COLA WARS

CONTINUE:
COKE & PEPSI IN 2006
Presented by:
Yesica Anggita Putri
This document consists
of four sections

1 SITUATION

2 COMPLICATION

3 QUESTION

4 ANSWER
This document consists
of four sections

1 SITUATION

2 COMPLICATION

3 QUESTION

4 ANSWER
Industry Overview
In period of 1970-1990, soft drink industry has a huge presence in The North America, especially in
U.S. which has been dominated by two Carbonated Soft Drink (CSD) giants i.e. Coke and Pepsi

#1 | 1886 | 43,1% 2004 • American consumed 23 gallons of CSDs annually in 1970

share • Consumption grew by an average of 3% per year over the next
three decades

| 1893 | 31,7%
2004
#2 share U.S. Beverage Consumption
60 54

40 29,6
20

0
1970 1975 1981 1985 1990 1994 1996 1998

Gallons/Capita Share of Total Beverage Consumption (%)

They didn’t just sell CSD products

• Dasani • Gatorade
• Minute Maid • Aquafina
• PowerAde • Lipton
The Value Chain
Below is the value chain of the CSD industry
Supplied raw materials:
caramel coloring, phosphoric or
citric acid, natural flavors and
caffeine to concentrate
producers
Concentrate-Producer
Supplier
Bottler Supplier
Supplied:
• Packaging (cans, plastic
bottles and glass bottles)
• Sweeteners (high fructose
corn syrup, sugar and artificial
sweeteners such as
aspartame)
• Blended raw material
• Implemented & financed
marketing programs with
bottlers
• Negotiated customer
development agreements
with retailers
Concentrate Producer
Bottler Retailer
• Purchased concentrate,
The distribution of CSD’S took
added additional ingredients
place through Super Markets,
• Packaged and made
Fountain Outlets, Vending
merchandising agreements
Machines, Mass merchandisers,
with retailers
Convienience stores and gas
• Capital-intensive, not easily
stations and other outlets
interchangeable
Situation: The History & The War
1 Cola Wars Begin
Early History
• Coke was found in 1886 by John
Pemberton
• Pepsi was found in 1983
• Both adopted franchise bottling
system
4 5
Cola Wars Heat Up
• 1980, Coke switched from using
sugar to high-fructose corn syrup
• Coke & Pepsi doubled advertising
spending between 1981-1984
• 1982, Diet Coke entered market
with huge success
• Coke announced that it had changed
its original formula: declining market
share, Pepsi declared holiday for
employees
• 3 months later, Coke was back with its
original formula: Coke Classic, while
retaining new formula
2 3
• 1950, former Coke marketing
The Pepsi Challenge
executive, Alfred Steele became CEO
• Blind test by Pepsi
of Pepsi with “Beat Coke” motto
• Coke countered by rebates, retail
• C&P began to experiment with
price cuts, and ads
flavors, packaging, diversified into
• Coke renegotiated its franchise
non-CSDs
bottling contract to obtain greater
• 1960s, Coke focused on overseas
flexibility in pricing
markets, assuming domestic CSD was
saturating
6
The Quest for Alternatives
• 2005, New federal nutrition
Adapting to The Times
guidelines identified CSDs as the
• 1990s, CSD demand seemed to have
largest source of obesity-causing
leveled off
sugars in American diet
• Coke struggled more than Pepsi as it
• Diet sodas offered one path to
relied on traditional CSD-oriented
reviving sales
model
• Search for alternatives centered on
• Both companies addressed challenges
non-CSDs: juice, sport drinks, energy
through alternative beverages to
drinks, tea-based, bottled water
increasingly health-conscious
• Pepsi was more aggressive in
consumers
shifting: 47,3% non-CSD shares,
compared to Coke: 27%
Situation: The Flagging CSD Market
It came to the situation when the excessive CSD consumption turned to be flagging

U.S. CSD Consumption

54 53
52 52,5 52,3 52,3
50
46,9

40,3

34,2

28,5 29,6 29 28,8 28,7 28,7

26,3 27,4
25,7
22,7 22,1
18,7
14,4
12,4

1970 1975 1981 1985 1990 1994 1996 1998 2000 2002 2003 2004

Gallons/Capita Share of Total Beverage Consumption (%)

 1• New federal nutrition guidelines identified CSDs
as the largest source of obesity-causing
sugars
• Overall share of beverages declined, except
bottled waters & sport drinks
• CPI grew > retail price: economy was actually
fine

