Strategic Management Case Analysis Essey/Cola Wars Continue

Strategic Management Case Analysis Essey/Cola Wars Continue

 

 

Strategic Management Case Analysis Essey/Cola Wars Continue

 

Questions：

1. In class we talked about firm profits and two perspectives of how to explain them – an internal resource based view and a more external view focused on the
industry the firm competes in. Two questions related to firm profits:
a. If you were asked to explain why Coke and Pepsi are so profitable, which perspective would you take and how would you explain their elevated profitability?
b. How do you explain the difference in profitability between the concentrate business (Coke and Pepsi) and the bottling industry?

2. Coke and Pepsi have created a very profitable industry that has lasted more than a century but there are forces in the external environment that points to
harder times in the future. Please pick one segment in the general external environment that you believe will be particularly difficult for the two firms to deal with
and explain why you picked that particular segment.
3 Pages, Double Spaced. The size of the type should be 12 points. Page number on every page of the text and the text should be left-justified.
Please read – Cola Case Material and course PPT

 

 

Cola Wars Contlnue: Coke and Peps1 m 2010

For more than a century, Coke and Pepsi vied for ”throat share” of the world’s beverage market.
The most intense battles in the so-called cola wars were fought over the $74 billion carbonated soft
drink (CSD) industry in the United States.1 In a ”carefully waged competitive struggle” that lasted
from 1975 through the mid-19905, both Coke and Pepsi achieved average annual revenue growth of
around 10%, as both US. and worldwide CSD consumption rose steadily year after year.2 According
to Roger Enrico, former CEO of Pepsi:

The warfare must be perceived as a continuing battle without blood. Without Coke, Pepsi
would have a tough time being an original and lively competitor. The more successful they are,
the sharper we have to be. If the Coca-Cola company didn’t exist, we’d pray for someone to
invent them. And on the other side of the fence, I’m sure the folks at Coke would say that
nothing contributes as much to the present-day success of the Coca-Cola company than
Pepsi.3
That relationship began to fray in the early 20005, however, as US. per-capita CSD consumption

started to decline. By 2009, the average American drank 46 gallons of CSDs per year, the lowest CSD
consumption level since 1989.4 At the same time, the two companies experienced their own distinct
ups and downs; Coke suffered several operational setbacks while Pepsi charted a new, aggressive
course in alternative beverages and snack acquisitions.

As the cola wars continued into the 215t century, Coke and Pepsi faced new challenges: Could
they boost flagging domestic CSD sales? How could they compete in the growing non-CSD category
that demanded different bottling, pricing, and brand strategies? What had to be done to ensure
sustainable growth and profitability?

Economics of the U.S. CSD Industry

Americans consumed 23 gallons of CSDs annually in 1970, and consumption grew by an average
of 3% per year over the next three decades (see Exhibit 1). Fueling this growth were the increasing
availability of CSDs and the introduction of diet and flavored varieties. Declining real (inflation-
adjusted) prices that made CSDs more affordable played a significant role as well.5 There were many
Professor David B. Yoffie and Research Associate Michael Slind prepared the original version of this case, ”Cola Wars Continue: Coke and Pepsi
in 2006,” HBS N 0. 706-447. This version was prepared by Professor David B. Yoffzie and Research Associate Renee Kim. This case was developed
from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements,
sources of primary data, or illustrations of effective or ineffective management.

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