Coke Wars Case Study

Introduction

The rivalry between Coca-Cola & Pepsi can be deemed as legendary, “the top soft drink competitors in the world spend millions of dollars yearly to try and convince you that their version of soft drink is better” (Dotson pg 1).

Over the past century, it seems they have feuded over everything from who has superior taste, to the pursuit into space, and more recently over NASCAR and the social media race. Regardless of who is ahead in the competition, the battles between Coca-Cola & Pepsi demonstrate important strategic adaptations that the corporations must execute so as to thrive in the constantly changing realms of customer satisfaction, business environments and technology.

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This paper will:

1. review the strategic issues presented in the “Coke Wars” case through the use of the Strategic Management Model as applied to both Coca-Cola & Pepsi;
2. highlight fundamental strategies & tactics so as to analyze the inherent competition between both corporations;
3. discuss implications of concepts presented in the case for the middle manager so as to grasp lessons learned for future application.

Strategic Management Model (SMM)

The text describes strategic management as “the set of decisions and actions that result in the formulation and implementation of plans designed to achieve a company’s objectives” (Pearce, Robinson pg 3). With this definition in mind then, the Strategic Management Model can be considered as a very useful framework by which managers plan and implement business strategies.

More importantly, in today’s global business environment “firms need perfect processes that respond to increases in the size and number of competing firms; to the expanded role of government as a buyer, seller, regulator, and competitor in the free-enterprise system; and to greater business involvement in international trade” (pg 3). Furthermore, while “businesses vary in the processes they use to formulate and direct their strategic management activities…the basic components of the models used to analyze strategic management operations is similar” (pg 9).

In reaction to internal and external environmental business/economic pressures Coca-Cola & Pepsi have manipulated the SMM in various ways so as to remain viable/powerful competitors in their respective industry. Coca-Cola Model Application According to the Coca-Cola Company’s Annual Report 2011, they are “the world’s largest beverage company…with more than 500 nonalcoholic beverage brands…own the world’s top five nonalcoholic sparkling beverage brands…products bearing their trademarks, have been sold in the United States since 1886, and are now sold in more than 200 countries” (pg 1).

Coca-Cola’s report to shareholders reveals that they are continuing to remain competitive in the beverage/snack industry due to a multitude of intelligent strategic decisions. When analyzing Coca-Cola from the Strategic Management Model perspective one can determine that while the internal/external environment will always remain unpredictable, the development of viable plans/processes can assist a corporation in remaining flexible and responsive to necessary change. Coca-Cola’s Mission is “to refresh the world…inspire moments of optimism and happiness…create value and make a difference” (Annual Report Mission, Vision, and Values).

Their current goals are “to use company assets—brands, financial strength, unrivaled distribution system, global reach and the talent and strong commitment of management and associates—to become more competitive and to accelerate growth in a manner that creates value for shareholders” (pg 1). Overall, the mission statement is quite powerful and accurately “describes the company’s product, market, and technological areas of emphasis in a way that reflects the values and priorities of the strategic decision makers” (Pearce, Robinson pg 10).

With respect to Internal Analysis, the corporation has identified its “operating structure as the basis for financial reporting” and is broken down into 7 different operating groups (Annual Report pg 2). The method for financial reporting is important because this is where/how investors and executives alike assess the “quantity and quality of the company’s financial, human, and physical resources…and contrasts company’s past successes and traditional concerns with the company’s current capabilities” (Pearce Robinson pg 11).

Coca-Cola’s Annual Report is well designed, informative, and relatively easy to read as well. An important internal analysis factor of note is that of leadership—CEO’s and Board members alike must adequately analyze the direction/vision of the corporation so as to not become “fixated upon past glories…instead embracing new opportunities” (Ward pg 3). The External Environment that the company experiences is one full of pressures to include: extreme competition, distribution system management challenges, and social responsibility struggles.

Additional competitive factors include those of “but not limited to pricing, advertising, sales promotion programs, product innovation, increased efficiency in production techniques, the introduction of new packaging, new vending and dispensing equipment, and brand/trademark development & protection” (Annual Report pg 8). Concerning Strategic Analysis and Choice, Coca-Cola can be considered as “effective at building sustainable competitive advantage based on key value chain activities and capabilities” (PR pg 11) and have identified their bottling operations as equity method investments.

