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Project on soft drink companies - coco cola & pepsi

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Project on soft drink companies - coco cola & pepsi Powered By Docstoc
					Coca Cola & Pepsi Cola


Submission Date:14/04/2009




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CONTENTS



1.       Executive Summary ………………………………………………………………….4

2.       Aims and Objectives …………………………………………………………………4

3.       Methodology ………………………………………………………………………….4

4.       History of Coca Cola and Pepsi Cola ……………………………………………….5

      4.1.Coca Cola International …………………………………………………………5

      4.1.1.History: …………………………………………………………………………5

      4.2.Pepsi International ………………………………………………………………5

      4.2.1.History ………………………………………………………………………….5

5.       Target Market ……………………………………………………………………….6

6.         Major Segments ……………………………………………………………………..6

7.         Factors Effecting Sales ……………………………………………………………...6

8.         Per Capital Income ………………………………………………………………….6

9.         Competitors …………………………………………………………………………7

10.        Weather ………………………………………………………………………………7

11.        Major Customers Need ......…………………………………………………………7

      11.1.Major Competitors …………………………….………………………………7

      11.2.Threats From Competitors ……………………………………………………8

12.        Expanding Target Market ………………………………………………………….8

13         Consumer Has Got Choice ………………………………………………………….8

14.   Attractive Brand Name ……………………………………………………………..8

15.   Brand Differentiation ……………………………………………………………….8

16.   Coca Cola’s Brand ………………………………………………………………….8

17.   Pepsi’s Brand…………………………………………………………………………9

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18.   SWOT Analysis………………………………………………………………………9

      18.1.Strength………………………………………………………………………….9

      18.2.Weakness…………………………………………………………………………9

      18.3.Opportunity………………………………………………………………………..9

      18.4.Threat ……………………………………………………………………………..9

      18.1.1.Brand Equity…………………………………………………………………….9

      18.1.2.Wide World Market…………………………………………………………….10

      18.1.3.Brand Attachment ………………………………………………………………10

      18.1.4.Competitive Advantage………………………………....………………………10

      18.2.1.Strong Competition ……………………………………………………………..10

      18.2.2.Alternative ……………………………………………………………………….10

      18.3.1.Introduce New Brands …………………………………………………………..10

      18.3.2.Segment ………………………………………………………………………..…11

      18.5.Problems & Solution……………………………………………………………….11

19.      Macro Environment of Coke and
Pepsi………………………………………………..12

      19.1.Demographic Forces……………………………………………………………….12

      19.2.Economical Forces………………………………………………………………....13

      19.3.Natural Forces..........................................................................................................13

      19.4.Technology Forces...................................................................................................13

      19.5.Political and Legal....................................................................................................13

      19.6.Cultural Forces.........................................................................................................13

20
Recommendations……………………………………………………………………….14

21    References……………………………………………………………………………….15

22    Bibliography…………………………………………………………………………….17
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   1.Executive Summary
         Prior versions of the case have been used to teach various subjects, including industry
analysis, competitive dynamics, and vertical integration. While this case tries to incorporate some of
the essential elements about the history of competitive dynamics and the historical patterns of
vertical integration the primary teaching purpose of this case is to discuss the economics of the U.S.
soft drink industry. Concentrate producers (CPs) sold syrup and concentrate to franchised of
company owned bottlers, and made gross margins of 83% and a pretax profit margin of 30%. The
best-know CPs were Coke and Pepsi. Historically, Coke and Pepsi were also major bottlers, but in
the mid-to late 1990s, both had divested their bottling operations while maintaining significant
equity ownership and indirect control of bottling networks. CPs invested heavily in advertising and
marketing. One of the key issues for students to understand is why most of the profits in this industry
are earned upstream in the concentrate business.
       The bottling business was much less profitable than concentrate, particularly in the mid-
1990s. Bottling profits improved somewhat in recent years, in part because the concentrate
manufacturers could no longer squeeze the bottlers without disrupting their own distribution.
Bottlers invested in bottling and caning lines, trucks, and warehouses and earned gross margins 40%
and pretax profit of 9%. Coke and Pepsi bottlers delivered their products directly to the store which
was part of their strategy for differentiation over private label. Private label offered warehouse-
delivered product. Historically, bottling had been a very good business: Franchised bottling contracts
were very generous to the bottler. Coke and Pepsi had given bottles franchises in perpetuity, allowed
bottlers the final say on pricing and gave bottlers significant influence over whether to participate in
local advertising campaigns promotions new packages and product introductions. In additions
bottlers could carry allied brands as long as they did not compete with Coke or Pepsi brand.


