Marketing Strategy of Coca Cola and Pepsi - Term Paper Example

? Marketing Strategy Comparison of Coca Cola and Pepsi Fundamental of Microecon (MBA 5X05) Introduction Soft drink industry is one of the most fierily competitive industries in the world. The two major player or better to say the dominant players of this Industry are Pepsi and Coke. At present these two are the key players in the segment and there is a continuous battle for supremacy among them. Murray (2006), described this industry as a power struggle between Coke and Pepsi for a long period of time in non alcoholic sector, but with the ever changing demand of the market and to keep pace with the customers’ choices these two giants started to rely heavily on new flavored products and also started to focus on the segment of non carbonated beverages. According to him, to understand this sector completely one must consider to analyze following points like economic factors, industry trend, and competitive sources (Diechart et al). This paper is based on the marketing strategies of these two giants along with the discussion on several economic parameters like demand theory, opportunity cost, preferred completion. The paper also gives a historic overview of the companies, their financial performance and also a suggestion part that can be helpful for these two organizations to be more competitive. Analysis Methodology The study is about the market dominance of both the company in terms of different economical parameter. The findings are based on various article and financial report published in different magazines, news, and financial report of both the companies and a comparison between these two companies marketing strategy. The main two questions we are trying to answer are as follows: 1. Comparative analysis of marketing strategy of Coca-Cola and Pepsi. 2. Analysis of two companies in different micro-economic perspective. For marketing strategy review and the effect of the same on these two companies the main source of informationis company’s annual report, different article related to company’s marketing strategies over the year and the style of branding and promotion. For economic perspective, various economical factors are analyzed based on available secondary data sources. Coke and Pepsi: Past and Present position in the Market. There were three different factorsassociated with the market performance of these two companies. According to Data Monitor, these were market size, growth rate and overall profitability. Among no-alcoholic drinks soft-drinks have the overall market share of 46.8%. The total market value of the soft drinks industry was $307.2 billion in 2002 and as per their report was expected to reach around $367billion by 2009. Although along with this strong forecast, Data Monitor also predicted that there will be a slight decline in the soft drinks market due to market price. This was due to increase in the other non-alcoholic industry like tea and coffee (11.8%) and water (9.3%). According to Diechart et al, despite of solid profit margins the declaration in the soft drinks market was due to market saturation especially in USA. According to him, to increase the profitability the soft drinks company needed the product diversification to reach out more number of people. According to Murray’s report Coca Cola enjoyed maximum market share of around 50% followed by Pepsi (21%). The Coca Cola were having more diversified soft drinks offering for the client like Coca-Cola, Diet Coke, Fanta, Sprite etc and they were engaged in over 200 nations (Diechart et al). Pepsi have brands like Pepsi, Dew, and Slice etc (Diechart). According to thereport published in the Bangkok Post Coke sales was grown by 32% in 2012, which was highest in last 10 years. The marketshare of coke again rose to 50% whereas Pepsi falling to 15% (Bangkok Post). Marketing Strategy: Coca Cola: The main aim of Coca Cola is to refresh the world, to inspire moments of optimism and happiness and to create value and make a difference in customer mind. To fulfill their mission 5 broad steps were taken by the marketing team of Coca Cola which was immensely successful to not only fulfills its mission statement but also to establish itself as a leader in the soft drinks segment. With the constantly changing social and economic structure Coca Cola also shifted its marketing strategy making it more content oriented. According to Bullas, it was moving from “Creative Excellence” to Content Excellence”. The five key points were, creation of liquid content, ensuring that the content is linked with the product, brand, company’s mission and most important customer interest; creating conversations, as they were able to understand that customers could create more stories and idea about promotion, moving towards dynamic storytelling, and being brave and creative in the process of storytelling. They have used different social website to a great extent to reach out to the maximum number of people (Bullas). Dominance of Coca Cola over Pepsi: According to Yglesias, “Coke own the cola wars because great taste take more than a single sip”. During late 1970s and early 1980s, Pepsi started gain momentum in the cola business and started to dominate Coca Cola. By 1983, Pepsi was outselling Coca Cola in all the supermarkets across the world. To challenge Pepsi Coke launched a new product in 1983 but the performance was miserable. On the same year Pepsi recorded highest year on year sales growth in history. To Challenge the performance of Pepsi, Coke started to change its strategies. Pepsi allays represent itself as a challenger brand, the idea of their marketing was to represent their brand as the choice of a new generation. But when Coke changed its strategy the equation got changed. For the last 25 years the advertising of coke was mainly base on brand first and foremost. They represented their product in the market as resembles with friendship, family, adorable ones and other associations. According to Yglesias, coke owns 17% of the American market for carbonated soft drinks followed by another product diet coke which have 8.9%. Pepsi was languishing at 8.9 % (Yglesias). Economical Concept: Demand Theory: According to Feliciano, 2012 was the third consecutive year when there was a growth in the global value of soft drinks. Although few people linked this with recovery in global economic recession but according to him the main reason was availability of choices for the consumer in this sector which continued to dominate the taste and