Allen Rajesh Sanders (DM15206)

Coca-Cola Versus Pepsi cola

1. Why was it that concentrate producers have been so profitable?
The main role of a concentrate producer was to blend the raw materials i.e. ingredients together,
package it in a plastic container and then send it to the bottler. They added artificial sweeter in the case
of Diet Coke. The entire process required minimal investment in terms of infrastructure but the profits
were much larger in comparison.
2. Evaluate the Philip Morris acquisition of seven-up.
In 1978 Phil Morris acquired Seven-up due to its high brand rating and strong distribution network but
this decision backfired and resulted in heavy losses which eventually lead to them quiting the brand in
1985. At the time of purchase there was wide spread consumption and similarly there was wide
availability, this resulted in extremely high competition. There was also the risk of market saturation at
the time. This was a risk the company was willing to take. But from managements point of view it was a
well calculated and thought out decision.
3. What is happening in the soft drink industry? How do the major developments affect smaller
competitors?
In 1980 Coca-cola began buying up smaller bottling plants. It was shortly after this that Coca-cola
enterprise was established with the aim of putting together as many bottling plants as possible. This was
shortly followed by the Pepsi group with the formation of Pepsi bottling group (PBG). The bottle
consolidation that happened soon after caused the smaller bottling companies to eventually sell out to
the bigger ones. As a result smaller concentrate producers had difficulty in tying up deals with bottling
plants and in a sense it was a dead end for them.
4. Why was coke able to dominate the world soft drink industry by 1950? Why was coke so
extraordinarily profitable? How was Pepsi able to gain share in the 1950s? In the 1960s and
early 1970s? After the Pepsi challenge? Consider each period separately, and be specific.
Coca-cola in the early days followed the franchise bottler system. The aim was to have a bottle
available at arms reach for the customer. Several innovations like open-top coolers, fountains
etc helped Coca-cola dominate the softdrink industry by the 1950s
1950: The introduction of the 26 ounce bottle and expansion of their presence in supermarkets
from 10,000 in 1945 to 32,000 in 1962.
1963: Targeted the youth & young at heart including similarly themed advertising. This helped
reduce the ratio to 2: 1.
1970: Improvements made with the bottlers over a period of time eventually made them bigger
than Coca-colas bottlers. Cost of the concentrate was 20% lesser than Coke. Pepsi also
introduces variation like Mountain dew, Diet Pepsi etc.

Pepsi challenge: The various marketing exercises conducted by Pepsi helped them pass Coke by
1.4% in food stores market share for the first time.

5. What should Pepsi do next?

In terms of throat capacity both Pepsi and Coca Cola have taken major strides in the right
direction over the years by their various acquisitions. E.g. In 2000 Coke had over 200 different
brands in Japan alone.
So the next stage of this battle will be fought on the optimization front. Pepsi as a brand would
have to improve its entire operational strategy. Right from the sourcing of raw ingredients to
the eventual rollout including the bottlers licensing agreements.
6. Was the Pepsi Challenge a good idea?
Yes it was. The main aim of the Pepsi challenge was not only to prove Pepsi was superior to coke in
terms of taste but also to draw consumers away from local brands who were otherwise reluctant. The
blind tests in most cases resulted in positive outcomes which eventually lead to Pepsi passing Coke in by
1.4% market share in food store sales. Due to the success there was a repeat of the Pepsi challenge
down the line.