Consumers are becoming more health conscious with the rise of many weight related diseases such as obesity.  This is the main reason why companies such as Coca-cola and PepsiCo introduced the diet beverages. However, consumers are worried about the diet sodas which according to the National Institutes of health (NIH) have been found to be worse than the sugary drinks (Goldman). A recent study by the NIH revealed that people who consume the diet coke add more weight than those who consume sugary sodas.

In the U.S, soda sales fell to a 30-year low this year and though diet Coke is still the leading cola brand; its sales fell by 6% in the year 2015. Three decades ago in the 1980s, Coca-Cola had made a decision to change the Diet Coke flavor and formula (Goldman). However, this was among the biggest marketing mistakes in corporate history. Up to date, Coca-Cola has resisted the urge to change the Coke formula again.

It has concentrated on promoting the Coke Zero which is very popular. In the year 2015, the company released a new version of Diet Coke with Splenda. Just like Coca-Cola did in the 1980s, Pepsi changed the Diet Pepsi formula last summer. The company changed the artificial sweeteners to a blend of Splenda and Ace-K from NutraSweet (Goldman). Both Pepsi and Coca-Cola are very competitive in the beverage industry. They are the two main competitors in this industry.

Oligopoly Market

Companies in the beverage industry operate in an oligopoly market. An oligopoly market has a small number of firms dominating the market. The actions of any of the dominant firms affect the other companies. The major players in the beverage industry include PepsiCo, Coca-Cola, Rebbull, Living Energy and Hansen Natural Corporation.  However, Coca-Cola and PepsiCo are the two main players in the market. These firms dominate the beverage market and usually buy out other small companies that enter the market. All these firms sell identical and differentiated products.

The beverage industry has entry barriers. Although it is possible for new entrants to enter the beverage market in the US, as the legalities are favorable, the threat of entrant is high (Mankiw 89). It is difficult for a new beverage company to maneuver in the industry in the presence of the well-established companies, which have been in the industry for a long time. The reason behind the argument is that the industry is very competitive. Any new entrant in this industry must be financially stable and have well-formulated strategies to help expand the market share and enhance competitiveness.

This kind of situation is hard especially in the U.S. market, which is very unpredictable due to the high number of well-informed customers (Mankiw 105). The already existing companies have established brand loyalty, and this makes it hard for new entrants to establish and enjoy competitive advantage since the customers in this market are very sensitive, and they would rather buy a product that they know the manufacturer at a high price, rather than a new cheap product from a new manufacturer. A small number of dominant companies, differentiated goods and barriers to the market industry are characteristics of an oligopoly market.

The regulatory structure in this industry also prevents some new entrants from making any impacts. Every industry has regulatory issues that affect the decisions of the companies. These include mainly environmental regulations. Being in the beverage industry, companies have to follow the laws and regulations that govern the food and beverage industry. The Food Safety Modernization Act is the major regulation faced by the companies in this industry. The act aims to enable the Food and Drug Administration (FDA) agency to protect the public against any foodborne diseases. The FDA focuses more on safety rather than reacting to problems when they occur. They focus on preventing the problems from occurring.

Players in this industry are required to write and implement a preventive control plan. This involves evaluating the hazards, specifying the controls, specifying how the controls will be monitored, maintaining records routinely and specifying what steps are to be taken to correct problems, which arises. The FDA has established science-based procedures to be followed in the harvesting of fruits and vegetables. Fruits are a major ingredient used by beverage companies in the production of juices.

Other issues to be considered in the growth and harvesting of fruits according to FDA include soil amendments, hygiene, temperature controls, packaging, and water. All the players in the industry have a mandate to preserve the environment. With these regulations, it is hard for a new entrant in the market to expand. This is because expansion requires more preventive measures and other procedures which are very expensive.

