Present MM6016 Branding and Marketing Communication Cola Wars continue 29111311 29111363 29111384 29111387 29111398 29111400 Haidir Afesina Wirania Swasty Chairunnisa Mirhelina F X Kresna Paska Aqsa Adhiperwira Fajar Liem Coke &Pepsi in the Twenty-First Century Prepared & Presented by: “throat share” Pepsi would not exist without Coca Cola, Coca Cola would probably not be as important without Pepsi Prepared & Presented by: Soft Drink Production & distribution: Concentrate Producers, Carbonated water flavored sweetened bottlers, Soft Drink CP concentrates Produce concentrate from raw material retail channels, Produce soft drinks Distribute soft drinks to retailers & end users suppliers Bottlers Prepared & Presented by: Concentrate Producers 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 Caramel coloring Phosphoric and / or citric acid Natural flavors and caffeine Prepared & Presented by: Retail Channels Food stores (35%) Fountain outlets (23%) Vending Machines (14%) Convenience stores (9%) Other outlets (20%) Cola Wars Highlights Coca-Cola invented Prepared & Presented by: 1886 1893 Pepsi-Cola invented “American’s Preferred Taste” 1950s “Beat Coke” “No wonder Coke Refreshes Best” 1960s “Pepsi Generation” 1970s “Pepsi Challenge” 1980 Foster entrepreneurial spirit of Pepsi’s people 1990 Jettison slow-growing businesses 2000 Diversify beyond soft-drinks “Kick Pepsi's can” Diet Coke New Coke Repair Coke and restore Stock price Diversify product line Prepared & Presented by: Issues Saturated Healthy Huge market issues potential market outside USA Highly competitive industry Prepared & Presented by: Business Strategy Single product strategy flagship brand Diversified products acquisition Niche strategy targeted geographic area adult teen teen http://www.economywatch.com/in-the-news/infographic-the-cola-wars.17-11.html Prepared & Presented by: 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 3 44.1 31.4 14.7 Industry • 1970-2000: 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 Prepared & Presented by: Industry analysis Threat of new entrants: 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. Low switching costs. Huge number of suppliers. Maintaining the quality and flexibility of supply chain Supplier's power of bargaining: Rivalry between firms: Customer's power of bargaining: Higher buying power – Choice of customers is high Large industry size Threat of substitutes: PORTER’S FIVE FORCES MODEL Non-CSD drinks Threat of saturation of consumption in US market thereby leading to increase in the consumption of non-Cola beverages. Prepared & Presented by: Business Comparation Concentrate Business Bottling Business Little capital investment Large capital Investment Short line of procurement & Distribution Long line of Procurement & Distribution Strong position in determining the price of their product Less favorable position regarding for pricing on their product Prepared & Presented by: 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 Prepared & Presented by: 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. Prepared & Presented by: 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 Prepared & Presented by: Thanks !