ASSIGNMENT - 1

Coke & Pepsi Learn to compete in India

Case Summary
Coke and Pepsi had a tough time getting into the beverage market in India. However,
the venture seemed to be well worth it, since in 1993 about 45 percent of the soft
drinks industry consisted of small manufacturers and the business was worth 3.2
million dollars. Coke had previously been in India, but in 1977, it was forced to leave
because of a dispute with the Indian government.
PepsiCo entered India in 1986 as “Pepsi Foods Ltd.” in a joint venture with local
partners. In order to be able to sell their products, they had to follow many new rules,
including changing the name of the Pepsi cola because it is a foreign product. But
PepsiCo was willing to appease the government to stay in the market. Pepsi was
forced only to compete with local brands until Coca Cola re-entered the market in
1990. It joined with Godrej, an Indian company, and was turned down, so Coke joined
forces with snack food company Britannia Industries India, Ltd. and the two became
“Britco Foods.” In July 1993, Parle, the leading soft drink manufacturer decided to sell
its leading brands (Coke and Pepsi’s major competitors) and its main bottling plants in
four key cities to Coke.
Both Coke and Pepsi chose to advertise and run promotions during important events
and times in India. For instance, they both advertise heavily in summer, when the most
soft drinks are consumed, and they also advertise heavily during the Indian festival of
Navratri. They both also run big television campaigns during cricket and football
games, and they also employ big Bollywood celebrities to endorse their products.
Pepsi does especially well by sponsoring the cricket, and Coke does well marketing a
lifestyle towards India’s youth.
Both companies were accused by an environmental organization of having pesticide
residue in their products. The companies ran tests that proved their products were
safe but it was too late; people were banning and protesting their products. Because
neither company came forward to reassure the people, their silence was interpreted
by customers as guilt. This hurt their image even more, including in the U.S. The
contaminated groundwater incident only expanded further for Coke, and people began
accusing the company of using sparse groundwater in its products and taking the
water supplies away from the locals and from farming uses. Coke decided to stay in

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an attempt to help find a solution to the increasing problem of groundwater quantity
and quality.
Questions
Q1. The political environment in India has proven to be critical to company
performance for both PepsiCo and Coca-Cola India. What specific aspects of the
political environment have played key roles? Could these effects have been
anticipated prior to market entry? If not, could developments in the political arena have
been handled better by each company?

Q2. Timing of entry into the Indian market brought different results for PepsiCo and
Coca-Cola India. What benefits or disadvantages accrued as a result of earlier or later
market entry?

Q3. The Indian market is enormous in terms of population and geography. How have
the two companies responded to the sheer scale of operations in India in terms of
product policies, promotional activities, pricing policies, and distribution
arrangements?

Q4. “Global localization” (glocalization) is a policy that both companies have

implemented successfully. Give examples for each company from the case.

Q5. How can Pepsi and Coke confront the issues of water use in the manufacture of
their products? How can they defuse further boycotts or demonstrations against their
products? How effective are activist groups like the one that launched the campaign
in California? Should Coke address the group directly or just let the furor subside?

Q6. Which of the two companies do you think has better long-term prospects for
success in India?

Q7. What lessons can each company draw from its Indian experience as it
contemplates entry into other Big Emerging Markets?

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Q8. Comment on the decision of both Pepsi and Coke to enter the bottled water market
instead of continuing to focus on their core products—carbonated beverages and cola-
based drinks in particular.

Q9. Most recently Coca-Cola has decided to enter the growing Indian market for
energy drinks, forecasted to grow to $370 billion in 2013 from less than half that in
2003. The competition in this market is fierce with established firms including Red Bull
and Sobe. With its new brand Burn, Coke initially targeted alternative distribution
channels such as pubs, bars, and gyms rather than large retail outlets such as
supermarkets. Comment on this strategy.

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References - 1
Coke and Pepsi, two of the largest carbonated soft drink companies in the world,
continue to battle within their $75 billion industry. Although this has been a rivalry since
day one, much of their success can be attributed to their counterpart. Without Coke,
Pepsi wouldn’t be the company it is today and without Pepsi, Coke wouldn’t be a
dominating force within the CSD industry. The competition they have between one
another allows for new ideas and innovations to become implemented on a regular
basis. Each company plays off the others successes and refrains from their failures.
Like the Tom & Jerry of the CSD industry, Coke and Pepsi wouldn’t be the profitable
companies they are today without each other.
Carbonated Soft Drink Industry Analysis:
1. [Threats of Substitutes] – The threat of substitutes for this industry is very
high. Consumers have an abundance of choices when it comes to beverages. Every
day they choose between beer, milk, coffee, bottled water, juices, tea, energy drinks,
wine, sports drinks, distilled spirits and tap water. It also costs very little to switch
between products. Customers only incur switching costs, in most cases, that are the
difference of cents. Brand loyalty is, however, a very strong competitive pressure
within the industry. Customers are likely to claim allegiance and unlikely to switch
between opposing companies.
2. [Threats of New Entrants] – The threat of new entrants is low within the CSD
industry. Start-up costs to build a concentrate manufacturing plant and bottling process
is extremely high. Concentrate plants are usually between $50 to $100 million while a
fully functioning bottling service could reach hundreds of millions of dollars. New
comers to the industry would encounter a great deal of difficulty setting up proper
distribution channels. Because the CSD industry has extreme competition for shelf
space, the top brands hold contracts with the main supermarkets, gas stations and
restaurants. Other costs are encountered when obtaining FDA and international
production licenses. Similar to IKEA’s beginning struggles, the CSD industry is an
oligopoly and bigger companies have the power and tools to block or force out new
entrants.
3. [Bargaining Power of Suppliers] – Suppliers hold low bargaining power
because firms can switch between suppliers very easily, and for little to no cost.
Becoming a supplier is also fairly easy within the CSD industry which means there is