The “investments are intended to result in increases in the unit case volume, net revenues and profits at the bottler level, which in turn generate increased concentrate sales for the company concentrate and syrup business…when this occurs both the corporation and the bottling partners benefit from long-term growth in volume, improved cash flows, and increased shareholder value” (AR pg 7). The Long-Term Objectives should reflect areas such as “profitability, return on investment, competitive position, technological leadership, productivity, employee relations, public responsibility, and employee development” (PR pg 11).

According to the provided case materials, the company has strong goals for the future and “has transformed into a more innovative, risk taking company…becoming more adventurous in responding to changes in the beverage market for healthier alternatives” so as to respond to customer desires, technology, and competitive environment (Ward pg 3). Coca-Cola’s Generic Strategy is that of differentiation, making their products superior to those in the industry, “by stressing the attribute above other product qualities, the firm attempts to build customer loyalty” (PR pg 158).

Their Grand Strategies can be defined as concentrated growth, market development, product development, innovation, vertical integration, turnaround, and strategic alliances. Coca-Cola is increasingly globalized and their Generic and Grand strategies seem to be creating valuable success for the corporation “and is transforming into a more innovative, risk-taking company” (Ward pg 2). Short Term Objectives for the corporation involve effective marketing strategies that appeal to existing customers and new clientele as well.

They have embraced social media, the health craze and more recently the 2012 Olympics to successfully reach an increasingly global audience. In fact, “Coke’s strongest performance has been experienced in emerging markets in Russia, China, and Brazil, and has also improved its position in North America and Europe as well” (pg 3). Action Plans are incorporated and employed globally by executives and managers alike at Coca-Cola and those plans are laid out in the Annual Report.

Everything from distribution systems, bottling methods, responses to competition, raw material acquisition, and investment plans are outlined which provides exact methods by which the corporation plans to remain a viable player in the industry. In sum they plan to “use the Company’s assets—brands, financial strength, unrivaled distribution system, global reach and the talent and strong commitment of management and associates—to become more competitive and to accelerate growth in a manner that creates value for shareholders” (Annual Report 2011 pg 1).

Functional Tactics used by the corporation to achieve short term goals and attain competitive advantage include adoption of marketing strategies that appeal to not only health conscious customers but to a global audience. In fact “Coke is bringing out mid-calorie versions of some of its brands like Sprite and Fanta, and is teaming up with Grammy award winner Mark Ronson for its 2012 London Olympics anthem” (Hernandez pg 1).

Additionally, Coke “continues to focus on selling soft drinks globally and even vows to rebuild Coke sales in the US market” through focusing upon non-carbonated sports drinks such as PowerAde, Aquarius, and Fuze (D’Altoro pg 2). Coca-Cola absolutely has Policies That Empower Action as demonstrated by the information contained in the Annual Report and via their website: “Work Smart: Act with urgency, remain responsive to change have the courage to change course when needed, remain constructively discontent, and work efficiently” (Coca-Cola Website pg 2).

The “work smart” mentality allows for decisions to be made whenever possible at the lowest level of the corporation. Organizational Structure is segmented into the following areas: “Eurasia and Africa, Europe, Latin America, North America, Pacific, Bottling Investments, and Corporate” (Annual Report pg 2). Coke is predominantly organized into an international area structure that allows for operational efficiency and regional competitiveness.

However Coca-Cola faces the additional struggle of remaining socially responsible to societies and environments in which it operates and has faced several legal implications with respect to human rights issues in South American Bottling plants. Nonetheless Coca-Cola reiterates that “despite the volatile environment, the company and its bottling partners have maintained operations and worked to provide safe, stable economic opportunities” for the people in nations that they operate in.

Strategic Control and Continuous Improvement is facilitated by Coca-Cola’s organizational structure, leadership, and 2020 Vision campaign. In fact their website reiterates that in order “to continue to thrive as a business over the next 10 years and beyond, they must look ahead, understand the trends and forces that will shape their business in the future and move swiftly to prepare for what is to come” (Coca-Cola Website).

