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Coca-Cola and Pepsi: Examples in Product Mix Development

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Edgardo Donovan Touro University International MKT 501 Dr. Alf Walle Module 3 Case Analysis Monday, May 23, 2005

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Coca-Cola and Pepsi: Examples in Product Mix Development

Ex.1 Product Levels (Anderson/Bailey)

Coca-Cola and Pepsi are remarkable examples of companies who successfully leveraged core competencies towards expansion into new markets while knowing when to exploit and/or minimize the risks involved in such undertakings. Both companies have been able to leverage economies of scale, expand into new markets, and protect their core brands as well as warding off the possibility of cannibalization. Although, it is possible to analyze the successes and failures of Coca-Cola vis--vis Pepsi in product mix development it is necessary to reference the business culture and track record of both companies in order to properly understand the strategic benefits and shortcomings of implementing a steroid-expansion as opposed to an organic expansion approach. Throughout the latter half of the twentieth century the business world witnessed the rise and consolidation of Coca-Cola and Pepsi which was achieved in part due to their successful expansion of their cola-beverage-food product mixes. Pepsi, a relatively late arrival into the cola industry, outflanked its larger and more prestigious competitor in many new product areas by gaining majority market share in a variety of global markets. However, Coca-Cola has been able to successfully defend its industry leader position in the profitable cola market despite Pepsis numerous expensive marketing branding assaults carried out throughout the 1980s and early 1990s otherwise known as the Cola Wars. (Trout/Reis)

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Ex.2 Product Search (CartoonStock.com)

"New CEO E Neville Isdell made clear from the start that he sees little wrong at Coca-Cola Co. But as he digs into the strategic questions about how to reignite growth at Coke, he might want to take a closer look at its first-quarter earnings report. The sharp 35% rise in profits owed little to the company's 4 core brands: Coke, Diet Coke, Sprite, and Fanta. Instead, Coke got a jolt from the non-carbonated brands that were once treated as orphans by its colacentric management. it's the first good news Coke has had for some time in its battle to make up precious ground against PepsiCo Inc in the beverage industry's most competitive rivalry. Getting the noncarb business right will be a top priority for Isdell. Coke was long reluctant to diversify into any beverages that it feared couldn't match the lucrative margins of soft drinks." (Foust)

The fortunes of the Coca-Cola Company, despite early international acclaim, have been painstakingly built over a considerable period of time mostly thanks to the profit oriented and organic expansion mindset of various generations of its management. To them, concepts like first-mover-advantage, brand awareness, and even market share are just means towards profitability, net gains, and future organic growth. The Coca-Cola brand spans two centuries and is arguably the most famous of all time. However, despite being one of the first soft drink companies, Coca-Cola did not see significant financial success until after WWI. Between its bootstrap style inception and that time, Coca-Cola experienced alternating periods of prosperity and financial duress that eliminated practically all of the other first-to-market-movers in the fledgling soft drink industry. Prior to WWII, during a recessionary period in the American soft drink industry, Coca-Cola had an opportunity to buy the PepsiCola company. It chose not to do so because the market-share expansion it stood to gain via that acquisition at the time would not have brought the necessary synergy for acceptable levels of profitability necessary to fuel future organic corporate growth.

Ex. 3 Too Microsoft? (CartoonStock.com)

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"Few companies seem as pained by the thought of missing a customer as PepsiCo. Every year, the food and beverage giant adds more than 200 product variations to its vast global portfolio -- which ranges from Quaker Soy Crisps to Gatorade Xtremo Thirst Quencher. Steven S. Reinemund, chairman and chief executive officer, believes that constant quest for change, more than even quality and value, is what has driven the company to consistent double-digit earnings growth. What distinguishes PepsiCo from some competitors is an intense lack of sentimentality about its principal brands. PepsiCo's huge Frito-Lay division, which dominates 60% of the U.S. chip market and had $9.1 billion in revenues last year, has been equally adept at coming up with products to reflect changing tastes and demographics." (Brady)

The Pepsi-Cola company was small and relatively unsuccessful until a group of institutional investors and seasoned management professionals bought it and infused it with a new mission prior to WWII. They believed that if they applied massive amounts of capital along with their management expertise that they could eventually challenge Coca-Cola and at a later stage become a profitable company. Their expansion was by no means organic. Their business culture focused on spending money in pursuit of market-share through brand awareness development, building distribution channels, aggressive entry into new markets, and a costly acquisition program.