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more competition between suppliers to lower costs. Suppliers of the industry include
bottling equipment manufacturers, secondary packaging and raw material suppliers.
4. [Bargaining Power of Buyers] – Buyers also have low bargaining power.
Coke and Pepsi controlled 72% of the U.S. soft drink sales in 2009. During the same
time, the average American was consuming about 46 gallons of soda per year.
However, with the average soft drink costing under $2, individual purchases are
relatively insignificant. The major buyers in the CSD industry are bottlers and fast-food
restaurants who buy the concentrate straight from the manufacturers. This is where
Coke and Pepsi make the majority of their revenue. Each company has a Master
Bottler Contract. These bottlers entered into franchising agreements which allowed
concentrate producers the rights to determine concentrate price. They also had no
legal obligation to assist bottlers with advertising or marketing. This considerably
weakening bargaining power, and over the past two decades concentrate producers
have regularly raised prices by more than the increase in inflation. In addition,
concentrate producers granted exclusive territories to their bottlers, causing them to
have no alternative suppliers. Fast-food restaurants, on the other hand, lost bargaining
power due to acquisitions. Pepsi acquired Pizza Hut, Taco Bell and KFC while Coke
retained exclusive pouring rights with Burger King and McDonalds.
5. [Intensity of Rivalry] – The intensity of rivalry is made up of two main players,
Coke and Pepsi control 72% of the market. The few other smaller competitors consist
of Dr. Pepper, Snapple Group and Cott Corporation. Growth rate of the CSD industry
is not rapid making it difficult for smaller competitors to thrive. Brand loyalty and
recognition is everything, and these companies have huge advertising budgets. Coke
made enormous investments even to support its bottling network, contributing $540
million in marketing support payments to its top bottler. Each company spends a large
portion of their time on analyzing and tracking consumption habits, market trends and
consumer purchasing patterns. For concentrate producers, exit barriers are relatively
low, however, advertisements and contractual agreements with bottling companies
make it more difficult to escape the industry. For bottlers, exit barriers are high due to
the cost of machines.
The CSD Industry has historically been so profitable because threat of new entrants
is low. Start-up costs are hundreds of millions of dollars. Federal regulations and
licensing restrict new players, and distribution channels are difficult to establish.

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Bargaining power of suppliers are low because there are plenty of them making
switching between them easy and cheap. Bargaining power of buyers is also low due
to franchising agreements, territory barriers and pouring rights. Intensity of rivalry is
also low even though it’s very competitive between the top players. The only downfall
to this industry is the threat of substitutes which has illuminated the importance of
health and fitness. The growth of this industry has been stagnant because of these
new trends. However, advertising campaigns and brand loyalty have caused the main
players to thrive.
CDS Business vs. Bottling Business:
Concentrate manufacturers blend raw ingredients, package the mixture in plastic
wrapping, and ship the concentrate to the bottler and fast-food chains. This production
process involves relatively little capital investment in machinery, overhead and labor.
A manufacturing plant capable of supplying the U.S could cost anywhere between $50
million to $100 million to build. A concentrate producer’s most significant costs are
advertising, promotion, market research and bottler support. Concentrate producers
also set the price of their concentrate, often raising prices by more than the increase
in inflation. They also set geographical territories for their bottlers causing the bottler
to only have access to one supplier of concentrate. By negotiating directly with their
suppliers, concentrate producers have been able to achieve a reliable supply, fast
delivery, and low prices. If a problem should arise with their current suppliers,
concentrate producers can switch quickly, easily and cheaply. Once a business that
featured hundreds of local manufactures has boiled down to only a few top and
profitable players.

References - 2
This Market Model Coke vs Pepsi case study solution follows the more than 100-year
“Cola War” between Coke and Pepsi.
When first starting to use the Market Model for market simulation, it is easier to think
about this famous competitive battle when there were only two competitive products
(the 6.5 oz Coke in their famous bottle, versus Pepsi’s product).
When Coke and Pepsi first started competition head-to-head, Coke had about an
80% market share, and Pepsi had a 20% market share – we can ignore the other
competition which has since evaporated.

