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Americans consumed 23 gallons of CSDs annually in
1970Consumption grew by 3% per year over the next 3
decadesIncreasing availability of CSDs and introduction of diet and
flavored varietiesNon-cola CSDs were introduced
Economics of the US Carbonated Soft Drink (CSD) Industry
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Production & Distribution of CSDConcentrate producers
Bottlers Retail channels Suppliers
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1. Concentrate ProducerBlended raw material ingredients,
packaged the mixture, shipped those container to the bottlerKey
production investment areas like machinery, overhead and laborA
typical manufacturing plant cost - $25 million to $50
millionCustomer Development Agreements (CDA) with retailers like
Wal-MartSignificant costs were spent for advertising, promotion,
market researchCoca-Cola and Pepsi-Cola claimed a combined 74.8% of
the U.S. CSD market in sales volume in 2004
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2. BottlersPurchased concentrate Added carbonated water and
high-fructose corn syrup Bottled or canned the resulting CSD
productDelivered it to customer account
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2. BottlersBottling process is capital intensive.Packaging
accounted for 40% to 45% of cost of sales and same for concentrate
and sweeteners for 5% to 10%.Coke and Pepsi bottlers offered direct
store door delivery.Under Cooperative merchandizing agreements
retailers agreed to promotional activities for sales of soft
drinks
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3. Retail ChannelsIn 2004, distribution of CSDs in U.S. was
through:Super Markets (32.9%)Fountain outlets(23.4%)Vending
Machines(14.5%)Mass Merchandisers(11.8%) Convenience Stores
&Gas Stations(7.9%)Other outlets(9.5%)
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4. SuppliersCoke and Pepsi were among the Metal Can industrys
largest customers.Major Can producers- Ball, Rexam, Crown Cork
& Seal
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Evolution of CokeFormulated in 1886 by John Pemberton, a
pharmacist in Atlanta, GeorgiaSold it at a drug store soda
fountains as a potion for mental and physical disordersIn 1891, Asa
Candler acquired the formula, established a sales force and began
brand advertising The formula for Coca-Cola syrup known as
Merchandise 7X remained a secretThe rest is history
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Evolution of PepsiInvented in 1893 in New Bern, North Carolina
by pharmacist Caleb BradhamBy 1910 built a network of 270
bottlersDeclared bankruptcy in 1923 and again in 1932Business began
to grow during the Great DepressionPepsi lowered price of its 12 oz
bottle to a Nickel the same price Coke charged for its 6.5-oz
bottle
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The Cola War Begins
Marketing Campaign Beat CokeAmericans preferred taste Pepsi
GenerationNo wonder Coke refreshes bestYoung At Heart
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Year 1960s the Armageddon
CSD Teem (1960)Fanta (1960)Mountain Dew (1964)Sprite (1961)Diet
Pepsi (1964)Low calorie cola Tab (1963)Non CSDFrito LaysMinute Maid
(fruit juice)Duncan foods (coffee, tea, hot chocolate)Belmont
Springs water
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The Pepsi Challenge
Blind taste testRebatesEroded Cokes Market shareRetail price
cutsRolled out blind taste campaign nation wideAdvertisements that
questions tests validity1978 Re-negotiation of contract with
franchisee bottlers
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Leadership
2001: Steve ReinemundGrow the core add some more1980 Roberto
GoizuetaLaunched new CSD products (Sierra Mist, Mountain Dew code
red)Most valuable BrandAcquisition of Quaker Oats Use of lower
priced corn syrup against sugarNet income raised by 17.6% per
yearDouble spending on ads 1981-84ROI capital 29.3 (2003) from 9.5
(1996)Sold non-CSD businessIntroduced Diet Coke (1982)
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Expansions
Acquired Pizza hut (1978), Toco Bell (1986), KFC (1986)Exclusive
deals with Burger king, McDonaldsMerged with Frito Lay to form
PepsiCoPurchased Minute Maid, Duncan Foods, Belmont Springs
waterPepsi purchased Quaker Oats (Gatorade) in 2000Acquired Planet
Java coffee drink brand (2001)Acquired - Mad River juices and
tea
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1996-2004: Reversal of Fortune
Pepsi flourishedCoke struggledAcquisition of Quaker oats
(2000)Flat growth3% growth in 2004Annual growth in net income falls
to 4.2% from 18%(1990-96)Net income rose by 17.6% per
yearShareholders return -26%ROI 29.3% from 9.5%(1996)Shareholders
return 46%
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Quest for Alternatives
U.S. Market share for Pepsi and Coke CSD- 80%(2000) to
73.1%(2004) Diet soda-24.6%(1997) to 29.1%(2004) Bottled water
6.6%(2000) to 13.2%(2004) Non-carbs 12.6%(2000) to 13.7%(2004)
Non-carbs & bottled water contribution to volume growth coke
100% & Pepsi 75%No longer designing of marketing course
established as total beverage companyReluctant to diversify
Diet Pepsi as flagship brand - Diet Pepsi, Pepsi One, Diet Coke
with Splenda
