Coca-Cola and Pepsi-Cola Case Study
India, a“sovereign, socialist, secular, democratic republic” (India 2010), has a nationalist and protectionstic political landscape with foreign-biased policies including “principle of indigenous availability” (Catero 2009) and “License Raj” (Nirmalya Kumar 2009). This limited free market economy made it challenging for foreign businesses to operate in India (e. g. PepsiCo had to promote under Lehar Pepsi). In 1991, the country’s capitalistic economic reform improved its business climate but some discriminatory protectionism laws still existed.
As “political leadership openly used state-control over economic resources to maintain and exercise power” (Sanyal 2008), power struggle among the frequently changed political parties through legislations was very common. The resulted in the federal republic’s “inconsistency in implementation of government rules’ (Catero 2009) due to its complicated legal system. With the strong pressure from the independent non-government groups, both companies faced high political and economic risks (“domestication”, Kerala temporaral ban, India’s foreign colas boycott and pesticide allengations).
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Though most of the factors in the political environment are unpredictable and existed within the macroenvironment, steps could have been taken to anticipate and minimize the impact of the political risks. Coca-Cola could have worked with local partners and the host government. As “political sensitivity to foreign influences can be catastrophic – often driven by perception and not reality” (William Nobrega 2008) in India, PepsiCo and Coca-Cola could deploy “corporate social responsibility” (CSR) to create a positive image among the special interests group’ interests and promote sustainability in the community.
Question 2 Being the first foreign cola brand to enter into India during its economic liberalization, PepsiCo had “an early entry while the market is developing” (Catero 2009) through its local joint venture. The local market knowledge lowered its economic and political risks (Lehar 7UP’s success and PepsiCo’s transition to a fully-owned subsidiary). PepsiCo’s “first-mover advantage” resulted in “sales volume ahead of rivals (Coca-Cola) and thus reap the cost advantages associated with the realization of scale economies and learning effects” (Charles Hill 2009).
It also established brand loyalty and a high market share of 23. 5 per cent in 2002. PepsiCo’s “pioneering costs” (Philip Kotler 2009) were high as it had to promote under “Lehar Pepsi” and fulfill stringent requirements to ensure “sales of the soft drink concentrate could not exceed more than 25 per cent of total sales. ” It was subjected to challenging political policies, corruption, initial local resistance and strong local competition protected by the government. By entering into the market later, Coca-Cola benefitted by “free-riding” on PepsiCo’s experience and operated in a more stable environment.
Coca-Cola gained from PepsiCo’s growth as it managed to acquire Parle’s brands. Through Thums Up and became the cola market leader in India. Though Coca-Cola avoided the “License Raj”(Narayan 2008), it was subjected to the disinvestment rule which forced it to “domesticate” in 2002. Later entry also meant stronger competition and Coca-Cola main cola drink still tailed after Pepsi Cola’s in terms of sales and mindshare. Question 3 The Indian market (Appendix A) is “highly pluralistic” (Saxena 2005) with distinctive social inequities, different languages, cultural values, religions as well as education levels.
Both PepsiCo and Coca-Cola used a “hybrid” marketing (global and multidomestic) approach with similar strategies in their marketing mix. Both companies initially offered a standard product – Pepsi Cola and Coca-Cola. As the market grew, each company offered adapted products (PepsiCo’s Lehar 7UP), new products (bottled water, energy drinks, fruit juices and others) and local brands (Coca-Cola’s Thums Up, Limca and others). This product filling strategy with international and local brands expanded markets and met the varying regional tastes (e. g.
Tamil Nadu consumers prefer Fanta) in India. Product packaing consisted of consistent brand elements but ‘new’ sizes such as the 200ml bottles (chota) were introduced to increase affordability for the rural consumers. Coca-Cola cut prices nationwide in 2003 to “enhance affordability” (Catero 2009) and to increase market penetration. PepsiCo swiftly matched these competitive prices. By offering 200ml “chota” bottles at Rs 5, both companies encouraged regular usage among the huge rural population by matching the prices of local beverages such as tea, lassi and others.
Various bottle sizes were introduced to meet different consumer needs (“on-the-go” to “parties”). The returnable glass bottle option further increased affordability. This high-volume-low-profit-margin pricing strategy (similar to Unilever) allowed those with limited spending power to increase the frequency of consumption. Both companies were involved in local events and experiences including the Navrarti festival with different promotions (PepsiCo’s Basmati rice and Coca-Cola’s free Goa vacation contests).
By participating in these festivals centric to the nation’s cultural values, both companies gained brand awareness and allowed their products to be integrated as part of the culture and national identity. Other promotions included seasonal product launches (Coke Zero and Pepsi Blue) as well as PepsiCo’s World Cup Cricket sponsorships. PepsiCo adapted its global endorsement strategy by featuring Bollywood stars, local cricket celebrities and football heroes. Its sports-centric focus gave the company nationwide mass appeal.
