Chapter 1

Introduction

1.1 Introduction

Today's consumers are more demanding for an increasing level of fun and

variety. Anything that surrounds them for too long jades them. With the dawn of

every fresh day, these modern day customers demand for quality and healthy

food that is offered as per their convenience and changing cultural needs. The

survival of any food outlet or the industry is also highly dependent on them; their

palate can either make or break the existence of these companies. This has

wrought a great challenge on the marketers of the food industry who intentionally

resort to unethical practices that had sourced many lively international debates on

ethical and marketing practices of the food industry besides the intervention of

regulatory authorities to implement necessary legislation wherever required to

reduce the ill-effects on the society.

In an increasingly complex world, individuals and businesses are faced with more

and more choices but seemingly have less and less time to make those choices.

The ability of strong brand to simplify consumer decision making, reduce risk,

and set expectations is thus invaluable. Creating strong brands that deliver on that

promise, maintaining and enhancing the strength of those brands over time is thus

a management imperative.

Consumer research insights have long played an important role in managerial

decision making in many areas of marketing, for example, in the development of

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advertising, pricing, and channel strategies. Branding involves the process of

endowing products and services with the advantages that accrue to building a

strong brand (e.g., enhanced loyalty, price premiums, etc.). Branding’s

emergence as a management priority has led to a similar need to inform

practicing managers of concepts, theories, and guidelines from consumer research

to facilitate their brand stewardship.

Marketers are desperate for consumer behavior learning that will improve their

understanding of branding and their design and implementation of brand-building

marketing programs. The importance of consumer research to marketing practice

has perhaps never been higher as managers struggle to adapt to a fast-changing

marketing environment characterized by savvier consumers and increased

competition, as well as the decreased effectiveness of traditional marketing

tactics and the emergence of new marketing tools.

In this complex marketing world, marketers find themselves having to grapple

with difficult issues about branding and their brands. What are the most effective

and efficient means of building a strong brand? What are the proper roles for

popularized marketing approaches such as buzz marketing, permission

marketing, one-to-one marketing, experiential marketing, and so on? How do you

measure the strength and value of a brand? How do you decide when and where

to expand a brand, for example, into new product categories or new market

segments? How do you keep brand relevant and contemporary while preserving

its heritage and sources of equity? In many cases, a deeper understanding of how

consumers feel, think, and act could provide valuable guidance to address these

brand-management challenges.

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One area of increasing importance is the brand-leveraging process, that is, the

effects on consumers of linking a brand to another person, place, thing, or brand.

Analyzing this leveraging process requires understanding (1) what in fact

consumers know about a brand and (2) how this knowledge might be affected by

linking the brand to other entities.

1.2 Brief History of Branding

According to the American Marketing Association (AMA), a brand is a “name,

term, sign, symbol, or design, or a combination of them, intended to identify the

goods and services of one seller or group of sellers and to differentiate them from

those of competition.”

The word brand originally meant anything hot or burning, and for hundreds of

years was associated with the process of marking an animal with a unique symbol

so that the owner could identify it at a later date. The practice involved heating a

branding iron that was fashioned into a symbol, letter or name, in a fire, which

would then be pressed against the hide of an animal, burning the hair and skin

and leaving a permanent scar on the body. The term brand now has a wider

meaning, and is used to describe a name, logo or slogan associated with a

particular company, product or service. Brands came about as a way to identity a

companies' products from similar products of rival businesses, but of course

branding could also be used to disguise an inferior product as one of higher

quality; in ancient China, merchants sometimes used branding to falsely pass off

lower grade garden tea as higher grade hill tea, by using names such as "Misty

Mountain Tea", or "Garden in the Sky Tea". A brand is all about how a customer

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 perceives a product or company. A successful brand is recognizable and creates

an instant association with a product or service. For example, people see a

McDonald’s Restaurant, and they know they can get quick and cheap food there.

Building a brand can take a long time and is a combination of a having a

consistent product, as well as strong advertising and marketing. The highest level

of achievement in the world of branding is to create a brand that is instantly

recognizable even without the name of the company present. This takes years of

marketing and huge amounts of investment; companies that have achieved this

include Nike (with its "swoosh"), McDonald’s (with its Golden Arches), Playboy

(with the Playboy Bunny) and several car manufacturers such as Mercedes,

Jaguar and Mitsubishi. These days, companies spend thousands of dollars

building and promoting their brands, keeping up on the latest media news and

advancements. A company's brand is vital to its success and therefore it's

imperative that a company monitors its brand image to ensure that it is being

perceived in the way it wants to be. Negative press relating to a particular brand

can have extremely detrimental effects and can mean that the public associate a

brand with negative aspects, which is obviously bad for business, and a damaged

brand can take months or even years to recover, if it ever recovers at all.

There are different roles that brands can play for consumers as well as

manufacturers:

Consumers:

i. Identifying the source of the product

ii. Assignment of responsibility to product maker

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iii. Risk reducer

iv. Search cost reducer

v. Promise, bond, or pact with maker of product

vi. Symbolic device

vii. Signal of quality

Manufacturers:

i. Means of identification to simplify handling or tracing

ii. Means of legally protecting unique features

iii. Signal of quality level to satisfied customers

iv. Means of endowing products with unique associations

v. Source of competitive advantage

vi. Source of financial returns

A brand is a perceptual entity that is rooted in reality, but it is also more than that,

reflecting the perceptions and perhaps even the idiosyncrasies of consumers.

To brand a product, it is necessary to teach consumers “who” the product is – by

giving it a name and using other brand elements to help identify it- as well as

what the product does and why consumers should care. In other words, to brand a

product or service, it is necessary to give consumers a label for the product (i.e.,

“here’s how you can identify a product”) and to provide meaning for the brand to

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consumers (i.e., ‘here’s what this particular product can do for you and why it is

special and different from other brand name products”). Branding involves

creating mental structures and helping consumers organize their knowledge about

product and services in a way that clarifies their decision making and, in the

process, provides value to the firms. The key to branding is that consumers

perceive differences among brands in a product category. Brand differences often

are related to attributes or benefits of the product itself. In other cases, however,

brand differences may be related to more intangible image considerations.

Whenever and whatever consumers are deciding between alternatives, brands can

play an important decision-making role. Accordingly marketers can benefit from

branding whenever consumers are in a choice situation.

1.3 Branding Challenges and Opportunities

The various challenges and opportunities related to branding are listed below:

a. Savvy Customers

b. Complex brand families and portfolios

c. Maturing markets

d. Sophisticated and increasing competition

e. Difficulty in differentiating

f. Decreasing brand loyalty in many categories

g. Growth of private labels

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 h. Increasing trade power

i. Fragmenting media coverage

j. Eroding traditional media effectiveness

k. Emerging new communication options

l. Increasing promotional expenditure

m. Decreasing advertising expenditure

n. Increasing cost of product introduction and support

o. Short term performance orientation

p. Increasing job turnover

Some of the marketing advantages of strong brands are:

I. Improved perceptions of product performance

II. Greater loyalty

III. Less vulnerability to competitive marketing actions

IV. Larger margins

V. More inelastic consumer response to price increases

VI. More elastic consumer response to price decrease

VII. Greater trade cooperation and support

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 VIII. Increased marketing communication effectiveness

IX. Possible licensing opportunities

X. Additional brand extension opportunities

1.4 Attitude

1.4.1 Tricomponents Model of Attitude

According to tricomponent model of

attitude (figure 1.1), consumer attitudes

are a composite of a consumer’s (1)

beliefs about, (2) feelings about, (3) and

behavioral intentions toward some

object, within the context of marketing,

Figure 1.1 Tricomponents Model
usually a brand or retail store.

These components are viewed together since they are highly interdependent and

together represent forces that influence how the consumer will react to the object.

Beliefs; The first component is beliefs. A consumer may hold both positive

beliefs toward an object (e.g., coffee tastes good) as well as negative beliefs (e.g.,

coffee is easily spilled and stains papers). In addition, some beliefs may be

neutral (coffee is black), and some may be differ in valance depending on the

person or the situation (e.g., coffee is hot and stimulates--good on a cold

morning, but not good on a hot summer evening when one wants to sleep). Note

also that the beliefs that consumers hold need not be accurate (e.g., that pork

contains little fat), and some beliefs may, upon closer examination, be

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contradictory (e.g., that a historical figure was a good person but also owned

slaves).

Since a consumer holds many beliefs, it may often be difficult to get down to a

“bottom line” overall belief about whether an object such as McDonald’s is

overall good or bad.

The Multiattribute (also sometimes known as the Fishbein) Model attempts to

summarize overall attitudes into one score using the equation:

That is, for each belief, we take the weight or importance (Wi) of that belief and

multiply it with its evaluation (Xib). For example, a consumer believes that the

taste of a beverage is moderately important, or a 4 on a scale from 1 to 7. He or

she believes that coffee tastes very good, or a 6 on a scale from 1 to 7. Thus, the

product here is 4(6) =24. On the other hand, he or she believes that the potential

of a drink to stain is extremely important (7), and coffee fares moderately badly,

at a score -4, on this attribute (since this is a negative belief, we now take

negative numbers from -1 to -7, with -7 being worst). Thus, we now have 7(-4)

=-28. Had these two beliefs been the only beliefs the consumer held, his or her

total, or aggregated, attitude would have been 24 + (-28) =-4. In practice, of

course, consumers tend to have many more beliefs that must each be added to

obtain an accurate measurement.

Affect; Consumers also hold certain feelings toward brands or other objects.

Sometimes these feelings are based on the beliefs (e.g., a person feels nauseated

when thinking about a hamburger because of the tremendous amount of fat it

contains), but there may also be feelings which are relatively independent of

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beliefs. For example, an extreme environmentalist may believe that cutting down

trees is morally wrong, but may have positive affect toward Christmas trees

because he or she unconsciously associates these trees with the experience that he

or she had at Christmas as a child.

Behavioral Intention; The behavioral intention is what the consumer plans to do

with respect to the object (e.g., buy or not buy the brand). As with affect, this is

sometimes a logical consequence of beliefs (or affect), but may sometimes reflect

other circumstances--e.g., although a consumer does not really like a restaurant,

he or she will go there because it is a hangout for his or her friends.

1.4.2 Attitude - Behavior Consistency

Consumers often do not behave consistently with their attitudes for several

reasons:

 Ability. He or she may be unable to do so. Although junior high school

student likes pick-up trucks and would like to buy one, she may lack a driver’s

license.

 Competing demands for resources. Although the above student would like to

buy a pickup truck on her sixteenth birthday, she would rather have a computer,

and has money for only one of the two.

 Social influence. A student thinks that smoking is really cool, but since his

friends think it’s disgusting, he does not smoke.

 Measurement problems. Measuring attitudes is difficult. In many situations,

consumers do not consciously set out to enumerate how positively or negatively

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they feel about mopeds, and when a market researcher asks them about their

beliefs about mopeds, how important these beliefs are, and their evaluation of the

performance of mopeds with respect to these beliefs, consumers often do not give

very reliable answers. Thus, the consumers may act consistently with their

attitudes, which were never uncovered because an erroneous measurement was

made.

1.4.3 Attitude Change Strategies

Changing attitudes is generally very difficult, particularly when consumers

suspect that the marketer has a self-serving agenda in bringing about this change

(e.g., to get the consumer to buy more or to switch brands).

Changing Affect. One approach is to try to change affect, which may or may not

involve getting consumers to change their beliefs. One strategy uses the

approach of classical conditioning try to “pair” the product with a liked stimulus.

For example, we “pair” a car with a beautiful woman. Alternatively, we can try

to get people to like the advertisement and hope that this liking will “spill over”

into the purchase of a product. For example, the Pillsbury Doughboy does not

really emphasize the conveyance of much information to the consumer; instead, it

attempts to create a warm, fuzzy image. Although Energizer Bunny ads try to get

people to believe that their batteries last longer, the main emphasis is on the

likeable bunny. Finally, products which are better known, through the mere

exposure effect, tend to be better liked--that is, the more a product is advertised

and seen in stores, the more it will generally be liked, even if consumers to do not

develop any specific beliefs about the product.

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Changing Behavior. People like to believe that their behavior is rational; thus,

once they use our products, chances are that they will continue unless someone is

able to get them to switch. One way to get people to switch to our brand is to use

temporary price discounts and coupons; however, when consumers buy a product

on deal, they may justify the purchase based on that deal (i.e., the low price) and

may then switch to other brands on deal later. A better way to get people to

switch to our brand is to at least temporarily obtain better shelf space so that the

product is more convenient. Consumers are less likely to use this availability as a

rationale for their purchase and may continue to buy the product even when the

product is less conveniently located.

Changing Beliefs. Although attempting to change beliefs is the obvious way to

attempt attitude change, particularly when consumers hold unfavorable or

inaccurate ones, this is often difficult to achieve because consumers tend to

resist. Several approaches to belief change exist:

1. Change currently held beliefs. It is generally very difficult to attempt to

change beliefs that people hold, particularly those that are strongly held, even if

they are inaccurate. For example, the petroleum industry advertised for a long

time that its profits were lower than were commonly believed, and provided

extensive factual evidence in its advertising to support this reality. Consumers

were suspicious and rejected this information, however.

2. Change the importance of beliefs. Although the sugar manufacturers would

undoubtedly like to decrease the importance of healthy teeth, it is usually not

feasible to make beliefs less important--consumers are likely to reason, why,

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then, would you bother bringing them up in the first place? However, it may be

possible to strengthen beliefs that favor us--e.g., a vitamin supplement

manufacturer may advertise that it is extremely important for women to replace

iron lost through menstruation. Most consumers already agree with this, but the

belief can be made stronger.

3. Add beliefs. Consumers are less likely to resist the addition of beliefs so

long as they do not conflict with existing beliefs. Thus, the beef industry has

added beliefs that beef (1) is convenient and (2) can be used to make a number of

creative dishes. Vitamin manufacturers attempt to add the belief that stress

causes vitamin depletion, which sounds quite plausible to most people.

4. Change ideal. It usually difficult, and very risky, to attempt to change

ideals, and only few firms succeed. For example, Hard Candy may have

attempted to change the ideal away from traditional beauty toward more unique

self expression.

1.5 Decision Making

1.5.1 Problem Recognition

One model of consumer

decision making involves

several steps. Figure 1.2 Decision Making Process

The first one is problem recognition—one may realize that something is not as it

should be. Perhaps, for example, the car is getting more difficult to start and is

not accelerating well. The second step is information search—what are some

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alternative ways of solving the problem? One might buy a new car, buy a used

car, take his/her car in for repair, ride the bus, ride a taxi, or ride a skateboard to

work. The third step involves evaluation of alternatives. A skateboard is

inexpensive, but may be ill-suited for long distances and for rainy days. Finally,

there is the purchase stage, and sometimes a post-purchase stage (e.g., one may

return a product to the store because he/she did not find it satisfactory). In

reality, people may go back and forth between the stages.

Consumer involvement will tend to vary dramatically depending on the type of

product. In general, consumer involvement will be higher for products that are

very expensive (e.g., a home, a car) or are highly significant in the consumer’s

life in some other way (e.g., a word processing program or acne medication).

It is important to consider the consumer’s motivation for buying products; For

example, a consumer may see that a car has a large engine, leading to fast

acceleration, leading to a feeling of performance, leading to a feeling of power,

which ultimately improves the consumer’s self-esteem. A handgun may aim

bullets with precision, which enables the user to kill an intruder, which means

that the intruder will not be able to harm the consumer’s family, which achieves

the desired end-state of security. In advertising, it is important to portray the

desired end-states. Focusing on the large motor will do less good than portraying

a successful person driving the car.

1.5.2 Information Search and Decision making

Consumers engage in both internal and external information search.

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Internal search involves the consumer identifying alternatives from his or her

memory. For certain low involvement products, it is very important that

marketing programs achieve “top of mind” awareness. For example, few people

will search the Yellow Pages for fast food restaurants; thus, the consumer must

be able to retrieve one’s restaurant from memory before it will be considered.

For high involvement products, consumers are more likely to use an external

search. Before buying a car, for example, the consumer may ask friends’

opinions, read reviews in Consumer Reports, consult several web sites, and visit

several dealerships. Thus, firms that make products that are selected

predominantly through external search must invest in having information

available to the consumer in need—e.g., through brochures, web sites, or news

coverage.

A compensatory decision involves the consumer “trading off” good and bad

attributes of a product. For example, a car may have a low price and good gas

mileage but slow acceleration. If the price is sufficiently inexpensive and gas

efficient, the consumer may then select it over a car with better acceleration that

costs more and uses more gas. Occasionally, a decision will involve a non-

compensatory strategy. For example, a parent may reject all soft drinks that

contain artificial sweeteners. Here, other good features such as taste and low

calories cannot overcome this one “non-negotiable” attribute.

The amount of effort a consumer puts into searching depends on a number of

factors such as the market (how many competitors are there, and how great are

differences between brands expected to be?), product characteristics (how

important is this product? How complex is the product? How obvious are

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indications of quality?), consumer characteristics (how interested is a consumer,

generally, in analyzing product characteristics and making the best possible

deal?), and situational characteristics. Two interesting issues in decisions are:

• Variety seeking (where consumers seek to try new brands not because these

brands are expected to be “better” in any way, but rather because the consumer

wants a “change of pace,” and

• Impulse purchases—unplanned buys. This represents a somewhat fuzzy

group. For example, a shopper may plan to buy vegetables but only decide in the

store to actually buy broccoli and corn. Alternatively, a person may buy an item

which is currently on sale, or one that he or she remembers that is needed only

once inside the store.

