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The "Cola Wars Continue: Coke and Pepsi in 2010" case study re-examines the competitive environment between Coca-Cola and Pepsi over a period of a century. It discusses the rivalry between the two biggest manufacturers and suppliers of carbonated soft drinks (CSD). It presents the strategies of both companies amidst the decline in the consumption rate of CSDs.
David B. Yoffie and Renee Kim
Harvard Business Review (711462-PDF-ENG)
December 09, 2010
Case questions answered:
Case study questions answered in the first solution:
- Write a well-structured response to the "Cola Wars Continue: Coke and Pepsi in 2010" case in the context of company strategy.
- Why is the concentrate business so profitable for Coke and Pepsi? Explain using the Five (or Six if there are complementors) Forces Framework.
- Compare the industry attractiveness of the concentrate business to that of the bottling business. Why is the profitability so different?
- Based on these analyses, provide two strategic recommendations for Coke or Pepsi.
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Case answers for Cola Wars Continue: Coke and Pepsi in 2010
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Coke tries to target every customer by providing a wide variety of different beverages and in different packaging at a wide variety of retailers. For their Coca-Cola product specifically, their consumer is someone who values convenience because it is important to them to be able to have one whenever they so desire. It is something seen to be accessible to everyone so its price is low to reflect that.
They value sentimentality; Coca-Cola is something many Americans grew up drinking and the drink and the authenticity of its flavor is something almost sacred to them, which is why the release of “New Coke” failed. Internationally, it is seen as a symbol for American culture and so its consumers are those who want to experience that.
Coca-Cola can be seen as operating in the Carbonated Soft Drink (CSD) industry or more broadly in the non-alcoholic beverage industry. If looking at their Cola product specifically, then it may be useful to consider the CSD industry, but for the company as a whole and for considering future growth opportunities it is much more useful to look at the non-alcoholic beverage industry.
When using Porter’s 5 Forces model you can see that this is not a bad industry to be in, but there are some difficulties that the company needs to overcome. The rivalry is very high in this industry; there are a few large players with a lot of market share and brand power, and high price competition with many promotions being tied to purchases. Coca-Cola, being one of these large players, is in a fairly good position, but must still spend a lot of resources in marketing to remain relevant and maintain their leadership position.
There are also many different non-alcoholic beverages to choose from which increases rivalry as well. The main suppliers, can and packaging manufacturers, have low power because the CSD industry is the can manufacturers’ main buyer, and cans are essentially a commodity. Other suppliers such as carbonated water or sweetener producers do not pose a problem either.
The buyer, the consumer of non-alcoholic beverages, has high power because there is not much information needed and what is needed is readily available; the high price competition makes the switching cost to a competitor very low; and consumers have become accustomed to promotional pricing. The threat of substitutes is low in the non-alcoholic beverage industry because when you are thirsty if you’re not drinking something non-alcoholic, the only other substitutes are alcoholic beverages or tap water. In many cases, these are not…
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