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COKE AND PEPSI LEARNCOKE AND PEPSI LEARNTO COMPETE IN INDIATO COMPETE IN INDIA--

MACROMACRO--ECONOMICSECONOMICSCASE STUDYCASE STUDY

ByByGroup 14Group 14

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QQ--1a) POLITICAL ASPECTS THAT HAVE1a) POLITICAL ASPECTS THAT HAVEPLAYED KEY ROLESPLAYED KEY ROLES

Coca Cola Dispute over trade secrets-withdrawal in 1977-Janata Party came to rule Problems in reentering: 1990- First application with Godrej rejected just as PepsiCos was accepted 1993- Able to reenter by joining forces with Britannia Foods India Ltd. 1996- had got permission from govt. to increase investment in the Indian Market- agreed to

sell 49% equity to Indian partners within two years- time extension given 2002- govt. ordered to sell 49% equity of HCCHPL to Indian investors- request for secondextension to 2007 rejected in 2001

Forced to reduce equity to allow Indians into industry giving up status of wholly ownedsubsidiary

Illogical policies- allowed investors to become bargain hunters at Coca Colas expense This response- deemed unacceptable since entry regulations during the 90s had been

inconsistent Mandatory voting rights- historical concept

Request for waiver of disinvestment rule-turned down Change in oversight of FIPB- past lobbying rendered useless

PepsiCo: Stringent entry norms Use of Indian name

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QQ--1b)WHETHER THESE COULD1b)WHETHER THESE COULDHAVE BEEN ANTICIPATED INHAVE BEEN ANTICIPATED IN

PRIORPRIOR Some of them couldve been anticipated.

First, despite the liberalization of the Indian economy in 1991 andintroduction of the New Industrial Policy to eliminate barriers, such as

bureaucracy and regulation to foreign direct investment, India still hada strong history of protectionism, dating back most recently to itseconomic policies following the Gulf War.

India's past promotion of indigenous availability depicts its affinitytoward local products. This shouldve warned them of what to expect.

Lack of solid institutions gives way to corruption. In fact, India has stillnot ratified the OECD (Orgn. for Economic Cooperation & Devt.

designed to combat corruption. This should have been anticipated.

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WHAT COULD NOT HAVEWHAT COULD NOT HAVEBEEN ANTICIPATEDBEEN ANTICIPATED

Due to the external nature of the politicaland legal environment of operating in India,much of the problems were out of Coca-Cola

and Pepsi's control. Even if the two were tohave performed a more extensiveenvironmental analysis, many of the problemswould not have been forecasted. Government

situations are dynamic and inconsistent wherethere is not a strong foundation of law.

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How could unexpected politicalHow could unexpected politicaldevelopments have been handleddevelopments have been handled

Since certain political factors are unexpected, they shouldve focused on thosefactors which can be controlled by them.

To begin, both companies should have focused more on education of its products.What are the benefits? Why is bottled water so valuable in an environment withsuch poor drinking water? The market still hasnt taken off so they need to

penetrate harder. Second, target markets should have been defined more specifically. Coca-Cola

separates its markets as India A and India B. This is too broad and lacksfocus. They couldve differentiated demographics by gender, race, age, language,interests, job, location, etc.

Third, Coca-Cola entered the market at a poor time because they had to agreeto abide by all of the Foreign Investment Laws of that year. To avoid having tosell its 49% stake though, Coca-Cola should have agreed to set up green fieldbottling units instead, as Pepsi did. Further, Coca-Cola lost valuable market shareby entering the beverage market after Pepsi. By the time Coca-Cola was fullyowned in 1993, Pepsi had already amassed a 26% market share.

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Coca-Cola already made the mistake by entering intothe contract they did. By continuing to apply for

extensions and attempting to deny voting rights forthe Indian stake, Coca-Cola was only tarnishing itspublic image and destroying its relationship with thegovernment. When entering into a foreign market,maintaining a good relationship with the hostcountrys government is crucial.

