Coke and Pepsi Learn to Compete in India Essay Example

for the syrup.

Following Coca-Cola’s departure, Parle became the market leader and established thriving export franchise businesses in Dubai, Kuwait, Saudi Arabia, and Oman in the Gulf, along with Sri Lanka. It set up production in Nepal and Bangladesh and served distant markets in Tanzania, Britain, the Netherlands, and the United States. Parle invested heavily in image advertising at home, establishing the dominance of its ? agship brand, Thums Up. Thums Up is a brand associated with a “job well done” and personal success.

These are persuasive messages for its target market of young people aged 15 to 24 years. Parle has been careful in the past not to call Thums Up a cola drink so it has avoided direct comparison with Coke and Pepsi, the world’s brand leaders. The soft drinks market in India is composed of six product segments: cola, “cloudy lemon,” orange, “soda” (carbonated water), mango, and “clear lemon,” in order of importance.

Cloudy lemon and clear lemon together make up the lemon-lime segment. Prior to the arrival of foreign producers in India, the ? ht for local dominance was between Parle’s Thums Up and Pure Drinks’ Campa Cola. In 1988, the industry had experienced a dramatic shakeout following a government warning that BVO, an essential ingredient in locally produced soft drinks, was carcinogenic indd 10 had to resort to using a costly imported substitute, estergum, or they had to ? nance their own R&D in order to ? nd a substitute ingredient. Many failed and quickly withdrew from the industry.

Competing with the segment of carbonated soft drinks is another beverage segment composed of noncarbonated fruit drinks.

These are a growth industry because Indian consumers perceive fruit drinks to be natural, healthy, and tasty. The leading brand has traditionally been Parle’s Frooti, a mango- avored drink, which was also exported to franchisees in the United States, Britain, Portugal, Spain, and Mauritius.

OPENING INDIAN MARKET

In 1991, India experienced an economic crisis of exceptional severity, triggered by the rise in imported oil prices following the  rst Gulf War (after Iraq’s invasion of Kuwait). Foreign exchange reserves fell as nonresident Indians (NRIs) cut back on repatriation of their savings, imports were tightly controlled across all sectors, and industrial production fell while in ation was rising.

A new government took of ce in June 1991 and introduced measures to stabilize the economy in the short term, then launched a fundamental restructuring program to ensure medium-term growth. Results were dramatic. By 1994, in? ation was halved, exchange reserves were greatly increased, exports were growing, and foreign investors were looking at India, a leading Big Emerging Market, with new eyes.

The turnaround could not be overstated; as one commentator said, “India has been in economic depression for so long that everything except the snake-charmers, cows and the Taj Mahal has faded from the memory of the world. ” The Indian government was viewed as unfriendly to foreign investors. Outside investment had been allowed only in high-tech sectors and was almost entirely prohibited in consumer goods sectors. The “principle of indigenous availability” had speci? ed that if an item could be obtained anywhere else within the country, imports of similar items were forbidden.

As a result, Indian consumers had little choice of

products or brands and no guarantees of quality or reliability. Following liberalization of the Indian economy and the dismantling of complicated trade rules and regulations, foreign investment increased dramatically. Processed foods, software, engineering plastics, electronic equipment, power generation, and petroleum industries all bene? ted from the policy changes.

PEPSICO AND COCA-COLA ENTER THE INDIAN MARKET

Despite its huge population, India had not been considered by foreign beverage producers to be an important market. In addition to the deterrents imposed by the government through its austere trade policies, rules, and regulations, local demand for carbonated drinks in India was very low compared with countries at a similar stage of economic development. In 1989, the average Indian was buying only three bottles a year, compared with per-capita. An Overview consumption rates of 11 bottles a year in Bangladesh and 13 in Pakistan, India’s two neighbors. PepsiCo PepsiCo entered the Indian market in 1986 under the name “Pepsi Foods Ltd. n a joint venture with two local partners, Voltas and Punjab Agro. ”

As expected, very stringent conditions were imposed on the venture. Sales of soft drink concentrate to local bottlers could not exceed 25 percent of total sales for the new venture, and Pepsi Foods Ltd. was required to process and distribute local fruits and vegetables. The government also mandated that Pepsi Food’s products be promoted under the name “Lehar Pepsi” (“lehar” meaning “wave”). Foreign collaboration rules in force at the time prohibited the use of foreign brand names on products intended for sale inside India.

