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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
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