Assignment

For many years, the term cola wars has been used to describe the hard-fought battle for market share that has been waged by Coca-Cola and Pepsi. Coke has managed to stay on top, and in 2001 boasted 43.7% of the US soft drink market but consumers tastes evolved, and sales of carbonated sodas slowed. Juices, bottled water, sports drinks, coffee beverages, and vitamin-enriched drinks are now being marketed, both by Pepsi and by Coke. Pepsi has been more proactive at introducing new types of noncarbonated beverages to a population that is increasingly health conscious and more individualistic. In fact, Pepsi is the top seller of noncarbonated beverages in the U.S. As their product mixes are expanding, Coke in particular is struggling to determine the best way to market a variety of disparate brands instead of just its powerhouse sodas. Fizzling soda sales After growing at a rate of 2% to 3% each year during the 1990s, domestic soda sales declined in 1999 and 2000. They rebounded slightly in 2001, with a small increase of 0.6%. However, the average U.S. consumer drank less soda in 2001, estimated at 55.4 gallons, as opposed to 55.7 gallons in 2000 and 55.9 gallons in 1999. These trends have had a profound impact on the top two soft drink producers. During the 1980s and most of the 1990s, Coca-Colas performance was excellent. Except for the embarrassing failure of New Coke, a reformulation of its flagship colas flavor in 1985, the companys strategy was on target. During that period, Coca-Cola had annual earnings increases that averaged at least 15% and its stock rose a dazzling 3500%. But by 2001, the company experienced its third consecutive year of flat or declining market share in the US. In addition, earnings were declining, and Coca-Cola was facing serious threats on several fronts, not the least of which was from its perennial challenger, Pepsi. After losing market share to Coca-Cola in the 1990s, Pepsi, began to make small gains on Cokes share of the domestic cola market, and in 2001 claimed 32% of the $61.7 billion industry. The company began aggressively fighting with Coke for every vending machine, restaurant contract, and supermarket shelf that came available. Boosting PepsiCos (the parent company of Pepsi-Cola) overall health is its fast-growing snack foods division, Frito-Lay International, which comprises more than 60% of the companys sales. Perhaps anticipating the slowdown in soda sales, Pepsi asserted its desire to become a total beverage company in the early 1990s and began rapidly expanding its product mix to include bottled water, juices, and much more. This plan has paid off as an aging population of consumers have become increasingly concerned about the health risks associated with caffeine, sugar, and artificial sweeteners. At the same time, recognizing that 12- to 24-year-olds drink the most soda, Pepsi revitalized its cola products with splashy ad campaigns. Experimenting with New Flavors of Management at Coke Maintaining a focused, coherent strategy has been difficult for Coca-Cola since the company lost its long-time and highly regarded CEO in 1997 when Roberto Goizueta died of cancer. He was replaced by Doug Ivester, a rigid and analytical executive who alienated Cokes largest bottlers and whose European expansion efforts ran into government regulatory hurdles. As a result, Cokes earnings declined despite very aggressive growth targets, and the companys advertisements and promotional strategies lost momentum. Ivester was replaced by Douglas Daft in December 1younger consumers

Coke purchased another small company called P. J. Bean in 2001. its Planet Java bottled coffee drinks and roasted coffee were meant to take on Pepsis Frappuccino products. Again, the company was very small (with only 100,000 cases sold in 2000), but like Odwalla and Mad River, Coke planned to rapidly increase sales by utilizing its massive distribution system. Although most of their focus has been on expanding their domestic, noncarbonated beverage offerings in the U.S., Coke and Pepsi have recently introduced some new sodas as well. Pepsi, trying to develop a lemon-lime brand to compete with Cokes Sprite and Cadbury Schweppes 7UP, launched Sierra Mist in 2000. Its previous lemon-lemon products, Teem, Slice, and Storm were all unsuccessful, but Sierra Mist has proven to be popular with younger consumers. Pepsi also unveiled lemon-flavored Pepsi Twist and cherry-flavored Mountain Dew Code Red, and Coke countered with Diet Coke with Lemon. On the international front, both companies have a large stable of brands that have been developed or acquired in order to appeal to local cultures and tastes. For instance, Coke markets Thums Up in India and Inca Cola in Peru. In Japan, Coke offers Marocha Green Tea, and in Brazil it has developed a carbonated soda that incorporates a locally popular flavor from guaranaberries that are found in the Amazon. But Coke is facing challenges in many foreign markets as well. Declining economies in Brazil, Japan, and Russia adversely affected Cokes sales. And in Mexico, the #2 market for Coke outside the U.S., Coke has been charged with illegal signing exclusivity agreements with its retailers, charges similar to those that have been brought against Coke in Europe. Perhaps the most unexpected new product to be introduced by these companies has come from Coke. Many hip Londoners are now sporting Coca-Cola Ware. The new clothing line, which features trendy sportswear, was a hit in stylish London boutiques, and has been a big seller with Cokes coveted 13- to 29- year-old audience. Coke hopes to introduce it to the rest of Europe and Eurasia by 2002, and eventually to the U.S. market.

