Reference no: EM133613205

Case: Coke and Pepsi have led the carbonated soft drinks (CSDs) industry throughout the world for decades. Even though their CSDs are almost identical, these brands have different backgrounds and take varied approaches to their global strategies. Coke initially established a majority market share in many countries, while Pepsi expanded much more slowly, with little success at the beginning. The countries that Coke expanded quickly into tended to be markets that had relatively low CSD consumption, but high market growth potential. For example, China and India both represented large populations with very few people drinking CSDs on a regular basis. Pepsi is notable for turning Coca-Cola's failures into its successes. Initially, Pepsi marketed to countries, such as the Soviet Union, that had blacklisted Coca-Cola products for various reasons. Pepsi later pushed globalization in the 1990s and eventually gained a large market share in developing countries, such as Vietnam and Pakistan, but Coke still led the industry on an overall global level. However, market analysts did not give up on Pepsi. In fact, PepsiCo, the parent company of Pepsi, leads the world in snack food business sales. Some believe that PepsiCo could implement a similar global approach to become the number one soft drink company. Also, Pepsi has nearly caught up to Coke in many demographics within the United States. If they can do these things internationally, Pepsi might pose more of a threat to Coca-Cola's market share. Cola Wars: Three Countries Three countries will be discussed regarding their CSDs and the rivalry between Coke and Pepsi: India, Mexico, and China. Each has an incredible market potential for the soft drink industry. India By population alone, India would be an ideal location to expand a business, with hundreds of millions of people to consume carbonated soft drinks. This, along with a humid climate, and the economic reforms that occurred in the early 1990s, make it an ideal location for soft drink industry leaders to relocate. Unfortunately for cola drink companies, Indians' tastes and drink preferences do not favor cola products. They prefer clear sodas and citrus-flavored drinks. Cola drinks make up less than half of all the soft drinks consumed in India. In addition to taste preferences, cola sales in Inida were hampered by highly-taxed distribution costs and a lack of vending machines throughout the country. The majority of cola sales come from various fast-food restaurants. Political instability also hindered the growth of Pepsi and Coca-Cola operations in India. In fact, strict anti-foreign laws were implemented along with the growing anti-foreign sentiment that pushed the two companies out of India. Pepsi eventually returned, thanks to a deal in which they agreed to export five times the amount of Indian products as Pepsi products imported. Over time, Pepsi became a key bottler and franchiser of soft drinks in India, netting a third of the soft drink market in India. Coke left India when the government demanded the company reveal its secret formula in order to be allowed to stay in the Indian market. Coke later returned in a joint venture with a company called Parle. However, this second market entry was not favorable as well. Due to some cultural conflict between the two companies, Parle eventually turned against Coke and put Coke back on the blacklist in India. Coke was not the only one struggling in India. Allegations of Pepsi carelessly polluting the groundwater with pesticides and consuming too much of the groundwater led to a public outcry against the company, despite these claims being revealed as baseless. Given all of these problems within India, Coke still managed to claim a 56 percent to 38 percent edge over Pepsi in the CSD Indian market share. Mexico Apart from the United States, Mexico was the largest soft drink market in the world. The Mexican CSD suffered from market fragmentation by regional producers of carbonated beverages. Distribution channels, such as supermarkets and warehouse clubs, became much more prominent in Mexico. Coke quickly established distribution networks throughout many regions of Mexico. They also used coke bottles, which could easily be recycled and reused. Consumers enjoyed refunds from recycling and retailers reused the bottles after sterilization. Pepsi knew they faced a daunting task in chipping away at Coke's stronghold on the market share in Mexico. They spent three-quarters of a billion dollars on new production lines, marketing, bottling, and improving other parts of the production, effectively tripling their share. Coke struck back with steep discounts-the subsequent devaluation of the peso dampened the "Pepsi miracle of Mexico." Market share eventually stabilized, but gains have stagnated over the years. China China's enormous population and, ipso facto, potential market share have enticed companies for years. In fact, a Coke CEO had noted that if per-capita CSD consumption in China could be raised to the level that existed in Australia, the added volume "would be the equivalent of another Coca-Cola company." Unfortunately, the Chinese government placed sanctions on Coca-Cola in 1978, significant enough, that entry into the market was more difficult than anticipated. Chinese consumers have had a traditional relationship with and a historical preference for tea, and similar to India, they did have the desire for citrus flavors, such as lime and lemon drinks. Unfortunately, a rumor circulated that the caramelized color of most colas caused birth defects in women, leading to a loss in cola sales; notedly, juice consumption in China has grown significantly. Coke has the distinction of being one of the first American companies to return to China after the 1978 reforms. After re-entering the country, it made strong partnerships with bottlers and plastic firms that proved to be the key to the success of the company. Pepsi has also seen its share of success in China. After returning to China in the early 1980s, it established a joint venture with a bottling plant in Shenzhen, building up their bottling network via joint ventures with regional companies. It eventually became the most popular soft drink for young people, thanks to key endorsements from pop stars. In fact, Pepsi closed some plants in the United States in order to maintain its momentum in China and India. Currently, Coke maintains over half of the market share, with Pepsi possessing about a third. Though not quite equal competitors, both companies have been successful in the Chinese soft drink industry. Case Discussion Questions Are these three markets attractive for soft drink firms? Conduct a PEST analysis. If so, how can Pepsi best "catch up" with Coke in each given market?