2. Aims and Objectives
    The target of this research is to identify and discuss the two global companies, Coca Cola and
Pepsi Cola, which succeed to be the most known soft drinks companies in the world.


3. Methodology
   In this research, lots of methods were used to find out information about , Coca Cola and Pepsi
Cola and general soft drinks industry situation. British Library, London School of Economy’s
Library and school library were visited and collected data. In addition, Financial Times and The
Times Newspapers were searched worldwide by online.

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4. History of Coca Cola and Pepsi Cola
4.1.Coca Cola International
4.1.1.History:
   Type of the company: Public
   Website: http://www.cocacola.com
   Employees: 71000 (2006)


       The Coca-Cola Company traces it’s beginning to 1886, when an Atlanta pharmacist, Dr. John
Pemberton, began to produce Coca-Cola syrup for sale in fountain drinks. However the bottling
business began in 1899 when two Chattanooga businessmen, Benjamin F. Thomas and Joseph B.
Whitehead, secured the exclusive rights to bottle and sell Coca-Cola for most of the United States
from The Coca-Cola Company. (LONNIE, 2003)
       The Coca-Cola bottling system continued to operate as independent, local businesses until
the early 1980s when bottling franchises began to consolidate. In 1986, The Coca-Cola Company
merged some of its company-owned operations with two large ownership groups that were for sale,
the John T. Lupton franchises and BCI Holding Corporation's bottling holdings, to form Coca-Cola
Enterprises Inc. The Company offered its stock to the public on November 21, 1986, at a split-
adjusted price of $5.50 a share. On an annual basis, total unit case sales were 880,000 in 1986.
(LONNIE, 2003)
       In December 1991, a merger between Coca-Cola Enterprises and the Johnston Coca-Cola
Bottling Group, Inc. (Johnston) created a larger, stronger Company, again helping accelerate bottler
consolidation. As part of the merger, the senior management team of Johnston assumed
responsibility for managing the Company, and began a dramatic, successful restructuring in
1992.Unit case sales had climbed to 1.4 billion, and total revenues were $5 billion.(LONNIE, 2003)


4.2.Pepsi International
4.2.1.History
   Type of the company: Public
   Website: http://www.pepsi.com
   Employees: 143,000 (2002)

   Caleb Bradham knew that to keep people returning to his pharmacy, he would have to turn it into
a gathering place. Like many pharmacists at the turn of the century, he had a soda fountain in his


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drugstore, where he served his customers refreshing drinks that he created himself. His most popular
creation was a unique mixture of carbonated water, kola nuts, vanilla and rare oils, named “Brad’s
Drink” by his customers. Caleb decided to rename it “Pepsi-Cola,” and advertised his new soft drink
to enthusiastic customers. Sales of Pepsi-Cola started to grow, convincing him to form a company
and market the new beverage. In 1902, he launched the Pepsi-Cola Company in the back room of his
pharmacy, and applied to the U.S. Patent Office for a trademark. An official patent was awarded on
June 16, 1903. At first, he mixed the syrup himself and sold it exclusively through soda fountains.
But soon Caleb recognized that a greater opportunity existed—to bottle Pepsi-Cola so that people
everywhere could enjoy it. (Harvey, 1980)


5.Target Market
            Coke’s commercials basically based on young generations, So, the young generation is
the target market of Coke because they want to represent Coke with the youth and energy but they
also consider about the old people they take then as a co-target market. (RONALD,1998)


6.Major Segments

       Major segments are basically those people who take this drink daily and those areas where
the demands is higher then the other areas. There are so many people who take this drink daily and
those people who take weekly and those who take less often are always there as well. So, their basic
segments are those people who take this drink regularly. (RONALD,1998)


7.Factors Effecting Sales

   There are so many factors, which affects the sale of coke. Here we are discussing three major
factors which effects coke.

• Per capita income
• Competitors
• Weather

8.Per Capita Income
            First we will discuss about “ Per capita income”. This is major factor that affects the sale
of this soft drink. Because which every passing year budgets are becoming very strict and tight in
order to purchase things. So the disposable incomes of the people are coming down. They spend
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heavily on rents, utilities, and education and basic necessities and after that when they get extra
money they think about this soft drink .So the decreasing per capita income effects badly in selling
and production of this soft drink.

