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Cola Wars Continue Coke and Pepsi 2010 - Case Solution

Solution Id Length Case Author Case Publisher
1266 678 Words (3 Pages) David B. Yoffie, Renee Kim Harvard Business School : 711462
This solution includes: A Word File A Word File

Historically, the profitability of the soft drink industry can be attributed to two giant and old players, Pepsi Cola and Coca Cola. The industry continued to be profitable as consumers preferred the taste of cola drinks as opposed to any other drinks. Moreover, due to the century-old intense rivalry between Pepsi and Coke, both companies have extravagantly spent on advertising and consumer promotions at different points of time. The Carbonated Soft Drinks (CSD) industry can also be analyzed through Porter’s five-forces model.

Following questions are answered in this case study solution:

  1. Why historically, has the soft drink industry been so profitable?

  2. Compare the concentrate business to that of the bottling business: Why is the profitability so different?

  3. How has the competition between Coke and Pepsi affected the industry’s profits?

  4. How can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs?

Case Study Questions Answers

Therefore, the bargaining powers of suppliers such as Pepsi and Coke, and their industry rivalry as two important players, helps to explain the profitable growth of the CSD category over the years. Even when the United States’ consumptions declined, both the players as part of the CSD category looked to expand in the international market. The industry continued to be profitable as consumers in other parts of the world had still not become as health-conscious as consumers and the general population in North America.

Compare the concentrate business to that of the bottling business: Why is the profitability so different?

The concentrate business has a large number of players, supplying and working on raw materials to prepare a concentrate. On the other hand, the bottling business is also run by numerous players, who are also responsible for advertising and promotion of the cola drinks. The profitability of both these businesses depends on their margin arrangements with both Pepsi and Coca Cola. Since the bottling business is responsible for advertising and promotion and also for the supply of the product at retail outlets, the profits of this business segment are higher. The concentrate business processes various raw materials to come up with the correct mixture that is then passed on to the bottling business. The nature and job description of both businesses is different; hence, the profitability varies for both entities.

How has the competition between Coke and Pepsi affected the industry’s profits?

As per Michael Porter’s model of five competitive forces and its application to the CSD category, the ‘threat of new entrants’ has been affected due to giant businesses such as Pepsi and Coca Cola. Newer companies over the years have found it tough to compete and gain market share in the soft drink category and the beverages industry. This is primarily attributable to the extensive advertising and branding of both Pepsi and Coke. Although both Pepsi and Coca Cola have shared the major profits amongst themselves in the industry, the profits for the industry are in decline.

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