Discussion Board 9
Participate in this discussion by explaining in what ways Pepsi and Coke exhibit interdependence in the soft drink market. This market structure has a number of defining characteristics. The purpose of this discussion is to provide evidence, or disclaimers, that (1) Pepsi is part of an oligopoly, and that (2) as such, Pepsi determines its marketing strategy by closely studying the strategy of Coca Cola. Once the leadoff entries are posted, others are expected to support or challenge the points made. Although designated students have the responsibility of researching this topic, the rest of the class should take a look at the guidelines posted under Course Information.
STUDENT POST #1
Coke and Pepsi control 72% of the market share for soft drinks (42% and 30% respectively) and so are considered an oligopoly. As such, both experience positive cross price elasticity of demand. This means that when the price of Coke rises, for example, the demand for Pepsi rises in response. This occurs because Coke and Pepsi are substitutes. The price elasticity of demand for Coke and Pepsi are only failry elastic, meaning that when Coke raises its prices, some indifferent consumers will switch to Pepsi, while more loyal consumers will remain with Coke and pay more. These companies try to retain loyal customers by differentiating themselves in terms of the taste of their product, marketing campaigns, and prices. Adventising plays a large role in creating loyal customers. In blind taste tests, more people preferred the taste of Pepsi, but still said that Coke was their brand of choice. In the past, the "price wars" have illustrated the competition and interdependence of these two companies. Generally, to protect its market share, Coke will lower its prices first, especially as summer time approaches. Pespi soon follows, usually with an equivalent price decrease. Another thing that demonstrates Coke and Pepsi's interdependence is their "kinked demand curve". The demand curve for both is "kinked" at market price. The demand curve to the left is elastic (less steep) because raising price will cause consumers to switch to the competitor, while the demand curve to the right is inelastic (more steep) because when one firm lowers price, the other follows, resulting in little change in demand.
STUDENT POST #2
According to Nasdaq (http://www.nasdaq.com/article/coke-vs-pepsi-by-the-numbers-cm337909) Coca Cola controls 42% of the market for soda, Pepsi controls 30% of the market for soda, and the last 28% is a vast number of companies with very low percent. This percentage difference between these 2 and the rest of the industry clearly shows they are in an oligopoly. Coke has technically won being 12% higher than Pepsi, but they are still close enough to need to market against each other.
They show interdependence in the market by focusing on different things. Coca-Cola seems to be focusing on international sales while the slowly rebuilding their sales in the US. While Pepsi is focusing on steering into the healthier lifestyle with more water, tea and better for you drinks. In the end, they will both still be in an oligopoly, and the market will dictate who will come out ahead in the long run.
STUDENT POST #3
Mr. Breman, you clearly have reported information far beyond the scope of the textbook, so I will make the the assumption that you are a man of higher thought. You are correct. At 72% of the total soft drink market, this is indeed an oligopology controlled by two heavy weights. People generally put Coke in front, as they control 41 percent and Pepsi, 31 percent. However, I think Pepsi continues to own the Annual Revenue measure, with $62 B versus Coke's $42 B, and net income that is $ 3.8 B greater than Coke's 6.5 B. It is hard to define a winner in this fight, but both are doing what the need to do to own the market. You have defined the MAIN market strategy well. Coke sets the Price to stay out front and Pepsi follows right behind them. There collective discounts paralize the competition. However, that is not the only strategy they share. Both companies are aggressive to make or buy other flavors that often mirror each other (eg. Dad's Root Beer and A&W Root Beer). However, they do have a significantly different product strategy, with Coke following its Soft Drink Mission, and Pepsi branching out into the "Snack" market. As for the blind taste tests, I am an example of the norm, I chose Pepsi 7 of 10 times, but to this day, I am a coke woman.
One of the leads also infer that Pepsi follows the lead of Coke in its marketing strategy, as does the very question we are to answer. This is largely true. Price, as previously discussed is driven entirely by Coke. As for Place, both companies are side by side in domestic stores and both companies have global markets, but Coke is the international leader. As for product, there is some differentiation as Pepsi has a significant share of the "Snack" market. Finally, it is promotion where these two companies differentiate themselves, and it is here where each have made critical success, and both made cridical failures. One of Coke's successes has been the Polar Bear ad campaign, and one of its failures had been the rollout of its new Coke. As for Pepsi, the Pepsi Challenge was an enormous success, while its recent "Jenner" ads were a definite failure. However, both share the same air waves and internet, and in this regard, they are all but identical.
