Cola Wars Continue - Grade: A PDF

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Professor Hayes 24 March 2021 Coca Cola Wars 1. Why, historically, has the soft drink industry been so profitable? a. Soft drinks are a part of daily lives and have shown through history for a few reasons. The first reason is it takes very little money to produce soft drinks. “The concentrate manufacturing process involved relatively little capital investment in machinery, overhead, or labor.

A typical

concentrate manufacturing plant, which could cover a geographic area as large as the United States, costs between $50 million to $100 million to build” (2). Convenience plays a huge factor in sales as well. “During the 1920s and 1930s, Coke pioneered open-top coolers for use in grocery stores and other channels, developed automatic fountain dispensers, and introduced vending machines. Woodruff also initiated “lifestyle” advertising for coca-cola, emphasizing the role that coke played in a consumer’s life” (5-6). You cannot enter most public buildings without seeing a vending machine service pepsi/coke products. With the convenience of soft drinks and how well known and trusted the products are means more benefits are seen from marketing spending 2. Compare the economics of the concentrate business to that of the bottling business? Why is the profitability so different? a. Concentrate producers depend on the bottling network to distribute products. There is little overhead costs for machinery and labor, significant

costs

are

put

towards

advertising

and

promotion.

Concentrate producers have supplying power and can decide the price of ingredients. This being said, they still need to keep prices to where bottle

manufacturers

will

buy

the

product.

Bottlers

purchase

concentrate, add the ingredients, bottle, and deliver the product to customers 3. How has the competition between Coke and Pepsi affected the industry’s profits? a. Coke and Pepsi are huge juggernauts in the soft drink industry. When

starting out, advertising was initially allocated for sales, but once the competition between the two heated up, advertising allocations went towards differentiating one brand from another and eventually influencing customers to buy their product. b. Because of the decline in the demand for soft drinks over the years, it is allowed for buyers to gain power in the industry and given large retailers negotiating power as well c. Alternative beverages like Gatorade and tea also provided the company with less sugary, “healthier” beverages to appeal to the more “health conscious consumer: 4. How can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs? a. There’s no question that Coke and Pepsi can sustain their profits regardless of the popularity of CSDs.

By improving awareness and

positioning in the domestic market, then expanding internationally, the companies can individually influence consumers that CSDs are trendy again. Investing the right amount of money into advertising will show a great return on sales

Competitor Response Profile: The customer remains satisfied with either Coke or Pepsi because of how generational the brand is- you’re either a Pepsi family or a coke family and it’s rare to dip into both company lines. Both Pepsi and Coke are so close in the market that they are constantly “battling” neck-and-neck for the top spot in the industry. ● Future Goals ○ “Declining CSD sales, declining cola sales, and the rapid emergence of non-carbonated drinks appeared to be changing the game in the cola wars”. ○ Having to fight against the decline in sales is going to be tricky for Cola, but with their profit and the status of being such a household name, Cola should have no problem maintaining revenue and bouncing back from this decline ● Assumptions ○ Assumptions about industry ■ “In the 1960s, Coke focused primarily on overseas markets, apparently basing its strategy on the assumption that domestic CSD consumption was approaching a saturation point” (5). ■ By adjusting the marketing and advertising budgets to overseas sales to make up for domestic decline, the companies used their knowledge on trends within the industry to do what is best for them. ● Current Strategy ○ Cost leadership ■ As previously stated, overhead costs for soft drink companies are a lot less than the revenue earned from sales. This keeps the soft drink industry in business, even when sales decline ○ Differentiation ■ Unique bottling, custom flavors, non-carbonated drinks (i.e. gatorade), and unique advertising are what separates Cola from its competitors ○ Portfolio approach ■ “Pepsi developed a portfolio of non-CSD products that outsold Coke’s rival product in several ket categories… Coke also

entered

the

business

of

supplying

fountain/foodservice customers” (10).

coffee

and

tea

to

As Pepsi stepped its

game up, Coke needed to follow up with a new product that has not been monopolized by the Pepsi company ● Capabilities ○ In order to encourage sales for the company as opposed to the competitor, Coke continues to keep prices low but value high ○ Improving quality, product line, and consumer quality, Coke keeps itself on top...