INSTITUTE OF MANAGEMENT STUDIES GHAZIABAD

(University Courses Campus)

Case Study 1.7: COLA WARS
Ever since their inception, Coca-Cola and PepsiCo Inc. have been locked in horn over market share in the soft drink business. The war grew intense during the mid-
1970s when PepsiCo introduced its 'Pepsi Challenge' campaign for advertising. Both Coca-Cola and PepsiCo invested heavily on advertising and each got higher share
than the other at times and vice versa. But it is not known for sure as to which organization has generated competitive advantage.
Market share is an important factor in soft drink industry because market share is directly related to revenues and so to profitability. And, so the strategic initiatives
adopted by the two firms for acquisition of additional market share/ higher than the other is significant. But the fact remains as to whether the firms' strategies for market
share acquisition will mean cost advantage to either of them in implementation stage. No doubt, both the firms have tremendous financial resources coupled with
potential management teams. Both are called marketing powerhouses. So, any effort by one organization to acquire additional market share is in no time, matched by
action by the other. Their strategies for additional market share are valuable but not rare and so, neither Pepsi nor Coca-Cola has a cost advantage over the other at the
implementation stage:
We safely assume that these two soft drink firms are adequately organized. And, therefore, the cold war may turn out to be a source of competitive parity for these
organizations. In fact, this is what has actually been the case. For instance, Pepsi had carried out its 'Pepsi Challenge' advertising campaign, to begin with from Dallas-Ft
Worth Market. After a six-month passage of time of the campaign, Pepsi could double up its market share in the same market from 7% to 14%. And, the retail price of
Pepsi soft drink significantly dropped approximately to a one half of the pre-advertising period. Although, Pepsi was able to double up its market share but it ended up
with a heavy cut (one half) in the price. And, this is what one can expect to happen in a highly competitive parity situation.
Both Coca-Cola and Pepsi have realized the futility of engaging themselves in the battle for market share, especially when both are equally skilled and have strategies for
competitive advantage. And, this realization has resulted into changing their strategies and for market share.
In pursuance of the changes in their policy, Coke started targeting the older consumers (age group 50s, 60s and 70s who were already its consumers), through
its Diet Ce brand. And, Pepsi started focusing on attracting the younger consumers, with a new generation advertising programme. Whereas Coke continues to
give its classical focus on the soft drink business. Pepsi started diversification into fast food restaurant as well as other interlinked business initiatives. Coke has
gone for international marketing but Pepsi focused, by and large, on the internal market in the United States of America. It is understood that Pepsi has also
subsequently changed its strategy. In fact, both the firms realized the futility of their head-on clash battle strategy for acquiring additional/higher market share
with each other and settled for exploiting some different resources.