Pepsi and Coca-Cola Marketing - Case Study Example

Pepsi and Coca-Cola Marketing Report Executive Summary Coca cola and Pepsi are the largest soft drinks manufacturers in the world. The two firms have a global market share of 70% due to different business strategies that have helped them stay ahead of other beverage companies. For a long time, the two firms have been involved in advertising wars which have been influenced by their desire to increase their sales revenues in different global markets. They have developed different market initiatives to increase the level of consumer loyalty to their brands in different countries. For instance, Coca Cola is reputed to be one of the most recognised brands in the world. Pepsi has also made significant headway in developing its products which has increased the appeal of its brands in different markets. The soft drinks market is experiencing reduced growth and the two firms need to put in place effective measures to help them remain relevant in the market. Table of Contents Introduction 4 Industry Background 4 Company Background 5 Macro-environmental Factors 6 Micro-environmental Factors 7 SWOT Analysis 8 Market Segmentation 9 Target Markets 10 Targeting Strategy 10 Positioning Strategy 11 Recommendations 12 References 13 Introduction Pepsi and Coca Cola are the largest soft drink companies in the world. Coca Cola has managed to stay ahead of Pepsi in many foreign markets due to its ability to revitalise its products in the market. Pepsi was first produced in the 1890’s, in North Carolina, USA before it became a trademark in 1903. On the other hand, Coca Cola was first produced in 1886 in Atlanta, Georgia and later started bottling its soft drinks in 1899. Since its humble beginnings in the late 19th century, the firm has managed to spread its operations to 200 countries in different parts of the globe. Pepsi is also a large soft drinks manufacturer with operations in more than 100 countries spread in different parts of the world. The two companies have always battled in different global markets to increase their market shares and profit revenues (Mesadag 2000). The flagship brand of Coca Cola is the Coke soft drink which comes in different flavours and packaging formats targeting different consumers in a variety of markets. It is the most consumed soft drinks in the world and most of the company’s soft drink sales are obtained from Coke. There are different variants of coke including the low calorie Coke Diet, Coke Lemon and Coke Lite. It also produces other products such as Fanta, Sprite, fruit juices and mineral water targeting different markets. Pepsi has Pepsi soda, Gatorade, Tropicana, Mirinda, 7Up and Aquafina. Coke has managed to sell more products than Pepsi in different markets across the world because of its superior retail and distribution network (Kolb 2008). The firm has managed to penetrate different global markets which have allowed it to extend its dominance in various countries. The two firms get a large chunk of their revenues from their global operations located in different parts of the world. Industry Background Both Coca Cola and Pepsi are some of the most recognisable brands in the world. They have been producing carbonated drinks for more than a century in different locations across the globe. It is estimated that close to 47% of non-alcoholic beverage consumers prefer to take soft drinks. It is also estimated that the total global market forecast for soft drinks was $ 367 billion dollars in 2007 (Vrontis & Sharp 2009). However, economic analysts argue that growth in the industry is likely to reduce because the U.S. soft drinks market has become more saturated and mature. Consumers are also opting for other beverages such as tea and coffee which come in different flavours. This has also contributed to a decline in sales of soft drinks. Company Backgrounds Since its establishment in 1886, Coca Cola has managed to extend its dominance globally by using an effective marketing and distribution strategy. The firm has managed to adapt to different market conditions which has helped it stay at the top in a very competitive market. Vrontis and Sharp (2009) reveal that more than 70% of the company’s sales volumes are sold in foreign markets outside the U.S. The firm’s approach to the market has always been influenced by consumers’ needs and it has developed systems that help it identify conspicuous consumption trends in the market. Coca Cola has about 50% of the global soft drinks market, which makes it the dominant soft drinks manufacturer in the world. Pepsi is estimated to have about 21% share of the global soft drinks market. Pepsi has managed to strike exclusive contracts with franchises located in different parts of the globe. The firm also has agreements with large retailers such as Walmart who have made its products more accessible to consumers in different locations. Pepsi has focused on marketing its products in markets which are not well served. The firm uses market strategies that enable consumers to recognise values that are projected by its brand name. Pepsi, the company’s flagship product has managed to increase its appeal to young market segments in different parts of the world. The firm packages its products in returnable glass bottles, cans and plastic bottles, just like its major rival, Coca Cola (Vrontis 2003). Macro-Environmental Factors There are several macro- environmental factors which have an effect on the way firms engage with consumers in different markets. The first major macro-environmental factor is regulation. Some regulatory requirements discourage some firms from operating in specific foreign markets. For instance, Coca Cola was the leading soft drink manufacturer in India, until the late 1970’s when the Indian government compelled it to share its formula for manufacturing its flagship brand, Coke soda. This made the firm to withdraw from the Indian market until the early 1990’s when it returned after the rules