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Pepsico was formally known as Pepsi Cola Company was formed in the year 1898 in New Bern, North Carolina in the United States of America just 12 years after its most famous rival Coca-Cola was formed. It was started by an NC Pharmist and Industrialist Caleb Bradham. It was first introduced as ”Brad’s Drink” in New Bern, North Carolina by Caleb Bradham who made it at his pharmacy where the drink was sold.
Later it was renamed as Pepsi Cola, possibly due to the digestive enzyme pepsin and kola nuts used in recipe. The brand was trademarked under the name of Pepsi first on June 16 1903. In 1909 automobile race pioneer Barney Oldfield was the first celebrity to endorse Pepsi Cola. The advertising theme ‘Delicious and Healthful’ was then used over the next two decades. In 1926, Pepsi received its first logo redesign since the first original design of 1905. In 1929 the design though was changed again to modify its image among the public.
In 1931 Pepsi Cola faced its first major problem at the depth of Great Depression , When Pepsi Cola entered bankruptcy due to financial losses incurred by speculating on wildly fluctuating sugar prices as a result of World war I. Assets were sold and Roy c. Megargel bought the Pepsi trademark. 8 years later Pepsi Cola again went bankrupt and was bailed out Charles Guth. Though this became the precise period in which Pepsi Cola started gaining popularity with targeting its audience through radio advertisement and started giving its competitor Coca Cola a tough time.
Nickolas Dias was named the new president of Pepsi Cola and he guided the company through his own strategies during the 1940’s. His strategy included targeting the largely untapped market of African American and thus by targeting them getting a whole new set customers to the Business. Pepsi cola merged with Frito lays in the year 1965 and came to be known as Pepsico and in that form in which it is still continuing. In 1970, Pepsico sales crossed $ 1 billion mark in sales making it one of the first companies to achieve this feat internationally.
In 1975, Pepsi once again proved that it was pioneer in marketing products. Pepsi introduced one of the unique marketing strategies which would revolutionize the way marketing of product was done. Pepsi Introduced the Pepsi challenge a marketing campaign where Pepsico set up a blind tasting between Pepsi-Cola and rival Coca Cola. During these Blind taste tests most of the participants picked Pepsi as the better of the two soft drinks. Pepsico took great advantage of it to boost it sales and flooded the advertisement market with the results of this test.
Gradually Pepsico also owned up brands such as Frito lays, Quaker oats , Gatorade, SoBe, Tropicana, Copella, Mountain Dew, Mirinda ,7 UP, Cheetos , Lipton, Walkers, Amp, Sun Chips, Ethos water and Sabritas to name a few. Today Pepsico though is primarily associated with beverage distribution and bottling of carbonated and non carbonated drinks, but has also invested with success in segments such as salty sweet and cereal based snacks and also in health drink market as these coming up of new brands suggest. Through the 1980’s Pepsico entered the emerging markets of China (1982) and India (1988) to consolidate its osition and increase in revenues in terms of sales. Thus Pepsico through the years has become one of the leading brands and one of the most associated brands. Company Background (Pepsico India) Pepsico had rapid expansion in 1970’s where its business soared from $ I billion in 1970 to $ 5 billion in 1979. In 1980’s in order to sustain this spurt in the rise in business Pepsico started entering into Developing markets which had enormous sales opportunity due to its large Population and the large untapped market.
So following this strategy Pepsico entered China in 1982 followed by entering another big developing market India in 1988. In India at that time the government was trying to open up the economy of the country and was not averse at allowing gambling with foreign players. Pepsico gained entry by creating a joint venture with the Punjab government owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. This joint venture marketed and sold Lehar Pepsi until 1991, when the use of foreign brands was allowed. Pepsico bought out its partners and ended the joint venture in 1994.
There were speculations that Pepsico tried to enter Indian markets as early as 1970, but was banned because having refused to release the list of its ingredients and in 1993, the ban was lifted , with Pepsi arriving on the market shortly afterwards. Though Pepsi continuously denies this and states that it entered India only in 1988. Pepsico has developed enormously in India in the past 22 years since its entry into the Indian market. It along with its major rival Coca Cola has captured 95% of the soft drinks market in the country.
It has also invested into various other food and beverages sector in the country since its entry into the Indian economy. The company has been successful in acclimatize in the Indian market and has made a strong foothold in one of the 5 largest soft drinks market. The scope of development in the soft drinks market is huge as the per capita consumption of soft drinks in the country is extremely low when compared to countries such as USA and Canada in spite of India having warm climate and a prolonged and acute summer season.
Pepsico concentrated mostly in Tier 1 cities of the country when it entered the Indian market but gradually developed its market in Tier 2 and 3 cities followed by rural and cross country. The company claims that since its entry into the Indian market in 1988 it has invested more than $ 1 billion into its business operations in India. It also provides employment to more than 150000 people in India directly and indirectly. It also has more than 36 bottling plants all over the country with 13 those being owned by the company while the other 23 being franchise owned.
