Case Study

1. The political environment in India has proven to be critical to company performance for both PepsiCo and Coca-Cola India. What specific aspects of the political environment have played key roles? Could these effects have been anticipated prior to market entry? If not, could developments in the political arena have been handled better by each company?

The primary barrier to Pepsi and Coca-Cola’s entry into the Indian market was its political / legal environment as a result of its history. Despite the liberalization of the Indian economy in 1991 and introduction of the New Industrial Policy to eliminate barriers, such as bureaucracy and regulation to foreign direct investment, India still had a strong history of protectionism, dating back most recently to its economic policies following the Gulf War. India’s past promotion of “indigenous availability” depicts its affinity toward local products. In fact, the idea of protectionism in industries where India had a comparative advantage can be seen as early as the 1920’s.

Due to India’s suspicion of foreign business stemming from past history, both Pepsi and Coca-Cola received alien status upon entry to the Indian market. The two corporations were required to follow many laws, designed as obstacles to impede foreign business. For example • Sales of soft drink concentrate by Pepsi to local bottlers could not exceed 25% of total sales. • The government of India asked Pepsi to promote its products under the name “Lehar Pepsi”, as foreign collaboration rules in force at the time prohibited use of foreign brand names on products intended for sale inside India. • Most controversial was the agreement Coca-Cola was forced to sign to sell 49% of its equity in order to buy out Indian bottlers. “This response might have been acceptable if investment rules in India were clear and unchanging, but this was not the case during the 1990’s.” It was made very difficult to anticipate the political and legal environment prior to market entry, due to the external nature of the political and legal environment of operations.

2. Timing of entry into the Indian market brought different results for PepsiCo and Coca-Cola India. What benefits or disadvantages accrued as a result of earlier or later market entry? Timing of entry into any market is an essential foundation that determines the future growth and success of a company. That helps to understand the market and build strong relationship with entities such as government, organizations and customers. Coca cola entered the Indian market in 1958 but left the Indian market in 1977 because of the dispute with the government over coca cola trade secrets. Withdrawal of coca cola from Indian market lost market share and advantages of first foreign investor who lead the soft drink in the Indian markets; instead it had a negative image in the Indian market. Pepsi entered the Indian market in July 1986 as joined venture with local partner Voltas and Punjab Agro. For any company who plans to set up their business in any other countries, it is necessary to first study that country’s market thoroughly. Pepsi did study the Indian market thoroughly and learned the local market conditioned, understood the opinion of the local people and was creating a solid distribution network in markets and it established a strong lobby with government in New Delhi.

With its first mover’s advantage or the early entry PepsiCo had more time and greater opportunity to promote its main bands, like Pepsi cola and 7UP and to have maximum substantial market share. Coca-Cola made its second entry in Indian market in 1990 with a joint venture with Britannia however, before Coca Cola re-enter the Indian market, PepsiCo already almost captured half of the market share and Pepsi has become a rival for Coca Cola in Indian markets and realized that competing with Pepsi in term of market size would not be possible if coca cola relied only on their main brands. So it bought “Thums up” from Parle industries at a heavy price and aggressively market this brand in order to keep up with Pepsi in terms of market share. On the advertisement, PepsiCo learned to adopt its advertising campaign to the hearts and minds of the Indian people before in advance of Coca cola by celebrity support to reach the Indian youth and mainly to segment carbonated drinks in markets. Pepsi co realized that Indian people are also passionate of crickets, movie and music. Pepsi recruited major cricket, movie and music star to endorse their brands. On the other hand, coca cola for a long period of time after its second entry into India tried to work with a standardized globalized global advertising approach. This was a major mistake for the company because sales did not reach levels expected for the huge advertising expenditures.

Advantages

Parle offers its bottling parts in 4 major cities
Made its return to India with Britannia
Disadvantage
Rigid rules and regulation
Buying of bottling plants to 49% disinvestment
Local demand of carbonated drinks is as low
Harder to establish themselves
Cost of later entry into the Indian market for coca cola proved to be very expensive. Advantages
Own set up green filled bottling plants.
Advantage of coming before coca cola.
Government policies favored the company.
Joint venture with Volta’s and Punjab Agro././/////;/;/;/;; Gained 26% share by 1993.
Disadvantage
Pepsi approached Parle but it was rejected.
Launched 7up and there is stiff competition in the market for lemon drinks.

3. The Indian market is enormous in terms of population and geography. How have the two companies responded to the sheer scale of operations in India in terms of product policies, promotional activities, pricing policies, and distribution arrangements? In order to meet the local needs and tastes of the Indian population and in order to capture the giant market, Pepsi and coca cola responded in many ways(implementing and changing their strategies )to match the local needs of Indians.

