Coke and Pepsi Competition for Indian Market - Case Study Example

“Coke and Pepsi Learn to Compete in India” The prospects of expanding its market to the second most populous country of the world must definitely have been very tempting for both Coca Cola and Pepsi. A country that is a home for more than 17.5% of the entire world’s population does seem to be amongst the most promising opportunities for companies of such credibility and stature .Yet what appeared to be an easy roll did not quite materialize as anticipated. It is characteristic of the Indian nation that they are very patriotic and take pride in ‘Mother India.’ This does not mean that citizens of other countries do not love their land rather the emphasis is on the fact that the Indian Sovereignty and Nationalism is such that after decades of remaining a closed economy, the Indian government allows Multinational Corporations (MNC) to enter India on its own terms. For example when Unilever wanted to enter the Indian market they were asked to alter their name from Unilever to Hindustan Lever, which indeed was a lot to ask from one of the leading MNCs of the world. Still Unilever agreed to the terms of the Indian government because India is too huge a market to be ignored. This protective approach of the Indian government is said to be a reflection of the years of being ruled by the English, as a result of which any foreign company’s desire to enter India is seen with suspicion and is subject to numerous conditions before allowed access to the Indian market. Fortunately, in India the political instability does not mean that political riots would lead to a military coup since it is known to be the largest democratic nation of the world. Thus, the challenges faced by Coke and Pepsi pertained more to the conditions imposed by the Indian government which included the demand from Coca Cola to lose 40% of its equity, trade secrets, prohibiting the use of certain ingredients and so forth. From the experience of other foreign companies present in India, part of the demands of the Indian government could have been anticipated, for example their stress on using local ingredients, loss of equity to the Indian market etc. Had Coca Cola anticipated these demands it would have thought of a back-up plan and would not have to exit the Indian market and then re-enter it years later. Once Coke realized that the Indian government would not compromise on their stance, it should have let go of its equity share in 1977 instead of leaving the country because it eventually had to give in to the Indian government and realized very late that the Indian market was not one to be ignored. After Coca Cola’s exit from the Indian market in 1977, the local companies such as Parle got ample time to build its market share and dominance. In 1986, Pepsi made the earlier move of entering the Indian market before the anticipated re-entry of Coke. Fighting the local competition was a very tough for Pepsi, being a foreign company it became subject to many restrictions by the government, as was the case with Coke. Moreover, competing with Parle on a price point seemed quite challenging, yet with the introduction of many drinks Pepsi managed to gain a market share of 26% by 1993. Coca Cola’s move to re-enter as Britco Foods was a good one, since Britco Foods had been operating in the Indian market for quite a while it bridged the gap between Coke’s lack of understanding of the Indian market and provided the local expertise which helped Coke remain competitive. Thus Coke had an advantage over Pepsi in terms of understanding the Indian market. This was evident from Coca Cola’s attempt to mix well with the Indian masses and make them feel that Coke felt for them and knew what mattered to them. Similarly Pepsi responded by sponsoring the Garba, all in an attempt to think local and win the hearts of the Indians. In order to attach an aspiration to the brand Bollywood celebrities were used to endorse Marinda. Where Pepsi attached itself to sporting events, Coke on the other hand relied more on the lifestyle advertising. To date Pepsi has maintained its association with cricket and has signed various Indian cricketers to endorse the brand. Since India is a cricket loving nation, this association seems to be working very well for it. Coke on the other hand tried to explore the untapped potential of the rural market. Amongst the rural population of India, a cold drink is referred to as “Thanda.” Coke sought to modify the attitude of the rural population by making ads which stated that “Thanda” is synonymous to Coke. To add to the flavor of the campaign, Bollywood star Aamir Khan was consistently used in various ads, therefore the masses developed an association of Coke with the word “thanda” and the celebrity Aamir Khan. Moreover, with Bombay Dreams and Chennai Dreams, Coke understood that India is a nation that considers music sacred and thus this formed a very emotional bond of Coke with the Indian masses. Coke has stayed true to its youth centric approach, the introduction of the Red Lounge added to the company’s promise. In terms of distribution Coke could take advantage of the network of Britannia Industries, where as Pepsi did not have that edge. Next in line were the Price wars. Coca Cola took the bold step of reducing the prices of its products to as much as 25%. The objective of Coca Cola was to increase the consumption of Coke in the Indian market. It was very baffling for the Soft drink giants Coke and Pepsi to understand why the second most populous country in the world ranked so low in the consumption of cold drinks. Therefore, understanding the fact that the poverty rate is extremely high in India, the price reductions were initiated by Coke, followed by some district governments. Price was indeed a matter of concern for the Indian masses, because in a country where more than half the population is living below the poverty line, an expense such as a cold drink seems quite a luxury. Having established