Brief company information
Coca-Cola and Pepsi are two companies that have fought hard to be on top in the beverages and nonalcoholic industry. Coca-Cola started as a soda beverage fountain. Expansive growth of the industry was felt when a bottling system was developed. This was in the early twentieth century when efforts to boost bottling of the products led to a rapid growth- at this time nearly 400 coca cola bottling plants were open. The growth has been gradual and during the previous century it has been a dominating company in the industry. The 21st century has seen Coca-cola bottling system with roots deeply planted in the local communities. This has worked for the good of the company because communities look for the companies, which recognize them and are ready to give back to them. This relationship between the communities and the company gives Coca-Cola a foundation on which their businesses flourish. That is why the company has been able to offer more than 400 brands in over 200 countries globally. These brands include; nonalcoholic drinks like Fanta, Diet coke and Sprite among others. The company also has other brands for light beverages, water, juice and juice drinks, teas, coffee, energy and sports drinks. The average price for the company’s share in 2006 was $45. In February 2007, the company declared quarterly dividends of $0.34 per share. (Cited in US Securities & Exchange Commission, 2006) This shows that the company is stable financially.
On the other hand, PepsiCo was introduced in the early twentieth century and incorporated later in the century in the United States of America. It manufactures wide varieties of Pepsi drinks across the globe. It came into the market at a time when Coca-Cola was rapidly growing and the products of the two companies, that is Coca-Cola drinks and Pepsi cola drinks fought really hard to get their shares in the market. A quarterly report for 2007 shows that Pepsi’s earnings increased by 13 percent on the strength of sales. Therefore this indicates that the company is doing well regardless of the stiff competition in the market. This enormous sales and stable base makes it the second largest beverage and nonalcoholic company after Coca-Cola. Pepsi’s annual revenue is approximated to be more than $35billion in 2006. In 2007 the company declared a quarterly dividend of $0.375 per share on PepsiCo common stock. The company’s principal businesses include; Frito-Lay snacks, Pepsi cola beverages, Gatorade soft drinks, Tropicana juices, and Quaker foods. PepsiCo is listed on the Dow Jones North America sustainability Index. (Kumar, 2006)
Some of the competitors in the commercial beverage market include; Cadbury Schweppes plc, Coca-Cola Co, Kraft Foods Inc, Process & packaged Goods. Some of the competitors are local companies that compete with Coke and Pepsi in the countries that these companies have established their businesses. Competitive factors impacting the beverage industry are enormous and some even are deep rooted to the people’s cultures where the products are offered. Pricing is one of the factors that determine how the product will move bearing the market’s buyer power. Advertising is a factor that is very crucial in the beverage market. For instance, Coca-Cola and Pepsi use a lot of money on advertisement and this makes them leaders in the market. They conduct sales promotion programs that suit the markets they live in. Other factors that are crucial in this market include; product innovation, increased efficiency in production techniques, the introduction of new packaging, new vending, dispensing equipment, and brand and trade mark development and protection.
Coca Cola company has a believe that that their company‘s role is to connect with customer’s globally by providing a wide variety of choices to meet their desires, need and lifestyle choices. Coca-Cola sells concentrates and syrups for bottled and canned beverages to authorized bottlers. They also sell concentrates (in powder form) for purified water products such as Dasani to authorized bottlers. The process involves finished beverages manufactured, which are sold to authorized bottlers who in turn sell these products to retailers or in some cases wholesalers. They equally manufacture and sell juice and juice products and water products to wholesalers and distributors. Coca-cola products generally are spread across the globe. Their customers’ demands predict what they employ in their business strategy since they focus on building new brands at the same time broadening their historical brand. Their company’s sales accounted for 10 percent of the worldwide sales of nonalcoholic beverages in 2004. (Cited Coca-Cola Report, 2004)This competition is brought about by the competition manifested in the nonalcoholic beverage segment, which sees Coca-cola competing in multiple geographical areas with the local firms in these areas. Other products that compete with Coca-Cola products in the beverage industry include; tea and coffee; energy and sports drinks; juices and nectars and many others. These products are packaged in ready to consume and not ready to consume forms. In many countries including the USA PepsiCo Inc is the main competitor of Coca-Cola.
