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Date

Project On Consumer Behaviour

Submitted by

Santanu Banik

Regd No. BIM0409BM034

Batch - 2009-11

Submitted To

Chumki Madam (Faculty)

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Executive summary: Control of market share is the key issue in this case study. The situation is both Coke and Pepsi are trying to gain market share in this beverage market, which is valued at over $30 billion a year. Just how is this done in such a competitive market is the underlying issue. The facts are that each company is coming up with new products and ideas in order to increase their market share. The creativity and effectiveness of each company's marketing strategy will ultimately determine the winner with respect to sales, profits, and customer loyalty. Not only are these two companies constructing new ways to sell Coke and Pepsi, but they are also thinking of ways in which to increase market share in other beverage categories. Although the goal of both companies is exactly the same, the two companies rely on somewhat different marketing strategies. Pepsi has always taken the lead in developing new products, but Coke soon learned their lesson and started to do the same. Coke hired marketing executives with good track records. Coke also implemented cross training of managers so it would be more difficult for cliques to form within the company. On the other hand, Pepsi has always taken more risks, acted rapidly, and was always developing new advertising ideas. Both companies have also relied on finding new markets, especially in foreign countries. In the foreign markets, Coke has been more successful than Pepsi. For example, in Eastern Europe, Pepsi has relied on a barter system that proved to fail. However, in certain countries that allow direct comparison, Pepsi has beat Coke. In foreign markets, both companies have followed the marketing concept by offering products that meet consumer needs in order to gain market share. For instance, in certain countries, consumers wanted a soft drink that was low in sugar, yet did not have a diet taste or image. Pepsi responded by developing Pepsi Max. These companies in trying to capture market share have relied on the development of new products. In some cases the products have been successful. However, at other times the new products have failed. For Coke, changing their original formula and introducing it as “New Coke” was a major failure. The new formula hurt Coke as consumers requested Classic Cokes’ return. Pepsi has also had its share of failures. Some of their failures included: Pepsi Light, Pepsi Free, Pepsi AM, and Crystal Pepsi. One solution to increasing market share is to carefully follow consumer wants in each country. The next step is to take fast action to develop a product that meets the requirements for that particular region. Both companies cannot just sell one product; if they do they will not succeed. They have to always be creating and updating their marketing plans and products. The companies must be willing to accommodate their “target markets”. Gaining market share occurs when a company stays one-step ahead of the competition by knowing what the consumer wants.

Pepsi In Short:-

Caleb Bradham, a New Bern, North Carolina pharmacist, renamed "Brad's Drink," a carbonated soft drink he had created to serve his drugstore's fountain customers. The new name, Pepsi-Cola, was first used on August 28, 13 years after Coca-Cola. In 1902 Bradham applied for a trademark to the U.S.

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Patent Office, issued stock and began selling Pepsi syrup. By 1923, Pepsi-Cola Company was declared bankrupt and its assets were sold to a North Carolina concern, Craven Holding Corporation, for $30,000. Roy C. Megargel, a Wall Street broker, bought the Pepsi trademark, business and goodwill from Craven Holding Corporation for $35,000, forming the Pepsi-Cola Corporation and in 1932 the trademark was registered in Argentina. PepsiCo gained entry to India in 1988 by creating a joint venture with the Punjab government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. This joint venture marketed and sold Lehar Pepsi until 1991, when the use of foreign brands was allowed; PepsiCo bought out its partners and ended the joint venture in 1994.

Coca-Cola In Short:-

Coca-Cola was formulated by John S.Pemberton, originally as a cocawine called Pemberton’s French Wine Coca, and originally sold as a patent medicine for five cents a glass at soda fountains, which were popular in America due to a contemporary view that soda water was good for your health. Coca-Cola is the trademarked name, registered in 1893, for a popular soft drink sold in stores, restaurants and vending machines around the world. The Coca Cola company started operations in India in 1993 after an absence of 16 years. In India, Coca-Cola was the leading soft-drink till 1977 when govt. policies necessitated its departure. Coca-Cola made its return to the country in1993 andmade significant investments to ensure that the beverage is available to more and more people, even in the remote and inaccessible parts of the nation. Coke had entered the Indian soft drinks market way back in the 1970s. Over the next few years, a host of local brands emerged such as Campa Cola, Thumps Up, Gold Spot and Limca etc. However, with the entry of Pepsi and Coke in the 1990s, almost the entire market went under their control. PRODUCTS OF PEPSI

