I often wonder why an industry, whose product requires relatively low manufacturing cost and does not vary much across competitors, can be so profitable. Hundreds of experts and researchers study the matter. Forbes reports that Coke has a brand value of $56.1 billion as the 4th most valuable brand in the world with revenue of $3.3 billion (Forbes, 2014). At the same time, the competition in CSD industry is fierce, particularly between Pepsi and Coke.
The key in this sort of industry is to establish a unique image and a strong brand connection to trendy themes. Of course, value chain is the key to operational effectiveness. Throughout the years, Coke and Pepsi have tried to formulate the best value chain strategy (bottlers in particular) through partnership, acquisition and consolidation. (New Coke: Bottlers are Back) However, in my opinion, the critical component for their success is the ability to really understand each other (the competitors), and to establish a unique position in the industry through intensive marketing campaigns.
For decades, Pepsi and Coke have battled to win the competition and establish strong images in CSD industry. For example, the famous blind taste testing known as “Pepsi Challenge” was carried out throughout the United States in 1974. And according to Bloomberg, PepsiCo would spend over $579 million for marketing in 2012 alone. (Stanford, 2012) However, the ultimate goal of such an intense effort is to build a strong brand image. As the article points out, Diet Coke is the most successful CSD product in 80s. The success of Diet Coke is largely due to people’s consciousness for “health”. Coke captured the trend and responded with a “right” product immediately. And as a new mover in the global market, Coke successfully connects itself with American culture and dominates the non-US market. Pepsi, on the other hand, first connected itself with “young” image. After the acquisition, PepsiCo has a more diversified portfolio and presents itself as a snack and beverage company. Through marketing and promotion, both Coke and Pepsi have been able to adjust their branding strategies and also brand connections.
However, all these differentiations could not be done without sufficient knowledge of competitor’s strategy (what the other part wants to be). Just like the quote at the beginning:
“… I’m sure the folks at Coke would say that nothing contributes as much to the present-day success of the Coca-Cola company than… Pepsi.” – Roger Enrio (former CEO of Pepsi)
Both Pepsi and Coke have been successfully analyzing their competitors, which other companies in similar industry should learn.
(Photo Source: Business Insider)
In order to be unique, companies have to know what images competitors try to establish, just as well as what images they want to establish for their own brand. The competitor analysis is critical. In HBS’ article Competitor Analysis: Understand Your Opponent, a systematic list of relative strengths and a matrix of components’ reaction are two powerful tools, which companies can utilize in competitor analysis.
Forbes. (2014. December). The World's Most Valuable Brands. Source: Forbes.com: http://www.forbes.com/powerful-brands/list/
StanfordDuane. (2012.1.27). PepsiCo May Boost Marketing Budget to Take On Coca-Cola Retail. Source: Bloomberg.com: http://www.bloomberg.com/news/articles/2012-01-27/pepsico-may-boost-marketing-budget-to-take-on-a-surging-coca-cola-retail