisees network...
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...Cola Wars Continue: Coke and Pepsi in 2006 Question: Identify the key marketing issues (Company weakness and the main opportunities and threats for company) met by Coke and Pepsi. SWOT | Cola | Pepsi | Strengths | * The flagship of soft drink global market share, approximately 40% * High profit margin by shifting some cost to bottlers * Strong marketing campaign * Expanded manufacturing and distribution system that kept prices low, Coke located in more than 200 countries. | * The biggest market share of non-carb productions in US and the second best selling soft drink brand in the world. * Aggressive marketing strategies using the target customer, Pepsi Generation. * Offered the product innovation. | Weakness | * Decreasing in CSD market. * Having a complex relationship with North American bottlers. * Reacting slowly with new market trends. | * Decreasing in CSD market. * Lack of sensitivity in expanding the global system. * Focusing only young people. | Opportunities | * The soft drink demand in Pacific-Asia Countries increases over 40% steadily. * Entry in the fast growing of energy-drink segment and new packages. * Dominating in Western Europe and much of Latin American. | * Positioning in the Middle East and Southeast Asia. * Growth in healthier beverages. * Growth in Tea Asia and functional drink beverages. * The younger generation structure of the global population. | Threats | * The powerful competitor Pepsi...
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...In the “Cola Wars Continue: Coke and Pepsi in 2010” the history of Carbonated Soft Drinks (CSD) and its development in modern society illustrates how these two companies advance and compete within an oligopoly market. One of the approaches used in oligopolies is the Game Theory Approach. The basic elements of game theory are (1) the players, (2) the strategies available for each, and (3) the payoff each receives. There are different “battlefields” on which Coke and Pepsi compete: products, pricing, and marketing. Product: * Launch of Diet products - Pepsi launched Diet Pepsi in 1964 while Coke launched Diet Coke in 1982 * Launched new varieties, flavors and acquisition of non-soda products - Pepsi introduced a variety of non-carbonated drinks; Coke responded by acquiring some non-carbonated products. * Use of high fructose syrup instead of sugar (cut cost) - Coke began using high-fructose corn syrup in 1980, Pepsi followed three years later. Pricing: * World War II - Coke made sure all soldiers got coke for only five cents, with government exemptions from wartime sugar rationing gave Coke the upper hand and allowed them to have a dominant strategy; Pepsi responded with the best strategy they could, increasing their bottle size to 12 ounce bottle “twice as much for a nickel too” Marketing: * International markets - Both secured contracts to be sole providers to specific countries; both companies plan to invest $2 billion in China to build up their market...
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...Cola War Continue: Coke and Pepsi in 2010 The following characteristics are important to conclude the competitive intensity and attractiveness of the CSD industry: the threat of substitute products, the threat of established rivals, the threat of new entrants, the bargaining power of suppliers and the bargaining power of buyers. First, the threat of substitute products such as sports drinks, juice and bottled water is relatively high to the CSD industry due to the shift in consumption patterns. Customers show more concerns on the health issues. Especially, switching cost of the substitute products is very low. Coke and Pepsi had developed their non-carbs drinks and diet drinks to meet customers’ demands. Second, in the threat of established rivals, the CDS industry can be described as a Duopoly market with Coke and Pepsi. Coca-Cola and Pepsi-Cola claimed a combined 74.8% of the U.S. CSD market in sales volume in 2004. The rest players have low market share, which has a small impact on pricing and industry structure. So competition is always concentrated on these two companies. Coke and Pepsi mainly competed on advertising and differentiation, less on pricing except for a period in 1990’s and their international growth strategy. Third, the threat of new entrants in the CSD industry is low due to the high entry barriers. Coke and Pepsi had invested millions of dollars on advertising and marketing and continued to spend money on that filed. That had built strong customers’...
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...Cola Wars Continue: Coke and Pepsi in 2010 Report prepared by Bruno Arnaud Executive Summary Coke and Pepsi have competed for more than a century for the world’s beverage market share. In all this time they have executed many different strategies and taken various decisions concerning the future of their companies. However, during this period, they had always experienced an increasing domestic carbonated soft drink (CSD) consumption. Now, that the CSD consumption is declining, and the non-CSD consumption is growing, what should Pepsi do next? And how might Coke respond? Which strategies should the smaller competitors follow? I recommend Pepsi to pursue the market for its new non-CSD products, with sport and energy drinks, water, juices, teas, and snacks, while also focusing on its world expansion for the CSD and non-CSD market. Coke will, of course, do the same, while the smaller competitors will try to focus on each of their specific niche but also internationally. Analysis Why is that the concentrate producers have been so profitable? The concentrate manufacturing process involved relatively little capital investment in machinery, overhead, and labor. Also, one concentrate manufacturing plant cost between $50 million to $100 million, but can cover a very large geographic area (“as large as the United States”). Their most significant costs were for advertising, promotion, market research and bottler support. So, they heavily invested in their trademarks over time, and...
