The Cola Wars
Background of the case study
Coca-Cola and PepsiCo are multinational companies that deal with the same kind of business. They deal with production and distribution of soft drinks. The Cola wars are in form of a campaign majorly targeting TV advertisements as well as marketing campaigns between Coca-Cola and PepsiCo since 1980. These two companies experience stiff competition. This is seen from a scenario that happened in 2011 where Pepsi was ranked 3rd behind Coca-Cola and Diet coke. In the previous year (2010), Diet coke emerged the best as compared to Pepsi. Coca-Cola made sales worth 1.6 billion of its regular soda. Of these, 927 million cases were of its diet soda. Pepsi sold only 892 million cases. Coca-Cola advertisements focus on nostalgia among children and they are termed as family friendly.
To entice the children, the company uses Polar bear Mascot and Santa Claus during the Christmas season. To ensure a competitive advantage, Coca-Cola made a strategic retreat in July 11, 1985. It announced to re-introduce the original classic Coke after the New Coke was introduced. The company used celebrities like Celine Dion, Bill Cosby, and Taylor Swift among others as its promoters. On the other hand, PepsiCo advertisements focus on celebrities who prefer it to Coca-Cola. Its promoters include Mariah Carey, KISS, Madonna, and Enrique Iglesias among others. To counter Coca Cola’s competitive strategy, PepsiCo introduced a long-term strategy branded as “Drink Pepsi, Get Stuff”. Customers would collect billions of points after acquiring packages and bottle caps. They would then redeem the points in exchange of Pepsi lifestyle merchandise. This program was tested and researched for two years and then Pepsi stuff, which was highly successful, was introduced.
Millions of customers subscribed to this program and Pepsi shone in the Atlanta Olympics. The Pepsi Stuff was re-introduced in 2005 and this made the two companies engage in cyber war. Coke surrendered with Coke rewards and this marked the end of the Cola war. Coca-Cola continued with its rewards that recognized customers who collected bottle caps as well as 12 to 24 pack box tops and submitted the codes online to earn a specific number of points. Pepsi collaborated with Amazon and created an opportunity for consumers to buy products using their Pepsi points.
The 11 step strategic model is critical in two ways: it describes how the major components of the strategic management process relate and it gives one the ability to analyze the case study and develop strategy formulation skills. The components view the companies as a whole with regard to the critical areas. The first section deals with the organizational mission, which describes the purpose as to why the organization exists and what makes different from other companies of a similar type. It identifies its scope and operations (Sharp, 1994). Through the company’s mission, the products that a company offer, its market share and technology used are brought are addressed. These factors reflect the values and priorities for the decision makers. Corporate social responsibility is a common feature in mission statements for it expresses how the company will help the societies that surround it.
The internal analysis of a company includes the human resources, company finances and physical resources of a company, which make up its internal environment. The quality and quantity of these factors should be considered. This component analyzes the strengths and weaknesses of a company’s management and organizational structure. The company’s previous successes and concerns are compared with the company’s current capabilities to determine its future capabilities. The external environment consists of factors that affects a company’s strategic options and define its competitive edge. Those factors are operating environment, the industry and the remote factors.
What follows is strategic analysis and choice. Assessing a company’s external environment as well as its profile makes it easy for a firm to realize a variety of attractive opportunities, which provide a strong base for investments. The available opportunities should be clearly analyzed in accordance with the company’s mission thus a selection can be done and a strategic choice is arrived at. The analysis process involves a mixture of long-term objectives, generic and grand strategies that are the building blocks of a company’s mission from the external environment. Long-term objectives are results that a company gains over a multi-year period. They involve profitability, return on investment, competitive position, public role, technological advancement, productivity and performance, industrial relations and employees’ career development.
The generic and grand strategies depict a company’s competitive orientation in the market place. These strategies range from offering the lowest possible cost, product differentiation or focusing on one line of products. Most managers seek to gain a competitive advantage through the application of the overall generic strategy. The environment is highly dynamic thus; companies use a plan of action to utilize these capabilities in order to achieve the long-term objectives. Through the grand strategy, a means as to how the objectives are to be achieved is stated. Each grand strategy is composed of a peculiar package of long-term strategies. The approaches that a company can use to utilize the grand strategies are joint ventures, bankruptcy, liquidation, diversification, integration, market development, product development among others.
Short-term objectives are the results achieved over a short period of time usually one year or less. These objectives are in line with the company’s long-term objectives. The short-term objectives provide guidance to a company’s functional and operational activities. They can be about marketing operations, usage of raw materials, employee turnover reductions, sales among others. A company can also have the functional tactics where it aims at attaining a sustainable competitive advantage. The plans set to achieve the competitive advantage are referred to as tactics. Therefore, functional tactics are detailed statements about the means to achieve the short-term objectives in order to gain a competitive advantage (Marcus, 1995).
