Present

MM6016 Branding and Marketing Communication

Cola Wars continue

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Haidir Afesina Wirania Swasty Chairunnisa Mirhelina F X Kresna Paska Aqsa Adhiperwira Fajar Liem

Coke &Pepsi in the Twenty-First Century

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throat share

Pepsi would not exist without Coca Cola,

Coca Cola would probably not be as important without Pepsi

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Soft Drink
Carbonated water

Production & distribution:

Concentrate Producers,
sweetened

flavored

bottlers,

Soft Drink

retail channels,

Produce concentrate from raw material

concentrates

Produce soft drinks

Distribute soft drinks to retailers & end users

suppliers

CP

Bottlers

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Bottlers
Business Process

Concentrate Producers
Business Process

Purchased concentrate Added carbonated water and high fructose corn syrup Bottled or canned the CSD Delivered it to customer accounts

Producer blended raw material ingredients Packaged it in plastic canisters Shipped it to the bottler

Supplier

Supplier

Packaging

$3.4 billion in cans $1.3 billion in plastic bottles $0.6 billion in glass $1.1 billion in sugar and high fructose corn syrup $1.0 billion in artificial

Caramel coloring Phosphoric and / or citric acid Natural flavors and caffeine

Sweeteners

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Retail Channels
Food stores (35%)
Fountain outlets (23%) Vending Machines

(14%)

Convenience stores (9%) Other outlets (20%)

Cola Wars Highlights

Coca-Cola invented

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1886 1893 Pepsi-Cola invented

Americans Preferred Taste No wonder Coke Refreshes Best

1950s 1960s 1970s

Beat Coke Pepsi Generation Pepsi Challenge

Kick Pepsi's can Diet Coke New Coke

1980

Foster entrepreneurial spirit of Pepsis people

1990

Jettison slow-growing businesses

Repair Coke and restore Stock price Diversify product line

2000

Diversify beyond soft-drinks

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Issues
Saturated

market

Healthy Huge

issues

potential market outside USA competitive industry

Highly

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Business Strategy

Single product strategy flagship brand Diversified products acquisition Niche strategy targeted geographic area

adult

teen

teen

http://www.economywatch.com/in-the-news/infographic-the-cola-wars.17-11.html

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Why is the soft drink industry so profitable ?

Consumption CSD consumption consistently grow 53 galons in 2000 (exhibit 1) Growth The growth because of downward-slopping (economical condition-changed in consumer lifestyle) Dominance the market share
Exhibit 3

44.1

31.4

14.7

Industry 1970-2000: average growth 3 % (exhibit 1) $60-billion industry in US Widely available and conveniently packaged. Became a part of their life style in US and worldwide huge potential market Highly competitive

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Industry analysis
Threat of new entrants:
Low switching costs. Huge number of suppliers. Maintaining the quality and flexibility of supply chain High entry costs High risk for entrants due to diversified nature Government Policy regulations. Existing Loyal customer base. Acquisition of major bottling units by existing firms, increases the entry barriers.

Supplier's power of bargaining:

Rivalry between firms:

Large industry size

Customer's power of bargaining:

Higher buying power Choice of customers is high

Threat of substitutes:

Non-CSD drinks Threat of saturation of consumption in US market thereby leading to increase in the consumption of non-Cola beverages.

PORTERS FIVE FORCES MODEL

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Business Comparation
Concentrate Business Little capital investment Bottling Business Large capital Investment

Short line of procurement & Distribution Long line of Procurement & Distribution Strong position in determining the price of their product Less favorable position regarding for pricing on their product

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Why is the profitability so different?

Exhibit 5 Cost of sale is more in bottler the differences in added value between CPs and bottlers in a slowing market, the bottlers faced increasing price pressure while CPs could continue raising their prices. As the price of the concentrate rose, bottlers could not react in the same way and increase price of the final product as they were squeezed by other suppliers of different fruit drinks and other beverages. All of these factors contributed to lower returns in bottling business

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How has the competition between Coke and Pepsi affected the industrys profits?

the companies diversified to other packaged foods and drinks,

aggressive entry of PepsiCo into the food business thus increasing their consumer base as well as the industry 's Innovation in new product category / product line extension
Higher retail prices for alternative beverages meant that margins for the franchiser, bottler and distributor were consistently higher than on CSDs.

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Yes, by introduction of new brands and diversification

Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non carbonated drinks?

Both companies predicted that future increases in market share would come from beverages other than CSDs

advantage from the barriers to entry exist.

a strong brand identification; huge investments in advertising, customer service and trademark itself stable consumption levels and profit sustainability in future

Both companies predicted that future increases in market share would come from beverages other than CSDs To increase sales, they tried to make their products more affordable through measures such as refundable glass packaging (instead of plastic) and cheaper 6.5 ounce bottles The cola wars are going to be played now across a lot of different battlefields

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Thanks !