• EconAfterHours

The Cola Wars

Updated: Mar 11, 2020

by Sukanya Nambiar

Android v/s iOS. Mother Dairy v/s Kwality Wall’s. Marvel v/s DC.

These are just some of the debates that most of us – if not all – have had, at some point of time. But one such ‘battle’ that saw fierce competition between two big brands and truly shook up the world of business and marketing is the Cola Wars.

‘Cola Wars’ is a term that emerged in the US in the early 1980s. It refers to the series of advertising and marketing tactics of two, long-time rival soft drink companies – The Coca-Cola Company and PepsiCo – against each other. It is a classic example of a price war in an oligopoly – a market form with a few, big companies competing with each other and strong barriers to the entry and exit of firms.

Both these soft drink giants go way back. Coca-Cola was first introduced in 1886 in the US. Pepsi followed seven years later. Since then, both companies have been neck-and-neck in the soft drinks market and have made their presence felt in several countries across the globe.

At the heart of the Cola Wars are the pricing decisions made by Coca Cola and Pepsi. Their ultimate goal has always been maximizing shareholder value. In order to grab market share, Pepsi generally starts to drop prices, and shortly after, Coca Cola decides to decrease theirs slightly, but not for all products. This is an example of a price war where competitors try to adjust their prices in order to trump the other company. Coca Cola also uses a lower price point to get into new markets that are especially sensitive to price.  For example, in India or Pakistan, Coca Cola is focused on reducing prices of their 200ml container (cans), in order to increase brand awareness among consumers. There is also an attempt made by the company to project itself as ‘superior’ to its competitors.

However, price is just one of the many tools used by the two companies to get ahead in their game. Pepsi-Co and Coca-Cola have also constantly used advertisements to snipe at one another over which drink has a greater mass appeal as well as a better taste. Both companies have had advertising campaigns that are radically different from each other, yet effective in their own way. Coca-Cola’s advertising has largely focused on wholesomeness and nostalgia for childhood. It is often characterized as “family friendly” and often relies on characters, which evoke adoration. Pepsi, on the other hand, tends to focus on the new, ‘in’ things, which the new generation can relate to.

The ‘Pepsi Challenge’ of 1975 was a classic marketing promotion by Pepsi in which regular people got to take part in a blind taste test with one cup filled with Pepsi and another with Coca Cola. These people were then asked to choose their preferred drink out of the two. Not surprisingly, every Pepsi Challenge concluded that more than 50% of tasters prefer Pepsi to Coke. In this way, Pepsi was hugely successful in grabbing a market space otherwise dominated by Coke. From its inception in 1975, the Challenge was hugely successful in grabbing market share away from Coke. In 1981, Pepsi also ran a “Pepsi Challenge Payoff” contest, which would hand out a large hamper to anyone who could gather Pepsi bottle caps that spelled out the words “Pepsi Challenge”. Coca Cola, on its part, countered with rebates as well as retail price cuts.

The Cola Wars spilled over into the 1990s, with both companies pushing for product diversification to reach out to more people. However, Coca-Cola and PepsiCo have witnessed a decline in market share since 2000. This could be attributed to growing awareness among people about the ill effects of soft drinks on one’s health as well as the entry of new firms that have entered the space and carved a niche for themselves, such as Snapple.

Nevertheless, Coca-Cola and PepsiCo continue to be the biggest names in the soft drink industry and the ‘feud’ between them is still the subject matter of numerous case studies and discussions revolving around competitive markets. The Cola Wars underscore the cutthroat competition in an oligopolistic market and show how advertising and marketing is often a matter of life and death.

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