Cola Wars Continue: Coke and Pepsi in 2006 AGEC 4433 Group 7 Spring 2011

Background John Pemberton creates Coca-Cola formula in 1886 Imitation brands followed, along with the creation of Pepsi-Cola in 1893 Increased consumption and concentration in the Carbonated Soft Drink (CSD) market.

Company Goals Boost the domestic demand for CSD products Increase Coke’s market share of non- carbonated products in the U.S. Capture uncharted markets not catered to by CSD companies.

Central Problem Flat growth in Coca-Cola’s market share – Waning demand for CSDs in domestic market – Coca-Cola is less competitive in non-carb market due to Pepsi’s successful pursuit of that market

Constraints Increased health information concerning obesity deterring consumers Market for non-carbonated beverages is dominated by Pepsi Untapped market segments reluctant to associate with Coca-Cola

Competitive Analysis Barriers to Entry  Very High – Coke and Pepsi hold 75% of the market – Economies of Scale: Capital Intensive Industry – Limited bottling and distribution (all owned by existing concentrate producers) Rivalry  High – Pepsi and Coke in direct competition, push smaller competitors out

Competitive Analysis Threat of Substitutes  Medium – Consumers tend to buy on price without differentiation – Coke and Pepsi market and price strategically to avoid that Power of Buyers – Consumers  High; price increases lead to reduced consumption – Bottlers  Low; bottling contracts force them to take higher prices

Competitive Analysis Power of Suppliers  High – Bottlers unable to negotiate, concentrate produces get pricing power – Door-to-store format allows Coke to monitor processes from beginning to end, gives little room for negotiation

Alternatives Increase CSD demand – Alternative 1: Marketing Coca-Cola’s socially conscious initiatives – Alternative 2: Innovating carbonated products to fit in with health and wellness trends – Alternative 3: Combined marketing and innovation approach

Alternatives Compete more aggressively in non-carb market – Alternative 4: Reformulate and position PowerAde to better compete with Pepsi’s Gatorade – Alternative 5: Market PowerAde towards college and professional sports markets – Alternative 6: New product development

Solution Alternative 3: Combined Innovation and Marketing Approach in CSDs – Develop “green” or natural formula for flagships (Coca-Cola and Diet Coke) – Advertise with eco-drive marketing strategy

Implementation Invest in reformulation for “green” CSD line – Replace high fructose corn syrup with real sugar, aspartame with stevia (natural no-calorie sweetener) – Substitute artificial dyes, flavors New packaging – ‘Planbottle’ and biodegradable can – More visible recycling symbol Eco-friendly marketing strategy – Bottle deposit stations (get demographic data) – Product premier on Earth Day