Noncarbonated Beverage Offerings in the United States

Type of Product	Coca-Cola	PepsiCo Bottled
Bottled water	Dasani	Aquafina
Sports drink	Powerade	Gatorade
Orange and fruit juice	Simply Orange	Tropicana
Coffee drinks	Juice, Minute Maid, Hi-C, 5-Alive	Dole
Tea	Planet Java	Frappucino
Juice drinks	Nestea and Nescafe Mad River	Lipton, SoBe
	Fruitopia Mad River, Odwalla	SoBe, Fruitworks

Trying to Hit the Sport with Various Ad Strateges

Despite having more than 230 brands in 200 countries, Coca-Cola soda still accounts for 60% of the

companys global sales. Long recognized as the worlds most famous brand, Coca-Cola has had a string of

advertising hits using taglines such as Coke is it, Always Coca-Cola and The Real Thing. And anyone

old enough to recall the days of bell-bottom pants, yellow smiley faces, and peace signs will surely remember

the landmark television ad that showed kids from around the world swaying while singing, Id like to teach

the world to singId like to buy the world a Coke. These campaigns contributed to Cokes recognition

throughout the world, but as Coca-Cola continued to diversify its product offerings, it became more difficult

to advertise on a global basis. One analyst sums up this conundrum by saying, Without the Coke name, theyre just another brand on the shelf. For this reason, Daft announced his Think local, act local strategy in 2000, and empowered local marketing managers to develop their own ideas for products and how to market them. Unfortunately, this led to some ads that were not considered to be appropriate by Cokes executives, and some of them even turned off consumers. In 2001, Daft announced that the corporate marketing team in Atlanta had developed the them, Life Tastes Good, and that local managers were free to use this concept and further develop it to fit local cultures and sensibilities. This theme was yanked after it proved to be only marginally successful. In addition, many local managers were frustrated by the lack of direction from corporate headquarters, and some were turning out ads that were not considered to be in keeping with Cokes wholesome image. For example, one Italian ad featured nude bathers. As a result, some analysts feared Coke was losing its well-established identity. Coke also banked on a tie-in with the successful film, Harry Potter and the Sorcerers Stone to spur sales, but Cokes placement was so minor in the ads that Cokes marketing vice president questioned the investment. In March 2002, Coke switched gears once more and abandoned the Think local, act local concept. According to a marketing executive at Coca-Cola, It was pretty obvious we had lost our way. For the second time Coke began looking for a universal tag to spur sales of its flagship cola products. While Coke searched for its next big tagline, Pepsi proclaimed, The Joy of Cola. Long a proponent of celebrity-based ads, Pepsi hit the jackpot in 2001 with upbeat spots featuring pop-culture princess Britney Spears singing about her favorite soft drink. That same year Pepsi launched www.pepsistuff.com, an Internet site that took Pepsis loyalty program online. PepsiStuff was a program that allowed consumers to exchange proof of purchases for items such as branded clothing, video games, and DVDs, but it required that Pepsi print 100 million 10-page catalogs. By going online, the need for the catalogs was eliminated, and Pepsi gained valuable data about more than 3.5 million consumers by requiring them to provide name, e-mail address, zip code, and date of birth. In addition to this new database, Pepsi benefited from a 5% spike in sales during the promotion. Only time will tell whether Pepsi will be successful in its bid to take over Cokes top spot in the famous clash of the colas. But that duel may ultimate prove to be just one battle in a much larger war.

Questions

1. Do a SWOT Analysis (state only two strengths, weaknesses, opportunities and threats) of both Coca Cola Company and Pepsi Company

2. Describe one major factor in the macro-environment which will significantly affect the future of both Coca-Cola and PepsiCo and advice the companies on the strategy to pursue.