Coca Cola vs Pepsi: Background

Research Proposal |Student Number: | PROVISIONAL TITLE |Coca Cola Vs Pepsi: how a competitive brand proliferation has determined their dominance in the global soft drink industry? | BACKGROUND | | |It is not a foreign notion that both Coca Cola and Pepsi have been competing with one another in the global soft drinks industry for many years.From the | |early stages, of both the drink brands development from 1910, when Pepsi took on Coca Cola in the American carbonated drinks market franchising 24 | |states[1]. Too the current day in which Coca Cola this year celebrated, 84 years of being the official sponsors of the Olympic Games. As well as Pepsi | |wining the bid for sponsorship of the Superbowl halftime show once more; with last year’s show being viewed by an estimated 114 million globally. 2] | | | |Their soda war has been raging for over a century. When Caleb Bradham created Pepsi in 1898, Coca Cola had already been incorporated for 6 years by Asa | |Candler who purchas ed John S Pembertons Coke recipe, and was selling a million gallons a year. By the time Pepsi had franchised 24 states; Coca Cola had | |established bottling plants in Cuba, Canada and Panama and understood the power of advertising. Ploughing large amounts of profits into marketing with | |D’Archy Advertising Company.Over the next 20 years Pepsi suffers two bankruptcies the first in 1923, the start of World War I (WWI). When government | |policies on sugar rationing left the company with no other viable option and Pepsi Cola was sold to Craven Holdings Corp. After two years the trademark | |went bust once again in 1931. Here though good fortune comes in the form of Loft Inc a candy store chain, with its intuitive president Charles G Guth; | |they initiate the first competitive pricing strategy between the two firms. Pepsi Cola introduced the 12 ounce bottle for 5 nickel in 1933.With profits | |rising Pepsi produces their first advertising campaign for radio and jukebox: †˜Pepsi Cola Hits The Spot, Twelve Full Ounces That’s A Lot, Twice As Much For| |A Nickel, Too, Pepsi Cola Is The Drink For You’. During this time Coca Cola has established bottling operations in Bordeaux, Paris, Philippines’ | |establishing a global distribution network of resources. Resulting in a huge group investment of $25 million persuaded by Ernest Woodruff who would become| |President of Coke in 1923. The investment spurs Coke to spread to Australia Norway and South Africa. | | |By 1959 Coke is now a registered trademark under the name of The Coca Cola Company, their first ever television commercial has been advertised and the | |company’s distribution network crosses 100 countries and 1700 plants. From the 1940’s onwards Pepsi have learnt from previous events and at the beginning | |of World War II (WWII) purchase a sugar plantation in Cuba to avoid disruption to business. They have also developed their products container to a can, a | |m ore progressive and modern aversion from the traditional heavy glass bottle.By 1959 Pepsi was now available in a 120 countries; differentiating their | |target market the youth nicknamed the ‘sociables’. At this point, for the first time both Coca Cola and Pepsi Cola are equals. In the sense they have | |established equally strong global distribution networks and have similar levels of assets. | | | |Albeit in 1960 Coca Cola was not complacent with sharing the lime light with Pepsi Cola, and initiates a merger acquiring Minute Maid Corporation in | |response.This causes a domino effect over the next few years with Coca Cola introducing Sprite and Diet Coke. Pepsi Cola merges with Mountain Dew adding | |to their trademark and then merging into the snacks industry with Frito Lay Inc creating PepsiCo Inc, as well as introducing Diet Pepsi. Both brands have | |continued to develop and expand. To this day The Coca Cola Company is consists of over 400 brands[3] and Pepsi con sisting of 22 food and beverage | |brands[4]. | | |Although Coca Cola and PepsiCo are prestige brands, they both remain global market powers in a vigorously competitive soft drinks industry, valued at total| |value US$30. 3bn by 2008[5]. Their success is down too their strategic behaviour in response to changes in the market structure, changes in market demand | |and product development over the last 84 years. Both brands have practiced archetypal methods such as pricing strategies, mergers, product | |differentiation, in order to compete with one another for market dominance.To such an extent the market has developed into an oligopoly, in which they | |hold a large market share stifling other competition. This type of competition is discussed in great detail in the Journal of Economics and Management | |Strategy, where company strategic behavioural responses are explained by using various oligopoly competition theories such as Cournot, Bertrand competition| |and Pure strategy Nash equilibrium games. Some of the articles within the Journal are specific to Coca Cola and Pepsi, proving that my topic is both | |contemporary and relevant. 