Industrial analysis
The competition between Coke and Pepsi is real case studies of the Porte’s model where the risk adjusted rates are constant across the two companies. Supplier power is one of the factors that have been highlighted by Porter’s model. (Porter, 1998)Coca-Cola Company has managed to supply its products through its bottling partners successfully, while Pepsi has not been very elaborate in it supplies channels making Coke to conquer a wide spectrum of geographical region. However Pepsi has managed to supply its products in some regions which have become its strong hold. Supplier concentration is equally important and volume to supplier is crucial since it is inevitable that in some regions that quantity of Pepsi have not been supplied in large volumes the only soft drink products that are known are those of Coca-Cola Company. In some parts of Africa for example Kenya, people hardly know soft drinks rather than the Coca Cola products. Similarly in some regions of Asia people have familiarized themselves with Pepsi products. (Cited in John, 2002 pp 21) The bottom-line of the disparity of choice of the drinks lies in the amount of volumes of these company’s products that is supplied in these regions. Apart from the supplies of these products, the two companies also face competition from the local companies from these regions and other products that might be cheap in the beverage industry. The presence of the substitute products in the markets does not only affect the prices but also the final product sales of the companies.
Pepsi company advertisement strategy also plays in its rivalry with Coca Cola. Competition in the mid eighties saw Coca cola change its formula to come up with a ‘new Cola’ brand that was specifically meant to respond to the challenge the company was facing from Pepsi. Their consumers did not take this lightly after they backlashed forcing Coca Cola to reintroduce their former product in a new package. (Kumar 2006) This shows that for the both Coca-Cola and Pepsi to sustain the customers they have they ought to listen to them consistently without ignoring any negative responses but capitalizing on the positive responses. . There is also a need to invest in a thorough research that they should base on when the want to introduce a new product so that they do not encounter similar backlashes.
Though Coca-cola has dominated most areas of the world, Pepsi has dominated a good portion of Middle East, precisely Saudi Arabia and Pakistan- it sponsors Pakistan cricket team.
Pepsi also has a share in a portion of the Canadian people (Francophones). The competition between the two can be reflected in US as it was noted in the finding of 2004 that Pepsi’s total market share was about 31.7 percent while that of Coca- Cola was about 41.3 percent. (Cited in Coca-Cola Report, 2004)There was a time Pepsi had a greater share in Russia than Coca-cola but its dominance was cut as the cold war ended. PepsiCo has worked on sustaining or reducing the company’s impact on the environment through water energy and packaging initiatives.
Coca cola has a strategy of franchising – the company franchises with its bottling partners to so that they are enabled to spread tentacles all over the world, this in essence enables the company to gain a competitive advantage. To ensure that this succeeds without compromising their standards they continuously look for ways to improve the bottling system economics and they share practices throughout the bottling system. Coca-cola and Pepsi being global companies get a lot of opportunities but the success depends on how they figure out the buyer power in the areas or regions they go to. Of course challenges accompany these opportunities since some buyers are always skeptical when it comes to new products. Some of the challenges and risks that accompany these opportunities include the ensuring their products do not provide health risk and lead to conditions like obesity and inactive lifestyle. They also have to ensure that their franchises provide the right quality and quantities to meet the global standards. The two companies also have the challenge of meeting the evolving consumer preference. In essence the elucidated concepts lead to the companies to focus on the increased competition and capabilities in market place.
Other threats that affect the companies include fluctuations in foreign currency change and interest rates which sometimes see the companies get low profits despite the high sales. (Cited in Coca-Cola Report 2004) Sometimes the companies’ get high threats from the inability to maintain good relationships with their partners in bottling and thereafter leading to poor distribution of their products. This in the long run leads to poor supply of their products thus low sale translating to low profits. The franchises sometimes face strikes or work stoppage from employees that lead to either delay of supply of the products or lack of the product manufacturing in the markets. Depending on the area the companies have invested in they face increased or fluctuating cost of energy thus making their plan and profits to be unpredictable.
Coca –Cola and Pepsi have in different occasions faced unfavorable economic and political conditions in international markets especially when the government policies favor the local companies giving the foreign ones stringent measures making the companies either to opt themselves out of these areas or go into the areas and get low profits. Other apparent threats and challenges include the companies’ inability to maintain brand image and product issues such as product recall and changes in legal and regulatory environment in various countries in which the company operates. All these threats and hurdles makes the companies to sometimes pull out of very potential markets that they get inhospitable economic environment and sometimes run at a low profit.