CHANGE

3 2
• Beverage
• Massive head-to-head consumption volume:
completion gallon/capita
Modification in decreased in almost all
• COMPETITOR 4C CUSTOMER
bottling, variants, ads category, except
spending bottled water
• More health-
conscious customers

COMPANY
4
• Struggled in defining the right strategy
towards the right brand
This document consists
of four sections

1 SITUATION

2 COMPLICATION

3 QUESTION

4 ANSWER
Complication
From the situation, we can see that the CSD giants’ major complication was actually about the
struggle in responding the shift in the market preference

Internal External

Companies struggled to find

the best way in order to Market shifted to healthier
catch up with the shift in its beverages consumption
market
This document consists
of four sections

1 SITUATION

2 COMPLICATION

3 QUESTION

4 ANSWER
Questions
From the given situation, the questions are basically related to the brand portfolio of each company

In the midst of the flagging domestic Or could newly popular beverages

CSD sales, is it possible for Coke & provide Coke & Pepsi with new (and
Pepsi to boost it? profitable) revenue streams?

Both Coke & Pepsi should evaluate

the strategic position of the
business brand portfolio and its
potential in the market
This document consists
of four sections

1 SITUATION

2 COMPLICATION

3 QUESTION

4 ANSWER
 Brand Portfolio Evaluation & Mapping
Internal-External Matrix can be a tool for Coke and Pepsi in order to evaluate the strategic position of
the business brand portfolio and its potential in the market

build & grow INTERNAL FACTORS EVALUATION

STRONG AVERAGE WEAK

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
3.0 to 4.0
HIGH
INTERNAL FACTORS EVALUATION

2.0 to 2.99
MEDIUM
1.0 to 1.99
LOW

hold & maintain divest/harvest

Coca Cola CSD’s IFE – EFE

Coca-Cola CSD
Key Internal Factors Weight Rating Weighted Score
Strength
1 Established brand identity 0,1 4 0,4
2 Bigger CSD share than competitor 0,1 3 0,3
3 Higher relative market share 0,15 3 0,45
4 Market leader 0,15 4 0,6
Weakness
5 Declining market share in 2000s 0,15 2 0,3
6 Negative brand image in 2000s 0,15 1 0,15
7 Inefficient business execution 0,1 2 0,2
8 Over-complexity relationship with bottlers 0,1 1 0,1
Total 1 2,5

Coca-Cola CSD
Key External Factors Weight Rating Weighted Score
Opportunities
1 Create halth-conscious CSD 0,2 3 0,6
2 Diversify CSD product 0,1 3 0,3
3 Availability of prospective retailers 0,1 4 0,4
Threats
4 Growing health-conscious societies 0,2 3 0,6
5 Banning regulation 0,1 1 0,1
6 Negative publicity 0,1 2 0,2
7 Pressure from business participants 0,1 3 0,3
Total 0,9 2,5
Coca Cola Non CSD’s IFE EFE

Coca-Cola Non CSD

Key Internal Factors Weight Rating Weighted Score
Strength
1 Established brand identity 0,2 4 0,8
2 High market growth in 2000s 0,2 4 0,8
3 Cover varies categories 0,15 3 0,45
4 Market leader 0,1 4 0,4
Weakness
5 Fewer variaty than competitor 0,15 2 0,3
6 Low market share 0,1 3 0,3
7 Inefficient business execution 0,05 2 0,1
8 Over-complexity relationship with bottlers 0,05 1 0,05
Total 1 3,2

Coca-Cola Non CSD

Key External Factors Weight Rating Weighted Score
Opportunities
1 Growing health-conscious societies 0,2 3 0,6
2 Regulation towards health consciousness issue 0,2 3 0,6
3 Diversify non-CSD product 0,1 4 0,4
Threats
4 Low market consumption 0,2 3 0,6
5 Competitive competitor 0,2 1 0,2
6 Cost pressure 0,1 2 0,2
Total 1 2,6
Pepsi CSD’s IFE EFE

Pepsi CSD
Key Internal Factors Weight Rating Weighted Score
Strength
1 Established brand identity 0,1 3 0,3
2 Innovative marketing programs 0,1 3 0,3
3 One top brands most important to retailers 0,1 3 0,3
4 2nd bigger in the industry 0,1 3 0,3
Weakness
5 Declining market share in 2000s 0,15 2 0,3
6 Negative brand image in 2000s 0,15 1 0,15
7 Lower CSD share than competitor 0,2 2 0,4
8 Lower relative market share 0,1 2 0,2
Total 1 2,25