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...Cola Wars Continue 1. The soft drink industry has been so profitable due to a plethora of reasons including: 1) direct distributors for companies; 2) low costs to produce concentrate for fountain sales and bottling; 3) utilizing their own subsidiaries to bottle, package, and produce concentrate; 4) tactical brand partnerships that allow penetration in mixed markets; 5) companies monopolizing pouring rights with exclusive chains through contracts ensuring profits with no competition. The leading reason for high profits in the past was largely due to high consumer demand where millions of gallons of soft drinks were consumed each year, creating an addicting dependence for consumers nationally. 2. The competition between Coke and Pepsi has affected the industry in a positive manner. A push-pull effect on the market resulted from these two key players as when one company introduced a new product to the market, the other company had to act quick to gain back the market share they had just lost to their competitor. Pepsi, generally speaking, monopolized their share with retail stores with respect to pouring rights with Taco Bell where Coke made up their lost market share with 70% fountain sales as Pepsi falls behind with 30%. 3. Coke and Pepsi have benefitted from adding diversity to their beverage portfolio, but the long-term sustainability for this diversity has proved to taper off. In the past, Americans were drinking more soda compared to any other drink, including...
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...Based on the case “Cola Wars Continue: Coke and Pepsi in 2010,” use game theory approach/analysis to explain the competitive behavior of Coke and Pepsi making specific references to actions taken by each firm and the different “battlefields.” What conclusions can you draw about the competitive strategies pursued by both companies? At the time the Case was written was there a winner? Should both companies have acted differently? The game theory approach used between the two CSD giant Coke and Pepsi was at times very entertaining to see as a consumer. In the case study it explains the back and forth competition and in my point of view there still is no clear winner. Coke saw the importance of soda fountains and Pepsi was at times more “old fashioned” and felt bottle/retail sales were most critical. To counter Coke’s move, Pepsi entered the fast food market by purchasing Taco Bell, Pizza Hut, and Kentucky Fried Chicken. While the consumer became more informed with the ingredients used and the possible health issues caused by the artificial sweeteners, Pepsi and Coke began to battle to find the “healthiest” sweetener which ended up being Stevia. These battles branched out into the non-CSD drinks like, Vitamin Water, which was Coke’s largest purchase in their history. Even with that acquisition Coke was behind Pepsi on the U.S. non-carbs market share because of Pepsi’s advantage with the sales of Gatorade and Lipton tea. The game theory each used was basically who can be most...
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...Cola Wars Continue Case Analysis Executive Summary: Wal-Mart is the leader of discount retail stores in the United States. Opening in 1962, the company created its empire by providing low-priced goods to consumers (prices average 10% - 15% lower than conventional department stores). In the 1980’s, the company diversified its store options to include warehouse and supercenter stores. After the death of leader, Sam Walton, Wal-Mart’s new management team faces many challenges. With a stagnant economy and increased competition in the mid-1990s, Wal-Mart faced a staggering double-digit decline in share price in 1993 as growth began to slow down (Table 2). In order to sustain Wal-Mart’s competitive advantage as well as penetrate more growth, the following four suggestions can be considered: (1) increase the number of Wal-Mart supercenters, (2) expand international presence, (3) upscale the product line, and (4) decrease prices. I recommend a hybrid combination of (1) increasing the number of Wal-Mart supercenters and (2) expanding international presence. Analysis: Answer the discussion questions in the analysis. Bring in the game theory model. Thus, in order to sustain its position in the market place, as well as continue to grow, I assessed the following four recommendations: Recommendation 1: Increase the number of Wal-Mart supercenters Pros: By increasing the number of Supercenters, Wal-Mart can continue to compete with other discount retailers and grocery...
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...1) Why, historically, has the soft drink industry been so profitable? According to Exhibit 3a, the operation profit margin of the two giants kept robust growing from ~10% in 1970s to ~20% in 2005. That probably resulted from two reasons: 1) net sales enjoyed robust growth; 2) COGS and other expenses cowered fast. Net sales enjoyed robust growth. According to Exhibit 1, consumption per capita increased by 3% per year lasting for 3 decades since 1970s, due to A. Increasing demands of CSD and the introduction of diet and flavored varieties. a) Availability increased due to cowering real price B. The introduction of diet and flavored varieties which led to CSD’s share increased from 12.4% in 1970 to 18.7% in 1981, 25.7% to 1990 and 29% in 2000 of total beverage consumption per capita. (Source: Exhibit 1) High consumption per capita caused lower bargaining power of consumers but high bargaining power of manufacturers. On the other side, less threats from substitutes was also a reason that market players can enjoy profitable business. According to P2, Americans drank more CSD although there were many alternatives. COGS and other expenses cowered. A. Less investment than other industry. B. Relative high consolidated market landscape caused market players enjoy high bargaining power to suppliers, which means COGS will be low. 2) Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different...
