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Cola War between Coca-Cola and PepsiCo

Extracts from this essay...

Introduction

Business Studies 1 Cola War between Coca-Cola and PepsiCo Meili Wang Bing Xu 27th Nov. 2008 Introduction When a new business starts, there are always hundreds of competitors fighting for the cake division. While only minority of them can stay up to be the leaders of the whole industry after intense competition and restructuring. Especially during the process of industry globalization, there would appear huge industry giant companies. Coca-Cola and PepsiCo in beverage industry are examples for birth of giants in their industries. They have competed for the worldwide beverage market "throat share" since the past more than 100 years. During the "carefully waged struggle" period (1975-1995), both of them kept a growth rate at average around 10% for the consistent increase in the US and world Carbonated Soft Drinks (CSD) consumption. However, their comfy situation has not last a long time since worldwide consumption for Coca-Cola and PepsiCo both slowed down in the late 1990s. Therefore, they began to take corresponding "bottling, pricing and brand strategies" (Yoffie, 2002, p1). With the continuing intense competition, the cola giants are facing new challenges; this essay aims at giving possible strategies that can be applied for their further development based on detail analysis on their competitive position in this industry.

Middle

"Technological forces" Computerised technology would bring improvement to the efficiency of the bottling process and IT makes the industry easier to operate globally. > Porter's five forces analysis on "task-environment" Figure 1: Porter's Five Forces Framework (Source: Adapted from Wheelen T.L. & Hunger J.D., 2006) As it is shown above in Figure 1, Porter's Five Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. It provides a framework for analysing the nature and extent of the competition as well as company's competitive position within an industry (Campbell & Stonehouse, 2002). "Threat of New Entrants" The pressure from new entrants to the CSD industry are not very strong because potential entrants can only be the companies with vast distribution systems that can compete with the current market players. In addition, consumers are always brand loyalty in this market and this causes barriers of entry high. "Rivalry among Existing Firms" According to "2007 Annual Review" released by The Coca-Cola Company, in the US non-alcoholic beverage market, by volume, Coca-Cola covers 43% and Pepsi 31% of the market share. The rivalry between the two leaders is extremely high, but other players in the market stand no possibility in competing against the well established brands: Coca-Cola and PepsiCo.

Conclusion

The key recommendation for Coca-Cola is to gain more market shares in bottled water and other non-carbonated drinks. It must change with the times to adapt the needs for new generations of consumers and health conscious consumers. It should also communicate well with its buyers and suppliers. The most important is it must have continuing product innovation. For PepsiCo, it should stick to its product differentiation strategy and maintain its market position in the non-carbonated drink market. In addition, PepsiCo should focus on providing good pricing strategies. "From a channel perspective, Coca Cola is dominating Pepsi in fountain stations. For Pepsi, turning the tide in this channel is critical to long-term success" (Puravankara, 2007, p94) Conclusion Given the extreme competitive environment of the CSD industry and comparative analysis on competitive positions of Coca-Cola and PepsiCo, the slow growing market size, a company that is going to be successful must know well of the environment that they are engaged in. In order for PepsiCo and Coca-Cola to protect their positions, they must recognize the existing opportunities and treats. For their further development, Coca-Cola should pay more attention in product innovation to facing health trend and changeable market. While for PepsiCo, it should stick to its product differentiation strategy and focus on gaining a pricing advantage and turning the tide in channel perspective.

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