A number of factors involve consumer choices. In some cases, consumers will be

more motivated. For example, one may be more careful choosing a gift for an in-

law than when buying the same thing for one self. Some consumers are also

more motivated to comparison shop for the best prices, while others are more

convenience oriented. Personality impacts decisions. Some like variety more

than others, and some are more receptive to stimulation and excitement in trying

new stores. Perception influences decisions. Some people, for example, can

taste the difference between generic and name brand foods while many cannot.

Selective perception occurs when a person is paying attention only to information

of interest. For example, when looking for a new car, the consumer may pay

more attention to car ads than when this is not in the horizon. Some consumers

are put off by perceived risk. Thus, many marketers offer a money back

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guarantee. Consumers will tend to change their behavior through learning—e.g.,

they will avoid restaurants they have found to be crowded and will settle on

brands that best meet their tastes. Consumers differ in the values they hold (e.g.,

some people are more committed to recycling than others who will not want to go

through the hassle).

Meeting changing customer needs by providing the right products/services has

been an ongoing marketing challenge for retailing in competitive global markets.

Consumers may choose particular products/brands not only because these

products provide the functional or performance benefits expected, but also

because products can be used to express consumers’ personality, social status or

affiliation (symbolic purposes) or to fulfill their internal psychological needs,

such as the need for change or newness (emotional purposes). Consumer needs,

to be fulfilled through consumption of particular products or brands, however,

vary considerably with the socio-economic and cultural differences among

consumer markets. According to Yau (1994), consumers’ product choice and

preference for a particular product or brand are generally affected by very

complex social influences. Thus, consumers’ values, which reflect social

influences and environment, should affect needs to be fulfilled through purchase

and consumption decisions, and therefore consumption behavior. Consumers’

preferences for certain products also change over time as their consumption

situation and environment change.1

Personal values have been shown to be the underlying determinant of consumer

attitudes and consumption behavior (Scott and Lamont, 19772; Homer and Kahle,

19883). According to social adaptation theory (Piner and Kahle, 1984)4, values

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are a type of social cognition that functions to facilitate adaptation to one’s

environment through continuous assimilation, accommodation, organization, and

integration of environmental information. Earlier research on values and

behaviors by Williams (1979)5 demonstrated the role of consumer values in

subsequent behavior noting that “actual selections of behavior result from

concrete motivations in specific situations which are partly determined by prior

beliefs and values of the actors”. Homer and Kahle (1988)3 and Erdem et al.

(1999)6 referenced several previous studies on values-behaviors to support the

linkage of values, attitude and behavior, showing that individual value

differences are related to significant differences in a variety of attitudinal and

behavioral outcomes with respect to automobile purchase, mass media

subscription, cigarette smoking, etc.

1.6 Understanding Brand Knowledge

Consumer brand knowledge relates to the cognitive representation of the brand

(Peter and Olson 2001).7 Consumer brand knowledge can be defined in terms of

the personal meaning about a brand stored in consumer memory, that all

descriptive and evaluative brand-related information. Researchers have studied

consumer brand knowledge for decades, with different areas receiving greater

emphasis depending on the dominant research paradigm and thrust the time. For

example, reflecting in part a strong methodological interest in information-

display boards, researchers studying the organization of consumer memory at one

point debated whether brand-knowledge structures were organized by attributes

or by brands, as well as the effects different information-processing factors such

as consumer goals, brand familiarity, and so on.8,9

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The reality that emerges from the varied research activity in branding through the

years is that all different kinds of information may become linked to a brand,

including the following:

1. Awareness—category identification and needs satisfied by the brand.

2. Attributes—descriptive features that characterize the brand name product

either intrinsically (e.g., related to product performance) or extrinsically (e.g.,

related to brand personality or heritage).

3. Benefits—personal value and meaning that consumers attach to the brand’s

product attributes (e.g., functional, symbolic, or experiential consequences from

the brand’s purchase or consumption).

4. Images—visual information, either concrete or abstract in nature.

5. Thoughts—personal cognitive responses to any brand related information.

6. Feelings—personal affective responses to any brand related information.

7. Attitudes—summary judgments and overall evaluations to any brand-related

information.

8. Experiences—purchase and consumption behaviors and any other brand-

related episodes.

Broadly, these different kinds of information can be seen as some of the key

dimensions of brand knowledge. These dimensions of brand knowledge vary on

all sorts of considerations beyond their content, for example, abstractness,

valence, strength, uniqueness, and so on. Importantly, all of these different kinds

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of information may become a part of consumer memory and affect consumer

response to marketing activities. By creating differential consumer responses and

affecting the success of brand building marketing programs, brand knowledge is

the source of brand equity.

These different dimensions of brand knowledge have seen concerted research

efforts through the years, albeit in varying degrees, for understanding their

marketing effects, but these efforts have often been in comparative isolation. An

important future research challenge, however, is to develop holistic perspectives

toward brand knowledge that would encompass the full range of all the different

kinds of information involved, for example, approaches to create and apply

detailed mental maps for brands. An ideal mental map representation would be a

blueprint of brand knowledge, as comprehensive while also as parsimonious as

possible, that would provide the necessary depth and breadth of understanding of

consumer behavior and marketing activity.

Developing broader perspectives toward brand knowledge is important given the

reality (1) that marketing activity creates or affects multiple dimensions of brand

knowledge and (2) that multiple dimensions of brand knowledge, in turn,

influence consumer response to marketing activity. Integrating the different

dimensions of brand knowledge could improve the ability of researchers to model

consumer response and of marketers to focus their marketing programs better.

For example, it may be useful to decompose consumer response to a well-known

and well-liked brand in terms of to what extent the response is being driven by

brand familiarity versus brand likeability. By assembling the different dimensions

of brand knowledge, their comparative effects could be traced and valued to

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address causal questions such as the relative importance of brand personality or

other imagery and brand feelings, which different dimensions of brand

knowledge have to be created to gain the benefits from branding, and so on.

Moreover, different dimensions of brand knowledge are likely to have interactive

effects. For example, strong brand awareness and familiarity may be a

prerequisite for certain types of thoughts, feelings, or attitudes to occur. How do

the different dimensions of brand knowledge function as antecedents to or

consequences with respect to other dimensions? How malleable or changeable are

these different dimensions over time? Holistic approaches are thus needed that

attempt to capture more dimensions of brand knowledge, both methodologically

in terms of tools and models for creating mental maps as well as conceptually and

managerially in terms of recognizing the range of effects in brand knowledge

arising from and influencing marketing activity.

For example, in terms of the former, Janiszewski and Osselaer (2000)10 provide a

demonstration of a connectionist model where consumers are assumed to be

adaptive learners who are “learning to value.” This model is an example of an

approach with potential to contribute to mental mapping. In terms of the latter,

unlike the static nature of mental maps, models that capture the interplay between

brand knowledge and consumer response to marketing activity necessarily will

need to be dynamic, with appropriate updating mechanisms of consumer

memory. One challenge here is the wide range of marketing activity involved and

the potential wide range of dimensions of brand knowledge that may come into

play. The next section considers one particularly important form of marketing

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activity, brand leveraging, and its potentially broad impact on knowledge for the

brand.

A number of theories and processes have been proposed to explain how brand

leveraging effects might be manifested, for example, source credibility, affect

transfer, cognitive consistency, categorization models, and so on. One potentially

fruitful research direction is how the various concepts and mechanisms proposed

in one area might be relevant and provide insight into other areas. For example,

how might source credibility be applied to country-of-origin effects? How are

countries deemed expert, trustworthy, or likable? Such applications could yield

insight as to how broadly the various theories and processes can generalize.

A deeper understanding of how knowledge for a brand and other linked entities

interact is thus of paramount importance. Ideally, to provide comparable insight

and guidance, an abstract model would be developed that encompassed all the

different means of leveraging brand knowledge. Along those lines, three factors

would seem to be particularly important in predicting the extent of leveraging

that might result from linking a brand to another entity in some manner:

1. Knowledge of the entity—the same dimensions identified for brand knowledge

could be applied to these other entities; in this case, what knowledge exists about

the entity and has the potential to transfer to the brand?

2. Meaningfulness of the knowledge of the entity—given that the other entity has

some potentially relevant knowledge, to what extent might this knowledge be

deemed meaningful for a brand?

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3. Transferability of the knowledge of the entity— assuming that some

potentially meaningful knowledge exists for the other entity and could possibly

be transferred to a brand, to what extent will this knowledge actually become

linked to the brand or affect existing knowledge? In other words, the basic

questions with leveraging secondary knowledge of any type of other entity would

seem to be (1) What do consumers know about the other entity? (2) Does any of

this knowledge affect what they think about a brand when it becomes linked to or

associated in some fashion with this other entity? Theoretically, any aspect of

knowledge may be inferred as a result of other entities being linked to the brand,

although some types of entities are inherently more likely to create or affect

certain kinds of brand knowledge than would other types of entities. For example,

events may be especially conducive to the creation of experiences, people may be

especially effective for the elicitation of feelings, other brands may be especially

well suited for establishing particular attributes and benefits, and so on. At the

same time, any one entity may be associated with multiple dimensions of

knowledge, each of which may affect brand knowledge directly or indirectly. For

example, consider the effects on knowledge of linking the brand to a cause.

Identification of the brand with a cause (e.g., Avon’s Breast Cancer Crusade)

could have multiple effects on brand knowledge.

A cause marketing program could build brand awareness via recall and

recognition, enhance brand image in terms of attributes such as user imagery

(e.g., kind and generous) and brand personality (e.g. sincere), evoke brand

feelings (e.g., social approval and self-respect), establish brand attitudes (e.g.,

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credibility judgments such as trustworthy and likable), and create experiences

(e.g., through a sense of community and participation in cause-related activities).

1.7 Soft Drink Industry

Carbonated Drinks; In late 18th century, scientists made important progress in

replicating naturally carbonated mineral water. In 1767, Englishman Joseph

Priestly first discovered a method of infusing water with carbon dioxide to make

carbonated water when he suspended a bowl of distilled water above a beer vat at

a local brewery in Leeds, England. His invention of carbonated water, (also

known as soda water), is the major and defining component of most soft drinks.

Priestley found water thus treated had a pleasant taste, and he offered it to friends

as a refreshing drink. In 1772, Priestley published a paper entitled Impregnating

Water with Fixed Air in which he describes dripping oil of vitriol (or sulfuric

acid as it is now called) onto chalk to produce carbon dioxide gas, and

encouraging the gas to dissolve into an agitated bowl of water.

Another Englishman, John Mervin Nooth, improved Priestley's design and sold

his apparatus for commercial use in pharmacies.

Swedish chemist Torbern Bergman invented a generating apparatus that made

carbonated water from chalk by the use of sulfuric acid. Bergman's apparatus

allowed imitation mineral water to be produced in large amounts. Swedish

chemist Jons Jacob Berzelius started to add flavors (spices, juices and wine) to

carbonated water in the late 18th century.11

24
Soft Drinks; A soft drink (also referred to as soda, pop, soda pop, coke or fizzy

drink) is a drink that typically contains no alcohol, though may contain small

amounts (typically less than 0.5% by volume) and is usually referred to as a

sugary drink. Soft drinks are often carbonated and commonly consumed while

chilled or at room temperature. Some of the most common soft drinks include

cola, flavored water, sparkling water, iced tea, sweet tea, sparkling lemonade (or

other lemon-lime soft drinks), squash, fruit punch, root beer, orange soda, grape

soda, cream soda, and ginger ale.

The term "soft" is employed in opposition to "hard", i.e. drinks with high

alcoholic content by volume. Generally it is also implied that the drink does not

contain milk or other dairy products.

Hot chocolate, hot tea, coffee, tap water, juice, schorle or spritzer and milkshake

also do not fall into this classification. Many carbonated soft drinks are optionally

available in versions sweetened with sugar or with non-caloric sweeteners, such

as diet soda.

History of Soft Drinks; Soft drinks trace their history back to the mineral waters

found in natural springs. Ancient societies believed that bathing in natural springs

and/or drinking mineral waters could cure many diseases.

Early scientists who studied mineral waters included Jabir ibn Hayyan, Alkindus,

Rhazes, Paracelsus, Robert Boyle, Fredrich Hoffmann, Antoine Laurent

Lavoisier, Hermann Boerhaave, William Brownrig, Gabriel F. Venel, Joseph

Black, and David Macbride.

25
The earliest soft drinks were sherbets developed by Arabic chemists and

originally served in the medieval Near East.

"Alkaline Substances", "A kind of Saltwort" from which soda is obtained,

probably from Arabic suwwad, the name of a variety of saltwort exported from

North Africa to Sicily in the Middle Ages, related to sawad "black," the color of

the plant. These were juiced soft drinks made of crushed fruit, herbs, or flowers.12

From around 1265, a popular drink known as Dandelion & Burdock appeared in

England, made from fermented dandelion (Taraxacum officinale) and burdock

(Arctium lappa) roots, and is naturally carbonated. The drink (similar to

sarsaparilla) is still available today, but is made with flavorings and carbonated

water, since the safrole in the original recipe was found to be carcinogenic.

The first marketed soft drinks (non-carbonated) in the Western world appeared in

the 17th century. They were made from water and lemon juice sweetened with

honey.11

In 1676, the Compagnie des Limonadiers of Paris was granted a monopoly for

the sale of lemonade soft drinks. Vendors carried tanks of lemonade on their

backs and dispensed cups of the soft drink to thirsty Parisians.13

Regional Names; The terms used for soft drinks vary widely both by country and

regionally within some countries are mentioned in Table 1.1.

26
 Table 1.1 Terms Used for Soft Drink in Various Countries14

Country Terms

Nooshabeh (Persian),
Afghanistan
Coke refers to all soda not specifically to Coca-Cola

Arab states of the Persian

Bared(Cold), cola
Gulf

Australia soft drinks, fizzy drink, cool drink Some parts of

Africa minerals, pronounced "mina-ral" in some parts

Canada pop, soft drink, (brand name)

Denmark sodavand

India cold drink(s), cool drink(s), soft drinks(formal)

West India Sweet Drinks

Iran Nooshabeh

Coke, cola, phosphate, pop, soda,

United States
soda-pop, soft drink, tonic

United Kingdom Soft drinks, fizzy drinks, pop, coke

Soft Drink Bottling Industry; Over 1,500 U.S. patents were filed for a cork,

cap, or lid for the carbonated drink bottle tops during the early days of the

bottling industry. Carbonated drink bottles are under great pressure from the gas.

Inventors were trying to find the best way to prevent the carbon dioxide or

bubbles from escaping. In 1892, the "Crown Cork Bottle Seal" was patented by

William Painter, a Baltimore machine shop operator. It was the first very

successful method of keeping the bubbles in the bottle.

In 1899, the first patent was issued for a glass-blowing machine for the automatic

production of glass bottles. Earlier glass bottles had all been hand-blown. Four

years later, the new bottle-blowing machine was in operation. It was first

27
operated by the inventor, Michael Owens, an employee of Libby Glass Company.

Within a few years, glass bottle production increased from 1,400 bottles a day to

about 58,000 bottles a day. During the 1920s, the first "Home-Paks" were

invented. "Home-Paks" are the familiar six-pack cartons made from cardboard.

Automatic vending machines also began to appear in the 1920s.15

Soft Drink Production; Soft drinks are made either by mixing dry ingredients

and/or fresh ingredients (e.g. lemons, oranges, etc.) with water. Production of soft

drinks can be done at factories, or at home. Soft drinks can be made at home by

mixing either syrup or dry ingredients with carbonated water. Carbonated water

is made using a home carbonation system or by dropping dry ice into water.

Syrups are commercially sold by companies such as Soda-Club.11

Raw Materials used in Soft Drinks; There are different types of raw materials

used in different soft drinks. Most of the raw materials are as under:

1. Water: The simple sweetened soft drink contains about 90% of water, while in

diet drinks; it contains 95% of water.

2. Flavor: Flavor is of great importance in soft drink. Even water from different

places has different taste. The flavor for taste added can be natural or artificial,

acidic, caffeine.

3. Artificial Flavour: These are the flavors manufactured from natural extracts;

this is used to give greater choice, in taste to consumers.

4. Acids: Acids like citric acid & phosphoric acid are added to give refreshing

tartness or bite & help in preserving the quality of a drink.

28
5. Natural Flavours: These are the flavours, which are extracted from fruits,

vegetables, nuts, barks, leaves etc. in soft drink containing natural flavours &

fruit juice.

6. Caffeine: Caffeine has special kind of taste makes the taste of soft drink a royal

one. Caffeine was added to soft drink from its introduction to a commercial

market but now caffeine free soft drinks are also available. Its quality is ¼ than

compared with same amount of coffee.

7. Carbon Dioxide: Carbon Dioxide is a colorless & smell less gas, which is

added to cold drink to get bubble & it also help in keeping drink strong & fresh.

8. Color: Along with taste of soft drink is also of very important, the company

tries to maintain both taste & color of the soft drink everywhere in the world.

