Coca-Cola vs Pepsi

Cola Wars in a Changing Marketing Environment

Stefanie Bayer Tobias Cavaleri Franziska Fischer Edgars Puzo

08.05.2010
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Agenda

| Company profiles
| Case Study | Question 1 | | Question 6

Strategic Marketing

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Company profiles Key facts

| Founded in 1886 | HQ: Atlanta, USA | Focus on beverages with more than 3.300 products in more than 200 countries: 100% of total revenues | Owning 4 of the worlds top 5 nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Sprite and Fanta

| Founded in 1965 | HQ: Purchase , USA | More diversified product portfolio; beverages only 37% of total revenues
Market Shares of Carbonated Drinks
others 25%

Coca Cola 43%

Pepsi 32%

Strategic Marketing

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Company profiles Financial Key Figures

| Better financial health1 | Volatile stock price without positive development3

| Better profitability2 | Increasing, Constant stock price development3

revenues profits market cap. brand value

2009 2000 2009 2000 2009 2000 2009

$31 billion $20 billion $ 8.2 billion $ 2.2 billion $123 billion $128 billion $67 billion
Strategic Marketing

$44 billion $20 billion $5.8 billion $2.1 billion $105 billion $44 billion $13,5 billion

1 2 3

See Annual Report Coca Cola See Annual Report Pepsi Compare www.morningstar.com

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Case study

| Comparison between Coca Cola and PepsiCo concerning

Positioning Marketing Mix Brands Strategy Marketing-orientation Competition

| 6 Questions to analyze the situation

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1. Compare Coca-Colas response to the changing marketing environment before the arrival of Neville Isdell to that of PepsiCo.

| What changed?
Different consumer behaviour focus on health (product) Declining demand for carbonated soft drinks (product) Emerging markets (place) Brand building became more important (promotion)

| Responses
Coca Cola:
Reduced marketing investments (advertising and marketing research) Focused on carbonated drinks Unsuccessful product launches & take overs, scandals

Pepsi:
Investments in brand building Acquisitions of Tropicana, Gatorade, Aquafina to create a powerful noncarbonated product portfolio Diversification into snacks etc. Strong brand, closed the gap to Coca Cola (market cap 2005: $98,4 bn vs. $97,9 bn)
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2. Assess both companies in terms of their level of marketing orientation

Coca-Cola
Relied heavily on their former success and status as a market leader >> lost % of its strong brand Not as innovative as Pepsi: Followed Pepsis PurVia with their equivalent Truvia

Pepsi
Followed market trends and strategically diversified its portfolio Very innovative: Pepsi Raw first natural cola PurVia with Stevia, zero-calorie sweetener Pepsi Extra Cold guaranteed cool drink of draught Pepsi Labelling system > fits the health consciousness of the people

Emerging markets presence Coke faces ethical issues Both companies tried to fight decline in sales of carbonated drinks with lime and cherry flavored colas >> without success (ban from school vending machines in the UK and in California etc.)
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3. How would you position Coca-Cola and PepsiCo on the efficiencyeffectiveness matrix?

| Efficiency
Profit growth collapsed to low single digits after 1997 Bureaucratic culture Many non-strategic / non-successful aquisitions, takeovers, brands all over the world high complexity

| Effectiveness
Scandal involving launch of Dasani Diet Coke failed to connect with young males Coke Zero Only catching up Try to target emerging markets more aggressivley
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3. How would you position Coca-Cola and PepsiCo on the efficiencyeffectiveness matrix?

| Efficiency
Better deals due to size of company Economies of scale / scope

| Effectiveness
Very innovative Successful strategic aquisitions Focus on new customer needs Created new products Labelling system
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4. What advantages , if any, does PepsiCos greater diversification gave the company over Coca-Cola?

PepsiCo

Coca-Cola

Strategic Marketing

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4. What advantages , if any, does PepsiCos greater diversification gave the company over Coca-Cola?

| Not as dependent on the market for carbonated drinks as Coca Cola (23% vs. 80% of revenue) minimize risks | 4th largest food and beverages company in the world higher revenue (!) synergy effects (see Q3) | Able to target different customer groups | Able to push sales with selling products from different product groups together | Know customer behaviour concerning different products able to target same group with different products
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Strategic Marketing

5. Assess Coca-Colas part-ownership of innocent drinks from point of view of both companies.

| smoothies | smoothies for kids | superfruit smoothies

| orange juice | Innocent fruit tubes (fruit puree) | thickies (live probiotic yoghurt)
| veg pots
(vegetabels, whole grains and sauce, with fresh herbs and spices)

Strategic Marketing

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5. Assess Coca-Colas part-ownership of innocent drinks from point of view of both companies.

| Coca-Cola acquired in 2009 minority stake in innocent, entering smoothie and juice segments in Europe | Innocent offered new sub-segments: Smoothies, Yogurts, Fruit Puree, Juice and entering new sub-segment -Vegetable products. | Coca-Cola is following general trend in customers expectations for healthy-natural products ( ALL-Natural products ) | Coca-Cola is perceiving this move as a long-term investment in order to reach new customers and later to offer them to new geographies (probably willing to fully acquire innocent in near future) | Focused on markets outside US who mainly concerned about nonnatural products | If this move will be successful, Coca-Cola will probably acquire another natural products brand
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5. Assess Coca-Colas part-ownership of innocent drinks from point of view of both companies.

| Pepsi is getting a strong signal that Coca-Cola is moving to segments where Pepsi is already present | Innocent Vegetable Pots can challenge Snacks brands | Dairy based drinks (SoBe smooth)- Innocent thickies | Juice and Juice Drinks (Dole Juice, Ocean Spray, Tropicana, Seasons Harvest) Smoothies, Orange Juice and Innocent Fruit Tubes | Coca-Cola is targeting UK and Europes markets/customers where Pepsi is strong | Challenge to Pepsis labeling system to identify healthier products

Strategic Marketing

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6. What future challenges Coca-Cola is likely to face?

| New trends in consumers behavior (research and development) | Introduction of new products (extending portfolio and acquisitions) | Effective promotion of existing products (marketing programs) | Marketing over social networks | Effectiveness of advertising campaigns

Strategic Marketing

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6. What future challenges Coca-Cola is likely to face?

| Product packaging (new packaging) | Mass customization | Introduction of new vending and dispensing equipment

| Local, regional and private label competition (growth and emerging markets) | Competition against retailers that have developed their own store or private label beverage brands (in certain markets beer companies) | Legal and trademark challenges on global base

Strategic Marketing

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The future???

http://www.youtube.com/watch?v=lqT_dPApj9U

Strategic Marketing

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Questions

Strategic Marketing

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