A3 Cola Wars

7/29/2019 A3 Cola Wars

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Cola Wars

Presented by:

Sneha Gangadharan(PGP/16/050)

Vivek P S (PGP/16/057)

Swati Matta(PGP/16/054)

Shashank(PGP/16/044)Yogyata Thareja(PGP/16/058)


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Journey

Coca-Cola was formulated in 1886 by pharmacist John

Pemperton who sold the product at drug stores as potion

for mental and physical disorders.

In 1891, Asa Candler acquired the formula, established a

sales force and began brand advertising of Coca-Cola.

In 1919, went public under control of Robert Woodruff

expanded and developed in national and international

markets.

Successful during WWII with the high CSD consumption

from the U.S soldiers.


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Journey

Pepsi was created in 1893 in North Carolina byPharmacist Caleb Bradham.

By 1910 Pepsi had built a network of 270 bottlers. Pepsi struggled and declared bankruptcy twice

During Great Depression grew in popularity due to pricedecrease to a nickel.

In 1938, Coke sued Pepsi-Cola brand for infringement onCoca-Colas trademark, Pepsi won the suit.

Pepsi became the 2nd largest selling CSD brand in 1940

In 1950 Cokes share of US market was 47% and Pepsiswas 10%


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Cola Wars In 1950 Alfred Steele, former Coke marketing exec

became CEO of Pepsi. He made Beat Coke his motto.

In 1963 Pepsi launched the Pepsi Generation marketing

campaign which targeted the young and the young atheart

In late 1950s Coco-Cola used messages that recognized

the existence of competitors: Americans Preferred

taste(1955), No Wonder Coke Refreshes best(1960).

In 1974 Pepsi launched the Pepsi Challenge.

In 1982 Diet Coke was introduced as an extension of

Coke


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1886 Coke with a bit of

dope in it by John

Pemperton

13 yrs later Pepsi Cola as

the CLEAN DRINK - Caleb

Bradham


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Coke was a well

established

phenomenon bythe time Pepsi

came into being


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Coke

developed the

iconic contourbottle 7 also

expanded its

endorsements

to Europe.Pepsi went

bankrupt


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Pepsi goesbankrupt again

& rebounds


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Pepsi starts theera of

aggressive

advertising and

introduces the

cans


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Cokes new ad

& Pepsis

rebranding

efforts


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After this campaign, though Pepsis consumer base didincrease, but people were reluctant to own up to it. Pepsiwas the kitchen drink while Coke remained the livingroom beverage. Trend emerged for penny-wise hostesses

to serve Pepsi in glasses and then hide the bottles so thatthey could present to the guests as Coca Cola

1939-1950

Pepsi Ad efforts backfired


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This campaign sought to fight the cheap-drink stigma byadvertising the drink as Be Sociable groups of happypeople. However, this was not very successful as intendedsince these characters were perceived overly sophisticated andboring, and the young generation enthused by the rock-n-

roll revolution at that time could not relate to it.

1953-1961

Pepsi Ad efforts backfired


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This overnight campaign transformed the image of Pepsi froma drink that thrifty housewives preferred to a trendy drink that

nobody would feel embarrassed caught drinking. Thecampaign appealed to both the young and the young at heart

1961-1963 1963-1967


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This campaign when ported to China led to sales declining,since the Chinese interpreted this as the dead reanimatingfrom the grave.This is one of the biggest episode listed in the book ofmarketing blunders.

1963-1967Chinese Market Come Alive Campaign!Cultural Sensibilities


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1962- Coke

goes public on

the launch of

Sprite


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The start ofDiet drinks.

