Pepsi case essay

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Pepsi case essay

Why, historically, has the soft drink industry been so profitable? The industry itself, because of its tasty product, focuses on marketing and advertising to make a profit.

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Coke and Pepsi employed the following technique to make the soft drink industry profitable: Coke and Pepsi have dominated the market on soft drinks by offering a product that people enjoy, at a price that the average Joe can afford, and by utilizing marketing strategies and campaigns. Through effective leadership, an environment was created which enabled success and profitability as well as creative strategies and campaigns.

Both Coke and Pepsi developed and deployed aggressive marketing campaigns which began generations ago by fighting trademark infringements and continued with Pepsi case essay and aggressive sales techniques.

By branching into other flavors and types of drinks via mergers and acquisitions, both Coke and Pepsi generated additional revenue from more than just their core beverage. The fierce competition the two Cola Giants created ensured profitability and world recognition of the American developed carbonated soda.

Pepsi case essay

Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different?

The process of producing carbonated soft drinks, or CSDs, is a multi-staged procedure that involves varying levels of capital and labor. The two most significant processes involved in the production of a CSD encompass the concentrate business and the bottling business. Concentrate producers blend raw ingredients into a packaged mixture that is subsequently shipped to bottlers, who purchase the mixtures, add carbonated water, and bottle or can the resulting Pepsi case essay.

The concentrate business has been historically dominated by large magnates such as Coca-Cola and Pepsi.

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Analysis of this data indicates that the market structure for CSD concentrate producers is oligopolistic. In addition, just one plant could [theoretically] serve the entire United States Yoffie 2. The bottling business, on the other hand, differs significantly.

Bottlers must make large investments to build plants and production lines, which are interchangeable only for products of a similar size and package Yoffie 3. Entry into the concentrate and bottling businesses is very strict. Prospective entrants into the concentrate business, though relatively inexpensive to that of bottlers, must challenge well-established oligarchs, each over a century old, that spend massively on research and marketing campaigns, thereby providing a significant entry barrier.

A low concentration of concentrate producers and a high concentration of bottlers means that profitability for the existing concentrate producers is much higher than that of existing bottlers.

The input suppliers in this dynamic are concentrate producers. Oligopolistic behavior in the concentrate business keeps the number of input suppliers low and thus their bargaining power is high when dealing with bottlers.

Bottlers are the buyers in this dynamic and the high number of bottling plants bidding for concentrate drives the market price of concentrate upward. The necessity to purchase raw material, the presence of foreign bottling plants using cheaper labor, and high switching costs further decrease bottler buying power.

A concentrate producer may switch bottlers with relative ease as compared to bottlers who want to switch concentrate producers, who would then have to make significant investments in changing their production lines to adhere to a new product.

Given the low operating costs, concentration of suppliers, high operating costs, and concentration of buyers, gross profits for concentrate producers were much higher in See Exhibit 2b.

Pepsi case essay

Thus, it is understandable as to why the number of U. This decrease in the number of bottlers was largely due to higher operating costs and thinner profit margins as compared to concentrate producers, and both Coke and Pepsi made strides to purchase bottling plants, which they maintained as publicly held independent entities.

The growth in profits for Coke, Pepsi, and the CSD industry have decreased in recent years for many reasons including changes in the cost of distribution, input prices, increase in advertising expenditures, and diversification into other non-carbonated products. The change in public sentiment towards high sugary drinks also contributed to the decline in demand for sugary carbonated products.

The power of buyers has increased throughout the years. The negotiating power of large food retailers like Wal-Mart altered the profits and longstanding business practices.

Supermarkets were so accustomed to using carbonated cola drinks as a drive to in-store traffic that they resisted price increases. One example is found in Exhibit 5 Yoffie 19where of the years displayed, the retail price change was always lower or negative compared to the change in CPI.

The combination of increased buying power of large retailers and the inability to increase prices weaken the revenue and profits for the cola companies. Alternative beverages, which diversified the risks of relying on carbonated cola, added new manufacturing costs. These substitutes were energy drinks, like Gatorade, and less sugary drinks, like Lipton Iced Tea, which required costly new equipment and major processing changes.

The new business practices also increased their labor costs. Substitutes played a major role in decreasing growth in profits for both companies.

Demand decreased as the general US population became more health conscious. The carbonated soda industry introduced substitutes, but even with higher profit margins, these substitutes produced lower sales volumes than carbonated sodas.

The CSD industry eventually grew their businesses internationally which brought about other difficulties.1 - Coke v Pepsi Case Study Essay introduction. Why, historically, has the soft drink industry been so profitable? We will write a custom essay sample on.

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