The competitive nature that characterizes the current economy has affected the majority of companies, and Coca-Cola and Pepsi-Cola are no exception. Coca-Cola was initially formed in 1886, its main objective was to sale soda fountains as mental and physical relaxers. Later it was affected by the increased counterfeits and imitations. Pepsi-Cola was invented seven years later, and the Coke’s management perceived it as an infringement of the company’s trademark. Since then, there has been the “cut-throat” competition between these two manufacturers of soft drinks. Executive directors of the two companies claim that the success of the rival company—either Pepsi-Cola or Coca-Cola—is embedded to the efforts of the other company. However, by the end of the 20th century both companies faced severe economic downfalls. Most of the companies in the sector were modifying their bottling, pricing, and brand strategies.
Following these challenges, the companies initiated strategies aimed at enhancing the amount of domestic Cola sales, finding new revenue streams and enhancing their profitability level. Such an endeavor was boosted by the economics that characterized U.S. CSD Industry. The increased consumption rate of the commodities ensured that the revenue outlay, associated with Coca-Cola and Pepsi-Cola production, had a tendency to increase immensely (Yoffie, 2004). By the mid-20th century, the prices of Cola Soft Drinks declined due to economic conditions of the society. This necessitated an increase in demand for the products. Though there existed extensive substitutes for the drink, the Americans preferred consuming soda to any other beverage. This increased the market share for the Coca-Cola and Pepsi-Cola, thereby, enhancing their dominance in the economy. The dominance of both Cola companies, and CSD in particular, was facilitated by four vital participants: concentrate producers, bottlers, retail channels and suppliers (Roger, 1988).
The function of concentrate producers was to blend the available raw material ingredients before sending them to the bottlers. In addition, the concentrate producer is involved in promotion, advertising, market research and public relations. Indeed, under the fragmented business environment, the U.S. soft drink portfolio industry changed significantly, with the emergency of numerous local manufacturers. Coca-Cola and Pepsi-Cola enjoyed high market sales (about 76% of the total market share) as they were the leading concentrate producers, followed by Cott Corporation and Cadbury Schweppes. The bottlers purchased the soft drinks concentrate from the producers, added high fructose and carbonated water, bottled CSD, and were involved in the delivery of the commodity. The two companies enjoyed a relative share in the bottling sector as they influenced the majority of processes, including franchise agreements (Byrne, 2000).
The retail channels were undertaken in various locations in U.S. economy. The focus was on the fountain outlets, food stores, vending machines, convenience stores and other outlets. As the CSD is non-restrictive, Coca-Cola and Pepsi-Cola enjoyed a relative range of retail outlets that enhanced their profitability. However, the main distributors of the soft drinks were supermarkets. Sales revenue was high in supermarkets, therefore, Pepsi-Cola and Coca-Cola distributed most of their products to these stores. Earlier on, the focus of Pepsi was on retail outlets, while Coke put its preference on fountain sales (Preston, 1998). The competition was intense, and Coca-Cola increased its market share to 65% in its area of specialization, while Pepsi reported 21% of fountain sales. Concentrate producers offered bottlers rebates to encourage them to purchase and install vending machines. The owners of the property, where vending machines were located, usually received sales commission. Coke and Pepsi were the largest suppliers of CSDs to the vending channel.
According to McKay (2000), the Cola Wars began since the former marketing executive of the Coca-Cola Company became the CEO of Pepsi. As Alfred Steele was a successful marketing executive, the Coke’s management perceived it to be a threat to their success. Though Pepsi-Cola took the image of Coke, the company faced an impeccable challenge to outwit the marketing strategies of Coke. At that time, Coke was the dominant brand across the U.S., and, particularly, in Dallas, Texas. The Pepsi marketing executives instigated a “Pepsi Challenge” to counter the dominance of their rival company in the economy. However, Coke was continuing with its recuperation and organized various franchise bottling contracts to enhance its flexibility. In addition, the Cola War continued with Coke focusing on raw material ingredients that were lowly-priced, in order to make CSD affordable to consumers (Roger, 1988). In addition, the company intensified its advertisement and marketing efforts in an attempt to increase its consumer base.
Consequently, the Cola Wars weakened. The small franchised companies and Coke encouraged the franchises to increase their promotions, advertisements, and launch of equipments. On the other hand, Pepsi was also affected by the War and focused on anchor bottle Model, that anticipated the bottlers to consolidate with the aim of costs minimizing. This consolidation technique was adopted by Coke, and most of the small concentrate producers depended on the two companies for distribution and promotion services (Yoffie, 2004).
Currently, the companies are experiencing the balanced market growth across the United States. In doing so, they are guaranteed of high market share and profitability in the economy. Although there has been a rise in the tastes and preferences of consumers, Pepsi and Coke have shifted their portfolio to incorporate expanding consumer trends. Globally, the two companies have performed immensely, and their branches and outlets have been initiated beyond the international boundaries. This has made the companies be amongst the leading organization in the world.