Introduction
Brief profile of the video case
The Video Cola War is a documentary about the competition between the two key competitors in the carbonated drinks market. In that respect, it provides an overview of the Cola industry and explains how Coca-Cola and Pepsi have been competing.
Description of the organizations’ position
Coca-Cola and Pepsi are the leading competitors in the carbonated drinks market accounting for about 75% of the market share. In 2004, Coca Cola’s pretax profit was about 9% of its sales (Nils, 2015).
Portfolio objective
Considering the video’s content, this report presents an analysis of the two companies’ strategies and the Cola industry operations. To achieve that, the analysis presents a comparison of Coca Cola and Pepsi using the conceptual parameters of sustainability, inimitability, and brand management. That is followed by a Porters Five Forces analysis of the Cola industry and recommendations for the two companies.
Video Content and Analysis
Analysis and comparison of Coke and Pepsi using conceptual parameters
Sustainability
Regarding sustainability the two companies have had different approaches with Coca-Cola focusing on reaching all markets across the globe while Pepsi has a focus on product diversification (PepsiCo, 2015).
Inimitability
Although Coca-Cola has been able to maintain the secrecy of its concentrate formula, Pepsi has been accused of infringing its trademark. In that respect, although the two companies have their secret formulas, there have been cases of imitation in packaging where Pepsi has launched competing products packaged in a manner that imitates the Coca-Cola brand. Also, Pepsi has launched products after Coca-Cola seeking to imitate the brand regarding the product such as the diet products.
Brand management
For both companies, brand management is done in partnership with the bottlers who are responsible for the production and distribution of the drinks. However, in their approach to the bottlers, Coca-Cola provides perpetuity rights to the bottlers but determine the price and terms of sales. On the other hand, although Pepsi also provides perpetuity rights, it only requires the bottlers to purchase the raw materials at a price that it determines. Regarding the distribution, the retail channel is key to the two brands’ distribution and determines their positioning in the market (Palmer, 2004).
Porter five forces analysis of the Cola industry
Rivalry among the existing competitors: The Cola industry is marked by rivalry between Coca Cola and Pepsi that control the market and compete through various strategies such as marketing and product diversification (Ries and Trout, 2000).
The buyers’ power: Powerful buyers can gain more value through forcing the prices down, demanding more service or better quality, thereby the costs being driven up at the industry profitability expense (Porter, 2008, p. 30). However, given the two companies control of the market, the buyers bargaining power is not significant, making the companies retain suitable margins (Kotler and Armstrong, 2006).
The suppliers’ power: Powerful suppliers tend to capture more value through limiting services or quality, higher price, or cost shifting to the participants of the industry. Thus, they can squeeze the profitability from an industry which is not able to pass the cost to customers through price increase (Porter, 2008, p. 29). However, the franchise arrangement in the Cola industry increases the two companies bargaining power against the suppliers. That is because the companies determine the terms of supply and distribution providing an opportunity to generate substantial margins (Ferrel & Hartline, 2011).
New entry threat: New entry in an industry result in new capital as well as a desire for gaining market share putting pressure on the costs, prices, as well as the necessary competing investment. Particularly when there is a new entrance diversifying into different markets, they may leverage the existing cash flow and capability to address competition. That was done by Pepsi the time it ventured into the bottled water market (Porter, 2008, p. 26). However, the Cola industry is marked by the capital intensive production and economies of scale that significantly limits competition from new entrants (Nils, 2015).
Substitute products threat: A substitute product same needs as the products in another industry. If the industry is not distancing itself from the substitutes through marketing, performance of its products, or through other means, the industry is affected regarding growth potential and profitability (Porter, 2008, p. 31). In that respect, although the Cola industry products have many substitutes, the industry players apply effective marketing strategies to maintain their competitiveness (Coca Cola, 2015).
Strategic recommendations for Pepsi and Coke at the height of the Cola Wars
Considering the existing rivalry between the two brands, their success in the market can be enhanced through the introduction of new products, price discounting, service improvement and advertising campaigns (Kotler and Keller, 2009). Also, considering that the industry’s profitability is limited by the high rivalry between the leading brands, seeking means of diversifying the brands would enhance their performance by reducing the direct competition between them (Porter, 2008, p. 29). That would take advantage of the changing environment such as technological advance that can allow the companies venture into new product lines. The diversification would also be key considering the increasing consumer concerns over the health effect of the industry’s drinks (Armstrong & Kotler, 2005).
Conclusion
Given the analysis, it is clear that the Cola industry is market by intense competition between the two leading brands; the Coca-Cola and Pepsi. With that, although the two applies the same franchising arrangement to reach the market, they seek to enhance their sustainability by adopting different approached regarding the franchise terms determination. Also, the analysis has indicated that the industry is marked by firms that enjoy significant market power given their substantial bargaining power against the suppliers and buyers. Further, although the brands have many substitutes, their effective marketing and brand management strategies enhance their success. Finally, the two players have been able to protect their market share through economies of scale and secret formulas as well as the capital-intensive operations that discourage new entrants. With that, recommendations have been made for the brands to compete through diversification that would take advantage of the changing consumer behavior and advanced technology.
Bibliography
Armstrong, G. & Kotler, P., 2005. Marketing: An Introduction. 7th Ed. New Jersey: Prentice Hall.
Coca Cola, 2015. 2015 Annual report. [Online] Available at <http://www.coca-Colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/investors/2015-annual-report-on-form-10-k.pdf>[Accessed 04 June 2016].
Ferrel, D. & Hartline, M., 2011. Marketing Strategy. 5th Ed. Boulevard: South-Western, Cengage Learning.
Kotler, P. and Armstrong, G., 2006. Principles of Marketing. 11th Ed. New Jersey: Prentice Hall.
Kotler, P. and Keller, K., 2009. Marketing Management. 13th Ed. New York: Pearson Education International.
Nils. E., 2015. Colar Wars. [Online] Available at <https://www.youtube.com/watch?u=f2xrq2o8Gx4>[Accessed 04 June 2016].
Palmer, A., 2004. Introduction to Marketing: Theory and Practice. Oxford: Oxford University Press.
PepsiCo., 2015. 2015 Annual report. [Online] Available at http://pepsico.ca/fr/downloads/pepsico-2015-annual-report_final_s57dqszgmy22ggn.pdf>[Accessed 04 June 2016].
Porter, E. M. 2008. The Five Competitive Forces That Shape Strategy. Harvard business review January 2008, 23-41.
Ries, A. and Trout, J. 2000. Positioning: The Battle for Your Mind. New York: McGraw-Hill.
