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In the late 1800s, American pharmacists started mixing fruit syrups and carbonated soda water, causing a new kind of beverages known as soda drinks. The most famous brands that started in the business are Coca-Cola, Pepsi-Cola, and Dr. Pepper; but the big long-lasting rivalry is until today between Coca-Cola and Pepsi-Cola.
In 1886, a pharmacist named Dr. John Pemberton made the formula of Coca-Cola and the drink was sold in at the counter of Jacob’s Pharmacy as a refreshing drink. Pemberton was a part owner of the pharmacy after he left, eventually, Asa Candler became the sole owner and had the rights to the drink. Candler sold the Coca-Cola syrup to pharmacies and started a big advertising campaign which gave Candler a strong sales force. In 1899 Candler granted the first bottling franchise, which eventually grew rapidly. Ernest Woodruff bought Coca-Cola in 1919 for 25$ million, Woodruff and his son worked on making Coke a convenient product that’s available everywhere. Woodruff made a great decision at the time of the beginning of World War II; he stated that every man wearing a uniform should get a Coca-Cola bottle for only 5 cents whatever it costs. This decision made Coke have a strong market-share in Asian and European countries; in the late 1950’s, Coca-Cola advertised as “Americans Preferred Taste”. Woodruff was influential in Coke’s strategic decisions until 1982.
A pharmacist named Caleb Bradham invented the formula of Pepsi-Cola in 1893 in New Bern, South Carolina in 1893. Pepsi followed a similar path as Coke in the expansion, using franchisers to spread their beverage. The company faced bankruptcy many times due to the strong advantage that Coke had over Pepsi-Cola and the weak competition between the two companies at that time. In the period following WWII, Coke outsold Pepsi by a 10 to 1 ratio per unit; in that period many soft-drink producers started entering the market with a big variety of flavors other than cola flavor. Alfred Steele became Pepsi’s CEO in 1950, he believed that his company will take over Coke one day, Steele was a former Coca-Cola marketing executive, and he helped Pepsi a lot due to his wide knowledge about the rival which is Coca-Cola. In an effort to raise the company’s sales, Pepsi introduced new bottle sizes such as the 24-oz family bottle. 1955 Steele married an actress named Joan Crawford and started a big advertising campaign; Alfred Steel’s motto was “beat coke” which led to increasing Pepsi revenues to over 300% between years 1950 and 1959.
Through the years many soft drink companies joined the industry, but the difference is that these companies focused on tastes other than colas, such as 7UP which is a mix of citric flavors and soda, 7UP was first introduced in 1929; the introduction of 7UP led to an increase in the national market share.
Coca-Cola continued to expand in the 1960s making Coke available internationally and in the United States. Coca-Cola started diversifying when it bought Minute Maid Juice Company; Cola-Cola also produced new products such as Sprite. Coca-Cola offered its soft drinks either in cans or glass bottles in 1961. Throughout the years in the 1960s and 1970s, Coca-Cola introduced different new products such as Sprite, Tab, Mr.Pibb, Fresca, and Mellow Yellow. Coca-Cola concentrated on international markets to spread the drinks, this strategy of spreading Coca-Cola internationally had matured the company and made the brand image much stronger than Pepsi.
Donald Kendall, a former sales manager became Pepsi CEO in 1963, under Kendall Pepsi was renamed PepsiCo and started an unrelated diversification by opening restaurants such as Pizza Hut and producing snacks. Pepsi extended its line of products in 1964 by introducing Diet Pepsi and Mountain Dew; Mountain Dew has a similar taste to Sprite with was introduced by Coca-Cola. Pepsi tried to keep track with Coke in order to keep the competition even though Coca-Cola was more powerful than PepsiCo at that time. Pepsi became more aggressive and competition hungry in 1970 and 1971 when they employed experienced marketing executives. In the 1950s and 1960s the price of Pepsi was 20% less than the price of Coke, but still wasn’t able to reach Coke’s strength; with the strong advertising campaigns thanks to the experienced executives that Pepsi recruited, Pepsi was able to gain a stronger market-share for the first time in 1975.
In 1974, Pepsi was the third largest-selling soft drink after Coke and Dr. Pepper. Researchers from Pepsi have shown that in a blind test the majority of consumers preferred Pepsi over Coke. This successful experiment which was called “The Pepsi Challenge” increased Pepsi’s market share and made it the number-two brand. After the great success that this challenge brought to Pepsi, Victor Bonomo, president of Pepsi USA in 1974, decided that the Pepsi challenge should be deployed I all market where Pepsi is weak. The spread of the Pepsi challenge led to an increase in Pepsi sales by 20% in the biggest cities of America. Pepsi launched the Challenge all over the nation in 1977, and after 3 years Pepsi brand was widely recognized in the U.S. and gave Pepsi an additional 1.3% market share lead over the rival Coca-Cola.
