Cola War
Q1. Why is the soft drink industry so profitable? OR Why is it not easy for new players to enter the industry? Already a mature market, coke & pepsi spent a lot of money, time & effort on all things e.g. networking, manufacturing Q2. Why CPs are more profitable than bottlers?
The concentrate manufacturing process involved little capital investment in machinery, overhead, or labor. A typical concentrate manufacturing plant cost about $25 million to $50 million to build, and one plant could serve the entire US. Main cost for advertising, promotion, market research & bottler support.
-> relatively low fixed & variable cost. (See exhibit 4)
The bottling process was capital-intensive and involved high-speed production lines that were interchangeable only for products of similar type and packages of similar size. è high fixed & variable cost (exhibit 4); non-flexible plan structure è limited geographic territory also need to support advertising, product & packaging proliferation, widespread retail price discounting
Q3. How has competition between Coke and Pepsi affected the industry’s profit?
Coke made huge investments to support its bottling network in order to match Pepsi.
Won away fountain channels from each other with lower prices
Spend money on rebate, retail price cuts and a series of advertising
Both introduces many different types of cokes, battle for shelf space, retail price discounting became the norm and customers are used to them
Q4. What lesson have you learned from this case? è CDA – customer development agreement: offer funds for marketing & other purposes in exchange for shelf space. è Extend business: from CP to bottler
Support selling channels with support e.g. Fountain channel with cups, point-of-sale advertising & other in-store promotional material Segmentation: focus on family consumption
Extend products like introducing 26-oz bottle
Pepsi launched "Pepsi Generation", targeted young n young at heart: Customer Value
The concentrate manufacturing process involved little capital investment in machinery, overhead, or labor. A typical concentrate manufacturing plant cost about $25 million to $50 million to build, and one plant could serve the entire US. Main cost for advertising, promotion, market research & bottler support.
-> relatively low fixed & variable cost. (See exhibit 4)
The bottling process was capital-intensive and involved high-speed production lines that were interchangeable only for products of similar type and packages of similar size. è high fixed & variable cost (exhibit 4); non-flexible plan structure è limited geographic territory also need to support advertising, product & packaging proliferation, widespread retail price discounting
Q3. How has competition between Coke and Pepsi affected the industry’s profit?
Coke made huge investments to support its bottling network in order to match Pepsi.
Won away fountain channels from each other with lower prices
Spend money on rebate, retail price cuts and a series of advertising
Both introduces many different types of cokes, battle for shelf space, retail price discounting became the norm and customers are used to them
Q4. What lesson have you learned from this case? è CDA – customer development agreement: offer funds for marketing & other purposes in exchange for shelf space. è Extend business: from CP to bottler
Support selling channels with support e.g. Fountain channel with cups, point-of-sale advertising & other in-store promotional material Segmentation: focus on family consumption
Extend products like introducing 26-oz bottle
Pepsi launched "Pepsi Generation", targeted young n young at heart: Customer Value