Although the requirements for Pepsi’s entry were considered stringent, the CEO of Pepsi-Cola International said at that

time, “We’re willing to go so far with India because we want to make sure we get an early entry while the market is developing. ” In keeping with local tastes, Pepsi Foods launched Lehar 7UP in the clear lemon category, along with Lehar Pepsi. Marketing and distribution were focused in the north and west around the major cities of Delhi and Mumbai (formally Bombay). An aggressive pricing policy on the one-liter bottles had a severe impact on the local producer, Pure Drinks.

The market leader, Parle, preempted any further pricing moves by Pepsi Foods by introducing a new 250-ml bottle that sold for the same price as its 200-ml bottle. Pepsi Foods struggled to ? ght off local competition from Pure Drinks’ Campa Cola, Duke’s lemonade, and various brands of Parle. The ght for dominance intensi? ed in 1993 with Pepsi Food’s launch of two new brands, Slice and Teem, along with the introduction of fountain sales. At this time, market shares in the cola segment were 60 percent for Parle (down from 70 percent), 26 percent for Pepsi Foods, and 10 percent for Pure Drinks. Coca-Cola

In May 1990, Coca-Cola attempted to reenter India by means of a proposed joint venture with a local bottling company owned by the giant Indian conglomerate, Godrej. The government turned down this application just as PepsiCo’s application was being approved. Undeterred, Coca-Cola made its return to India by joining forces with Britannia Industries India Ltd. , a local producer of snack foods. The new venture was called “Britco Foods. ” Among local producers, it was believed at that time that CocaCola would not take market

share away from local companies because the beverage market was itself growing consistently from year to year.

Yet this belief did not stop individual local producers from trying to align themselves with the market leader. Thus in July 1993, Parle offered to sell Coca-Cola its bottling plants in the four key cities of Delhi, Mumbai, Ahmedabad, and Surat. In addition, Parle offered to sell its leading brands Thums Up, Limca, Citra, Gold Spot, and Mazaa. It chose to retain ownership only of Frooti and a soda (carbonated water) called Bisleri.

FAST FORWARD TO THE NEW MILLENNIUM

Seasonal Sales Promotions—2006 Navratri Campaign In India the summer season for soft drink consumption lasts 70 to 75 days, from mid-April to June. During this time, over 50 percent of the year’s carbonated beverages are consumed across the country. The second-highest season for 11 consumption lasts only 20 to 25 days during the cultural festival of Navratri (“Nav” means nine and “ratri” means night). This traditional Gujarati festival goes on for nine nights in the state of Gujarat, in the western part of India. Mumbai also has a signi? cant Gujarati population that is considered part of the target market for this campaign.

As the Regional Marketing Manager for Coca-Cola India tated, “As part of the ‘think local—act local’ business plan, we have tried to involve the masses in Gujarat with ‘Thums Up Toofani Ramjhat,’ with 20,000 free passes issued, one per Thums Up bottle. [‘Toofan’ means a thunderstorm and ‘ramjhat’ means ‘let’s dance,’ so together these words convey the idea of a ‘fast dance. ’] There are a number of [retail] on-site activities too,

such as the ‘buy one—get one free’ scheme and lucky draws where one can win a free trip to Goa. ” (Goa is an independent Portuguesespeaking state on the west coast of India, famed for its beaches and tourist resorts. For its part, PepsiCo also participates in annual Navratri celebrations through massive sponsorships of “garba” competitions in selected venues in Gujarat. (“Garba” is the name of a dance, done by women during the Navratri festival. )

The Executive Vice President for PepsiCo India commented: “For the rst time, Pepsi has tied up with the Gujarati TV channel, Zee Alpha, to telecast ‘Navratri Utsav’ on all nine nights. [‘Utsav’ means festival. ] Then there is the mega offer for the people of Ahmedabad, Baroda, Surat, and Rajkot where every re? ll of a case of Pepsi 300-ml. ottles will fetch one kilo of Basmati rice free. ” These four cities are located in the state of Gujarat.

