Coke And Pepsi Learn To Compete In India - Case Study
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Question 1. The political environment in India has proven to be critical to company performance for both PepsiCo and Coca-Cola India.
a- What specific aspects of the political environment have played key roles?
b- Could these effects have been anticipated prior to market entry?
c- If not, could developments in the political arena have been handled better by each company?
Answer: Indian Government had opened doors for foreign companies but both Coca-Cola and PepsiCo faced many problems (Lyn &Raizada, 2007). The environment of the soft-drink industry was challenging for both companies. They needed special skills, knowledge and local expertise. There were complicated trade rules and issues. There was also a fight for local dominance between the brands. There was a dramatic shakeout and also a government warning was given essential ingredients like BVO has carcinogen. This created a huge problem as the producers had to find a substitute. These problems could not be anticipated prior to the market entry in India (Lyn &Raizada. 2007). The political developments could be handled better by the companies. Before entering the market there was an economic crisis in India in 1991. The inflation rate was rising as the industrial production fell. A short term fundamental program was launched for medium growth. After this the inflation rates reduced.
Question 2. Timing of entry into the Indian market brought different results for PepsiCo and Coca-Cola India. What benefits or disadvantages accrued as a result of earlier or later market entry?
Answer: Coca-Cola: They entered the Indian market in the year 1990. Coca-Cola and a local company had a joint venture. They were facing tough competition from the local suppliers. Parle chose to take the ownership of Frooti and soda from Coco-Cola. The advantage was Coca-Cola could sell their products in four main cities of India (Lyn &Raizada, 2007).
PepsiCo: The Company entered the market in the year 1986 in a joint venture. The disadvantage was the sales of soft drinks when compared to local bottles were just 25% of the total sales. The advantage was PepsiCo focused their marketing in major cities of India. However, the local producer had a huge impact because of the aggressive pricing policy. The company was having huge difficulty in fighting with their local competitors.
Question 3. The Indian market is enormous in terms of population and geography. How have the two companies responded to the sheer scale of operations in India in terms of product poliZcies, promotional activities, pricing policies, and distribution arrangements?
Answer: PepsiCo: In India, fruit drinks, carbonated drinks and colas were already available in the market. Therefore, PepsiCo introduced American type drinks with new flavor and bottled water.
The Company participated in Navratri celebration through a garba competition. They had a tie-up with Gujarati channels of three days live telecast. They were also giving refill of 300ml Pepsi. PepsiCo did TV campaigns like "Keep It Cool". New small bottles were introduced to increase the frequency of consumption. They also became the sponsors of football and cricket.
PepsiCo was selling their products at a very cheap rate. PepsiCo took aggressive pricing policies to get the Indian market share.
Production plants and bottling centers were scattered across the India in order to meet the overall geographical requirements.
Coca-Cola: Coca-Cola introduced American type drinks like Sprite in order to meet the Indian consumers' interest.
The Company decided to act according to the local market. In Navratri2006 they had a campaign Thumbs upToofaniRamjhat. 20,000 free passes for Navratriwere given by the company. With each bottle one pass. Coca-Cola was engaged in a TV campaign using local festivals or sports events. Celebrities were hired for doing TV advertisement (Lyn &Raizada. 2007). The company has a lifestyle advertisement. Coca-Cola tried connecting with the youth market. In rural areas also Coca-Cola targeted the youth to build their brand preference.
In order to enhance the affordability the company's prices were also being reduced. Coca-Cola reduced its price by 15%-23% in the year 2003 in order to higher up the consumption in India.
Coca-Cola spread their distribution channels to reach wider customers in India.
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Question 4. "Global localization" (glocalization) is a policy that both companies have implemented successfully. Give examples for each company from the case.
Answer: PepsiCo: For the two months of world cup series, PepsiCo had launched a product known as Pepsi Blue which was a limited edition. This was icy-blue cola and was sold in a 300-ml bottle. There were returnable glass bottles and plastic bottles of 500-ml at the rate of Rs 8 and Rs 15 respectively. They had also introduced a 250-ml Pepsi bottle at Rs 12. They also introduced Lehar 7UP which came under the category of lemon in order to keep up with the taste of Indian people (Lyn &Raizada. 2007).