the emotional connection with the customers through “Glocalization” – with the Navratri campaign, Garba sponsorship, cricket sponsorship, Bombay/ Chennai Dreams, the next best move was to reduce the price of the cold drink and make the consumers feel that the company feels for them. Just when things were going in the right direction for the two conglomerates and they had expanded into the bottled water segment with Aquafina and Kinley, the issue regarding the use of contaminated water arose. Whether there was truth in the accusations or not, the approach taken by the two companies was very passive and not one that would make the Indians feel that the foreign companies cared for them. It is often said that when a company or country faces the crisis, it is at that point in time that the leader needs to speak up and be visible in order to provide reassurance to the followers. An Indian PR expert explained the Indian mentality by stating that in India people “interpret silence as guilt,” this shows exactly why Coke and Pepsi were wrong in their approach to tackle the issue of water contamination. The results of the tests conducted by the Health Ministry proved that the bottled water was not harmless, yet the controversy gained momentum and the truth of the matter faded into the background. The Indians considered Coca Cola and Pepsi to be guilty. When the two companies realized that they needed to speak – up, they took the wrong stance. Instead of comparing the toxic content of bottled water with tea the companies should have kept the facts on the table and clarify that even though the toxic content of bottled water is not harmful, yet for the benefit of the people the companies would revise their production process. Such a move would have instilled in the people of India the fact that both Pepsi and Coca Cola care about the people and are here to stay. The power of activist groups cannot be ignored. They have a particular logical and emotional appeal that connects with the masses and as it is always said bad publicity does a lot more harm to the image of a brand than the good done by a huge advertising budget. The issue of using water which was a scarce resource and thus depriving the native farmers from access to water definitely goes against the brand image of Coca Cola. More so, the company’s adamant behavior reflected by the fact that they went into a lawsuit to reopen their plant irrespective of the concerns of the local farmers does not show that the company cares for the people of India. On the other hand it suggests that the company holds the selfish motive of gaining profits above the well-being of the native Indians. This was too much of a risk to be taken in a country that already has experienced a rocky past with foreigners and thus eyes them with suspicion. For a brand to be successful, trust is an essential component. The consumers need to trust and believe in the brand and form that especial emotional connection which makes them buy the product. Therefore, only a move targeted towards gaining back that trust and emotional connection which the companies had almost established with their “Glocalization” strategies could save the brands now along with an acknowledgement of prior mistakes followed by corrective action. Prior to the water contamination issue, Coca Cola appeared to be in a strong position compared to Pepsi due to their emphasis on their understanding of the Indians which was used in the advertising campaigns. After the issue of the water contamination was raised against Coca Cola, it appears that the damage done by the negative publicity faced by Coca Cola would outweigh the positive emotional attachment previously created by the brand. Therefore, it would be a reasonable estimation that Pepsi has better long-term prospects in India than Coke. Moreover, India is a cricket loving nation and Pepsi’s connection with cricket, particularly with the “Change the Game” campaign for the last world cup. Amongst the most promising lessons learnt by the two companies from their experience in India is that before entering any new market, in-depth research needs to be conducted on the experiences other MNCs have had in that country and the rules and regulations imposed by the local government on foreign companies. Moreover, analysis needs to be done on the psychographics of the population of the country to be entered. Such an analysis would allow the company to cater to the masses in a more personalized and emotional way. A study of demographics would also help the company have a better knowledge for the optimum price points that would increase the consumption of their brand. It also acts as a competitive advantage for a firm to enter a new market through a joint venture or to make a more gradual move into a market than a drastic one. For example, a company can start by exporting its brand into the new market before actually moving its operations to the new country. This way the brand would have established its preeminence in the market and thus before the company formally enters the market, the brand would already be familiar with the people. There exists in branding a “Law of Focus” which states that companies need to narrow their brand focus so as to avoid confusion amongst the consumers as to what the company stands for. Similarly, in a country like India, where majority of the population lives below the poverty line people do not have access to tap water, let alone treated bottled water. Selling bottled water in such a country, even though it is a need does not really seem like a very well thought out move. The fact is that access to clean water is a necessity in India but it is not perceived so by the local masses. They highlighted the issue that Coca Cola’s plant used up water to manufacture its products where the locals were denied access to water, therefore it would have been better for both Coke and Pepsi to have remained in the drinks category and tried to gain the market leadership there. Read More