Coca-Cola vs. Pepsi Marketing Strategies in Thailand and UK

Introduction

Coca-Cola and Pepsi, rated among the top companies in the world, share a common distinction: for several years, both have successfully sold a simple product made of water and sugar to consumers in almost every country. This would have been impossible unless the companies were able to create sustained excitement around their products and brands among both consumers and employees (Davis and Dunn, 2002).

This study is of interest because both are extraordinary companies in terms of brand penetration, even in challenging markets such as China and the Middle Eastern countries. Coca-Cola is the world's number one brand, and Pepsi is also among the top brand names in the world. In 2000, Coca-Cola's sales surpassed one billion units per day, and it had 239 products selling across 200 countries. Coca-Cola and Pepsi are seen as arch rivals by consumers and markets alike, and an evaluation of the strategies of these two companies therefore always evokes strong interest. This paper evaluates the marketing strategies of Coca-Cola and Pepsi in Thailand and the United Kingdom, and recommends effective marketing strategies for each market.

Methodology constitutes an important aspect of any study. Several scholars have followed many techniques to collect data, analyze it, and draw conclusions. No field study has been carried out for this paper. The present study, which was completed within a short span of time, concentrates on books, newspaper articles, reports, and internet websites that are readily available and relevant to the subject.

Coca-Cola and Pepsi in Thailand

Coca-Cola has maintained a successful presence in Thailand for more than 55 years. In 1949, Coca-Cola (Thailand) was established, and since then the company has built major operations encompassing production, distribution, and marketing networks. Brands in the market include Coca-Cola, Fanta, Sprite, Schweppes, A&W, and non-carbonated beverages such as Qoo fruit juice drink and Namthip bottled water. Coca-Cola has generally been bullish about its Thai business, and the reason is not hard to find: in 2000, an average Thai citizen consumed just 12 servings of Coke in an entire year, while a counterpart in Rome consumed 941 eight-ounce servings in the same period (Irwin, 2001).

Thailand appears to have shed the recessionary effects of 1997, as per-capita consumption of soft drinks was rising again after a sharp drop during the recession years. In 2001, per-capita consumption was recorded at 68.9 liters, with signs of further growth (World of Information Report, 2004). In 1998, when Thailand was reeling under economic recession, Coca-Cola increased its equity stake in Thai Pure Drinks from 44 percent to 49 percent at a cost of 1.9 billion baht. During that year, sales of soft drinks had dropped from 22 billion baht to 18 billion baht, yet Coca-Cola remained the market leader with a share of 60.6 percent. Despite the difficult conditions — when many companies were laying off or eliminating staff — Coca-Cola went on a hiring spree, increasing its workforce by 9 percent in 1999. The company's commitment to the region is evident from the fact that Bangkok serves as the regional headquarters for 13 countries, including Singapore, Malaysia, Vietnam, Pakistan, and Sri Lanka.

The rationale is straightforward: Thailand accounts for 50 percent of the business generated across those 13 countries. Coca-Cola's marketing strategy in this region is more focused on customer satisfaction than on fighting competitors. In the words of Mike Bascle, Chief Executive for Southeast and West Asia in 1999: "We don't focus on competitors. Beating the competitor is not our objective. Appealing to the consumers and making the retailer profitable is the objective, and that's why we've been successful." The company's operating strategy for Thailand closely mirrors its practices elsewhere. For its flagship drink, local bottling companies import the concentrate from the Atlanta plant, blend it with locally sourced water, and bottle the liquid before distributing it to markets. In a notable departure from the long-standing strategy of maintaining product uniformity across all markets, the company has permitted changes in the content and taste of Fanta Orange, Fanta Strawberry, and Fruit Punch in order to ensure greater customer satisfaction. The only exception is Coca-Cola itself, which retains the same formula worldwide (Siam Future Development Report, 1999).

