Cola Wars Case Analysis

Cola Wars Case Analysis

WPC 480-Section SLN 22966

1/23/18

Anna York

1. a. From an external perspective, both Coke and Pepsi’s profitability have made some very massive investments in their brands over the span of decades, both in ads and public exposure including a presence on social media.  Such investments achieve the profitability for these two companies through purchasing power and volume discounts for advertising space, depth of market research available, and actual creative production efficiency. Which makes new entry into the industry by other possible competitors much more difficult.  There also have been many nationwide campaigns developed through such investments, including the famous “Pepsi Challenge”, the reformulation of the Coke and Coke Classic brands, and themes such as the “Pepsi Generation” or “Coke is it”. These campaigns were implemented on a scale that elevated both brands in the minds of consumers almost to the level of pop culture and positioned them among the most visible and valuable corporate food and beverage brands.  This brand value and associated market share are the cumulative effects of years of advertising investments that Coke and Pepsi which have made them profitable in the Carbonated Soft Drink (CSD) Industry.

b. Concentrate producers tend to be more profitable because most of their capital investment is primarily focused on promoting, advertising, and market research of their brand. This is especially beneficial because these costs are usually half way financed by their bottlers and suppliers. They also generate most of their income by purchasing at a set price paid by bottlers regardless of price increases.  On the other hand, bottlers tend to be less profitable due to having multiple areas to finance. Not only do bottlers help finance concentrate producers on advertising and brand promotion, they also need major supply inputs such bottling plants, trucks for distribution, cans, plastic bottles, glass, and other raw materials. Bottlers directly deliver products to retail stores and are responsible for space availability in all locations.   They also have to maintain strong relationships with retailers to ensure their brands are highly promoted and marketed which can be very costly. All of these activities increase the bottling industry’s costs which in general decreases their profitability compared to the concentrate producers.

2. By concentrating and capitalizing on the sociocultural segment of the general external environment which focuses on today’s society attitudes and its cultural values, I believe both Coca-Cola and Pepsi can remain profitable and continue to grow as an industry. For Coca-Cola and PepsiCo to maintain or grow their profits, they will need to innovate to find a product that tailors to the changing taste of their consumers while also not entering an already saturated non-carbonated soft drink (CSD) industry market which already have established dominant market shareholders. Top management needs to continually monitor the business’ external environment and strategize to stay ahead or in line of change. One strategy Coca-Cola and Pepsi can use is to create a stretch goal, a goal that is so big, inspiring and outside the prevailing paradigm that it hits people in their gut and shifts their way of thinking. They will need to do extensive market research to pinpoint consumer needs.  If the new product line is unlike any other non-CSD, Coke or Pepsi would essentially be the first to enter the market for that type of beverage and be able to establish market share dominance. Even though the demand for CSD’s is flattening, sodas will remain a staple in the American diet therefore the companies should maintain some original bottling operations. However, it should plan to convert some of their bottlers to an operation optimal at efficiently producing specialized, small batches of non-CSD lines. Most of all, Coke and Pepsi need to be innovative with their advertising to keep their brand in the consumer’s minds. I believe that both Coke and Pepsi will continue to be formidable forces in the CSD industry and will continue to sustain profitability if they listen to consumers.  As the needs of consumers change there will be an even greater demand for healthy drinks and snacks which is creating a new pattern in the CSD industry. This shift produces tremendous opportunities for both Coke and Pepsi to diversify their product offerings in an effort to capture more of the changing market share. Pepsi and Coke may also want to consider competing in markets where the other has no interest in order to lessen their dependence on one another and diversify their holdings so each company can thrive.  I believe that management at Pepsi and Coke should have clearly defined strategies and targeted plans to effectively utilize their resources in the swiftly changing market. They should also collaborate in order to avoid replicating the price wars and cut throat activities that occurred in the United States in the 1970’s and 1980’s. Pepsi and Coke’s management must also actively give back to society through environmental efforts, like recycling, in order to ensure long term corporate and environmental sustainability as well. Now more than ever before cultural awareness is a huge factor in consumers’ perception of a company, again representative of the cultural changes that are happening in the US.   Both companies are poised for continued growth if they invest wisely, focus on the consumers and markets that they serve, and continually scan the environment for new opportunities.