were relaxed. Vrontis (2003) argues this absence favoured Pepsi which was able to create lasting market strategies that helped it gain a large portion of the Indian soft drinks market. Political issues can also have an effect on a company’s operations in a particular market. Some governments treat some multinationals with a lot of hostility which makes it difficult for them to penetrate various foreign markets. This discourages some companies from operating in countries whose governments have extreme political ideologies. For instance, many Arab nations closed down Coca Cola operations in their countries because they were not happy that the firm was distributing its products in Israel (Campbell, Stonehouse & Houston 2002). Countries which are experiencing armed conflicts are also not attractive investment zones because few companies are likely to set up operations there. Strict taxation laws and restrictions on foreign trade have a negative impact on a firm’s operations in a particular market. Some countries enforce strict taxation laws which make it difficult for some business firms to conduct their operations freely. This decreases a firm’s revenues in a particular market and reduces new capital investments in such countries by foreign corporations (Campbell, Stonehouse & Houston 2002). Therefore, a company may be compelled to increase the prices of its products and this is likely to drive away some consumers who are used to paying a low price for the product. This makes them opt for cheaper substitutes. Micro Environmental Factors High costs of doing business are likely to have an impact on a firm’s ability to make an impact in a particular market. Some countries lack basic infrastructure such as roads, railway, electricity and water supply. Some countries in Africa, Asia and Latin America face these problems which make it difficult for both Pepsi and Coca Cola to set up operations there. This makes it difficult for these companies to set up their operations to attract consumers in these locations (Boutzikas 2000). It becomes difficult to distribute products to consumers based in such locations and this has a negative impact on a firm’s operations in the market. Hitt, Ireland and Hoskisson (2012) state the existence of substitute products in the market are likely to affect a firm’s operations there. There has been a decrease in consumption of soft drinks in the US because many consumers are concerned about high sugar levels contained in carbonated soft drinks. This has made some consumers to shift to tea, energy drinks and fruit juices at the expense of soft drinks. This has affected the sales of both Pepsi and Coca Cola in the US market because it has reached the maturity stage. Many consumers in the US have reduced their consumption of soft drinks because they have become more sensitive about their health which has made them prefer foods that have low sugar quantities. Pricing strategies and product designs adopted for particular products makes them more conspicuous in the market making consumers choose them over their competitors. This issue has made Coca Cola stay ahead of Pepsi in many markets which has helped it increase its profit revenues. Coca Cola’s products are cheaper and widely available in very remote villages in underdeveloped countries compared to Pepsi’s products. As a result, this makes it difficult for Pepsi to compete on the same footing with Coca Cola in such markets. The convenience offered to consumers by Coca Cola’s superior distribution network has enabled the firm to increase consumers’ loyalty towards its products (Hitt, Ireland & Hoskisson 2012). SWOT Analysis Coca Cola Strengths Most valuable brand in the world at $ 77 billion. Largest global market share for beverages at 50%. Strong marketing strategies. Extensive distribution channels. Large bargaining power over suppliers. Consumer loyalty. Weaknesses Too much focus on carbonated drinks. Less diversification of products Increased debts caused by foreign acquisitions Negative publicity Many poor performing brands. Opportunities Increase in bottled water consumption. Increase in healthy foods and beverages consumption Increase in non alcoholic drinks consumption in emerging markets. Potential for growth through new acquisitions. Threats Shifts in consumption habits. Scarcity of water and raw materials Foreign currency exchange volatility Reduction in profit margins Saturated soft drinks market in North America Stringent legal requirements. Increased competition from substitute products. Pepsi Strengths High product diversification Far reaching distribution channels Proactive to different market challenges. Successful mergers and acquisitions More than 20 high performing brands Successful marketing campaigns Weaknesses Inadequate distribution in remote locations. Low prices affect profit margins. Dishonest practices. Weak brand awareness in the global soft drinks market Low profit margins Opportunities Increase in consumption of non-alcoholic drinks in emerging markets. Growth in demand for healthy diets. Increase in bottled water consumption. Opportunities for expansion through acquiring other firms. Threats Shift in consumption habits. Volatility in foreign exchange Increased competition from other beverage firms. Reduction in future profit projections. Market Segmentation Pepsi focuses on urban, young client segments in different parts of the world, which has increased its appeal in its key markets. The firm’s subtle messages in its adverts focus on making consumers identify Coca Cola’s weak points. Pepsi also focuses on cultural factors observed in particular markets and formulates strategies that attract consumers in such markets. Pepsi associates itself with popular actors and sports stars to make an impact in specific target markets. It has partnered with the Indian cricket team and this helped it increase its sales among the youth. Coke has always been able to appeal to a wide segment of markets using specific targeted