Cola Wars: Coke And Pepsi In 2010 Case Solution
Cola Wars Continue – Coke and Pepsi in 2010
Over a century of rivalry of Coke and Pepsi, this case examines their competitive strategy and industry structure. This has been one of the most intense wars between brands over one the CSD industry in the United States that was worth $74 Billion. This is one of the biggest industries because on average, an American in a year consumes CSD of 46 gallons. From mid-70s to mid-80s, annual growth of both the companies that is, Pepsi and Coke was around 10% while the consumption of CSD steadily increased. However, during the late 90s, new beverages became popular, while the CSD Consumption took a dive. These beverages posed a threat to modify the bottling, pricing and brand strategies. The case deliberatesover what needs to be done to ensure profitability and sustainable growth for the two brands.
Understanding of the Six Forces:
Understanding the Six Forces help to understand the rivalry and the competitive dynamics of Coke and Pepsi.
Threat of new Entrants and Entry Barriers:
For the beverage industry, entry barriers are relatively low. There are also new beverages that are being introduced in the market and price range does not vary much for Coke, or Pepsi. But there is decades and decades of customer and brand loyalty associated with Coke and Pepsi. There would also be a fear of retaliation by the duopoly if any new company were to enter the market. The cost associated with it too high. And also, there would be an extremely high competition in obtaining shelf space.
Threat of Substitutes:
Beverages have numerous substitutes in numerous categories. Milk, water, fruit juice, flavoured milk, sports drinks, etc. There is no cost associated with switching a brand,but whether a person chooses to drink a Coke or Pepsi,and or any of the substitutes mentioned above, it’s more of a lifestyle choice. It is also sometimes looked at as a status symbol in many countries. Many people are also addicted to caffeine, and their caffeine requirement is usually met by Coke or Pepsi.
The main ingredients for carbonated soft drinks include caffeine, phosphoric acid, carbonated water and sweetener. The suppliers of these products are not really differentiated or concentrated. The two top carbonated soft drinks producer are the largest customers of the suppliers of any of these products.
Retail outlets have varying degree of power, depending on many factors. Although products of Pepsi and Coke are such that they are available at every convenience store, every grocery store, and vending machine.
Bottlers, either for Pepsi or for coke have very little power, if any due to the extraordinary switching costs associated with the business, through exclusive franchise agreements, also because 35% of the Cost of Goods Sold of the concentrate is instituted to the bottler and also because of the fact that the bottling network as compared to the competition is not very large or concentrated. Coke and Pepsi, both, employ direct control over the bottling network because they have assimilated into bottling………..
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