Product policies: Both PepsiCo and Coca cola companies offered a varieties of brands, with difference in bottle sizes ranging from 200ml, 250ml, 300ml, 500ml, 1 liter, to 2 liters. During 1990’s India was not as developed as we could see at present and almost half of its population had low purchasing powers because of which the 200ml bottle became very popular in rural areas owing to its lower price.Eg;PeepsiCo Foods rolled out its Mirinda Lemon,Apple and Orange in 200-ml bottles. Due to the fact, that Indians are very much fond of sweet things, both the companies have marginally increased the sweetness level in their products for the Indian market and also extended their brand lines into the bottled water marked as well, in order to serve the Indian consumers. The range of bottle sizes in the bottled water is even greater than carbonated drinks.

Promotional activities: In term of promotion activities both companies actively promoted their products. Both companies took the advantages of the Navratri festival, where huge numbers of Indians gather to celebrate the festival; both companies performed extremely generous activities of giveaways in their sales promotion. Example: Coca Cola offered ‘buy one-get one free ‘schemes and lucky draws where one can win free trip to Goa.”They also had ‘Thums Up Toofani Ramjhat’with 20,000 free passes issued for a ‘fast dance’, one per Tumps Up bottle. PepsiCo sponsored the “garba”compititions done by women in Navratri festival. They also had mega offers for the people of Ahmedabad,Baroda,Surat, and Rajkot where every refill of a case of Pepsi 300-ml bottles will fetch one kilo of Basmati rice free.” Both companies understood cricket, movies and music, as three of the main drivers of the Indian sports/entertainment industries and they have actively associated with the above drivers. Celebrity endorsements are a common means for both companies. Eg;PepsiCo featured bollywood actors ,Amitabh Bachchan and Govinda to endorse Mirinda Lemon.Thy also featured famous icons such as Sachin Tendulkar, Saurav Ganguly, Zaheer Khan, Baichung Bhutia in their celebrity and music related advertisements. On the other hand Coca Cola used gaana strategy to promote their products, whereby they executed their first ad” Bombay Dreams,” featuring A.R.Rahman,a famous music director. Even sponsorship of cricket and football (soccer) and collage festival and rock show in major cities has also worked well for both companies. Both companies have targeted young college students and promoted their brands in colleges that fit very well with overall strategy.

Pricing policies: The tough competition between coca cola and PepsiCo both companies result in the lower pricing and along with promotion of smaller bottles at very affordable prices. Price competition is not only restricted to the carbonated drinks but also affected the bottled water market. With low purchasing power of people in the rural area of India, pricing become a crucial part of the overall strategy for both the companies. Distribution arrangement: As the first movers advantage of early entry into Indian market PepsiCo has developed a much boarder distribution network compared to coca cola. PepsiCo was able to reach deep into the villages of India before coca cola started to seriously think about it. Coca cola has followed suit and has considerable presence in the rural areas as well. Both companies had to make serious adaptations in their distribution strategy from what they used in the development markets of US and Europe. Reaching out to the rural sectors has been a greater challenge because the poor infrastructure throughout rural India.

4. “Global localization” (glocalization) is a policy that both companies have implemented successfully. Give examples for each company from the case. Glocalization: can be defined as a combination of the words globalization’ and localization’ used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market. Both Coke and Pepsi successfully created brands/flavors specific to India. The failure and success of a brand in India depends on how effective the concept of glocalization forms.It is very clearly shown in the promotional campaigns of both PepsiCo and Coca-cola in India. Implementation of the glocalisation policy by the PepsiCo Company: Pepsi Co formed joint venture when entering with two local partners, Voltas and Punjab Agro, forming ´Pepsi Foods Ltd. PepsiCo’s strategy to promote their main brand under the name “Lehar Pepsi” (“Lehar” meaning “wave‟ in Hindi) worked very well in connecting with the Hindi speaking people in India. Although the new brand name was required by the Indian government, PepsiCo continued with it even after such requirements were removed. The effect of glocalization can be seen in all promotions. Apart from summer sales the second highest sales period is during the festival of Navratri (“nav‟ means nine and “ratri‟ means nights), which is mainly in the west part of India. This is a traditional Gujarati festival that goes on for nine nights while people dance and have fun.

