Cola Case Wars Case Study

Posted: September 9th, 2013

Cola Case Wars Case Study

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Cola Case Wars Case Study

1. Historically, why have the concentrate producers been so profitable?

Concentrate producers have been able to maintain their profitability over the years due to the strategic decisions they employ in their work, and because their work is less demanding in terms of capital investment. Concentrate producers do not need much investment in terms of machinery, labor, and overheads. They manufacture the concentrate from the raw materials. Since the raw materials are available locally, the producers do not have to worry about increasing costs, which may arise if they had to import the materials. Concentrate producers do not need much equipment since a single machine can serve many people. It is estimated that a single concentrate machine can produce enough concentrate to serve a large part of the country. Many companies and industries incur heavy costs when they have to build or export expensive machinery. They have to worry about the increasing financial burden when they are purchasing the equipment. Their situation worsens if the machines require regular maintenance. Some machines are so expensive to maintain, and this adds to the company’s expenses, thereby lessening the expected profits. A concentrate machine does not cost much to build. After the company acquires the machine, it does not have to worry about the maintenance costs.

Concentrate producers have been able to maintain their productivity because of the strategic decisions they implement. For instance, they have more independence when developing their marketing campaigns even if the bottlers will use the same campaigns. The producers are able to develop their own marketing programs, conduct their own market research, and develop their own products, based on the research that they have conducted. Their research ensures that their marketing campaigns and the products they develop are the most appropriate for the market. Another strategy that the producers have employed includes how they delegate different responsibilities, among the employees. The concentrate producers have invested heavily in their employees. The producers have ensured that they have a huge workforce, and each of the employees has different roles and responsibilities. The delegation of roles has ensured that all the work is done. The fact that the producers have taken the initiative of negotiating with suppliers directly means that they are able to reduce costs and ensure better delivery. The concentrate producers have also been able to reduce costs by passing on some of the processes to the bottlers. For instance, the producers add artificial sweeteners to the diet drinks; however, they pass on the role of adding the sugar or syrup needed in the carbonated drinks to the bottlers.

2. Discuss whether Coke and Pepsi will sustain their profits in the wake of flattening demand and the growing popularity of non-CDS’s. What changes would you suggest to their strategies?

Pepsi and Coke might have the largest cola market share, but they keep on introducing new products. While this might seem like an effective strategy, the sales reveal an opposite picture. The companies have benefited from adding diversity, but they have not been able to sustain this diversity for long in the face of the increasing soft drinks market. Previously, Americans used to consume more soda compared to other drinks, including water. The increasing water sales and the profitability realized from these sales should have indicated a change of strategy to the companies. The demand for the company’s products does not seem to be increasing, and this is threatening to diminish the profitability that the companies have enjoyed over the years. Health consciousness has increased people’s awareness concerning the consumption of carbonated drinks. This has compelled some companies to introduce non-carbonated drinks, which are penetrating the market gradually. The increasing market demand of the non-carbonated drinks has taken up a share of the soft drinks market. These changes make it less possible for the two companies to remain profitable in the end, especially if they do not consider changing their strategy. Moreover, both companies involve each other in marketing and advertising battles, which contributes to a huge share of their expenses, leading to reduced profits.

The companies need to re-strategize in light of the changes in the soft drinks market. For companies to remain profitable, they have to operate in less competitive and uncontested markets. The companies need to reduce their costs so that they can remain profitable. Since the consumers are already aware of the brands, the companies need to reconsider the extent to which they are offering discounts, the expenses they are incurring in marketing and advertising, and the different number of products they are offering their consumers. The companies are extremely competitive, and this has contributed to them incurring enormous expenses, in an attempt to remain relevant to their consumers and gain competitive advantage. For companies to remain profitable, they have to change their strategies by developing a product, which the competition does not offer. This will ensure that consumers have something new to choose from, and it will strengthen the brand name. The companies should take advantage of the health conscious nature of consumers to introduce the new products in the market. This means moving away from using carbonated drinks and sugar and moving towards using natural products, which the consumers consider healthy. In addition, the companies should focus on a market, which they have not targeted.

3. Compare the economics of the concentrate business to that of the bottling business. Why is the profitability so different?

The profitability of both businesses is determined by the revenues they make and expenses or overheads that they incur in their operations. The businesses utilize different strategies with the aim of increasing their revenues and decreasing their overheads. Bottlers have to utilize many processes when manufacturing the product. Unlike concentrates, bottlers have to invest heavily in terms of the overhead costs. Bottlers incur costs since they have to purchase the concentrate from the producers and purchase the high fructose syrup or sugar to add to the concentrate. Infrastructure development is one of the most vital resource users that bottlers have to contend with, since they have to remain relevant. Bottlers have to invest a lot of money in their machinery. In addition, they have to deal with the packaging, which makes up most of the costs, and they have to invest in distribution networks. Concentrate businesses do not have to undertake many processes or invest heavily in machinery.

Bottlers have to ensure that they enact strategic campaigns in retail outlets to secure sales. This involves more investment in marketing and sales. It also involves coming up with new ideas, which include developing different products and diversifying the packaging, with the aim of attracting different customers. The concentrate producers do not change the content of their products. The lack of change in concentration means that the producers do not spend a lot of money on research and developing new concentrates. On the other hand, the bottlers have to be flexible enough to meet the demanding changes of the company when it wants to change its bottles. The bottlers cannot use one rigid method of creating bottles and doing different packaging, and developing other methods is a heavy investment. The difference in profitability between the concentrate producers and the bottlers arise since the bottlers have many responsibilities, tasks, and financial obligations. They incur expenses in many different ways compared to the concentrate business.

4. How has the competition between Coke and Pepsi affected the industry profits? Who has won the “cola wars”? Who has lost? Why doesn’t the “war” escalate out of control?

The competition between Coke and Pepsi have led to them spend vast amounts of money in marketing and advertising their products. Other small companies in the industry might not compete with the two companies in the same level since they do not have the same profit levels. The competition between the two companies has often led to price wars, with the companies offering their products at discounted prices. This has lowered the price of the products, and it has had an effect on the companies’ productivity, weakening the industry’s profits.  Coca cola might have suffered many challenges, including missing many opportunities and failing to capitalize on the opportunities presented, but it seems to have won the cola wars. The company is one of the world’s most recognizable brands, and it has been able to remain profitable over the years. In addition, the company is a pioneer in strategizing and marketing campaigns. It has invested heavily in research, and this has served it well in the end. It has been able to develop new products, forcing its competition to follow suit.

The war does not escalate out of control because of Pepsi’s reactionary stand. Pepsi is reactionary, in that it seems to be following coca cola’s example. For instance, the company started substituting fruit syrup in place of sugar some time after coke did. It ventured into different non-carbonated markets after coke had. In addition, it adopted coke’s anchor bottler model. The other reason is that the companies are aware of their abilities and limitations. Despite the cola wars, the companies want to remain profitable, and they are careful concerning the expenses they incur in a bid of beating the other in the war.