Due to current competition and globalization, companies must operate with speed. To enhance this speed, decisions should be made at the lowest level in the organization. Policies aid in managerial decision-making. Therefore, companies should have policies that guide the thinking, decisions and actions of operating managers and subordinates. This helps them to put in practice the business strategy to establish and have control over the ongoing operating process of the firm. This implementation should be in line with the company’s objectives. Policies play a key role to increase managerial effectiveness through standardization of routine decisions hence enabling them implement business strategies.
Managers maintain a market-oriented focus in strategy formulation and implementation through action plans and functional tactics. To make these strategies successful, an internal focus is important. This is done by analyzing the best way to achieve the mission, the type of leadership required, the values to guide the process, the HR required, the kind of rewards administered among others. Systems governing company’s structure, leadership, rewards and culture may be amended to cut on costs and attain the required level of quality. Through strategic control, strategies are tracked in the process of implementation to help note problems or any relevant changes that need to be done. Continuous improvement helps managers to provide a variety of strategies that are in line with the developments in areas touching on business success.
Matching the 11-step model in the two companies helps us to understand their differences and similarities. The Coca-Cola Company is a renowned as the world’s largest beverage company. It markets over 500 non-alcoholic beverage brands, which include sparkling drinks. It also provides still waters, enhanced waters, juices, drink teas and coffees as well as energy and sports drinks. The major brands that the company owns and markets include Coca-Cola, Diet Coke, Fanta and Sprite. Since 1886, the company’s products consisting of its trademark were sold in the U.S but today they have spread to over 200 countries. The company has a strong belief that the consumers are the reason for its success and it therefore provides a variety of options to meet their desires, needs and lifestyle choices (Coca-Cola, 2012). Coca-Cola depends on its brands, financial muscles, its strong distribution system, its global reach as well as the talented managers and associates to gain competitive advantage. This fastens growth thereby creating value to shareholders.
PepsiCo was formed out of a merge of Pepsi-Cola and Frito-Lay in 1961. It was the first company to respond to consumer preference after offering lightweight, recyclable, plastic bottles (PepsiCo, 2012). The company produces and markets soft drinks with the major ones being Slice and Diet Slice. In 2007, PepsiCo’s market is experienced great expansion thus the business has remained large and profitable with brands like Pepsi, Mountain Dew, Sierra Mist, 7UP, Starbucks and Lipton. The company has over 19000 employees and reports sales worth $510 million. The employees utilize their Knowledge, Skills and Abilities working in the various company sections to make it profitable. The company has organic investments to sustain and improve its market share. This has been through highl spending on media and racks in counties like Mexico and Brazil.
PepsiCo established the Global Value Innovation Centre in order to cut on costs of equipment (coolers and fountain dispensers). This made the company increase its investments in the emerging markets in an affordable way. PepsiCo is also a leading global company in the snack business with the most-loved brands as Lay’s, Doritos, Cheetos and Sun chips. The business has thrived well in markets like the U.S, the U.K and Australia (PepsiCo, 2012). PepsiCo’s external environment has been reshaped by various forces. The changes have ensured that the company competes effectively thus thriving in the beverage and food business. Global Economic Power has been realized in the East thus becoming a potential world player. The population in the West has also shifted the result of which is increased consumption share among the baby boomers, women and small households. The consumers and the government focus on health and wellness. Consumers have changed their habits, preferences as well as consumption patterns. The government has had safety and security as its center focus. This has increased the need for proper systems to ensure ingredient and product fitness.
The Coca-Cola Company operating structure is based on its internal financial reporting. By December 31, 2012 it had six operating segments (operating groups) namely; Eurasia and Africa, Europe, Latin America, North America, Pacific, Bottling Investments and the Corporate. The company has approximately 15,900 employees and this high number has been due to acquisition of bottling operations in countries like Vietnam, the U.S, Guatemala and Cambodia. The company’s competitive strengths include bottling and distribution network, differentiated marketing capabilities and highly skilled and committed employees. The challenge is found in strong competition in the various geographical regions and other big companies like PepsiCo. The external environment of the company is majorly characterized by the government and the consumers. The governments expect the company to abide by the varied laws in the numerous countries.
As seen from the case study, each company is trying to market itself by creating a positive image to the public. This is determined by various strategies. The bottling strategy at Coca-Cola is a long-term one whose major goal is to combine the company’s bottling interests and other company’s bottling interests to form strategic business alliances. The company can also sell its interests to one of the bottling partners and have an equity method of investment. The beverage business is highly competitive and therefore Coca-Cola utilizes competitive factors like pricing, advertising, sales promotion programs, product innovation, efficient production techniques, new packages, new vending and dispensing equipment, trademark/ brand protection.
