How to Write A Case Study

Strategy Analysis

Conduct an industry analysis using Porter’s 5 forces to evaluate the attractiveness of the industry with respect to the profitability of bottlers.

Porter’s 5 forces model can be used for the beverage industry to evaluate the type of profitability bottler’s should be expecting.

Threat of New Entrants

As far as the threat of new entrants is concerned, if it’s the setting up of a complete bottling plant unit, there would certainly be barriers to entry because of the huge investment costs involved. Established bottlers handling the bottling and distribution of the two brands should not be too worried about that. Along with that, the exit barriers are just as intense. So bottlers can expect normal to abnormal profits if they are the sole distributors of the brands in an area.

Threat of Substitutes

If we consider the threat of substitutes on the whole, the bottlers may have to survive in a very competitive environment where there would be competition not from other bottlers along with competition from indirect substitutes such juices and iced-tea and milk based drinks. However, looking at the industry and the way bottlers have diversified in other product ranges along with carbonated drinks, the bottlers themselves would have enough diversified brands to counter the attack from other substitutes. For instance, in the case of Coke bottlers, they would be able to fight off competition from other substitutes with the help of their additional acquired brands such as ‘Minute Maid’.

Bargaining Power of Buyer

Looking at the buyer power, we could divide the buyers into two groups; those who would be the actual consumers and those who would be buying from the bottlers to sell at their own outlets such as Pizza Hut and McDonalds selling Pepsi and Coke respectively. With their own widespread outlets, retail chains may have a lot of influence over the bottlers and may be able to get discounts and other benefits due to the heavy sales volumes that they generate for the bottlers. The same may be the case for the supermarket chains that would be buying from the bottlers and stocking these brands in their stores. They may be able to exploit the bottler to some extent. However, individual buyers may show brand loyalty to specific brands and may be price sensitive to some extent but would not pose a threat to the bottlers individually.

Bargaining Power of Supplier

The supplier, which in this case could be the bottler itself, may have a lot of hold in the area where the bottling plant is setup as distribution costs would be lower and buyers would prefer to buy specifically from that supplier. Here the supplier may also have a monopoly. On the other hand if we consider the supplier of the concentrate as the main supplier, the degree of power is even more as the actual provision of the concentrate formula, the price, the marketing etc would be in the hands of the actual brand owner. The bottler would have very little power over the concentrate supplier, as  he would be making only a small percentage of the total sales of the supplier.

In a way we could look at the bottlers of Pepsi and Coke as businesses in perfect competition rather than being in a duopoly which should be the case as the main competition is between Coke and Pepsi only. But if you look at all of the bottlers buying the same concentrate from the concentrate maker, the product hardly has any differentiation and would only be sold because of the brand name of Coke or Pepsi rather than by the name of the bottler.

Financial Analysis

The strategies used by Coke and Pepsi were reflected in their financial data (Table 3a). Compare and comment on the return on equity (ROE) for both Coke and Pepsi over the years. Calculate and comment on Coke’s operating profit for its North American beverage and its international beverage over the years. Calculate and comment on the level of net profit for Coke and Pepsi over the years.

Looking at Table 3a, we can see how the ROCE for Coke started rising from the mid-70s from 21% reaching its maximum in the mid-90s where it touched 55.4% in 1995. however there was a dramatic fall in the ROCE within 5 years and by 2000 it had fallen to just 23.4% and then a very minimal rise was seen showing a return of only 27.5% in 2009.

Looking at the ROCE for Pepsi, we see the same trend in the ROCE from mid-70s to mid-90s although Pepsi’s financial figures were much lesser than Coke’s. From an ROCE of 18% in the 70s, it went up to 30% in 1985 and fell dramatically in 1995 to just 19.4%. However there was a different trend from there onwards with the ROCE going much higher than that of Coke’s reaching almost 43% in 2008.

(Figures for ROCE taken from Table 3a- Net Profit/Equity)

The dramatic fall in the ROCE for both the brands cold be contributed to the sudden awareness in the market where sugar based drinks were thought to be responsible for obesity. The rise in Pepsi’s ROCE in contrast to Coke’s in the later years could be due to its market positioning as a ‘snack and beverage company’ rather than just a soft-drink concentrate maker. The years from 2000 to 2007 saw a trend in price sensitivity, use of more bottled water and awareness of harms of plastic bottles to the environment. This could have contributed to the fall in Coke’s ROCE whereas Pepsi saw an increase in the ROCE which could again be due to its campaigns and diversification.

