Cola Wars

1. How did the two Cola giants engage across different competitive battlefields? How did the type of market structure in which they operated and industry trends contribute to the dynamics of their competitive battles? What type of competitive behavior did they pursue?

Both companies cultivated their own strategies and at the same time straddled off the other’s successful ideas.In order to sustain their own competitive advantages, they took steps towards dependence which often included replicating the competition’s efforts and have dominated the carbonated soft drink industry.

Sales Tactics: Coke flourished and relied on the international market. It was served in more than 200 countries and derived about 80% of it sales. Pepsi, on the other hand, depended on the U.S. for roughly half of its sales.

Marketing Campaigns: Pepsi launched a new campaign attacking Coke directly called the “Pepsi Challenge”. Coke countered with rebates, retail price cuts, and a series of advertisements that questioned the validity of the “Pepsi Challenge”. Coke intensified its marketing efforts, by more than doubling their advertising spending. In response, over that same period Pepsi also doubled their advertising expenditures. Eventually, less people were drinking Coke in the 1990s and that is when Coke came up with the Innovative Soda Machine and Sponsorships, such as the World Cup. During that time, Pepsi redesigned their logo and began to focus on loyalty.

Experimentation of new flavors: both companies experimented with cola and non-cola flavors as well as new packaging options. Though the two companies had only sold their flagship cola brands, they launched new flavors in the 1960’s.. Taste is always a factor in demand and by providing new flavors to existing markets and expanding to new markets both Pepsi and Coca Cola were able to grow and establish greater shelf space in stores. This created a higher barrier to entry to the market.

Distribution/Bottling: Coke pioneered open-top coolers for use in grocery stores and other channels, by developing automatic fountain drink dispensers and introducing vending machines. Coca Cola was first to produce its own bottling network and built it to become a big player in the market (Coca Cola Enterprises). Pepsi followed soon thereafter with Pepsi Bottling Group. Both companies have successfully acquired CCE and PBG, respectively, their biggest bottling network, thus creating a larger barrier of entry to those in that industry by making the smaller producers increasingly dependent on Pepsi and Coke bottling networks. In 2009 and 2010, both companies took control of bottling by purchasing back its bottling systems. Pepsi bought two of its biggest bottlers, PBG and PepsiAmericas. This merger would consolidate more than 80% of beverage operations under one roof. In similar fashion, Coke bought CCE’s North American operations which would bring back 90%