Although the first twenty years of Pepsi-Colas assault on Coca-Cola were extremely unprofitable from an operational standpoint, the original Pepsi investors still made money on Wall Street. Private investors chose to invest in Pepsi, thereby augmenting the Pepsi stock price, because they were impressed by the mind and market-share it had acquired and also because the spendthrift operational business culture of its management was camouflaged within the amalgamated financials of the dozens of companies they acquired along the way. Today Pepsi has come a long way from being the hyper funded fledgling flanking competitor hopeful of sixty years ago and is a large established multinational company. Although Pepsis success has forced its management to take a more conservative risk averse approach it still has a tendency to sacrifice operational profitability in order to achieve greater mind-share, market-share, and first-mover advantage in many markets.

Ex. 4 Product Wanted (CartoonStock.com)

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Despite having two different corporate cultures, both Coca-Cola and Pepsi have mastered the art of leveraging economies of scale, demographics analysis, trend forecasting, brand development, and full-life-cycle international product management as they pursue, albeit in different ways, profitability and market share. Significant resources are spent every year by both companies as they adapt their product management in ways that avoid detracting brand prestige and potential cannibalization.

Ex. 5 Product Ideas? (CartoonStock.com)

Companies view a brand as an important part of a product, and branding can add value to a product. Branding has become a major issue in product strategy. On the one hand, developing a branded product requires a great deal of long-term marketing investment, especially for advertising, promotion, and packaging." (Anderson)

In terms of how to best expand their international product mix it reasonable to expect both companies to continue doing what they have done best in the past. Pepsi will most likely continue emphasizing a less profitable first-mover approach while Coca-Cola will tend to adopt a less risky and more profitable staged expansion. Coca-Colas aggressive assault on the well entrenched European bottled water market (Dasani) is an example of why Coca-Cola usually prefers to adopt a wait and see approach. (Foust) Entry into a new market is usually characterized by significant costly mishaps which are best avoided by implementing a wait-and-see approach while studying the mistakes of a first mover. Coca-Cola and Pepsi are remarkable examples of companies who successfully leveraged core competencies towards expansion into new markets while knowing when to exploit and/or minimize the risks involved in such undertakings. Both companies have been able to leverage economies of scale, expand into new markets, and protect their core brands as well as warding off the possibility of cannibalization. Although, it is possible to analyze the successes and failures of Coca-Cola vis--vis Pepsi in product mix development it is necessary to reference the business culture and track record of both companies in order to properly understand the strategic benefits and shortcomings of implementing a steroid-expansion as opposed to an organic expansion approach.

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BIBLIOGRAPHY Works Cited Foust, Dean. Things Go Better With...Juice; Coke's new CEO will have to move quickly to catch up in noncarbonated drinks. Business Week, 2004. Brady, Diane. A Thousand And One Noshes; How Pepsi deftly adapts products to changing consumer tastes. Business Week, 2004. Anderson, Douglas Bailey, Bruce. Product Management. Madaille College, 1998 CartoonStock.com. Too Microsoft? CartoonStock.com, 2005 CartoonStock.com. Product Needed. CartoonStock.com, 2005 CartoonStock.com. Product Wanted. CartoonStock.com, 2005 CartoonStock.com. Product Ideas? CartoonStock.com, 2005 Ries, Al Trout, Jack. Marketing Warfare. Bantam Books, 1978

II. Works Consulted Foust, Dean. Things Go Better With...Juice; Coke's new CEO will have to move quickly to catch up in noncarbonated drinks. Business Week, 2004. Brady, Diane. A Thousand And One Noshes; How Pepsi deftly adapts products to changing consumer tastes. Business Week, 2004. Anderson, Douglas Bailey, Bruce. Product Management. Madaille College, 1998 Gates, Bill - Donovan, Eddie. Launch of Business at the Speed of Thought. Microsoft.com, 1999. CartoonStock.com. Too Microsoft? CartoonStock.com, 2005 CartoonStock.com. Product Needed. CartoonStock.com, 2005 CartoonStock.com. Product Wanted. CartoonStock.com, 2005 CartoonStock.com. Product Ideas? CartoonStock.com, 2005 Bianco, Anthony - Lowry, Tom - Berner, Robert - Arndt, Michael. The Vanishing Mass Market. Business Week, 2004.

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Allen, Gemmy. Introduction to Marketing. Mountain View College, 2005 Gladwell, Malcolm. The Science of the Sleeper: How the Information Age could blow away the blockbuster. The New Yorker, 1999 Grove, Andy. Only the Paranoid Survive. Simon and Schuster, 1995 Gates, Bill. Business at the Speed ot Thought. Warner Books, 1999 Ries, Al Trout, Jack. Marketing Warfare. Bantam Books, 1978

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