Pepsi CSD
Key External Factors Weight Rating Weighted Score
Opportunities
1 Create halth-conscious CSD 0,2 3 0,6
2 Diversify CSD product 0,1 3 0,3
3 Availability of prospective retailers 0,1 3 0,3
Threats
4 Growing health-conscious societies 0,2 3 0,6
5 Banning regulation 0,2 1 0,2
6 Negative publicity 0,2 2 0,4
Total 1 2,4
Pepsi Non CSD’s IFE EFE

Pepsi Non CSD

Key Internal Factors Weight Rating Weighted Score
Strength
1 Bigger market share than competitor 0,2 4 0,8
2 High market growth in 2000s 0,2 4 0,8
3 Cover varies categories 0,15 4 0,6
4 2nd bigger in the industry 0,1 3 0,3
Weakness
5 Over dependence on US market 0,15 2 0,3
6 Low market share 0,1 4 0,4
7 Price pessure from Mass retailers 0,1 3 0,3
Total 1 3,5

Pepsi Non CSD

Key External Factors Weight Rating Weighted Score
Opportunities
1 Growing health-conscious societies 0,2 3 0,6
2 Regulation towards health consciousness issue 0,2 3 0,6
3 Diversify non-CSD product 0,1 4 0,4
Threats
4 Low market consumption 0,2 4 0,8
5 Competitive competitor 0,2 2 0,4
6 Cost pressure 0,1 1 0,1
Total 1 2,9
 Coca Cola’s IE Matrix
As Coke & Pepsi tend to always have head-to-head competing brand in the same battle arena,
basically their brand portfolio mapping will tend to be in the same quadrant too

build & grow INTERNAL FACTORS EVALUATION

STRONG AVERAGE WEAK

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
3.0 to 4.0
HIGH

Non CSD
EXTERNAL FACTORS EVALUATION

2.0 to 2.99
MEDIUM

CSD
1.0 to 1.99
LOW

hold & maintain divest/harvest

 Pepsi’s IE Matrix
As Coke & Pepsi tend to always have head-to-head competing brand in the same battle arena,
basically their brand portfolio mapping will tend to be in the same quadrant too

build & grow INTERNAL FACTORS EVALUATION

STRONG AVERAGE WEAK

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
3.0 to 4.0
HIGH

Non CSD
EXTERNAL FACTORS EVALUATION

2.0 to 2.99
MEDIUM

CSD
1.0 to 1.99
LOW

hold & maintain divest/harvest

Assessing The Detail portfolio
But in order to minimize the bias made from the product categorization, a further analysis
needed to assess each brand involved in both category of CSD and Non CSD

Adopting Simplification of Sequential Elimination Method

Attributes
Priority Action
Market Growth Market Share
1 High High Accept
2 High Low Accept
3 Low High Accept
4 Low Low Eliminate

Market Growth Criteria Market Share Criteria

> average | positive growth = high > median = high
< average | negative growth = low < median = low

As the target is to boost CSD sales and/or make new profitable revenue streams from newly
beverages, 4th ranked brands should be eliminated from the quadrant
Assessing The Detail portfolio
Based on further assessment towards each brand, below is the priority ranking for both Coke and
Pepsi

Coca-Cola CSD Coca-Cola Non CSD

Brand Market Growth Market Share Rank Brand Market Growth Market Share Rank
Diet Coke 11% 9,70% 1 Dasani 33,80% 1,60% 1
Fanta 550% 1,30% 2 PowerAde 15,90% 0,90% 2
Coke Classic -12% 17,90% 3 Pepsi Non CSD
Sprite & Diet Sprite -13% 6,30% 3 Aquafina 22,50% 1,80% 1
Caffeine Free Coke -9% 2,00% 3 Gatorade 11% 3,90% 3
Barq's and Diet Barq's 0% 1,20% 4 Lipton -2,00% 1,20% 4
Minute Maid -73% 0,40% 4 Median 15,90% 1,60%
Pepsi CSD
Brand Market Growth Market Share Rank
Diet Pepsi 15,09% 6,10% 1
Diet Mountain Dew 44,44% 1,30% 1
Sierra Mist 1300,00% 1,40% 1
Wild Cherry Pepsi 20,00% 0,60% 2
Caffeine Free Pepsi -17,65% 1,40% 3
Pepsi-Cola -15,44% 11,50% 3
Mountain Dew -12,50% 6,30% 3
Slice and Diet Slice -40,00% 0,30% 4
Mug Root Beer -12,50% 0,70% 4
Median 1,65% 1,00%
 Coca Cola’s Portfolio Mapping

build & grow INTERNAL FACTORS EVALUATION

STRONG AVERAGE WEAK

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
3.0 to 4.0
HIGH
EXTERNAL FACTORS EVALUATION

