Pepsi Cola And Coca Cola's Marketing Strategies example essay topic

A Tale of Two Colas: The Cola Wars Pepsi Co. Incorporated and The Coca-Cola Company are the two largest and oldest archrival's in the carbonated soft drink (CSD) industry. Coca-Cola was invented and first marketed in 1886, followed by Pepsi Cola in 1898. Coca-Cola was named after the coca leaves and kola nuts John Pemberton used to make it, and Pepsi Cola after the beneficial effects its creator, Caleb Branham, claimed it had on dyspepsia. The rivalry between the soda giants, also known as the 'Cola Wars', began in the 1960's when Coca-Cola's dominance was being increasingly challenged by Pepsi Cola. The competitive environment between the rivals was intense and well-publicized, forcing both companies to continuously establish and implement strategic variations as a means to create a competitive advantage.

The competition fostered and stimulated continuing growth in an industry which many predicted in the early 1970's to be on the verge of maturity. Reasons for the prediction arose from the fact that further growth of per capita consumption of soft drinks is fairly static regarding how much people are able to consume on a daily basis. Furthermore, both Pepsi Cola and Coca-Cola offered a limited number of products that 'looked the same, tasted the same, and bubble into foam the same', thus questioning whether further substantial growth in sales was possible. Pepsi Cola and Coca-Cola's marketing strategies have been as indistinguishable as the products themselves.

Relying on colorful images, lively words, beautiful people, interesting bottle designs, and contagious jingles, Pepsi and Coke propelled their respective products into the American and international mainstream. The changing faces of Pepsi and Coke's management, however, facilitated the brand image according to their own style and what they saw as an advantageous competitive approach. This style and approach is what makes Pepsi-Cola and Coca-Cola distinguishable. The objective of Coca-Cola's advertisements was to strategically position their product in people's mind in order to maximize its acceptance. This strategy would in some way or another have a correlation to the changing social values of the period. "Trying to keep step with each generation and era has been an important factor in advertising for Coke.

It strives not to be too far behind or too far ahead of its time; the product has always been positioned for what it was in any era. ' As social values change from each period so did Coca-Cola's ad themes. For instance, Coca-Cola first entered the market as a medicine and eventually into soft drinks their ad slogans would center on the theme of healing: "Coca-Cola revives and sustains"; and, "Satisfies the thirsty and helps the weary". Coca-Cola's confidence in its domination over the soft drink industry eroded, and its advertising slogans began to recognize industry competition: "No Wonder Coke Tastes the Best".

While Coke's slogans have always centered on the product, Pepsi's advertisement emphasized the users of the product. Rather than targeting every market, Pepsi focused on the demographic environment. Pepsi foresaw the mass appeal of the youth generation for soft drinks and in 1961 divulged the successful slogan "Now, It's Pepsi, for Those Who Think Young". The campaign was such a success that Pepsi's sales growth outperformed that of Coca-Cola. Marketing strategies began to take broader dimensions as the soft drink industry continued to expand and became more complex. In 1976, Pepsi introduced the Pepsi Challenge in its campaigns, a moved that directly challenged Coca-Cola's longstanding dominance.

In 1985, responding to the pressure of the taste tests, which Pepsi always won, Coca-Cola decided to change its formula. This move set off a shock wave across America. Consumers angrily demanded that the old formula be returned, and Coca-Cola responded three months later with Classic Coke. Five years after the infamous Coke fiasco, the Coca-Cola Company tried to bring back the reformulated Coke. The effort to phase in Coke II into the soda market was quite unsuccessful. In addition, in 1993, Pepsi encouraged Diet Coke consumers to call toll-free numbers to be interviewed by celebrities such as Ray Charles.

In the process of the interview, the company accumulated brand preference and consumption information from a large block of potential consumers. On its web site, in exchange for some of the games and features (including daily sweepstakes drawings), Pepsi requires visitors to complete an on-line survey, providing contact information and demographic information, including beverage and snack preferences. By gathering this information, Pepsi has gained valuable information directly from consumers. The battle to gain substantial sales growth and market share intensified to such an extent that advertising for both companies, although delivering national brand recognition and continuous awareness, could not produce significant sales growth; either Pepsi gain market share by taking Coke's market share or vice versa in order to gain the number one position. The next strategic move for both companies was to diversify into various food and beverage enterprises in order to capture more market share in the carbonated soft-drink industry. In the 1960's, diet soft drinks immerged as popular new products.