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Products Of Coca Cola

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Facts Of Rivalry When the cola giants, Pepsi and Coke, entered the Indian market, they brought with them the cola wars

that had become part of global folklore. This case study details the various battles fought in India by the

two rivals with its focus on the publicity campaigns where the two sought to stealeachother'sfizz.

The case also outlines battles fought on other fronts - conflicts with bottles, product modifications,

attempts to steal the rival's employees and other mini wars. On the whole, the case attempts to provide

a comprehensive perspective regarding the dimensions of the cola wars and the direction in which they

are heading.

The cola wars had become a part of global folklore - something all of us took for granted. However, for

the companies involved, it was a matter of 'fight or succumb.'Both print and electronic media served as

battlefields, with the most bitter of the cola wars often seen in form of the comparative advertisements.

In the early 1970s, the US soft-drinks market was on the verge of maturity, and as the major players,

Coke and Pepsi offered products that 'looked the same and tasted the same,'substantial market share

growth seemed unlikely. However, Coke and Pepsi kept rejuvenating the market through product

modifications and pricing/promotion/distribution tactics.

As the competition was intense, the companies had to frequently implement strategic changes

in order to gain competitive advantage. The only way to do this, apart from introducing

cosmetic product innovations, was to fight it out in the marketplace.This modus operandi was

followed in the Indian markets as well with Coke and Pepsi resorting to more innovative tactics to

generate consumer interest. In essence, the companies were trying to increase the whole market pie, as

the market-shares war seemed to get nowhere. This was because both the companies came out with

contradictory market share figures as per surveys conducted by their respective agencies - ORG (Coke)

and IMRB (Pepsi). For instance, in August 2000, Pepsi claimed to have increased its market share for the

first five months of calendar year 2000 to 49% from 47.3%, while Coke claimed to have increased its

share in the market to 57%, in the same period, from 55%.Media reports claimed that the rivalry

between Coke and Pepsi had ceased to generate sustained public interest, as it used to in the initial

years of the cola brawls worldwide. They added that it was all just a lot of noise to hardsell a product

that had no inherent merit.

The Players Coke had entered the Indian soft drinks market way back in the 1970s. The company was the market leader till 1977, when it had to exit the country following policy changes regarding MNCs operating in India. Over the next few years, a host of local brands emerged such as Campa Cola, Thumps Up, Gold Spot and Limca etc. However, with the entry of Pepsi and Coke in the 1990s, almost the entire market went under their control. Making billions from selling carbonated/colored/sweetened water for over 100 years, Coke and Pepsi had emerged as truly global brands.

Coke was born 11 years before Pepsi in 1887 and, a century later it still maintained its lead in the global cola market. Pepsi, having always been number two, kept trying harder and harder to beat Coke at its own game. In this never-ending duel, there was always a new battlefront opening up somewhere. In IndIndia the

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battle was more intense, as India was one of the very few areas where Pepsi waiis the leader in the cola

segment.

Coke re-entered India in 1993 and soon entered into a deal with Parle, which had a 60% market share in

the soft drinks segment with its brands Limca, Thums Up and Gold Spot.

Following this, Coke turned into the absolute market leader overnight. The company also acquired

Cadbury Schweppes'soft drink brands Crush, Canada Dry and Sport Cola in early 1999.

Coke was mainly a franchisee-driven operation with the company supplying its soft drink concentrate to

its bottlers around the world. Pepsi took the more capital-intensive route of owning and running its own

bottling factories alongside those of its franchisees...