It also has developed 3 state of the art food plants in the states of Punjab, West Bengal and Maharashtra. Pepsi claims to be one of the first brands in India that gives back more water through various methods than it takes from the country. Product Lines in India Pepsico owns 5 Different billion- dollar brands. These are Pepsi, Tropicana, Frito Lay, Quaker Oats and Gatorade. All of these billion dollar brands have been introduced in India and have been a success. The total number of product lines in India can be classified into Beverages and foods.
Beverages are an important and old source of Pepsico. Beverages present in India of Pepsico can be further divided into 1- Soft Drinks Pepsi is the iconic brand of PepsiCo and has following variants in the soft drink market in India Pepsi, Caffeine –Free Pepsi, Diet Pepsi Also known as Pepsi Light, Caffeine – Free Diet Pepsi and Caffeine – free Pepsi light, Pepsi Max and Pepsi Twist. Other Soft drinks available in India of Pepsico are Mountain dew , Crush , Tropicana Twister soda, Slice, Dukes Lemonade, Mangola, Mirinda, Mirinda Lime and 7 UP 2- Bottled Water
Aquafina is the Flagship brand of Pepsi in the mineral water category. 3- Sports Drinks Gatorade is the available energy drink in the market and is available in 3 colors Orange, Blue and Red. 4- Fruit Juices Tropicana 100% fruit juices with Tropicana nectars, Tropicana Lime and Tropicana Slice The food items of Pepsico can be divided into 1- Salty Snack Frito lay is the leader in the branded salty snack market. All Frito lay products are free of trans- fat and MSG.
It also manufactures Lay’s Potato Chips, Cheetos , extruded Snacks, Uncle Chips and other traditional snacks under the Kurkure and Lehar brands. 2- High Fiber Breakfast Cereal Quaker Oats is the iconic and major brand in the high fiber breakfast cereal and is one of the few present in this type of market giving competition to leaders of this market such as Kelloggs. These were the major products in the different product lines of Pepsico in India. Although Not all Pepsi products have been launched in India but most of them have surely been done. Business Channels
The beverages industry is a multi channel industry with different channels being used by the producers to pump out the products produced to the retailers who would then be selling it to the final customers. In the beverages industry channel generally there are three layers including the producer which in this case is Pepsico. The company pumps out the product to the wholesaler who then passes it to the Retailer, who is then the face of the company to the final customer. Now the beverages industry has volatile demand and in many cases Products needs to be provided at a very short notice.
So many a times Beverages are passed by the producer to retailers overlapping the wholesaler as this would suffice the rise in demand especially in the summer time peak season sales. The retailers now days have got a higher bargaining power and them also try to protect their relationship with the final customer as they want their importance and presence to be felt by the producer in the market. The retailers of the beverages brands are thus large scale retailers who are generally not large in number and small retailers who are large and dispersed in various pockets of areas of the market.
The wholesaler also pay a big part in the beverage industry as they can distribute the beverages in the various corners of the market as they can use their expertise and distribution workforce in marketing the product. Now this is the precise channels used by Pepsico in distribution of beverages industry and it is one of the best in its sectors though many believe Pepsi has a lot of catching up to do with its big rival Coca Cola which is believed to have the best distribution system and pioneers of distribution system in its product.
Porter’s Five Forces Analysis Threat of New Entrants Pepsi’s product differentiation owed to its marketing strategy limits the threat of new entrants. The heavy establishment costs associated with packaging and bottling units is a deterrent in this case, however, brand image and reputation are the biggest deterrents to gaining market share from established players on scene. Strong relationship with distribution channels is the biggest entry barrier since operational profitability of a firm in this industry is determined by its access to distribution channels.
Cost advantage, access to various input factors as well as raw materials, proprietorship over products, various government policies are the various factors for new entrants prior to making a foray into this industry domain. Threat of Substitutes Sweetened carbonated beverages face substitutes from a wide array ranging from energy drinks, tea, coffee, juices and even bottled water, more so from its main competitor Coca Cola India. This threat raises questions regarding the challenges of increasing brand loyalty within the substitute markets, since substitute products are contained within manufacturer’s portfolio.
Buyer’s switching preferences, which also factors in the buyer’s inclination to the substitute, would account the price-performance trade off of substitutes. Bargaining Power of Buyers Strength of Pepsi’s sustainability in the carbonated beverage industry is owed to its distribution channel access as well as various channel partners. Retailers, distributors and bottlers have more bargaining power over consumers owing to their value chain priority. Large retailers and departmental stores like Big Bazaar, Spencer’s, Subhiksha, etc make their hay from Pepsi through volume based purchases, displays and promotions.
