Coca-Cola and Pepsi's divergent product innovation strategies

Coke and Pepsi

Coca Cola and Pepsi are two of the most well-known companies worldwide. Also, their rivalry is famous, determining a lot of controversy. The two companies show many similarities in the way they manage their businesses in general and their environment in particular, on the one hand. On the other hand, environment management for the two companies presents certain aspects where Coke and Pepsi have opposite opinions.

Coke Strategy Analysis

Coca Cola's strategy is based on the American icon that the company has, and on exploiting this image. However, this image "is in danger of slipping into irrelevance. Consumers are flocking to a new breed of coffees, juices, and teas - all categories where Coke has historically been weak" (Foust, 2006). One can observe a very important difference between the strategies of the two companies: while Coke is exploiting its classic image, with a slight resistance to innovation, Pepsi is more aggressive and more oriented towards innovation. The only innovation that Coke tried was repackaging existing products in slightly different flavors. Pepsi was more courageous in this field, inventing almost each season a new kind of beverage.

Therefore, Coke's strategists started to orient towards product development. Although a good idea, this will only help the company to survive for a short period of time, as it will not be enough in order to transform Coke into the company it once was. A solution for Coke's potential crisis would be the continuous development of breakthrough products.

Comparison between Coke and Pepsi Using the Five Forces Model

The most important component of the marketing environment for any company is represented by customers, and therefore, the bargaining power of customers is the most important of the five forces that must be analyzed and understood. In this case, customers are not captive, they are free to exercise their desires, needs, and expectations and to choose the product that they feel most connected with. Usually, old customers will be loyal to either Coca Cola or Pepsi, they will not switch sides, on the one hand. On the other hand, is the new and potential customers that the two companies must fight over. Customers have great power over the two companies, over their strategies, and over the direction they will orient towards. Both companies' strategies should be determined by customers. The first thing to be considered for having a successful strategy is understanding the customer. Pepsi has been successful at this, while Coca Cola is still trying to figure out what their customers and potential customers really want.

Regarding the bargaining power of suppliers, Pepsi seems to be one step ahead of Coca Cola in this field too, as Pepsi is promoting supplier diversity programs, that should help the company gain competitive advantage and to be less dependent of suppliers. Therefore, for Pepsi, "an integral part of our mission is a commitment to purchase from a supplier base representative of our employees, consumers, retail customers and communities" (PepsiCo, 2007).

There is little threat of new entrants on the market. The two companies are active worldwide, they are two giant corporations, and there is very little possibility for them to be challenged by new entrants. The level that these two companies have reached allows then to be comfortable about dealing with new entrants.

Substitute products however present a certain degree of danger for the two companies. There are many programs and campaigns nowadays that are trying to encourage customers not to buy products like those issued by Coke and Pepsi. These aggressive campaigns might determine the two companies' customers to orient the budget destined for buying Coke and Pepsi products to healthier products.

As for intensity of competitive rivalry, the direct and strong competition between Coke and Pepsi is well-known worldwide. Regarding competition, the two companies seem to be handling it in the same way. Each of these two companies represents the main direct competitor. The companies do not seem to pay much attention to other smaller competitors.

Reference List

Foust, Dean (2006). Queen of Pop. BusinessWeek online. Retrieved August 29, 2007 at http://www.businessweek.com/magazine/content/06_32/b3996401.htm.

Brady, Diane (2004). Pepsi's Thousand and One Noshes. BusinessWeek online. Retrieved August 29, 2007 at http://www.businessweek.com/magazine/content/04_24/b3887061_mz017.htm.

Supplier Diversity (2007). PepsiCo Inc. Retrieved August 29, 2007 at http://www.pepsico.com/PEP_Diversity/SupplierDiversity/.