Coke and Pepsi Learn to Compete in India - Case Study Example

Running Head: Coke and Pepsi Coke and Pepsi Learn to Compete in India: A Case Study Introduction Leadership values and practices of many organizations reflect the culture of the society in which these organizations exist. In fact, values and practices often derive much from the cultures of the society from which it evolved. Identifiable cultural differences may make it inappropriate to take management and leadership theories and practices from the culture in which they were developed and apply them to another culture. This is exemplified with the concepts of global marketing emphasizing on marketing strategies and leadership in Coca Cola Corporation and Pepsi Company (PepsiCo) in India. Political Environment The environment of an organization in business like that of any other organic entity is the pattern of all the external conditions and influences that affect its life and development. According to Christensen, Andrews & Bower (2008, 247), “the environmental influences relevant to strategic decision operate in a company’s industry, the total business community, its city, its country and the world. They are technological, economic, social, and political in kind.” In the case of Coke and Pepsi, entry into the Indian market was influenced by all the abovementioned environmental factors, particularly the political environment. The political forces important to both Pepsi and Coke are similarly extensive and complex. In this regard, there are several aspects of India’s political environment that played key roles in both organizations’ performance. These aspects are described below: First and foremost, the government imposed entry regulations to foreign investors, In the case of Coke, it initially operated in India since 1958 but decided to leave due to government’s requirement to divulge its trade secret, particularly Coke’s secret formula for the syrup. (Doole & Lowe, 2008, 538) In its re-entry in 1993, Coke was allowed to operate with the condition that 49% of its equity would be divested to local Indian corporations within five years. Secondly, the government monitors the ingredients and components used in the manufacture of consumer products. A situation occurred in 1988 when the government issued a warning that BVO, an ingredient in locally produced soft drinks causes cancer. (Doole & Lowe, 2008, 538) In addition, the Indian government was perceived by foreign investors as unfriendly where outside investors were allowed only in high-tech sectors and entry was entire prohibited in the consumer goods sector (Doole & Lowe, 2008, 537). Further, the government’s enforcement of the ‘principle of indigenous availability’ precluded an open door policy for foreign investments. As noted, “if an item could be obtained anywhere else within the country, imports of similar items were forbidden.” (Doole & Lowe, 2008, 539) Finally, since the government liberalized its economic policies encouraging the increase in foreign investments in 1991, the implementation of government rules were basically inconsistent specifically in terms of entry regulations. These effects could not have been anticipated prior to market entry since the change in governmental policies and regulations were new and unique to each country. In so doing, developments in the political arena could have been handled better by each company (Coke and Pepsi) by making cautious decisions and seeking professional advice from local government officers and local business entrepreneurs. In the case of Coke, the company should have complied outrightly with all the entry regulations imposed instead of opting to waive some or seek extension in implementation. These moves complicated their business relationship with the government which demanded that the original terms and conditions be strictly enforced, specifically in the area of divestment in equity to local business organizations. Timing of Entry PepsiCo’s entry into the Indian market was even earlier than the New Industrial Policy which encouraged the increase in foreign investments. In this regard, it was accorded the benefit of availing the potentials and opportunities of a developing market. Even if the government issued very stringent entry regulations, PepsiCo. was willing to take the risk as the first foreign investor to capture the beverage market. In this regard, Pepsi was given a head-start in gaining a portion of the local market share for soft drinks. On the other hand, an early entry exposed Pepsi to greater environmental risks resulting from an initiation to the new business environment. In this regard, although they took a proactive stance in market entry, eventually, the company required to adopt a reactive stance in response to competitors’ counter strategies to regain their respective market shares. For Coke which opted for a late entry (actually a re-entry), the company experienced the following advantages: Coke was given the prerogative to apply a reactive strategy on Pepsi’s move and that of the local competitors. In so doing, it was able to avail of the opportunity to purchase Parle, the local market leader in soft drinks in India. However, due to its late entry, it experienced more restrictions in terms of entry regulations three years after the government liberalized its economy. Further, more innovative and diverse strategies are required to be designed to increase its market share given that Pepsi was able to capture a substantial percentage of the beverage industry. Marketing Strategies The attractive opportunities in India have led Pepsi and Coke to expand their operations. According to McCarthy (2005, 188), for companies opting to capture international markets, “the marketing concept is less well understood in some foreign markets, and consequently, there are great opportunities for those who know how to work with it and want to apply it abroad.” In Pepsi’s case, the following strategies were applied in response to the scale of operations in India: In terms of product policies, Pepsi launched new brands in response to competitors’ products. They introduced Pepsi Blue, Slice, Teem and Aquafina, among others. Pepsi’s promotional policies included a host of promotional activities implemented to increase their market share. The company went into sponsorships of games (cricket and football) and the Garba competitions. Pepsi ventured into giving freebies such as one kilo of rice for every refill of one case of Pepsi 300 ml.; free Kitkat for every 1.5 liter bottle and a pack of Polos for 500 ml bottle. It also went into national TV advertising campaign, specifically for 7Up, among its other products. The company utilized Bollywood celebrities to endorse their products in media advertising coverage. Finally, Pepsi