Basmati rice is considered a premium quality rice. After the initial purchase of a 300-ml bottle, consumers can get re? lls at reduced rates at select stores. The TV Campaign Both Pepsi-Cola and Coca-Cola engage in TV campaigns employing local and regional festivals and sports events. A summer campaign featuring 7UP was launched by Pepsi with the objectives of growing the category and building brand awareness. The date was chosen to coincide with the India– Zimbabwe One-Day cricket series.

The new campaign slogan was “Keep It Cool” to emphasize the product attribute of refreshment. The national campaign was to be reinforced with regionally adapted TV campaigns, outdoor activities, and retail promotions. A 200-ml bottle was introduced

during this campaign in order to increase frequency of purchase and volume of consumption. Prior to the introduction of the 200-ml bottle, most soft drinks were sold in 250-ml, 300-ml, and 500-ml bottles. In addition to 7UP, Pepsi Foods also introduced Mirinda Lemon, Apple, and Orange in 200-ml bottles.

In the past, celebrity actors Amitabh Bachchan and Govinda, who are famous male stars of the Indian movie industry, had endorsed Mirinda Lemon. This world-famous industry is referred to as “Bollywood” (the Hollywood of India based in Bombay). Pepsi’s Sponsorship of Cricket and Football (Soccer) After India won an outstanding victory in the India–England NatWest One-Day cricket series  nals, PepsiCo launched a new ad campaign featuring the batting sensation, Mohammad Kaif. PepsiCo’s line-up of other cricket celebrities includes Saurav Ganguly, Rahul Dravid, Harbhajan Singh, Zaheer Khan, V . S. Laxman, and Ajit Agarkar.

All of these players were . V part of the Indian team for the World Cup Cricket Series. During the two months of the Series, a new product, Pepsi Blue, was PM Part 6 Supplementary Material marketed nationwide. It was positioned as a “limited edition,” icy-blue cola sold in 300-ml, returnable glass bottles and 500-ml plastic bottles, priced at 8 rupees (Rs) and Rs 15, respectively. In addition, commemorative, nonreturnable 250-ml Pepsi bottles priced at Rs 12 were introduced.

One rupee was equal to US 2. 54 cents in 2008. ) In addition to the sponsorship of cricket events, PepsiCo has also taken advantage of World Cup soccer fever in India by featuring football heroes such as Baichung Bhutia in Pepsi’s celebrity and music-related advertising communications. These ads featured football

players pitted against sumo wrestlers. To consolidate its investment in its promotional campaigns, PepsiCo sponsored a music video with celebrity endorsers including the Bollywood stars, as well as several nationally known cricketers.

The new music video aired on SET Max, a satellite channel broadcast mainly in the northern and western parts of India and popular among the 15–25 year age group. Coca-Cola’s Lifestyle Advertising While Pepsi’s promotional efforts focused on cricket, soccer, and other athletic events, Coca-Cola’s India strategy focused on relevant local idioms in an effort to build a “connection with the youth market. ” The urban youth target market, known as “India A,” includes 18–24 year olds in major metropolitan areas. Several ad campaigns were used to appeal to this market segment.

One campaign was based on use of “gaana” music and ballet. (“Gaana” means to sing. ) The  rst ad execution, called “Bombay Dreams,” featured A. R. Rahman, a famous music director. This approach was very successful among the target audience of young people, increasing sales by about 50 percent. It also won an Ef? Award from the Mumbai Advertising Club. A second execution of Coke’s southern strategy was “Chennai Dreams” (Chennai was formerly called Madras), a 60-second feature  lm targeting consumers in Tamil Nadu, a region of southern India. The  m featured Vijay, a youth icon who is famous as an actor in that region of south India.

Another of the 60-second ? lms featured actor Vivek Oberoi with Aishwarya Rai. Both are famous as Bollywood movie stars. Aishwarya won the Miss World crown in 1994 and became an instant hit in Indian movies after deciding on an

acting career. This ad showed Oberoi trying to hook up with Rai by deliberately leaving his mobile phone in the taxi that she hails, and then calling her.

