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Cola Wars Essay

729 words - 3 pages

<Strategic management case analysis-“Cola wars continue”>

1. There are several reasons for soft drink industry to have been so profitable. To calculate profit, we use this formula “Profit=Price*Quantity-Cost”. The sales of soft drink soared after the 1970s based on its increasing availability and diverse flavors. People literally demanded soda more than any other beverages so it affected the quantity. Due to inflation that made overall price higher, consumers felt the real price of CSD lower than before so the quantity demanded went up.
In accordance with this, in my personal opinion, other than the large sales quantity of CSDs, the cost of this category is very low. The ...view middle of the document...

In addition, since the concentrate producers were the ones who negotiated with the retail stores, they couldn’t get incentives for supplying the product itself. All in all, different size of costs led to so large a profitability discrepancy between the two parts.

3. Overall, the competition between Coca-cola and Pepsi both had positive and negative influences in the industry’s profits. The positive side is that the two companies didn’t stay put in their original positions without improvements. They had to keep developing themselves in order not to fall behind. Certainly, waging the cola wars in non-U.S. markets enabled Coke and Pepsi not only to expand revenue but also to broaden their base of innovation, drawing out sustaining demand from consumers.
However, when this rivalry reached the point where they competed on the aspect of retail pricing, both companies sold their products even below the cost line to beat one another. Overheated competition made unnecessary costs happen, such as consolidating small companies by force beyond the companies’ availability and sacrificing profitability to keep accounts for national fountain sales and market shares. Additional costs that led to lower...

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