From a comparison of the operating profit of North American Beverages and International Beverages for Coke as shown below (calculations for operating profit are given in appendix 1) we can see how the Operating profit started rising dramatically in the international beverages compared to the rise in North American operating profits which only rose to $1696.17 (million) whereas those of the international beverages went up to $7691(million) by 2009. From the figures it can be seen that the rise was felt majorly after 1995 which would suggest the entry of the brand in the international market and a rise in its popularity worldwide whereas its sales in the North American market may have been affected by the change in trends due to awareness created by health groups and pressure groups.

North America Beverages, Coca Cola Company ($ million):

International Beverages, Coca Cola Company ($ million):

As seen in the table below, the net profitability of both coke and Pepsi has shown a similar trend from the 70s to late 2000s and both the brands have managed to remain very close in their financial figures. The cola wars that have been there throughout have shown a trend in the net profitability too since both the companies have shown how they have managed to remain side by side in net profitability too. (Calculations for net profitability are given in appendix 2)

Net Profitability over the years: Pepsi ($ million):

Net Profitability over the years: Coke ($ million):

Marketing Analysis

The marketing mix is a planned mix of the controllable elements of a product/business unit’s marketing plan, commonly termed the 4Ps.  Describe the series of decisions made with regard to each of the elements of the marketing mix.

The marketing mix or the 4Ps namely the product, price, place and promotion have been carefully worked upon in case of both the brands. Pepsi and Coke have been equally responsive to their competitor’s decisions regarding each aspect of the marketing mix.

The Product 

The first P of marketing, the product itself is of course the main element of the marketing mix since it is the actual reason for creating the whole marketing mix. Both the brands have created their distinct tastes and have kept them unique to create some aspect of differentiation. Even through Coke did try to change the product’s taste with the introduction of ‘New Coke’ which was somewhat the same as Pepsi in taste, the original taste was preserved in the form of ‘Coke Classic’.

Packaging, which is another important aspect of the product, has also been carefully thought upon by both the brands. Where the packaging was meant to be light and attractive, the brands introduced cans and where it was supposed to be economical, disposable glass bottles were introduced. Plastic bottles and bigger sized economy packs were also brought into the market to target all sorts of lifestyles as per as the two brands of cola were concerned.

The Pricing

Pricing, the second aspect of the marketing mix has been a very sensitive issue for the two brands since starting a price war would only lead to lesser profitability as far as the bottles are concerned. At the level of the concentrate producers, the price has been fixed for the bottlers whereas Coke introduced the idea of incidence pricing for its bottlers where there was flexibility in the price of the concentrate as per the market under consideration. Focusing further on pricing, back in its earlier days Pepsi had managed to use the concept of selling at a price which was half of its competitor’s price, but those were the days of the ‘Great Depression’ and survival strategies were needed.

The Promotion

Promotion can be one of the most important aspects of the marketing mix as it means creating a brand image along with awareness. Pepsi and Coke have managed to work aggressively and effectively on this aspect of the marketing mix as well. Using strategies such as sponsoring events and creating brand ambassadors to working with slogans, both the brands have managed to create an impact side by side. Where Pepsi came up with the promotion of its brand in the form of ‘Pepsi the New Generation’, Coke tried to use its originality for creating a greater impact with the ‘Coke Classic’. Aggressive Cola wars in the form of competitive advertising was also seen in the form of ‘America’s Preferred Taste’ from Coke and ‘The Pepsi Challenge’ compelled Coke to start rebates and price reductions. There has been a constant response from both the brands to each other’s advertising campaigns throughout.

The Placing

Placing, the last ‘P’ of the marketing mix is ultimately the mode by which the customer gets the final product. Pepsi and Coke have used indirect channels in the form of retailers and supplying directly to restaurants in the form of fountain drinks etc Both the brands have fought aggressively for shelf space and in giving incentives to retailers to make their brand available to the final customer extensively.

Appendix 1

Notes:        

• Formula for Operating Profit Calculation 🙁 Operating Profit/Sales %) X Sales                                     
• Operating Profit/Sales & Sales are figures taken from Exhibit 3a

Appendix 2

Notes:        

• Formula for Net Profit Calculation 🙁 Net Profit/Sales %) X Sales                                               
• Net Profit/Sales & Sales figures are taken from Exhibit 3a            

References:              

 Dr.Subba Rao .p,Personnel and Human Resource Management, Preface to the second Edition on 21st June, 2002.

The Four Ps ; What Marketing Does for Soda. Kick the Can, Prepared by Berkeley’s Media Studies Group for the California center for public advocacy, 2011

http://www.kickthecan.info/files/documents/4Ps_January%2028%202012_0.pdf

Porter, Michael E., Competitive Strategy: Techniques for Analyzing Industries and Competitors

http://research3.bus.wisc.edu/file.php/139/Toolkit/Content/Porter_forces_3.pdf