In hindsight, these retailers can also be viewed as losing out on customers due to their refusal to stock a particular brand. Various factors accounted for include the bargaining leverage exercised by certain stakeholders in the value chain (although they aren’t direct buyers/ consumers), price sensitivity of the buyer, available substitutes, incentives for the buyer, buyer information volume ; brand identity, product differentiation, threat of backward integration, etc Bargaining Power of Suppliers
Overall bargaining power of suppliers is fairly low owing to their relatively low count. End product is an aggregation of few ingredients (primarily commodities), hence Pepsi accounts for a large part of supplier’s revenues. Factors considered while accounting in the supplier bargaining power include supplier concentration, volume’s importance to supplier, differentiation of inputs, etc. Degree of Rivalry Coca Cola India is the sole rival to Pepsi considering that together these two players account for 95% of market share.
Rivalry boils down to downward pressure on prices and significant advertising costs, and impulsive attempts to maintain and build brand loyalty. Corporate stakes, product differences, exit barriers, capacity utilization are the various factors accounted in to consider rivalry, in the current context of co-creation along with the stakeholders gains significance considering the maturity of the industry category with respect to heated fight over prices, endorsers, distribution channels, retail space and most importantly taste preferences of the consumers.
A representation of the resource base is captured as below Resources are the sources of competitive advantage for Pepsi. Major resource base is attributable to 1. Huge brand equity leveraged through aggressive market positioning and considerably heavy investment in advertising and promotions 2. Ability to churn out differentiated products through innovation and competitive operating bases 3. Relationship base with sales and distribution network and quick response with respect to powerful ‘go-to-market system’ owing to former relationship.
Above all it is the talent and dedication attributable to people who make it possible for Pepsico India to leverage its competitive advantage. Pepsi’s competitive advantage lies in the higher priority it awards to the force of “bargaining power of buyers”. The buyer segment is not only confined to the end consumer rather it also constitutes its distribution network, bottlers and retailers (more specifically modern retail outlets and departmental stores) who figure relatively higher in the priority amongst its buyers. Value Delivery Process
Value creation and delivery sequence is the major component of value delivery process done usually in three phases. Value Choice, the first phase represents the backend work done by marketing department prior to the existence of the product. This focuses on market segmenting, selection of target market, developing the offering’s value proposition, thus forms the essence of strategic marketing. Value Provision is the second phase where requirement is to identify specific product features, prices and distribution. Third phase is communication of the value by various channels like sales force, advertising, etc.
There are varying levels of cost implication for each of the phases and which further translates into acceptance of the product. Pepsi’s Value Delivery Pepsi positioned itself as a youth oriented brand which has ample evidences in its advertising campaigns that has been aggressively aired on all media. With changing customer preferences Pepsi expanded its market offerings to leverage market’s changing preferences towards health drinks and quick meals (read snacks). Resources are tuned to adapt to market demand indicating massive market research and analytics that are put in behind each of the offerings.
With Pepsi sharing privileged relationship channels, dedicated sales force and promotion campaigns, Pepsi has ensured that its offerings contribute value to each of the consumption decisions made. With changing taste preferences Pepsi has been adapting well to the market forces. Pepsi prides on its marketing functionality and its distribution networks for its profitability. Value Chain Analysis Inbound Logistics – This primary activity involves procurement of raw materials and their aggregation and consolidation for business.
Water and the extract concentrate are the primary raw materials used for the final product. Pepsico provides the concentrate extract to all plants in the country while water for the purpose is procured through ground water extraction. Operations – Scope of operations primarily deals with all the bottling units – 32 of them for Pepsico. 15 bottling units owned by PepsiCo and the rest 17 (FOBO), owned by R K Jaipuria Group. Coordination among these bottling operation units along with distributors is the key to intrinsic value creation for the firm.
Outbound Logistics – This activity of Pepsico is primarily three staged. The finished product moves from the bottling plants to the depot or the regional warehouse, from where it is moved to carrying ; forwarding (C;F) centers and further to the distributors according to their demand. Sale happens through retailers after the product moves to them from these C ; F centers and distributor points. Marketing and Sales – One of the major contributors to Pepsi’s success story is the sales and distribution network and multi layered and dedicated sales force.
Maintaining relations with channel partners, roping in celebrity endorsements, sponsoring events, promotional launch of products are the various activities handles by the sales and marketing function. A lot of effort, investment and other ancillary resources goes into this function which is the primary source of Pepsico competitiveness. Service – There is almost no requirement for after sales service in this industry with the only exception is leaked or burst bottles which get routed through the salesperson and quality team for a replacement or appropriate refund.
