Cola Wars

Presented by: Sneha Gangadharan(PGP/16/050) Vivek P S (PGP/16/057) Swati Matta(PGP/16/054) Shashank(PGP/16/044) Yogyata Thareja(PGP/16/058)

Journey
Coca-Cola was formulated in 1886 by pharmacist John

Pemperton who sold the product at drug stores as potion for mental and physical disorders. In 1891, Asa Candler acquired the formula, established a sales force and began brand advertising of Coca-Cola. In 1919, went public under control of Robert Woodruff expanded and developed in national and international markets. Successful during WWII with the high CSD consumption from the U.S soldiers.

Journey
Pepsi was created in 1893 in North Carolina by

Pharmacist Caleb Bradham. By 1910 Pepsi had built a network of 270 bottlers. Pepsi struggled and declared bankruptcy twice During Great Depression grew in popularity due to price decrease to a nickel. In 1938, Coke sued Pepsi-Cola brand for infringement on Coca-Colas trademark, Pepsi won the suit. Pepsi became the 2nd largest selling CSD brand in 1940 In 1950 Cokes share of US market was 47% and Pepsis was 10%

Cola Wars
In 1950 Alfred Steele, former Coke marketing exec

became CEO of Pepsi. He made Beat Coke his motto. In 1963 Pepsi launched the Pepsi Generation marketing campaign which targeted the young and the young at heart In late 1950s Coco-Cola used messages that recognized the existence of competitors: Americans Preferred taste(1955), No Wonder Coke Refreshes best(1960). In 1974 Pepsi launched the Pepsi Challenge. In 1982 Diet Coke was introduced as an extension of Coke

1886 Coke with a bit of dope in it by John Pemperton

13 yrs later Pepsi Cola as the CLEAN DRINK - Caleb Bradham

Coke was a well established phenomenon by the time Pepsi came into being

Coke developed the iconic contour bottle 7 also expanded its endorsements to Europe. Pepsi went bankrupt

Pepsi goes bankrupt again & rebounds

Pepsi starts the era of aggressive advertising and introduces the cans

Cokes new ad & Pepsis rebranding efforts

Pepsi Ad efforts backfired

1939-1950

After this campaign, though Pepsis consumer base did increase, but people were reluctant to own up to it. Pepsi was the kitchen drink while Coke remained the living room beverage. Trend emerged for penny-wise hostesses to serve Pepsi in glasses and then hide the bottles so that they could present to the guests as Coca Cola

Pepsi Ad efforts backfired

1953-1961

This campaign sought to fight the cheap-drink stigma by advertising the drink as Be Sociable groups of happy people. However, this was not very successful as intended since these characters were perceived overly sophisticated and boring, and the young generation enthused by the rock-nroll revolution at that time could not relate to it.

1961-1963

1963-1967

This overnight campaign transformed the image of Pepsi from a drink that thrifty housewives preferred to a trendy drink that nobody would feel embarrassed caught drinking. The campaign appealed to both the young and the young at heart

1963-1967 Chinese Market Come Alive Campaign!

Cultural Sensibilities

This campaign when ported to China led to sales declining, since the Chinese interpreted this as the dead reanimating from the grave. This is one of the biggest episode listed in the book of marketing blunders.

1962- Coke goes public on the launch of Sprite

The start of Diet drinks. Pepsi merged with Frito Lay

CORE ACTIVITIES THREATENED Radical Change Core Assets obsolescence Core Activities obsolescence THREATENED NOT THREATENED Creative Change Core Assets obsolescence Core Activities stable

CORE ASSETS

NOT THREATENED

Intermediating Change Core Assets stable Core Activities obsolescence

Progressive Change Core Assets stable Core Activities stable

Defining the Industry trajectory

STEP 1 : Defining the Industry Competitors Coca-Cola , Pepsi, DPS, Royal-Crown, Cott Corporation (5% Rule)

STEP 2 : Defining the industrys core assets and activities

Core Asset is the brand, the beverage produced (CSD and NON-CSD) and fast food restaurant business Core Activity is the packaging, distribution, marketing and delivery of the items produced

STEP 3 : To identify the assets and activities threatened with obsolescence

STEP 4 : To evaluate the phase of evolutionary trajectory

CSD sales are dwindling. No hint of obsolescence All the other core activities and assets are fairly stable

Thus the players in Cola industry lie in the Progressive change region Here, the successful strategy is to develop a system of interrelated activities that are defensible because of their compounding effects on profits This justifies the vertical integration of the bottling activity

Analysis of Concentrate business using Porters 5 forces

Competitive Rivalry within the industry Existing companies compete on price and brand-image Huge expenditure on advertising and marketing Intense Competition

Threat of Substitute Products End consumer has a wide variety of choices Price is a major determinant for sale of soft drinks Substitute products are bottled water, tea based drinks etc Even with growing awareness about health-effects, complete elimination of soft drinks in near future doesnt seem true

Analysis of Concentrate business using Porters 5 forces (contd..)

Threat of New Entrants Requirement of a bottler to supply the concentrate Existing contracts of bottlers may prove to be a hindrance Bargaining Power of Suppliers No mention of suppliers Bargaining Power of Customers Direct buyers (bottlers) as well as Indirect buyers (end consumers) Here the power of buyers is bargaining power of bottlers Existing contracts and equity ownerships prevent bottlers to switch from one concentrate producer to another issue of territorial rights to the new bottler Hence, LOW bargaining power

Analysis of Bottling Business using Porters 5 forces

Threat of substitute Thre products
Automatic Dispensers Direct Sales New modes of packaging and distribution

Bargaining power of suppliers

Powerful concentrate suppliers Weak commodity suppliers

Bargaining power of buyers

Generally low due to fragmentation

Competitive Rivalry
Pepsi Bottling Group (PBG) Coca Cola Enterprises (CCE)

Barriers to entry
Franchises Technology Capital Intensive Nature Contracts

Profitability comparison of Concentrate and Bottling Business

The concentrate business is more profitable when compared with the bottling business as is clear from the following points.
Concentrate business is less capital-intensive then the bottling business which also involves investment in trucks and distribution network. (Page 2) The operating margins for concentrate producers as of 2009 is 32 % while that of bottlers is 8%. (Exhibit 4) The competition in the bottling industry is relatively high because of presence of large number of players in the bottling industry. The concentrate producers also have the power to negotiate directly with the bottlers major suppliers which reduces the bargaining power of the bottlers. (Page 2) Bottlers cannot leverage any brand equity from the operations. Bottlers were restricted not to carry directly competing brands and not to expand in the areas beyond their exclusive domains. (Page 3)

Profitability analysis of soft drinks industry

The soft drinks industry is highly profitable. The reasons for this are enlisted below:
Increasing availability of soft drinks Introduction of diet and flavoured varities in CSDs Declining real prices (Inflation adjusted) High barriers to entry (Porters five forces analysis):

Brand equity Shelf space agreements Distribution and marketing network etc.
Decrease in the consumption of substitutes like Beer, Coffee (Exhibit 1)

Is the profitability sustainable?

The profitability of the soft drinks industry appears to be sustainable. High barriers to entry (Porters five forces analysis): Brand equity Shelf space agreements Distribution and marketing network

Opportunity to expand into the non-CSD segment (The share of Non-CSDs in total beverages volume went up from 20% in 2000 to 37% in 2009) (Page 10)
A consolidated distribution network would allow the firms to increase profitability as the volumes would grow.

The consolidation in retail sector, however posed a threat to the profit sustainability as it will increase the price pressures on the cola producers thus squeezing the profit margins.

Thank You!