Targeting the youth segment is one of Coca-Cola's primary marketing strategies in this region, and it appears to be paying dividends. Coke's major initiative in 2003, the "Year of Coca-Cola," reinforced the brand among Thai teenagers. This campaign included the first launch of Vanilla Coke in Southeast Asia, and early reports were very encouraging: Vanilla Coke proved an instant hit with consumers, with sales exceeding targets. Notably, the new product did not cannibalize existing product lines. Other initiatives included the Coke Pi Big campaign for the new 15-ounce Coke bottle.

Coke also signed an exclusive contract with Thai music superstar Thongchai "Byrd" McIntyre for a nationwide tour and promotional effort. Byrd's first nationwide tour in a decade generated tremendous interest, as the campaign promised non-stop entertainment featuring all of the artist's musical hits, made possible with the support of GMM Grammy. To maximize the impact of this effort, Coke promoted the "Closeness between Coke and Fans" program, which included one million limited-edition Cola bottles with special graphics, T-shirts, drinking glasses, disposable cups, notebooks, and other promotional items designed to appeal to young consumers.

The "For Fan Fun Fair" initiative clearly demonstrated Coke's aggressive approach to increasing market share and brand penetration. In an innovative move that attracted wide attention in the advertising world, Coke offered devoted Coca-Cola drinkers the chance to appear in a 15-second TV commercial. Results began flowing in quickly. Coke pointed to the AC Nielsen Survey, which revealed that Coke's brand preference among Bangkok teenagers had doubled following the launch of the "Year of Coca-Cola" campaign. Coca-Cola's market share increased every month, and the program was expected to motivate 20 percent more consumers in Thailand to purchase Coca-Cola products (PR Domain News Release, 2003).

Fanta has been Thailand's leading flavored carbonated drink for over four decades. According to market research firm AC Nielsen, Fanta commands over 70 percent of the flavored soft drink sector (NACS Online News, 2003). In a concerted bid to attract teenagers, Coke introduced a new variant — Fanta Blueberry Splash — in February 2003. The central theme of the campaign was "Fanta…Taste the Flavor of Fun," aimed at deepening the popularity and loyalty that the Fanta brand already enjoyed among youth. Notably, Coke chose Thailand as the first country in Asia to launch the new blue soft drink, ahead of far larger markets such as China and India.

To capture the imagination of modern teenagers, Coca-Cola promoted the new flavor aggressively, offering free samples nationwide in 390 ml PET bottles and supporting the campaign with radio and TV commercials, outdoor advertisements, and Fanta caravans in upcountry markets (The Coca-Cola Company, News Release, 2003). A further variant, Fanta Mango Magenta, was subsequently launched, claiming to deliver the exotic taste and flavor of "Muang," or mango in Thai. Interestingly, Coke used magenta rather than the yellow or green colors typically associated with mangoes worldwide. This differentiation was designed to generate special appeal among the younger generation and position the drink as a trendy juice (Coca-Cola News Release, 2004).

Coca-Cola has been a pioneer in promoting its business through association with popular sports. Recognizing the global power of football, Coke has long supported the game in various ways — providing drinks and refreshments at World Cup matches as far back as the 1930 tournament in Uruguay, and serving as the official sponsor of every FIFA World Cup since 1978. Since football is the most popular sport in Thailand, Coke launched a series of football-centered promotional efforts. In 2000, the company brought the 2002 FIFA World Cup Trophy to Thailand, allowing Thai football fans to be photographed with it. The campaign also included weekend football fun games and a contest offering twin-package trips to 2002 World Cup matches (PR Domain News Release, 2002). By fulfilling the dreams of millions of fans, Coke hoped to achieve significant brand penetration and business growth.

Despite its cherished long-term relationship with Thailand, Coke encountered difficulties when, following the US-led invasion of Iraq, protests broke out in Thailand against the United States and calls were made to boycott American products. One of the major Coke bottlers in the south of the country, Haad Thip, temporarily closed its plant following anti-war demonstrations. This led to disruption of supplies of Coke, Fanta, and Sprite in southern Thailand. Coca-Cola's Thai unit announced that the company is neutral and does not support political or religious causes (The Financial Express, 2003).