Company analysis and Strategic comparison
Coca- cola competitive strengths starts from their ability to have powerful brands with a high level of consumer acceptance. They also have a world wide network of bottlers and distributors of company products thus making their bottling and distribution to be easy and faster. In addition, they have a sophisticated marketing capability and dedicated qualified employees. Their competitive challenges include strong competition in all geographic areas, and in many countries, high power buyers are free to choose from various competitive beverage suppliers who sometimes are local companies who sell their products at a very low prices. The quality of the products the Coca-Cola Company strive to get ensure that the public get health friendly products- this has been triggered by the high rate of obesity among the young people, so Coca-Cola ensures that their products are in the required standards.
The quality of their products has water as a main ingredient, this means that high quality water is an issue in many parts of the world and it is to the concern of the company to come up with to dig deep into their pockets to ensure that they get quality water- this in essence increase their cost of production. The company has to be consistently innovative in the kind of the products they offer or come up with since there is a consistent change of life style in the regions they do their business.
Also, financial Strength of Coca-Cola is one of the advantages that the company has over others. The company’s consistency in getting profit is a sign of its financial strength. This is advantageous for the company in terms of the investor confidence and the partners. This equally makes the company to easily get franchisees when they want to expand in various regions. In deed, no serious will invest in a company that does not only make a profit but also stable. In the long run make it for their products to be distributed across the globe.
Compared to their arch rival Pepsi, Coca-Cola Company has one of the best bottling and distributing systems owned by people who are given the mandate or authority to sell their products since Coca-Cola does not have outright ownership of its bottling network. They also have an advantage of a strong committed management and their employees’ world wide. This sees the company consistently competing effectively with other companies globally. In fact, this makes the company to get seventy percent of their income outside the United States of America.
The advertising and marketing strategies of Coca-Cola give them strength over its competitors. For instance, the company displays its products image on the T-shirts, hats, and memorabilia. These have enabled the company to succeed greatly in its endeavors. Pepsi Company on the other hand thrives in the beverage buy its aggression in its strong holds. They have strength in their diversification strategies in the foods and snacks industries. They combine the refreshment beverage services to retail, restaurant and food service customers. They therefore get a wider niche of clients compared to their rivals Coca-Cola.
Their slogan, ‘new generation next generation’ gives them basis to capture a generation that has high expectancy in life that is a generation of 18 to29 and over who are young and young at heart. They also believe that they could make this age bracket their customers and loyal to their brand. This marketing has seen Pepsi spending 637 million over five years and the end result was the recognition of the brand by the teens. (Kumar, 2006)These advertisements are run through television, radio internet and billboards.
One of the strengths that have seen the Pepsi Company into a large corporation is the company’s strong franchise system. This is complemented with great entrepreneur spirit. This franchise system is credited for billions of gallons sold yearly. Like their arch rival Coca-Cola, Pepsi have a sound financial base which enables them to spend millions on advertisements every year. This enormous advertisement budget enables the company to reinforce their products and promotions. The budget also allows the company to introduce new products and make the customers know their availability as soon as their manufacturing is accomplished. They use famous people do their advertisements thus making fans of these famous people to like their products.
Pepsi Company has also done some wise investments in their bid to diversify. For instance they made an investment in the snack food companies like Frito Lay, one of the largest snack companies in the world. (Kumar, 2006)Apart from their nature of investment they also have an advantage of updating their own quality, flavor and package their products promptly in order to satisfy their consumer needs. This is one of the biggest Pepsi strength but though their packagings are not as attractive as those of Coca-cola so the company still needs to improve on their packaging so that it can attract more people especially in areas where coca-cola has strongholds.