The ad message aimed to emphasize con dence and optimism, as well as a theme of “seize the day. This campaign used print, outdoor, point-of-sale, restaurant and grocery chains, and local promotional events to tie into the 60-second lm. “While awareness of soft drinks is high, there is a need to build a deeper brand connect” in urban centers, according to the Director of Marketing for CocaCola India. “Vivek Oberoi—who’s an up and coming star today, and has a wholesome, energetic image—will help build a stronger bond with the youth, and make them feel that it is a brand that plays a role in their life, just as much as Levi’s or Ray-Ban. ”

In addition to promotions focused on urban youth, Coca-Cola India worked hard to build a brand preference among young people in rural target markets. The campaign slogan aimed at this market was “thanda matlab Coca-Cola” (or “cool means Coca-Cola” in Hindi). Coca-Cola India calls its rural youth target market “India B. ” The prime objective in this market is to grow the generic soft drinks category and to develop brand preference for Coke. The “thanda” (“cold”) campaign successfully propelled Coke into the number three position in rural markets indd 12 Continuing to court the youth market, Coke has opened its rst retail outlet, Red Lounge.

The Red Lounge is touted as a one-stopdestination where the youth can spend time and consume Coke products. The ? rst Red Lounge pilot outlet

is in Pune, and based on the feedback, more outlets will be rolled out in other cities. The lounge sports red color, keeping with the theme of the Coke logo. It has a giant LCD television, video games, and Internet sur? ng facilities. The lounge offers the entire range of Coke products.

The company is also using Internet to extend its reach into the public domain through the Web site www. myenjoyzone. com. The company has created a special online “Sprite-itude” zone that provides consumers opportunities for online gaming and expressing their creativity, keeping with the no-nonsense attitude of the drink. Coca-Cola’s speci? c marketing objectives are to grow the percapita consumption of soft drinks in the rural markets, capture a larger share in the urban market from competition, and increase the frequency of consumption.

An “affordability plank,” along with introduction of a new 5-rupee bottle, was designed to help achieve all of these goals. The “Affordability Plank” The purpose of the “affordability plank” was to enhance affordability of Coca-Cola’s products, bringing them within arm’s reach of consumers, and thereby promoting regular consumption. Given the very low percapita consumption of soft drinks in India, it was expected that price reductions would expand both the consumer base and the market for soft drinks. Coca-Cola India dramatically reduced prices of its soft drinks by 15 percent to 25 percent nationwide to encourage consumption.

This move followed an earlier regional action in North India that reduced prices by 10–15 percent for its carbonated brands Coke, Thums Up, Limca, Sprite, and Fanta. In other regions such as Rajasthan, western and eastern Uttar Pradesh, and Tamil Nadu,

prices were slashed to Rs 5 for 200-ml glass bottles and Rs 8 for 300-ml bottles, down from the existing Rs 7 and Rs 10 price points, respectively. Another initiative by Coca-Cola was the introduction of a new size, the “Mini,” expected to increase total volume of sales and account for the major chunk of Coca-Cola’s carbonated soft drink sales.

The price reduction and new production launch were announced together in a new television ad campaign for Fanta and Coke in Tamil. A 30-second Fanta spot featured the brand ambassador, actress Simran, well-known for her dance sequences in Hindi movies. The ad showed Simran stuck in a traf c jam. Thirsty, she tosses a 5-rupee coin to a roadside stall and signals to the vendor that she wants a Fanta Mini by pointing to her orange dress. (Fanta is an orangeade drink. ) She gets her Fanta and sets off a chain reaction on the crowded street, with everyone from school children to a traditional “nani” mimicking her action. “Nani” is the Hindi word for grandmother. ) The director of marketing commented that the company wanted to make consumers “sit up and take notice. ”

A NEW PRODUCT CATEGORY

Although carbonated drinks are the mainstay of both Coke’s and Pepsi’s product line, the Indian market for carbonated drinks is now not growing. It grew at a compounded annual growth rate of only 1 percent between 1999 and 2006, from $1. 31 billion to $1. 32 billion. However, the overall market for beverages, which includes soft drinks, juices, and other drinks, grew 6 percent from $3. 15 billion to $3. 4 billion.