Pepsi's Strategy in Thailand

In early 2002, Pepsi announced it would target six countries in Asia with the goal of becoming the best-selling brand in each: China, South Korea, India, the Philippines, Vietnam, and Thailand. According to Ron McEachern, demand in these countries would be driven by three strategic advantages: (1) rising consumer spending, (2) scope for growth in cola consumption, and (3) the price of carbonated drinks being lower than competing beverages such as fresh fruit juices (Asian Market Research News, 2002). With soft drinks accounting for only 20 percent of beverage consumption in Asia, Pepsi believed it could sustain and improve demand for years to come, unlike the nearly saturated American market. Pepsi's aim was to become a market leader not only in soft drinks but as a "total beverage" provider.

Like Coke, Pepsi is upbeat about Asian markets and claims to be the best-selling cola drink in Thailand, India, and Shanghai — a claim disputed by Coca-Cola. Nevertheless, Pepsi appears to have made considerable inroads in Asian markets. At the start of the new millennium, Pepsi claimed a 19 percent share of the regional market and was growing at double-digit rates (The Nation Business News, 2000). According to Sanjeev Chadha, Vice President of Sales at Pepsi-Cola International's Asia-Pacific headquarters in Hong Kong, the Asian markets continue to offer significant growth opportunities, and Pepsi's strategy would focus on increasing product availability, forming strong partnerships with bottlers, and implementing innovative marketing strategies.

Pepsi runs profitable operations in Thailand, with a market share of 49 percent and a growth rate of 4.9 percent in 2002. It is pushing new products in the non-cola sector through well-known brands such as Lipton Iced Tea, Dang Energy Drink, and Crystal Drinking Water, and has plans to launch new brands including Lipton Mango and Mirinda Apple (Trading Charts News, 2004). A novel strategy aptly termed "global marketing" aims to achieve the right balance between a global brand identity and local preferences. Pepsi's strategies for Thailand are aimed at increasing market share on the strength of its international brand.

This approach requires recognizing that even the largest international brand, backed by enormous budgetary and marketing support, may fail to generate excitement in a local population unless local preferences are factored in (Steele, 2000). A case in point is India, where both Coke and Pepsi found it almost impossible to displace the local cola brand Thums-Up. Indian consumers continued to prefer Thums-Up, and eventually Coke acquired the brand to protect its market share — yet both Coke and Thums-Up continued to coexist afterward. Pepsi's global marketing strategy for ensuring brand continuity is perhaps best exemplified by FritoLay, which has grown into a global brand while adapting to local tastes.

Pepsi has consistently leveraged the popularity of international sports personalities to promote its brands. It has maintained a long-standing relationship with English football club Manchester United and used this advantage when the club toured Asia in 2001. When Manchester United visited Thailand, Pepsi arranged soccer schools and conducted a training program for over 2,600 football players in the country. The program was led by Manchester United Director John Shiles and aimed to pass on world-class playing skills. This initiative gave Pepsi's consumers direct access to one of the world's most celebrated football clubs. By associating with the world's most beloved game, its players, and its clubs, Pepsi reinforced its brand among football fans — a sizeable market in its own right (Pepsi Football, 2004).

Coca-Cola and Pepsi in the United Kingdom

In 2002, soft drinks accounted for 16.9 percent of the total drinks market in the United Kingdom, valued at £46.55 billion (Mindbranch Report, 2003). Carbonated drinks volumes had increased by an impressive 44.7 percent over the previous decade. However, recent trends have given cause for concern among the cola majors. According to statistics from the Soft Drinks Association of the UK, the carbonated soft drinks market grew 6.7 percent in 1999, 1.8 percent in 2000, and only 1.7 percent in 2001. These falling growth rates are largely attributed to a growing belief that carbonated drinks are harmful to health and can contribute to obesity. By contrast, demand for bottled water showed double-digit growth, and 100 percent fruit juices were also recording healthy growth rates. Health concerns, however, are not the only reason for the apparent slackening demand for carbonated soft drinks.