Coca-Cola introduced their diet drink Tab, and Pepsi Cola followed a year later with Diet Pepsi. Tab gained greater market share than Diet Pepsi due to Coca-Cola's strategy of protecting its brand equity rather than risking the dilution of its brand name like Pepsi did. Both companies further diversified by going into non-carbonated soft drink beverages. In 1960 Coca-Cola purchased Minute Maid and four years later, Duncan Foods, a producer of tea, coffee, and hot chocolate. Pepsi Cola acquired Lipton and Tropicana and became the number one selling iced tea and the world's largest producer of branded juices. Pepsi Cola's strategy to diversify did not just end with juices, however.

They also branched into the snack food industry. In 1965, Pepsi Cola merged with Frito-Lay to form Pepsi Co. This concentric diversification strategy gave Pepsi Cola significant economies of scale, because both companies shared similar consumers, distribution system, and marketing strategies. Frito-Lay's expertise in the transformation of its distribution system before the merger enabled Pepsi Cola to eventually own its distributing company rather than depend on individual distributors. It was a move that facilitated Pepsi Cola into gaining increasing market share from Coca-Cola.

In a market where the product, packaging, and tastes remain virtually indistinguishable and fairly constant, brand recognition becomes a significant factor affecting Coke and Pepsi's competitive position. The diversity of advertising media provides a powerful and influential tool in attracting consumer brand awareness and loyalty. Coca-Cola's brand image has been so well established that it has become ingrained into and synonymous with American culture. The advertising teams behind Pepsi and Coke successfully build their image by identifying their products with social values and attitudes. Such slogans as "Coke Adds Life" and "Have A Pepsi Day" instilled explicit and implicit meanings that try to associate purchasing a soft drink to social values of the time. TV and radio became the threatening voice of Pepsi Cola, further intensifying Coca-Cola's ad campaigns.

Coca-Cola's advertising continued to revolve the product's appeal to American life and culture, however, the company's campaigns focused on targeting a broad consumer market with the slogan "Things Go Better with Coke". Coca-Cola was making the strong proclamation that it was available everywhere, to everyone at any time. Both Pepsi and Coke place little control over their employees. The employee environment is more focused on the individual rather than teamwork. Individual employees must meet a certain quota and good perform ance's are compensated with benefits like in Pepsi's case, tuition reimbursement and discount car purchase program. Thus, both companies emphasized employee results rather than innovations.

This type of employee environment has worked fairly well for the two industry leaders since the companies' main product is simple and doesn't require much innovation or teamwork. In a slow growth industry like the soft drink industry management needs to focus on acquiring consumer loyalty and not on employee conditions. In the soft drink industry, there are significant and high barriers to entry. A potential competitor may be unable to start out small and gradually grow to the optimal size, since it must gain a large share of the market before it can minimize its per unit cost. Since Coca-Cola and Pepsi control so much of the market, any new entrants tend to be easily outperformed. A small company trying to enter the carbonated soft drink industry can not acquire a large market share in the short run.

Therefore, the firm is unable to utilize economies of scale and the efficiency gains from mass production. As hinted at previously, advertising seems to be the key barrier to entry in the CSD market. There so many products on the market representing soda, that many are even unheard of. The only thing that counts seems to be the "name brand". Consumers have attachments to name brands in this industry. New entrants simply would not have the financial resources or capital to compete in the increasingly expensive advertising war.

Even the unexpected entry into the bottled water market by the company has not shocked consumers. One possible reason is because it has not been advertised as extensively as other products representing the company have. Consumer buying power represents a key threat in the industry. The rivalry between Pepsi and Coke has produce a very slow moving industry in which management must continuously respond to the changing attitudes and demands of their consumers or face losing market share to the competition.

Furthermore, consumers can easily switch to other beverages to substitute their quenches with little cost. The threat of substitutes is very real. The soda industry is very strong, but consumers are not attached to it. Possible substitutes that continuously pressures both Pepsi and Coke include tea, coffee, juices, milk, and hot chocolate. Fortunately, Coca-Cola and Pepsi Control nearly 40% of the entire beverage market as well as diversify into other beverages, enabling it to have further significant market shares and offset any losses incurred due to seasonal fluctuations.