From the theoretical perspective, Michael Porter argued that a business needs to make two fundamental decisions in establishing its competitive advantage; whether to compete primarily on price/cost – cost is necessary to sustain competitive prices but price is what the customers respond to; how broad a market target will aim at (its competitive scope). Therefore, the two companies should establish effective strategies to compete against each other fairly. By using cost leadership, they should provide products or services at the lowest price (Foster, 1996). To do this successfully, they require continual, exceptional efforts to reduce costs without excluding product features and services that buyers consider essential. The companies should achieve the cost advantages in ways that are hard for competitors to copy or match. This strategy is appealing if the market place is dominated by price competition with buyers who are price-sensitive, low switching costs of buyers, large buyers with a stronger bargaining power among others.
Differentiation is another strategy suggested by Michael Porter and it appeals to a cross-section of the market offering differentiating features that make customers willing to pay premium prices by use of superior technology, high quality products, and special features in packaging among others. The strategy is likely to prevail when product innovations and technological change are rapid and competition emphasizes the latest product features. Focus is another strategy where the company can choose to narrow down to a specific customer segment and competing with the lowest prices. This is differentiation is based on price. Differentiation focus is based on offering a special brand of product. For example, PepsiCo may choose to focus on the snack business to avoid the superior competition associated with the Coca-Cola Company. This theory can be backed up by the Ansoff Matrix that emphasizes on four key strategies; market penetration, market development, product development and diversification. The case study illustrates various tactics that each company uses to achieve success.
Middle line managers are at the operational level of management and they should be willing to embrace change by being flexible. This case study touches mostly on their section and they should operate with speed and use effective tactics to gain competitive advantage. They should carefully analyze competition by: identifying the competition, identifying the competitor’s strengths, determining the competitor’s objectives and goals, identifying the competitor’s SWOT, estimating the competitor’s reaction patterns, selecting the competitors to attack and avoid and finally create a positioning map. These seven steps are crucial to enable the two companies learn each other well to be able to come up with effective strategies and apply the model. Middle line managers should conduct an intensive market research to be able to meet the customers’ needs. They should also focus on training and development to enable their employees to embrace the new technology in place.
PepsiCo has done well in the industry despite having unpopular brands. One of the strategies that the company has used is diversification where it deals with food, snack and beverage products. These various concentrations have made it have a larger market share and reap profits from different areas. The company has also focused on investments by embracing the available opportunities to ensure long-term growth and profitability in order to survive in the competitive environment. With the common chain of supply and shares infrastructure, it has been able to cut on costs. PepsiCo also encourages innovation through the support of Research and Development thus building new capabilities. The performance with a purpose strategy enables the company to deliver a sustainable financial performance. This strategy focuses on human, environmental and talent sustainability. Through the human sustainability, PepsiCo offers a wide range of foods and beverages thus the consumer has varied products to choose from. In the environmental sustainability, innovative ways to cut on costs and minimize wastage have been developed. The company conserves water and energy. Talent is ensured through thorough training of the associates by offering various online courses in the PepsiCo University. This enables them to develop skills, capabilities with the required mindsets towards a sustainable financial performance and create value. The company promotes existing products, introduces new products, and uses effective advertising campaigns, marketing programs, product packaging, proper pricing, effective production techniques and brand protection.
The Coca-Cola Company can be able to recover since it concentrates in the beverage industry thus, it does not have divided attention. The company has core capabilities that it should utilize to overcome namely; consumer marketing, commercial leadership and franchise leadership. The company should invest a lot in marketing since its brand name is popular among consumers. Before they implement any strategy, a thorough product research has to be carried out. Coca-Cola Company has millions of retailers who sell and serve products directly to consumers. The company should continually support these retailers and supply them with the required solutions. It should also use the right promotional tools to be able to venture into new markets and develop their products demands.
Conclusion
The Cola wars expound on the cutthroat competition between Coca-Cola Company and PepsiCo. Both companies apply various strategies in a bid to outdo each another. The strategic management model has the 11steps to help companies develop techniques and apply them effectively to overcome the stiff competition. Companies should understand their mission; focus on the internal strengths and the external pressures to able to overcome any external threats. Investment on research and development concerning the market share is very essential. This helps them to meet the customer needs. The grand strategies like diversification, integration, and differentiation/focus are important for a company to be able to venture into new markets as well as develop their products. Therefore, the Cola war is healthy since consumers have benefitted from product promotion, price cuts and quality services. Competition should be encouraged to provide a wide range of products for consumers to choose.
References
2012 PepsiCo Annual Report. (n.d.). 2012 PepsiCo Annual Report. Retrieved February 27, 2014, from http://www.pepsico.com/annual12/
Forster, J & M Browne (1996) Principles of Strategic Management Melbourne: Macmillan Education Australia Pty Ltd
Marcus, AA, RS Goodman & DN Grazman (1995) ‘The diffusion of strategic management frameworks’ Advances in Strategic Management 12B: 115-145
Our Company. (n.d.). The Coca-Cola Company. Retrieved February 28, 2014, from http://www.coca-colacompany.com/our-company/company-reports
Sharp, B & J Dawes (1994) ‘Does Competitive Strategy Demand Differentiation? A Review of the Deficiencies of Porter’s Competitive Strategy Typology’ paper presented at ANZAM, Wellington
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