9. Sugar: Sugar syrup is added to the drink at around 75 degree C0 to the pure

drinking water, this is to make soft drink taste sweet. Even artificial sweetness is

also used.

Formula of Natural Flavorings; The exact formula of Coca-Cola's natural

flavorings (but not its other ingredients which are listed on the side of the bottle

or can) is a trade secret. The original copy of the formula is held in SunTrust

Bank's main vault in Atlanta. Its predecessor, the Trust Company, was the

underwriter for the Coca-Cola Company's initial public offering in 1919. A

popular myth states that only two executives have access to the formula, with

each executive having only half the formula. The truth is that while Coca-Cola

does have a rule restricting access to only two executives, each knows the entire

29
formula and others, in addition to the prescribed duo, have known the

formulation process.11

Distributions of Soft Drinks; The soft drinks can be distributed on the basis of

two concepts.

Distribution according to taste: The soft drinks can be distributed in Cola & non

– cola taste. Non cola taste consist of drink of orange, lime, mango etc. & lime

taste can further divided in to cloudy lime & clear lime. Orange taste market is

occupied by brands like Fanta, Mirinda Orange & Crush. Mango taste market is

occupied by brands like Slice, Maaza and Mangola. Cloudy lime taste is occupied

by brands like Limca, Mirinda Lime etc. Clear lime taste is occupied by 7 UP,

Sprite, Canada Dry etc. This is basically produced in green bottle as sunlight

spoils the taste of the drinks; its colour is transparent like water.

Distribution according to the consumption: 80% of soft drinks are consumed on

the spot, where it is sold at place like cinemas, railway stations etc. Other 20% of

the market of soft drink is consumed at home or other places.

Soft Drink Industry Analysis; Barbara Murray (2006)16 explained the soft drink

industry by stating, “For years the story in the nonalcoholic sector centered on the

power struggle between Coke and Pepsi. But as the pop fight has topped out, the

industry's giants have begun relying on new product flavors and looking to

noncarbonated beverages for growth.” In order to fully understand the soft drink

industry, the following should be considered: the dominant economic factors, five

competitive sources, industry trends, and the industry’s key factors. Based on the

30
analyses of the industry, specific recommendations for competitors can then be

created.

Dominant Economic Factors; Market size, growth rate and overall profitability

are three economic indicators that can be used to evaluate the soft drink industry.

The market size of this industry has been changing. Soft drink consumption has a

market share of 46.8% within the non-alcoholic drink industry (Table 1.2).

Datamonitor (2005)17 also found that the total market value of soft drinks reached

$307.2 billion in 2004 with a market value forecast of $367.1 billion in 2009.

Further, the 2004 soft drink volume was 325,367.2 million liters (Table 1.3).

Clearly, the soft drink industry is lucrative with a potential for high profits, but

there are several obstacles to overcome in order to capture the market share.

Table 1.2 Global Soft drinks Market Segmentation I - 2004

Global Soft drinks Market Segmentation I: % Share, by value, 2004

Category % Share
Carbonates 46.80%
Bottled water 18.40%
Juices 14.90%
RTD tea & coffee 8.50%
Functional drinks 7.60%
Concentrates 3.90%
Total 100.0%
Source: Datamonitor17

31
 Table 1.3 Global Soft Drink Market Volume, 2000-2004

Global Soft Drink Market Volume: Liter million, 2000-2004

Year Liters million % Growth

2000 284,971.7
2001 296,389.3 4.00%
2002 305,486.1 3.10%
2003 316,032.3 3.50%
2004 325,367.2 3.00%
CAGR, 2000-2004 3.4%
Source: Datamonitor17

The growth rate has been recently criticized due to the U.S. market saturation of

soft drinks. Datamonitor (2005) stated, “Looking ahead, despite solid growth in

consumption, the global soft drinks market is expected to slightly decelerate,

reflecting stagnation of market prices.” The change is attributed to the other

growing sectors of the non-alcoholic industry including tea and coffee 11.8% and

bottled water 9.3%. Sports drinks and energy drinks are also expected to increase

in growth as competitors start adopting new product lines.

Profitability in the soft drink industry will remain rather solid, but market

saturation especially in the U.S. has caused analysts to suspect a slight

deceleration of growth in the industry (2005). Because of this, soft drink leaders

are establishing themselves in alternative markets such as the snack, confections,

bottled water, and sports drinks industries (Barbara Murray, 2006). In order for

soft drink companies to continue to grow and increase profits they will need to

diversify their product offerings.

32
The geographic scope of the competitive rivalry explains some of the economic

features found in the soft drink industry. According to Barbara Murray (2006),

“The sector is dominated by three major players; Coca-Cola is king of the soft

drink-empire and boasts a global market share of around 50%, followed by

PepsiCo at about 21%, and Cadbury Schweppes at 7%.” Aside from these major

players, smaller companies such as Cott Corporation and National Beverage

Company make up the remaining market share. All five of these companies make

a portion of their profits outside of the United States. Table 1.4 shows that the US

does not hold the highest percentage of the global market share, therefore

companies need to be able to compete globally in order to be successful.

Table 1.5 indicates that Coca-Cola has a similar distribution of sales in Europe,

North America, and Asia. On the other hand, the majority of PepsiCo’s profits

come from the United States (Table 1.6).

Table 1.4 Global Soft drink Market Segmentation II: % Share - 2004

Global Soft drink Market Segmentation II: % Share, by Value, 2004

Geography % Share

Europe 37.10%
US 30.90%
Asia-Pacific 19.80%
Rest of the World 12.30%
Total 100.0%
Source: Datamonitor17

33
 Table 1.5 Coca-Cola Sales - 2004

Coca-Cola Sales - 2004

Geographic Segments $ mil. % of total

Europe/ Eurasia/ Middle East 7,195 33%

North America 6,643 30%
Asia 4,691 21%
Latin America 2,123 10%
Africa 1,067 5%
Corporate 243 1%
Total 21,962 100%
Data Source: Murray, Barbara. (2006).16

Table 1.6 Pepsi Co. Sales - 2004

Pepsi Co. Sales - 2004

Geographic Segments $ mil. % of total
US 18,329 63%
Mexico 2,724 9%
UK 1,692 6%
Canada 1,309 4%
Other countries 5,207 18%
Total 29,261 100%
Data Source: Murray, Barbara. (2006)16

The saturation of the US markets has increased the global expansion by soft drink

leaders to increase their profits. The ease of entry and exit does not cause

competitive pressure on the major soft drink companies. It would be very difficult

for a new company to enter this industry because they would not be able to

34
compete with the established brand names, distribution channels, and high capital

investment. Likewise, leaving this industry would be difficult with the significant

loss of money from the fixed costs, binding contracts with distribution channels,

and advertisements used to create the strong brand images. This industry is well

established already, and it would be difficult for any company to enter or exit

successfully.16

According to the Coca- Cola annual report (2004), it has the most soft drink sales

with $22 billion.18 The Coca-Cola product line has several popular soft drinks

including Coca-Cola, Diet Coke, Fanta, Barq’s, and Sprite, selling over 400 drink

brands in about 200 nations (Murray 2006).16 PepsiCo is the next top competitor

with soft drink sales grossing $18 billion for the two beverage subsidiaries,

PepsiCo Beverages North America and PepsiCo International (PepsiCo Inc.,

2004). PepsiCo’s soft drink product line includes Pepsi, Mountain Dew, and Slice

which make up more than one-quarter of its sales. Cadbury Schweppes had soft

drink sales of $6 billion with a product line consisting of soft drinks such as

A&W Root Beer, Canada Dry, and Dr. Pepper.

Financial Analysis; The carbonated beverage industry is a highly competitive

global industry as illustrated in the financial statements. According to John Sicher

of Beverage Digest (2005), Coca-Cola was the number one brand with around 4.5

billion cases sold in 2004. Pepsi followed with 3.2 billion cases, and Cadbury had

1.5 billion cases sold. However, the market share shows a different picture. Coca-

Cola and PepsiCo control the market share with Coca-Cola holding 43.1% and

Pepsi with 31.7%; however these market shares for both Coca-Cola and PepsiCo

have slightly decreased from 2003 to 2004. Coca-Cola’s volume has also

35
decreased 1.0% since 2003, whereas PepsiCo’s volume has increased 0.4%. Diet

Coke posted a 5% growth, but Coca-Cola’s other top 10 brands declined (Sicher,

2005). Overall, Coca-Cola’s market position has declined in 2004.19

The American Beverage Association (2006) states that in 2004, the retail sales for

the entire soft-drink industry were $65.9 billion.20 Barbara Murray (2006)

analyzed the industry averages for 2004 and average net profit margin was

11.29%. The current ratio average was 1.11 and the quick ratio average was 0.8.

These figures help analyze the financial statements of the major corporations in

the industry. Coca-Cola has seen their net profit margin increase from 20.7% to

22.1% from 2003 to 2004. According to Coca-Cola’s annual report (2004), 80%

of their sales are from soft drinks; therefore the total sales amount was used for

their financial analysis. These figures show that their profits are increasing, but at

a slow rate. This is in line with what is happening in the soft drink industry. The

market is highly competitive and growth has remained at a stable level. The slight

increase in Coca-Cola’s profit margin is most likely from their new energy drink

product line. This industry is currently expanding rapidly, and is allowing the

major beverage companies to increase their profits.18

According to Coca Cola annual report, Coca-Cola’s working capital was around

$1.1 billion in 2004. This is a large increase from 2003 at only $500 million. This

shows that they have sufficient funds to pursue new opportunities. However, their

current ratio and quick ratio are a cause for concern. A current ratio of 2 or better

is considered good and Coca-Cola’s was 1.102. This number shows that they may

not have enough funds to cover short term claims. The quick ratio for 2004 was

at 0.906 and is considered good when it is greater than 1. This illustrates that

36
Coca-Cola may not have the ability to pay short term debt without selling

inventory. These two numbers are a concern because they are not able to satisfy

their short term obligations. The current and quick ratios are in line with the

industry averages, however (Murray, 2006), Coca-Cola needs to improve these

ratios in order focus on long-term plans (Coca-Cola Company, 2004). PepsiCo’s

financial statements cannot be analyzed for only the soft drinks industry because

they do not distinguish between businesses. Over half their profits are from

snacks or other beverage items; however there are sales and profit figures for

their two beverage subsidiaries.16 These sales figures grew from almost $16.5

billion in 2003 to $18 billion in 2004 (Pepsi Co. Inc., 2004). Their operating

profit margin also increased 1% from 2003 to 2004. This shows that beverage

profits are increasing for them, but also at a slow rate. The increase could be due

to the increase in market share that the Pepsi products gained in 2004 (Sicher

2004). The PepsiCo. Annual Report (2004) stated that beverage volume increased

3% in 2004, but was driven by the high growth of the non-carbonated beverage

industry.21

Overall, the financial statements of the two top competitors in the soft drink

industry show that the industry is highly competitive and has little growth. Net

profit margins increased for both corporations, however only at a small rate. It

also seems that both companies lack sufficient current and quick ratios, but

within a reasonable range of the industry average. This may be due to expanding

their product lines to include energy drinks and non-carbonated beverages in

order to increase profits and diversify their business. The soft drinks market is

now in the matured stage of the life cycle. Growth in the industry has remained

37
stagnant, and the financial statements of the major corporations in the industry

illustrate that their sales and income are following this trend. The companies are

in good financial positions; gross profits and net profit margins are continuing to

increase each year. The leverage and activity ratios are all within reasonable

range. However, one area both corporations need to improve on is the liquidity

ratios. Their quick and current ratios are low and need to be increased so they are

able to meet short-term obligations.

Profitability of Soft Drink Industry; An industry analysis through Porter’s Five

Forces reveals that market forces are favorable for profitability.

Defining the industry: Both concentrate producers (CP) and bottlers are

profitable. These two parts of the industry are extremely interdependent, sharing

costs in procurement, production, marketing and distribution. Many of their

functions overlap; for instance, CPs do some bottling, and bottlers conduct many

promotional activities. The industry is already vertically integrated to some

extent. They also deal with similar suppliers and buyers. Entry into the industry

would involve developing operations in either or both disciplines. Beverage

substitutes would threaten both CPs and their associated bottlers. Because of

operational overlap and similarities in their market environment, both CPs and

bottlers could be defined as soft drink industry. In 1993, CPs earned 29% pretax

profits on their sales, while bottlers earned 9% profits on their sales, for a total

industry profitability of 14%. This industry as a whole generates positive

economic profits.

38
Rivalry: Revenues are extremely concentrated in this industry, with Coke and

Pepsi, together with their associated bottlers, commanding 73% of the case

market in 1994. Adding in the next tier of soft drink companies, the top six

controlled 89% of the market. In fact, one could characterize the soft drink

market as an oligopoly, or even a duopoly between Coke and Pepsi, resulting in

positive economic profits. To be sure, there was tough competition between

Coke and Pepsi for market share, and this occasionally hampered profitability.

For example, price wars resulted in weak brand loyalty and eroded margins for

both companies in the 1980s. The Pepsi Challenge, meanwhile, affected market

share without hampering per case profitability, as Pepsi was able to compete on

attributes other than price.

Substitutes: Through the early 1960s, soft drinks were synonymous with “colas”

in the mind of consumers. Over time, however, other beverages, from bottled

water to teas, became more popular, especially in the 1980s and 1990s. Coke and

Pepsi responded by expanding their offerings, through alliances (e.g. Coke and

Nestea), acquisitions (e.g. Coke and Minute Maid), and internal product

innovation (e.g. Pepsi creating Orange Slice), capturing the value of increasingly

popular substitutes internally. Proliferation in the number of brands did threaten

the profitability of bottlers through 1986, as they more frequent line set-ups,

increased capital investment, and development of special management skills for

more complex manufacturing operations and distribution. Bottlers were able to

overcome these operational challenges through consolidation to achieve

economies of scale. Overall, because of the CPs efforts in diversification,

however, substitutes became less of a threat.

39
Power of Suppliers: The inputs for Coke and Pepsi’s products were primarily

sugar and packaging. Sugar could be purchased from many sources on the open

market, and if sugar became too expensive, the firms could easily switch to corn

syrup, as they did in the early 1980s. So suppliers of nutritive sweeteners did not

have much bargaining power against Coke, Pepsi, or their bottlers. NutraSweet,

meanwhile, had recently come off patent in 1992, and the soft drink industry

gained another supplier, Holland Sweetener, which reduced Searle’s bargaining

power and lowering the price of aspartame.

With an abundant supply of inexpensive aluminum in the early 1990s and several

can companies competing for contracts with bottlers, can suppliers had very little

supplier power. Furthermore, Coke and Pepsi effectively further reduced the

supplier of can makers by negotiating on behalf of their bottlers, thereby reducing

the number of major contracts available to two. With more than two companies

vying for these contracts, Coke and Pepsi were able to negotiate extremely

favorable agreements. In the plastic bottle business, again there were more

suppliers than major contracts, so direct negotiation by the CPs was again

effective at reducing supplier power.

Power of buyers: The soft drink industry sold to consumers through five principal

channels: food stores, convenience and gas, fountain, vending, and mass

merchandisers.

Supermarkets, the principal customer for soft drink makers, were a highly

fragmented industry. The stores counted on soft drinks to generate consumer

traffic, so they needed Coke and Pepsi products. But due to their tremendous

40
degree of fragmentation (the biggest chain made up 6% of food retail sales, and

the largest chains controlled up to 25% of a region), these stores did not have

much bargaining power. Their only power was control over premium shelf space,

which could be allocated to Coke or Pepsi products. This power did give them

some control over soft drink profitability. Furthermore, consumers expected to

pay less through this channel, so prices were lower, resulting in somewhat lower

profitability.

National mass merchandising chains such as Wal-Mart, on the other hand, had

much more bargaining power. While these stores did carry both Coke and Pepsi

products, they could negotiate more effectively due to their scale and the

magnitude of their contracts. For this reason, the mass merchandiser channel was

relatively less profitable for soft drink makers.

The least profitable channel for soft drinks, however, was fountain sales.

Profitability at these locations was so abysmal for Coke and Pepsi that they

considered this channel “paid sampling.” This was because buyers at major fast

food chains only needed to stock the products of one manufacturer, so they could

negotiate for optimal pricing. Coke and Pepsi found these channels important,

however, as an avenue to build brand recognition and loyalty, so they invested in

the fountain equipment and cups that were used to serve their products at these

outlets. As a result, while Coke and Pepsi gained only 5% margins, fast food

chains made 75% gross margin on fountain drinks.

Vending, meanwhile, was the most profitable channel for the soft drink industry.

Essentially there were no buyers to bargain with at these locations, where Coke

41
and Pepsi bottlers could sell directly to consumers through machines owned by

bottlers. Property owners were paid a sales commission on Coke and Pepsi

products sold through machines on their property, so their incentives were

properly aligned with those of the soft drink makers, and prices remained high.

The customer in this case was the consumer, who was generally limited on thirst

quenching alternatives.

The final channel to consider is convenience stores and gas stations. If Mobil or

Seven-Eleven were to negotiate on behalf of its stations, it would be able to exert

significant buyer power in transactions with Coke and Pepsi. Apparently,

though, this was not the nature of the relationship between soft drink producers

and this channel, where bottlers’ profits were relatively high, at $0.40 per case, in

1993. With this high profitability, it seems likely that Coke and Pepsi bottlers

negotiated directly with convenience store and gas station owners.