In the UK, consumers can choose from as many as 300 kinds of drinks, and new brands are being introduced constantly. Another major challenge is the inevitable shift in demographics: the over-60 age group, at 21 percent of the population, now outnumbers children under 16, who represent 20 percent. By 2008, the 45–75 age group was projected to grow by approximately 3.5 million, while the under-44 group was expected to shrink by 2 million (Chakravarty, 2003). This is a significant challenge for cola companies, as cola drinks are primarily targeted at youth and teenage groups. The trend is also visible in the growing consumption of beverages such as Red Bull, Sunny Delight, and Lucozade — now considered "adult drinks" and increasingly viewed as a distinct marketing category. Carbonated soft drinks have already achieved near-full penetration in Great Britain with its population of around 58 million, leaving little room for further demand growth.

Although Coca-Cola was invented in 1886 by John Styth Pemberton in Atlanta, it was first marketed in England only in 1932 by R. Fry & Co of Brighton. Today it is the number one carbonated soft drink in Great Britain, followed by Diet Coke in terms of sales volumes. In 1999, the company acquired Schweppes and thereby assembled an impressive product portfolio in the UK market: Coca-Cola, Diet Coke, Cherry Coke, Fanta Orange, Lilt Pineapple and Grapefruit, Lilt Mango and Mandarin, Sprite, Dr Pepper, Five Alive, Cresta, Oasis, Kia-Ora, Schweppes Lemonade and Mixers, Rose's Cordial, and Malvern mineral water. This wide product range has made it difficult for competitors to challenge Coke's dominance. In 2000, the annual per-capita consumption of soft drinks in Great Britain was 188 liters — well below levels in the US (313 liters), Belgium (255 liters), and Germany (249 liters).

That year saw over 10 billion servings of Coca-Cola products consumed, with per-capita consumption of all products reaching 168 eight-ounce servings per person. Coca-Cola Great Britain markets the products and is supported by Coca-Cola Enterprises for manufacturing, bottling, and packaging. There are six plants and eight depots throughout Great Britain, employing over 5,000 people. In line with the parent organization's strategy, the British arm of the company has vigorously sponsored major sporting events, including the European Soccer Championships, the Wimbledon Tennis Championships, the Open Championship, and the Rugby World Cup. On the social front, the company established The Coca-Cola Youth Foundation in 1995, which supports young people in the country to achieve their potential through organizations such as the Variety Club of Great Britain, Special Olympics UK, Going for Green Eco-Schools, and the Coca-Cola Valued Youth Program. These efforts have helped the company connect with virtually all sections of British society and realize the resulting benefits in terms of brand recognition, loyalty, and sales (Club Coca-Cola, 2001).

As part of its value-added offerings, Coca-Cola launched Diet Coke/Coca-Cola Light with lemon flavor in European markets including Great Britain in 2002. However, the company appears to have misjudged the timing of its launch of the much-hyped Vanilla Coke variant, which had been successfully introduced in the American market in 2002. The delay in the UK launch for this product provided a golden opportunity for competitor Virgin Cola to market its own Vanilla Cola. With Classic Coke sales showing negative growth in 2001, the missed opportunity to launch Vanilla Coke in the UK in a timely manner could have long-term consequences for the company's performance in that market (CommentWire, 2003).

Surprisingly, Pepsi is only a marginal competitor to Coke in the United Kingdom, with a market share of just 9 percent compared to Coke's 35 percent. It is also notable that for close to seven decades, Pepsi has been content with just two brands — Pepsi plus its variants, and Seven Up — in the lucrative UK market, rarely if ever pursuing aggressive product launches or innovations. One reason attributed to this is Pepsi's failure to forge an effective operational strategy for the UK.