The Coca-Cola Company and PepsiCo Inc have for ages dominated the non-alcoholic beverage industry. Coca-Cola is the world largest in the industry. It has more than 500 brands with 17 of them generating a billion dollars each in revenue. PepsiCo owns several leading brands across the snacks and beverage portfolio including 22 brands that produce a billion dollars in revenue each. The two companies own a market share of 70% in the United States according to Beverage Digest (Heckman 305).  Both Coca-Cola and PepsiCo operate in more than 200 countries worldwide. The two have been rivalries and have spent vast sums of finances on mutually targeted promotions over decades.

The Coca-Cola and PepsiCo remain to be the major players in the beverage industry. This can be attributed to several factors. One of the factors is that the industry has no threat of new entrants. Both companies have extensive networks in bottling and distribution leading to huge economies of scale. Coca-Cola, for example, has more than 250 bottling partners and more than 900 plants worldwide.

A new entrant in the market will not be able to make the substantive investment required to compete with these firms. In addition, both companies spend a lot of money on advertising and innovation. The company spends heavily on advertising, building new facilities, maintaining distribution infrastructure and retail customer activations. Small and new entrants in the industry cannot manage to make such huge investment.

With the huge investment required for entry into the industry, there is no threat of new entrants. A new entrant in the market would need well-formulated strategies to survive in the industry (Heckman 305).  However, this is made harder by the fact that consumers, especially in the US, are very informed. In addition, brand loyalty also hinders new entrants from expanding. Consumers are used to the legendary Coke and Pepsi and not willing to adapt to new tastes. Though consumers are growing weary of diet coke, the product has not been lost on consumers. This is mainly due to brand loyalty, less competition and promotion efforts of the company.

Alternative Goods

The substitution effect occurs when the consumers decide to substitute a product for another. There are several reasons why consumers can decide to substitute. These include changes in price, income and health concerns. When the price of a product increases, the consumers will go for the low price substitute product. This will affect the demand for the high price product. In addition, when the consumer income increases, consumers tend to go for the high priced products especially due to relating high price with high quality. This is the reason why companies such as Coca-Cola and PepsiCo have several differentiated products in the market.

The Coca-Cola Company is faced by the substitution effect. When consumers realize that a product is expensive or not healthy, they at once substitute it with another product. This is a major factor which leads to decrease in demand for the Coca-Cola Company. Coke is mainly used to quench thirst, and there are other several products that can do the same. These include

Pepsi

Pepsi is a carbonated drink produced by the PepsiCo Inc Company. The company is the second largest in the beverage industry. Pepsi is a good substitute for coke. Some of the PepsiCo products include Miranda, Pepsi, Tostitos, Aquafina, Fritos, Cheetos, Lipton teas and walkers among others.

Limca

Limca, which is a carbonated drink, is flavored using lime and lemon. It is primarily made in the United States and India.  Just like most of the other carbonated drinks, Limca is packed in glass bottles which are usually sent back to the manufacturer for a refill.

Coffee

For caffeine cravers, coffee is a good substitute for coke. There is more caffeine in coffee than in Coke meaning that drinking a small quantity of coffee will boost the caffeine in the body. In addition, coffee can be made easily in the comfort of one’s home and can be taken cold or warm, unlike coke which is always cold.

Fruit juices

In most of the countries where Coca-Cola operates, there are fruit juices locally made using fruits. Though these juices usually lack caffeine, they are good in quenching thirst and also healthier than coke.

Water

In recent times, Coca-Cola has introduced bottled water. However, consumers have the alternative of consuming the tap water in their homes rather than buying the bottled water. In addition, other local companies also have bottled water.

Coke has many substitutes. With the concerns that diet coke is not healthy, coke is faced with the problem of substitution. However, the company has established strategies to curb this problem. The company has many products in the market. In the place of diet coke, the company also has Coke Zero, which is a diet soda with low calories. When the demand for diet coke decreased, coca cola turned its effort to coke zero which is also very famous with the consumers. When the diet coke sales go down, the sales for coke zero goes up this striking a balance in revenue. Through this, the company can maintain its competitive advantage in the market.

