Cola Wars Begin - Case Study Example

Pepsi concentrated on spending additional income from sales on promotion and advertising by selling its products at a lower price than Coke (Yoffie and Kim 100).

Both Coke and Pepsi started experimenting with revolutionary cola as well as non-cola flavors by offering new packaging. They also diversified into non-CSD industries. In its efforts to fight with Pepsi, Coke introduced advertising messages aimed at recognizing the prevalence of its rivals. It also focused on growing its share to overseas markets based on the assumption that the local CSD consumption was approaching full capacity. To address this matter, Pepsi fought Coke aggressively in the U.S. where it doubled its market share (Yoffie and Kim 101).

Pepsi Challenge

Since Coke was the dominant brand in the U.S. in 1974, Pepsi introduced the “Pepsi Challenge,” which aimed at demonstrating that clients preferred Pepsi to Coke. After realizing increased sales, it launched the campaign nationwide. To counter this move, Coke introduced rebates, cuts on retail prices, and advertisements aimed at questioning the validity of Pepsi’s test. It introduced price discounts at the retail level where Coke bottlers that were company-owned fought against self-regulating Pepsi bottlers. Nevertheless, the “Pepsi Challenge” campaign significantly eroded the market share for Coke (Yoffie and Kim 101).

Cola Wars Heat Up

As the cola wars heated up in 1980, Coke started using high-fructose corn syrup as an alternative to sugar, since it was cheap. After three years, Pepsi followed suit. Coke boosted its marketing efforts by doubling its expenditure on advertising. To respond to this, Pepsi also doubled its spending on advertising. In 1985, Coke announced it changed its Coca-Cola formula. However, Pepsi stipulated that Coke had mimicked its taste in the formula, forcing Coke to revert to its original formula (Yoffie and Kim 102).

The Quest for Alternatives

With the intense competition between Coke and Pepsi, the two companies realized it was time to introduce alternatives to the market. In 2009, for instance, diet sodas captured approximately 30 percent of CSD markets compared to 24 percent about a decade ago. The companies also intensified their efforts where they started using sweeteners in their brands. These sweeteners were meant for use as food additives. Moreover, despite the growth of diet drinks, Pepsi and Coke noted that the growth would be fueled by non-carbs. As such, they introduced energy drinks, juices, juice drinks, sports drinks, tea-based drinks, and bottled water. These initiatives helped the two companies to realize undisputed growth in the U.S (Yoffie and Kim 104).

Evolving Structures

Based on the growing popularity pertaining to alternative beverages between the two firms number of complications emerged among CSD makers. These issues targeted the traditional production and distribution initiatives. Both Coke and Pepsi mostly concentrated on producing various non-CSDs. These products demanded a smaller yet specialized processes of production, challenging bottlers to manufacture based on their prevailing infrastructure. These efforts frustrated most bottlers, as they were to sell these finished products along with their bottled products (Yoffie and Kim 105).