Coca-Cola: The Company had introduced a red lounge in Pune. It was their first retail store and youth could spend time out there. It consisted of LCD television, internet surfing and video games. The lounge had many different Coca-Cola products. They had also introduced a new Rs 5 bottle for the Indian market.
Question 5. How can Pepsi and Coke confront the issues of water use in the manufacture of their products? - How can they defuse further boycotts or demonstrations against their products? - How effective are activist groups like the one that launched the campaign in California? - Should Coke address the group directly or just let the furor subside?
Answer: The companies clearly denied the use of pesticides in the sugar they used. Both the companies were determined and knew that they could handle the issue. Both the companies decided to adopt the policy of silence. Later Coca-Cola decided to go on an attack. On the other hand, PepsiCo did a public relations offensive. They did an advertisement in a newspaper stating that PepsiCo is one of the safest beverages one can drink.The company also informed that pesticides were present in the groundwater in the country. The activist groups are quite active and effective because many universities banned Coca-Cola and its products from their campus. There was a situation where activists were demanding Coke's plant. Coke should further address the group directly (Lyn &Raizada. 2007). If it subsides then everyone will think that the water contamination problem was true in India.
Question 6. Which of the two companies do you think has better long-term prospects for success in India?
Answer: There are various reports, therewere long-term prospects for Coca-Cola in India. It owns the top 2 brands in the country that is Thumbs Up and Coke. The company had a huge profit in India in the year 2010 since the time they reentered the market in 1993. The company executives are trying to maintain the brand name for nationalistic popularity. There is growth in the industry that is further increasing with 10% each year. They are currently shifting to vast rural areas of India.After expansion in urban areas, it is necessary for them to capture the large market.
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Question 7. What lessons can each company draw from its Indian experience as it contemplates entry into other Big Emerging Markets?
Answer: Both PepsiCo and Coca-Cola learnt many lessons while they entered the local market of India. They understood that glocalization is necessary to stay in the Indian soft-drink market. They had to understand the nature and culture of people. Both of them did a lot of promotions for selling their products. Sponsored sports events and launched new products according to the Indian market. The companies have to use the pricing strategy according to the country they are going to enter.There were some issues related to water contamination in India (Lyn &Raizada, 2007). This can happen with the companies in any other country and hence they should not disclose anything.The political and financial factors should be kept in mind while entering a new market.
Question 8. Comment on the decision of both Pepsi and Coke to enter the bottled water market instead of continuing to focus on their core products-carbonated beverages and cola-based drinks in particular.
Answer: PepsiCo: The bottled water industry valued around 1,000 cores and so they started selling bottled water. This was also because they were facing losses in soft drinks. Pepsi had a brand name Aquafina for bottled water. Soon it became the top three retailer brands in bottled water in India. They reduced their dependencies on Pepsi Cola. The bottled water industry contributed one-fourth to its overall business in India.
Coca-Cola: The Company wanted to make an entry to the water market because they wanted to align themselves with the leaders of the market. In the month of July 1993, PepsiCo was offered with four bottling plants by Parle. These plants were in four major cities of Mumbai, Ahmedabad, Delhi and Surat. They were offered to sell their leading brands, but PepsiCo did not do so. They had only taken ownership of Frooti and Bisleri (Carbonated Water). They had introduced Kinley brand for bottled water.
Question 9. Most recently Coca-Cola has decided to enter the growing Indian market for energy drinks, forecasted to grow to $370 billion in 2013 from less than half that in 2003. The competiZtion in this market is fierce with established firms including Red Bull and Sobe. With its new brand Burn, Coke initially targeted alternative distribution channels such as pubs, bars, and gyms rather than large retail outlets such as supermarZkets. Comment on this strategy.
Answer: The company is targeting to grow to $370 billion in 2013 when compared to 2003. There is a lot of competition in the Indian market. There are many products like Red Bull and Sobe coming up. They have also launched a new brand named Burn. The products are being sold in gyms, bars and pubs. They are not selling in retail stores and supermarket because people will opt for other brands and nobody will be ready to try Coca-Cola's new brand. Hence selling it in pubs, gym and bars will gain a lot of attention from people. It will encourage people to try their products. Brand awareness will also be created by the owner of pubs, gym and bars. People will refer others to try the products of the new brand Burn. Hence, this will reduce Coca-Cola's market competition.
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