Cola Wars continue. Coke &Pepsi in the Twenty-First Century. MM6016 Branding and Marketing Communication

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1 P r e s e n t

2 MM6016 Branding and Marketing Communication Cola Wars continue Haidir Afesina Wirania Swasty Chairunnisa Mirhelina F X Kresna Paska Aqsa Adhiperwira Fajar Liem Coke &Pepsi in the Twenty-First Century

3 throat share Pepsi would not exist without Coca Cola, Coca Cola would probably not be as important without Pepsi

4 concentrates Prepared & Presented by: Soft Drink Carbonated water Production & distribution: Concentrate Producers, flavored Soft Drink sweetened bottlers, retail channels, CP Produce concentrate from raw material Produce soft drinks Distribute soft drinks to retailers & end users Bottlers suppliers

5 Bottlers Business Process Purchased concentrate Added carbonated water and high fructose corn syrup Bottled or canned the CSD Delivered it to customer accounts Supplier Packaging $3.4 billion in cans $1.3 billion in plastic bottles $0.6 billion in glass Sweeteners $1.1 billion in sugar and high fructose corn syrup $1.0 billion in artificial Business Process Producer blended raw material ingredients Packaged it in plastic canisters Shipped it to the bottler Supplier Concentrate Producers Caramel coloring Phosphoric and / or citric acid Natural flavors and caffeine

6 Retail Channels Food stores (35%) Fountain outlets (23%) Vending Machines (14%) Convenience stores (9%) Other outlets (20%)

7 Cola Wars Highlights Prepared & Presented by: Coca-Cola invented Pepsi-Cola invented American s Preferred Taste No wonder Coke Refreshes Best 1950s 1960s Beat Coke Pepsi Generation 1970s Pepsi Challenge Kick Pepsi's can Diet Coke New Coke 1980 Foster entrepreneurial spirit of Pepsi s people 1990 Jettison slow-growing businesses Repair Coke and restore Stock price Diversify product line 2000 Diversify beyond soft-drinks

8 Issues Saturated market Healthy issues Huge potential market outside USA Highly competitive industry

9 Business Strategy Single product strategy flagship brand Diversified products acquisition Niche strategy targeted geographic area adult teen teen

10 Why is the soft drink industry so profitable? Consumption CSD consumption consistently grow 53 galons in 2000 (exhibit 1) Growth The growth because of downward-slopping (economical condition-changed in consumer lifestyle) Dominance the market share Exhibit Industry : average growth 3 % (exhibit 1) $60-billion industry in US Widely available and conveniently packaged. Became a part of their life style in US and worldwide huge potential market Highly competitive

11 Industry analysis Low switching costs. Huge number of suppliers. Maintaining the quality and flexibility of supply chain Supplier's power of bargaining: Threat of new entrants: Rivalry between firms: Large industry size Prepared & Presented by: High entry costs High risk for entrants due to diversified nature Government Policy regulations. Existing Loyal customer base. Acquisition of major bottling units by existing firms, increases the entry barriers. Customer's power of bargaining: Higher buying power Choice of customers is high PORTER S FIVE FORCES MODEL Threat of substitutes: Non-CSD drinks Threat of saturation of consumption in US market thereby leading to increase in the consumption of non-cola beverages.

12 Business Comparation Concentrate Business Little capital investment Short line of procurement & Distribution Strong position in determining the price of their product Bottling Business Large capital Investment Long line of Procurement & Distribution Less favorable position regarding for pricing on their product

13 Why is the profitability so different? Exhibit 5 Cost of sale is more in bottler the differences in added value between CPs and bottlers in a slowing market, the bottlers faced increasing price pressure while CPs could continue raising their prices. As the price of the concentrate rose, bottlers could not react in the same way and increase price of the final product as they were squeezed by other suppliers of different fruit drinks and other beverages. All of these factors contributed to lower returns in bottling business

14 How has the competition between Coke and Pepsi affected the industry s profits? the companies diversified to other packaged foods and drinks, aggressive entry of PepsiCo into the food business thus increasing their consumer base as well as the industry 's Innovation in new product category / product line extension Higher retail prices for alternative beverages meant that margins for the franchiser, bottler and distributor were consistently higher than on CSDs.

15 Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non carbonated drinks? Yes, by introduction of new brands and diversification Both companies predicted that future increases in market share would come from beverages other than CSDs advantage from the barriers to entry exist. a strong brand identification; huge investments in advertising, customer service and trademark itself stable consumption levels and profit sustainability in future Both companies predicted that future increases in market share would come from beverages other than CSDs To increase sales, they tried to make their products more affordable through measures such as refundable glass packaging (instead of plastic) and cheaper 6.5 ounce bottles The cola wars are going to be played now across a lot of different battlefields

16 Thanks!