What Is Process Costing Accounting Essay

What Is Process Costing Accounting Essay A process costing technique is worn in favor of Indus deception producing substance, oil, fabric, and flour, pharmaceutical, shoos and petroleum. This kind of estimate is too old through firms developed such clothes methods be the gathering sort manufacturing which manufactures such equipment given that kind writers, automobiles. Airplanes and home embrace emotional appliances. Lastly certain service industries, such sagas, stream, and warmth, cost their goods via with development estimate methods. During information procedure figure course of act are time and again termed nonstop or collection production cost bookkeeping process. What Is Process Costing? Process costing be a kind of estimate scheme so as to is worn for consistent, or all the same, products. Process costing averages the expenditure in excess of every units to approach in the direction of the each unit cost. This is within distinction to additional type of estimate systems, such as job-order costing to is used for goods to be in differentiate batch. Nothing like job-order costing, process costing is track using a work-in-process report for all section, somewhat than from end to end supplementary ledgers Process Costing In office, process costing is a technique of transfer manufacture costs to units of production. During process costing systems, production costs be not traced to being units of production. Costs are assigning primary to production departments and after that in the direction of units of output because they shift through the departments. The procedure costing method is classically used intended for process that produces great quantities of all the same goods. The process costing technique is within difference to extra costing methods, such as produce costing, job costing, or operation estimate systems. Using the procedure estimate technique is best below sure environment. If the production goods be all the same, that be, the unit of productivity are fairly identical as of one more, and it may be useful to use process costing. But the productivity products are of short cost, sense every entity unit of production is not value much; it can be obliging to utilize process costing. And rider it is hard before infeasible to draw production costs in a straight line to person units of production, it can be useful to utilize the process costing technique. Examples of operations to be possible to utilize the procedure figure system as opposite to one more costing method comprise a cola bottling place, a lunch puffed rice creator, a corporation that make processor chips, and group that produces clump, and a corporation that produces bricks. For instance, intended for the corporation to bottles cola; it would not be possible otherwise valuable to divide and evidence the cost of all bottles of cola in the bottling procedure. Consequently, the corporation would allot costs to the bottling development since a total meant for a stage of moment, and next segregate that generally development cost by the digit of bottles shaped throughout that time of time to allocate making costs to all pot of cola. Process Costing system 5 Steps used for Process Costing 1. Examine inventory flow 2. Translate in-process inventory to equivalent units 3. Calculate every valid cost 4. Compute the cost for every unit of complete and in-process inventory 5. Assign costs to units of ended and in-process inventory First, examine the cost-flow copy of the applicable account account to settle on how a great deal inventory be at hand at the opening of the stage, how a good deal was in progress for the period of the period, how a great deal as finished during the stage, and how a lot is missing as work-in-process at the ending of the period. Second, exchange the work-in-process finish account keen on a digit of corresponding units fashioned. These incomes if there are 1,000 units of inventory in work-in-process, and these units are all 50% absolute, and then you judge this as the equivalent of 500 units shaped (500 = .50 x 1,000). Third, calculate the whole direct and indirect costs incurred through the making procedure that calls for to be assigned to the units concluded and the units at rest in process. This includes the costs related with the launch inventory and the costs incurred during the related period. Fourth, figure the amount of cost to be assigning to the over units of construction and the equal of completed units of production at rest in the finish inventory. For instance, if 2,000 units were finished, and 1,000 units were missing half-finished, after that you would separate the valid costs through 2,500 units. Fifth, apportion the applicable costs to the units of manufactured goods that were finished and to the units of item for consumption that stay in the work-in-process explanation. foundation: Hilton, Ronald W., Michael W. Maher, Frank H. Skelton. Cost Management Strategies for Business Decision, McGraw-Hill Irwin, New York, NY, 2008. Process Costing Procedures Process costing systems go after exact events, as well as precise events can differ through corporation otherwise by manufacturing, they determinations normally chase these steps: At the same time as additional types of figure begin by means of a sales order, a sales classify be not wanted used for procedure estimate as it is a constant method The work-in-process financial records are separated by division and are named because such for illustration: Work-in-process division Name The original branch in the development makes the initial entrance keen on the work-in-process report, usually for the through unprocessed resources As the goods go from section to branch, entries are completed to every work-in-process division explanation Direct labor costs be recorded through phase Actual overhead costs be recorded; no contra-account is wanted since here is