6] The journal also embarks on the effectiveness of constant research and development to maintain product differentiation in the| |market. [7] The journal contains articles relevant to the soft drinks industry[8] and articles that can explain certain company actions like recipe | |patents[9]. | | | |Coca Cola and Pepsi’s century long soda war can be analysed stage by stage, each brands reaction to the other is a carefully thought out plan in which the | |sole purpose is ultimately to overcome the rival brand last move in a continuingly competitive game. RESEARCH QUESTIONS AND OBJECTIVES |The main objective of this piece of research is to examine the strategically competitive decisions made by both Coca Cola and Pepsi over the last 84 years;| |that have developed both brands into establishing themselves as significant pow ers in the global soft drinks industry. | | | |My aim is to go through both brands commercial history identifying key events and competitive moves, such as the first pricing strategy instigated by Pepsi| |in 1933, and Coca Cola’s merger of Minute Maid in 1960.Using officially endorsed company literature to establish a thorough history since 1986 to the | |present day. Such texts as ‘For God, Country and Coca Cola: The Definitive History of the World’s Most Popular Soft Drink’[10] and ‘Pepsi 100 Years’[11] | |and each corporations global web sites (www. pepsico. com/www. coca-cola. company. com) will be essential to collating a empirical investigation. | | |Once I have compiled a detailed history for both companies, it will be clear that there are certain strategies that have been used to increase either | |brands market power. I will use microeconomic theory with the aid of scholarly papers, journals and market records (some of which I have referenced in my | |background) to explain the reasoning behind instigating the strategies and why they were a success to either Coca Cola or Pepsi brand proliferation.I have| |already outlined briefly a few key implemented strategies in my background; the innovation of the Pepsi can, Nickel for a Nickel decade, Minute Maid | |Corporation merger, but there are other notable tactics. | | | |Each chapter will be based on an individual event or commercial decision which I will have identified after further investigation, with the chapters in a | |chronological order. In each chapter I will analyse the motive for the action, the economic strategy implemented and its direct effectiveness on the soft | |drinks industry.When concluding my research, I hope to have a synopsis of how; when the right strategy is applied in the right climate it can have a | |profound effect on a company’s demand and supply leading to increase in profits and market share too brand proliferation[12]. Alth ough my research is | |focused on coca cola corporation and PepsiCo it may be prudent to research another leading corporation within the global soft drinks industry i. e. Nestle | |Sa or Suntory Holdings Ltd. An investigation may reveal a ype of industrial organisational strategy which has not been used in Coca Cola and Pepsis | |relationship. I could provide this strategy as a suggested forthcoming policy to deal with Coca Cola and Pepsis modern day feud such as the Olympic | |sponsorship dispute[13] | REFERENCES |1. |Mark Pendegrast (2000). For God, Country and Coca Cola: The Definitive History of the World’s Most Popular Soft | | |Drink. 2nd ed. US: TEXERE (Thomson Corporation). ix-621. | |2. |Stoddard (1997). Pepsi: 100 Years.US: General Publishing Group U. S. 1-208. | |3. |Dhar, Tirtha 1 ; Chavas, Jean-Paul 2 ; Cotterill, Ronald W 3 ; Gould, Brian W 4 . (2005). An econometric analysis of | | |brand-level strategic pricing between Coca-Cola Co. and PepsiCo. An econometric analysis of brand-level strategic | | |pricing between Coca-Cola Co. and PepsiCo. 14 (4), 905-932. | |4. |J. C. Louis and Harvey Z. Yazijian. (1980). The Cola Wars: The Story of the Global Corporate Battle Between the | | |Coca-Cola Company and Pepsico, Inc. Business History Review. 5 (04), 386-590. | |5. |Dube, Jean-Pierre. (2005). Product differentiation and mergers in the carbonated soft drink industry. Product | | |differentiation and mergers in the carbonated soft drink industry. Journal of economics and management strategy 14 | | |(4), 879-904. | ———————– [1] Kim Bhasin. (02/11/2011). COKE VS. PEPSI: The Amazing Story Behind The Infamous Cola Wars. Available: http://www. businessinsider. com/soda-wars-coca-cola-pepsi-history-infographic-2011-11? op=1. Last accessed 04/11/2012. [2] Sports Illustrated. (2012). Pepsi