Support Activities – Various support activities for Pepsi include its recruitment activities for its various personnel activities, its technology gathering or acquisitions for aerating drinks, etc. Pepsi made heavy investments in its celebrity endorsements to an extent that during late 90s almost each player of the then Indian Cricket team was or had been a Pepsi endorser. These slow and progressive affiliations to such mass following events gradually progressed from being a support activity to one of its major marketing activity. Pepsico: India Story
Pepsi had recognized that it cannot win by competing head-to-head with Coke in all markets. Pepsi focused on becoming a profitable number-two in the emerging markets and aggressively enter new markets, where the playing field is more level. The realities of soft drink industry show that this decision was not surprising. Coke had already entered the developed and emerging market 25 years before Pepsi. Pepsi’s share outside North America was 15% as compared to Coke pegged at 50%, making it is difficult for the Pepsi sustain decent profit levels in these markets. Pepsi divided its markets into four categories- Leadership Markets- These were the markets where Pepsi has market share more than Coke. * Critical Mass- This is where Pepsi had attained critical mass. * Subscale- This is where there was a pressure on Pepsi’s profits. * Emerging- These were new markets where the playing field was level and there was a lot of scope of growth. Pepsi’s strategy in these markets has been summarized in the table below Pepsi planned defense in its “leadership” markets. It focuses on maintaining its share in “critical mass” markets and seeking bottling alliances in “subscale” markets.
In the emerging and new markets Pepsi took a more hard-line strategy and took the decision of building aggressively in “emerging” markets. These were markets with undeveloped brand loyalty and the closest share gap versus Coca-Cola. Markets like India which was not touched by Coca-Cola, were very lucrative for Pepsi and their strategy in dividing the markets and taking a more aggressive stance in these untouched markets was something that paid them off very well. Entry into India India was a very lucrative destination because its vast population offered a huge, untapped customer base.
In the late 1980s, the per capita consumption of soft drinks in Egypt and Thailand was 63 and 38 bottles per annum whereas India was only three. Even Pakistan had a healthy consumption of 13 bottles as compared to India. Another encouraging fact was that the increasing urbanization had familiarized Indian with leading global brands. After analyzing these circumstances, Pepsi had involved itself in hectic lobbying with the Indian government to obtain a go ahead to start operations in India. However, it was opposed by many political parties and factions.
Pepsi had to come up with an attractive package that would lure in the Indian government. Pepsi collaborated with the R P Goenka (RPG) group, one of India’s leading business houses, to start operations in India in May, 1985. Agro Product Export Ltd. , a subsidiary of RPG group along with Pepsi proposed to import cola concentrate and to sell PepsiCo brand soft drink in the Indian market. To make its proposal attractive to the Indian government, PepsiCo proposed the export of juice concentrate from the established industries by it post entry in Punjab in exchange of the import of cola concentrate.
It submitted a proposal to the Ministry of Industrial Development. It claimed that the main objective behind Pepsi’s entry in India was the promotion and development of exports of Indian agro-Based Products. It also said that it wanted to introduce and develop Pepsico’s products in India. The Ministry of Industrial Development rejected the proposal on two major grounds- the import of cola concentrate was not acceptable and Pepsi Brand name could not be allowed in India as the usage of foreign Brand name as DTA (Domestic Tariff Area) was not allowed.
Although once it was not allowed, it decided not to sit quietly. Taking advantage of the political problems in Punjab that time, Pepsi yet again played the “Punjab Card”, Pepsi made another proposal to the government in 1986. It knew that Punjab was plagued with political and social problems which were an extremely sensitive issue for the Indian government. The decision of linking its entry with the welfare and development of a state was a conscious one, which was aimed to win the government over.
The stress was more on the diversification of agriculture in Punjab and employment generation than on soft drinks. It was called the second “Green Revolution” by its proponents and it was projected as the harbinger of horticulture revolution, which would help small and middle group farmers and end the stagnation of Punjab’s rural areas. There was also a very strong argument put forward by Pepsi that it will create great employment opportunities and this would help bringing back the unemployed youth that took part in terrorism to work and help in the peace restoration process in Punjab.
Pepsi entered India by forming a joint venture with PAIC and Voltas. Pepsi Foods Limited’s equity was divided with Voltas holding 24 percent, PAIC holding 36. 11 percent, and PepsiCo 36. 89 percent. Pepsi also made certain other commitments apart from the “Punjab Card” to the Indian government which also were the basis of its entry in India. Some of the important commitments made by Pepsi included: * The project will create employment for 50000 people nationally, including 25000 jobs in Punjab alone; * 74 percent of the total investment will be in food and agro- processing.
Manufacturing of soft drinks will be limited to only 25 percent; * PepsiCo will bring advanced technology in food processing and provide thrust by marketing Indian products abroad; * State of the art technology would be provided in the fields of food processing and soft drink manufacturing at no foreign exchange outflow; * 50 percent of the total value of production will be exported; * An agro-research centre will be established by PepsiCo in consultation with ICAR and PAU; * No foreign brand name will be used for domestic sales; * The export-import ratio will be 5:1 over 10 years, which means that for every dollar spends in foreign exchange on this project, the company will ensure an export earnings of 5 dollars for 10 years; * 25 percent of the total fruits and vegetable crops in Punjab will be processed in the project; It took Pepsi more than 5 years of negotiations, scores of debates in Parliament, play a benevolent regional development card and finally fudge on its commitments to maintain a significant business foothold in India. As part of Pepsico’s foray into emerging markets, considering India’s huge population base, India was ‘the destination’ where Pepsi attempted to register its story. Pepsi’s entry into India was primarily through its focus on externalities.