Finally, both Coca-Cola and Pepsi should have beenproactive regarding oversight (e.g. environmentalresponsibility). Coca-Cola created the advisory boardto regain the publics credibility only after itsreputation was already tarnished with the allegations

of pesticide residue. Both companies should have been ready for a healthscare after 1988 when it was discovered that BVO, anessential ingredient in locally produced soft drinks,was carcinogenic.

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QQ--2 Benefits of early entry/2 Benefits of early entry/Disadvantages of late entryDisadvantages of late entry

PepsiCos application in 1986- accepted with minimal glitches

Coca Colas application in 1990 rejected, accepted in 1993

More Foreign Investment Laws for Coca Colas year of entry.

49% disinvestment clause- condition for its agreement to buy out local

bottlers instead of setting up greenfield bottling plants like it hadoriginally proposed

PepsiCo with its earlier entry had entered with a different set of rules.

It was not held to a disinvestment rule since it had opted to set upseveral greenfield bottling units.

Further, Coca-Cola lost valuable market share by entering the beveragemarket after Pepsi. By the time Coca-Cola was fully owned in 1993,Pepsi had already amassed a 26% market share.

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QQ--3 RESPONSE OF THE COMPANY TO THE SCALE OF3 RESPONSE OF THE COMPANY TO THE SCALE OFOPERATIONS IN INDIA IN TERMS OF PROD. POLICYOPERATIONS IN INDIA IN TERMS OF PROD. POLICY

PROMOTIONAL ACTYS., PRICING POLICIES &PROMOTIONAL ACTYS., PRICING POLICIES &DISTRN. ARRANGEMENTSDISTRN. ARRANGEMENTS

Price: Coca-Cola reduced prices nationwide by 15-25% to make them affordable and easyto get access to. Pepsi introduced returnable glass bottles of various quantities at lowerconvenient prices for customers to recoup costs and to reach the customers muchbetter.

Product: Coca-Cola and Pepsi launched different product lines to appeal to the Indianconsumer tastes. They started with product lines that were already available, such ascola, fruit drinks, and carbonated water. Then, when the market was ready, they

launched other lines, such as bottled water (Coke- Kinley and Pepsi-Aquafina) and clearlime sodas (Coke-Sprite, Pepsi-7 Up) keeping the local tastes into consideration. Promotion: Both Coca-Cola and Pepsi adapted to the local market with promotions. They

promoted heavily during the Navratri festival. Pepsi gave away a kilo of Basmati rice withevery refill of a case of Pepsi. This is an effective strategy to blend the old (rice) withthe new (Pepsi). Coca-Cola gave away vacations to Goa, a union territory famous for itsbeaches and resorts in India.Further, they teamed up with influential figures in Indian pop-culture to promote theirproducts. Pepsi launched an ambitious marketing campaign sponsoring Cricket celebritiesand athletes from the World Cup. Coca-Cola launched its Lifestyle Advertising Campaignas a method of building brand loyalty among its target markets: India A (18-24 year oldurban youth) and India B (rural youth). They used a music director and an actor topromote the project. Most importantly, they tried to create a connection between localidioms and their products so that they would stick. The use of celebrities is a powerfulmarketing tool across cultures to promote products.

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Channels of distribution: Production plants and bottling centers werestrategically placed in large cities all around India. More were added as demandgrew, along with new product lines. In Coca-Colas case, the Joint Venture withParle provided access to its bottling plants and its products. By formingpartnerships, both Coca-Cola and Pepsi were able to get initial access into themarket.

Research: It seems that prior research into general market demand may havebeen the most overlooked aspect by Coca-Cola and Pepsi. India has not ever beenconsidered a lucrative market for the soft drink industry. In 1989, Indians per

capita were consuming only three bottles per year. One might question the risk-reward analysis that both companies partook in. Why enter a high-riskpolitical/economic market where there is a very little proven track record ofsuccess in beverages?

However, both Pepsi and Coca-Cola did succeed in continuing to researchemerging trends and implementing them. Pepsi created smaller bottles to keep upwith the trend of high frequency/ high volume consumption. Coca-Cola launchedthe minis in an effort for higher volume. Both met trends in demand with new

product lines. (E.g. bottled water). Also, both Coca-Cola and Pepsi kept a close watch on the advertising campaigneffectiveness, through research of likeability of the ad and intention to buy.This measure ensured that advertising dollars were being strategically allocatedand not wasted.

