Coke and Pepsi Learn to Compete in India.docx

7/27/2019 Coke and Pepsi Learn to Compete in India.docx

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Coke and Pepsi Learn to Compete in India

A. Identification of issues and Problems

Step 1overview of the case study

During the 1900s and the beginning of the new millennium Indias

government had opened its doors wide open to foreign investors, but the

Coca-Cola Corporation and PepsiCo experienced many difficult challenges.Both companies were engulfed with unexpected problems and difficult

situations that led to the recognition that Indias market was very

different and special knowledge, skills and local expertise was needed to be

obtained if the two companies were to succeed. As Ronald McEachern,PepsiCos Asia chief, stated, India is the beveragebattlefield for 2003.

Pepsi entered into the Indian beverage market in July 1986 as a joint

venture with two local partners, Voltas and Punjab Agro, forming PepsiFoods Ltd. Coca-Cola followed suit in 1990 with a joint venture withBritannia Industries India before creating a 100% owned company in 1993

and then ultimately aligning with Parle, the leader in the industry. In manyways, Coke and Pepsi managers had to learn the hard way that what workshere does not always work there.

In India, there are two main high seasons for the consumption of softdrinks. First being the summer session which lasts about seventy-five days

in mid-April to June. The second major opportunity for Coca-Cola andPepsiCo in India is the annual Navratri celebrations.

Another issue that the Indian market faced was the attack by the UnitedStates and Britain on Iraq. A boycott was put in place as the result and

targeted specifically Pepsi, Coca-Cola, and McDonalds as a protest against

the unjust war. Sales of Coca-Cola and Pepsi plummeted fifty percentwithin the first two weeks of the boycott. Just as things were looking better,

an environmental organization claimed that an essential ingredient in locally

produced soft drinks, was carcinogenic. Producers either had to resort to

using a costly imported substitute, estergum, or they had to finance theirown R&D in order to find a substitute ingredient. Many failed and quicklywithdrew from the industry.


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After testing of the products, the results showed that soft drinksproduced by the two companies were safe to drink under local health

standards. But the damage was already done. To regain trust and credibility,

Coca-Cola and Pepsi created advisory boards and had more purity

tests conducted to combat consumers fear about their product. But in 2003and again in 2006, studies have shown that Coca-Cola had pesticide residue

in their products that were twenty-four times higher than the European

Union standards. This event led full bans on Coca-Cola in seven states inIndia (Srivastava, 2009) After the bad press had cooled down from the

pesticide incident, new allegations of Coca-Cola using precious

groundwater and supplying farmers with toxic waste that was usedto fertilize their crops appeared. In 2004, Coca-Cola converted 2/3 of the

freshwater it used into wastewater globally (Srivastava, 2009). Activist

groups in California formed and rallied several colleges in the United States

and some in Europe to ban or stop renewing their contract with Coca-Cola.This also led to many Americans wanting Coca-Cola to close its bottling

plants due to such an irresponsible practice. To avoid the same problemsthat Coca-Cola is now facing, PepsiCo has come up with new techniques for

conserving water usage, especially in India. The agriculture inIndia accounts for over eighty percent of total fresh water consumption,therefore PepsiCo is working with the farmers to reduce the water intensity

in paddy cultivations by thirty percent through direct seeding of paddy. In2007, this new technique was piloted on 100 acres and again in 2008 on1000 acres. PepsiCo found that if only 6,000 acres were shifted to the direct

seeding, it would offset all of the water used by PepsiCo in India (PepsiCo,2008).

Due to India's suspicion of foreign business stemming from past history,both Pepsi and Coca-Cola received alien status upon entry to the Indian

market. 2 The two corporations were required to follow many laws,designed as obstacles to impede foreign business. For example, sales of soft

drink concentrate by Pepsi to local bottlers could not exceed 25% of total

sales. Also, foreign businesses were not allowed to market their products

under the same name if selling within the Indian market. (E.g. Lehar Pepsi)Most controversial was the agreement Coca-Cola was forced to sign to sell

49% of its equity in order to buy out Indian bottlers. This response might

have been acceptable if investment rules in India were clear andunchanging, but this was not the case during the 1990's.

Step 2identifying the problems

Coca Cola and Pepsi encountered many problems such as, conflicts with

Indian Laws, Indian government viewed as unfriendly and the boycott


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which specifically targeted Pepsi, Coca Cola and McDonalds.

Conflicts with the Indian Laws had a great impact on Pepsi and Coca

Cola. Unlawful to market under their Western name in India: Pepsi became

Lehar Pepsi, Coca Cola merged with Parle and became Coca-ColaIndia. Different Laws for Pepsi and Coke: Coca-Cola forced to sign to sell

49% of its equity in order to buy out Indian bottlers. This response might

have been acceptable if investment rules in India were clear andunchanging.

Indian government viewed as unfriendly to foreign investors. One of thelaws that the Indian government called principle of indigenous availability

had specified that if an item could be obtained anywhere else in India,

imports of a similar product are forbidden. Therefore, the government

thought by doing this it would bring more revenue and jobs to the country.However, this law made the country be self-reliant in its defense industry.

