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The Cola Wars Essay

There are two well known beverage companies, Coco-Cola and Pepsi. They have competed considerably and distributed the beverage market profit for several decades. In the open market, it is difficult to exactly tell which one is the winner within the perfect competition, since both companies use different style of promotion and product to expend their markets. The competitive environment of the carbonated soft drinks started about three decades ago. In the beginning of 1960 Coco Cola was dominating the market but this dominance was significantly challenged by Pepsi- Cola.

This challenge by Pepsi was declared as Cola Wars. During this competitive war a variety of products were introduced from both sides. Lot of $ amount was spent on celebrity advertising and even coke changed its formula. The strategic changes occur due to Pepsi’s challenge to the dominance of Coca Cola. In spite of the fact that Pepsi Cola attacked on the dominance of Coca Cola in bottled soft drink, both Pepsi-Cola and Coca-Cola have benefited from this battle due to stimulated continuous growth of the industry. During this Cola war both the companies faced lot of problems which we shall discuss in the light of the case study on Cola wars. Brief History of Coca-Cola

John Pemberton invented the original formula of Coca-Cola way back in 1885. By 1888, three versions of Coca-Cola were introduced. Candler incorporated the Coca-Cola and started its marketing. Coke achieved the status of national drink in USA. Coca cola bottles sale started in 1984 and in 1955 sale of cans was started. Chattanooga became the first site for Coca-Cola bottling company in 1899. In 1985 Coca-Cola attempted to introduce new formula. Most of the consumers liked the taste but so many ceased the purchasing because of certain reasons , therefore company switched back the new product and gave it the name of Classic Cola. In the 21st century coca cola history achieved another milestone and introduced Diet coke in 2005 and latter introduced Coca-Cola Zero. During this the company faced may ups and downs in the international market, particularly faced tough competition given by PepsiCo and the competition of both companies was give the name of Cola wars . Brief History of Pepsi-Cola

Like Coca-Cola, Pepsi-Cola also started in the late 1800. In 1883 Caleb Bradham a pharmacist invented Brad’s Drink which was latter known as Pepsi-Cola. In 1904 the availability of Pepsi was in the six ounce bottles. The initial growth was not significant compared to Coke. In 1950 when Pepsi was near to bankruptcy, Alfred joined as CEO and a real challenge to coke started, Alfred made the goal to beat Coke. In 1963 the company introduced 16 ounce Cola. Pepsi-Cola competed, Coca-Cola through (sirpepsi.com) increased franchise bottling network after 1932 and expended its products range. Pepsi makes an advertising history when it introduced first advertising jingle broadcasted nationwide. The jingle Nickel, Nickel became a hit and was translated in 55 languages. In 1964 Pepsi Diet was introduced. Pepsi has increased its product range over the years and the range includes Mountain Dew, Diet Pepsi, Sierra Mist, Aquafina and Starbucks etc. Pepsi has also taken over Gatorade from Quaker Oats in 2000, which is its part of diversification of business.(ezinearticles.com) Pepsi has competed Coke in many countries and gave Coke a tough time to retain its market share. Now Pepsi Cola stands No.2 in the soft drink market after Coca-Cola and in some of the countries it stands No.1.

The Coca-Cola Company’s Resources and Capabilities Coca-Cola’s differentiation and competitive advantage are mainly due to its numerous valuable resources and capabilities.

Intangible Resources Coca-Cola’s greatest strengths reside in its intangible resources. It is mainly thanks to its reputation and brand equity, that it can differentiate itself from its competitors. In fact, in 2006, Coca-Cola was the world’s most valuable brand, worth $67.5 billion, according to research by Interbrand (Grant,2008, p. 134). Its name and products are well known and appreciated in nearly every single country in the world and its availability enables Coca-Cola to nearly always be at one’s reach if desired or needed, just as it promises to do in its mission. It relies heavily on product innovation, marketing and developed distribution systems in its differentiation strategy. This has enabled it to be the market leader since many decades and to maintain this position, even catching PepsiCo up in the race for the 2nd most sold soft drink (Alani, 2011). It has gained great loyalty over the years, of consumers who would not drink anything else but Coca-Cola products. In fact, some have become so loyal that when Coca-Cola introduced New Coke with a new recipe, it was a tremendous failure, underlining that authenticity is more important to consumers (Greenwald, 2005).