Bargaining power of suppliers is of little threat since Pepsi and Coke have established their own bottling companies more than twenty years ago. Until 1980, the fragmented independent franchised bottling distribution system that had characterized the industry since before the turn of the century was still in place. Prior to the 1980's, Pepsi and Coke only manufactured the syrup that would then be transferred to a contracted bottler or distributor. Bottlers held perpetual franchises with exclusive territories and were bound by flavor exclusivity clauses. Both companies had little control over their product promotions and pricing and the overall marketing strategy of their brand name. In the 1980's, Pepsi and Coke transformed their distribution process.

The Federal Trade Commission (FTC) challenged large horizontal acquisitions of Dr. Pepper and 7-UP franchises by Coca-Cola and Pepsi-Cola bottlers during this period, but did not challenge vertical acquisitions of CSD bottlers by their franchisors or other horizontal bottler acquisitions. Since 1980, the number of bottlers with franchises of the major CSD brands has fallen by more than one-half, as franchised bottlers were acquired and consolidated by their franchisors and by other bottlers. In addition to FTC merger enforcement activities in the CSD industry, the Department of Justice brought many price-fixing cases in the mid- to late-1980's against CSD bottlers affiliated with each of the market-leading firms. By 1990, it had obtained more than forty bottler and individual guilty pleas or convictions in ten states. Alternative theories for each type of bottler transaction that took place during this period have been proposed. Three specific hypotheses tested, using price and output measures of competitive effects, are: whether horizontal transfers of Dr Pepper and / or 7-UP franchises to Coca-Cola or Pepsi-Cola bottlers were anti-competitive (i. e., associated with higher prices and lower output); whether vertical acquisitions by the Coca-Cola Company and / or Pepsi Co. of their respective bottlers were pro-competitive (i. e., associated with lower prices and higher output); and whether consolidations of third bottler franchises (i. e., franchises not held by a Coca-Cola or Pepsi-Cola bottler) were pro-competitive.

Overall, the results are generally consistent with prior expectations and with recent antitrust policy in the CSD industry. However, some results, particularly those associated with vertical integration, suggest that further study is warranted. First, horizontal franchise acquisitions by Coca-Cola and Pepsi-Cola bottlers led to higher CSD prices and lower per capita CSD volumes, as hypothesized. On average, these transactions were associated with CSD prices that were 3.5%-12.8% higher than otherwise, and per capita CSD volumes that were 12.2%-19.8% lower than otherwise.

Second, vertical integration was associated with lower CSD prices for alternative measures of the degree of vertical integration (as hypothesized), but had mixed results in the per capita CSD volume regressions using the three data sets. On average, vertical acquisitions that resulted in both the Coca-Cola Company and Pepsi Co controlling their bottlers lowered CSD prices by 4.3%. Third, the results for third-party bottler consolidations varied with the local market shares of the franchises being acquired. On average, large franchise acquisitions were associated with lower CSD prices (1.2%) and higher per capita CSD volumes (14.0%). In contrast, small franchise acquisitions were associated with higher CSD prices (5.5%) and lower per capita CSD volumes (13.2%), on average.

Rather than succumbing to the impending maturation of their domestic market, the two industry leaders, fostered by the competitive intensity, launched new strategies, such as product modifications, new forms of pricing and promotion, and fundamental changes in its distribution system, that have led to rapid and continued expansion of both company's domestic sales. By forecasting and responding to changes in the economic, political, social, and technological environments, Pepsi and Coke have successfully innovated in marketing, distribution, and product development. The soda rivalry also initiated both companies to seek international markets and diversification strategies in order to increase their sales growth. The rivalry between the two soda giants required new strategies to be continuously implemented. The new strategies devised by Pepsi and Coke to deal with the changing environment could not have been effectively implemented without changing their distribution system from networks of independent bottlers to company-owned bottling systems. This transformation has been essential to both companies' introduction of new products and new forms of pricing, promotion, and advertising.

The U.S. Department of Justice has brought many price-fixing cases against CSD bottlers, the vast majority of which led to guilty pleas. The FTC has conducted many investigations in the CSD industry, including investigations of horizontal and vertical acquisitions in the industry. Reference List 1. Enrico, Roger & Kornbluth, Jesse: (1986).

The Other Guy Blinked. New York: The Free Press. 2. 'Coke vs. Pepsi', The Economist, January 29, 1994, pp. 67-68.3. web web Pepsi Co. Inc. Annual Report Issued to Common Stock Shareholders 6.

The Coca-Cola Company Annual Report Issued to Common Stock Shareholders.