So the only buyers with dominant power were fast food outlets. Although these

outlets captured most of the soft drink profitability in their channel, they

accounted for less than 20% of total soft drink sales. Through other markets,

however, the industry enjoyed substantial profitability because of limited buyer

power.

Barriers to Entry: It would be nearly impossible for either a new CP or a new

bottler to enter the industry. New CPs would need to overcome the tremendous

marketing muscle and market presence of Coke, Pepsi, and a few others, who had

established brand names that were as much as a century old. Through their DSD

practices, these companies had intimate relationships with their retail channels

42
and would be able to defend their positions effectively through discounting or

other tactics. So, although the CP industry is not very capital intensive, other

barriers would prevent entry. Entering bottling, meanwhile, would require

substantial capital investment, which would deter entry. Further complicating

entry into this market, existing bottlers had exclusive territories in which to

distribute their products. Regulatory approval of intrabrand exclusive territories,

via the Soft Drink Interbrand Competition Act of 1980, ratified this strategy,

making it impossible for new bottlers to get started in any region where an

existing bottler operated.

In conclusion, an industry analysis by Porter’s Five Forces reveals that the soft

drink industry in 1994 was favorable for positive economic profitability, as

evidenced in companies’ financial outcomes.

In some ways, the economics of the concentrate business and the bottling

business should be inextricably linked. The CPs negotiates on behalf of their

suppliers, and they are ultimately dependent on the same customers. Even in the

case of materials, such as aspartame which are incorporated directly into

concentrates, CPs pass along any negotiated savings directly to their bottlers. Yet

the industries are quite different in terms of profitability.

The fundamental difference between CPs and bottlers is added value. The biggest

source of added value for CPs is their proprietary, branded products. Coke has

protected its recipe for over a hundred years as a trade secret, and has gone to

great lengths to prevent others from learning its cola formula. The company even

left a billion-person market (India) to avoid revealing this information. As a result

43
of extended histories and successful advertising efforts, Coke and Pepsi are

respected household names, giving their products an aura of value that cannot be

easily replicated. Also hard to replicate are Coke and Pepsi’s sophisticated

strategic and operational management practices, another source of added value.

Bottlers have significantly less added value. Unlike their CP counterparts, they

do not have branded products or unique formulas. Their added value stems from

their relationships with CPs and with their customers. They have repeatedly

negotiated contracts with their customers, with whom they work on an ongoing

basis, and whose idiosyncratic needs are familiar to them. Through long-term, in

depth relationships with their customers, they are able to serve customers

effectively. Through DSD programs, they lower their customers’ costs, making it

possible for their customers to purchase and sell more products. In this way,

bottlers are able to grow the pie of the soft drink market. Their other source of

profitability is their contract relationships with CPs, which grant them exclusive

territories and share some cost savings. Exclusive territories prevent intrabrand

competition, creating oligopolies at the bottler level, which reduce rivalry and

allow profits.

Between 1986 and 1993, the differences in added value between CPs and bottlers

resulted in a major shift in profitability within the industry. While industry

profitability increased by 11%, CP profits rose by 130% on a per case basis, from

$0.10 to $0.23. During this period, bottler profits actually dropped on a per case

basis by 23%, from $0.35 to 0.27.

44
One possibility is that product line expansion in defense against new age

beverages helped CPs but hurt bottlers. This would be expected if bottler’s per

case costs increased due to the operational challenges and capital costs of

producing and distributing broader product lines. This, however, was not the

case; cost of sales per case decreased for both CPs and bottlers by 27% during

this period, mostly due to economies of scale developed through consolidation.

The real difference between the fortunes of CPs and bottlers through this period,

then, is in top line revenues. While CPs were able to charge more for their

products, bottlers faced price pressure, resulting in lower revenues per case.

These per case revenue changes occurred during a period of slowing growth in

the industry. Growth in per capita consumption of soft drinks slowed to a 1.2%

CAGR in the period 1989 to 1993, while case volume growth tapered to 2.3%.

In a struggle to secure limited shelf space with more products and slower overall

growth, bottlers were probably forced to give up more margins on their products.

CPs, meanwhile, could continue increasing the prices for their concentrates with

the consumer price index.

Coke had negotiated this flexibility into its Master Bottling Contact in 1986, and

Pepsi had worked price increases based on the CPI into its bottling contracts. So,

while the bottlers faced increasing price pressure in a slowing market, CPs could

continue raising their prices. Despite improvements in per case costs, bottlers

could not improve their profitability as a percent of total sales. As a result,

through the period of 1986 to 1993, bottlers did not gain any of the profitability

gains enjoyed by CPs.

45
Industry Changes; The soft drink industry is affected by macro environmental

factors of the industry that will lead to change. First, the entry/exit of major firms

is a trend in the industry that will likely lead to change. More specifically, merger

and consolidation has been prevalent in the soft drinks market, causing some

firms to exit the industry and then re-enter themselves. Several leading

companies have been looking to drive revenue growth and improve market share

through the increased economies of scale found through mergers and

acquisitions. One specific example is how PepsiCo acquired Quaker Oats, who

bought Gatorade which will help expand PepsiCo’s energy drink sector

(Datamonitor, 2005)17. This trend has increased competition as firms’

diversification of products is increasing.

A second trend in the macro environment is globalization. With the growing use

of the internet and other electronic technologies, global communication is rapidly

increasing. This is 10 allowing firms to collaborate within the country market and

expand into world markets. It has driven competition greatly as companies strive

to be first-movers. Specifically, the global soft drink market’s compound annual

growth rate (CAGR) is expected to expand to 3.6% from 2004 to 2009

(Datamonitor, 2005).17

Third, changing societal concerns, attitudes, and lifestyles are important trends.

In the United States and Europe, people are becoming more concerned with a

healthy lifestyle. “Consumer awareness of health problems arising from obesity

and inactive lifestyles represent a serious risk to the carbonated drinks sector”.

The trend is causing the industry’s business environment to change, as firms are

differentiating their products in order to increase sales in a stagnant market. Thus,

46
the long-term industry growth rate, the fourth trend, shows low growth in recent

years. Since 2000, the CAGR is 1.5 per cent. The low growth rates are of concern

for soft drink companies, and several are creating new strategies to combat the

low rates.17

This leads to the fifth trend of growing buyer preferences for differentiated

products. Because soft drinks have been around since as early as 1798 (American

Beverage Association), buyers want innovation with the products they buy.20 In

today’s globalizing society, being plain is not good enough. According to Barbara

Murray (2006), “The key for all of these beverage companies is differentiation.

The giants have new formulations and appearances. Whatever the strategy, be it a

new color, flavor, or formula, companies will strive to create the greatest brand

awareness in the minds of the consumer in the hopes of crowding out its

competitors.” Thus, the last trend, product innovation, is necessary to combat

buyers need for a variety of tastes. Firms are already differentiating by taste, with

the Coca-Cola Company as an example. The firm’s product line includes regular

Coca-Cola, Diet Coke, Diet cherry Coke, cherry Coke, Vanilla Coke, Coca-Cola

with Lime, Coca-Cola with lemon and many more.16

1.8 Soft Drinks and Consumer Behavior

Cola is a soft drink product which can be seen as a product to reduce the need of

thirst. However, thirst could also be reduced by drinking water or another soft

drink, so the consumption of cola to satisfy the need thirst is better described as a

want. The choice of drinking cola when one is thirsty depends on a consumer's

cultural environment, his learning experiences and his history. For example, in

47
western countries it is quite normal to drink cola when you are thirsty, while in

developing countries people will satisfy this need with water. Based on what is

learned and what the cultural conditions are, people will or will not drink cola.

Therefore cola is a want instead of a need. People do not need cola, they want it.

Soft drink satisfies in the first place a utilitarian need, namely it takes away the

thirst of a consumer. But cola can also be seen as to satisfy a hedonic need.

Consumers who drink cola can experience a refreshing moment, which is more

an emotional response. This satisfaction of a hedonic need can particular be seen

in the commercials of soft drink producers, who often show the consumption of

soft drink as a refreshing and fun experience.

So consumers' motivation to buy soft drink depends on how strong they feel

about satisfying the needs and wants described before. This will depend largely

on their culture and how they are raised. Also, the consumption of soft drink can

cause an approach-avoidance conflict. Although it takes away your thirst and can

give you a refreshing moment, it also contains a lot of sugar which is not good for

health. Therefore some people can be less motivated to buy cola. Because soft

drink satisfies in the first place a utilitarian need, it is assumed that consumers are

not very involved when they buy soft drink. Especially in western countries,

where soft drink is more of an everyday product, people purchase soft drinks

based on inertia, or in other words habit. Research has even proven that when

consumers do not see the brand they are drinking, they do not taste any

difference. It seems that the choice of soft drink brand depends on how the

different soft drink producers position their product in a consumer's mind.

48
The two leading brands in the soft drink market both have successful marketing

strategies that distinguish them from the uniform quality. Pepsi and Coca-Cola

have spent a lot of money on advertisements to enhance consumer awareness and

motivation. The packaging of both, are appealing and outstanding by the vivid

color and designed shape. Celebrities are invited to boost brand awareness.

Sensational memories like music are implemented as well. The multilevel

marketing strategies both companies use, give them a strong establishment in the

western market.

Coca-Cola Company and PepsiCo Inc. are very successful and dominate the cola

as well as other soft drink markets. For the product category cola, Coca-Cola and

Pepsi are perfect substitutes without noticeable taste difference; however, the two

products are not substitutes for most of the people. Cola as a drink is a low

involvement product, but marketers for both Coca-Cola and Pepsi have tried to

increase consumers' involvements throughout various advertisement campaigns

and sponsoring various events. Taking a good look at their marketing actions and

the consumer reactions to it will provide important information regarding the cola

products.

Needs and Wants: Coca-Cola and Pepsi appeal to different people, because they

satisfy different needs and wants of the consumers. Of course, both satisfy the

physiological, utilitarian need thirst, but marketers of both companies have tried

to make cola a product that also satisfies higher level needs such as hedonic

needs, ego needs and self-actualization. They try to make consumers believe that

drinking their product involves a refreshing, exiting experience in a way that is

only satisfied with their product. For example in Coca-Cola commercials, people

49
who drink Coca-Cola are seen as “being cool”. Pepsi tries to reach consumers by

stressing out the relaxing experience of drinking Pepsi.

Motivation and Involvement: The motivation of people to buy cola depends on

how strong they feel about satisfying their needs and wants. This also has

influence on their involvement with the product. Both Coca-Cola and Pepsi have

strong campaigns to increase the motivation and involvement with their product.

The Coca-Cola Company held a “Fire-passing” activity to pass the fire of the

Olympic Games, in preparation of the Beijing 2008 Olympic Games. Not only

can this raise the brand awareness of Coca-Cola in the new market of China, it

can also enhance the involvement of consumer from a low one to a high one,

making them to feel like Coca-Cola being a part of their lives. This will increase

their motivation to buy Coca-Cola. Apart from appealing to music fans, Pepsi has

been one of the sponsors for the Super bowl for years. It associates Pepsi with

this sport event and makes Pepsi appeal to the football fans. In one of the

advertisement, Pepsi's vending machine is playing on the field during the Super

bowl. This gives Pepsi the character of a good football player and creates the

image that when being a football fan, Pepsi is the choice. Both Pepsi and Coca-

Cola have spent a lot of money on advertisements, these shape the perception of

consumers towards the brands. At the same time, the advertisement campaigns

raise consumers' awareness of what the two brands provide, rather than the actual

products. These campaigns first increase consumers' motivation to buy the

products and hence, increase consumers' involvement with the products.

Attract Attention: In an oligopolistic market such as the cola market, in which the

two main competitors offer similar products, it is very important to attract the

50
attention of consumers in order to make them buy their product. Both Coca-Cola

and PepsiCo Inc use good techniques to ensure their products are noticed. Coca-

Cola and Pepsi use bright and vivid colors for their packaging and their logos to

attract the attention of consumers. Through the enormous exposure of these logos

to consumers, people recognize these logos and associate these colors with these

brands. For Coca-Cola this is the color red and for Pepsi the color blue. This

association makes sure their products are stored in the long term memory of

consumers. Pepsi and Coca-Cola both use famous people to attract the attention

of consumers. Think for example of Beyonce, Britney Speares and Christina

Aguilera who have participated in commercials of Coca-Cola and Pepsi. By

showing that these famous people drink their product and are willing to

recommend it, they hope to persuade people to buy their product. Also, they

offered saving campaigns, where consumers could get points when they bought

their products. These campaigns caused repeated purchases of the same brand and

hopefully created brand loyalty.

Memory: In order to create brand awareness and loyalty, it is very important for a

company to make sure that their product is stored in the long term memory of

consumers. Coca-Cola and Pepsi use effective techniques to achieve successful

long term memory storage. Coca-Cola uses a lot of jingles and songs in their

commercials. Through the use of classical conditioning they try to link their

product with these jingles and songs. Every time the consumers hear this song on

TV or the radio they remember Coca-Cola. This is a very smart but also cheap

way of advertising, because the classical conditioning will evoke a though of

Coca-Cola even when this is not even the intention and through this repetition the

51
product is stored in the long term memory of consumers. Both Pepsi and Coca-

Cola expose consumers a lot to their brands. Through sponsoring of big events

and organizing very intensive campaigns, they repeatedly create awareness of

their products. This way their products are put in the long term memories of

consumers.

Persuasion: In order to increase sales, Coca-Cola and Pepsi use different

techniques to persuade people to buy their product. By making light variants of

their products and associating their brands with sport activities, Coca-Cola and

Pepsi try to take away the approach-avoidance conflict people can have towards

their products. They try to decrease the unhealthy aspect of their products. This

way they hope to persuade more people to buy their products. Especially Coca-

Cola makes use of vicarious reinforcement. It shows happy and laughing people

in their advertisements when they drink Coca-Cola. These people serve as models

for consumers. If consumers perceive the models' happy and fun moment as

being caused by Coca-Cola, they are motivated to buy Coca-Cola too. This way

Coca-Cola tries to persuade people to buy their product.

Cultures and Subcultures: Coca-Cola and Pepsi try to appeal to different

subcultures by stressing out different values. The values that Coca-Cola wants to

stress are family, friendship, happiness, exercise, and being cool. Their product

appeals therefore to a broad range of people. It is a product for everyone, every

time, everywhere. For Pepsi these values are enjoyment, relaxing and energy.

Pepsi appeals more to young, active and sportive people. Although these values

are somewhat different, they are all western values, so will appeal more to

western cultures. To also reach consumers in non-western cultures and countries,

52
both companies make different advertisements campaigns for these regions.

Failure to cope with the local cultures might lead to negative associations with a

product. For example, there are large billboards of Coca-Cola in the Mainland

China. People in China are used to large billboard with slogans on new

government policies. Since many of those policies have proven to be a wrong

step in the country's development (e.g. the “Big Steel Refining Campaign”, which

turned out to be a mass production of scrap metal), the credibility of such

billboards is very low from Chinese people's point of view. Therefore, the aim to

raise the brand awareness in this new market is not achieved. Instead, this gives a

negative image of the Coca-Cola Company.

1.9 Soft Drink Brands

According to energyfiend.com, top ten soft drink brands in global market are:

1. Coca-cola Classic (Coca Cola)

2. Pepsi-cola (PepsiCo)

3. Diet Coke (Coca Cola)

4. Mountain Dew (PepsiCo)

5. Diet Pepsi (PepsiCo)

6. Dr Pepper (Cadbury-Schweppes)

7. Sprite (Coca Cola)

8. Fanta (Coca Cola)

9. Caffeine-Free Diet Coke (Coca Cola)

10. Diet Mountain Dew (PepsiCo)

53
1.10 Soft Drinks in India

The soft drinks industry continued on its path to recovery from the low growth

seen between 2005 and 2006, with higher volume growth in 2008 than that seen

in 2007. The mature sectors of bottled water, fruit/vegetable juice and carbonates

saw a dynamic year, with companies refreshing their products’ brand image and

packaging to attract new consumers. Emerging product categories, such as energy

drinks and reconstituted 100% juice, saw high double-digit growth rates, as

companies increased their products’ penetration in India. Off-trade volume

growth was slightly higher than on-trade volume growth, as convenient on-the-go

packaging, company sponsored chillers in kiranas and attractive supermarket

displays fuelled off-trade sales across the market (Euromonitor International).22

Modern retailing thrives alongside kiranas; With companies increasing their

spend on below-the-line marketing activities, the ubiquitous kiranas were the

beneficiaries of efforts such as branded glass door refrigerators, regional

language banners and displays and the roll-out of on-the-go packaging for

carbonates and juice drinks. Supermarkets, which are still something of a novelty

in many small cities, continued to attract a combination of regular grocery

shoppers and young impulse buyers.

Consumption of Soft Drink in India; India is one of the lowest soft drink

consuming countries in the world. According to per capita in India is around 6

bottles per year, while highest consumption in USA of 800 bottles per year.

Lower, Lower middle & upper middle class consume 91% of soft drink market.

