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 noncarbonated 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