India’s business sense during the late 1980s could be categorized as archaic (although political circles dubbed this conservatism as protection of domestic interests on ground of which the initial entry proposal through Agro Product Export Ltd was rejected by Ministry of Industrial development in 1985 which opined against use of foreign brand names as Domestic tariff area (DTA) which wasn’t allowed). In its second entry bid, Pepsi leveraged on the instability of the political scene in Punjab as a leeway into India. Pepsi posed itself as the messiah of middle and small scale farmers through its commitments on accelerating employment figures, considerable boost to food and agro-processing industry, focus on exports, utilization of domestic produce which would ultimately result in filling of government coffers through consumer market expansion and hence increased taxation, diversification of Punjab’s agriculture.
External influence was the most dominant characteristic of the factors that Pepsi tried to address. Pepsico’s entry proposal into India was positioned as being in sync with the national objectives of exports, agriculture, employment, technology which were high focus areas of the then government (even governments till date have the same focus areas with many more additions to the same). Such a wide portfolio of commitments from a carbonated beverage manufacturer could be vaguely realizable, considering its expertise and intent at honoring the commitments promised. However the fragility of Punjab’s political scene coupled with the gloomy investment sphere in the country made Pepsi’s commitments look fairly rosier than all other alternatives.
It was a deliberate strategy employed from Pepsi that wanted to gain access to Indian markets at all costs. Pepsi fared miserably on each of the commitments that it had assured. Major employment commitment of creating 50000 jobs nationally (and 25000 in Punjab alone) was a fluke considering Pepsi directly employed 909 people in 1992, which increased further to 2400 in 1996 (only 3% of its committed figure of 75000). Pepsi however rationalized itself by quoting the small and organized retail outlets as indirect employees. This interpretation of indirect employment was a complete blasphemy on Pepsi’s part. Pepsi’s other commitments regarding agro product processing plant, technology augmentation, export focus were meted out similar fate.
Even nomenclature commitments were dishonored by the firm – it doled out products initially under the brand name of Lehar-Pepsi, but one the gates of the economy opened up in 1991, it immediately rechristened itself to its global name Pepsi. Pepsi had committed 50 percent of the total value of produce to be exported. The export value of its fruit and vegetable exports were near naught, hence Pepsi resorted to exporting a variety of unrelated produce like ‘basmati’ rice, shrimps, Darjeeling tea and even leather products. These traditional exports has seen many exporters over the years, hence Pepsi’s contribution as a harbinger of agro based product exports is grievously dubious. Pepsi subsidiary, Futura Polymers Limited ealt with dealt with PET bottles (manufacturing of which were also considered environmentally hazardous) which constituted 70% of Pepsi’s total exports. Moreover Pepsi admitted to import considerable plastic waste from US, thus using India as a dumping ground. Pepsi entered India through false commitments since India’s lucre lied in its huge population which could not be ignored by Pepsi. Only result that mattered to Pepsi was itself gaining access to Indian markets, after which its commitments could be ‘slipped under the doormat’. Pepsi had neither any intent nor any expertise with promoting any of the commitments assured as it expanded its spread in India.
Pepsi’s core competency has been its marketing function which helped it gain presence across country in a short period through aggressive promotion and network of distributors. As Pepsi gained market share, its commitments were put in the backburner. Non-enforcement and non-compliance was a pattern for Pepsi across all its commitments, where state intervention was missing, even no penalties to have flunked on its assurances. Entry into India was the only objective – this entry objective had to be attained ‘by hook or crook’ as evident in the Pepsi actionable. Once Indian markets were accessible, Pepsi went near blank with its commitments and focused on what it actually intended – promoting its own brand, increasing market share, et al.
It had its core competency in marketing to aid it throughout. Case in point is while the commitments were made by the joint venture in 1988; Pepsi bought the equity stakes of venture partners when economy liberalization process was started (early 90s). Thus Pepsi had none to blame for while not honoring its commitments, but itself. Pepsi: Pre Liberalization ; Early ’90s Before the re-entry of Coke into the Indian market, Pepsi competed with the then market leader, Parle. Rivaled only by Pure Drinks in absence of major global players in Indian market, Parle had increased its market share to 60% in 1990 with Thums Up, Limca and Gold Spot being the leading drinks.
Parle also, had control over the fruit drinks market with 40% share of Frooti. However, after Pepsi entered India, Parle’s market share decreased to 53% and Pepsi’s shares rose to 20 %. However, Parle had control over the distribution network with more bottling units (60 in compared to Pepsi’s 20) and retailers (2. 1 lakh over Pepsi’s 1. 5 lakh). Indian soft drink industry was growing at a rate of 2. 5% per annum during the period 1984-1992. But with the start of the Cola War, it doubled to 5 %. Among the flavours Cola dominated the consumers’ choice with 40% of market share, Lime and Lemon 30% and Orange 15% while other carbonated soft drinks accounted for 10% of the market.