Pepsi has a partnership with only one bottling company, Britvic, which has its own stable of soft drinks. Such an arrangement inevitably creates conflicts of interest. For example, Pepsi's orange-flavored drink Mirinda — a strong competitor to Coke's Fanta in India — could not be launched in the UK because Britvic already had its own orange drink, Tango. This represented a significant opportunity loss for Pepsi, as Tango made remarkable progress, rising to seventh position in the take-home Top 12 drinks category in 1999. Had Pepsi introduced its own orange drink, it could have reaped considerable returns in a short time (Chakravarty, 2003).

Pepsi is also faltering in the rapidly growing bottled water segment. Once again, Britvic's own mineral water brand, Abbey Well, is preventing Pepsi from launching its own offering. While both Pepsi and Coke have achieved great success in large markets such as India with their Aquafina and Kinley water brands respectively, they have not been able to replicate this in the UK. The reason is relatively straightforward: in countries like India, clean water is difficult to obtain through public supply systems, and consumers with rising disposable incomes increasingly rely on bottled mineral water for health reasons — a compelling driver of repeat purchase. In the UK, however, tap water is of high quality, which removes the primary incentive to purchase bottled water.

In the UK, Coca-Cola met with a significant setback over its Dasani bottled water brand. In mid-March 2004, the company announced it was recalling the entire UK stock of the product after sample tests indicated that a certain bromide derivative exceeded the country's legal standards (Dow Jones Capital Markets Report, 2004). Coke contended that there was no danger to consumers, as the product contained bromate levels of only 10–22 parts per billion — below the European (non-UK) standard of 25 parts per billion. The controversy arose because the UK had set an upper limit of 10 parts per billion (BBC News, 2004). Additionally, some critics publicly accused Coca-Cola of selling reprocessed tap water in premium packaging at a markup of over 3,000 percent: half a liter of tap water costs approximately 0.03p in the UK, while Coke's half-liter Dasani bottles retailed for 0.95p. Coke insisted that Dasani is a unique product that undergoes extensive and costly purification processes. The company had launched Dasani in the UK only in February 2004, backed by a promotional campaign costing £7 million (Beard, 2004).

Coca-Cola had believed it could capture a major share of the £1 billion bottled water market by supplying a superior product targeted at young adults. The water is filtered, purified, and subjected to reverse osmosis, after which minerals are added to achieve near-perfect taste. However, contrary to the company's expectations, reports emerged suggesting there was no meaningful difference in taste or quality between Dasani and mains tap water from the River Thames. In random taste tests, some respondents said Dasani did not taste better than tap water, and a few declared the tap water superior. Some respondents did say Dasani tasted better and that the bottle looked attractive — but the reputational damage had been done (Angel, 2004). Coke could take some comfort from generally positive consumer responses to Dasani and expressed hope of correcting the situation in the short term. Water UK, the representative body for water companies, stated on record that government-supplied water meets approved drinking standards but stopped short of accusing Coke of deliberately misleading consumers (Beard, 2004).

Conclusion

Coca-Cola and Pepsi are facing markedly different challenges in the Thailand and UK markets. While Thailand promises good potential for growth, intense competition and various marketing and logistics problems continue to pose challenges. In Thailand, Coke holds the stronger position in terms of overall market share, but Pepsi appears to have the edge in the cola segment. The key for both companies will be to retain the interest of the younger generation in cola and other soft drinks while achieving deeper penetration across the entire Thai market. Both companies must also be prepared with strategies to counter problems that may arise from perceived health risks associated with cola consumption.

Thai consumers have also demonstrated a tendency to oppose Western products for political reasons, as seen during the protests following the invasion of Iraq. In the UK, the market has matured and there is little scope for further growth in cola consumption, given that penetration is already near-total. There is a noticeable tendency among UK consumers to blame colas for health disorders, particularly in children, adding further uncertainty about the future. The UK is witnessing healthy demand for bottled water and juices, which could offer alternative growth avenues for the cola companies. Nevertheless, cola drinks remain at the top of the beverages category in both countries, and with time and the implementation of suitable strategies, they could well maintain that position for years to come.