Coke and Pepsi

Coke and Pepsi in the Twenty-First Century: Threat of Entry:low 1. Economies of scale – High production volume but merit not clear (1st paragraph on page 2) 2. Product differentiation – Brand identification (high advertising expense, Exhibit 2) 3. Capital requirements – CPs: little capital investment (1st paragraph on page 2) – Bottlers: capital intensive (2nd paragraph on page 3) 4. Cost disadvantages independent of size – No 5. Access to distribution channels – Food stores (35%): intense shelf space pressure (2nd paragraph on page 4) – Fountain (23%): CPs dominated first food chain (1st paragraph on page 5) 6.Government policy (N/A) Threat to entry is low because Coca-Cola Company, PepsiCo, and Cadbury Schweppes control 90. 1% of the market share; 44. 1%, 31. 4%, and 14. 7% respectively. Although the growth rate of CSD consumptions have been steady at 3% a year, the capital requirement to enter the market is too great of an obstacle. In order to service the entire US, a firm would need $25-50 million to build a plant for concentrate producers, $6 billion ($75 million * 80 plants) to establish bottlers, cost associated to provide and maintain incentives to retailers, and the greatest cost to advertisements.Therefore, firms are deterred from entering the CSD market due to economies of scale couple with brand image that the firm must face. In order provide product differentiation, the entering firm would have to invest heavily to develop a brand image for CSD aside from the three market leaders. Access to distribution channels is intense in CSD industry as bottlers are fighting for shelf spaces in grocery stores. In addition, PepsiCo is in the restaurant business of owning Taco Bell, Kentucky Fried Chicken, Pizza Hut by shutting down any opportunities for other CSD firms to sell fountain drinks in those restaurants.Other CSD firms like Coca-Cola has develop a relationship with remaining market leaders of restauran t for their fountain distribution (i. e. , McDonalds and Burger King). In addition, â€Å"Soft Drink Interbrand Competition Act† in 1980 preserves the rights of Concentrate Producers to grant exclusive territories. Therefore, it would be safe to assume that there are not many competitors in the market vying for a new territory since the existing Concentrate Producers would have driven off competition out of business through their rights of exclusive territories.Cost disadvantages independent of size is high as development brand image will require high investments in advertisement and to develop a new differentiating acquired taste for CSD consumers. Substitutes:low (Non-cola beverage? ) Substitutes of CSD’s include water, juice, milk, and different types of alcohol. However, leading CSD’s have branch out their products to water and juice to capture the market shares of CSD’s substitutes. Other leading substitutes to CSD’s are milk, coffee, and alco hol beverages. These substitutes are generally different complement beverages than the CSD’s.Coffee and alcohol beverages are geared towards adults only and milk is gear towards breakfast meal consumptions with cereal. Complements: Complements to CSD’s are food. CSD firms have made relationships with retailers of food (i. e. , grocery stores, gas stations). In addition, firms have made relationships with restaurants to complement their products with food. Since food is something that everyone consumes several times a day, CSD companies have a great opportunity to maximize their presence in different distribution methods. Buyers:low 1. large volume?Some buyers might buy in large volume but not found in the case 2. standard or undifferentiated? No 3. NA for this case 4. low profits? – Food stores: No, average (5th paragraph on page 4) – Fountains: extremely profitable, 80 cents out of one dollar (1st paragraph on page 5) 5. unimportant? No 6. does not save buyers’ money? (N/A) 7. credible threat? No Buyer groups are not powerful against CPs and bottlers. Therefore, there is no significant bargaining power from buyer side in CSD industry. This situation contributes to maintain high profit of CPs and bottlers. (Reasons) 1.Because there are various retail channels, CPs and bottlers do not face the single retailer with power which purchases in large volume. 2. In general, selling CSDs yields high profit for retailers. (15-20% gross margin for food store, 80 cents out of one dollar for fountain. ) That fact prevents buyers to be price sensitive. 3. In fountain business, CPs and bottlers kept fountain sales profitable and succeeded to avoid cutting price pressure from retailers by paying rebate and investing restaurant retailers. 4. In food store, CSD represented a large percentage of its business (accounting for 3%-4% of food store business).To draw customers to store, it should be necessary for food store to carry the most selling brand in CSD, Coke and Pepsi. This structure weakens food store’s bargaining power. 5. Vending machine is efficient retail channel for keeping price because bottlers can directly control. It also works in the country where Coke and Pepsi do not have distribution channel(ex. Japan). 6. Coke and Pepsi have already established strong brand identification. Some discount retailers have private label CSD but they can not take the place of Coke and Pepsi.Internal Rivalry: high 1. numerous? roughly equal? – numerous: No, oligopoly – roughly equal: Yes – price increase, oligopoly (4th paragraph on page 11) 2. Industry growth – plateau (Exhibit 3) 3. lacks differentiation? – try to differentiate by marketing (5th paragraph on page11) 4. High fixed costs? 5. Capacity augments? Capacity itself not clearly mentioned in the case but; early 1990s: Yes? incurred excess supply? (1st paragraph on page 11, Exhibit 1) late 1990s: 6. High exit barrier? – Yes? capital intensive? 