The aerated soft drinks market in India then was estimated to be 80 million creates per annum with just 3 bottles per capita being the annual consumption in India. Pepsi, owing to Government policies of the time, started with Lehar Pepsi, and launched it on 1989 Independence Day on the television with a 90 second commercial called “Let the magic begin”. This was in sync with the ad run on American television with Michael Jackson, thus Pepsi’s India ad strategy right from the beginning was in aligned with its global strategy. For over a fortnight before its launch, teaser ads upped the ante and finally the ad was telecasted in the premium ‘Super A’ slot before Chitrahaar.
It was conceived and directed by famous director Vidhu Vinod Chopra. The ad featured pop star Remo Fernandez and leading actress Juhi Chawla. The production cost of the ad was a whopping 50 lakh rupees apart from the telecast time charges. Thus Pepsi entered Indian market with a big bang. It also partnered with the right people and companies to establish itself rapidly in the Indian market. It had partners like Voltas Ltd. (a TATA venture) and in the eastern India had VXL Ltd. , a Birla firm as its bottling franchise. It also had the patronage of Jagdish Tytler, who was the minister of food processing in Rajiv Gandhi Cabinet. HTA produced the “Choice of a new Generation” commercial.
Parle, in reply, teamed up with Ambience to produce the “Taste the Thunder” Campaign, banked on the appeal of Pooja Bhatt and Salman Khan, and also had the backings of politicians like Suresh Kalmadi and George Fernandes. Pepsi had also started the production of its Snacks food. In June 1990 Pepsi launched 250ml bottles in response to the 250ml bottles of Thums Up. Thums Up, in reply, came up with ads downgrading Pepsi’s taste and declaring it as a fast drink, and then launched the blind taste test ads (which Coke and Pepsi used against each other in the US). Thums Up then went on the campaign stating ‘the bigger, the better’ and launched Double Maha Cola, the 500ml bottles. Thums Up was also the first to introduce the 250 ml ‘takeaway’ bottles in Indian market.
At the same time, there was a change of Government with VP Singh leading the new minority government, and after six months of its launch Pepsi was charged of not fulfilling its commitments and a show cause notice was issued to the company for violation of the conditions stipulated in the letter of intent with regards to the production of soft drinks concentrate which included its failure to adhere to export 40% of its production and providing employment to 50,000 people. While VP Singh was expressing concern the FDI and announced to re-examine the PepsiCo agreement, the US Government at the same time, threatened to impose trade restrictions on India under Super 301 legislation for its negative FDI regulation.
PepsiCo takes advantage of this situation to earn Government of India’s goodwill and lobbies for India in this case. The US backs out and Pepsi gets into the good books of India government and gets tax subsidies. Pepsi also agreed to put a new logo of Lehar along with its insignia. Soon the PV Narasimha Rao Government introduced the liberalization policy in 1991 and opened the economy to multinational companies. The newly formed Foreign Investment Promotion Board allowed 51% ownership of the companies. Pepsi extended its soft drinks business to a national level and introduced Pepsi-Cola in Bombay and Delhi. Later in July 21, 1993, Pepsi bought over the entire stake of Voltas worth 35. 5 crores for 49 crores.
Pepsi Thus owned 92% of the total stakes of Pepsi Food Limited which was worth 105 crores. Pepsi engaged itself in seven areas of operation – beverage manufacturing, bottling, backward integration, backward integration for vegetables and fruits, up-gradation of food processing, exports and export-led activities. Since Pepsi in this period was the only foreign player in Indian market, it consolidated its position during its period of growth, and established its own bottling plants and went for its own distribution system which later was not a right that Coke enjoyed on its entry. Being the first mover, Pepsi was exempted from the regulations that were later imposed on Coke.
It did not have the condition of divestment of 49% of equity in its downstream ventures attached to it and had the approval of its downstream ventures before the FDI guidelines came making Indian equity mandatory. Thus, Pepsi not only held 100% of equity in its holding company but also carried bottling and marketing operations and also using this approval from Government that it can acquire assets for its expansion (and not buy shares for portfolio investment) bought out the Gujarat Bottling Company, a former Coke Franchise in Ahmedabad. Thus, Pepsi was well placed when Coke Finally re-entered India in 1993 with a 26 % market share and its own well established network for distribution. Pepsico in the post-Coke Re-entry Era 26th October 1993 was the day on which Coke finally re-entered the Indian market after prolonged absence of sixteen years.