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...Product and Brand Strategies Cola Wars Continue: Coke and Pepsi in 2010 1. Why, historically, has the soft drink industry been so profitable? Coca Cola was formulated in 1886 by a pharmacist in Atlanta who started to sell it in drug stores as a ‟portion for mental and physical disorders.“ Five years later the Asa Candler acquired the formula for Coca-Cola syrup which was a well-protected secret of the company. He also granted the first bottling franchise which grew qucikly. In the following years a lot of imitations were fight agressively by court for protecting their carbonated soft-drink (CSD) with its special flavour. Later on Coca Cola was advertised as a ‟lifestyle“ product and the international business began to develop. Pepsi was founded in 1893 and they also adopted a franchise bottling system which built up a big network very quickly. About 20 years later Pepsi went bankrupt and later on they declared bankrupcy the second time. However business went on and Pepsi built up a marketing strategy ‟Twice as much for a nickel, too.“ Pepsi step for step gained market shares and became the second behind Coca Cola. The competition in the soft drink industry began to grow. The soft drink industry consists of bottlers and suppliers. One fact which supports the profitability of the soft drink industry is that there are only two relevant players Coca Cola and Pepsi who have enough power for setting rules. The rivalry between both can be seen as a copmpetitive...
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...4 Competitive / corporate strategies of Coke and Pepsi 5 SWOT Analysis 6 Questions 6.1 How has the competition between Coke and Pepsi affected the industry’s profit? 6.2 If it has been such a profitable industry, why have so few firms successfully entered this business over the last century? What are the barriers? Why have Coke and been so successful in launching their products? 6.3 Why, historically, has the soft drink industry been so profitable? 6.4 Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different? 6.5 How can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs? 7 9 11 Exam Case Study Cola Wars Continue: Coke and Pepsi in 2010 1 Overview (Power Point Page (PPP) 2) For more than a century, Coke and Pepsi compete for market share within the world’s beverage market. The most intense battles were fought over the $74 billion carbonated soft drink (CSD) industry in the United States that lasted until the mid-1990s. Coke’s and Pepsi’s revenues grow annually, as the worldwide CSD consumption rose steadily by an average of 3% per year. In the early 2000s, however, domestic CSD consumption started to decline in consequence of the evolving linkage between CSDs and health issues such as obesity. Coke and Pepsi faced new challenges regarding the growth of non-CSD beverages...
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...Executive Summary Prior versions of the case have been used to teach various subjects, including industry analysis, competitive dynamics, and vertical integration. While this case tries to incorporate some of the essential elements about the history of competitive dynamics and the historical patterns of vertical integration the primary teaching purpose of this case is to discuss the economics of the U.S. soft drink industry. Concentrate producers (CPs) sold syrup and concentrate to franchised of company owned bottlers, and made gross margins of 83% and a pretax profit margin of 30%. The best-know CPs were Coke and Pepsi. Historically, Coke and Pepsi were also major bottlers, but in the mid-to late 1990s, both had divested their bottling operations while maintaining significant equity ownership and indirect control of bottling networks. CPs invested heavily in advertising and marketing. One of the key issues for students to understand is why most of the profits in this industry are earned upstream in the concentrate business. The bottling business was much less profitable than concentrate, particularly in the mid- 1990s. Bottling profits improved somewhat in recent years, in part because the concentrate manufacturers could no longer squeeze the bottlers without disrupting their own distribution. Bottlers invested in bottling and caning lines, trucks, and warehouses and earned gross margins 40% and pretax profit of 9%. Coke and Pepsi bottlers delivered their products directly...
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...The competition within the $74 billion carbonated soft drink (CSD) industry has been remarkable ever since Coca-Cola was formulated in 1886, and further intensified when Pepsi was introduced in 1893. Ever since then, the CSD industry has been dominated by these two companies, with Coke taking the lead in the early stage, followed by Pepsi doubled its market share between 1950 and 1970 by offering its concentrate at a lower price than its competitor. The CSD industry has been profitable historically due to numerous reasons. Firstly, in the world’s largest market for CSD products, consumption had been growing at a steady rate of 3% annually from 1970 to 2000 in the U.S., marking a high growth stage in the industry life cycle (Appendix B). This allowed both Coke and Pepsi (C&P) to achieve annual sales growth of around 10%, while competing head-to-head against each other and other smaller CSD producers. Competition between C&P reinforced their brand image, as the increase in marketing efforts could be transferred into profit and sales growth when the overall demand was increasing in a growing industry. However, the increasing industry volume was largely obtained by C&P, leaving other smaller firms vulnerable with stagnated growth opportunity. Secondly, according to Porter’s Five Forces analysis in Appendix A, high barrier for new entrants, low bargaining power of suppliers of both concentrate producers and bottlers, moderate buyer’s bargaining power and low degree of threats of substitutes...
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