PepsiCo also came up with several offers during the “Garba” (“dance‟) festival. For example a refill of 300ml fetches one kilo (close to 2.2 pounds) of premium quality rice. PepsiCo also tied up with other companies for various promotional offers. For example free Kit-Kats were given away with every 1.5 liter bottle or a pack of Polo (hard mint candies) with each 500ml bottle of Pepsi and Mirinda. Pepsi is one of the biggest sponsors of cricket tournaments around the world in order to build awareness and preference among target consumers. Its most effective glocalization strategy has been sponsoring world famous Indian cricketers Implementation of the glocalisation policy by the Coca Cola Company: Coca-Cola’s strategy of “think local – act local‟ is prominently seen in its campaigns for the Navratri festival. The “Thums Up Toofani Ramjhat” which means to have fun while dancing. A lot of on -site promotional activities like offering exotic free trip offers to Goa with the purchase of a bottle of Coke. The soft drinks slugfest has taken another interesting turn, with both Coca-Cola India and PepsiCo claiming better recall and higher ratings for their respective `ads of the season’. While PepsiCo’s biggest ad in 2003 featured Amitabh Bachchan (a very powerful celebrity) and Sachin Tendulkar’s (a popular cricket star) flying kites. Coca-Cola’s most popular commercial for summer 2002 was Aamir Khan’s (a film star) `thanda matlab Coca-Cola’ act in a pedestrian Mumbai restaurant. The first ad execution, called “Bombay Dreams” with A.R.Rahman (a famous music director), was so successful among the young target audience that it increased the sales by 50% for Coca Cola

5. Some analysts consider that Coca-Cola India made mistakes in planning and managing its return to India. Do you agree? What or who do you think was responsible for any mistakes? Yes, we agree that Coca-Cola India made mistakes in planning and managing its return to India. As re-entry for Coca-Cola in India was not easy, they had to go through numerous protest and criticisms, had to incur greater advertising expenditures, had to buy “Thums up” from Parle at a very heavy price and because of the negative image of its first entrance or relatively poor job in managing relationships with key people in government., It had its initial joint venture project application turned down. Coca-Cola executives were very poor at lobbying with the government.Eg;( application of an initial proposed joint venture with a local bottling company was turned down by the government headed by Rajiv Ghandhi. In contrast, PepsiCo’s application for entry through a joint venture was approved easily. ) Though it was their second time to enter into the Indian market, yet Coca-Cola took more time to adapt to the local market in terms of their advertising strategy. The huge loss that the company had to write off suggests poor financial management by the Indian division of the company. They wrongly forecasted Indian political environment, some marketing and financial blunders committed by the Coca-Cola executives can be said to be the leading causes of down performance of the company in its initial few years in India.

6. How can Pepsi and coke confront the issues of water use in the manufacture of their products? How can they defuse further boycotts of demonstration against their products? How effective are activist groups like the one that launched the campaign in California? Should Coke address the group directly or just let the furor subside, as it surely will? Pepsi and Coke can confront the issue of water use in the manufacturing of their products by taking the following initiatives: Rain Water Harvesting Initiatives whereby they can make maximum use of canal irrigation and rainwater in order to save water as much as possible. Reuse/Recycling wastewater programme whereby, they can reuse water as much as possible & provide wastewater to the farmers to use for their agricultural purposes in all plants to standards that support aquatic life prior to discharge they can invest in recycling use of water and put water recycling plant to deliver the discharged water from their factories and then they can provide that water to farmers for their agricultural use. This way the ground water problem can also be solved and managed. Reduce the quantity of water used to manufacture beverages and become a water efficient user. They can be liable for compensating the famers and community members who have lost .livelihoods as a result of the depleted groundwater and pollution. They can pay for the remediation and clean-up of the groundwater and soil.

They can also conduct social corporate responsibility by contributing funds in developing the community around their production factory through providing health, education, and recreational facilities to help the poor ones and to help promote the ecology. Pepsi and Coke can further defuse boycotts or demonstration against their products in California by doing Ad-campaigns in which they can ask the experts from the ministry of health to test the safety of their product consumption and convey the message to the public that their products are safe and healthy. Inviting the groups involved to learn about and be actively involved in their prevention practices. Being completely transparent about their policies and practices could eliminate any negative perceptions that are incorrect. They can also hire celebrities to do the advertisement for their products because the public follows them. -For example, they should hire celebrities like Salman Khan, Sharukh Khan to advertise their products as they are well known celebrities in India and when the fans see them drinking Pepsi and Coke in the advertisement, their fans will follow them and drink Pepsi and Coke. The activist groups like the one that launched the campaign in California are effective. In an attempt to stem the controversy, Coke entered talks with the Midwestern University and agreed to cooperate with an independent research assessment of its work in India and respond quickly to control the anxiety of customers. Coke should address the group directly because their company was not wrong and they should justify themselves and defend their stand.

