Cola Wars

A Tale of Two Colas: The Cola Wars

PepsiCo. Incorporated and The Coca-Cola Company are the two largest and oldest archrivals in the carbonated soft drink (CSD) industry. Coca-Cola was invented and first marketed in 1886, followed by Pepsi Cola in 1898. Coca-Cola was named after the coca leaves and kola nuts John Pemberton used to make it, and Pepsi Cola after the beneficial effects its creator, Caleb Bradham, claimed it had on dyspepsia. The rivalry between the soda giants, also known as the "Cola Wars", began in the 1960's when Coca-Cola's dominance was being increasingly challenged by Pepsi Cola. The competitive environment between the rivals was intense and well-publicized, forcing both companies to continuously establish and implement strategic variations as a means to create a competitive advantage. The competition fostered and stimulated continuing growth in an industry which many predicted in the early 1970's to be on the verge of maturity. Reasons for the prediction arose from the fact that further growth of per capita consumption of soft drinks is fairly static regarding how much people are able to consume on a daily basis. Furthermore, both Pepsi Cola and Coca-Cola offered a limited number of products that "looked the same, tasted the same, and bubble into foam the same", thus questioning whether further substantial growth in sales was possible.

Pepsi Cola and Coca-Cola's marketing strategies have been as indistinguishable as the products themselves. Relying on colorful images, lively words, beautiful people, interesting bottle designs, and contagious jingles, Pepsi and Coke propelled their respective products into the American and international mainstream. The changing faces of Pepsi and Coke's management, however, facilitated the brand image according to their own style and what they saw as an advantageous competitive approach. This style and approach is what makes Pepsi-Cola and Coca-Cola distinguishable.

The objective of Coca-Cola's advertisements was to strategically position their product in people's mind in order to maximize its acceptance. This strategy would in some way or another have a correlation to the changing social values of the period. "Trying to keep step with each generation and era has been an important factor in advertising for Coke. It strives not to be too far behind or too far ahead of its time; the product has always been positioned for what it was in any era." As social values change from each period so did Coca-Cola's ad themes. For instance, Coca-Cola first entered the market as a medicine and eventually into soft drinks their ad slogans would center on the theme of healing: "Coca-Cola revives and sustains"; and, "Satisfies the thirsty and helps the weary".

Coca-Cola's confidence in its domination over the soft drink industry eroded, and its advertising slogans began to recognize industry competition: "No Wonder Coke Tastes the Best". While Coke's slogans have always centered on the product, Pepsi's advertisement emphasized the users of the product. Rather than targeting every market, Pepsi focused on the demographic environment. Pepsi foresaw the mass appeal of the youth generation for soft drinks and in 1961 divulged the successful slogan "Now, It's Pepsi, for Those Who Think Young". The campaign was such a success that Pepsi's sales growth outperformed that of Coca-Cola.

Marketing strategies began to take broader dimensions as the soft drink industry continued to expand and became more complex. In 1976, Pepsi introduced the Pepsi Challenge in its campaigns, a moved that directly challenged Coca-Cola's longstanding dominance. In 1985, responding to the pressure of the taste tests, which Pepsi always won, Coca-Cola decided to change its formula. This move set off a shock wave across America. Consumers angrily demanded that the old formula be returned, and Coca-Cola responded three months later with Classic Coke. Five years after the infamous Coke fiasco, the Coca-Cola Company tried to bring back the reformulated Coke. The effort to phase in Coke II into the soda market was quite unsuccessful. In addition, in 1993, Pepsi encouraged Diet Coke consumers to call toll-free numbers to be interviewed by celebrities such as Ray Charles. In the process of the interview, the company accumulated brand preference and consumption information from a large block of potential consumers. On its web site, in exchange for some of the games and features (including daily sweepstakes drawings), Pepsi requires visitors to complete an on-line survey, providing contact information and demographic information, including beverage and snack preferences. By gathering this information, Pepsi has gained valuable information directly from consumers.

The battle to gain substantial sales growth and market share intensified to such an extent that advertising for both companies, although delivering national brand recognition and continuous awareness, could not produce significant sales growth; either Pepsi gain market share by taking Coke's market share or vice versa in order to gain the number one position. The next strategic move for both companies was to diversify into various food and beverage enterprises in order to capture more market share in the carbonated soft-drink industry.

In the 1960's, diet soft drinks immerged as popular new products. Coca-Cola introduced their diet drink Tab, and Pepsi Cola followed a year later with Diet Pepsi. Tab gained greater market share than Diet Pepsi due to Coca-Cola's strategy of protecting its brand equity rather than risking the dilution of its brand name like Pepsi did. Both companies further diversified by going into non-carbonated soft drink beverages. In 1960 Coca-Cola purchased Minute Maid and four years later, Duncan Foods, a producer of tea, coffee, and hot chocolate. Pepsi Cola acquired Lipton and Tropicana and became the number one selling iced tea and the world's largest producer of branded juices.

Pepsi Cola's strategy to diversify did not just end with juices, however. They also branched into the snack food industry. In 1965, Pepsi Cola merged with Frito-Lay to form PepsiCo. This concentric diversification strategy gave Pepsi Cola significant economies of scale, because both companies shared similar consumers, distribution system, and marketing strategies. Frito-Lay's expertise in the transformation of its distribution system before the merger enabled Pepsi Cola to eventually own its distributing company rather than depend on individual distributors. It was a move that facilitated Pepsi Cola into gaining increasing market share from Coca-Cola.

In a market where the product, packaging, and tastes remain