functions of the beverages. According to him, as the spending power was increasing for the common man, the option of choosing from various packed and unpacked soft drinks and no alcoholic drinks was also increasing. Apart from that local choices also played a major part creating the demand. Keeping in my restriction in few countries on carbonated soft drinks coke indorses a new product diet coke all across the world and by that they were able to meet the demand of a particular untouched group which helped them to strength then their market lead over Pepsi (Feliciano). Opportunity Cost: According to Kanshimike, opportunity cost can be defined as “ the cost of something in terms of anopportunity forgone, and the benefits that could be received from that opportunity cost”. In more simple language, opportunity cost is most valuable forgone opportunity (Kanshimike, 21). As Coke have wider distributed network to reach customer so for the customer, the opportunity cost for buying a coke is less compared to that of a Pepsi. Apart from the taste and preference, customers’always looks for easy available products. For example, if in a certain area a customer can buy a coke from a retail shop walking distance away from his house, he or she never want to pay extra money as transport cost to buy Pepsi orits group product. Perfect Competition or Oligopoly Competition: According to Jain, the perfect competition can be defined as a market condition where a large number of firms, selling identical products with no firm islargeenough to dictate the market price of the product (Jain, 243). According to Jain and Ohri, oligopoly completion is a kind of imperfect competition where only few players compete in the industry and each of them can control the market price. But the rivalry level is very high in this type of competition (Jain & Ohri, 264). In soft drinks industry it is an oligopoly market where Pepsi and Coca-Cola are the key players. Both of them have the power to control the market price. If one reduces price, the other have to follow else there is fear of losing market share. As Coke is now leading this industry so the power of controlling price is in their hand, but they also have to look for the pricing strategies of Pepsi as being the sole competitor, if Pepsi started to reduce their price then coke will; start to lose its market share. So it is always interrelated. Suggestion: On the basis of above analysis following suggestion can be advised to both Pepsi and Coca Cola to help them maintain their growth in the market. For,the Coca Cola as it is already the market leader so it needs to sustain its position. Its production cost is law. Ratio of supply against demand in the entire store is good, so there is no out of stock situation, it just need to ensure that it keeps on continue improving this aspect. Secondly to extend the difference it can focus on the beverage business more like Pepsi does which will help them to earn more profit. Thirdly, although it is now an oligopoly market but in different countries like China the local soft drinks started to get promoted among the citizens. So the organization must continue on their Research and Development program in terms of launching new beverages so that if later on the market becomes a perfect competition place then it can have the upper hand. For Pepsi, They fist need to reduce the production and technology cost associated with their products. If they able to that then they can cut down the price and omit the price discrimination with Coke. This is one of the major concerns for them. Another important fact associated with them isthey have to work on increasing their distribution, although it isavailable in all the countries’ metro and tire one cities but to ensure that opportunity cost doesnot affect their performance they need toreach every corner of the country across the globe to compete with Coca Cola. Thirdly, like Coke, they also have to continuously work on R & D to ensure that if the market becomes a perfect competition one they can have the first mover advantage. With the variety of beverages they already have the advantage, so if they are able to rectify these issues then they can easily compete with the Coke in present market scenario. Conclusion In the end one can conclude this discussion by saying that for any beverage, company remaining at the top of the market is not only dependent on factors like their branding and promotion strategies, product diversity, add campaign, marketing strategies but also several other economic factors like being at par with demand, reducing the production cost, and nullifying opportunity cost all plays key role in any leading company’s performance. Companies like Pepsi and Coke who are the only major players at present in the beverage market must not ignore the fact that in different countries different local brand started to launch and gaining popularity. So to ensure that they keep on holding their position along with different business strategies companies have to look for the microeconomic factors. References Bullas, Jeff, 5 Lessons from Coca Cola’s New Content Marketing Strategy, 2012, retrieved on 30-09-2013 from http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=9&ved=0CHYQFjAI&url=http%3A%2F%2Fwww.jeffbullas.com%2F2012%2F01%2F30%2F5-lessons-from-coca-colas-new-content-marketing-strategy%2F&ei=y05JUsCbEsfIrQfs2oDwBw&usg=AFQjCNFpzpVmZBpjDcoyoiXDAGAzp-d3Wg&sig2=Lr9ANtupFqV7QjiQf3HZKQ Coke rises, Pepsi Falls, Bangkok Post, 2013, retrieved on 30-09-2013 from: http://www.bangkokpost.com/learning/learning-from-news/338932/soft-drinks-coke-rises-pepsi-falls Data monitor, Global Soft Drinks: industry profile. New York, 2005. Feliciano Jonas, Soft Drinks in 2013: Growth to Continue as Demand Diversifies, Euromonitorial international, 2013, retrieved on 30-09-2013 from http://blog.euromonitor.com/2013/01/soft-drinks-in-2013-growth-to-continue-as-demand-diversifies.html Kanshimike, Wellington When God Made an Opportunity Cost, Tate Publishing, 2009 Jain, TR, Microeconomics and Mathematics, VK publications, 2007, Print. Jain, TR. and Ohri VK. Principal of Microeconomics, FK publications. 2011. Print. Deichart, et al, Industry Analysis: Soft Drinks, 2006, retrieved on 30.09.2013 from: http://www.csbsju.edu/documents/libraries/zeigler_paper.pdf Yglesias, Mathew. Sweet Sorrow, Slates, 2013, retrieved on 30.09.2013 from http://www.slate.com/articles/business/rivalries/2013/08/pepsi_paradox_why_people_prefer_coke_even_though_pepsi_wins_in_taste_tests.html Read More