Wednesday, November 11, 2015

The Power of Name Recognition

            The Harvard Business School case “Cola Wars Continue: Coke and Pepsi in 2010” exhibited the power that Coca-Cola Company and PepsiCo leverage from their brand recognition. Each company vies for “throat share” in the market based on its name recognition.  Brand power is directly generated from the name recognition garnered from marketing slogans and advertising campaigns. Since their inception, Coca-Cola and Pepsi have relied upon short, memorable, and resonating slogans to coerce the public to purchase their carbonated sugar water. Coca-Cola survived the Great Depression by repackaging its product into a smaller, more affordable size and by making sure that Coke was visible and available in the stores that remained open. The Coca-Cola Company also pressed suit against any cola that infringed upon its user base or that borrowed from its brand power. At pivotal moments, such as when negotiating contracts or when reacquiring franchises for consolidation, the market power of the brand dictated how much control Coca-Cola and Pepsi could exert over the participating markets (concentrate producers, bottlers, retail channels, and suppliers). Pepsi, which has less brand power than Coke during the depression (and arguably still does today) actually went bankrupt during the depression because they did not employ Coke’s marketing strategy. Pepsi was purchased and re-marketed by an independent bottler who was disenchanted with Coke’s negotiation strategy (Brand Sins). After the purchase, Pepsi began to engage Coke in an adversarial marketing war. In response, from the Depression through the 1970’s, Coca-Cola executives refused to acknowledge PepsiCo as a threat by not saying the name of the company. Instead, Coke launched a silent advertising war that featured slogans such as “America’s Preferred Taste” (1955) or “No Wonder Coke Refreshes Best” (1960), which implicitly targeted Pepsi.  In 1974 Pepsi broke the silence and began to seriously threaten Coke’s market share when they launched the Pepsi Challenge. In “Blink”, Malcolm Gladwell actually calls the sip test, which Pepsi uses in challenge, inherently flawed because humans senses are predisposed to prefer a small amount of a sweeter beverage (Pepsi has a higher sugar content than Coke)even if the test subject would not prefer the entire can of the sweeter drink. However, the “factual” results of the challenge are less significant than the qualitative effect that the challenge has on Coke’s brand name. Pepsi “demonstrates” that test subjects prefer a small amount of Pepsi over Coca-Cola and Pepsi thereby introduces an illusory social pressure to prefer the Pepsi name over Coke. Since its introduction, the Challenge has allowed Pepsi to develop from a minor carbonated soda distributor into Coca-Cola’s major rival. Pepsi’s climb in market share may be the result of Coca-Cola’s poor strategy to ignore Pepsi for too long.  Now, the companies are trapped in a “prisoners dilemma” in which they precisely mimic the marketing strategy, advertising strategy, and market diversification of their opposite so that they do not lose market share to the other.

Brand Sins. “Everything Wrong With Pepsi.” Brand Sins. 2 October2015. Web. 11 November 2015.  

Gladwell, Malcolm. Blink: The Power Of Thinking Without Thinking. New York : Little, Brown And Co., 2005. Print.

Yoffee, David B. and Kim, Renee. “Cola Wars Continue: Coke and Pepsi in 2010.” Harvard Business School. 2011. Print.

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