PRICING STRATEGY.

Like any company who has successfully endured a century of existence, Coca Cola has
had to remain tremendously fluent with their pricing strategy. They have had the
privilege of a worthy competitor constantly driving them to be smarter, faster, and better.
A quote from Pepsi Co's CEO "The more successful they are, the sharper we have to be.
If the Coca Cola company didn't exist, we'd pray for someone to invent them." taken
from Roger Enrico's "The Other Guy Blinked and Other Dispatches from the Cola Wars"
states it simply. The relationship between Coca Cola & Pepsi is a healty one that each
corporation has learned to appreciate.

Throughout the years Coca Cola has made many pricing decisions but one might say that
their ultimate goal has always been to maximize shareholder value. As cola consumption
has decreased in the US colas have come to realize the untapped international market. In
2003 both Coke and Pepsi had a solid presence in India and had each introduced a 300mL
bottle. In order to grab market share Pepsi began to drop prices (even with summer
approaching, which was contrary to policy in America). Shortly thereafter, Coca Cola
decided to drop their prices slightly, but focused on the reduced price point of their
200mL container. As discussed in articles from financial express and rediff.com, Coca
Cola planned to use the lower price point to penetrate new cities that were especially
price sensitive. The carbonated soft drink market in India is nearly 37% of the total
beverage market there.

This low price strategy was not unfamiliar to Coca Cola. As referenced in the HBR
article, Cola Wars Continue: Coke & Pepsi in the Twenty-First Century, both bottlers
utilized a low price strategy in the early 1990s. After annihilating the low price store
brands, Coke chose to reposition itself as a "Premium" brand and then raise prices.

posted by Jennycas @ 7:20 PM

4 Comments:

Blogger Marketing 411 @ Wharton School said...

Thats interesting about Coke's pricing initiative in India. In fact, in India it was Coca
Cola who first reduced prices in 2003...with a huge TV campaign, and rival Pepsi
followed suit.

The strategy did work pretty well for both Companies, as the industry grew
significantly. India is a price sensitive market and lower prices reached many more
consumers. Incidentally, India is one the rare markets in the world, where rival Pepsi has
a much higher market share than Coke.
7:41 AM
Blogger Jennycas said...

Great comments Raj, thanks. Any feedback on why Pepsi has gained a bigger market
share? Advertising, Taste, Price, etc?
 7:26 PM
Blogger sheharyar said...

I have one theory as to why Pepsi has gained more market share than Coke.

I rarely watch cricket, but everytime i do there is a HUGE Pepsi logo on the cricket
field. There are HUGE pepsi bill boards and tv commercials EVERY break in the game.
Pepsi gets a hold of the biggest and baddest sports figures and makes them drink pepsi on
the field and in the commercials.

Perhaps that's why?

10:35 AM
Blogger pioneru said...

Alex Tew sold out all pixels. One Million Dollar Home Page pixel advertising .
4:20 PM

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DIFFERENCIATION STRATEGY.

Differenciation strategy

Product differenciation is a competitive business strategy whereby firms attempt to gain a

competitive advantage by increasing the perceived value of their products and services
relative to the perceived value of other firm's products and services.

Products sold by two different firms may be exactly the same, but if customers believe
the first is more valuable than the second, then the first product has a differentiation
advantage. The existence of product differentiation, in the end, is always a matter of
customer perception but firms can take a variety of actions to influence these perceptions.

Objective

Incorporate differentiating features that will cause buyers to prefer the company's
product/service over the brands of rivals. A firm pursuing such a strategy thus focuses on
higher revenues/margins for achieving enhanced economic performance.

The challenge

Finding ways to differenciate

*
that CREATE VALUE for buyers and that are
* NOT EASILY COPIED or MATCHED by rivals

Anything a company can do to create value for buyers represents a potential basis for
differenciation.

Ways firms can differentiate their products / services

* Product features

A way in which firms can attempt to influence customer perceptions is to modify the
objective properties of the products or services they sell.

* Linkage between functions

The way to differentiate products is through linking different functions within the firm.
For example in linking the sales and service function.

* Timing
 Introducing a product at the right time can help create product differentiation.The issue
is to be the first mover to introduce a new product before all other firms. First movings is
an important determinant of perceived diffenrences in the quality of education. For
example, the Ecole Hôtelière de Lausanne, founded in 1893, is perceived as more
prestigious than more recently founded schools for hospitality industry education.

* Location / convenience

The physical location of a firm can also be a source of product differentiation. If a firm
is located close to customers, or in a location that is easy for customers to get to, it may
have a product differentiation advantage compared to the other firms.

* Product mix

The mix of products or services sold by a firm can be a source of product

differentiation.

For example, HP discovered in 1960' that its customers were purchasing HP

instruments and attaching them with cables made by other firms to computers made by
other firms. The value of these instruments, in combinaison with cables and computers,
was greater than the value of instruments, cables and computers sold separately.

A second kind of linkage among a mix of products : many customers prefer to go to

one location, to shop at several stores at one, rather than traveling to a series of locations
to shop. This one-stop shopping reduces travel time and cost.The value of several stores
brought together in a particular location is greater than the value of those stores if they
were isolated.

* Links with other firms

Another basis of product differentiation is linkages between one firm's products and
the products or services of other firms. For example, links between credit card companies
with car rental firms or Insurance companies.

* Reputation

One of the most powerful bases of product differentiation is the reputation of a firm
and of its products. Reputation is often very difficult to to develop. However, once
developed, it tends to last a long time, even if the basis for a firm's reputation no longer
exists. In the end, the ability of a firm to develop, maintain and improve its reputation
depends on customer experiences with that firm's products and services.

* Product customization

Products are differentiated in the extent to which they are customized for particular
customer applications.
 *

Product complexity / sophistication

*

Consumer marketing
* Distribution channels

Products have been differentiate on the basis of alternative distribution channels. For
example, Coca-Cola distributes its drinks through a network of independent and
company-owned bottlers. Coca-Cola manufactures key ingredients for its soft drinks and
ship these ingredients to local bottlers, who add carbonated water, package the drinks in
cans or bottles, and distribute the final product to soft-drink outlets in a given geographic
area.

* Service and support

Products have been differentiated by the level of service and support associated with
them. For example, some firms have not developed their own service and support and
rely on a network of independent service and support operations.