The Rivalry on Various Fronts

I-Bottling

Bottling was the biggest area of conflict between Pepsi and Coke. This was because, bottling

operations held the key to distribution, an extremely important feature for soft-drink

marketing. As the wars intensified, both companies took pains to maintain good relationships

with bottlers, in order to avoid defections to the other camp... to be accurate 56% CSDs

packged in cans, thus Coke and Pepsi are the largest customers in metal can industry.again to

consider about plastic bottles these represents 36.7 OF CSD Sales volume

II -Advertising

When Coke re-entered India, it found Pepsi had already established itself in the soft drinks market. The global advertisement wars between the cola giants quickly spread to India as well. Internationally, Pepsi had always been seen as the more aggressive and offensive of the two, and its advertisements the world over were believed to be more popular than Coke's. It was rumored that at any given point of time, both the companies had their spies in the other camp. The advertising agencies of both the companies (Chaitra Leo Burnett for Coke and HTA for Pepsi) were also reported to have insiders in each other's offices who reported to their respective heads on a daily basis... Both formulated their advertising on the basis of insiders

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they put inside the offices of each other. Initially Pepsi relied onadvertisements featuring filmstar, cricket star and pop star, while Coke focused on the indian culture and music. But now Coke’s marketing and advertising strategies are the- Rejuvenation, Refreshment, Refreshment, Health and Nutrition, Replenishment, where Pepsi focuses on Slandering Coke, Youth, Market Segment.

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Famous Personalities Associated With The Companies

III -Product Launches

Pepsi beat Coke in the Diet-Cola segment, as it managed to launch Diet Pepsi much before Coke could launch Diet Coke. After the Government gave clearance to the use of Aspertame and Acesulfame-K (potassium) in combination (ASK), for use in low-calorie soft drinks, Pepsi officials lost no time in rolling out Diet Pepsi at its Roha plant and sending it to retail outlets in Mumbai...

IV –Poaching

Pepsi and Coke fought the war on a new turf in the late 1990s. In May 1998, Pepsi filed a petition against Coke alleging that Coke had 'entered into a conspiracy'to disrupt its business operations. Coke was accused of luring away three of Pepsi's key sales personnel from Kanpur, going as far as to offer Rs 10 lakh a year in pay and perks to one of them, almost five times what Pepsi was paying him. Sales personnel who were earning Rs 48,000 per annum were offered Rs 1.86 lakh a year. Many truck drivers in the Goa bottling plant who were getting Rs 2,500 a month moved to Coke who gave them Rs 10,000 a month.

While new recruits in the soft drinks industry averaged a pay hike of between 40-60% Coke had offered 300-400%. Coke, in its reply filed with the Delhi High Court, strongly denied the allegations and also asked for the charges to be dropped since Pepsi had not quantified any damagesTill the late 1980s, the standard SKU for a soft drink was 200 ml. Around 1989, Pepsi launched 250 ml bottles and the market also moved on to the new standard size. When Coke

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re-entered India in 1993, it introduced 300 ml as the smallest bottle size. Soon, Pepsi followed and 300 ml became the standard.

But around 1996, the excise component led to an increase in prices and a single 300 ml

purchase became expensive. Both the companies thus decided to bring back the 200 ml

bottle, In early 1996, Coke launched its 200 ml bottles in Meerut and gradually extended to

Kanpur, Varanasi, Punjab and Gujarat, and later to the south...

• In May 1996, Coke launched Thums Up in blue cans, with four different pictures depicting

'macho sports'such as sky diving, surfing, wind-surfing and snow-boarding. Much to Pepsi's

chagrin, the cans were colored blue - the color Pepsi had chosen for its identity a month

earlier, in response to Coke's 'red'identity...

• There were frequent complaints from both the players about their bottlers and retailers

being hijacked. Pepsi's blue painted retail outlets being painted in Coke's red color overnight

and vice-versa was a common phenomena in the 1990s...

• Coke also turned its attention to Pepsi's stronghold - the retail outlets. Between 1996-98,

Coke doubled its reach to a reported 5 lakh outlets, when Pepsi was present at only 3.5 lakh

outlets.

To reach out to smaller markets, interceptor units in the form of mobile vans were also

launched by Coke in 1998 in Andhra Pradesh, Tamil Nadu and West Bengal.

