The Comparison between Coca-Cola and Pepsi Strategies - Essay Example

The products sold by these two companies are categorized as necessities since they are both food products. The demand for soft drinks is elastic which means that if the price of the product rises its demand will go down. The best strategy these two companies should implement if the customers lose 30% of their income is to lower the price of their products to attract more sales from customers that are looking to save money. Both these companies should use aggressive marketing strategies under such an economic outlook to drive sales of their products.

A potential threat to both these companies during a recession is the entrance of a new player with a cheaper product of the same quality. This threat is minimal since companies for decades have tried to outperform the sales figures of Pepsi and Coca Cola and they have failed miserably. Coca-Cola generated $35.11 billion in revenues in 2010 (The Coca-Cola Company, 2010).  A factor that is keeping these two companies at the top of the food chain is brand value and goodwill. Coca-Cola is the market leader in the soft drink industry and Pepsi is the second largest player and has many lucrative contracts with fast food restaurants that carry its brand in its menu offering. To maintain its market share the best strategy for both these companies is to lower prices. Both companies are going to have to accept a lower gross profit to maintain their customer retention rates high. Items such as food, medicine, and shelter are necessities that cannot be eliminated from a customer’s budget even if their income goes down. Luxury items such as 20” rims, Seiko watches, and jewelry are the types of products whose demand drastically goes down when the population has a lower overall income.

Both Pepsi and Coca-Cola could offset the effect of lower sales without the need of lowering prices too much through acquisitions. For instance, Coca-Cola could purchase all the equity of a company that manufactures generic sodas. They subsequently aggressively market the brand to increase its sales due to its marketing expertise and monetary resources for such a campaign. The Coca-Cola brand will not be hurt by the generic division because both brands will be marketed differently without associating one with the other. The same strategy could be implemented by Pepsi. Coca-Cola and Pepsi control the soft drink industry. Under the scenario that the population loses 30% of its income both Coca-Cola and Pepsi are prepared economically for the effects of a recession.