responded to Coke’s affordability plank by reducing the prices of Pepsi products to match the reductions. In Coke’s case, the company employed the following strategies: to increase consumption of Coke products, the company introduced a new sized product, the Mini. It also introduced Kinley in response to the bottled water category. Coke employed the strategy of ‘building a connect using the relevant local idioms’ which sought to develop brand preference using campaign slogans such as “‘thanda matlab Coca-Cola’ (or ‘cool means Coca-Cola’ in Hindi). (Doole & Lowe, 2008, 541). In addition, it also gave freebies such as “as the “buy one – get one free” scheme and lucky draws where one can win a free trip to Goa.’” (Doole & Lowe, 2008, 540). The company also utilized Bollywood celebrities to endorse their products in all their media advertising campaigns. The affordability plank implemented by Coke reduced the prices of its products to make them more affordable and to encourage competition. Accordingly, the price reduction together with other relevant campaigns was announced by means of television ad campaign featuring famous celebrities. Global Localization Pepsi and Coke’s strategies to apply global localization approach included using local celebrities to endorse and promote their products in majority of their advertising campaigns. The examples are: celebrity actors, Amitabh Bachchan and Govinda, who are famous male stars of the Indian movie industry, had endorsed Mirinda Lemon; Sachin Tendulkar and Amitabh Bachchan who are famous icons as a cricket player and a movie star, respectively; PepsiCo’s line-up of other cricket celebrities includes Saurav Ganguly, Rahul Dravid, Harbhajan Singh, Zaheer Khan, V.V.S. Laxman and Ajit Agarkar; and football heroes such as Baichung Bhutia in their celebrity and music related advertising communications; among others. Pepsi also participated in national activities such as the cultural festival of Navrartri to promote their products. On the other hand, Coke was explicit in emphasizing the ‘think local – act local’ strategy in their business plan. It utilized local idioms in campaign slogans as mentioned previously. Like Pepsi, Coke participated in the Navrartri festival and “involved the masses in Gujarat with “Thums Up Toofani Ramjhat”: with 20 000 free passes issued, one per Thums Up bottle and other on cite retail activities. The company promoted ‘Bombay Dreams,’ featured A.R. Rahman, who is a famous music director and ‘Chennai Dreams’ which featured Vijay, a youth icon who is famous as an actor in the regional movies of south India. The official website of Coca Cola indicated in its Heritage Timeline that “Coca-Cola is committed to local markets, paying attention to what people from different cultures and backgrounds like to drink, and where and how they want to drink it. With its bottling partners, the Company reaches out to the local communities it serves, believing that Coca-Cola exists to benefit and refresh everyone it touches.” (Coca-Cola Now, 2009, par. 2) In this regard, through partnership with global organizations carrying the Coca Cola brand, the company was successful in applying management’s policies through infusion of relevant cultural perspectives in the local markets where they operate. In most of Coca Cola’s marketing strategies, management has acknowledged that Coca Cola is being consumed by generations belonging to the pop culture. Coca Cola became a way of life: drinking it comes naturally when people from all walks of life get together and have lunch or dinner or even ordinary snacks. Re-entry of Coke Although some analysts consider that Coke-India made mistakes in planning and managing its return, I do not share their convictions. Case facts revealed that as early as 1990, even before the government opened its doors to foreign investments, Coke already tried to re-enter the Indian market but was denied. The factor that gave some difficulties for Coke was its strained relationship with the Indian government when it decided to leave in 1977 for refusal to divulge trade secrets. Coke could have made some resolutions or business arrangements with the Indian government in exchange for their waiver to divulge their trade secret. The company could have offered to provide social benefits to local communities in terms of scholarships and programs forging alliances with local firms. The 19 years that Coke spent in the Indian market should have given them enough head start and leeway to familiarize the company with the local culture, demand for consumer products, beliefs and traditions, and governmental regulations. Failure to make the necessary alliances cautioned the Indian government in according renewed business concessions with Coke and therefore, strained their re-entry into the market. Conclusion Education paves the way for creating an environment for performance. Leadership deals with the application of appropriate marketing, planning, and managing strategies especially in global markets. When an organization equips itself with learning the necessary facets in foreign markets’ environment, the institution where it operates becomes transformed. By learning, competence is improved. Leading organizations lead by example and the values they hold are exemplified in their strategies and actions. This is how others ultimately learn. Pepsi and Coke are known to be leaders in the beverage market globally. Coca Cola is the world’s top brand of soft drinks manufactured by Coca Cola Company. Pepsi Cola, on the other hand, is the world’s second largest manufacturer of soft drinks. Their experiences in India proffered critical lessons in global marketing. Strategic planning involves blending the four parts of marketing mix according to the environment with which an organization operates. There is no one perfect formula for success. Organizational performance is influenced and affected by the culture in which organizations and worker operates. Culture influences organizational philosophy and practice mainly through marketing strategies and environmental scanning. The idea that global strategies work though people, however tautological, is vital for leaders in a culture that differs from their own. Culture affects people – their needs, wants, aspirations, all of which the organization must tap. References Christensen, C.R., Andrews, K.R. & Bower, J.L. (2008). Business Policy: Text and Cases. Richard D. Irwin, Inc. Homewood, Illinois. Coca Cola Company. (2009). Coca-Cola History. Retrieved 10 Jan. 2010. < http://heritage.coca-cola.com/> Doole, I. & Lowe, R. (2008). International Marketing Strategy: Analysis Development and Implementation. Cengage Learning Emea. McCarthy, E. J. (2005). Basic Marketing: A Managerial Approach. Richard D. Irwin, Inc. Read More