Though Pepsi has had a good share of their strength they too have their own weaknesses. The franchise system, which was their strong strength turned out to be heir weakness since many of the franchises have become strong and would not or do not want to be dictated on what to do. Some of these franchises are unwilling to support certain Pepsi products and sometimes produce their own private products which are in direct competitions with Pepsi products. The franchises are not willing to reinvest their profit, which makes coca-cola to capitalize on this since coke at the moment does not operate a franchise bottling system. The franchises are not also willing to purchase high quality and obviously expensive fountain equipment because of the apparent low incomes that emanate from the fountains thus this working for the disadvantage of the company in competition with their main rivals Coca-cola. (Kumar 2006)
In addition Pepsi has a weakness in the international market because it entered the market later after Coca-Cola had established relations in many countries across the globe. This actually works for the detriment of the company because the arch rival Coca-Cola has already links with the government and locals of these countries and do some social corporate responsibility duties like sponsoring activities and children orphanages and hence introduction of Pepsi products in such regions become insignificant. This scenario can be seen in regions like East Africa where Pepsi products have never had a chance to penetrate the market leaving Coca-Cola with almost a monopolistic market. However in other markets like Pakistan Pepsi has made a remarkable mark and it also sells some of their products at a cheaper price.
Another apparent weakness with Pepsi Company is its products which contain a lot of fat and sugar. It is of paramount importance for the company to ensure that its products are health friendly so as to help in solving the problem of obesity among the young people. This will in the long run see people who are of wary of their weight going for their products thus enabling them to fight strongly with their rivals- Coca-Cola – who has already come up with a diet drink which contains zero calories. Though Pepsi also has a diet Cola they ought to overspill their health concerns in the area of snacks and foods which they have diversified to.
In essence, Pepsi Company needs still to establish its financial stability so that it can compete with their arch rival Coca-Cola in on equal grounds. The company also ought to respond to different cultures in the international environment At least the company has started working on their major weakness which is dealing with franchises. The company has been dismantling the franchise system replacing it with a bottling unit.
Coke Company takes some measures to ensure that they do not affect the environment negatively. For instance, their wastewater from their plants is required by their company policy to be either be treated on site or discharged into public or private sewerage system for treatment before being returned to rivers and other natural water bodies. This in essence ensures that the aquatic life is not affected by the processes of the company. The company also ensures that wastes from their production facilities, including ingredient containers, damaged product container are well disposed. The company does this to contain or reduce the impact of their bi-products on the environment. The company has also come up with projects like Coca-Cola Global water initiative since they identify water as a global priority for their business. (Cited in 2004 Environmental Report pp7) This project ensures that water is sustainable conserved and managed as a resource in local communities Coca-Cola invest in. This in the long run does not benefit the company alone, but also the locals who reciprocate by being faithful to the company’s products. Coca-Cola Company has also come up with environmental friendly refrigeration technology. (Cited in Coca-Cola 2004 Environmental report pp5) In addition to all these measures that the company puts in place, it is inevitable for the company to adhere to environmental policies in the countries that they establish their companies.
Pepsi Co has equally played a major role in community development by involving itself in charitable organizations involved in AIDS care centers, national food distribution and many others in the localities that that the company invests in. The company has done a lot to be environmental friendly and at least reduce the impact of their products to the environment. Among their environmental friendly initiative is the ‘please recycle’ message on each and every container that they make. They have to this effect contributed to various programs that are designed to stop littering and encourage recycling. They also strive to meet the state environmental policies of the countries they operate in. Their efforts to conserve the environment were honored in 1995 when they were awarded U.S Environmental Protection Agency. Their products like Quaker, Tropicana and Gatorade have healthy, safety and environmental (HSE) management system in place. (Kinuthia, 1999 pp 14) This system is aimed at enabling them to monitor reduced effect of environmental hazards to their employees and the environment. Pepsi company supports Environmental Protection Agency (EPA) hierarchy of reduce, reuse and recycle, thus giving a helping hand in conservation of environment at the same time continuing with its business. It is therefore strategic for the company to reinforce what they have put in place in terms of environment conservation and also come up with more stringent measures to ensure that their products do not affect the environment.