• Dasani
• PowerAde
2.0 to 2.99

• Diet Coke
MEDIUM

• Fanta
• Coke Classic
• Sprite & Diet Sprite
• Caffeine Free Coke
1.0 to 1.99
LOW

• Barq’s & Diet Barq’s

• Minute Maid Soda

hold & maintain divest/harvest

 Pepsi’s Portfolio Mapping

build & grow INTERNAL FACTORS EVALUATION

STRONG AVERAGE WEAK

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
3.0 to 4.0

• Aquafina
HIGH

• Gatorade
EXTERNAL FACTORS EVALUATION

• Diet Pepsi
• Diet Mountain Dew
2.0 to 2.99
MEDIUM

• Sierra Mist
• Wild Cherry Pepsi
• Caffeine Free Pepsi
• Pepsi-Cola
• Mountain Dew
1.0 to 1.99
LOW

• Lipton
• Slice & Diet Slice
• Mug Root Beer

hold & maintain divest/harvest

Reviewing Back The Question

In the midst of the flagging domestic Or could newly popular beverages

CSD sales, is it possible for Coke & provide Coke & Pepsi with new (and
Pepsi to boost it? profitable) revenue streams?

Yes, but they should put their focus on Yes, this should be good opportunity
developing: for Coke & Pepsi to expand their share as
• Healthier CSDs response to:
• Immature CSDs • The increase in health conscious
As they got excessive growth trend society, as shown in positive values in
CAGR of non-CSD share and positive
And maintaining: growth of healthier beverages
• Mature CSDs, as it would be difficult • Low possibility of gaining current
to broaden the market share, since market share & growth from CSD
the growth was already negative
Possible Strategies:
Possible Strategies: • Market Penetration
• Market Penetration • Market Development
• Product Development • Product Development
THANK YOU!
Any Questions?
Liquid Consumption Trend
Slow trend of growth in the beverage industry

US Liquid Consumption Trend

(Gallons/Capita)
60

50

40

30

20

10

0
CSD Beer Milk Bottled Coffee Juices Tea Sport Powdered Wine Distilled Others
Water drinks drinks spirits
1998 2000 2002 2003 2004
Economic Point of View
The flagging sales it’s not because of economic condition, nor the customers’ purchasing power

US CSD Industry Pricing & Volume Statistics

3,10%
2,80%
2,60%

1,90%1,90% 2%
1,60% 1,60%

1998 2000 2002 2004

-0,20%
-0,50%
-0,90% -0,90%

Change in retail price Change in CPI Change in consumption

Total change Total change Total change

1988-2004: 0,6% 1988-2004: 3,0% 1988-2004: 1,6%
Channel Profitability

US Refreshment Beverages:
Bottling Profitability per Channel, 2005
1,86
1,8

1,54
1,48
1,31
1,17 1,19
1,08 1,07
1 1 0,950,9
0,81

31% 34%
15%
9% 4% 4% 3%

Supermarkets Convenience & Supercenters Mass Retailers Club Stores Drug Stores Fountain and
Gas Vending
Share of industry volume Net price Variable profit
Advertisement Spending

Share of Market Advertisement Spending

Brand 2003 2004 2003 2004
Coca-Cola 24,3% 23,4% 167,675 246,243
Sprite 5,3% 4,9% 31,835 45,305
Dasani 1,7% 1,8% 24,647 22,037
Minute 1,5% 1,3% 21,097 35,797
Maid
PowerAde 0,8% 0,9% 10,100 11,008
Pepsi Cola 15,5% 15,0% 236,396 211,654
Mountain 6,4% 6,2% 60,555 57,803
Dew
Gatorade 3,5% 3,9% 130,993 141,622
Aquafina 1,7% 1,8% 24,647 22,037
Sierra Mist 1,2% 1,2% 64,129 60,327