Coca Cola and Pepsi Case

Case Details: Case Code Case Length Period Pub Date Teaching Note Organization Industry Countries

: : : : :

MKTG002 9 Pages 1997-2001 2001 Available

: Coca Cola India Ltd Pepsi India Ltd : Food, Beverages and Tobacco : India

Abstract: When the cola giants, Pepsi and Coke, entered the Indian market, they brought with them the cola wars that had become part of global folklore. This case study details the various battles fought in India by the two rivals with its focus on the publicity campaigns where the two sought to steal each other's fizz. The case also outlines battles fought on other fronts - conflicts with bottles, product modifications, attempts to steal the rival's employees and other mini wars. On the whole, the case attempts to provide a comprehensive perspective regarding the dimensions of the cola wars and the direction in which they are heading.

Issues: » Marketing Warfare, Comparative Advertising

Contents: Pepsi vs. Coke The Players The Rivalry on Various Fronts I -Bottling II -Advertising III -Product Launches IV -Poaching V -Other Fronts Is The Rivalry Healthy?

Page No. 1 2 2 2 3 5 6 6 8

Keywords: Pepsi, Coke, Indian market, cola wars, global folklore, India, publicity campaigns, fizz, conflicts, bottles, product modifications, comprehensive perspective, cola wars, comparative advertising, merits, demerits, marketing warfare, competitive market

"Our real competition is water, tea, nimbupani and Pepsi... in that order." - Coke sources in 1996. "When you're No 2 and you're struggling, you have to be more innovative, work better, and be more resilient. If we became No 1, we would redefine the market so we became No 2! The fact is that our competition with the Coca-Cola company is the single most important reason we've accomplished what we have. And if they were honest, they would say the same thing." - Pepsi sources in 1998. "Both companies did not really concentrate on the fundamentals of marketing like building strong brand equity in the market, and thus had to resort to such tactics to garner market shares." - Business India in 1998.

Pepsi vs. Coke The cola wars had become a part of global folklore - something all of us took for granted. However, for the companies involved, it was a matter of 'fight or succumb.'Both print and electronic media served as battlefields, with the most bitter of the cola wars often seen in form of the comparative advertisements. In the early 1970s, the US soft-drinks market was on the verge of maturity, and as the major players, Coke and Pepsi offered products that 'looked the same and tasted the same,'substantial market share growth seemed unlikely. However, Coke and Pepsi kept rejuvenating the market through product modifications and pricing/promotion/distribution tactics. As the competition was intense, the companies had to frequently implement strategic changes in order to gain competitive advantage. The only way to do this, apart from introducing cosmetic product innovations, was to fight it out in the marketplace.

This modus operandi was followed in the Indian markets as well with Coke and Pepsi resorting to more innovative tactics to generate consumer interest. In essence, the companies were trying to increase the whole market pie, as the marketshares war seemed to get nowhere. This was because both the companies came out with contradictory market share figures as per surveys conducted by their respective agencies ORG (Coke) and IMRB (Pepsi). For instance, in August 2000, Pepsi claimed to have increased its market share for the first five months of calendar year 2000 to 49% from 47.3%, while Coke claimed to have increased its share in the market to 57%, in the same period, from 55%.

Pepsi vs. Coke Contd... Media reports claimed that the rivalry between Coke and Pepsi had ceased to generate sustained public interest, as it used to in the initial years of the cola brawls worldwide. They added that it was all just a lot of noise to hardsell a product that had no inherent merit.

The Players Coke had entered the Indian soft drinks market way back in the 1970s. The company was the market leader till 1977, when it had to exit the country following policy changes regarding MNCs operating in India. Over the next few years, a host of local brands emerged such as Campa Cola, Thumps Up, Gold Spot and Limca etc. However, with the entry of Pepsi and Coke in the 1990s, almost the entire market went under their control. Making billions from selling carbonated/colored/sweetened water for over 100 years, Coke and Pepsi had emerged as truly global brands. Coke was born 11 years before Pepsi in 1887 and, a century later it still maintained its lead in the global cola market. Pepsi, having always been number two, kept trying harder and harder to beat Coke at its own game. In this never-ending duel, there was always a new battlefront opening up somewhere. In India the battle was more intense, as India was one of the very few areas where Pepsi was the leader in the cola segment. Coke re-entered India in 1993 and soon entered into a deal with Parle, which had a 60% market share in the soft drinks segment with its brands Limca, Thums Up and Gold Spot. Following this, Coke turned into the absolute market leader overnight. The company also acquired Cadbury Schweppes'soft drink brands Crush, Canada Dry and Sport Cola in early 1999. Coke was mainly a franchisee-driven operation with the company supplying its soft drink concentrate to its bottlers around the world. Pepsi took the more capital-intensive route of owning and running its own bottling factories alongside those of its franchisees...