9.Competitors
       Coke’s major competitor is “PEPSI” and there is no hesitation to say this because every one
knows that and all the other cold drinks and water, coffee, tea are the competitors.(WARREN, 2001)


10.Weather
Weather is the third major factor in effecting the Coke’s selling. This is underdeveloped market so
the coke’s consumption in summers is 60% and in winters is 40%.(WARREN, 2001)


11.Major Customers Need
       First of all the majority don’t care that what they are going to have. In other words, they don’t
care before drinking that whether it is “Pepsi” or “coke”. They don’t actually differentiate between
these two brands in order to their tastes.
Consumers basically drink what they get.
They believe on “WHAT COLD THEY SOLD”
Consumer’s availability in brands is basically works like:
Push availability
Pull consumer’s demand.
       For this reason Coca-Cola have provided their coolers and freezers in the market. They have
maximum number of coolers and freezers in the market. They provide this infrastructure free of cost
just to provide child coke to their customer, which they want to be purchase.
       Their salesman and mechanics regularly visit all the shops where coke has its infrastructure
to check that either it is in proper condition or not, if not then they immediately change or repair it.


11.1.Major Competitors
       Consumers firstly decide that they are going to have a soft drink. Then they compete brands
with each other. Like they compete Coke with Pepsi and Sprite with 7up and team .So the major
competitor of Coke is Pepsi.
       When they motivate to any other brand or on Coke it’s in instinct basically that based on
messages derive certain feelings.


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       But Coca Cola thinks in a different way, they believe that RC Cola, new coming AMRAT
Cola, and all juices, even they take water and tea as their competitors. (WARREN, 2001)


11.2.Threats From Competitors
       Threats are well planned. Price is the major threat. When price goes certain beyond the exact
price whether come down or go higher its effects the consumption of soft drink.
       Because when the price go higher people go for the substitute of “coke” i.e. Pepsi.
And when price goes down they think that there is must be some thing wrong in it.
       In short it all depends on customer’s perception.


12.Expanding Target Market
       In last 2 years Coke has come back in aggressive manner. (MARCIA, 2000)

• Consumer has choice
• Attractive brand name
• Brand differentiating


13.Consumer Has Got Choice
       Now the consumer has got choice. Because now they know the name of another big brand,
though coke is the 2nd best name but it can get a better position after some time


14.Attractive Brand Name
       Now the consumers know the Name of Coke, because Coke is the name, which is the most
popular after the word “ok”. So people can better differentiate brands with each other.


15.Brand Differentiation
       Now different companies have got different brand names. So, people can distinguish between
brands. Two major brands “coke” and “Pepsi” also have brand names.


16.Coca Cola’s Brand
       Coca cola is “US” brand. Because they believe in the togetherness, being people together and
friends are being together. Coca Cola strongly believes that Pakistani temperament is “US” not
“ME”

                                               -8-
17.Pepsi’s Brand
         Pepsi’s brand is basically is basically “ME” branded. They use the temperament of “ME”.
In contrast to Coke they believe on individual struggle.




18.SWOT Analysis
18.1.Strength
•   Brand Equity
•   Wide World Market
•   Brand Attachment
•   Competitive Advantage
18.2.Weakness
•   Strong Competition
•   Alternative
•   Change Failover
18.3.Opportunity
•   Introduce New Failover
•   Segment
•   Encourage their supplier
•   Take More Profited
18.4.Threat
•   Substitution
•   Suppliers


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•   Buyers
18.1.1.Brand Equity
•   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 . (RONALD,1998)
18.1.2.Wide World Market
•   According to the case Coke and Pepsi capture wide world market. Its impact on globalization.
•   These both brand hold global market, and other brand just capture just their areas market.
(RONALD,1998


18.1.3.Brand Attachment
•   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.
(RONALD,1998


18.1.4.Competitive Advantage
•   In these both companies they invests heave amount which other competitor do not           invest in
their company.


18.2.1.Strong Competition
•   According to this case the first and biggest week point both brand is strong competition between
Coke and Pepsi.
•   Much expansive advertisement for their brand equity
18.2.2.Alternative
•   In this case the second important thing is that the alternative of the CSDs. The local brand in
different areas available and these local brands are very low cost and low price.
•   Consumers using non-CSDs brand. They are moving non-CSDs brands.



                                               - 10 -
18.3.1.Introduce New Brands
•   For Coke and Pepsi have more opportunity to introduce new brands in different taste. These both
brand Coke and Pepsi have very strong brand.
•   Consumers have interest in both brands, and each new brand have market value very strong then
other.
•   Coke and Pepsi have almost world culture and some new strategy they can easily capture the
market.


