Coke and Pepsi Learn to Compete in India

Key Facts

Coca-Colas past in India

Present from 1958 until 1977

Pepsi entered into the Indian beverage market in July 1986 as a joint venture with two local partners, Voltas and Punjab Agro, forming Pepsi Foods Ltd. Industry Shakeup in 1988 Coca-Cola followed suit in 1990 with a joint venture with Britannia Industries India before creating a 100% owned company in 1993 and then ultimately aligning with Parle, the leader in the industry. State of the Industry in 1993

45% of market consisted of small manufacturers

$3.2 million market share

Average of 3 servings a year/person in 1989 Average of 1404 servings a year/person in U.S. in 2003

Low Demand for Carbonated Drinks

Political Environment in India

Key Issues

India seen as unfriendly to foreign investors for many years The Principle of Indigenous Availability

Policy banning imports being sold in India New Industrial Policy Trade rules & regulations simplified Foreign investment increased

The Liberalization of Indias Government in 1991

Pepsi enters in 1986 Coca-Cola follows in 1993

Indian Laws

Unlawful to market under their Western name in India

Pepsi became Lehar Pepsi

Coca-Cola merged with Parle and became CocaCola India

Coca-Cola agreed to sell off 49% of its stock as a condition of entering and buying out an Indian company Pepsi entered earlier, and was not subject to this

Different Laws for Pepsi and Coke

Problems

India forced Coke to sell 49% of its equity to Indian investors in 2002 Coke asked for a second extension that would delay it until 2007

India denied this

Pepsi was held to this since they entered India in a different year.

Coke asked the Foreign Investment Promotion Board to block the votes of the Indian shareholders who would control 49% of Coke
Change in oversight of the FIPB

Past lobbying efforts made useless

Could these problems have been forecasted prior to market entry?

Probably not, because of the Inconsistent, and changing government

How could these developments in the political arena have been handled differently?

Coke could of agreed to start new bottling plants instead of buying out Parle, and thus wouldnt of had to agree to sell 49% of their equity

Timing of Market Entry

Pepsi (early entry-1986) Advantages

Entered the market Before Coca-Cola and was able to gain a foothold in the market while it was still developing
Gained 26% market share by 1993 Were forced to change their name to Lehar Pepsi Govt. limited their soft drink sales to less than 25% of total sales Struggled to fight off local competition

Disadvantages

Coca-Cola (late entry-1993)

Advantages

Were able to buy 4 bottling plants from industry leader Parle Also bought Parles leading brands: Thums Up, Limca, Citra, Gold Spot and Mazaa Set up 2 new ventures with Parle to bottle and market product Denied entry until 1993 because Pepsi was already there Harder to establish market share with Pepsi there Were not allowed to buy back 49% of equity

Disadvantages

Responses to Indias Enormity

Product Policies Catering to Indian tastes Entering with products close to those already available in India such as colas, fruit drinks, carbonated waters Waiting to introduce American type drinks Coca-Cola introducing Sprite recently Introducing new products Bottled water Distribution Arrangements Production plants and bottling centers placed in large cities all around India More added as demand grew and as new products were added

Promotional Activities

Both advertise and use promotional material at Navrartri

Pepsi

gives away premium rice and candy with Pepsi

Coca-Cola

offers free passes, Coke giveaways as well as vacations A campaigns try to appeal to young urbanites

Use of different campaigns for different areas of India

India

India

B campaigns try to appeal to rural areas

Pricing Policies

Pepsi started out with an aggressive pricing policy to try to get immediate market share from Indian competitors Coca-Cola cut its prices by 15-25% in 2003
Attempt

to encourage consumption to try to compete with Pepsi and gain market share

Coke and Pepsis Glocalization(Global +

local) Strategies
Pepsi

Pepsi forms joint venture when first entering India with two local partners, Voltas and Punjab Agro, forming Pepsi Foods Ltd.

In 1990, Pepsi Foods Ltd. changed the name of their product to Lehar Pepsi to conform with foreign collaboration rules.

In keeping with local tastes, Pepsi launched its Lehar 7UP in the
clear lemon category.

Coca-Cola

First joined forces with the local snack food producer

Britannia Industries India Ltd. in the early 90s.

Formed a joint venture with the market leader Parle in 1993 For the festival of Navrartri, Coca-Cola issued free passes to the celebration in each of its Thums Up bottles

Also ran special promotions where people could win free vacations to Goa, a resort state in western India

Coca-Cola also hired several famous Bollywood actors to

endorse their products