This statement reveals that the corporation is committed to “detecting changes and making necessary adjustments…in strategy that allows their organization to respond more proactively and timely to rapid developments that” inherently affect ultimate success. Pepsi Model Application Much like Coca-Cola, Pepsi’s Mission statement is very clear, concise and purposeful “Captivate consumers with the world’s most loved and best-tasting convenient foods and beverages through the use of its strengths: Brand Image, Positioning, Innovation, Distribution Capabilities, Productivity Focus, Human Capital and Purposeful Performance” (Pepsi Annual Report).

Pepsi also reiterates that being socially responsible is of utmost importance and “commitment to do right for the business by doing right for people & the planet” effectively creates a “catalyst for business growth and innovation, enabling them to be financially successful and globally responsible” (Pepsi Annual Report). As covered in the Letter to Shareholders the CEO, Indra Nooyi, reveals the Internal Analysis of Pepsi Co. to be that of “strong progress and on a core basis net revenue was up 14% for 2011” (Pepsi Annual Report). This success was due to improvements n the following areas: “investment in emerging markets, brand management, research and development, differentiation, efficiency and global operating structure to fully leverage the scale of PepsiCo” (Pepsi Annual Report). PepsiCo is most certainly proud of their improvements and strategic focus but also realizes that the creation of “an adaptive team and culture—one that can continually renew itself and thrive on change…performing today while transforming for tomorrow” is necessary for success into the future and believes that their “best days are yet to come” (Pepsi Annual Report).

Pepsi experiences similar External Environmental conditions to that of Coca-Cola. Intense competition, globalized marketplace, social responsibility, and economic conditions all affect the strategies that PepsiCo decides to implement. Additionally, Pepsi must allocate its attention to not only the beverage industry but to their global snack line as well; which while designed to be complimentary can prove to have possible negative effects when considering the volatility of each of these industries.

The Strategic Analysis and Choice, that Pepsi has selected, much like Coca-Cola can be considered as effective. In order to gain a sustainable competitive advantage Pepsi is “pursuing specific strategic investment and productivity initiatives to build a stronger, more successful company through global brands, innovation, and advertising/marketing campaigns” (Pepsi Annual Report). As mentioned earlier, the following areas are of importance in Pepsi’s strategic analysis/choice: Brand Image, Positioning, Innovation, Distribution Channels, Productivity, Human Capital and Social Responsibility.

As the report outlines, Pepsi’s Long-Term Objectives support increasingly globalized operations, global brand recognition, public responsibility, and industry leadership in beverages and snacks. In fact Pepsi was the first to realize the customer shift to healthier lifestyles and responded before Coke “to changes in the beverage market as consumers shifted from fizzy drinks to healthier alternatives” (Ward pg 3). Furthermore “Pepsi’s new strategy: Better-For-You Products—comes down to health concerns and being socially responsible where…lifestyles have changed…and Pepsi has modified its products” (D’Altorio pg 1).

Pepsi’s Generic Strategy, like that of Coca-Cola, is that of differentiation. This is why the Cola Wars have been so pervasive and prevalent—they both are striving to make their products superior to those of the competition. Their Grand Strategies can also be identified as concentrated growth, market development, product development, innovation, vertical integration, turnaround, joint ventures, divestiture and strategic alliances.

Additionally, Pepsi is becoming more globalized in nature and their Generic and Grand strategies reflect this: “they are a $66 billion global powerhouse focused upon two complementary businesses with attractive growth margins and returns—global snacks and global beverages” to achieve global nutrition achievements worldwide” (Pepsi Annual Report). Pepsi’s Short Term Objectives are focused upon investment in their global brand management and streamlining distribution methods so as to attain measurable efficiency.

In fact last year three brands—Diet Mountain Dew, Brisk and Starbucks ready to drink beverages—had each grown to more than $1 billion in annual retail sales, expanding PepsiCo’s portfolio of billion dollar brands to 22” (Pepsi Annual Report). Their distribution methods remain largely “unmatched…and in 2011 they successfully changed distribution for Gatorade products in the US in the convenience and other channels from a warehouse-delivered-go-to-market system to DSD, in order to more efficiently serve customers” (Pepsi Annual Report).