54
Soft Drinks Market in India; India is one of the top five markets in terms of

growth of the soft drinks market. The per capita consumption of soft drinks in the

country was around 6 bottles per annum in the year 2003. It is very low compared

to the corresponding figures in US. But being one of the fastest growing markets

and by the sheer volumes, India is a promising market for soft drinks.

The major players in the soft drinks market in India are PepsiCo and Coca-Cola

Co, like elsewhere in the world. Coca-Cola acquired a number of local brands

like Limca, Gold Spot and Thums Up when it entered Indian market for the

second time. Pepsi Co’s soft drink portfolio also consists of Miranda and 7Up

along with Pepsi. The market share of each of the company is more or less the

same, though there is a conflict in the estimates quoted by different sources. The

compound annual growth rate in India is estimated to be 5.4% in 2013(Table

1.7).

Table 1.7 Soft drink market overview in India

Source: Gobi International, 2010

As it is shown in the Graph 1.1, the Indian market forecast growth index is higher

than the South Asian forecast growth index which indicates that India is a very

important market in South Asia.

55
 Gragh 1.1 Forecast Growth Index of India Compared to South Asia

Source: Gobi International, 2010

According to Graph 1.2, the Indian market forecast growth index is much faster

than the World forecast growth index which indicates that India is one of the

most important markets in the world.

Graph 1.2 Forecast Growth Index of India Compared to the World

Source: Gobi International, 2010

56
Consumption Patterns in India; In Tier 1, 2 and 3 cities in India, 29% of Indian

consumers report consuming carbonated beverages/soft drinks during a fixed

time of the day suggesting consumption has become a routine part of their day,

with most consumption taking place during the 'afternoon to evening' time period.

Not surprisingly, consumption is highest in Tier I cities such as Mumbai, Delhi,

Kolkata, Chennai, Hyderabad and Bangalore. The level of consumption is seen to

increase with rising household incomes (with the exception of the highest income

level) while decreasing with age.

The Indian soft drinks market is not under any regulation. Prevention of Food

adulteration act 1954 does not include soft drinks. None of the BIS standards that

existed before August 2003 had any guidelines or set criteria for the residue

levels of pesticides in the soft drinks. But different lie agencies have set standards

for the residue levels of pesticides. The European Economic Community (EEC)

sets the maximum admissible concentration of individual pesticides and related

products in drinking water at 0.1 parts per billion to ensure that the toxicity is not

dangerous to human beings. For a few pesticides like aldrin, dieldin and

heptachlor epoxide the admissible limit is even more stringent, i.e., 0.03 parts per

billion.

The Indian Beverage Market; India’s one billion people, growing middle class,

and low per capita consumption of soft drinks made it a highly contested prize in

the global CSD market in the early twenty-first century. Ten percent of the

country’s population lived in urban areas or large cities and drank ten bottles of

soda per year while the vast remainder lived in rural areas, villages, and small

towns where annual per capita consumption was less than four bottles. Coke and

57
Pepsi dominated the market and together had a consolidated market share above

95%. While soft drinks were once considered products only for the affluent, by

2003 91% of sales were made to the lower, middle and upper middle classes. Soft

drink sales in India grew 76% between 1998 and 2002, from 5,670 million bottles

to over 10,000 million (Table 1.8) and were expected to grow at least 10% per

year through 2012.

Table 1.8 Soft Drink Sales in India

Soft Drink Sales in India

Fiscal Year Million Bottles Sold
1998-1999 5670
1999-2000 6230
2000-2001 6450
2001-2002 6600
2002-2003 10000
Source: Datamonitor17

In spite of this growth, annual per capita consumption was only 6 bottles versus

17 in Pakistan, 73 in Thailand, 173 in the Philippines and 800 in the United

States. With its large population and low consumption, the rural market

represented a significant opportunity for penetration and a critical battleground

for market dominance. In 2001, Coca-Cola recognized that to compete with

traditional refreshments including lemon water, green coconut water, fruit juices,

tea, and lassi, competitive pricing was essential. In response, Coke launched a

smaller bottle priced at almost 50% of the traditional package. Soft drink sale

was about 11000 billion dollars in 2006 and is estimated to be about 17000

billion dollars by 2013 (Graph 1.3).

58
 Graph 1.3 Soft drink Market Forecast in India

Source: Gobi International, 2010

Market Share in India; The two global majors Pepsi & Coca – Cola dominate

the soft drink industry market. Coca – Cola, which had winded up its business

from India during the introduction of IERA regime reentered in India after 16

years letter in 1993. Coca – Cola has acquired a major soft drink market by

buying out local brands like Thums up, Limca & Gold Spot from Parle

Beverages. Pepsi although started a couple of years before Coca – Cola in 1991,

right now it has lower market share. It has brought over Mumbai based Dukes

range of soft drinks. Led by strong double-digit growth in India and other

emerging markets, global soft drink giant Coca-Cola reported 20 per cent growth

in consolidated net income at $1.6 billion for the quarter ended April 2, 2010

(Businesstoday). The company, which reported a net income of $1.36 billion in

the same period last year, attributed the jump to growth across developing

markets including India, which posted the highest volume growth of 29 per cent

59
during the period. According to the company statements "The strong brand Coca-

Cola growth came from a diversity of global markets, including double-digit

growth in India, Vietnam, the Philippines, Brazil, Russia and Egypt," The

company reported a five per cent increase in its net operating revenue to $7.5

billion in the first quarter of this year as against $7.1 per cent in the

corresponding period in 2009. In India, Coca-Cola growth in unit case volume of

29 per cent involved share gains across key beverage categories in the market.

According to Coca-Cola India and South West Asia President and CEO Atul

Singh, "This was our 15th consecutive quarter of growth. We are seeing strong

growth across our portfolio both in sparkling and in stills. Brand Coca-Cola too

registered double-digit growth during the same quarter." The broad-based growth

in unit case volume was led by a 29 per cent increase in India and share gain

across key beverage categories in that market. India had 76% market share of

South Asian market in 2008 which shows the importance of Indian market in

South Asia (Graph 1.4).

Graph 1.4 India’s Share of the South Asian Soft Drink Market (2008)

Source: Gobi International, 2010

60
India’s share of the world soft drink market was 4.6% in 2008 which indicates

that despite of the high population in India, Indians drink less comparing to other

countries in the world, this shows that there is a great market growth potential in

India which has to be enhanced by soft drink companies (Graph 1.5).

Graph 1.5 India’s Share of the World Soft Drink Market (2008)

Source: Gobi International, 2010

1.11 Soft Drinks in Iran

According to Euromonitor International, in 2005, the Iranian Ministry of Health

and Medical Education launched a new wave of negative initiatives targeted at

carbonates. Many articles were published on the contribution of carbonates to

obesity problems and diabetes. This had an important impact on the perception of

carbonates among Iranian consumers. People reacted by switching from

carbonates to healthier alternatives such as drinking yoghurt or non-alcoholic

beer.22

61
The Compound Annual Growth Rate (CAGR) 2006-2013 is estimated to be 4.2%

(Table 1.9).

Table 1.9 Compound Annual Growth Rate of Soft Drink Market in Iran

Source: Gobi International, 2010

The Sales of Soft drink in Iran was 13,000 US Billion Dollars in 2006 which is

estimated to be about 19,000 US Billion Dollars by 2013(Graph 1.6).

Graph 1.6 Soft drink Market Forecast in Iran

Source: Gobi International, 2010

62
Share of Iran in the soft drink market of the Middle East was 17% in 2008

(Graph1.7) and the forecast growth index of Iran is faster than the forecast

growth index of Middle East(Graph 1.8).

Graph 1.7 Iran’s Share of the Middle East Soft Drink Market (2008)

Source: Gobi International, 2010

Graph 1.8 Forecast Growth Index of Iran Compared to Middle East

Source: Gobi International, 2010

63
Although Iran has a high forecast growth index in Middle East, but the share of

Iran in the world market was 0.6% in 2008 (Graph 1.9) and the forecast growth

index of Iran is faster than forecast growth index of the World (Graph 1.10).

Graph 1.9 Iran’s Share of the World Soft Drink Market (2008)

Source: Gobi International, 2010

Graph 1.10 Forecast Growth Index of Iran Compared to the World

Source: Gobi International, 2010

64
Iranian government strongly believes that The Coca-Cola Co and PepsiCo Inc are

Zionist companies, which provide financial support to Israel. During the Israeli

invasion of Gaza in early 2009, there were rumors about the boycotting of Coca-

Cola. Khoshgovar Mashhad Co denied direct dealings with The Coca-Cola Co,

and stated that the multinational has no property or ownership in Iran. In 2009,

young Iranians continued to consume brands such as Pepsi and Coca-Cola,

without giving thought to any political ramifications. Domestic suppliers

dominate soft drinks in Iran, due to their low costs of production and affordable

products. Even Coca-Cola and Pepsi are produced domestically, by the

importation of concentrates.

In some niche categories, such as functional drinks, the limited capability of

domestic production leaves room for multinationals to enter. In 2009, the off-

trade channel continued to dominate sales of soft drinks in Iran. Off-trade sales

take place predominantly through independent small grocers and

supermarkets/hypermarkets, although other types of retail outlets also offer the

products. Sales through vending machines grew positively during the review

period, with machines appearing in cinemas and other public places. Although

these machines offered fruit/vegetable juice, carbonates and bottled water, sales

through vending remained marginal at the end of the review period.

Zam Zam Company; Zam Zam Tehran Company history Founded 30.09.1334

under No. 4488 in the Companies Registration Office and registered according to

the minutes of extraordinary general meeting dated 19/12/1354 Type of

Corporation common shares has changed. Now one company Zam Zam Tehran

Companies Group Food and Beverages Industry Foundation is dispossessed of

65
the Islamic Revolution. Zam Zam Tehran company with annual capacity 165

million liters of non-alcoholic soft drinks (Cola, orange, lemon, mango, soda and

diet drinks in different range of flavors) and annual production capacity of 10

million liters of drinking water and biggest manufacturer of soft drinks and water

in the country.

The director of the Zam Zam Cola Company is Ahmad-Haddad Moghaddam.

The Zam Zam Cola Company is owned by the Bonyade Mostazafan va Janbazan.

Zam Zam Cola, Zam Zam Cola is a cola-flavored soft drink produced in Iran by

Zam Zam Soft Drink Mfg. Co.; It is particularly popular in Iran and parts of the

Arab World, having gained a cult status there as a Muslim alternative to

"Western" products such as Coca-Cola and Pepsi. Zam Zam is also one of the

few remaining soda companies in Iran that uses refillable glass bottles.

History of the Brand; Originally a subsidiary of Pepsi created in Iran in 1954 as

the first Iranian carbonated soft drink producer.

Following the 2002 boycott of Coca-Cola by Saudi Arabia, Zam Zam was

unofficially dubbed the soft drink of the Hajj. It is also sold in Europe and in

some parts of Asia. The product's name is a reference to the Well of Zam Zam in

Mecca, which is one of the stops on the Islamic pilgrimage of the Haji.

The headquarters of Zam Zam are in Tehran, Iran. The bottling facility in Tehran

is a popular attraction where people can see the drink being bottled. Due to the

bottling facility's proximity to Mehrebad airport tourists often stop to look.

66
The production was at first a single production line, and now it owns seventeen

beverage plants in Iran as well as several international companies, which produce

and distribute Zam Zam products under its license. The Zam Zam Company has

developed the most well equipped beverage concentrate plant in the Middle East.

Zam Zam Iran Co has had significant presence in domestic and international

markets, and produces over one hundred diverse products including Cola, Lemon,

Orange, Lemonade, Mango, Mineral Water, non-alcoholic malt beverage etc.23

Iran's Cola War; According to Fortune Magazine, American drinks giants

Coca-Cola and PepsiCo are able to pour thousands of gallons of concentrate into

Iran via Irish subsidiaries and that has allowed these brands, so much a symbol of

America - and so much an affront to Iran's conservative clerics - to open another

front in their global cola war. After just a few years back in Iran, Coke and Pepsi

have grabbed about half the national soft drink sales in what is one of the Middle

East's biggest drinks market.

Iranians drink Zam Zam Cola, named after a blessed well in Mecca, the holiest

place in Islam, or other local brands produced by Khoshgovar, which licenses

Coke, and Sasan, which has the Pepsi franchise.

Zam Zam's 17 plants bottled Pepsi before the 1979 Islamist revolution. Now the

company is controlled by the Foundation of the Dispossessed, a powerful bonyad,

one of many religious charities.

Coke and Pepsi are in Iranian market by licensing products in Iran through their

concentrate subsidiaries in Ireland. According to Pepsi spokesman Dick Detwiler,

"PepsiCo has no equity investment in Sasan or any other enterprise in Iran and

67
has no relationship with the government of Iran. They sell in strict accordance

with all applicable U.S. laws and restrictions."

According to Coke spokesman Charles Sutlive echoes Pepsi's line, adding that

Coke, which also licenses Fanta, Sprite and Dasani water through Khoshgovar,

has "no tangible assets in Iran."

1.12 The Coca-Cola Company

The Coca Cola Company is a beverage company, manufacturer, distributor, and

marketer of non-alcoholic beverage concentrates and syrups. The company is best

known for its flagship product Coca-Cola, invented by pharmacist John Stith

Pemberton in 1886. The Coca-Cola formula and brand was bought in 1889 by

Asa Candler who incorporated The Coca-Cola Company in 1892. Besides its

namesake Coca-Cola beverage, Coca-Cola currently offers more than 400 brands

in over 200 countries or territories and serves 1.6 billion servings each day.

The company operates a franchised distribution system dating from 1889 where

The Coca-Cola Company only produces syrup concentrate which is then sold to

various bottlers throughout the world who hold an exclusive territory.

The Coca-Cola Company is headquartered in Atlanta, Georgia. Its stock is listed

on the New York Stock Exchange (NYSE) and is part of Dow Jons International

Average (DJIA), S&P 500 Index, the Russel 1000 Index and the Russell 1000

Growth Stock Index.

History of Coca-Cola Company; The Coca-Cola Company was originally

established in 1891 as the J. S. Pemberton Medicine Company, a co-partnership

68
between Dr. John Stith and Ed Holland. The company was formed to sell three

main products: Pemberton's French Wine Cola (later known as Coca-Cola),

Pemberton's Indian Queen Hair Dye, and Pemberton's Globe Flower Cough

Syrup.

In 1884, the company became a stock company and the name was changed to

Pemberton Chemical Company. The new president was D. D. Doe while Ed

Holland became the new Vice-President. Pemberton stayed on as the

superintendent. The company's factory was located at No. 107, Marietta St. Three

years later, the company was again changed to Pemberton Medicine Company,

another co-partnership, this time between Pemberton, A. O. Murphy, E. H.

Bloodworth, and J. C. Mayfield. Finally in October 1888, the company received a

charter with an authorized capital of $50,000. The charter became official on

January 15, 1889. By this time, the company had expanded its offerings to

include Pemberton's Orange and Lemon Elixir.

According to the 2005 Annual Report, the company sells beverage products in

more than 200 countries. The report further states that of the more than 50 billion

beverage servings of all types consumed worldwide every day, beverages bearing

the trademarks owned by or licensed to Coca-Cola account for approximately 1.5

billion. Of these, beverages bearing the trademark "Coca-Cola" or "Coke"

accounted for approximately 78% of the Company's total gallon sales. Also

according to the 2007 Annual Report, Coca-Cola had gallon sales distributed as

follows:

• 37% in the United States

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• 43% in Mexico, India, Brazil, Japan and the People's Republic of China

• 20% spread throughout the rest of the world

In 2010 it was announced that Coca-Cola had become the first brand to top £1

billion in annual UK grocery sales.

Worldwide Coca-Cola Consumption; According to Coca-Cola's most recent

annual report, between 1998 and 2009, global consumption of Coca-Cola

beverages rose from sixty-five servings per capita to eighty-six. The average

worldwide per capita consumption of Coca Cola company beverage products in

2009 (Based on U.S. 8 fluid ounces of a finished beverage) was 86 while this

figure was highest in Mexico 665 followed by Malta 598, Chile 426 and US 399

while this figure was less than 10 in India and Iran.

Graph 1.11 Per Capita Consumption of Coca Cola Company Products

Source: Coca-Cola's annual report, 1998-2009

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Five Competitive Forces for Coca-Cola Company; The soft drink industry is

very competitive for all corporations involved, with the greatest competition

being that from rival sellers within the industry. All soft drink companies have to

think about the pressures; that from rival sellers within the industry, new entrants

to the industry, substitute products, suppliers, and buyers.

The competitive pressure from rival sellers is the greatest competition that Coca-

Cola faces in the soft drink industry. Coca-Cola, Pepsi Co., and Cadbury

Schweppes are the largest competitors in this industry, and they are all globally

established which creates a great amount of competition. Though Coca-Cola

owns four of the top five soft drink brands (Coca-Cola, Diet Coke, Fanta, and

Sprite), it had lower sales in 2005 than did PepsiCo (Murray, 2006). However,

Coca-Cola has higher sales in the global market than PepsiCo. In 2004, PepsiCo

dominated North America with sales of $22 billion, whereas Coca-Cola only had

about $6.6 billion, with more of their sales coming from overseas. PepsiCo is the

main competitor for Coca-Cola and these two brands have been in a power

struggle for years (Murray, 2006).