7. Which of the two companies do you think has better long-term prospects for success in India? Though it is uncertain to predict the better long-term prospects of both PepsiCo and Coca Cola companies in the Indian market in long-term, we can say that PepsiCo is doing better and it is ahead of Coca Cola by looking at the strategies they adopt, the market share they hold, and because of the fact that they almost acquired half of the Indian market and already established a strong distribution network as an advantages that it got from being first to enter the Indian market. In the 90’s PepsiCo was also more proactive in comparison with Coca-Cola in terms of learning about the local preferences, adjusting to the local needs, targeting the right segment with the right marketing and promotional weapons, as Coca Cola though it was their second time to enter into the Indian market, yet Coca-Cola took more time to adapt to the local market in terms of their advertising strategy. Till now Coca-Cola can be said to have taken a more reactive or “follow the leader” strategy for the Indian market. After a huge investment in advertising it had to copy Pepsi’s strategy of endorsing big celebrities in order to reach the common people.

Unlike Coca Cola, PepsiCo had less political conflicts. Pepsi has had a strong advertising strategies and marketing campaign targeting mainly Youngsters which has worked wonders for Pepsi. Pepsi has had alliance with most of the popular actors, it has been the Official Sponsor of Indian cricket team for a long time .The Game’ ad campaign in the 2011 Cricket World Cup was a mega success and boosted the Sales a lot. PepsiCo has high profile global brand presence, world’s 2nd best-selling soft-drink brand, constant product innovation, and aggressive marketing strategies using famous celebrities, through sponerships etc… Many a time Coca Cola had to learn from PepsiCo in terms of promotions of their products and also it had to buy the “Thumps Up” from Parle at a very high price when it found out that it was difficult to compete with Pepsi just with their brands. So all the above statements proves PepsiCo to be more superior to Coca Cola during 1990’s in India.

8. What lessons can each company draw from its Indian experience as it contemplates entry into other Big Emerging Markets? It is critical to take into account the government present within the country. Is it corrupt? Is it hostile towards foreign companies or America companies to particular? Both Pepsi and Coke ran into these problems as they struggled to compete for the market share for their products in India. Because of the environment issues both companies ran into, it would be beneficial to study the effects that the local environment will have on their products as well as the effect of the companies that will have on the environment .These issues go hand in hand. There will be effects and it is important to know what they are and to have a plan in place to counter the negative effects anticipated.

Both the companies experienced a range of unexpected problems and difficult situations that led them to recognize that competing in a new market needs a thorough understanding of the taste, preference, culture, habits of people and most importantly the policies framed by the government as it being the powerful entity. An important element for the long-term success of Coca-Cola and PepsiCo depends on how they can transfer learning from one market to another, particularly Big Emerging Markets (BEMs). This is where both companies can utilize their Indian experience, as for example in Pakistan or China. Adaptation to local culture, tastes, and preferences is a critical requirement. This necessitates changes to product, packaging, promotions (advertising/marketing), and distribution in order to meet local demands.

Relationship building at all levels with different entities specially the government is another key lesson that both Pepsi and Coca-Cola can learn from India. Coca-Cola failed in building strong relationships with the government of India in the 1970’s, because of which it had a negative image in the eyes of the Indian government. Of all the elements of the marketing mix, pricing seems to be most critical in BEMs where the greater part of the population suffer from low purchasing power. The future for global companies worldwide may not lay in targeting high earning people rather the billions of the people at the bottom-of-the pyramid (BOP). How to devise strategies to target this huge sector should be an opportunity and an important lesson for both PepsiCo and Coca-Cola from their Indian experience. Finally, having a good exit strategy is a lesson that both these companies should keep in mind while working in politically unstable countries. Coca-Cola’s exit in 1977 from India is the perfect example where having such an exit strategy could have worked well for the company. Pepsi’s lesson learned:

Beneficial to keep with local tastes and pay attentions to market trends: Celebrity appeal makes exceptional advertising
It pays to keep up with emerging trends in the market
Coke’s lesson learned:
Pay specific attention to deals made with government
Established a good business relationship with the government Investment in quality products
Advertising is crucial

Reference

Dorienne, (2010).Essaysforstudent.com. Coke and Pepsi in India. Retrieved 5thApril 2014 From http://essaysforstudent.com/Business/Coke-Pepsi-India/81656.html Sachinkhochare, (2011).Studymode.com.Coke and Pepsi.Retrieved 5th April,2014 from http://www.studymode.com/essays/Coke-Pepsi-551571.html Shah.D.(2014).Authorstream.com.Pepsi and Coke learn to compete in India.Retrieved 5th April ,2014