Coca-Cola / Pespi Business Case Hbs Essay Example

witnessed in the early 1980s. Additionally, cans suppliers face intense competition amongst themselves for contracts with bottlers, leaving them with minimal bargaining power.

According to § Evolving structures and strategies p13, the power of buyers in the soft drink industry is primarily held by supermarkets, which are a highly fragmented industry. However, Wal-Mart possesses much greater bargaining power and seeks to deal directly with concentrate producers. This creates tension between the concentrate producers and bottlers. Fast food outlets are the only buyers with dominant power, but they make up less than 20% of total soft drink sales. While the concentrate producer industry isn't very capital intensive, new producers must overcome the vast marketing muscle and market presence of existing giants like Coke and Pepsi, among others. Despite this, other barriers to entry also exist.

Although there are some products that are specific to certain regions (e.g. Coca Cola's offerings in Japan and Dasani bottled water in the USA), Coke and Pepsi have established themselves as worldwide brands. One important consideration is how their competition impacts profits. In the 1960s and 1970s, both corporations placed an emphasis on differentiation and advertising tactics.

In the 1970s, the "Pepsi Challenge" was a way to compete with rival Coke. However, in the early 1990s, Coke and Pepsi bottlers used inexpensive tactics in supermarkets to compete with store brands, leading to price wars that lowered returns and profits due to higher concentrate prices. Both Coca-Cola Enterprises (CCE) and Pepsi Bottling Group (PBG) adjusted by raising retail prices which decreased sales volume and reduced profits for concentrate makers. To ensure future profitability, both companies can diversify into non-carbonated drinks as a defense against shifts

in demand for bottled water and teas while maintaining profitability.

Diversification options and growth opportunities can arise from having accumulated significant brand equity, which Coke and Pepsi have done due to their long-standing business. The sustained brand equity can aid them when diversifying their business. The potential for growth in emerging economies is very high since the per capita consumption is small in comparison to the US market. However, internationalization strategies can be dicey. Coke's strategy during the 1960s was largely centered around overseas markets. This was based on the assumption that domestic CSD consumption had almost reached a saturation point. Meanwhile, Pepsi aggressively battled against Coke in the US and managed to double its US share between 1950 and 1970.

Diversification and vertical integration can facilitate internationalization. However, Professor Levitt recommends prioritizing homogeneous market needs over local ones. In his article on the globalization of markets, he controversially argues that modern communication technologies and large-scale manufacturing are creating a more uniform market.

Global strategies are capable of utilizing low prices to outpace local competitors, while maintaining quality. Coca-Cola is an excellent example of this trend, as evidenced by their bottling process involving high-speed production lines only interchangeable for similar products and packaging sizes. However, American academics Gerry Wind and Susan Douglas warn of the "Myth of Globalisation." It's worth noting that Coca-Cola sometimes adapts to local needs, offering both classic Coke and local products in Japan. Additionally, while Dasani bottled water is successful in the USA, it's a failure in Europe.

Despite acknowledging its possibility, Prof. Levitt notes that global companies tend to resist accepting and adapting to differences, attempting to test their unchangeability and finding ways to

avoid or alter them. While this is not the case for all countries, some are experiencing economic growth which leads to less price-conscious consumers who are willing to splurge on their cultural preferences. Additionally, there exists a middle ground between global and local known as regional. It is worth noting that what is often deemed "global" actually only encompasses intra-regional activities.

The idea of achieving the holy grail is not necessarily to have complete knowledge of one great thing, but rather to focus on a few standardized markets or regions. Although Professor Levitt is cautious about disregarding national differences, this approach requires both breakthrough innovation and unmatched ambition. To assume that customers cannot know their own preferences requires creating and maintaining a customer base, which is a significant undertaking. This concept is explored within the "Key debate: Global, Local, or Regional - Exploring Corporate Strategy" article.

8th Edition authored by Johnson, K., Scholes, R., and Whittington.