Brand name loyalty is another competitive pressure. The Brand Keys’ Customer

Loyalty Leaders Survey (2004) shows the brands with the greatest customer

loyalty in all industries. Diet Pepsi ranked 17th and Diet Coke ranked 36th as

having the most loyal customers to their brands. Refer to List 15 for the brand

loyalty rankings of the various competitors. The new competition between rival

sellers is to create new varieties of soft drinks, such as vanilla and cherry, in order

to keep increasing sales and enticing new customers (Murray, 2006).

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New entrants are not a strong competitive pressure for the soft drink industry.

Coca-Cola and Pepsi Co dominate the industry with their strong brand name and

great distribution channels. In addition, the soft-drink industry is fully saturated

and growth is small. This makes it very difficult for new, unknown entrants to

start competing against the existing firms. Another barrier to entry is the high

fixed costs for warehouses, trucks, and labor, and economies of scale. New

entrants cannot compete in price without economies of scale. These high capital

requirements and market saturation make it extremely difficult for companies to

enter the soft drink industry; therefore new entrants are not a strong competitive

force.

Substitute products are those competitors that are not in the soft drink industry.

Such substitutes for Coca-Cola products are bottled water, sports drinks, coffee,

and tea. Bottled water and sports drinks are increasingly popular with the trend to

be a more health conscious consumer. There are progressively more varieties in

the water and sports drinks that appeal to different consumers’ tastes, but also

appear healthier than soft drinks. In addition, coffee and tea are competitive

substitutes because they provide caffeine. The consumers who purchase a lot of

soft drinks may substitute coffee if they want to keep the caffeine and lose the

sugar and carbonation. Specialty blend coffees are also becoming more popular

with the increasing number of Starbucks stores that offer many different flavors

to appeal to all consumer markets. It is also very cheap for consumers to switch

to these substitutes making the threat of substitute products very strong

(Datamonitor, 2005).17

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Suppliers for the soft drink industry do not hold much competitive pressure.

Suppliers to Coca-Cola are bottling equipment manufacturers and secondary

packaging suppliers. Although Coca-Cola does not do any bottling, the company

owns about 36% of Coca-Cola Enterprises which is the largest Coke bottler in the

world (Murray, 2006). Since Coca-Cola owns the majority of the bottler, that

particular supplier does not hold much bargaining power. In terms of equipment

manufacturers, the suppliers are generally providing the same products. The

number of equipment suppliers is not in short supply, so it is fairly easy for a

company to switch suppliers. This takes away much of suppliers’ bargaining

power.

The buyers of the Coca-Cola and other soft drinks are mainly large grocers,

discount stores, and restaurants. The soft drink companies distribute the

beverages to these stores, for resale to the consumer. The bargaining power of the

buyers is very evident and strong. Large grocers and discount stores buy large

volumes of the soft drinks, allowing them to buy at lower prices. Restaurants

have less bargaining power because they do not order a large volume. However,

with the number of people are drinking less soft drinks, the bargaining power of

buyers could start increasing due to decreasing buyer demand (Murray, 2006).16

Porter’s Five Forces Model identifies the five forces of competition for any

company. The recognition of the strength of these forces helps to see where

Coca-Cola stands in the industry. Of the five forces, rivalry within the soft drink

industry, especially from PepsiCo, is the greatest source of competition for Coca-

Cola.

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1.12.1 Coca-Cola India

Established in 1886, Coca-Cola is the world’s most ubiquitous brand. The

company and its subsidiaries are present in over 200 countries employing over

49,000 individuals and generating revenues to the tune of US$ 21 billion. The

Coca-Cola Company markets four of the world’s top-five soft drink brands; its

beverage products encompass nearly 400 brands, including non-carbonated

beverages such as waters, juices, sports drinks, teas and coffees. The company’s

net income registered a CAGR of 7.2 per cent over a 10-year period. Till date,

Coca-Cola has invested over US$ 1 billion in India and employs over 5,000

people. The Coca- Cola system in India comprises 25 wholly owned bottling

operations. A network of 27 contracts - packers also manufacture a range of

products for the company.

A large and Thriving Business in India; Coca-Cola is a leading player in the

Indian beverage market with a 60 per cent share in the carbonated soft drinks

segment, 36 per cent share in fruit drinks segment and 33 per cent share in the

packaged water segment. In 2004, Coca-Cola sold 7 billion packs of its brands to

more than 230 million consumers across 4,700 towns and 175,000 villages. The

company has doubled its volumes and trebled its profits between 2001 and 2004.

Coca-Cola continues to re-affirm its commitment to India through active

‘Citizenship Efforts.” All its plants in India partner with local NGOs to alleviate

local community issues in numerous small ways. It boasts of impeccable

credentials on quality.

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Coca-Cola was the leading soft drink brand in India until 1977 when it left rather

than reveal its formula to the government and reduce its equity stake as required

under the Foreign Exchange Regulation Act (FERA) which governed the

operations of foreign companies in India. After a 16-year absence, Coca-Cola

returned to India in 1993, cementing its presence with a deal that gave Coca-Cola

ownership of the nation's top soft-drink brands and bottling network. Coke’s

acquisition of local popular Indian brands including Thums Up (the most trusted

brand in India), Limca, Maaza, Citra and Gold Spot provided not only physical

manufacturing, bottling, and distribution assets but also strong consumer

preference. This combination of local and global brands enabled Coca-Cola to

exploit the benefits of global branding and global trends in tastes while also

tapping into traditional domestic markets. Leading Indian brands joined the

Company's international family of brands, including CocaCola, diet Coke, Sprite

and Fanta, plus the Schweppes product range. In 2000, the company launched the

Kinley water brand and in 2001, Shock energy drink and the powdered

concentrate Sunfill hit the market.

From 1993 to 2003, Coca-Cola invested more than US$1 billion in India, making

it one of the country’s top international investors.

By 2003, Coca-Cola India had won the prestigious Woodruf Cup from among

divisions of the Company based on three broad parameters of volume,

profitability, and quality. Coca-Cola India achieved 39% volume growth in 2002

while the industry grew 23% nationally and the Company reached breakeven

profitability in the region for the first time. Encouraged by its 2002 performance,

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Coca-Cola India announced plans to double its capacity at an investment of $125

million (Rs. 750 crore) between September 2002 and March 2003.

Coca-Cola India produced its beverages with 7,000 local employees at its twenty-

seven wholly-owned bottling operations supplemented by seventeen franchisee-

owned bottling operations and a network of twenty-nine contract-packers to

manufacture a range of products for the company. The complete manufacturing

process had a documented quality control and assurance program including over

400 tests performed throughout the process.

The complexity of the consumer soft drink market demanded a distribution

process to support 700,000 retail outlets serviced by a fleet that includes 10-ton

trucks, open-bay three wheelers, and trademarked tricycles and pushcarts that

were used to navigate the narrow alleyways of the cities.

In addition to its own employees, Coke indirectly created employment for

another 125,000 Indians through its procurement, supply, and distribution

networks.

Sanjiv Gupta, President and CEO of Coca-Cola India, joined Coke in 1997 as

Vice President, Marketing and was instrumental to the company’s success in

developing a brand relevant to the Indian consumer and in tapping India’s vast

rural market potential. Following his marketing responsibilities, Gupta served as

Head of Operations for Company-owned bottling operations and then as Deputy

President. Seen as the driving force behind recent successful forays into packaged

drinking water, powdered drinks, and ready-to-serve tea and coffee, Gupta and

his marketing prowess were critical to the continued growth of the Company.

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Marketing Cola in India; The post-liberalization period in India saw the

comeback of cola but Pepsi had already beaten Coca-Cola to the punch,

creatively entering the market in the 1980’s in advance of liberalization by way

of a joint venture. As early as 1985, Pepsi tried to gain entry into India and finally

succeeded with the Pepsi Foods Limited Project in 1988, as a JV of PepsiCo,

Punjab government-owned Punjab Agro Industrial Corporation (PAIC), and

Voltas India Limited. Pepsi was marketed and sold as Lehar Pepsi until 1991

when the use of foreign brands was allowed under the new economic policy and

Pepsi ultimately bought out its partners, becoming a fully-owned subsidiary and

ending the JV relationship in 1994.

While the joint venture was only marginally successful in its own right, it

allowed Pepsi to gain precious early experience with the Indian market and also

served as an introduction of the Pepsi brand to the Indian consumer such that it

was well-poised to reap the benefits when liberalization came. Though Coke

benefited from Pepsi creating demand and developing the market, Pepsi’s head-

start gave Coke a disadvantage in the mind of the consumer. Pepsi’s appeal

focused on youth and when Coke entered India in 1993 and approached the

market selling an American way of life, it failed to resonate as expected. Coca-

Cola CEO Douglas Daft set the direction for the next generation of success for

his global brand with a “Think local, act local” mantra. Recognizing that a single

global strategy or single global campaign wouldn’t work, locally relevant

executions became an increasingly important element of supporting Coke’s

global brand strategy. In 2001, after almost a decade of lagging rival Pepsi in the

region, Coke India re-examined its approach in an attempt to gain leadership in

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the Indian market and capitalize on significant growth potential, particularly in

rural markets. The foundation of the new strategy grounded brand positioning

and marketing communications in consumer insights, acknowledging that urban

versus rural India were two distinct markets on a variety of important dimensions.

The soft drink category’s role in people’s lives, the degree of differentiation

between consumer segments and their reasons for entering the category, and the

degree to which brands in the category projected different perceptions to

consumers were among the many important differences between how urban and

rural consumers approached the market for refreshment.

In rural markets, where both the soft drink category and individual brands were

undeveloped, the task was to broaden the brand positioning while in urban

markets, with higher category and brand development, the task was to narrow the

brand positioning, focusing on differentiation through offering unique and

compelling value. This lens, informed by consumer insights, gave Coke direction

on the tradeoff between focus and breadth a brand needed in a given market and

made clear that to succeed in either segment, unique marketing strategies were

required in urban versus rural India.24

1.12.2 Coca Cola Brand Localization Strategy: The Two Indias

India A: “Life ho to aisi” ; “India A,” the designation Coca-Cola gave to the

market segment including metropolitan areas and large towns, represented 4% of

the country’s population.

This segment sought social bonding as a need and responded to aspirational

messages, celebrating the benefits of their increasing social and economic

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freedoms. “Life ho to aisi,” (life as it should be) was the successful and relevant

tagline found in Coca-Cola’s advertising to this audience.

India B: “Thanda Matlab Coca-Cola” ; Coca-Cola India believed that the first

brand to offer communication targeted to the smaller towns would own the rural

market and went after that objective with a comprehensive strategy. “India B”

included small towns and rural areas, comprising the other 96% of the nation’s

population. This segment’s primary need was out-of-home thirst-quenching and

the soft drink category was undifferentiated in the minds of rural consumers.

Additionally, with an average Coke costing Rs. 10 and an average day’s wages

around Rs. 100, Coke was 34 perceived as a luxury that few could afford.

In an effort to make the price point of Coke within reach of this high-potential

market, Coca-Cola launched the Accessibility Campaign, introducing a new

200ml bottle, smaller than the traditional 300ml bottle found in urban markets,

and concurrently cutting the price in half, to Rs. 5. This pricing strategy closed

the gap between Coke and basic refreshments like lemonade and tea, making soft

drinks truly accessible for the first time. At the same time, Coke invested in

distribution infrastructure to effectively serve a disbursed population and doubled

the number of retail outlets in rural areas from 80,000 in 2001 to 160,000 in

2003, increasing market penetration from 13 to 25%.

Coke’s advertising and promotion strategy pulled the marketing plan together

using local language and idiomatic expressions. “Thanda,” meaning cool/cold is

also generic for cold beverages and gave “Thanda Matlab Coca-Cola” delicious

multiple meanings. Literally translated to “Coke means refreshment,” the phrase

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directly addressed both the primary need of this segment for cold refreshment

while at the same time positioning Coke as a “Thanda” or generic cold beverage

just like tea, lassi, or lemonade. As a result of the Thanda campaign, Coca-Cola

won Advertiser of the Year and Campaign of the Year in 2003.

Coca-Cola Rural Success; Comprising 74% of the country's population, 41% of

its middle class, and 58% of its disposable income, the rural market was an

attractive target and it delivered results.

Coke experienced 37% growth in 2003 in this segment versus the 24% growth

seen in urban areas. Driven by the launch of the new Rs. 5 product, per capita

consumption doubled between2001 - 2003. This market accounted for 80% of

India’s new Coke drinkers, 30% of 2002 volume, and was expected to account

for 50% of the company’s sales in 2003.

1.12.3 Factors for Success

Coca-Cola has succeeded in spite of an extremely price-sensitive consumer with

entrenched beverage consumption habits – tea, nimbu-paani (lemonade) and a

fragmented and geographically dispersed retail market, and a high tax

environment.

Diverse Product Portfolio; In keeping with its goal of emerging as the single

largest entity in the beverage market, Coca-Cola has a presence in multiple

segments.

• In the carbonated soft drinks (Coke, Diet Coke, Fanta, Thums Up, Sprite and

Limca), fruit juice based drinks (Maaza), powdered soft drinks (Sunfill) and

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 coffee and tea (Georgia), bottled water (Kinley) and bottled soda (Kinley

Soda).

• The company leverages this comprehensive which includes a mix of its global

brands portfolio, as well as the locally acquired brands like Thums Up, Limca

and Maaza.

• It sells these beverages in multiple volumes of 200 ml, 300ml, 500ml, 1.5 l

bottles, tetra packs as well as through vendors (fountain machines).

• Explores new markets with the introduction of new drinks (Georgia, coffee

and tea segment) and flavours (Vanilla Coke).

Intensive Brand Building; Coca-Cola follows an intensive brand-building

program. The company has used some of the following methods to build its

brands in the country:

• The company focuses on understanding the Indian consumer and in using

these local insights to build powerful connects for its brands. On the back of

an effective advertising strategy, Coca-Cola has created a brand that stands

for affordability and is inalienable to the common man.

• Given the widespread popularity of cricket and movie stars, the company has

roped in a host of cricketers and Indian movie stars to endorse its products.

• Activating local Indian festivals and occasions through below-the-line

promotions.

• Creating a distinct identity for each of its flagship brands. For instance Sprite,

a drink is promoted as a youth icon standing for a straightforward and honest

attitude.

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Affordable Entry-Price Point and Strong Brand Pull; The company undertook

the Affordability Strategy in 2002 by introducing the 200ml RGB Bottle at US$

0.1 to bring about the optimal affordable price value equation. The lead-pack in

the market was the 300ml at US$ 0.16.

Coca-Cola experienced unprecedented growth rates (above 40 per cent) in 2002

by virtue of its Affordability Strategy. It continues to grow in strong double

digits since then. It has also significantly grown its consumer base from 162

million in 2001 to 233 million in 2004.

Creating an Ultra Low Cost Model; In light of the company’s Affordability

Strategy, Coca-Cola went about bringing a cost-focus culture in the company.

This included procurement efficiencies through focus on key input materials,

trade discipline and control and proactive tax management through tax incentives,

excise duty reduction and creating marketing companies. These measures have

reduced the costs of operations and increased profit margins.

Outsourcing Distribution and Manufacturing; Coca-Cola India minimized its

capital needs by meeting new manufacturing capacity needs through external co-

packers, outsourcing its distribution and meeting its in-market-refrigeration and

cooling needs by giving incentives to retailers to self-fund the same through its

“Own Your Fridge Scheme.”

Today, the company has an extensive rural and urban distribution network. Coca-

Cola adopts a hub and spoke format distribution network ensuring that large

loads travel longer distances and short loads travel short distances. The company

has increased its village penetration from 9 per cent in 2000 to 28 per cent in

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2004 and covers approximately 175,000 villages today. Rural India now accounts

for 30 per cent of Coca-Cola’s sales volumes.

Future Plans; Increasing the per capita consumption of its beverage, Coca-Cola

continues its efforts at increasing the per capita consumption of its beverages in

the country. India PCC currently is at 11 Servings a Year (up from 7 in 2001).

This requires a comprehensive activation of the Indian market by addressing

acceptability, affordability and availability of its products. Expanding its

distribution networks the company had also decided to expand its retail network

by 18 per cent during the financial year 2004-05 taking the total number of

retailers to 1.3 million across the country. Leading the beverage revolution in

India the company continues to build on its foundations in India. While it

continues to maximize its carbonated soft drink potential through various pack,

pricing, occasion-based strategies across town-classes in India, it is exploring

other categories like juice, water and tea and coffee. It is poised to lead the

beverage revolution in India.

Some of the Coca-Cola Company carbonated soft drink brands in India include:

• Coca-Cola

• Fanta

• Sprite

• Thums Up

Coca Cola: In India Coca-Cola was the leading soft-drink till 1977 when

government policies necessitated its departure. Coca-Cola made its return to the

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country in 1993 and made significant investments to ensure that the beverage is

available to more and more people, even in the remote and inaccessible parts of

the nation.

Fanta: Internationally, Fanta the ‘orange’ drink of the Coca-Cola Company is

seen as one of the favorite drinks since 1940’s.