Pepsi

merged

with Frito

Lay


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THREATENED NOT THREATENED

Radical Change

Core Assets obsolescence

Core Activities obsolescence

Creative Change

Core Assets obsolescence

Core Activities stable

Intermediating Change

Core Assets stable

Core Activities obsolescence

Progressive Change

Core Assets stable

Core Activities stable

T

HREATENED

NOTTHREATENED

CORE ACTIVITIES

COREASSE

TS


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STEP 1 :

Defining the

Industry

Competitors Coca-Cola , Pepsi, DPS, Royal-Crown, Cott Corporation(5% Rule)

STEP 2 :

Defining theindustrys core

assets andactivities

Core Asset is the brand, the beverage produced (CSD and NON-CSD)and fast food restaurant business

Core Activity is the packaging, distribution, marketing and delivery of

the items produced

STEP 3 : Toidentify theassets andactivities

threatened withobsolescence

CSD sales are dwindling. No hint of obsolescence All the other core activities and assets are fairly stable

STEP 4 : Toevaluate thephase ofevolutionary

trajectory

Thus the players in Cola industry lie in the Progressive change region Here, the successful strategy is to develop a system of interrelated

activities that are defensible because of their compounding effects onprofits

This justifies the vertical integration of the bottling activity

Defining the Industry trajectory


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Competitive Rivalry within the industry

Existing companies compete on price and brand-image

Huge expenditure on advertising and marketing

Intense Competition

Threat of Substitute Products

End consumer has a wide variety of choices

Price is a major determinant for sale of soft drinks

Substitute products are bottled water, tea based drinks etc

Even with growing awareness about health-effects, complete elimination of soft drinks in

near future doesnt seem true

Analysis of Concentrate business using Porters 5

forces


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Threat of New Entrants

Requirement of a bottler to supply the concentrate

Existing contracts of bottlers may prove to be a hindrance

Bargaining Power of Suppliers

No mention of suppliers

Bargaining Power of Customers

Direct buyers (bottlers) as well as Indirect buyers (end consumers)

Here the power of buyers is bargaining power of bottlers

Existing contracts and equity ownerships prevent bottlers to switch from oneconcentrate producer to another

issue of territorial rights to the new bottler

Hence, LOW bargaining power

Analysis of Concentrate business using Porters 5

forces (contd..)


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Thre

CompetitiveRivalryPepsi Bottling Group

(PBG)

Coca Cola Enterprises

(CCE)

Threat of substitute

products

Automatic DispensersDirect Sales

New modes of packaging

and distributionBargaining power of

buyers Generally low due to

fragmentation

Bargaining power of

suppliers Powerful concentrate

suppliers

Weak commodity suppliers

Barriers to entry Franchises

Technology

Capital Intensive Nature

Contracts

Analysis of Bottling Business using Porters 5 forces


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Profitability comparison of Concentrate and

Bottling Business

The concentrate business is more profitable when compared with thebottling business as is clear from the following points.

Concentrate business is less capital-intensive then the bottling business which also

involves investment in trucks and distribution network. (Page 2)

The operating margins for concentrate producers as of 2009 is 32 % while that of bottlersis 8%. (Exhibit 4)

The competition in the bottling industry is relatively high because of presence of large

number of players in the bottling industry.

The concentrate producers also have the power to negotiate directly with the bottlersmajor suppliers which reduces the bargaining power of the bottlers. (Page 2)

Bottlers cannot leverage any brand equity from the operations.

Bottlers were restricted not to carry directly competing brands and not to expand in the

areas beyond their exclusive domains. (Page 3)


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Profitability analysis of soft drinks industry

The soft drinks industry is highly profitable. The reasons

for this are enlisted below:Increasing availability of soft drinks

Introduction of diet and flavoured varities in CSDs

Declining real prices (Inflation adjusted)

High barriers to entry (Porters five forces analysis):

Brand equity

Shelf space agreements

Distribution and marketing network etc.

Decrease in the consumption of substitutes like Beer, Coffee (Exhibit 1)


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Is the profitability sustainable?

The profitability of the soft drinks industry appears to be sustainable.

High barriers to entry (Porters five forces analysis):

Brand equity

Shelf space agreements

Distribution and marketing network

Opportunity to expand into the non-CSD segment (The share of Non-CSDs in total

beverages volume went up from 20% in 2000 to 37% in 2009) (Page 10)

A consolidated distribution network would allow the firms to increase profitability as the

volumes would grow.

The consolidation in retail sector, however posed a threat to the profit

sustainability as it will increase the price pressures on the cola producers thus

squeezing the profit margins.


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Thank You!

A3 Cola Wars

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