Coke vs PepsiPepsi and Coke’s Uncivil Wars Essay Example for Free

ampere-second vs PepsiPepsi and blows Uncivil Wars EssayChapter 9 in Competition Demystified Uncivil Cola Wars Coke and Pepsi introduce the Prisoners Dilemma What argon the sources of competitive advantages in the soda industry? First we should discover at industry structure. The cola companies buy raw materials of sugar, sweeteners and flavorings from many suppliers then(prenominal) they turn the commodities into a mark convergence which consists of syrup/concentrated combined with water and bottles. The companies be joined at the hip with their bottlers/distri stillors who then sell to many retail outlets. Selling bulky and heavy beverages lends itself to regional economies of scale advantages. The soda companies cannot shape successfully unless their bottlers and distributors are profitable and content whether company-owned or franchised. The existence of barriers to entry indicates that the incumbents enjoy competitive advantages that potential drop entrants cannot m atch. In the soft drink world, the sources of these advantages are easy to identify. First, on the demand side, there is the kind of customer loyalty that network executives, beer brewers and car manufacturers only dream about.People who drink sodas drink them frequently (habit formation), and they revel a constancy of experience that keeps them ordering the same brand, no matter the circumstances. both Coke and Pepsi establish the presence of barriers to entry and competitive advantagestable *ROE can be influenced by whether bottlers assets are mop up or on the balance sheet Second, there are large economies of scale in the soda business both at the concentrate maker and bottler levels. Developing new products and advertising alive ones are fixed costs, unrelated to the number of cases sold.Equally important, the distribution of soda to the consumer benefits from regional scale economies. The more customers there are in a given region, the more economical the distribution. A bottler of Coke, selling the product to 40% to 50% of the soda drinkers in the marketplace area, is going to have lower costs than individual peddling Dr. Pepper to 5% to 56% of the drinkers. During the statesmen era of Pepsi and Coke, what actions did each of the companies take? Why did they help heave profitability? Note the stability of market share and ROE.ROE dipped in 1980 and 1982 as Pepsi and Coke waged a price contend. Yet, market shares did not change as a result of the price warboth companies were worse off. Pepsi gained market share in the late 1970s versus Coke. Coke was slow and clunky to respond. Price wars between two elephants in an industry with barriers to entry tend to flatten a parcel out of grass and make customers happy. They hardly ever result in a dead elephant. Still, there are better and worse ways of initiating a price contest. Coke chose the worst.Coke chose to lower concentrate prices on those regions where its share of the cola market was high (8 0%) and Pepsis low (20 percent). This tactic ensured that for every dollar of taxation Pepsi gave up, Coke would surrender four dollars. Coke luckily developed New Coke which allowed it to attack Pepsi in its dominant markets in a precise wayminimizing damage to Cokes profitsand posture a truce in the price wars. They made visible moves to signal the other side that they intend to cooperate. Coca-Cola initiated the new era with a major corporate reorganization.After buying up many of the bottlers and reorganizing the bottler network, it spun off 51% of the company owned bottlers to shareholders in a new entity, Coca-Cola Enterprises, and it loaded up on debt for this corporation. With so much debt to service, Coca-Cola Enterprises had to concentrate on the tangible requirements of cash flow rather than the chimera of gaining great hunks of market share from Pepsi. PepsiCo responded by dropping the Pepsi Challenge, toning down its aggressive advertising and thus signaling that it a ccepted the truce.lolly margins improved. Operating profit margins went from 10% to 20% for Coca-Cola. Pepsi gain was less dramatic but also substantial. Both companies focused on ROE rather than market share and sales growth. The urge to grow, to hammer competitors and arrest them out of business, or at least reduce their market share by a purposeful amount, had been a continual source of poor performance for companies that do have competitive advantages and a franchise, but are not content with it.