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)
Application
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.
Work Cited
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
Great post. This was all them more enjoyable to read while sipping a cold can of diet coke. :)
ReplyDeleteIts interesting, the positive effect competition can have on brands who are set on tearing each other apart. Much like two gas stations who are positioned across the street from each other. Typically, as they focus on aggressive pricing and schemes to lure customers away from the competitor, they end up indirectly helping each other edge out everyone else in town until only the duopoly is left.