7. rivals diverse in strategies? – No?Coca-Cola and Pepsi’s history of intense rivalry has resulted in the execution of a large number of strategies designed to gain market share and brand recognition. As the industry matures and Coca-Cola and Pepsi learn from past strategies, increased profitability heavily relies on their ability to cut costs, gain fountain contracts, globally expand product mix, and vertically integrate bottler distribution channels. Traditional strategic initiatives such as new product development, advertising, price reduction, and product differentiation will produce minimal results considering Coca-cola and Pepsi are similar in size and power.Coca Cola and Pepsi’s ability to quickly respond to competitor strategies generally lead to industry wars where neither firm is better off then when they started. While it is important to continually maintain brand awareness and pursue various market trends, large gains in prof itability will ensue from strategies that create a sustainable competitive advantage. It is more advantageous for Coca-Cola and Pepsi to invest in strategies that increase the industry demand versus short term profit. Such strategies include but are not limited to, entering developing countries, key acquisitions of growing businesses (i. Yahoo, Diageo, Arista Records, or Starbucks), and increased efforts to vertically integrate bottler distribution channels. Key acquisitions are important in that they can provide the means in which each company can redefine their brand name as more then a â€Å"cola†. Successful examples are Sony, Disney, and GE. Suppliers:low 1. dominated? Metal cans: excess supply (1st paragraph on page 6) 2. unique? not unique 3. obliged to contend? (N/A) 4. credible threats? No 5. important customer? Metal can: largest customer (1st paragraph on page 6) Coke and Pepsi COKE AND PEPSI LEARN TO COMPETE IN INDIABrief Overview:The case of Coke and Pepsi in India is a lesson that all marketers can observe, analyze and learn from, since it involves so many marketing aspects that are essential for all marketers to take into considerationPepsi entered into the Indian beverage market in July 1986 as a joint venture with two local partners, Voltas and Punjab Agro, forming â€Å"Pepsi Foods Ltd. † While Coca-Cola followed suit in 1990 with a joint venture with Britannia Industries India before creating a 100% owned company in 1993 and then ultimately aligning with Parle, the leader in the beverage industry.As both companies would soon discover, â€Å"competing in India requires special knowledge, skills, and local expertise what works here does not always work there. † (Cateora & Graham, 2008, p. 604). In this article, analyze the primary obstacle to Pepsi and Coca-Cola’s success, discuss their strategies to cope with the issue, and ultim ately propose my own suggestions to improvement. Question 1: The political environment in India has proven to be critical to company performance for both PepsiCo and Coca-Cola India. What specific aspects of the political environment have played key roles? Could these effects have been anticipated prior to market entry? If not, could developments in the political arena have been handle better by each company?Indian government viewed as unfriendly to foreign investors. Outside investment had been allowed only in high-tech sectors and was almost entirely prohibited in consumer goods sectors. The â€Å"Principle of indigenous available† If an item could be obtained anywhere else within the country, imports of similar items were forbidden.This made Indian consumers had a little choice of products or brands and no guarantees of quality or reliability.Indian Laws, the government mandated that Pepsi’s products be promoted under the â€Å"Lehar Pepsi† name. For Coca-Cola, they attempted to enter into Indian market by joining with Parle and became â€Å"Coca-Cola India†Yes, it could anticipate the effect prior to market by using information fro m own company research, the business partner in that country, the expertise service, and own experience in near area. They could developments in political arena; Coke could agreed to start new bottling plants instead of buying out Parle, and thus wouldn’t agreed to sell 40% of their equityQuestion 2: Timing of entry into the Indian market brought different results for PepsiCo and Coca-Cola India. What benefits or disadvantages accrued as a result of earlier or later market entry? PepsiCo: Pros: (1) entered the market before Coca-Cola and getting an early entry was able to help Pepsi go so far with Indian market while it was still developing; (2) the fact that company gained 26%market share by 1993 Cons: (1) The government mandated that Pepsi’s product be promoted under the name â€Å"Lehar Pepsi†, because foreign collaboration rules in force at the time prohibited the use of foreign brand names on products intended for sale inside India; (2) Indian Govt limited their soft drink sale no exceed 25% of total sales for the new entrant; (3) Pepsi Foods struggled to fight off local competitions. Coca – Cola: Pros: (1) have ability to align themselves with the market leader. In fact, Parle offered to sell Coca – Cola its bottling plants in four key cities, and (2) Parle also offered to sell its leading brands. (3) Finally, Coca – Cola set up two new ventures with Frooti, Soda, and local product was called â€Å"Britco Foods† Cons: (1) was denied entry until 1993 because Pepsi was already there; (2) It was very difficult for Coca – Cola take market share away from Pepsi and local firms, due to the beverage market was itself growing consistently form year to year; (3) Coca –Cola was not allowed to buy back 40% of equity when the company chose to leave Indian market in 1977 Question 7: What lessons can each company draw from its Indian experience as it contemplates entry into other Big Emerging Markets? PepsiCo:Beneficial to keep with local tasteSignificant to follow market trendsSponsors and Celebrity appeals make more exceptional advertisingIt pays to keep up with emerging trends in the marketCoca – Cola:Pays specific attention to deals made with the governmentEstablish a good business relationship with the governmentInvestment in quality productsAdvertising is essentialBeneficial to follow market trends