History: Fanta originated when a trading ban was placed on Nazi Germany by the

Allies during World War II. The Coca-Cola GmbH, therefore was not able to

import the syrup needed to produce Coca-Cola in Germany. As a result, Max

Keith, the man in charge of Coca-Cola's operations in Germany during the

Second World War, decided to create a new product for the German market,

using only ingredients available in Germany at the time, including whey and

pomace – the "leftovers of leftovers", as Keith later recalled. The name was the

result of a brief brainstorming session, which started with Keith exhorting his

team to "use their imagination" ("Fantasie" in German), to which one of his

salesmen, Joe Knipp, immediately retorted "Fanta!”, Fanta entered the Indian

market in 1993.

Marketing: Fanta is known for its upbeat advertising; in the United States, it

showcases The Fantanas, a casted group of young female spokesmodels each of

which promotes an individual Fanta flavour. For the re-introduction of Fanta in

the United States, Coca-Cola worked with the ad agency Ogilvy (NYC) in 2002.

After a brainstorming session, the Ogilvy creative team of Andrea Scaglione,

Andrew Ladden and Bill Davaris, created the tagline "Wanta Fanta?" which

became the jingle for the Fantanas in the broadcast campaign. In mid-2009, Fanta

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began its search for a member to become the fourth Fantana. Over the years Fanta

has occupied a strong market place and is identified as “The Fun Catalyst”.

Perceived as the fun youth brand, Fanta stands for its vibrant color, tempting

taste, and tingling bubbles that not just uplifts feelings but also helps free sprit

thus encouraging one to indulge in the moment. This positive imagery is

associated with happy, cheerful and special times with friends.

Sprite: Worldwide Sprite is ranked as the No. 4 soft drink and is sold in more

than 190 countries. Sprite is a transparent, lemon-lime flavored, caffeine free soft

drink, produced by the Coca-Cola Company. It was introduced in the United

States in 1961. This was Coke's response to the popularity of 7 Up, which had

begun as "Lithiated Lemon" in 1929. It comes in a primarily silver, green, and

blue can or a green translucent bottle with a primarily green and blue label. In

1978, Sprite became the market leader position in the lemon soda category. Sprite

is very popular in Canada as well. The annual sales rate of Sprite in Canada is 15

million per year.

In India, Sprite was launched in year 1999 and today it has grown to be one of the

fastest growing soft drink, leading the Clear lime category.

History: Sprite was introduced to the United States in 1961 to compete against 7

Up. Early magazine advertisements promoted it as a somewhat sophisticated, tart

and not-too-sweet drink mixer, to be used (similar to tonic water or ginger ale)

with alcoholic beverages such as Whiskey and Vodka. In the 1980s, many years

after Sprite's introduction, Coke pressured its large bottlers that distributed 7 Up

to replace the soda with the Coca-Cola product. In a large part due to the strength

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of the Coca-Cola system of bottlers, Sprite finally became the leader position in

the lemon soda category in 1978.

Marketing: Today Sprite is perceived as a youth icon. Why? With a strong appeal

to the youth, Sprite has stood for a straight forward and honest attitude. Its clear

crisp refreshing taste encourages the today’s youth to trust their instincts,

influence them to be true to who they are and to obey their thirst.

Sprite became popular in marketing in the 1960s through 1970s when they started

making advertisements for the soda pop which was soon referenced in songs.

Sprite also became popular through the late 1970s through early 1980s, when

they made slogan ads for the pop. In the late 1980s, Sprite became popular

through the teenage group. During the 1990s, the soda started to be featured in

TV and radio ads. In 2000, Sprite commissioned Temper to design a can which

saw the design on 300 million cans across Europe. During 2005 the company

changed its logo, then again in 2009.

Thums Up: Strong Cola Taste, Macho Personality. Thums Up is a leading

sparkling soft drink and one of the most trusted brands in India. Originally

introduced in 1977, Thums Up was acquired by Coca-Cola Company in 1993.

Thums Up is known for its strong, fizzy taste and its confident, mature and

uniquely masculine attitude. This brand clearly seeks to separate the men from

the boys.

History: is a carbonated soft drink brand in India, where its bold, red thumbs up

logo is common. It is similar in flavor to other colas but has a unique taste

reminiscent of betel nut. Introduced in 1977 to offset the expulsion of The Coca-

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Cola Company and other foreign companies from India, Thums Up, Limca, and

Campa Cola gained nationwide acceptance. The brand was bought out by Coca-

Cola which, after unsuccessful attempts at killing the brand, later re-launched it

in order to compete against Pepsi. During the late 1970s, the American cola giant

Coca-Cola abandoned operations in India rather than make a forced sale of 60%

of their equity to an Indian company. Following this, the Parle brothers, Ramesh

Chauhan and Prakash Chauhan, along with then CEO Bhanu Vakil, launched

Thums Up as their flagship drink, adding to their portfolio of older brands Limca

(lime flavor) and Gold Spot (orange flavor). Thums Up was basically a cola

drink, but the company never claimed it as such. The formula was just as closely

guarded as the famous Coke formula. During the same time, the owners of Coca-

Cola’s bottling plant, Pure Drinks Ltd., launched Campa Cola and Campa

Orange, both of which had a higher dose of Carbon Dioxide.

Marketing: The Thums Up logo was a red 'thumbs up' hand gesture with a slanted

white sans-serif typeface. This would later be modified by Coca-Cola with blue

strokes and a more modern-looking typeface. This was mainly done to reduce the

dominant red color in their signage. The picture shows the Thums Up mountain

or, Thums Up pahaad (in Hindi), Manmad hills which has a natural top like the

thums up logo and is a popular sight from trains. Its famous caption until the

early 1980s was, “Happy days are here again”, coined by then famous copywriter

Vasant Kumar, whose father was spiritual philosopher U. G. Krishnamurti. The

caption became "I want My Thunder." It is currently "Taste the thunder!"

Thums Up enjoyed a near monopoly with a much stronger market share often

overshadowing its other rivals like Campa cola, Double seven and Dukes, but

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there were many small regional players who had their own market. It even

withstood liquor giant United Breweries Group (makers of Kingfisher Beer)

Mcdowell's Crush, which was another Cola drink, and Double Cola. It was one of

the major advertisers throughout the 1980s. In the mid-80’s it had a brief threat

from a newcomer Double Cola which suddenly disappeared within a few years.

In 1990, when the Indian government opened the market to multinationals, Pepsi

was the first to come in. Thums Up went up against the international giant for an

intense onslaught with neither side giving any quarter. With Pepsi roping in

major Indian movie stars like Juhi Chawla, to thwart the Indian brand, Thums Up

increased its spending on Cricket sponsorship. Then the capacity went from

250ml to 300ml, aptly named MahaCola. This nickname gained popularity in

smaller towns where people would ask for "Maha Cola" instead of Thums Up.

The consumers were divided where some felt Pepsi’s mild taste was rather bland.

In 1993 Coca-Cola re-entered India after a prolonged absence from 1977 to 1993.

But Coca-Cola’s entry made things even more complicated and the fight became

a three-way battle. That same year, in a move that baffled many, Parle sold out to

Coke for a meagre US$ 60 million (considering the market share it had). Some

assumed Parle had lost the appetite for a fight against the two largest cola brands;

others surmised that the international brands seemingly endless cash reserves

psyched-out Parle. Either way, it was now Coca-Cola’s, and Coke has a habit of

killing brands in its portfolio that might overshadow it. Coca-Cola soon

introduced its cola in cans which was all the rage in India, with Thums Up

introduced alongside, albeit in minuscule numbers. Later Coca-Cola started

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pulling out the Thums Up brand which at that time still had more than 30%

market share.

Re-launch: Despite its strong overall equity, the brand was losing its popularity

among the core cola drinking age group of 12 to 25 year olds, partly due to nil

advertising.

Coca-Cola apparently did try to kill Thums Up, but soon realized that Pepsi

would benefit more than Coke if Thums Up was withdrawn from the market.

Instead, Coke decided to use Thums Up to attack Pepsi. The Coca-Cola Company

by this time had about 60.5% share of the Indian soft-drink market but much to

its dismay found out that if it took out Thums Up, it would remain with only

28.72% of the market (according to a report by NGO Finance& Trade in India),

hence it once again dusted out the Thums Up brand and re-launched it targeting

the 30 to 45 year olds.

The brand was re-positioned as a “manly” drink, drawing on its strong taste

qualities. Known to be a strong drink with more power packed into it than other

colas, it was a favorite in Rum based Cocktails, as in “rum and Thums Up.”

Thums Up kick-started an aggressive campaign directly attacking Pepsi’s TV ads,

focusing on the strength of the drink hoping that the depiction of an “adult” drink

would appeal to young consumers. “Grow up to Thums Up” was a successful

campaign. The brand’s market share and equity soared. The brand was

unshakeable and Coca-Cola’s declaration that Thums Up was India’s premier

cola brand in terms of market share did not surprise many.

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Other campaigns from Thums Up build on its “strength” and its perception as a

macho drink. Ads showing the Thums Up man, riding through the desert in

search of a cantina that sells Thums Up rather than drink another cola, stuck in

the minds of many Indians and caught the imagination of youngsters who want to

be seen as men.

Sponsorship: Thums Up was a major sponsor of cricket matches. In the early

1980s, it came out with several postcards featuring Sunil Gavaskar and Imran

Khan. Besides cricketers, Thums Up's celebrity endorsers include Akshay Kumar

and Salman Khan popular south Indian actors Megastar Chiranjeevi and Mahesh

Babu. Besides this, Parle’s southern bottler was a major sponsor of Indian

motorsport in the 80s. In addition to sponsoring several Indian track drivers in

Sholavaram races, they sponsored several regional car and bike rallies.

1.12.4 Local Competitors

Pepsi is usually second to Coke in sales, but outsells Coca-Cola in some markets.

Around the world, some local brands compete with Coke. In South and Central

America Kola Real, known as Big Cola in Mexico, is a fast-growing competitor

to Coca-Cola. On the French island of Corsica, Corsica Cola, made by brewers of

the local Pietra beer, is a growing competitor to Coca-Cola. In the French region

of Brittany, Breizh Cola is available. In Peru, Inca Kola outsells Coca-Cola,

which led The Coca-Cola Company to purchase the brand in 1999. In Sweden,

Julmust outsells Coca-Cola during the Christmas season. In Scotland, the locally

produced Irn-Bru was more popular than Coca-Cola until 2005, when Coca-Cola

and Diet Coke began to outpace its sales. In India, Coca-Cola ranked third behind

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the leader, Pepsi-Cola, and local drink Thums Up. The Coca-Cola Company

purchased Thums Up in 1993. As of 2004, Coca-Cola held a 60.9% market-share

in India. Tropicola, a domestic drink, is served in Cuba instead of Coca-Cola, due

to a United States embargo. French brand Mecca Cola and British brand Qibla

Cola, popular in the Middle East, are competitors to Coca-Cola. In Turkey, Cola

Turka is a major competitor to Coca-Cola. In Iran and many countries of Middle

East, Zam Zam Cola and Parsi Cola are major competitors to Coca-Cola. In some

parts of China Future Cola is a competitor. In Slovania, the locally produced

Cockta is a major competitor to Coca-Cola, as is the inexpensive Mercator Cola,

which is sold only in the country's biggest supermarket, Mercator. Classiko Cola,

made by Tiko Group, the largest manufacturing company in Madagascar , is a

serious competitor to Coca-Cola in many regions. Laranjada is the top-selling

soft drink on the Portuguese island of Maderia. Coca-Cola has stated that Pepsi

was not its main rival in the UK, but rather Robinsons drinks.

1.13 Health Effects

Since studies indicate "soda and sweetened drinks are the main source of calories

in American diet", most nutritionists advise that Coca-Cola and other soft drinks

can be harmful if consumed excessively, particularly to young children whose

soft drink consumption competes with, rather than complements, a balanced diet.

Studies have shown that regular soft drink users have a lower intake of calcium,

magnesium, ascorbic acid, riboflavin, and vitamin A. The drink has also aroused

criticism for its use of caffeine, which can cause physical dependence. A link has

been shown between long-term regular cola intake and osteoporosis in older

women (but not men). This was thought to be due to the presence of phosphoric

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acid, and the risk was found to be same for caffeinated and non caffeinated colas,

as well as the same for diet and sugared colas.

The use of Coca-Cola has also been associated with an increase of tumors in

laboratory rat, based on research by the Ramazzini Foundation in 2006.

A common criticism of Coke based on its allegedly toxic acidity levels has been

found to be baseless by researchers; lawsuits based on these notions have been

dismissed by several American courts for this reason. Although numerous court

cases have been filed against The Coca-Cola Company since the 1920s, alleging

that the acidity of the drink is dangerous, no evidence corroborating this claim

has been found. Under normal conditions, scientific evidence indicates Coca-

Cola's acidity causes no immediate harm. Since 1985 in the U.S., Coke has been

made with high-fructose syrup (HFCS) instead of the more expensive cane-sugar.

Some nutritionists caution against consumption of HFCS because it may

aggravate obesity and type-2 diabetes more than cane sugar. Also, a 2009 study

found that almost half of tested samples of commercial HFCS contained mercury,

a toxic substance.

In India, there is a major controversy whether there are pesticides and other

harmful chemicals in bottled products, including Coca-Cola. In 2003 the Centre

for Science and Environment (CSE), a non-governmental organization in New

Delhi, said aerated waters produced by soft drinks manufacturers in India,

including multinational giants PepsiCo and Coca-Cola, contained toxins

including lindane, DDT, malathion and chlorpyrifos — pesticides that can

contribute to cancer and a breakdown of the immune system. CSE found that the

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Indian produced Pepsi's soft drink products had 36 times the level of pesticide

residues permitted under European Union regulations; Coca-Cola's soft drink was

found to have 30 times the permitted amount. CSE said it had tested the same

products sold in the U.S. and found no such residues. After the pesticide

allegations were made in 2003, Coca-Cola sales in India declined by 15 percent.

In 2004 an Indian parliamentary committee backed up CSE's findings and a

government-appointed committee was tasked with developing the world's first

pesticide standards for soft drinks. The Coca-Cola Company has responded that

its plants filter water to remove potential contaminants and that its products are

tested for pesticides and must meet minimum health standards before they are

distributed. In the Indian state of Kerala sale and production of Coca-Cola, along

with other soft drinks, was initially banned after the allegations, until the High

Court in Kerala overturned ruled that only the federal government can ban food

products. Coca-Cola has also been accused of excessive water usage in India.

The 2008 Ig Nobel Prize (a parody of the Nobel Prizes) in Chemistry was

awarded to Sheree Umpierre, Joseph Hill, and Deborah Anderson, for

discovering that Coca-Cola is an effective spermicide, and to C.Y. Hong, C.C.

Shieh, P. Wu, and B.N. Chiang for proving it is not.

1.14 Pepsi Company

PepsiCo is a an American multinational corporation headquartered in New York,

with interests in manufacturing and marketing a wide variety of carbonated and

non-carbonated beverages, as well as salty, sweet and cereal-based snacks, and

other foods. Besides the Pepsi brands, the company owns the brands Quaker

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Oats, Gatorade, Frito-Lay, SoBe, Naked, Tropicana, Copella, Mountain Dew,

Mirinda and 7 Up (outside the USA). Indra Krishnamurthy Nooyi has been the

chief executive of PepsiCo since 2006, and the company's beverage distribution

and bottling is undertaken primarily by associated companies such as The Pepsi

Bottling Group (NYSE:PBG) and Pepsi Americas (NYSE:PAS). Driven by

robust volume growth in its snacks and beverage businesses in developing

markets like India, US-based PepsiCo reported a 13 per cent growth in net

income at $1.4 billion for the first quarter of 2010.

The company had a net income of $1.1 billion in the year-ago period. Its net

revenue grew by 13 per cent to $9.3 billion against $8.2 billion recorded in the

first quarter last year.

According to Pepsico, Asia, the Middle East, Africa (AMEA) posted strong

growth in key developing markets such as India and China, where both snacks

and beverages posted double-digit volume growth.25

PepsiCo Brands; PepsiCo owns 5 different billion-dollar brands. These are

Pepsi, Tropicana, Frito-Lay, Quaker, and Gatorade. The company owns many

other brands as which some of them are as bellow:

• Pepsi, Caffeine-Free Pepsi, Diet Pepsi/Pepsi Light, Caffeine-Free Diet Pepsi,

Caffeine-Free Pepsi Light, Wild Cherry Pepsi, Pepsi Lime, Pepsi Max, Pepsi

Twist and Pepsi One.

• Other U.S. carbonated soft drinks, including Mountain Dew, Crush, Mug

Root Beer, Sierra Mist, Tropicana Twister Soda and Frawg,

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• 7 Up (Globally, outside the USA)

• Other U.S. beverages, including Aquafina (Flavor Splash, Alive, and

Twist/Burst), Tava, Dole, Gatorade, Izze, AMP Energy, Propel Fitness Water,

SoBe, Quaker Milk Chillers, and Trropicana.

• Fritolay brands: Barcel, Bocabites, Cheese Tris, Cheetos, Chester’s and etc.

• Quaker Oats brands: Aunt Jemima, Cap’n Crunch, Chewy Granola bars and

ets.

• In 2005 PepsiCo launched Sting Energy Drink (carbonated) in Vietnam, and

in some Asian countries in 2010 including Pakistan, Philippines & Malaysia.

• In 2007, Nooyi spent $1.3 billion on healthier-alternative brands like Naked

Juice, a California maker of soy drinks and organic juice.

