Marketing strategies of PepsiCo and Coca-Cola

Soft Drink Marketing Strategies

This is a template and guideline and is not to be used as a turn-in paper.

PepsiCo and Coca-Cola

PepsiCo is the world's leader in convenient foods and beverages. They have sales of over $24 billion and over 140,000 employees. The company owns the snack businesses of Frito-Lay North America and Frito-Lay International, the beverage businesses of Pepsi-Cola North

America, Gatorade/Tropicana North America and PepsiCo Beverages International, and Quaker Foods North America, manufacturer and marketer of ready-to-eat cereals and other food products.

The Coca-Cola Company's (Coke) sales revenues in 2008 were over $31 billion and they employ approximately 92,000 people. The company manufactures more than 400 brands of non-alcoholic drinks, including both carbonated and non-carbonated. These drinks include ready-to-drink juices, coffee drinks, tea and bottled water. Of these hundreds of brands, there are more than 3,000 different beverage products. Most of Coke's beverages are carbonated soft drinks (CSD), though the company has been moving into the non-CSD category response to a shift in consumer demand and a greater emphasis on healthy options.

How the Companies Manage Their Brands

Brand management is a process of maintaining, improving, and upholding a brand so that the name is associated with positive results. Brand management involves a number of important aspects such as cost, customer satisfaction, in-store presentation, and competition (Brand management, n.d.).

Coca-Cola used to emphasize the three A's as part of its brand management/marketing strategies: availability, acceptability, and affordability. At the time, these three supported incredible growth, but, eventually, they also lowered entry barriers for the competition. Today, Coca-Cola's tune is the three P's: preference, pervasive penetration, and price-related value.

Another soft drink company might frame its competitive reference as the cola market or soft drinks -- possible even beverages. Coke's concept is to think of and act like its business is "human liquid consumption," and, yes, that does include water. Top-notch brand management is where the vision is "a Coca-Cola faucet in every home," as it is with some of Coke's team.

Every month, the company tests 20 brand characteristics with thousands of consumers to measure the market movement of the products. Coke also pays (bonus and other compensation) a large share of its senior managers based on brand favorites and their sales volume.

A recent Coca-Cola annual report reported that the second most recognized expression in the world after "ok?" is "Coca-Cola." That's brand management.

It is obvious that PepsiCo is taking a whole different track from Coke as far as brand management. They are changing it completely including the Pepsi logo.

Starting last year, as the recession deepened, sales of noncarbonated drinks began suffering along with soda.

PepsiCo America's CEO Massimo d'Amore, not one to fiddle in the margins, has taken drastic action. His solution: tear down and then rebuild PepsiCo's biggest beverage brands, which, besides Pepsi, include Gatorade, Tropicana, and Mountain Dew. And he is doing this all at once. D'Amore's ambitious agenda brings to mind the Obama Administration's theory that it would be a shame to waste a crisis. His calculation is that a more powerful and enduring Pepsi will emerge from this creative destruction. D'Amore is willing to try new things even if it upsets traditionalists. And rather than cherry-pick a few priorities, he has taken on seven brands (Helm, 2009).

Every stage of a rebranding plan is usually laid out and fervently explored before moving on to the next one. The design organization usually decides on a logo before sending it to the people working on the whole brand package. But not d'Amore -- he decided to go with the "concurrent" model: design logos, develop packaging, tape the commercials, and everything else simultaneously. He readily admits that his way is riskier but insists the increased speed and flexibility are worth it. "Aiming for perfection is the enemy of good progress," d'Amore says (Helm, 2009). If getting the project done in time meant diving into the creative process himself -- unusual for a CEO -- then that's what he would do, and he did.

Results of his adventure are vague at this point since it has all just happened in the past few months, but we do know that Pepsi has gained market share against Coke in the U.S. during the first part of 2009. However, due to economic conditions, both companies' sales are down.

Positioning Strategies

What occurs in the minds of your sales targets? What is their perception of your product? Positioning is the combined perception the market has of a company, product, service or person relative to their perceptions of the competitors in the same category.