Occasionally, the company introduced new products in the market all under the name brand cola. These products include vanilla, cherry, coca-cola zero, caffeine free Coca-cola, diet coke caffeine free and other versions with lemon, lime, and coffee. With all these products in the market, the company can be able to cover for demand lost in one product through promoting another product.  This is the sole reason for differentiation in the market.

Product differentiation is another major aspect utilized by the Coca-Cola Company. The company has different brands differentiated from each other by color, taste, packaging, and additives. The differentiated products are packed in plastic bottles, glass, and tin cans (Dubé, 2005). This aspect has enabled the company to have a competitive advantage in the market. The increase in demand for one product covers the decrease in demand for another product thus maintaining the revenue level. In addition, Coca-Cola Company operates in an oligopoly market which is very competitive.

Refusal to Change the Formula

In the early 1980s, PepsiCo introduced the wildly successful Pepsi Challenge marketing campaign. The tides were changing in favor of Pepsi. Faced with increased competition from Pepsi, the Coca-Cola Company decided to change the coke formula to generate a product that the consumers will like more than the Pepsi and the old coke. Tests done by both the companies showed that people preferred Pepsi over coke (Goldman).

In addition, Coca-Cola only remained ahead in terms of revenue due to the exclusive contracts with restaurants and vending machines vendors. Otherwise Pepsi would have been outselling Coke as it was in supermarkets and other locations. Coca-Cola thus set out to make a change in the formula. To be specific, they came up with the new coke based on the new diet coke formula.

Diet coke became very popular right after it was launched. Taste tests showed that more people preferred the taste of Diet Coke more than the regular Coke. Coca-Cola had just substituted the artificial sweeteners with the fructose corn syrup. The failure of the formula was not that the company did not do their due diligence on whether the formula was better than the old formula (Hiskey). The company knew that abandoning the old formula was a big thing. Numerous tests were run which supported the idea that many people preferred the new formulation and also the new formulation beat out Pepsi by a considerable margin.

The main problem with the whole thing is that Coca-Cola never asked the consumers whether they would prefer the company to change the formulation of Coke. Though the consumers preferred the taste of the new formulation, consumers did not want the company to change the formulation. The bond between consumers and the old formulation was strong.

Calls flooded in the Coca-Cola offices in the United States.  A company that used to receive around 400 calls a day was now receiving 1500 calls. People were angry with all Coca-Cola employees and were holding them responsible for the change of the taste. When the new taste was announced, some consumers rushed to the stores and filled their basements with crates of coke. Suddenly everyone was talking about Coca-Cola (Hiskey). Protests groups such as the “Society for the Preservation of the Real Thing and Old Cola Drinkers of America” popped up all over. Songs were written in honor of the old taste.

The major reason why Coca-Cola failed at this instance was because they never consulted the consumers. All Coca-Cola did was to ask the consumers about the taste of the new coke. It is not that they did not want the consumers to know that they were developing a new formulation at all. The company however did ask the consumers whether they would buy the new flavor if it was Coca-Cola. Majority of the testers said yes buy a considerable 10% said no. when the new flavor was introduced the vocal minority went to work.

Complaining started and angry coke fans enlisted the media in the campaign. One fan Gay Mullins started the “Old Cola Drinkers of America organization” which lobbied for the return of the old coke or at least license the formula to someone else. Finally, just three months after releasing the new coke, Coca-Cola released the old formulation under the name Coca-Cola classic. Coca-Cola chose not to introduce the new coke as a separate drink because the cola drinks market at the time was shrinking.

The company feared that introducing a new substitute in the market would split the market for their products since many people who would have drank Coca-Cola classic would now be drinking the New Coke (Hiskey). This would give Pepsi a good chance to take a top spot with a considerable margin, allow them to claim that according to taste tests, people preferred Pepsi and also boast about being the popular soft drink in the world. Coca-Cola was not willing to risk giving Pepsi that kind of a marketing advantage. Pepsi with its Pepsi Challenge marketing campaign was already doing well. Any mistake on the Coca-Cola side would have led to their downfall.

