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Coke vs. Pepsi: Fighting for Foreign Markets


The soft-drink battleground has now turned toward new overseas markets. While once the United States, Australia, Japan, and Western Europe were the dominant soft-drink markets, the growth has slowed down dramatically, but they are still important markets for Coca-Cola and Pepsi. However, Eastern Europe, Mexico, China, Saudi Arabia, and India have become the new "hot spots." Both Coca-Cola and Pepsi are forming joint bottling ventures in these nations and in other areas where they see growth potential. As we have seen, international marketing can be very complex. Many issues have to be resolved before a company can even consider entering uncharted foreign waters. This becomes very evident as one begins to study the international cola wars. The domestic cola war between Coca-Cola and Pepsi is still raging. However, the two soft-drink giants also recognize that opportunities for growth in many of the mature markets have slowed. Both Coca-Cola, which sold 10 billion cases of soft-drinks in 1992, and Pepsi now find themselves asking, "Where will sales of the next 10 billion cases come from?" The answer lies in the developing world, where income levels and appetites for Western products are at an all time high. Often, the company that gets into a foreign market first usually dominates that country's market. Coke patriarch Robert Woodruff realized this 50 years ago and unleashed a brilliant ploy to make Coke the early bird in many of the major foreign markets. At the height of World War II, Woodruff proclaimed that Awherever American boys were fighting, they'd be able to get a Coke.@ By the time Pepsi tried to make its first international pitch in the 50s, Coke had already established its brand name and a powerful distribution network. In the intervening 40 years, many new markets have emerged. In order to profit from these markets, both Coke and Pepsi need to find ways to cut through all of the red tape that initially prevents them from conducting business in these markets. This paper seeks to examine these markets and the opportunities and roadblocks that lie within each.

Coke and Pepsi in Russia:

In 1972, Pepsi signed an agreement with the Soviet Union which made it the first Western product to be sold to consumers in Russia. This was a landmark agreement and gave Pepsi the first-mover advantage. Presently, Pepsi has 23 plants in the former Soviet Union and is the leader in the soft-drink industry in Russia. Pepsi outsells Coca-Cola by 6 to 1 and is seen as a local brand. Also, Pepsi must counter trade its concentrate with Russia's Stolichnaya vodka since rubles are not tradable on the world market. However, Pepsi has also had some problems. There has not been an increase in brand loyalty for Pepsi since its advertising blitz in Russia, even though it has produced commercials tailored to the Russian market and has sponsored television concerts. On the positive side, Pepsi may be leading Coca-Cola due to the big difference in price between the two colas. While Pepsi sells for Rb250 (25 cents), Coca-Cola sells for Rb450. For the economy size, Pepsi sells 2 liters for Rb1,300, but Coca-Cola sells 1.5 liters for Rb1,800. Coca-Cola, on the other hand, only moved into Russia 2 years ago and is manufactured locally in Moscow and St. Petersburg under a license. Despite investing $85 million in these two bottling plants, they do not perceive Coca-Cola as a premium brand in the Russian market. Moreover, they see it as a "foreign" brand in Russia. Lastly, while Coca-Cola's bottle and label give it a high-class image, it is unable to capture market share.

Coke and Pepsi in Romania:

Romania is the second largest central European market after Poland, and this makes it a hot battleground for Coca-Cola and Pepsi. When Pepsi established a bottling plant in Romania in 1965, it became the first U.S. product produced and sold in the region. Pepsi began producing locally during the communist period and has recently decided to reorganize and retrain its local staff. Pepsi entered into a joint venture with a local firm, Flora and Quadrant, for its Bucharest plant, and has 5 other factories in Romania. Quadrant leases Pepsi the equipment and handles Pepsi's distribution. In addition, Pepsi bought 500 Romanian trucks which are also used for distribution in other countries. Moreover, Pepsi produces its bottles locally through an investment in the glass industry. While the price of Pepsi and Coca-Cola are the same (@15 cents/bottle), some consumers drink Pepsi because Pepsi sent Michael Jackson to Romania for a concert. Another reason for drinking Pepsi is that it is slightly sweeter than Coca-Cola and is more suited for the sweet-toothed Romanians. Lastly, some drink Pepsi because, in the past, only top officials were allowed to drink it, but now everyone can. Coca-Cola only began producing locally in November 1991, but it is outselling all of its competitors. In 1992, Coca-Cola saw an increase in Romania of sales by 99.2% and outsold Pepsi by 6 to 5. While Pepsi preferred to buy its equipment from Romania, Coca-Cola preferred to bring equipment into Romania. Also, Coca-Cola brought 2 bottlers to Romania. One is the Leventis Group, which is privately owned. Coca-Cola has invested almost $25 million into 2 factories. These factories are double the size of the factory Pepsi has in Bucharest. Moreover, Coca-Cola has a partnership with a local company, Ci-Co, in Bucharest and Brasov. Ci-Co has planned an aggressive publicity campaign and has sponsored local sporting and cultural events. Lastly, Romanians drink Coke because it is a powerful western symbol which was once forbidden.