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Evolving Structures and StrategiesSystem profitabilityPrice war
(1990s)Low-cost strategy by the bottlersIncidence pricingRetailers
resist price increases (Wal-Mart)Cokes difficult relationship with
bottlers like CCE was termed as Dysfunctional
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Internationalizing the Cola WarsNext largest market: Mexico,
Brazil, Germany, China and the United Kingdom, Asia and Eastern
EuropeAmerican: Chinese - 837 eight ounce cans: 21 eight ounce
cansCokes dominance : Western Europe, much of Latin America, while
Pepsi: Middle East and Southeast AsiaCoca-Cola became synonymous
with American cultureAbout 70% of Cokes sales and about 80% of its
profits came from outside the United States; only about one-third
of Pepsis beverage sales took place overseasArab and Soviet
exclusion of CokeWorlds Market Share: Coke 51.4% and Pepsi
21.8%
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SWOT Analysis: PepsiEnjoys a High-Profile Global PresenceOwns
the Worlds 2nd Best-Selling Soft Drinks BrandConstant Product
InnovationAggressive Marketing Strategies A Broad Portfolio of
ProductsStrengthWeaknessOpportunityThreatCarbonates Market is in
DeclinePepsi is Strongest in North AmericaThey Only Target Young
PeopleIncreased Consumer Concerns in comparison to bottled
waterGrowth in Healthier BeveragesGrowth in Tea and Asian
BeveragesGrowth in the Functional Drinks IndustryObesity and Health
ConcernsIncreased Marketing and Innovation Spending by
CokeRestriction to only North America as target market
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SWOT Analysis: CokeEnjoys a High-Profile Global PresenceFourth
amongst the top five leading brandsBroad-based bottling strategy47%
of global volume sales in
carbonatesStrengthWeaknessOpportunityThreatCarbonates Market is in
DeclineOver-complexity of relationship with bottlers in North
AmericaInefficient execution of business Soft drinks volumes in the
Asia-Pacific region forecast to increase by over 45%Brands like
Minute Maid Light and Minute Maid Premium Heart Wise are positioned
well with the Health-concerned marketUse distribution strengths in
Eastern Europe and Latin AmericaGrowing "health-conscience"
societyPepsiCos Gatorade, Tropicana and Aquafina are stronger
brandsBoycott in the Middle EastProtest against Coke in
IndiaNegative publicity in Western Europe
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According to this case Coke and Pepsi both cumulative spending
on advertising.Coke and Pepsi established brand identity over a
long period of time. Now these brand become culture of almost every
countries and in the case of Coke become part of World Culture So
this is very strong point of the these brand for establish their
identity and their consumer attachment
Brand Equity
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Coke and Pepsi both establish almost for more than a century and
consumers have emotional attachment with these two brands.Consumers
identify these two brands for distance, these all things are the
brand strategies.Advertisement create cozy relationship with their
consumers they feel relax to use these brands.
Brand Attachment
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In these both companies they invests heavy amount which other
competitor do not invest in their company.
Competitive Advantage
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Coke and Pepsi have focus on customer segmentation, for each
segment they can easily serve.They can easily search new segment
for their products. Franchise system is the best way to search new
segmentation, which have very strong segment. And how can they
serve in those segments.Segmentation proved very easily approach
for their targeted customers.
Segment
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Who has been losing ?Smaller Brands:Because-Entry Barrier,
DuopolyWho has been wining:1950: Coke have 47% and Pepsi have 10%
1970: Coke have 35% and Pepsi have 29%1990: Coke have 41% and Pepsi
have 32%2000:Coke have 44%Pepsi have31.4% other beverage Cadbury
Schweppes 14.7% 2006:Coke have 43.1% Pepsi have 31.7% Cadbury
Schweppes 14.5% Key aspects
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Could they boost flagging domestic CSD sales?Through Product
innovationAggressive marketing and promotionPackaging innovations
By diversification.Innovation : e.g diet coke Would newly popular
beverages provide them with new (and profitable) revenue
streams?YesNon carb and Bottled water contribution to total volume
growth: Coke-100%, Pepsi-75Because of Contamination issue, Obesity
issueWas the fundamental nature of cola war changing ?Due to the
obesity issue and introduction of non carbonated drinks nature
change up-to some extent but still they have to focus on csd .
Key questions
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Initially through the early 1960s Coke was the winner.But
passage of the time Pepsi creates strong hold on the market.Coke
was focused on overseas markets, while Pepsi focused on the US
grocery channel.Coke and Pepsi hold almost 75% the whole market and
25% have other local CSDs or non CSDs brands. Conclusion
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Thank You