PepsiCo India; PepsiCo gained entry to India in 1988 by creating a joint venture

with the Punjab government-owned Punjab Agro Industrial Corporation (PAIC)

and Voltas India Limited. This joint venture marketed and sold Lehar Pepsi until

1991, when the use of foreign brands was allowed; PepsiCo bought out its

partners and ended the joint venture in 1994. Others claim that firstly Pepsi was

banned from import in India, in 1970, for having refused to release the list of its

ingredients and in 1993, the ban was lifted, with Pepsi arriving on the market

shortly afterwards. These controversies are a reminder of "India's sometimes

acrimonious relationship with huge multinational companies." Indeed, some

argue that PepsiCo and The Coca-Cola Company have "been major targets in part

because they are well-known foreign companies that draw plenty of attention."

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As of 2005, The Coca-Cola Company and PepsiCo together hold 95% market

share of soft-drink sales in India. PepsiCo has also been accused by the

Puthussery panchayat in the Palakkad district in Kerala, India, of practicing

"water piracy" due to its role in exploitation of ground water resources resulting

in scarcity of drinking water for the panchayat's residents, who have been

pressuring the government to close down the PepsiCo unit in the village.

In 2006, the CSE again found that soda drinks, including both Pepsi and Coca-

Cola, had high levels of pesticides in their drinks. Both PepsiCo and The Coca-

Cola Company maintain that their drinks are safe for consumption and have

published newspaper advertisements that say pesticide levels in their products are

less than those in other foods such as tea, fruit and dairy products. In the Indian

state of Kerala, sale and production of Pepsi-Cola, along with other soft drinks,

was banned by the state government in 2006, but this was reversed by the Kerala

High Court merely a month later. Five other Indian states have announced partial

bans on the drinks in schools, colleges and hospitals.

PepsiCo nourishes consumers with a range of products from treats to healthy eats

that deliver joy as well as nutrition and always, good taste. PepsiCo India’s

expansive portfolio includes iconic refreshment beverages Pepsi, 7 UP, Mirinda

and Mountain Dew, in addition to low calorie options such as Diet Pepsi,

hydrating and nutritional beverages such as Aquafina drinking water, isotonic

sports drinks - Gatorade, Tropicana 100% fruit juices, and juice based drinks –

Tropicana Nectars, Tropicana Twister and Slice, non-carbonated beverage and a

new innovation Nimbooz by 7Up. Local brands – Lehar Evervess Soda, Dukes

Lemonade and Mangola add to the diverse range of brands.

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The group has built an expansive beverage and foods business. To support its

operations, PepsiCo has 36 bottling plants in India, of which 13 are company

owned and 23 are franchisee owned.

PepsiCo established it's business operations in India in 1989 and has grown to

become one of the country’s leading food and beverage companies. One of the

largest multinational investors in the country, PepsiCo has established a business

which aims to serve the long term dynamic needs of consumers in India. PepsiCo

India provides direct and indirect employment to 150,000 people including

suppliers and distributor.

Some of the PepsiCo brands in India are as below:

 Pepsi

 7 Up

 Mountain Dew

 Mirinda

Pepsi: Pepsi is a carbonated soft drink produced and manufactured by PepsiCo.

The drink was first made in the 1890s by pharmacist Caleb Bradham in New

Bern, North Carolina. The brand was trademarked on June 16, 1903. There have

been many Pepsi variants produced over the years since 1898.

Brand History: It was first introduced as "Brad's Drink" in New Bern, North

Carolina in 1898 by Caleb Bradham, who made it at his pharmacy where the

drink was sold. It was later named Pepsi Cola, possibly due to the digestive

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enzyme pepsin and kola nuts used in the recipe. Bradham sought to create a

fountain drink that was delicious and would aid in digestion and boost energy.

In 1903, Bradham moved the bottling of Pepsi-Cola from his drugstore to a

rented warehouse. That year, Bradham sold 7,968 gallons of syrup. The next

year, Pepsi was sold in six-ounce bottles, and sales increased to 19,848 gallons.

In 1909, automobile race pioneer Barney Oldfield was the first celebrity to

endorse Pepsi-Cola, describing it as "A bully drink...refreshing, invigorating, a

fine bracer before a race". The advertising theme "Delicious and Healthful" was

then used over the next two decades. In 1926, Pepsi received its first logo

redesign since the original design of 1905.

In 1931, at the depth of the Great Depression, the Pepsi-Cola Company entered

bankruptcy - in large part due to financial losses incurred by speculating on

wildly fluctuating sugar prices as a result of World War I. Assets were sold and

Roy C. Megargel bought the Pepsi trademark. Eight years later, the company

went bankrupt again. Pepsi's assets were then purchased by Charles Guth, the

President of Loft Inc. Loft was a candy manufacturer with retail stores that

contained soda fountains. He sought to replace Coca-Cola at his stores' fountains

after Coke refused to give him a discount on syrup. Guth then had Loft's chemists

reformulate the Pepsi-Cola syrup formula.

On three separate occasions between 1922 and 1933, the Coca-Cola Company

was offered the opportunity to purchase the Pepsi-Cola company and it declined

on each occasion.

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Rise: During the Great Depression, Pepsi gained popularity following the

introduction in 1936 of a 12-ounce bottle. Initially priced at 10 cents, sales were

slow, but when the price was slashed to five cents, sales increased substantially.

With a radio advertising campaign featuring the jingle "Pepsi-Cola hits the spot /

Twelve full ounces, that's a lot / Twice as much for a nickel, too / Pepsi-Cola is

the drink for you," arranged in such a way that the jingle never ends. Pepsi

encouraged price-watching consumers to switch, obliquely referring to the Coca-

Cola standard of six ounces per bottle for the price of five cents (a nickel),

instead of the 12 ounces Pepsi sold at the same price. Coming at a time of

economic crisis, the campaign succeeded in boosting Pepsi's status. In 1937

500,000,000 bottles of Pepsi were consumed. From 1936 to 1938, Pepsi-Cola's

profits doubled.

Marketing:In 1975, Pepsi introduced the Pepsi Challenge marketing campaign

where PepsiCo set up a blind tasting between Pepsi-Cola and rival Coca-Cola.

During these blind taste tests the majority of participants picked Pepsi as the

better tasting of the two soft drinks. PepsiCo took great advantage of the

campaign with television commercials reporting the results to the public.

In 1976 Pepsi, RKO Bottlers in Toledo, Ohio hired the first female Pepsi

salesperson, Denise Muck, to coincide with the United States bicentennial

celebration. In 1996, PepsiCo launched the highly successful Pepsi Stuff

marketing strategy. By 2002, the strategy was cited by Promo Magazine as one of

16 "Ageless Wonders" that "helped redefine promotion marketing."

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In 2007, PepsiCo redesigned their cans for the fourteenth time, and for the first

time, included more than thirty different backgrounds on each can, introducing a

new background every three weeks. One of their background designs includes a

string of repetitive numbers 73774. This is a numerical expression from a

telephone keypad of the word "Pepsi."

In late 2008, Pepsi overhauled their entire brand, simultaneously introducing a

new logo and a minimalist label design. The redesign was comparable to Coca-

Cola's earlier simplification of their can and bottle designs. Also in 4th quarter of

2008 Pepsi teamed up with Google/YouTube to produce the first daily

entertainment show on Youtube, Poptub. This daily show deals with pop culture,

internet viral videos, and celebrity gossip. Poptub is updated daily from Pepsi.

In 2009, "Bring Home the Cup," changed to "Team Up and Bring Home the

Cup." The new installment of the campaign asks for team involvement and an

advocate to submit content on behalf of their team for the chance to have the

Stanley Cup delivered to the team's hometown by Mark Messier.

Pepsi has official sponsorship deals with three of the four major North American

professional sports leagues: the National Football League, National Hockey

League and Major League Baseball. Pepsi also sponsors Major League Soccer.

Pepsi also has sponsorship deals in international cricket teams. The Pakistan

cricket team is just one of the teams that the brand sponsors. The team wears the

Pepsi logo on the front of their test and ODI test match clothing.

On July 6, 2009, Pepsi announced it would make a $1 billion investment in

Russia over three years, bringing the total Pepsi investment in the country to $4

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billion. In July 2009, Pepsi started marketing itself as Pecsi in Argentina in

response to its name being mispronounced by 25% of the population and as a

way to connect more with all of the population. In October 2008, Pepsi

announced that it would be redesigning its logo and re-branding many of its

products by early 2009. In 2009, Pepsi, Diet Pepsi and Pepsi Max began using all

lower-case fonts for name brands, and Diet Pepsi Max was re-branded as Pepsi

Max. The brand's blue and red globe trademark became a series of "smiles," with

the central white band arcing at different angles depending on the product. Pepsi

released this logo in U.S. in late 2008, and later it was released in 2009 in Canada

(the first country outside of the United States for Pepsi's new logo), Brazil,

Bolivia, Guatemala, Nicaragua, Honduras, El Salvador, Colombia, Argentina,

Puerto Rico, Costa Rica, Panama, Chile, Dominican Republic, the Philippines

and Australia; in the rest of the world the new logo will be released in 2010,

meaning the old logo has been phased out entirely (most recently, France and

Mexico switched to Pepsi's current logo). As of Present, The UK has started to

use the new pepsi logo on cans in an order different from the US can.

Brand Advantage: Pepsi has become a friend to the youth and has led many

youth cultures. Youngsters over the generations have grown up with Pepsi and

share an emotional connect with it.

Pepsi, Cricket and Bollywood have been joined at the hip since the beginning.

Shah Rukh Khan, Sachin Tendulkar, Saif Ali Khan, Amitabh Bachchan, Kareena

Kapoor, Priyanka Chopra, Virender Sehwag, M. S. Dhoni, John Abraham, Ranbir

Kapoor and Deepika Padukone are some celebrities who will go any length for a

chilled Pepsi.

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7UP: The refreshing clear drink with natural lemon and lime flavour was created

in 1929. 7UP was launched in India in 1990 and its international mascot Fido

Dido was used for advertising in 1992 to position the brand as a cool drink for

youngsters. Fido became an instant hit with his trendy look, laid back attitude and

refreshing take on life. During the brand’s early years in India, 7UP gained

market leader status in the lemon lime category by being one of the first to be

nationally distributed as well as being marketed as a healthier alternative to other

soft drinks.

Brand Advantage: For the past 2 years, 7UP’s ambition as a brand has been to

capture and own the lemon refreshment territory within the clear lime category.

Lemon has proven to be a clear and relevant differentiator for the brand. Further,

it has allowed the brand to ladder up to an emotional payoff of uplifting

refreshment.

After establishing itself as “The Lemon Drink ", in Jan 2009, 7UP continued to

build further on the theme of mood upliftment with its new tagline "Mood ko do

Lemon ka Lift”. 7UP’s brand communication is premised on the product’s

natural lemon flavor , guaranteed to provide uplifting lemon refreshment that

raises one’s spirits.

There are many theories for the origin of the 7UP name. According to Professor

Gary Yu (UCSB) and researchers for the popular "Uncle John's Bathroom

Reader" the name is derived from the atomic mass of Lithium, 7, which was

originally one of the key ingredients of the drink (as lithium citrate). However,

there are numerous myths explaining the name. Such as:

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• It's creator named the soft drink after winning at a casino with 3 rolls of 7 and

the letter U.

• The drink was formulated with seven flavours plus the bubbles from the

drink's carbonation (the bubbles go up).

• The original bottle contained seven ounces; its creator came up with the name

while playing dice.

• 7UP was the 7th large commercial lemonade brand that tasted the same.

• Before the formula changed in 2006, a can of 7UP included seven

ingredients.

• The "Up" in the drink's name might refer to the original inclusion of lithium

citrate, when it was marketed as a patent medicine to cure hangovers.

• The name "7UP" was a reference to the Esotericism concept of the Seven

Planes, made famous by the internet series The Arrivals.

• The name came at the Seventh-inning stretch "7UP" in baseball tradition.

Mountain Dew: The main formula of Mountain Dew was invented in Virginia,

named and first marketed in Johnson City, Tennessee and Knoxville, Tennessee

in 1948.

In India, Mountain Dew set the soft drink category ablaze in 2003 with their

iconic launch campaign “Cheetah Bhi Peeta Hai”. It is a soft drink that

exhilarated like no other because of its daring, high-energy, active, extreme citrus

taste. Challenge, a can do attitude, adventure and exhilaration is deeply

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entrenched in its brand DNA and the brand has always celebrated the bold and

adventurous spirit of the youth. This exhilaration and excitement of Mountain

Dew has always been reflected in the high-adrenaline advertising of the brand

that connected it to outdoor adventure. "Darr Ke Aage Jeet Hai": In 2007, the

brand was re-launched with a completely new, punchier formulation with

communication that aimed at forging a strong emotional connect with our

audience. Thus came about the "Darr Ke Aage Jeet Hai" campaign, which

acknowledged that fear was a very real and relevant aspect of the adventurous

world and Mountain Dew, as a brand wanted to encourage all youth in their

moment of fear, to believe in themselves and just go for it because beyond fear,

lies victory.

Mirinda: is an international soft drink brand from Spain that was launched in

India in 1991. Now when we think Mirinda, we think orange. But this soft drink

brand has many other fruit flavors; Mirinda Lemon was launched in 1998 & other

flavors like Apple & Batberry that were launched as in & outs. Mirinda has

always been about a great orange taste, which is now synonymous with the brand.

These were communicated through our great campaigns; Mirinda Orange

launched in India 1991 and Mirinda Lemon launched in India 1998.

Brand Advantage: In 2008, the brand decided to up the ante on the brand from a

being led by physical attribute-taste, to deliver a brand philosophy that resonates

with the audience. Now, Mirinda's bold and vibrant color, great orangey taste and

sparkling bubbles encourages one to be more carefree, spontaneous and playful.

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1.15 Coca-Cola Co. – PepsiCo Rivalry

According to Consumer Reports, in the 1970s, the rivalry continued to heat up

the market. Pepsi conducted blind taste tests in stores, in what was called the

"Pepsi Challenge". These tests suggested that more consumers preferred the taste

of Pepsi (which is believed to have more lemon oil, less orange oil, and uses

vanillin rather than vanilla) to Coke. The sales of Pepsi started to climb, and

Pepsi kicked off the "Challenge" across the nation. This became known as the

"Cola Wars". In 1985, The Coca-Cola Company, amid much publicity, changed

its formula. The theory has been advanced that New Coke, as the reformulated

drink came to be known, was invented specifically in response to the Pepsi

Challenge. However, a consumer backlash led to Coca-Cola quickly introducing

a modified version of the original formula as Coke "Classic". According to

Beverage Digest's 2008 report on carbonated soft drinks, PepsiCo's U.S. market

share is 30.8 percent, while The Coca-Cola Company's is 42.7 percent. Overall,

Coca-Cola continues to outsell Pepsi in almost all areas of the world. However,

exceptions include India; Saudi Arabia; Pakistan (Pepsi has been a dominant

sponsor of the Pakistan cricket team since the 1990s); the Dominican Republic;

Guatemala the Canadian provinces of Quebec, Newfoundland and Labrador,

Nova Scotia, and Prince Edward Island; and Northern Ontario. By most accounts,

Coca-Cola was India's leading soft drink until 1977 when it left India after a new

government ordered The Coca-Cola Company to turn over its secret formula for

Coke and dilute its stake in its Indian unit as required by the Foreign Exchange

Regulation Act (FERA). In 1988, PepsiCo gained entry to India by creating a

joint venture with the Punjab government-owned Punjab Agro Industrial

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Corporation (PAIC) and Voltas India Limited. This joint venture marketed and

sold Lehar Pepsi until 1991 when the use of foreign brands was allowed; PepsiCo

bought out its partners and ended the joint venture in 1994. In 1993, The Coca-

Cola Company returned in pursuance of India's Liberalization policy. In 2005,

The Coca-Cola Company and PepsiCo together held 95% market share of soft-

drink sales in India. Coca-Cola India's market share was 52.5%. In Russia, Pepsi

initially had a larger market share than Coke but it was undercut once the Cold

War ended. In 1972, PepsiCo struck a barter agreement with the then government

of the Soviet Union, in which PepsiCo was granted exportation and Western

marketing rights to Stolichnaya vodka in exchange for importation and Soviet

marketing of Pepsi-Cola. This exchange led to Pepsi-Cola being the first foreign

product sanctioned for sale in the U.S.S.R. Coca-Cola Co. slightly increased its

lead over rival Pepsi-Cola Co. in 2002, by the successful launch of Vanilla Coke

and the growth of Diet Coke, according to U.S. soft drink industry rankings.

Coke gained 0.6 percentage points in market share and increased its case volume

by 2.1 percent, according to Beverage Digest/Maxwell, a New York-based

industry newsletter and data service. The company captured a larger share of the

market even though its Coke Classic brand fell 0.6 percentage points in market

share. Coca-Cola dominates 44.3 percent of the U.S. soft drink market, but saw

its market share drop between 1999 and 2001. With the latest gains, it's only 0.2

percentage points away from where it stood in 1998 at 44.5. Pepsi-Cola lost 0.2

percentage points in market share. The No. 2 company commands 31.4 percent of

the U.S. soft drink market. Overall, the carbonated soft drink industry posted

modest growth, with case volume up 0.8 percent.26

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