Cola Wars Case Essay Example

lot of time and additional resources. These additional investments, such as marketing and R&D, were essential in order to compete with the industry leaders.

The low risk of new competitors entering the market is due to several obstacles that make it difficult for them to establish themselves. These barriers include economies of scale, product differentiation, and access to distribution channels. In terms of competition, Coca-Cola and Pepsi-Cola collectively controlled 76% of the U.S. CSD market. However, there was intense rivalry between Coke and Pepsi as individual companies. Both corporations concentrated on product development, market research, and advertising, consistently investing in cutting-edge marketing campaigns that became synonymous with their respective brands over time.

In the meantime, the Bottlers were in charge of acquiring the concentrate, incorporating carbonated water and high fructose corn syrup, packaging the CSD, and distributing it to retailers. The low Bargaining Power of Buyers stemmed from the cooperative merchandising and franchise agreements formed between the primary Bottlers and retailers. The connections between retailers and Bottlers guaranteed consistent brand availability and product upkeep through specified promotional actions and discount rates.

Moreover, in the Coke and Pepsi's Master Bottling Agreements, Bottlers had control over various aspects like retail pricing, new packaging, selling, advertising, and promotions within their designated territory. Suppliers had limited influence due to the abundance of metal cans used for packaging 60% of the U.S. CSDs. These cans were seen as commodities with a surplus in the industry, leading to fierce competition among can manufacturers competing for contracts.

Despite not being able to handle directly competitive brands, Bottlers had the liberty to work with non-cola brands from other

CPs. Additionally, they could decide whether or not to promote new beverages introduced by those CPs. We believe that the Threat of Substitutes was minimal because the emerging industries outside of soft drinks would depend on the current Bottlers. The substitutes of the CPs entering the supermarket channel would be attracted to the already established networks and relationships between Bottlers and retailers.

The Threat of New Entrants is low primarily because of the expensive capital investment requirements of the bottling process, including plant, high-speed lines, and distributions networks. The Soft Drink Interbrand Competition Act also served as a barrier to entry by allowing CPs to grant exclusive territories to bottlers. This close relationship allowed CPs to assist Bottlers in enhancing performance by providing extensive sales and marketing support staff, who collaborated with them to establish standards and recommend operating procedures.

Reliable supply, faster delivery, and lower prices were ensured by CPs through direct negotiations with major suppliers of the Bottlers, which ultimately benefited the Bottlers. Additionally, the Cola Wars led to high competition among Bottlers as they sought to establish strong relationships with retailers offering promotions and discounts. The breakdown outlined above explains the reasons for the differences in profitability between CPs and Bottling companies. Particularly, the Bottlers have been weakened by the Cola Wars as they typically had limited ability to stay competitive, often being price takers.

In order to remain competitive, the Bottlers had to give priority to advertising, product and packaging diversity, and significant retail price cuts. These investments were larger than those made by the CPs, resulting in reduced operating margins. The competition between Coke and Pepsi generated

industry profits for several reasons. One key factor was their introduction of non-carbonated soft drinks (CSDs), which expanded the market. Sales of non-CSDs saw much higher growth rates during the 1990s compared to CSDs.

In order to take advantage of this opportunity, Pepsi and Coke made the decision to introduce their own versions of bottled water, juices, sports drinks, tea-based beverages, and dairy-based drinks. As consumer preferences changed over time, non-carbonated beverages became extremely popular and served as the primary source of growth for both Coke and Pepsi. This change in demand also increased competition with the introduction of new product lines. Additionally, both companies discovered a way to enhance competition and increase profits by regionalizing their beverages, allowing them to enter international markets that were not typically exposed to their regular offerings.

The cultural specification that Coke offers in Brazil, such as guarana, is an example of this. The competition between Coke and Pepsi intensified when they expanded into global markets, leading to an increase in profits. Another reason for the boost in industry profits was the way both companies strengthened support in their domestic markets, as evident in the Pepsi challenge and the fountain drink market war.

Pepsi became aware of their third-place position in Dallas, trailing behind Coke and Dr. Pepper. In response, they took action by initiating the "Pepsi Challenge" campaign. This endeavor proved successful as it allowed Pepsi to gain a notable share of Coke's market in Dallas. Buoyed by this achievement, Pepsi decided to extend the campaign across the country. As both companies vied for national accounts, competition between Coke and Pepsi intensified even further in

the fountain drink sector. The growing popularity of this sector resulted in fierce bidding wars between these two rivals.