Uncivil Cola Wars: Coke and Pepsi Confront the Prisoner’s Dilemma–Case Studies

 He who lives in harmony with himself lives in harmony with the universe.–Marcus Aurelius

Competition Demystified Chapter 9: Uncivil Cola Wars: Coke and Pepsi Confront the Prisoner’s Dilemma

Let’s keep moving on…..

Study Questions

  1. What are the sources of competitive advantages in the soda industry? Can you show this by financial metrics?
  2.  During the “statesmen” era of Pepsi and Coke, what actions did each of the companies take? Why did  they help raise profitability?

Cases to study:

Coke vs Pepsi A Case Study.pdf – 191.55 KB
Coke vs Pepsi a Hundred Years War.pdf – 454.92 KB
Expires: Files will be available for download until June 06, 2012 13:42 PDT

Link: http://www.yousendit.com/download/M3BtNU1FdGpuSlRMbjhUQw

Coke vs Pepsi and the Soft Drink Industry.pdf

Coke vs Pepsi in the 1990s.pdfFiles will be available until June 06, 2012
Link for two cases here:

 Fortune Articles

Kicking Pepsi’s Can http://money.cnn.com/magazines/fortune/fortune_archive/1996/10/28/203906/index.htm

Crunch Time for Coke http://money.cnn.com/magazines/fortune/fortune_archive/1999/07/19/263104/index.htm

You have about 100 pages of reading including pages 181 to 199 in Competition Demystified. This case is important for learning about an industry with an oligopoly structure.

My apology to you for piling on so much work-Video: http://www.youtube.com/watch?v=_mI7ldxcio0&feature=related

Answers will be posted by next weekend. Good luck.

4 responses to “Uncivil Cola Wars: Coke and Pepsi Confront the Prisoner’s Dilemma–Case Studies

  1. Sources of CA:
    1) Customer loyalty- There is an immense amount of customer loyalty in colas. People prefer to drink the same brand. It would take billions of dollars to recreate the same brand name of Coca-Cola or Pepsi. They have been building their name for the past hundred years and each actively protects their brand equity. This is something that can’t be found on a financial statement. It could be seen though, that when Coke’s and Pepsi’s marketing campaigns started targeting each other, their margins dropped severely.
    2) Economies of scale- To keep customer loyalty, cola companies and their bottlers spend a lot of their income on marketing. No matter the amount of cola a company sells, marketing stays as a fixed cost.
    3) Regional economies of scale- Distributing the final product becomes more economical when there are more customers in a region since the costs are high for moving something as bulky as cola.

    • Thanks Dave. We will discuss in the next few days. Can you tell me how with numbers you can illustrate the industry structure and indications of competitive advantage for Coke and Pepsi?

      What happened in these cases?

      • This question is a bit harder to answer and I’m not sure I have the best answer.

        The hundred year war case study page 16, shows that despite Pepsi’s efforts, Coke grew it’s market share throughout their cola war.

        You can also see on the next page that Coke’s and Pepsi’s margins and roe grew as they spent more on marketing. However, this might be because they didn’t try to go to war in each other’s respective markets rather than showing a competitive advantage.

        • Good point Dave.

          From my reading Pepsi gained market share in the late 1970s and early 1980s. Profit margins in early 1980s then there was a truce.

          I am amazed by the stability of market share and profits in general.

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