Coca-Cola emphasized on a regional lifestyle advertising campaign. Music directors, regional actors, local idioms and “Gaana” (Catero 2009) are used to promote Coca-Cola as a communal drink in the collectivistic country. Coca-Cola further identified two market segments and targeted them with strategic campaigns – “India A” (Catero 2009) (urban youth) with the “Life ho to aisi” (Life is the way it should be) tagline and “India B” (Catero 2009) (rural) with the “Thanda Matlab Coca-Cola” (A cold drink means Coca-Cola) tagline.
Through Thums Up’s acquisition, Coca-Cola had immediate access to country’s largest bottling and distribution network. PepsiCo had 43 wholly-owned and francised bottling plants in India. Both companies adopted the cost-effective “hub and spoke” distribution model (Singh 2007) for the rural areas and a direct distribution (to retailers, F&B outlets and others) for the cities. Both established millions of retailers and thousands of wholesalers across the country (Catero 2009) to mass distribute their products nationwide (Coke’s within-an-arm’s-length’s philosophy). Question 5
Many factors led to Coca-Cola’s bumpy ride in the country. Though they existed in the macroenvironment, many issues could have been pro-actively anticipated through market research. By understanding the dynamics of the Indian marketplace, it could turn opportunites as well as threats to its benefit and quickly meet the constantly changing challenges. After being in India for about 20 years and later “expatriated” by Bharatiya Janata Party (BJP), Coca-Cola could have monitored the political environment and managed its government relations better when it re-entered.
By requesting for a second extension for the disinvestment rule and denying the voting rights of its Indian owners, Coca-Cola was perceived as a “foreign exploiter” (Catero 2009) who refused to honour its promise. It could have taken up measures to minimize its political risks and followed PepsiCo’s example in fulfilling its promises and working with the state-owned enterprise (Agro) as partners. When managing sensitive public concerns such as boycotts, pesticide containmination and water usage allengations, Coca-Cola could have addressed these issues with the different stakeholders carefully.
By working closely with its different stakeholders including opinions leaders and non-government organizations (NGOs), it could have minimized the negative impact by fulfilling its strategic “corporate social responsibility” (CSR) (Catero 2009) through sustainability. Coca-Cola should have offered its ‘affordability plank’ much earlier to maximise from India’s market size to increase profits, encourage consumption and expand market share.
By purchasing India’s most successful soft drinks companies, Coca-Cola could have used Parle’s wealth of market knowledge and its local brand “Thums Up” to ward off Pepsi’s initial competition instead of neglecting it at the beginning. Question 7 and 8 Both PepsiCo and Coca-Cola had their own share of misadventures and successes in the country and these experiences could easily be used to understand and participate in other big emerging economies. PepsiCo and Coca-Cola had understood the need to “glocalize” and meet the needs of their consumers in a pluralistic country like India by addressing them at a “regional level” within a country.
By studying the market and identifying the target segments, both companies developed a multidomestic approach to effectively and efficiently reach out to their target consumers with a creative and appropriate marketing mix. Newly-liberating economies often have a volatile political landscape with changing policies. This requires a good market entry strategy and a positive working relationship with the federal and state host government to ensure the smooth operation in the country. PepsiCo had successfully taken measures to minimize its initial political risks by working with its partners, Voltas and state-owned Punjab Agro.
It had maintained a positive image by creating jobs and making other contributions to the economy. On the other hand, Coca-Cola who asked for a second extension for the disinvestment rule was perceived as exploitative without fulfilling its promises and was forced to “domesticate”. The oversight of the importance of other stakeholders such as non-government organizations and other opinion leaders in public issues resulted in bad press, boycotts and other negative impact on the companies’ image. Bad publicity could travel beyond national boundaries and affect their global image.
Both companies could actively deploy “megamarketing” (Philip Kotler 2009) and holistic marketing activities to minimize such situations. In short, both companies should continue to ensure “evolution” and not revolution by pro-actively anticipate issues through timely market research on the new foreign markets. This information is helpful in innovating their marketing plans and products to dynamically address the needs of the target markets. Both companies should also treat all their stakeholders with integrity and aim to grow together with the host countries through sustainable business practices.
In my opinion, I think Pepsi Cola may have better long-term prospects in India. It benefitted from the company’s first-mover advantage with Coca-Cola reactively tailing its success. It has maintained its “young generation” branding with orchestrated campaigns. Also it takes more risks, responds quickly, and is always more creative in developing new advertising concepts. In addition, it has a more positive working relationship with the Indian government and keeps up with the emerging local consumer trends with appropriate product offerings. However, Pepsi Cola needs to continously innovate or it will be taken over by Coca-Cola.