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Cola Wars Continue:

Coke and Pepsi in 2006


Marketing Management 2

Submitted By:
Group 8
(FMG24 C)
Sahil Guglani 241122
Saket Agrawal 241124
Shashwat Narayan 241133
Sheetal Jaimalani 241134
Tanvi Jaipuriar 241156

1. Profitability
Cost of Sales

Pretax Profit

60%

30%

17%

9%

Bottlers

Concentrate Producer

15% 4%

81%

Selling and
delivery
Advertising
and
marketing
General and
administratio
n

13%
6%

81%

Selling and
delivery
Advertising
and
marketing
General and
administratio
n

2. Barriers to Entry
Concentrate Producers
(High)

Bottlers
(High)

Heavy advertising and


promotional expenditure

Capital intensive and requires


high speed production lines

Existing competition with 2


major players consisting of
78.4% of Market share and
many other private producers

Existence of exclusive
geographic territory and
franchisee agreements of the
existing players

Long term agreements with


bottlers

Operating margins as low as 79%

3. Need for Vertical Integration and


Fall-out
Reasons
Bottlers not willing to cooperate
in marketing and promotion
programs
Small and independent bottlers
could not perform amidst the cola
war

Fall-out
Formation of CCE and PBG
Cokes debt increased to
approximately $1 bn
Bottler consolidation made small
concentrate producers dependent
on Pepsi and Coke bottling
networks

4. Competitive Rivalry
Coca-Cola Company (Market Share)
35.9
33.4 34.7 35.3

42.3 44.1 43.1


41.1
39.5

Market Share as by Case Volume (2004)

6% 5%
15%

PepsiCo, Inc. (Market Share)


27.8
20.4 19.8 21.1

30.3

32.4 30.9 31.4 31.7

32%

43%

Coca-Cola
Company
PepsiCo, Inc.
Cadbury
Schweppesb
Cott Corporation
Other companies

5. Marketing Mix
Product Portfolio
PepsiCo, Inc.

Coca Cola Company


1%
3%

10%
42%

3%
5%
15% 23%

Coke Classic
Diet Coke
Sprite and Diet Sprite
Caffeine Free Coke, Diet Coke, Tab
Fantaa
Barq's and Diet Barq's
Minute Maid brands
Others

Pepsi-Cola

Mountain Dew

Diet Pepsi

Sierra Mist

Diet Mountain Dew

Caffeine Free Pepsi, and Diet Pepsi

Mug Root Beer

Wild Cherry Pepsi (reg and diet)

Mountain Dew Code Red

Slice and Diet Slice

Others

5%
2% 1% 1%

4%

2%
4%

36%

4%
19%
20%

Price
Both Coke and Pepsi discounted their retail prices to be
in competition.
Mass merchandisers were given special discounts.
Initially Coke followed a fixed price model but later they
established a maximum price and adjusted price
quarterly according to changes in sweetener pricing.
In 2003 they switched to Incidence Pricing which varied
concentrated prices based on different channels &
packages.
Pepsi followed Concentrate pricing based on consumer
price index.

Place
Distribution of CSDs

10%
8%

33%

12%

15%
23%

Supermarkets
Fountain Outlets
Vending Machines
Mass Merhcandizer
Convenience Stores
Others

Coke had dominated


Fountain sales
Pepsi had focused on sales
through retail outlets
Both Coke and Pepsi moved
on to acquiring the
restaurant business as a new
channel of distribution.
Also both were the largest
suppliers of CSDs to vending
channel.

Promotion

Cok
e

Sales Promotion
by giving
discounts to
retailers

Pep
si

Sales promotion
by giving
discounts

Focused on
branding and
used attractive
taglines like
Americas
preferred taste

Promotional
campaigns
launched like
Pepsi Challenge
and Pepsi
generation

Major
advertising
campaign
called The
Coke Side of
Life

Market strategy
based on the
theme of Twice
as much for a
nickel, too

Who were the real winners?


The market remains as a Duopoly
Coca Cola Company and PepsiCo, Inc. are the two major
players with highest market share
No Clear winner

6. Suggested Strategies
More focus on the health drinks owing to
the changing consumer preferences
Disinvest from the non performing
products or the products forming an
insignificant part of their portfolio
Focus on the products preferred in the
local Non-US markets like Japan and
Mexico.

7. International Strategies Adopted


After achieving success in U.S. CSD market, Coke and Pepsi tried to
expand their horizons. Coke and Pepsi tried to broaden their base of
innovation in order to reach out to non-U.S. markets.
Coke introduced a network of vending machines in Japan that
accounted for more than half of the companys Japanese sales.
200 plus Coke items were launched including Tea, Coffee, Juices and
Flavoured water in Japan to become a full fledged beverage brand.
20 new products were launched with an emphasis on health and
diet in Mexico.
In Poor economies like China and India, returnable glass bottles
were used to reach out to rural consumers at a very low price.