If you ask someone to list their favorite soda products in the next 10 seconds, they would probably say: "Coke, Pepsi, Mountain Dew, Seven-up, Sprite, Dr. Pepper" and the ten seconds is up. There are dozens of different soda products on the market that we see every day, but those six came to my mind. That's positioning. And the methods and ideas to keep a company like Coke or Pepsi toward the top of the list, is a positioning strategy.

Here's what Pepsi did during the drinking water flap two years ago. The water controversy story flows like this: At the end of July, a nonprofit consumer organization decided to expose what it saw as a "truth in advertising" issue and targeted PepsiCo with an aggressive public relations and phone call campaign to force the company to admit that it was, in effect, selling people a plastic bottle filled with tap water for a few dollars a pop. From the moment the issue surfaced, it was clear there was no way for PepsiCo to simply ride out the wave of criticism without a response. Its Aquafina brand was currently No. 1 in the United States. And with wholesale sales of bottled water at around $11 billion last year, according to Beverage Marketing Corp., Aquafina's importance to PepsiCo corporate revenues is only likely to increase.

In the end, PepsiCo's honest, public disclosure served to stem the tide of negative publicity, diverting it away from its own operations and contrasting PepsiCo with its competitors. Added to this, the company also changed its labeling practices to make Aquafina's source more clear by spelling out the words "public water source" on its label (Kenney, 2007).

Such a straightforward response is consistent with what seems to be a corporate wide positioning strategy where issues of sustainability are concerned. As was recently reported on IndustryWeek.com, PepsiCo was the No. 1 purchaser of "green" power for 2006, with more than double the kilowatt hours generated from solar, wind, geothermal, hydro, biomass and bio-gas sources than its closest competitor. All told, three PepsiCo companies made the EPA Top 25 list, indicating an overall corporate commitment toward developing a sustainable supply chain

The fact that this consistent response to today's challenging business landscape -- from crisis control to energy costs to facilities upgrades to consumer health concerns -- is occurring across so many business segments and operational levels speaks of an overall positioning plan on the part of PepsiCo's executive leadership team (Kenney, 2007).

Again, a different positioning approach from Pepsi, is Coke's push to get online in a big way and to postion themselves in consumer's minds in an even bigger way.

Coke has found that search engines drive more teens (Coke's target market) to purchase the product than does word of mouth (Quip, 2008).

How is Coke using search? According to Carol Kruse, Vice President of Global Interactive Marketing, Coke is using it to bridge the gap. TV is still prime media. But TV (and other media) drive search queries, so search is used to support all other marketing efforts. Once there, they'll try to get them to experience the product.

Two techniques used by Coca Cola to justify online value:

a. Coke engages dynamic studies & #8230; to measure the brand health increase for online vs. offline. It also measures purchase intent.

b. The other technique to cost justify increased online marketing budgets is incremental sales volumes. Employ a study group.

Both were shown to generate dramatic improvements, and corporate buy-in for further online ad budgets (Quip, 2008).

Effectiveness of Coke and Pepsi Strategies

After decades of growth, U.S. carbonated soft drink sales have fallen for the past three years as some consumers opt for bottled teas, coffees, juices or energy drinks, and many others cut back altogether.

According to Beverage Digest, sales of Coca-Cola fell 4.4% in the first nine months of 2008, while Pepsi-Cola sales fell 6.6%. Category sales fell 4.8%.

Beverage Digest tracks sales at convenience, grocery and drug stores but does not include sales from Wal-Mart.

The stocks have been more mixed than the businesses, with the market liking Pepsi more than it has liked Coke. Pepsi stock has held up much better than Coke stock, as Pepsi was trading at $52, in the middle of its $43 to $75 range in the last year, while Coke was in the low $40s, near the bottom of its 52-week range. The market likes the diversity of Pepsi's snack line along with the beverages, and it sees more international success ahead for the snack giant as it continues to expand its global reach.

The bottom line is that it's too early to tell regarding Coke's and Pepsi's latest marketing strategies. Both companies are almost holding market share, but cash flow statements show that both didn't do as well as they had predicted.

Overall, Coke dropped their market share about 1%, while Pepsi lost about a half point. The good news is that their new marketing campaigns have created some "buzz" in the market, and, according to experts, if the economy wasn't the way it is, those numbers might be better.