Coke and Pepsi in The Czech Republic:

The key to success in the Czech Republic is for both Coca-Cola and Pepsi to increase the annual consumption of soft-drinks. Per capita consumption of beer, the national drink in the Czech Republic, exceeds that of soft-drinks by 3 to 1(165 liters of beer per capita of beer versus 50 liters of soft-drinks). Both companies are trying to increase their market share because distribution for both products is no longer as limited as it was in 1989. Coca-Cola and Pepsi face stiff competition from domestic producers, whose products are lower-priced. Because of this, domestic producers have a market share of about 60%. Coca-Cola and Pepsi each have a market share between 10%-25%. Another problem in the Czech Republic is that many people think that Coca-Cola and Pepsi are produced by the same company. Recently, Pepsi opened an office in Prague. Coca-Cola, on the other hand, has been trying to convince local shop owners to stock and circulate its product. The main apprehension may be that the price of Coke is twice the price of locally produced colas and a little higher than Pepsi. Coca-Cola has arrangements with 4 domestic bottling companies and acquired a new plant in 1992 in which it has invested almost $20 million. This may be one reason why Coca-Cola is closing in on Pepsi's lead in the Czech Republic.

Coke and Pepsi in Hungary:

Traditionally, Pepsi held the lead in Hungary with a strategy of putting the infrastructure in place, upgrading it, and then marketing to the consumer. Pepsi plans to invest $115 million which includes acquiring FAU, an Eastern European bottler. Because of this, Pepsi will have greater control over distribution and quality. In May of 1993, Pepsi introduced Pepsi Light and had outdoor and television advertising blitzes. Coca Cola, on the other hand, introduced Coke Light in the beginning of 1993, but did not mention its product name during the first few weeks of promotional advertising. Coca-Cola's strategy was to advertise internationally for Central Europe. Hungarians saw the 'Always Coca-Cola' commercials, along with the rest of the world, in April 1993. In 1992, Coca-Cola lead Pepsi. In addition, Coca-Cola participates in counter trade agreements with Hungary. Coca-Cola trades its concentrate for glass bottles which are exported and then sold to bottlers.

Coke and Pepsi in Poland:

Poland, with a population of 38 million people, is the biggest consumer market in central and eastern Europe. Coca-Cola is closing in on Pepsi's lead in this country with 1992 sales of 19.5 million cases versus Pepsi's sales of 26.5 million cases. The main problems in this area are the centralized economy, the lack of modern production facilities, a non-convertible local currency, and poor distribution. However, since the zloty is now convertible, Coca-Cola realizes the growth potential in Poland. After Fiat, Coca-Cola is now the second biggest investor in Poland. Coca-Cola has developed an investment plan which includes direct investment and joint ventures/investments with European bottling partners. Its investments may exceed $250 million, and it has completed the infrastructure building. Coca-Cola has divided Poland into 8 regions with strategic sites in each of these areas. Moreover, it has organized a distribution network to make sure its products are widely available. This distribution network, which Coca-Cola has spent a lot of money organizing, is extremely important to challenge Pepsi's market share and to maintain a high level of customer service. Also, Coca-Cola, like Pepsi, signed counter trade agreements with Poland. Both trade their concentrate for Polish beer. All of this has helped Coca-Cola to close in on Pepsi's lead in Poland.

Conclusion on Eastern Europe:

Both Coca-Cola and Pepsi are trying to have their colas available in as many locations in Eastern Europe, but at a cost which consumers would be willing to pay. The concepts which are becoming more important in Eastern Europe include color, product attractiveness visibility, and display quality. In addition, availability (meeting local demand by increasing production locally), acceptability (building brand equity), and afford ability (pricing higher than local brands, but adapting to local conditions) are the key factors for Eastern Europe. Both companies hope that their western images and brand products will help to boost their sales. Coca-Cola has a universal message and campaign since it feels that Eastern Europe is part of the world and should not be treated differently. Currently, it is difficult to say who is winning the cola wars since the data from the relatively new market research firms focusses on major cities. Pepsi had a commanding 4 to 1 lead in 1992 in the former Soviet Union. Without this area, Coca-Cola has a 17% share versus Pepsi's 12% share in the soft drink industry. While both companies have been in Eastern Europe for many years, the main task now is to develop the market. Coca-Cola and Pepsi are in a dogfight, but both will end up as winners. In the end, the ultimate winner will be the Eastern Europeans ...

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