Human Capital The Coca-Cola Company has about 139,600 employees globally, working and living in over 100 different countries. As attracting and retaining talent all over the world is one of Coca-Cola’s most important goal, the company takes pride in its leadership and innovation programs, empowering its employees and wanting to create an inspirational workplace. Creativity and passion are some of the core values that are shared across the company worldwide. (The Coca-Cola Company, 2012).

Tangible Assets The Coca-Cola Company can count on sound, substantial tangible assets that have even been growing in the past few years. Some figures include the firm’s cash level: $12.803 billion in 2011 (increased from $8.517 billion in 2010), total current assets: $25.497 billion in 2011 ($21.579 billion in 2010) and plant and equipment: $14.939 billion in 2011 (compared to $14.727 billion in 2010 and $9.561 billion in 2009). (Yahoo! Finance, 2012). All these figures show that Coca-Cola can count on vast tangible resources to finance its operations, acquisitions and other activities such as marketing and corporate social sustainability.

Coca-Cola’s Capabilities Coca-Cola has great tangible and intangible resources. Its products, factories, bottling partners and financials are resources that enable Coca-Cola to ensure quality, flexibility and responsiveness. One can count on the firm’s consistency and worldwide presence and continuous supply. Also, the company’s human capital and brand equity are other resources that create long-term value, loyalty and performance. These are really the firm’s core assets, on which it has built its sustainable competitive advantage. All these assets enable Coca-Cola to outperform its competitors consistently by being globally available, coherent, and innovative.

Future Considerations The company’s history, brand equity, people and partners are assets that are difficult to imitate while being extremely valuable. Also, Coca-Cola’s most traditional itself is not replicable, as its recipe has always been kept a secret and it has been able to appropriate its resources (through secrecy, increasing bargaining power and embeddedness). Its strategy and competitive advantage have been so sustainable mainly thanks to these resources and the durability of its product. Coca-Cola is constantly working on maintaining these advantages in order to remain the market leader. Its acquisitions (both up and downstream the value chain and horizontally, of diversified products) and its persistent marketing efforts prove the firm’s intention to remain on top of the industry and tackle all challenges early and innovatively. It takes many of the opportunities it sees, including entering the healthier products market (100 of the latest 800 products it introduced were low calorie or low sugar) and increasing its sustainability and corporate social responsibility efforts (consuming water in a more sustainable manner, helping causes all around the world, etc).

The Coca-Cola Company’s strategy and competitive advantage are extremely sustainable, although some threats do lie ahead. Increasing competition and lack of resources (or government regulations on these resources) are main issues that the firm will face. Competition from cheaper brands, from more local products, or from healthier, niche brands is really increasing and could decrease Coca-Cola’s market share considerably in the future. They will need to differentiate themselves even more and focus on their core competencies and assets, which are the most sustainable. The company’s new emphasis on environmental and social measures is a great start to increasing the preservation of the planet’s limited natural resources and increasing its brand equity and awareness.

PepsiCo’s Resources and Capabilities

Intangible Resources Similar to The Coca-Cola Company, PepsiCo’s strategy is mainly based on establishing a differentiation advantage. Its strong intangible resources enable it to be a strong competitor. In fact, its brand equity and other intangibles such as its reputation, strategic relationships with suppliers, bottling partners and distribution centers result in customer loyalty. The performance- and family-oriented culture (especially visible amongst executives is another asset that leads to firm’s long-term success, as developed by Morris (2008). The overall awareness and availability of Pepsi products increase the value of this brand equity.