Coca-Cola responded to the challenge by giving big discounts in certain markets where Coke has a competitive advantage over Pepsi and by stating that Coke’s bottlers are owned by Coca-Cola, but Pepsi bottlers are franchisees. Knowing that Coke and Pepsi is a standardized product, Coca-Cola used price as a market weapon to target Pepsi consumers. Coke tried to regain money lost that was a result of the huge discounts that the company kept on introducing, by selling franchisees the concentrate rather than the syrup they use in manufacturing the drinks. Roberto Goizueta became CEO of Coca-Cola in 1980, he introduced a 1200-word strategy statement, and the main aim of this statement is price discounting in order to regain Coke’s position in the market.
Coca-Cola began to influence the ownership and management of the of their franchised bottlers, despite being committed to independent bottlers, they replaced bottlers in key markets that were not deemed sufficiently aggressive in selling their product. The CEO of Coca-Cola USA stated that the company had some role to play in the reasons the buyers purchase the product by offering in several instances to increase the numbers of their investments with the potential buyers.
The “Coca-Cola Versus Pepsi-Cola” case study was written to give the maximum amount of information to business-oriented individuals, it gave so much information about two of the most competitive companies throughout history; the paper illustrated the history of the two main soft drink companies and also talked about other companies that entered the industry.
The irony is Pepsi and Coca-Cola were invented by pharmacists who are supposed to prescribe drugs to people and not give them beverages with high amounts of sugar and artificial tastes, the case explained how Pepsi and Coke changed people’s views of a beverage when the companies invented carbonated soda beverages. The paper explained in details the huge cola advertising war that started in the 1980s between the rival Coca-Cola and PepsiCo that caused a big revolution in the beverage industry and incentivized new companies to enter the industry and produce beverages with different flavors.
The case explained the positioning of the two companies and showed the difference in the brand value of the companies. The case was great also in giving the comparative analysis between the two companies, giving the different products other than the main product that was first manufactured by the companies. The case also showed us how the companies implemented different strategies to increase revenues and to increase market share and gain the most competitive advantage.
Pepsi vs. Coca-Cola SWOT analysis
*Pepsi: Very Innovative, the broad portfolio of products, more flexible franchise network, aggressive marketing strategy.
*Coca-Cola: One of the most valuable brands in the world, largest market share in the soft drink industry, and great customer loyalty
*Pepsi: Competition with Coke, higher prices than Coke, and lower net profit margin than Coca-Cola
*Coca-Cola: Competition with Pepsi, relies on soft drinks, and lacks diversification
*Pepsi: International expansion and growth in the bottled water industry
*Coca-Cola: Reduce costs and increased demand for bottled water
*Pepsi: Increased marketing campaigns by Coke and restrictions to sell in certain countries because Coke has control on them
*Coca-Cola: Strong local brands in some countries and negative publicity
Michael Porter’s 5 Forces on Pepsi and Coca-Cola
Knowing that Pepsi and Coca-Cola have standardized products, I won’t need to talk about every company alone.
The intensity of Rivalry between Competitors: Pepsi and Coke are historical competitors, in the 1980s; the rivalry between them was very ferocious, and the cola war occurred at that period of time to show which companies’ products taste better.
Bargaining Power of Suppliers: Suppliers have no power over Pepsi or Coca-Cola, it is very easy and cheap to buy all the ingredients to manufacture soft drinks, in fact, the competition between Pepsi and Coca-Cola’s suppliers is really strong because of the great and presence of all the material. In my opinion, Pepsi and Coca-Cola have power over their suppliers; this helps them in decreasing their costs a lot.
Bargaining Power of Buyers: The power of buyers in the case of Coca-Cola and Pepsi is high, because the switching cost is low or even the same depending on the geographical segment; both companies try their best to gain customer loyalty, but Coke does it better by playing on its customers’ emotions in its advertisements.
The threat of New Entrants: This force is low, the soft drink industry is very competitive if a possible new product enters the market, and it would be really expensive and hard to position in the very strong industry.
Threat of Substitutes: This force is high, especially because of health trends that hit the community from time to time, bottled water and juice companies are working hard in order to gain a competitive advantage over Pepsi and Coke by showing consumers the bad effects and obesity that this soda beverage can cause to our health, this is causing a change Pepsi and Coca-Cola’s strategies and making them introduce diet beverages as mentioned in the case, or even causing the Pepsi and Coca-Cola to buy big companies that produce healthy beverages; as an example, Pepsi bought Aquafina in order to have an advantage over the competitor.