18.3.2.Segment
•   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. (RONALD,1998)


18.5.Problems & Solution
Q: What are the challenges to the stability of the industry structure in the coming decade?
-Globalization
-Demographics or Flattening Demand
-Non-CSD Beverages
           Regarding non-CSD beverage Coke and Pepsi are attacking these categories themselves,
with each trying to become a total beverage company.
Pepsi so far has had more success and has been more aggressive with non-CSDs. From pages 11-14
we know that the business model for CSDs is somewhat different from the classic CSD model. The
supply chain and bottling requirements add complexity to the value chain, compared with the
relatively simple CSD model. Nonetheless the basic principles of the business remain the same.
Coke and Pepsi own the brand and control product development their dedicated bottlers leverage
economies of scope in distribution. However there are exceptions Gatorade is delivery through food
wholesalers. Meanwhile as niche products non-CSD carried prices and margins that are higher for
everyone in the value chain.
Q: Who has been losing?
Smaller Brands:
           Historically they could piggyback on Coke and Pepsi bottler systems.
                                             - 11 -
           Historically little head-to-head competition
1990s and after:
           Coke and Pepsi profitable product
-Force head-to-head competition.
Coke and Pepsi fill shelf space push small brands off the shelf
Industry is consolidating smaller brands sell to Cadbury.
These all things focus on that Coke and Pepsi are wining and the other local brands and substitutes.


Q-Can Pepsi and Coke sustain their profits in the wake of flattening demand and the growing
popularity of non-CSDs?
For example water, coffee, fruit juice, and etc
Most of the substitutes are free or much less costly per ounce than CSDs. Americans drink more soft
drinks than any other beverage by a huge margin. Coke and Pepsi did not just inherit this business
they created it. Part of their own going success will be a function of their ability of structures not
only their businesses but the industry as a whole. In other words industry structure is not always
exogenous, it can be endogenous.


Q-Who has been wining the war?
If we see the exhibit 2, we can easily observed
 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%
Initially through the early 1960s Coke was the winner. The reason was the extensive bottling
franchise. And the second most important is its brand name. (WARREN, 2001)


           But passage of the time Pepsi creates strong hold on the market. If we see 1950 to 1960
Coke was the leader but after 1970 to 1990 Pepsi capture the market. Then Pepsi gained significant
share: to selective discounts in distribution outlets, targeted growing take-home market, and targeted
younger consumers like “PEPSI GENERATION “
Motivated its bottlers like bottler size, concentrate pricing etc.
Competed on package size and advertising not price.
                                                  - 12 -
Coke was focused on overseas markets, while Pepsi focused on the US grocery channel.
And they are trying to hold on all the market. In other side Coke was the winner in 1970s its share
was down but Coke to sustain their growth and after 1970s Coke have capture their market. Coke
and Pepsi hold almost 75% the whole market and 25% have other local CSDs or non CSDs brands.


19.Macro Environment of Coke and Pepsi
19.1.Demographic Forces
Age: The potential customers of Coke and Pepsi would be of age group of 14 – 30 years.
Income: As for the income levels, Coke and Pepsi target the middle class to the upper class.
(RONALD,1998)

19.2.Economical Forces
       When the economy of the consumer is low and the expenses becomes high so that consumers
move towards another product which is lower in price than the Coke and Pepsi product.
(RONALD,1998)

19.3.Natural Forces
       Due to any disaster, earthquake and some shortage by the markets or suppliers so it’s affected
their product and market. (RONALD,1998)

19.4.Technology Forces
       There is huge investment from the goverment to develop the infrastructure, opportunities and
the creation of new products such as new advanced formulas, new technological factors change so
that it is very much effected by their product. (RONALD,1998)

19.5.Political and Legal
       Some country have a politically stable economy; such as Pakistan, as a result foreign
investors are attracted to Pakistan as diversification strategies.The Pakistani government is on a
regular effort improving business relations with trade and investment partners in US and Asia.
(RONALD,1998)

19.6.Cultural Forces
       Every different country has different culture, for example; In TURKEY, due to Islamic
Cultural values people prefer to use product made from Halal ingredients. (RONALD,1998)


                                             - 13 -
    20.Recommendations
          After completing my project i have concluded some recommendation for the coca cola
company, which are following.
•   Coca Cola Company should try to emphasis more on providing their infrastructure in the market
to facilitate their customers.
•   According to the survey, conducted by the international firm some people like little bit sweeter
cola drink. So for this coca cola company should produce their product according to the local
demand.
•   Marketing team should try to increase the availability of Coke in rural areas.
•   They should also focus the old people.
•   Now young generation has a trend to drink a coke 2 regular bottles at same time, so providing
more satisfaction to them company should introduce ½ liter disposable bottle.