Excerpts

The Rivalry on Various Fronts I -Bottling Bottling was the biggest area of conflict between Pepsi and Coke. This was because, bottling operations held the key to distribution, an extremely important feature for soft-drink marketing. As the wars intensified, both companies took pains to maintain good relationships with bottlers, in order to avoid defections to the other camp...

II -Advertising When Coke re-entered India, it found Pepsi had already established itself in the soft drinks market. The global advertisement wars between the cola giants quickly spread to India as well. Internationally, Pepsi had always been seen as the more aggressive and offensive of the two, and its advertisements the world over were believed to be more popular than Coke's. It was rumored that at any given point of time, both the companies had their spies in the other camp. The advertising agencies of both the companies (Chaitra Leo Burnett for Coke and HTA for Pepsi) were also reported to have insiders in each other's offices who reported to their respective heads on a daily basis...

III -Product Launches Pepsi beat Coke in the Diet-Cola segment, as it managed to launch Diet Pepsi much before Coke could launch Diet Coke. After the Government gave clearance to the use of Aspertame and Acesulfame-K (potassium) in combination (ASK), for use in low-calorie soft drinks, Pepsi officials lost no time in rolling out Diet Pepsi at its Roha plant and sending it to retail outlets in Mumbai...

IV -Poaching Pepsi and Coke fought the war on a new turf in the late 1990s. In May 1998, Pepsi filed a petition against Coke alleging that Coke had 'entered into a conspiracy'to disrupt its business operations. Coke was accused of luring away three of Pepsi's key sales personnel from Kanpur, going as far as to offer Rs 10 lakh a

year in pay and perks to one of them, almost five times what Pepsi was paying him. Sales personnel who were earning Rs 48,000 per annum were offered Rs 1.86 lakh a year. Many truck drivers in the Goa bottling plant who were getting Rs 2,500 a month moved to Coke who gave them Rs 10,000 a month. While new recruits in the soft drinks industry averaged a pay hike of between 40-60% Coke had offered 300-400%. Coke, in its reply filed with the Delhi High Court, strongly denied the allegations and also asked for the charges to be dropped since Pepsi had not quantified any damages...

V -Other Fronts • Till the late 1980s, the standard SKU for a soft drink was 200 ml. Around 1989, Pepsi launched 250 ml bottles and the market also moved on to the new standard size. When Coke re-entered India in 1993, it introduced 300 ml as the smallest bottle size. Soon, Pepsi followed and 300 ml became the standard. But around 1996, the excise component led to an increase in prices and a single 300 ml purchase became expensive. Both the companies thus decided to bring back the 200 ml bottle, In early 1996, Coke launched its 200 ml bottles in Meerut and gradually extended to Kanpur, Varanasi, Punjab and Gujarat, and later to the south... • In May 1996, Coke launched Thums Up in blue cans, with four different pictures depicting 'macho sports'such as sky diving, surfing, windsurfing and snow-boarding. Much to Pepsi's chagrin, the cans were colored blue - the color Pepsi had chosen for its identity a month earlier, in response to Coke's 'red'identity... • There were frequent complaints from both the players about their bottlers and retailers being hijacked. Pepsi's blue painted retail outlets being painted in Coke's red color overnight and vice-versa was a common phenomena in the 1990s... • Coke also turned its attention to Pepsi's stronghold - the retail outlets. Between 1996-98, Coke doubled its reach to a reported 5 lakh outlets, when Pepsi was present at only 3.5 lakh outlets. To reach out to smaller markets, interceptor

units in the form of mobile vans were also launched by Coke in 1998 in Andhra Pradesh, Tamil Nadu and West Bengal. However, in its rush to beat Pepsi at the retail game, Coke seemed to have faltered on the service front. For instance, many shops in Uttar Pradesh frequently ran out of stock and there was no servicing for Coke's coolers...

Is The Rivalry Healthy? In a market where the product and tastes remained virtually indistinguishable and fairly constant, brand recognition was a crucial factor for the cola companies. The quest for better brand recognition was the guiding force for Coke and Pepsi to a large extent...