advertising. Coca Cola reinvents market strategies which are used to push up sales of Coke in the market (Thomas & Hill 1999). It focuses on rejuvenating itself as the most popular soft drink in the world which makes it connect easily with consumers in different markets. Target Markets The target markets for Pepsi comprise mainly of young consumers who are adventurous and willing to explore new experiences to make their lives more interesting. It manages to relate to these young populations by associating the product with different types of success; a factor that makes it more popular. On the other hand, Coca Cola focuses on maintaining and attracting new consumers who seek to replenish their thirst and enjoy associating with their peers. Increasingly, the firm is targeting healthy conscious consumers by selling soft drinks which have low sugar content in reaction to consumers’ sensitivity to lifestyle diseases (Malhotra 2001). Coca Cola Target Markets Pepsi Target Markets General population by taking advantage of their familiarity with the brand. Youthful populations through using major film actors and sports people for endorsements. Firm’s target markets are both urban and rural markets Mainly concentrated in urban locations where it has partnered with different retailers. Targeting Strategy A targeting strategy helps a firm choose consumers in different market locations where it seeks to increase its presence. A firm needs to understand the profiles of different market segments it serves before choosing a specific targeting strategy. Since both firms are facing a mature product cycle, they have differentiated their products to remain relevant in various markets. Coca Cola has used strong brand qualities of its product to sell to different consumers through relying on a cost leadership strategy. The firm has packages its products to suit different occasions and lifestyles of its customers. Coca Cola localises its brands to make them conform to consumers’ expectations in different regions it operates in. Pepsi mainly focuses on young segments of the population. This has made it use brand equity to appeal to targeted consumers in different locations. It makes consumers associate its brand image with social events which bring happiness to their lives (Malhotra 2001). Positioning Strategy This is used by a firm by using main brand qualities to help a product maintain a longer lasting effect in target consumers’ minds. Coca Cola uses different time specific slogans in different markets that resonate with lifestyles and cultural attitudes of its target customers. The firm relies on subliminal marketing to make its consumers understand that the product is easily accessible no matter the location they are based. The firm uses revitalisation as a core concept in its adverts, making its consumers understand that it always grows with them in different phases of their lives (Pastinen 2010). For instance, Coca Cola was able to rebrand its product to appeal to Islamic consumers in the Middle East by selling Meca Cola. Pepsi has used different positioning strategies to make its product more appealing to different consumer segments. In the past, the firm organised different tasting challenges to compare how customers liked the drink compared to Coca Cola by using unlabelled glasses. It later argued that its drink tastes better than Coca Cola, a factor that was used to sway some consumers to its side. The firm has also used its strong consumer brand name by strengthening its appeal in markets which are not well served by Coca Cola and other beverage manufacturers. This has helped it increase its market share in countries like India and Pakistan. It has managed to use values such as self belief and bravery in its messages to appeal to the subliminal mind of its consumers. It also uses marketing approaches that helps it advertise directly to consumers based on their lifestyles (Pastinen 2010). For instance, its Gatorade sports drink is marketed mostly in sporting arenas to position it as the sports drink of choice. Recommendations Both firms need to focus on producing healthy drinks which have less preservatives and sugars because more consumers watch their diets keenly. The two firms also need to get more involved in corporate social responsibility initiatives. Coca Cola needs to improve the market appeal of its other brands to increase its appeal in the market. Both firms need to make their processes more innovative to make them attract new consumers who do not like carbonated soft drinks. Both firms also need to get more involved in corporate social responsibility to create more awareness about obesity and other lifestyle diseases. References Boutzikas, J 2000, ‘Coca-Cola: a standardise brand?’, Management Case Quarterly, vol. 4, no. 1-2, pp.9-15. Campbell, D., Stonehouse, G & Houston, B 2002, Business strategy, Elsevier Science, New York. Hitt, MA., Ireland, D & Hoskisson, R 2012, Strategic management cases: competitiveness and globalization, Cengage Learning, Mason. Kolb, B 2008, Marketing research: a practical approach. Sage Publications, London. Malhotra, Y 2001, Knowledge management and business model innovation, Idea Group Inc, London. Mesadag, M 2000, ‘Culture-sensitive adaptation or global standardization: the duration-of-usage hypothese’, International Marketing Review, Vol.17, no. , p. 1-5. Pastinen, M 2010, High-performance process improvement, Springer, London. Thomas, M & Hill, H 1999, ‘The impact of ethnocentrism on devising and implementing a corporate identity strategy for new international markets’, International Marketing Review, Vol.16, no. 4, pp. 376-390. Vrontis, D & Sharp, I 2009, ‘The strategic positioning of coca-cola in their global marketing operation’, The Marketing Review. Vol. 3, p. 289-309. Vrontis, D 2003, ‘Integrating adaptation and standardisation in international marketing: the adapt stand modelling process’, Journal of Marketing Management, Vol. 19, no. 3-4, p.283- 305. Read More