Price War-Cola Industry Case Study
Price war is "commercial competition characterized by the repeated cutting of prices below those of competitors". One competitor will lower its price, then others will lower their prices to match. If one of them reduces their price again, a new round of reductions starts.
Stumbling twice to the hitches of bankruptcy, PEPSI today can boast of its position in the cola industry going neck to neck with COCA COLA. The saga of cola industry began in 1886 when John. S. Pemberton developed the original recipe of COKE.
By the time PEPSI grew out of its bud, Coke was already selling a million gallons per year.
The two giants can be credited for the current …show more content…
Price war has been a conventional tool to fight competitors in most industries.
But in cola industry price wars have been temporary because of the formation of natural oligopoly with Pepsi and Cola sharing almost 75% of the market.
Also the fact that the cross elasticity of Pepsi and Cola is high, no company can afford to sit back and respond to price cuts by any non-price method. With their past experiences, both the players have realized the fact that any such war would only take the profit margins down without significantly improving the market share.
So the understanding has dawned upon the managers, who used to resort to price cuts as the easiest way to gain market share, that such strategies are futile and can bring financial instability if continued for long.
This can easily be understood by tracking the price of these drinks, which went down to Rs.5 a bottle of 200ml in 2006 only to rise to Rs. 12 currently.
It seems realistic now to expect non-monetary strategies being employed by these giants to expand market share in the short term.
The players are rather focused on earning greater operating profits and utilizing them for the purpose of marketing and