According to the article Globalization; Pepsi versus Coke, there was a time when the competition between the two companies was heated. This led to the two companies taking two varied approaches hence each getting results. The challenge at the time was where they ought or wanted to take the competition between them. According to the article, Pepsi emphasized on domestic market while Coke was engrossed in the foreign market – this worked to the advantage of Coca-Cola since the company ended up having a wide niche of customers unlike Pepsi. While the strategy Pepsi took was equally of significant since it managed to get faithful customers in the domestic market. In business the numbers of customers a company has make the market share and it is this share that counts when the final returns of a company are considered. The two companies have to come up with a strategy that would see them not over relying on one single market since when some variables are not favorable in these markets they might end up in losses or even closing business. The two companies ought to go in several markets focusing on other factors like political and social changes which are very unpredictable. These factors sometimes make them pull out of the unstable areas making them go at a loss especially when they have not done business in this area for a long duration. Apart from these factors, we also have legal matters involving licensing of companies in these countries. In addition, the taxes that the companies are expected to pay should be considered. If the taxes are too high on the products that these companies offer then they have no option but to pull out or not invest in these countries.
Since the companies mostly use the locals as employees they also ought to consider the employment policies of the countries they invest in. This will eventually give them a ground on whether to employ their workers on casual, contract or permanent basis. It is an open secret that Pepsi still has work to do so that they can catch up with Coke in terms of market capitalization and market growth or share but still there are instances where Pepsi’s revenue and income has been cited growing as fast as Coke like the period between 1998-2002. This is the period that saw total revenue and net income at Coke barely increase, while Pepsi showed positive movement on both sides. (John, L 2002) This in essence is a clear indication that indeed the two grand rivals fight so hard to outdo each other. This also indicate that competition in the beverage is so stiff such that a company of the high magnitude, respectable and great capitalization like Coca-Cola can easily go to the doldrums if they become complacent and do not be consistent with their marketing focusing on the changing needs of their customers.
Summary findings
The two companies ought to strive very hard to sustain their base in the market-especially the foreign market where we have local companies offering similar products like China. Though the two titans have tried to come up with diet products mostly suiting the ladies they have neglected products that suite the children or if so done them dismally. They can do this by coming up with products with vitamins and some nutritional elements targeting and which are necessary for children. And at the same time create a cola with very light alcoholic which will be more suitable for adults. The best way the two companies can compete harmoniously is by ensuring that they have a peaceful relationship and ate the same time capitalizing on each others weaknesses.
Apparently the two companies have a common goal of sustaining and conserving the environment. Therefore it can be suggested that they share the information about environmental conservation and work together as a beverage umbrella to overcome environmental challenges. Indeed, there was a time when Pepsi and Coca Cola were co- accused of littering in USA. This denotes that theirs is a collective environmental goal that if addressed collectively will see them saving and thus even investing more on expansion and advertisement of their businesses.
The companies still ought to give back more to the societies they gain or get profit from. This in essence will give them a better image and thus confidence and a clear cut association with their customers. This will guarantee the companies die hard customers and thereafter even more sales translating to more profits. The companies also have to work very hard by setting internal environmental performance so that their customers do not create an impression that they are only after money. They should focus more on recycling and reward those who support them- like environmental organizations- accordingly. The companies ought also to come up with strategies or alternative products that will see their products are sold regularly through out the year regardless of whether conditions which can sometimes lead to a reduced consumption of their products.
It is suggested that the companies should do a thorough research before introducing a product in the market so that they do not encounter backlashes from their customers. This will eventually enable them to maintain their brand image thus avoiding the disgusting publicity of product recall.
Since the companies are contemporarily relying on information technology networks and systems (for instance internet) to transmit information and transactions, they are advised to protect their systems against date corruption, cyber based attacks or network security breeches, so that their operations are not disrupted. This might be done by their rivals especially in the localities the go to since they want to copy their secrets and replicate their products.
Coca-Cola should keenly monitor their bottling system since their enemy might use their partners to jeopardize their business while Pepsi must check their franchise system if not stop it since it is already working against them already and hence not beneficial. The companies if they are not careful might incur some liabilities in terms of the image created by their partners that is the franchises and the bottlers. The companies should in essence asses their good will, their trademarks and other intangible assets and their long term assets regularly, and ensure that they get this at their headquarters. This will ensure that they give the companies’ shareholders the right information.
Finally, the companies should recognize that they exist in societies and therefore cannot live these societies in isolation. They therefore cannot solve global and environmental challenges alone; they have to establish innovative or creative partnerships and platforms on key issues. This is what is referred to as strategic partnership. They should reinforce their partnership with NGOs, local governments, local communities, and other industrial peers to develop innovative and down to business programs, policies and solutions.
Reference
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