Much like Coca-Cola, Pepsi’s Action Plans are employed globally and specific intentions are revealed in the Annual Report. The difference is however that Pepsi has two industries upon which it has to contend with: beverages AND snacks. Their action plan for 2012 and beyond stresses five imperatives:

1. build and extend macro-snacks portfolio globally;
2. sustainably and profitably grow its beverage business worldwide;
3. build and expand the nutrition business;
4. increase and capitalize on the high coincidence of snack and beverage consumption;
5. ensure prudent and responsible financial management” (Pepsi Annual Report).

Functional Tactics used by Pepsi so as to achieve its short term goals/competitive advantage include marketing strategies and socially responsible business practices that reach a more global audience. Adopting the responsibility of “Global Nutrition” demonstrates Pepsi’s commitment to a healthier population and have “developed new strategies with new soft drinks which will catch on to part of the public that is the new health craze” (Dotson pg 2).

The development of products such as Gatorade G2, which is low in calorie than the regular sports drinks, and Propel demonstrate that Pepsi in focused upon innovative products that cater to the health conscious customer needs/wants. As revealed by the Annual Report, Policies That Empower Action for Pepsi begins with the “Power of One concept…operating as one company to connect with consumer…innovating globally, delighting locally... and performance with purpose” to achieve sustained growth and success.

While Pepsi has many difficulties to confront with respect to competition, multiple industries, and internal/external economic stressors; they are continuing to adapt to their environments and reiterate that “the challenge to renew a successful company is one that they embrace” (Pepsi Annual Report). Pepsi’s Organizational Structure is segmented “into four business units:

1. PepsiCo America’s Foods;
2. PepsiCo America’s Beverages;
3. PepsiCo Europe;
4. PepsiCo Asia, Middle East, Africa” (Pepsi Annual Report).

Pepsi’s structure allows for certain control and efficiencies both nationally and globally in the beverage and snack industries. In addition Pepsi has standardized the reportable segments of each business so as to allow for appropriate analysis and competitive advantage measurement by region. With respect to Strategic Control and Continuous Improvement, Pepsi’s organizational structure, leadership, and Power of Pepsi campaign reveal that the corporation is committed to remaining a sustainable competitor well into the future.

Furthermore, “as they look ahead they are positioning their company for sustainable growth by building its brands around the globe, bringing innovative products to the marketplace, capitalizing on the coincidence of consumption of snacks and beverages, unleashing the full potential of its global scale and ensuring that PepsiCo continues to be a best place to work” embodies ways in which Strategic Control and Continuous Improvement are going to be accomplished.

Analysis & Implications for Middle Managers

The strategic models that each corporation adopts are similar but produce different levels of success for each organization. Both Coke and Pepsi have adopted aggressive marketing strategies and have struggled amongst one another to develop superior products and attain customer share maximization. Competition, while at times can be frustrating for the organization, in this case has allowed for the creation of better products and increasingly globalized operations resulting in inherent successes for both organizations.

The Cola-Wars have been existent for quite a while, but as this point in time it can be said that Coca-Cola is the leader in the beverage industry segment “Pepsi was knocked into third place behind Coca-Cola and Diet Coke…Coca-Cola sold 1. 6 billion cases of regular soda and 927 million cases of diet soda, while Pepsi sold only 892 million cases”. However, Pepsi is still remaining competitive globally through the realization that there are other industries upon which to capitalize and ensure sustainability into the future.

In fact, “as far as Pepsi is concerned the cola wars are over and needs to focus on convincing investors that it has the right focus in the new health kick” (D’Altorio pg 2). While Pepsi is focusing upon “Global Nutrition” they still need to realize that “carbonated beverages still produce much of the company’s sales and are still a key to Pepsi’s financial health” (D’Altorio).

Into the future both Coca-Cola and Pepsi will prove to be viable competitors as revealed by their strategies/mission statements contained in their Annual Reports. The real key however, will be whether consumer demand remains in the carbonated beverage industry…if the tides somehow change, Pepsi will emerge as the victor due to their diversification strategy…one that has crossed channels and decided to create advantages with both beverages and snacks.

The Cola Wars bring up important implications for middle managers in the form of strategic analysis, implementation, and adaptation. Organizational success depends ultimately upon the ability of the organization to connect with consumers by providing an array of options so as to meet consumer desires, needs and lifestyles and these principles are largely motivated by corporate leadership and direction.