Consumers had little choice of products or brands and no guaranty of quality

It seems as though the Indian government is squelching any investmentsfrom foreign companies. First the government wanted to know the secretingredients for Coca-Cola and then they wanted to control the company

equity stake. The most important thing they forget is that they are the oneswho are going to benefit from the multinational corporation. Thegovernment benefits from taxes and foreign investments. Also,

multinational companies bring demand for jobs. For instance when peoplein India boycotted against all American companies because of the Iraq warthey thought they would stop American industries from selling their

products in India; however, they forgot that by doing this it would also hurtIndian economy.

B. Solutions

Due to the external nature of the political and legal environment of

operating in India, much of the problems were out of Coca-Cola and Pepsi's

control. Even if the two were to have performed a more extensiveenvironmental analysis, many of the problems would not have been

forecasted. Government situations are dynamic and inconsistent where there

is not a strong foundation of law.

1. Price: Coca-Cola reduced prices nationwide by 15-25% .

Advantage: To make them affordable and easy to get access to. It also


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tends to increase profits in the short term.

Disadvantage: If a department already voluntarily reduced its cost

substantially must now find a way to cut expenses farther, probably to the

point where it cannot complete the production process or reduce theingredients of the product.

2. Product: Coca-Cola and Pepsi launched different product lines to appealto the Indian consumer tastes. They started with product lines that were

already available, such as cola, fruit drinks, and carbonated water. Then,

when the market was ready, they launched other lines, such as bottled

water (Coke- Kinley and Pepsi-Aquafina) and clear lime sodas (Coke-Sprite, Pepsi-7 Up).

Advantage: Indians will have more choices of products.

Disadvantage: The consumers might be confused of what theyll goingto buy because of too many choices of products.

3. Promotion: Both Coca-Cola and Pepsi adapted to the local market withpromotions. They promoted heavily during the Navrarti festival. Pepsi gave

away a kilo of Basmati rice with every refill of a case of Pepsi. This is aneffective strategy to blend the old (rice) with the new (Pepsi). Coca-Cola

gave away vacations to Goa, a famous resort in India. Further, they teamedup with influential figures in Indian pop-culture to promote their products.

Pepsi launched an ambitious marketing campaign sponsoring Cricket

celebrities and athletes from the World Cup. Coca-Cola launched its

Lifestyle Advertising Campaign as a method of building brand loyaltyamong its target markets: "India A" (18-24 year old urban youth) and "India

B" (rural youth). They used a music director and an actor to promote the

project. Most importantly, they tried to create a connection between localidioms and their products so that they would stick. The use of celebrities is a

powerful marketing tool across cultures to promote products.

Advantage: The new products will be publicized which will giveinformation to the consumers. It also helps increase market share

Disadvantage: It can be quite costly depending on the advertising


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medium to be used; obviously TV and radio advertising tend to be moreexpensive than advertising on notice boards.

4. Channels of distribution: Production plants and bottling centers were

strategically placed in large cities all around India. More were added asdemand grew, along with new product lines. In Coca-Cola's case, the JV

with Parle provided access to its bottling plants and its products. By forming

partnerships, both Coca-Cola and Pepsi were able to get initial access intothe market.

Advantages: Cost Saving, Time Saving, Customer Convenience

Disadvantage: Utilization costs, It might have a loss in communication

control and product importance that would result to a bad effect in the nameof the product and the company.

5. Research:

Advantage: Pepsi created smaller bottles to keep up with the trend of

high frequency/ high volume consumption. Coca-Cola launched the minis

in an effort for higher volume. Both met trends in demand with new product

lines.

Disadvantage: : It seems that prior research into general market demand

may have been the most overlooked aspect by Coca-Cola and Pepsi. Indiahas not ever been considered a lucrative market for the soft drink industry.

C. Recommendations


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Price

o Maybe the company can do giveaways or free drinks so that consumers

who dont want to waste their money for soft drinks willbe able to judge

whether the price is worth it or not.

Product

o Produce more products that the Indian community likes and maybe the

ingredients of that product will be supplied by the Indian community so that

it would be cheaper and affordable compared to those products of which its

ingredients are still from the home country of the company.

Promotion

o Both companies should apply corporate social responsibility where theyare trying to promote their drinks. Not just in a specific place but theyshould apply it in the country of India. This would include helping them

celebrate their festivals or even support local soccer players. People wouldnotice this right away and recognize that these multinational companies arenot just here to maximize their profits but they are also here to support

Indian community.

Channel of distribution

o Formulate a strategy that would not utilize a great cost and will not lose

communication and most specially, the importance of the product.

Research

o Before Coke and Pepsi brought their products to India, they should have

forecasted that the Laws of Indian community is different from their own


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Laws. There should have been a research about the culture of India so thatthey will be able to compete their product with the local products of India

without any cultural differences.

Documents

Coke and Pepsi Learn to Compete in India.docx