However, in its rush to beat Pepsi at the retail game, Coke seemed to have faltered on the

service front. For instance, many shops in Uttar Pradesh frequently ran out of stock and there

was no servicing for Coke's coolers...

The Cola War In Recent Years

Soft drink industry encounters new challenges

U.S. sales volume grew at a rate of 1%, while in the 1980s and early 1990s the rates were 3% to 7%.

Globally the demand remained flat.

While Coke struggled, Pepsi quietly flourished. In 2001 Pepsi expanded into other beverage categories.

Pepsi’s North America beverage volume grew by 3% in 2004, compared with virtually flat

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volumes for Coke.

New federal nutrition guidelines identified regular CSDs as the largest source of obesity-causing sugars in the American diet.

In the U.S. non carb market overall Pepsi had a market share of 47.3% compared with Coke’s share of 27% for 2004.

Recent expansion of Coca-Cola

Expansion Of Pepsi

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Distribution Of Pepsi

Distribution Of Coke

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Revolution Of Their Logos Where Competition Exists Also

Comparative Income Statement Of The Two Companies

PERIOD ENDING

Pepsi (Rs in thousands) Coke (Rs in thosands)

31-Dec-09 31-Dec-08 31-Dec-07 31-Dec-09 31-Dec-08 31-Dec-07

Total Revenue

43,232,000 43,251,000 39,474,000 30,990,000 31,944,000 28,857,000

Cost of Revenue

20,099,000 20,351,000 18,038,000 11,088,000 11,374,000 10,406,000

Gross Profit

23,133,000 22,900,000 21,436,000 19,902,000 20,570,000 18,451,000

Net Income

5,946,000

5,142,000

5,658,000

6,824,000

5,807,000

5,981,000

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Coca cola: In Q1 2010

In the first quarter of 2010, the Coca-Cola Company posted revenues of $7.53 billion, an increase of nearly 5% from the previous year; operating income increased 17% to $2.18 billion. Net income for the quarter grew more than 19% to $1.6 billion.Worldwide, both unit case and concentrate volumes increased 3% compared to Q1 2009.

In Q2 2010

In the second quarter of 2010, Coca-Cola Company posted revenues of $8.67 billion, an increase of 5% from Q2 2009; operating income increased 13% to $2.76 billion. Net income for the quarter rose 16% to $2.37 billion.Worldwide, both unit case volume and concentrate sales increased 5% with Eurasia & Africa leading the charge with 10% unit case growth and 13% concentrate sales growth. India was the primary driver of the growth with an overall unit case volume increase of 22%, with 19% growth in sparkling beverages and 30% growth in still beverages.

Pepsi: In Q1 2010 In the first quarter of 2010, PepsiCo had revenues of $9.4 billion, a 13.4% increase against US$8.2 billion recorded in the first quarter last year.

Q2 2010

In the second quarter of 2010, PepsiCo had revenues of $14.8 billion, up 40% from Q2 2009; net income decreased 3.4% to $1.6 billion. Operating income increased 12.3% to $2.46 billion. The primary reason for the discrepancy in revenues and net income was the ongoing costs associated with the company's purchase of its primary bottlers. In Q2 2010 charges related to the restructuring decreased income by $155 million.

Market Share

The market capitalizations of these companies at close of business on Friday February 26, 2010 was: The Coca Cola Company- $121.41BN PepsiCo, Inc.- $97.77BN While Coca-Cola’s market share has been slipping, it still holds a significant advantage. In recent years, foreign sales have been lifting the company during recession.

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Findings: So after a comprehensive analysis on the topic it can be said there are ups and downs in revenue, net income for both the company in the present or the past years, but still if we have to choose the market leader on the basis of popularity or stiffly on the financial result basis , it is to be said that COCA-COLA is leading the Indian market. c

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Conclusion: Both Coke and Pepsi are industry leaders in terms of profitability. Coke is having edge over Pepsi. Although Pepsi is having slight edge over Coke, both the firms are below industry average in terms of efficiency. Coke and Pepsi are industry leaders but no one is having clear sustainable competitive advantage.