Case Summary of Cola Wars Continue: Coke vs. Pepsi in the Twenty-First Century
The Soft Drink industry has been assigned as the vehicle for tackling the topic of industry analysis and competitive dynamics. The case covers developments in the soft drink industry through 1993. It describes how the industry evolved into its current structure largely following Coca-Cola’s leadership. What is particularly interesting is determining why the major competitors in the industry have been able to earn above normal returns for close to 100 years, and why the industry is organized the way it is. The case allows us to analyze how the actions and reactions of competitors over time work to create their ...view middle of the document...
Apart from Pepsi, no strong competition.
b. Coke had high profit margins by shifting some cost to bottlers. Globally recognized product that could be sold for a premium. Expanded manufacturing and distribution system that kept prices low.
3. Prepare two five forces models of the Soft Drink Industry: one for the late 1970’s/early 1980s and one for the mid 1900s. [Be sure to show at least the concentrate and bottlers segments of the industry in your diagrams. Note that the bottlers are “buyers” from the concentrate perspective, and the concentrate manufactures are “supplie
rs” from the bottlers’ perspective.] How have the industry’s competitive forces changed over time?
a. In the very early years there was plenty of competition between small cola companies. Coke emerged as the strong leader and Pepsi soon followed. Up until recent there was minimal competition
b. The Models are on pic1 and pic2.
4. Compare the economics of the concentrate business to the bottling business: why is the profitability so different? Why do concentrate producers want to integrate into bottling?
a. Concentrate business: Concentrate producers were dependent on the Pepsi and Coke bottling network to distribute their products. Starting and maintaining a concentrate manufacturing plant involved little capital investment in machinery, overhead, and labor. Significant costs were for advertising, promotion, market research, and bottler relations. Producers negotiated with bottlers’ major suppliers. One factory could server the entire united states.
b. Bottlers: Purchased concentrate, added carbonated water, added corn syrup, bottled it, and delivered it to customer accounts. Gross Profits were high but operating margins were razor thing. Bottlers handled merchandising. Bottler’s could also work with other non-cola brands.
5. What is happening in the soft drink industry? How do the major developments
affect smaller competitors?
a. A rise of non-cola beverages.
b. Bottled water.
c. Sports drinks.
d. Tea based drinks.
e. Juice based drinks.
f. Dairy based drinks.
g. Non-carb based drinks.
h. Some smaller competitors have been purchase (SoBe by Pepsi) while others now have to face stiff competition from Pepsi and Code.
6. How was Pepsi able to gain share in 1950s? In the 1960s and early 1970s? After the Pepsi Challenge? Consider each period separately, and be specific. Why didn’t Coke respond? What provoked the eventual response by Coke beginning in the 1980s?
a. 1950s: Alfred Steele, a former Coca-Cola...