Human Capital PepsiCo is a massive company in terms of its sheer size alone, with a workforce of nearly 300,000 employees. Performance is strongly rewarded and employees enjoy generous benefits. Communication and collaboration between teams and divisions are facilitated through general openness and support for the upper management and executives. Its workforce is well trained and selected for its motivation and skills. (PepsiCo, Values and Philosophy, 2012)

In the light of its executives’ recent decision to reformulate Pepsi’s strategy and restructure the firm accordingly, the CEO announced in February 2012 that 8,700 employees would be laid off, spanning over a range of thirty countries, representing about three percent of its current workforce (Huffington Post, 2012). This should lead to reduced costs, increased efficiencies and larger investments in marketing and research and development.

Tangible Resources One of the main differences between Pepsi and Coca-Cola is that PepsiCo is diversified and has a strong global presence in the convenience food industry too. This enables PepsiCo to have even larger global sales and outreach, with more economic stability and mitigation of risks as a result of all its product diversification. Even when carbonated soft drink sales started to drop a couple of years ago, PepsiCo still had strong revenues and performance in other sectors, such as its Frito-Lay snacks.

PepsiCo’s tangible resources can be summarized with some figures. Its cash levels were $4.067 billion in 2011 ($3.943 billion in 2009), its total current assets were $72.882 billion in 2011 and $12.571 billion in 2009) and its plant and equipment amounted to $19.698 billion in 2011 (compared to $19.058 billion and $12.671 billion in 2010 and 2009 respectively). These are lower than Coca-Cola’s and PepsiCo assets were overall better in 2010 than in 2009 and 2011, maybe due to recent strong investments in Pepsi NEXT and other global acquisitions. (Morningstar, 2011).

PepsiCo’s Capabilities Overall, PepsiCo’s diversified tangible resources, skilled and intensively trained workforce and strong brand equity lead to its financial control capability and exemplary strategic management of multiple businesses. These enable PepsiCo to successfully manage its large portfolio and stronger diversification which in turn leads to larger sales and revenue, but also economies of scale and synergies mainly in its research and development, distribution and marketing functions (Grant, 2008). Also, its culture and structure lead to responsiveness and innovation. PepsiCo is capable of ensuring the quality and constant availability of its products in thousands of locations across the world. Moreover, the fact that PepsiCo is involved in different businesses has also enabled it to build on its healthy new image in many areas which creates even more coherence and credibility, as it can combine owning more nutritious and healthy drinks now with the production and sales of low calorie and low fat snacks or meals.

Future Considerations PepsiCo has been growing and innovating successfully for decades, despite the recent slower growth challenges it has faced. PepsiCo’s extremely large and diversified portfolio, sales in over 200 countries and its long-term efforts for employee empowerment and satisfaction and strategic relationships with partners are some of the main reasons why PepsiCo’s competitive advantage is sustainable. Its brand names and global presence are so significant that it would be tough to lose its advantage to competitors, new entrants or substitutes, especially as it is still extremely innovative and investing a lot in its future growth plans with its strong R&D, new healthy products following or leading global trends and emphasis on doing good to the planet and its inhabitants and to its all its stakeholders as a whole (PepsiCo, 10-K Report, 2011).

PepsiCo’s performance and future could be rather optimistic. PepsiCo is successfully taking advantage of its opportunities (sustainability and healthy product diversification) while responding to its threats (ensuring the sustainability of natural resources such as water and potato fields) through several of its new programs and adaptation to global consumers’ tastes and needs with innovation and speed-to-market (PepsiCo, Purpose, 2012).

All these should be positive signs for the future, although not everything is as simple given PepsiCo’s recent challenges exhibited in its financial performance and shareholders’ dissatisfaction. Also, nothing guarantees that investments and innovation will pay off, with the launch of Pepsi NEXT that could be yet another failure in the industry. PepsiCo will have to prolong its efforts in its corporate social responsibility measures, in ensuring quality franchises (with its bottling partners mainly) and in developing and marketing successful new products, starting with Pepsi NEXT. It is thus refocusing its resources and capabilities on these new opportunities that Coca-Cola is also exploiting fully.

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