However, it was not such a bad decision to introduce the New Coke. Though the attempt was a failure, it forever changed the dynamics of the soft drink industry and the success of the Coca-Cola Company. Within 6 months after the return of the Coca-Cola classic, sales had risen up to double those of Pepsi and still continued to climb. The failed attempt was the reason why Coca-Cola was able to reestablish itself as the most popular soft drink in the world.

Order Effect

In any test, there is a possibility of the order effect. This refers to whether the order of the questions influences the outcome. If the order influences the outcome, then it will make a difference in the outcome of the survey (Strack 28). When Coca-Cola conducted the taste tests, the order of tasting could affect the outcome. Most of the people said that they would buy the new flavor if it were Coca-Cola.

However, when it was introduced in the market, the same people complained. This has some elements of the order effect. Maybe the order of tasting created some bias making the tasters conclude that the new flavor was much better. In any survey, the order at which the test or questions are asked has an effect on the outcome. Changing the preferred order can change the outcomes of the survey. Regarding this, Coca-Cola never bothered to consider the order effect in their taste survey.

If the participants were made to taste the old flavor first and then the new flavor, the results could have been different with if they were made to taste the new flavor first. This order effect may be the sole cause why consumers who had preferred the new flavor ended up complaining about the same flavor later. The company could probably have conducted two sets of the survey with a specific order each. With the results, they would have realized if the order effect was in play.

 

Marketing Strategies

The Coca-Cola Company utilizes some aspects of both the International Marketing and Global Marketing strategies. Global marketing is a situation where a company is operating in many countries and adapts the same promotional tactics in all countries. In such a case, the company views the whole world as one big market and thus no need to adapt the goods and services, distribution and communication to domestic requirements. The company offers the same kind of products and services all over the world (Chernev 36). The marketing personnel are based in the company’s headquarters, and they possess diverse skills that match well together. In addition, the marketing budget is also managed from the headquarters. The promotional tactics are meant for the global audience and not tailored for the domestic audience.

International marketing is a situation where a company opens or acquires a subsidiary in a country and then lets the subsidiary to fully supply the local market. In this case, the subsidiary tailors the products and services to fit the domestic market. It pays attention to local customs and behaviors. The products and services, distribution channels and communication tactics are tailored to the domestic market (Chernev, 93). The marketing team is recruited from the domestic country and operates in the same country. The marketing budget issues are handled at local levels by the subsidiary. In addition, the promotional and advertising tactics are also tailored to the specific country.

For Coca-Cola, it views the whole world as one big market and sells the same kind of products all over the world. In addition, the promotional tactics are meant for the global audience and not tailored for the domestic audience. However, the company pays attention to the local customs and behaviors. The company contracts exclusive bottlers all over the world who buy the concentrate from the parent company and tailors the products for the domestic market. However, the domestic bottlers just differentiate the products based on flavor, color, and additives. The distribution channels are handled by the local bottlers and not by the parent company.

The main competitive advantage of the company is its adoption of the one brand strategy in marketing. Coca-Cola promotes it products all over the world as one product. The domestic bottlers do not market the products independently rather marketing is done by the parent company. The company’s four main products including Diet Coke, Coca-Cola, Coca-Cola Life, and Coca-Cola Zero are marketed under a master brand.

In the low calories market, Pepsi Max was the first to be introduced. However, Coca-Cola followed suit to introduce the Diet Coke and Coke Zero. By the rime Coca-Cola introduced Diet Coke; Pepsi Max had already gained popularity. However, with time, Coca-Cola managed to surpass Pepsi and gained a higher market share in the low calories market (Heckman 310). This can be attributed to several factors. First, Coca-Cola is the leading company in the beverage industry. It has a higher market share in the market. Thus, when it introduced the low calories products, it was easy for the company to introduce the product into the market.

The company’s channels of distribution allow its products to reach all parts of the world. The company has contracted domestic bottlers to handle the mixing and distribution of the products. The bottlers purchase the coke concentrate from the Mother Company and then mix and pack according to the domestic market requirements. This enables the products to reach many parts of the world. In addition, with this kind of an arrangement, it is easy to tailor the products to fit the domestic product.

