Both Coca-Cola and Pepsi-Cola graced the carbonated soft drinks (CSD) market during the late 19th century. Most of the CSD market during the second industrial revolution remained confined to the United States. However, it gradually arrived in Europe during WWI and accelerated its presence further during and after WWII period. CSD’s bulk of market shares were held amongst Coca-Cola and Pepsi-Cola even though the low cost of concentrate manufacturing plant should have encouraged more firms to enter the market. Both rivals enjoyed sustained growth over a century with minor bumps until the 1990s when CSD consumption declined and other beverages made way to the consumers. Soon, both firms engaged in heavy marketing and advertising campaigns to compete
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Start-up capital required to set up a concentrate-manufacturing plant was not a giant entry barrier and therefore, not the primary profit driver in this business. Larger profits were generated by the following tactical combination:
Coke and Pepsi’s brand power Buyer power
Low capital investment CSD Cartel (an oligopoly)
Marketing and advertising for growth Strategic directive and partnership with bottlers
Investment in logo and trademarks Fountain soda and losing the bottlers
Economies of scale (76% CSD market in 2000 according to HBS Case study) Future options contract with bottlers with little flexibility
These factors illustrate the strategy employed by Coke and Pepsi to mold market conditions to suit their needs and reap maximum profits for their investors. Much of this profit was a direct result of the brand name recognition (more so Coke than Pepsi) that allowed both firms to negotiate long-term, and often rigid, contracts. Both firms held a sizable portion of the CSD market (76% as noted above) that allowed them to negotiate favorable prices and create economies of scale, which further diluted the competitive advantage of smaller players. These profits were created due to both firms’ dominant space in the CSD for over 100 years that allowed them to dictate market terms, raise bars to entry, and invest heavily …show more content…
It is well established that Coke and Pepsi maintain a dominant position in the CSD market as in an oligopoly: they feed off each other and flourish within their own domain. A price war will be counterproductive since both firms are established, well funded, and capable of resisting price wars for a long period of time by reducing the price of their own product or by greasing the distributors’ contracts. Therefore, price wars will result in lower profits and an unappealing monopoly tag for the last surviving firm holding the biggest market
Start-up capital required to set up a concentrate-manufacturing plant was not a giant entry barrier and therefore, not the primary profit driver in this business. Larger profits were generated by the following tactical combination:
Coke and Pepsi’s brand power Buyer power
Low capital investment CSD Cartel (an oligopoly)
Marketing and advertising for growth Strategic directive and partnership with bottlers
Investment in logo and trademarks Fountain soda and losing the bottlers
Economies of scale (76% CSD market in 2000 according to HBS Case study) Future options contract with bottlers with little flexibility
These factors illustrate the strategy employed by Coke and Pepsi to mold market conditions to suit their needs and reap maximum profits for their investors. Much of this profit was a direct result of the brand name recognition (more so Coke than Pepsi) that allowed both firms to negotiate long-term, and often rigid, contracts. Both firms held a sizable portion of the CSD market (76% as noted above) that allowed them to negotiate favorable prices and create economies of scale, which further diluted the competitive advantage of smaller players. These profits were created due to both firms’ dominant space in the CSD for over 100 years that allowed them to dictate market terms, raise bars to entry, and invest heavily …show more content…
It is well established that Coke and Pepsi maintain a dominant position in the CSD market as in an oligopoly: they feed off each other and flourish within their own domain. A price war will be counterproductive since both firms are established, well funded, and capable of resisting price wars for a long period of time by reducing the price of their own product or by greasing the distributors’ contracts. Therefore, price wars will result in lower profits and an unappealing monopoly tag for the last surviving firm holding the biggest market