And the first major step it took was to eliminate Parle, India’s biggest soft-drinks producer at the time with 60 % market share. It spent US $70 million to acquire Parle’s brands namely Thums-Up, Maaza, Limca, Goldspot & Citra and decided to introduce its flagship drink, Coca Cola gradually. Overnight Coke had become the market leader. The Pepsi-Coke war was to be revived in a new market, India. Pepsi had to quickly come up with Sound Strategy to combat the formidable presence of Coke. It had gained significant first movers advantage by virtue of its entry five years earlier. Unlike Coke, Pepsi didn’t have to divest 49 % equity in downstream ventures and was allowed to hold 100% equity in its holding company.
Pepsi used these factors to its advantage and carried out aggressive marketing and bottling activities and acquired Gujarat Bottling Company, previously a Coke alias. Coke despite entering in ideal situations was getting into major dissensions with Bottlers as opposed to Pepsi’s finesse in maintaining strong ties with bottlers. An interesting piece of insight to be found is with the entry of Pepsi & Coke, the size of Soft drinks market expanded rapidly and CAGR previously sluggish at 5% ballooned to 20%. Also the composition of the market changed with Colas now dominating Lime segment and capturing 50% market share. It is practically impossible for a firm to treat regional markets in isolation without synergizing it with its Global Strategies.
Pepsi & Coke are no exceptions and somewhere down the line their global strategies filters down into its so-assumed India-specific strategies. While Pepsi co has ventured into Restaurants and Snacks, Coke still sticks to soft drinks. Pepsi tries to own up its operating entities like Bottling Plants, Coke owns none. And most crucially while Pepsi relies on Celebrity endorsements and Innovative marketing campaigns, Coke relies on logistics efficiency and infrastructure investment to rake in the dollars. Despite Coke being the market leader on a global scale, Pepsi leads the stakes on the domestic front. Brand Synchronization: Pepsi has chosen to lign itself with Indian consumers’ sensibilities at the expense of disassociating with its Global lineage, reaping windfall returns in the process. Its association with ethnic festivals like giving colors sachets with Pepsi in Holi or giving free bottles of Pepsi with Idli in Chennai, Pepsi has made a huge effort in striking the right cords with Indian consumers. Coke, instead tried to leverage on its global brand value and instead of bonding intricately with customers, tried sponsoring World Cup1996 ; Olympics 1996. Yet its lack of follow-up campaigns and sporadic marketing activities ultimately led to Coke surrendering the exclusive endorsement of the Young crowd to Pepsi.
Organizational Dynamics: Pepsi allows flexibility and complete independence to its Sales representatives ; Managers in taking decisions as per their own assessment of the current market situation. They are given budgets to work with and are given complete discretion on what actions to be taken to improve performance. Coke on the other hand lacks flexibility within its organizational setup and depends solely on its own feedback mechanism rather than of its bottlers while ignoring Parle’s franchisee network. Its hierarchical chain of Command that Coke follows but its predictable promotional pattern doesn’t allow Coke to make much headway. Only recently has Coke begun modifying its strategy.
Pricing: Arguably cornerstone attribute in deciding the winner, Pepsi is by far ahead of Coke in its Pricing strategy. From wooing customers by giving them free samples and converting trials to habitual usage, Pepsi has always tried to hit the benchmark in terms of lowest price. Its 500ml Bottle in 1994 was priced at Rs 8 compared to Rs 9 of Thums Up while its 1. 5 litre bottle sold for Rs 30 as opposed to Coke’s Rs 35. Its low price positioning was aimed at getting maximum customer base followed by price appreciation when demand stabilized. Coke on the other hand tried introducing Cans on the lines of Pepsi at Rs 15 before raising it to Rs 18.
However customers’ reluctance in paying premium for it led Coke to come up with cheaper, smaller Can. The Distribution channel servicing both Brands can often be the make-or break factor in deciding the Profit margins. Both Pepsi ; Coke adopt different ways to manage this Channel vis-a-vis its different elements. The most striking contrast is while Pepsi seeks to own its Bottling plants; Coke relies on Franchisee model for its bottling operations. Pepsi had close to 50 bottling plants and 45% ownership in its bottling plants and was looking for direct distribution to retailers as its primary model. On the other hand Coke is seeking to build an integrated bottling system here which has drawn the ire of Independent bottlers.
Retailer Loyalty: This is majorly employed by Pepsi to get strong and loyal support from its Retailers. It offers its Retailers cooling equipment at below market price and thus ensures the Retailer doesn’t stock Competitors’ products and becomes exclusive Pepsi outlet with guaranteed business of 700-1200 crates annually. This helps the retailer save on his Working Capital as he buys Cooling equipment at cheaper rate and also ensures Retailer pushes Pepsi products more to overturn his blocked Working Capital. Credits to Retailers: Pepsi lags Coke in this aspect and consequently Coke has taken over many markets like 70% market share in Kolkata.