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QQ--4) Glocalisation4) Glocalisation Pepsi Launching of 7UP in clear lemon category- local tastes Aggressive pricing policy Massive sponsorships of Garba competitions in Gujarat during

Navratri Tie up with Gujarati TV channel to telecast Navratri Utsav inMumbai

Every refill of Pepsi 300 ml bottle fetches 1 kilo basmati ricefree.

Amitabh Bacchan and Govinda for Mirinda Lemon

Cricket & Bollywood based endorsements and advertisements. Advantage of World Cup Soccer fever in India Pricing of the drinks

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Coca Cola: Think local- Act local biz plan Thums Up Toofani Ramjhat- 20000 free

passes 1/Thums Up bottle

Onsite activities- Buy 1- get 1 free Lucky draws for trips to Goa Ad themes- Bombay Dreams and Chennai

Dreams

Thanda matlab coca cola 2003- reduced prices by 15-25% New size Mini

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QQ--5) Coca Colas return5) Coca Colas return-- AAmistake?mistake?

First, Coca Cola should not have left the Indian market Coke's refusal to give the formula and withdrawal from the

market wasn't a clever decision, because as a big company, Cokemust expect to face many challenges. It should have believed inits marketing capabilities and its ability to position its brand as

a unique one, different from others even if they claim they arethe same. And using the huge resources it has worldwide, itcould have planned a strategy to overcome this problem and stayin the market and even gain market share as the only uniquemultinational brand.

If Coke had stayed in the market, it could have also had theadvantage of the BVO warning crisis that the local companies

faced after it appeared to be carcinogenic. And if coke had stayed in the market, it could have taken

advantage of 1991 economic conditions and increased its equitystakes and profit, like other foreign companies which wereallowed to buy-back most of their outstanding shares, and couldmake their Indian operations wholly-owned subsidiaries

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Positive Signs: India is a potential powerhouse Sales has been increasing- 2002 company

products accounted for more than half thesoft drinks market

Cost Reductions: 3 year cost cutting program

8 outdated plants closed Local purchasing policies

Increased market share for Thums Up

Return- not a mistake

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QQ--6) Which company has6) Which company hasbetter long term prospectsbetter long term prospects

Pepsi is better placed for the future inspite of Coca Cola being theworld leader.

An environmental organization claimed that soft drinks producedin India by Coca-Cola and Pepsi contained significant levels ofpesticide residue.

After testing of the products, the results showed that soft drinksproduced by the two companies were safe to drink under localhealth standards. But the damage was already done. Toregain trust and credibility, Coca-Cola and Pepsi created advisoryboards and had more purity tests conducted to combatconsumers fear about their product.

But in 2003 and again in 2006, studies have shown that Coca-Cola had pesticide residue in their products that were twenty-four

times higher than the European Union standards. This event ledfull bans on Coca-Cola in seven states in India After the bad press had cooled down from the pesticide incident,

new allegations of Coca-Cola using precious groundwater andsupplying farmers with toxic waste that was used to fertilize theircrops appeared.

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To avoid the same problems that Coca-Cola is

now facing, PepsiCo has come up with newtechniques for conserving water usage,especially in India.

The agriculture in India accounts for over

eighty percent of total fresh waterconsumption, therefore PepsiCo isworking with the farmers to reduce the waterintensity in paddy cultivations by thirtypercent through direct seeding of paddy.

This is where Pepsi has an edge over CocaCola.

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QQ--7) What lessons can be7) What lessons can belearnt from thislearnt from this

In conclusion, the case involving Pepsi and Coca-Colas entry into the Indian market provides keylessons for future ventures.

While many events are external and thus out of

the managers controls, there are many activeapproaches they can take to help ensure successin the foreign market.

For example, they need to research the marketand trends ahead of time. And they should befully aware of the history, geography, political,

and legal considerations. Only then can theysucceed in their quest to glocalize(i.e. adaptour strategy to the local culture).