Furthermore, the talent of employees must be empowered by management so as to execute goals and objectives effectively. A corporations’ assets —brands, financial prowess, distribution systems, global influence and the talents of employees must be effectively employed so as to become more competitive and to influence accelerated growth in manners that create value for customers, shareholders, and the company itself.

Conclusion

The Coca-Cola/Pepsi “conflict has raged on for decades” and has even been dubbed as the “Battle of the Century” but has revealed in the process two corporations that have been successful in adopting strategies and processes so as to survive in the constantly changing, volatile business and economic environments representative of the current times. Coca-Cola and Pepsi will continue to face challenges into the future in the realms of economics, technology, and an increasingly globalized business environment.

In effect, the corporation that is able to effectively exploit the new social media front of marketing strategy into the future will most likely end up as the frontrunner in most any industry…”Coke and Pepsi are amongst a multitude of companies buying into social media’s ability to strengthen their brands…consumers are 55% more likely to recall ads that include social media components than non-social ads…consumers today are incredibly empowered and what used to work to get their attention now needs a bit more thoughtfulness” .

This paper: 1) reviewed the strategic issues presented in the “Coke Wars” case through the use of the Strategic Management Model as applied to both Coca-Cola & Pepsi; 2) highlighted fundamental strategies & tactics so as to analyze the inherent competition between both corporations; and finally 3) discussed implications of concepts presented in the case for the middle manager so as to grasp lessons learned for future application.

Both Coca-Cola and Pepsi are on the right track as far as determining appropriate strategies to thrive in the environments in which they operate but the challenge into the future will be the appropriate analysis and adaptability in which to adequately respond to customer needs, economies of scale, and the dynamic business environment.

Case Study Materials/References

1. Frontline. Coca-Cola’s union troubles in Columbia; http://www. pbs. org/frontlineworld/fellows/colombia0106/; Retrieved: 3 July 2012.
2. Coca-Cola Annual Report. http://www. thecoca-colacompany. com/investors/annual_other_reports. html http://www. hecoca-colacompany. com/ourcompany/mission_vision_values. html
3. PepsiCo Annual Report. http://www. pepsico. com/Investors/Annual-Reports. html; Retrieved 4 July 2012.
4. Wikipedia. The Cola Wars; http://en. wikipedia. org/wiki/Cola_wars; Retrieved 2 July 2012.
5. Terhune, Chad. Coca-Cola trying to renegotiate its syrup contract with bottlers; “Soda Rebellion: A Suit by Coke Bottlers Exposes Cracks in a Century-Old System; Serving Wal-Mart Is at Issue, But Spat Shines Spotlight On Local Businesses' Role; The Brownes' 84-Year History”; Wall Street Journal (Eastern edition). New York, N. Y. : Mar 13, 2006. p. A. Document URL: http://proquest. umi. com. library3. webster. edu/pqdweb? did=1001778801&sid=2&Fmt=3&clientId=30323&RQT=309&VName=PQD Copyright (c) 2006, Dow Jones & Company Inc.
6. Ward, Andrew. Can Coca-Cola recover? ; “Last Stand of Coke’s Old Guard Don Keough, 79, Seeks One More Year on the Board”; Financial Times; London, England; 19-Apr-2006.
7. Ward, Andrew. Can Coca-Cola recover? ; “Coke on Upward Path”; Financial Times; London, England; 20-Apr-2006.
8. Pearce, Robinson. Management and Strategy; MNGT 5650; Webster University St Loius, MO; McGraw Hill: Copyright 2012.
9. Dotson, Horace. Pepsi vs Coke: The Battle of a Century; Yahoo; http://voices. yahoo. com. Retrieved: 07 July 2012. 1
10. Diaz, George. NASCAR Cola Wars Spark Frosty Fireworks at Daytona; http://articlesorlandosentinel. com/2012-07-06/sports/os-george-diaz-daytona-coke-pepsi-0. Retrieved 06 July 2012.
11. Hernandez, Karin. Pepsi vs. Coke: The Cola Wars. http://seekingalpha. com/article/600021-pepsi-vs-coke-the-cola-wars. Retrieved: 06 July 2012.
12. Snider, Mike. Social Media is Latest Front of Cola Wars; USA Today 30 April 2012. http://www. usatoday. com/tech/news/story/2012-04-30/pepsi-coke-social-media/54631902/ Retrieved 12 July 2012.

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