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The Market Map at the beginning of the Cola Wars looked like this:

The Market Map at the beginning of the Cola Wars looked like this:

Market Maps can start out to be very simple. In this case, both products share the
same category defining benefit – they are both “Cola Drinks”. If consumers cannot tell

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the difference in taste between the two in a blind taste test, then the only differentiating
qualities are the product brands.
Data from the market already gives us a lot of information that we can use to tune the
Market Model. We know the Price for Coke and Pepsi, we know their Market Share,
and we have a pretty good idea of the Profit Margin (or Marginal Cost) of both from
their public financial reports. With these 6 data points we can start to tune our model.
If we also have data for another point, say at a time that Pepsi was offering a
substantial discount on their product or from another geography, then we would have
more than enough data to completely tune a model as simple as the one we are
starting with.
Because the Market Model uses a proprietary statistical algorithm to impute customer
distribution data, the data collection problem becomes much easier and cost effective.
Unlike with other statistical techniques, the user does not have to commission an
expensive market research report just to tell them what they already know about the
existing market. The Market Model allows the user to integrate their own knowledge,
and then focus on understanding just those new changes relative to the existing state
of the market. For example, after setting up an initial Market Model, the user can run
very targeted Conjoint Analysis study to better inform them about what is new to the
market (like a new feature). The new data can then be integrated into the Market Map.
Once the base model has been constructed and tuned the user can think about how
they might change the conditions in the market. Here are some strategic ideas
for Pepsi:
• They might try and add an additional feature, such as a different sized bottle
• They might try to improve the Pepsi brand
• They might target a different geography
• They may try and improve the taste of the cola
• They might add a product line extension
This is how Pepsi would use the Market Model to simulate the market outcome from
each of these possible strategies.
Adding an Additional Benefit
To test whether adding the additional benefit of a larger bottle would be a successful
strategy, Pepsi could make this adjustment to the Market Map:

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In fact, Pepsi did introduce a large 12 oz bottle early on in the Cola Wars to compete
with Coke’s 6.5 oz bottle. They accompanied the new product feature with the
advertising jingle “Pepsi-Cola hits the spot / Twelve full ounces, that’s a lot / Twice as
much for a nickel, too / Pepsi-Cola is the drink for you”. The campaign was a huge
success at the time and allowed Pepsi to double their profits.
Coke, which also sold for a nickel (5 cents), had difficulty matching Pepsi’s new
product. Not only would it require changing the size of the Coke bottle, but it would
also require changing the size of all of the Coke refrigerators which were built to only
accommodate the smaller 6.5 oz bottle.
Target Marketing
To test whether targeting a particular market demographic would be a successful
strategy, Pepsi could make this adjustment to the Market Map:

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In fact, Pepsi were pioneers for niche and segmented marketing. In the 1940’s they
targeted their marketing directly towards African Americans. Later they defined the
“Pepsi Generation” and took a stand with the young side of the 1960’s generation gap.
They described Pepsi drinkers as people who saw the “young view of things”. The
“Pepsi Generation” was one of the first and best known instances of what came to be
known as “lifestyle marketing”.
Geographic Distribution
To test whether adjusting their product distribution strategy would be
successful, Pepsi could make this adjustment to the Market Map:

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In fact Pepsi, which had traditionally been sold through drug stores, was the first to
start branching out to alternative distribution channels. They were also the first to start
marketing outside of the United States.
Improved Taste
To test whether improving the perceived taste of Pepsi would be
successful, Pepsi could make this adjustment to the Market Map:

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In fact the “Pepsi Challenge”, which was a market strategy centered on improving the
customer’s perception of the taste of Pepsi, was another enormously successful
strategy. In these televised blind-taste challenges, a Coke drinker was asked to
determine whether they actually preferred the taste of Pepsi. It turns out that a
statistically significant majority of Coke drinkers did, in fact, prefer the taste of Pepsi.
This genuine finding, in part, led Coke to launch its unsuccessful “New Coke” strategy.
Product Line Extension
To test whether making a product line extension to the Pepsi product would be a
successful strategy, Pepsi could make this adjustment to the Market Map:

Note that the Diet Pepsi product that was added to the Market Map is just like Pepsi (it
is also a Cola Drink with the Pepsi Brand) but it has the additional benefit of being low
in calories.
In fact, Pepsi did launch Diet Pepsi. And today Diet Pepsi is considered to be Pepsi’s
flagship product, with regular Pepsi being considered to be the product line extension.
Increasingly Complex Environment
Market Models can evolve to be increasingly complex. And they can be used to
simulate very specific market phenomenon. For Pepsi, the Market Model could evolve
to look something like this:

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Pepsi could then evaluate whether creating a very broad product portfolio, and
launching each of these products into the market over time, would be a successful
strategy. A dynamic timeline might look something like this:

Coke vs Pepsi Case Study Solution – Recommendation

“According to the case study of coke and pepsi both of the companies have great
brand in market but this survey tells us that pepsi has a great market demand and
high market shares because of its taste and market developing plans but if they follow
these steps they can become more effective in markets “.

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• 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 .
• According to me more important in every market, include color, product
attractiveness visibility, and display quality. In addition, availability (meeting local
demand by increasing production locally), acceptability (building brand equity), and
affordability(pricing higher than local brands, but adapting to local conditions) are the
key factors for both the companies.

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