                                               - 14 -
21.References
KOTLER, P & ARMSTRONG, G., 2004. Principles of Marketing.10th ed. New Jersey:
Pearson Education Inc.


KOTLER, P., 1980.Principles Of Marketing, Englewood Cliffs. London: Prentice-Hali.


KOTLER, P., 2003.A Framework For Marketing Management. Harlow: Pearson Prentice
Hall.


KOTLER, P.,1999. Kotler On Marketing. New York: Free Press.


MCCARTHY,E.,1960. Basic Marketing-A Managerial Approach. Illinois: Irwin.


PROCTOR,T.,2000. Strategic Marketing. London: Routledge


ISOBEL, D., AND ROBIN, L., 2001.International Marketing Strategy. 3rd ed. Italy: G.
Canale & C.


RONALD, D., M., EDWARD, M., M., 1998. The Food Industry Wars. Illustrated. London:
Greenwood Publishing Group


STEPHANIE, C., 2007. The Real Pepsi Challenge. İllustrated.: Simon & Schuster


MARK, P., 2000. For God, Country and Coca-Cola. 2nd.: Basic Books


J., C., L., HARVEY, Y., 1980. The Cola Wars.: Everest House


LONNIE, B., 2003. The Story of Coca-Cola. Illustrated.: Black Rabbit Books


MATT, H., 2003. Brand Failures.: Kogan Page Publishers




                                        - 15 -
RANDALL, S., SCHULER, and SUSAN, E., J., 2007. Strategic Human Resource
Management. 2nd.: Wiley-Blackwell
CAROL, H., T., 2007. Industry and Firm Studies. 4th.: M.E. Sharpe


KOTLER, P., 2000. Marketing Management. 3rd. (The Millennium Edition).New Jersey:
Prentice Hall


WARREN, J., K., and BODO, B., S., 2001. Global Marketing Management. İllustrated.:
Pearson Education


MARCIA, L., T., 2000. How To Think Like The World's Greatest Marketing Minds.
Virginia.: McGraw-Hill


PATTI     W,    2009.    Coca-cola    in    new    china    push    [online].   Available
at:<http://www.ft.com/cms/s/0/e262565c-0a73-11de-95ed-0000779fd2ac.html?
nclick_check=1>[Accessed 04 April 2009].




                                        - 16 -
22.Bibliography
The Evolution Of Coca-Cola Bottling And CCE,
http://www.cokecce.com/pages/allContent.asp?page_id=88 (Accessed 3rd April 2009)

KOTLER, P., 1980.Principles Of Marketing, Englewood Cliffs. London: Prentice-Hali.


KOTLER, P., 2003.A Framework For Marketing Management. Harlow: Pearson Prentice
Hall.


KOTLER, P.,1999.Kotler On Marketing. New York: Free Press.


PATTI     W,      2009.     Coca-cola   in   new   china      push   [online].   Available
at:<http://www.ft.com/cms/s/0/e262565c-0a73-11de-95ed-0000779fd2ac.html?
nclick_check=1>
[Accessed 04 April 2009].


MCCARTHY,E.,1960. Basic Marketing-A Managerial Approach. Illinois: Irwin.


PROCTOR,T.,2000. Strategic Marketing. London: Routledge


ISOBEL, D., AND ROBIN, L., 2001.International Marketing Strategy. 3rd ed. Italy: G.
Canale & C.


RONALD, D., M., EDWARD, M., M., 1998. The Food Industry Wars. Illustrated. London:
Greenwood Publishing Group


STEPHANIE, C., 2007. The Real Pepsi Challenge. İllustrated.: Simon & Schuster


MARK, P., 2000. For God, Country and Coca-Cola. 2nd.: Basic Books


J., C., L., HARVEY, Y., 1980. The Cola Wars.: Everest House



                                         - 17 -
LONNIE, B., 2003. The Story of Coca-Cola. Illustrated.: Black Rabbit Books


MATT, H., 2003. Brand Failures.: Kogan Page Publishers


RANDALL, S., SCHULER, and SUSAN, E., J., 2007. Strategic Human Resource
Management. 2nd.: Wiley-Blackwell


CAROL, H., T., 2007. Industry and Firm Studies. 4th.: M.E. Sharpe

WARREN, J., K., and BODO, B., S., 2001. Global Marketing Management. İllustrated.:
Pearson Education

MARCIA, L., T., 2000. How To Think Like The World's Greatest Marketing Minds.
Virginia.: McGraw-Hill




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