Cola Wars Continue: Coke and Pepsi in 2006

AGEC 4433

Group 7

Spring 2011

Background

• John Pemberton creates Coca-Cola formula in 1886

• Imitation brands followed, along with the creation of Pepsi-Cola in 1893

• Increased consumption and concentration in the Carbonated Soft Drink (CSD) market.

Company Goals

• Boost the domestic demand for CSD products

• Increase Coke’s market share of non- carbonated products in the U.S.

• Capture uncharted markets not catered to by CSD companies.

Central Problem

• Flat growth in Coca-Cola’s market share

– Waning demand for CSDs in domestic market

– Coca-Cola is less competitive in non-carb market due to Pepsi’s successful pursuit of that market

Constraints

• Increased health information concerning obesity deterring consumers

• Market for non-carbonated beverages is dominated by Pepsi

• Untapped market segments reluctant to associate with Coca-Cola

Competitive Analysis

• Barriers to Entry Very High– Coke and Pepsi hold 75% of the market– Economies of Scale: Capital Intensive Industry– Limited bottling and distribution (all owned by

existing concentrate producers) • Rivalry High

– Pepsi and Coke in direct competition, push smaller competitors out

Competitive Analysis• Threat of Substitutes Medium

– Consumers tend to buy on price without differentiation

– Coke and Pepsi market and price strategically to avoid that

• Power of Buyers– Consumers High; price increases lead to

reduced consumption – Bottlers Low; bottling contracts force them to

take higher prices

Competitive Analysis

• Power of Suppliers High– Bottlers unable to negotiate, concentrate

produces get pricing power – Door-to-store format allows Coke to monitor

processes from beginning to end, gives little room for negotiation

Alternatives

• Increase CSD demand – Alternative 1: Marketing Coca-Cola’s socially

conscious initiatives

– Alternative 2: Innovating carbonated products to fit in with health and wellness trends

– Alternative 3: Combined marketing and innovation approach

Alternatives

• Compete more aggressively in non-carb market– Alternative 4: Reformulate and position PowerAde

to better compete with Pepsi’s Gatorade

– Alternative 5: Market PowerAde towards college and professional sports markets

– Alternative 6: New product development

Solution

• Alternative 3: Combined Innovation and Marketing Approach in CSDs

– Develop “green” or natural formula for flagships (Coca-Cola and Diet Coke)

– Advertise with eco-drive marketing strategy

Implementation

• Invest in reformulation for “green” CSD line– Replace high fructose corn syrup with real sugar,

aspartame with stevia (natural no-calorie sweetener)– Substitute artificial dyes, flavors

• New packaging– ‘Planbottle’ and biodegradable can – More visible recycling symbol

• Eco-friendly marketing strategy– Bottle deposit stations (get demographic data)– Product premier on Earth Day