Brand loyalty is another reason why Coca-Cola was able to surpass Pepsi in the diet market. With the saga in the 1980s when Coca-Cola tried to change the Coke formula, it is clear that people are loyal to Coke. Even after the formula was changed, instead of substituting the coke with some other carbonated drink, people went ahead to push the Coca-Cola Company to bring back the old Coke (Goldman). This is a show of loyalty to the brand. Thus, when Coca-Cola introduced the diet coke and coke zero, it was accepted in the market. In addition, the products were introduced at a time when consumers were worried about their health issues.

Another reason is that being the market leader, the company generates high levels of revenue. The company uses a good proportion of this revenue on advertisements and promotions. Advertisements are done in the media, over the internet, and on every available channel. The company is very vigorous when it comes to marketing.

Competitive Advantages

Market leadership

The major competitive advantage of Coca-Cola is market leadership. Regarding revenue and market share, it is the largest beverage company in the world. This aspect keeps the company ahead and makes it competitive.

Strong brand portfolio

Coca-Cola offers a range of products to the consumers. The company is forever exploring for potential categories of beverages to introduce in the market. The company offers a complete portfolio of drinks that favor the tastes and preferences of all people through its diversified distribution channels.  These beverages include juices, carbonated drinks, teas, bottled water, energy drinks, isotonic milk, coffee, and even bear in some areas such as Brazil.

Collaborative customer relationship

The company closely works with its customers to develop stronger relationships. The company undertakes initiatives such as tailoring their products based on the local market tastes and preferences. Coca-Cola also partners with communities on multiple things such as knowledge management and capabilities development.

Multi-segmentation

Coca-Cola has a multi-segmentation strategy that consists of different products portfolios based on the market group. These groups are formed by socio-economic levels, competitive intensity, and consumption occasion rather than solely on the distribution type.

Go- to-market strategy

The Coca-Cola Company is constantly evaluating the distribution models with the aim of capturing the local market dynamics and analyzing how to increase the market share. This, in turn, helps the company to realize the different need of the customers and as well as whether the distribution channels are efficient.

Managerial expertise

As the main element of a growth strategy, Coca-Cola focuses much on the management quality.  The company remains committed to cultivating quality management at all levels of management. The company offers management training programs designed to enhance its executives with capabilities and also offer a forum for ideas exchange.

Conclusion

The coke market is very competitive in nature. The two main competitors in the market which are Coca-Cola and PepsiCo have invested heavily in the market making it hard for any new entrant to compete with them. Coca-Cola is the market leader due to its competitive advantage. In addition, in the 1980s Coca-Cola tried to change the Coke formula but the attempt failed.

The main reason why Coca-Cola can not try to change the formula again is because it operates in an oligopoly market. In an oligopoly market, every step taken by one of the player has an effect on all the players. Thus, if Coca-Cola tried to change the formula again and failed, this attempt would have a greater effect on the performance of the company.

 

Work Cited

Chernev, Alexander. Strategic Marketing Management. [Chicago, Ill.]: Cerebellum Press, 2012. Print.

Goldman, David. “Why Diet Coke Isn’t Changing Its Flavor: New Coke”. CNNMoney. N.p., 2016. Web. 4 June 2016.

Heckman, M. A., et al. “Energy drinks: an assessment of their market size, consumer demographics, ingredient profile, functionality, and regulations in the United States.” Comprehensive Reviews in food science and food safety 9.3 (2010): 303-317.

Hiskey, Daven. “Why Coke Tried To Switch To “New Coke””. Today I Found Out. N.p., 2012. Web. 4 June 2016.

Mankiw, N. Gregory. Principles Of Microeconomics. Singapore: South-Western Cengage Learning, 2012. Print.

Strack, Fritz. ““Order effects” in survey research: Activation and information functions of preceding questions.” Context effects in social and psychological research. Springer New York, 1992. 23-34.

 

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