Pepsi cannot give credit to its Retailers because of its lack of familiarity with them and so even if it gives credit to few trusted retailers it’s only for 6-8 hours. Coke on the other hand, can afford to give credit to Retailers for even two weeks because of its in-house knowledge of working with various dealers (on account of inheriting the Parle business). Incentives: Coke gives performance-based incentives to its retailers like watches, clocks and other non-monetary items which served to not only encourage the retailers to sell more Coke products but also ensured watches and other gifts served as promotional vehicles. Pepsi on the other hand is focusing on strong Retailer relationship and better understanding of the Retailer’s needs to beat Coke to the finish line. Advertising Strategy
Consuming a brand of soft-drinks hasn’t got to do with your taste bud only; it’s also the sway of marketing messages and sensory ; visual images that affect a consumer’s decision. Pepsi & Coke command string brand loyalty even if they are almost same physically and in terms of ingredients used. It is fascinating insight to realize how both companies co-exist in India despite intense rivalry and avoid the ad clutter that could kill the sales of both Pepsi & Coke. If few consider advertising trends Genre wise, Pepsi is clearly more visible in Sports such as Cricket, Wrestling and Soccer while Coke holds sway in Soaps, News Channels, & Music channels like MTV.
Pepsi focuses more on The Press & print media to get its ad space while Coke heavily uses the TV ad slots for its promotion. In fact if we consider regional disparities, take on it with Pepsi being more active in the South while Coke is more active in the North. Such variations in media strategies have been possible due to different media vehicles combination chosen and hence both Pepsi & Coke have a clearly defined image in the market. Pepsi has gone for Strategy that’s Youth-focused and very young and bubbly in its appeal while coupling it with efficient distribution system. Coke on the other hand is seen as something of Happy Drink for the whole family, available at arm’s length, is affordable and well-liked.
As for celebrities endorsing the brands, Pepsi stole a march on Coke by realizing this crucial aspect and utilizing it in its advertising campaigns while Coke was still following the American model of Supply Chain efficiency as key to Sales. There have been celebrity endorsers for both brands over the years that have helped them build their brand image. From cricketers like Sachin Tendulkar to Azharuddin to Film stars like Shah Rukh Khan and Aamir Khan and Aishwarya Rai, celebrities add hugely to the brand pull and hence sign lucrative contracts that often pay more than their regular profession. There have been cases of Brand switches and termination of contracts aplenty with both these brands.
A smashing strategy that Pepsi came up in the 1996 Wills Cricket World Cup was the “Nothing official About It” marketing campaign. Even if Coke was the official sponsor of the event, Pepsi had contracts with many Indian cricketers like Sachin and Azharuddin. His smart bit of Ambush marketing ultimately worked into Pepsi’s advantage and its sales skyrocketed in the period. As both Brands continue to evolve, Marketing ; advertising campaign have served to not just supplement Brand Image but also give it unique positioning and carve out space for itself. Annexure Annexure 1 Employment generated by Pepsico India Source of Employment| 1990-91| 1991-92| | Direct| Indirect| Direct| Indirect| Food Processing| 169| 9903| 170| 9082|
Administration| 117| 432| 179| 432| Concentrate ; Bottling| 497| 15115| 560| 16900| Total| 783| 25450| 909| 26314| Source: Data taken from Balance-sheets of Pepsi Foods Ltd. Annexure 2 Pepsi’s Exports (Rs. Crores) Products| 1992-93| 93-94| 94-95| 95-96| Rice| 7. 9| 10. 4| 7. 4| 18| Paste*| 3. 2| 2. 5| 4. 1| 3| PSS| 8. 6| 9. 1| 21. 6| 40| PET| 0. 4| 0. 4| 36. 2| 133. 5| Guar| 12. 8| 14. 3| 2. 8| 3. 4| Others| 3. 3| 2| 1. 2| 3| Total| 36. 2| 39. 7| 73. 3| 200. 8| Source: Global, January 1997 *includes tomato and chilly Annexure 3 Annexure 4 Financials comparison Coke & Pepsi over years Source: Google Trend Analytics Annexure 5 Annexure6 Annexure 7 Annexure 8
Annexure 9 Annexure 10 ——————————————– [ 1 ]. http://en. wikipedia. org/wiki/PepsiCo [ 2 ]. http://www. pepsico. com/ [ 3 ]. http://www. pepsico. com/Company/Our-History. html [ 4 ]. http://www. pepsiindia. co. in/Company/ourcorporateprofile. aspx [ 5 ]. http://en. wikipedia. org/wiki/Pepsi [ 6 ]. http://timesofindia. indiatimes. com/articleshow/134406. cms [ 7 ]. Annexure 3 Table [ 8 ]. http://theultimatereality. blogspot. com/2004/02/pepsi-how-it-entered-india. html [ 9 ]. Annexure 1 Data [ 10 ]. Annexure 2 Data [ 11 ]. Annexure 5 Data [ 12 ]. Annexure 4 Data [ 13 ]. Annexure 6,7 and 8 Data [ 14 ]. Annexure 9 Data