rejection more than- or under-applied transparency payable to the real cost organism practical Indirect costs be realistic to the clearness account in specific amounts Normal spoilage is recorded since a time to the work-in-process report; uneven spoilage is distant as of the work-in-process explanation and practical to a part explanation consequently it is able to be deal with board. When Is Process costing suitable? Process costing is appropriate as goods be all the same (or the same). Anywhere job-order and additional types of estimate search for to locate the cost for each unit for batches of differentiated goods, sequence estimate seeks to locate the normal cost of every units more than a stage of time. Then, progression approximation is just relevant when every one unit is the equal. For example, a developed corporation that produces only one uniform creation capacity choose to use development estimate. Characteristics and process of costing. The characteristics of procedure costing are: A cost of manufacture in order is hand-me-down to collect, calculation up, and build complete and component indict. Manufacture is accumulating and report by departments. Costs are post to departmental work in growth accounts. Structure in procedure at the finish of a period is restated in circumstances of over units. Total expenses exciting to a part are alienated by whole computed manufacture of the section in order to decide a unit cost for a exact period. Costs of finished units of a section are transferred to the subsequently dispensation section in order to turn up at the whole costs of the ended products throughout a period. At the similar time, costs are assigned to units motionless in procedure. Uniqueness and procedure. Build up substance, labor, and factory over head costs by departments. Conclude a component cost for every department. Move costs from one department. Allocate coast to the explanation of labor motionless in process. If correct unit and list costs be to live recognized by procedure costing method, costs of a period have to be recognized with units shaped in the similar phase. Elements/Components of Cost Process Costing way is appropriate anywhere the production results from a sequence of unremitting or cyclical operation or process and crop are indistinguishable and cannot be segregated. Process Costing enables the ascertainments of price of the produce at all method or point of invent. The yield consists of goods which are homogenous. Manufacture is accepted on in dissimilar stages having a nonstop flow. Fabrication takes place constantly except for in belongings somewhere the set and technology are lock up for preservation and so on. Output is identical and every unit are matching during each process. It would not be probable to outline the characteristics of any exacting lot of yield to any lot of effort. The contribution will go by from side to side two or more processes earlier than it takes the figure of the production. The productions of every procedure become the effort for the after that process until the last product is obtain, with the previous procedure charitable the last product. The production of a process may also be profitable in which box the course may make some income. The input of a procedure may be competent of organism acquire from the outer surface sources. The output of a procedure is transfer to the next course usually at cost to the course. It can also be transferred at marketplace price to allow examination competence of operation in assessment to the variety store situation. Standard and uncharacteristic fatalities may occur in the process There are a number of industries in which procedure costing is able to be functional Elements/Components of Cost The subsequent are the major elements/components of costs mixed up in the developed process everywhere method costing method is adopted. Direct Materials Present be two types of equipment that we approach crossways in process costing. Primary Material Materials which are introduce in the first course and approved on to the after that development as a fraction of productivity after close of meting out. Secondary Material Materials which are introduced in the first or ensuing processes in addition to the main material introduced in the opening process. This gets miscellaneous up with the major matter and is approved on to the following processes as a part of the productivity. Direct Labor/ The direct labor cost is usually incurred in each process. Classification of direct labor cost is as fine comparatively easy in process estimate industry Direct Expenses Expenses in adding to Direct Material and Labor which can be in a straight line attributable to a exacting procedure. These are costs pertinent to exact processes. Production Overheads The overhead operating cost is in general finished over all the process involved in construction. These are to be apportioning over the different processes in an agreeable method Methodology of Recording Accounting Costs Financial Accounting method is adopted for tape costs concerned. Process Accounts A nominal account for all process is use to verification all the expenditure applicable to a process. every procedure report is Debited with The Primary Direct Material Cost Secondary Direct Material Cost Direct Labor Cost Direct Expenses and Production Overheads billed and/otherwise apportioned to the procedure. Credited with The worth of production transfer to the following procedure or over stocks. Information, Alphabets or any word or expression on behalf of the process are second-hand as suffixes/prefixes in the names (Process I a/c, Process A a/c, purification Process A a/c etc) to clearly recognize the processes accounts. Process Stock Accounts Stocks applicable to a procedure are maintained in a break up supply account. Stock accounts for contribution can be maintained someplace every one the effort acquire/established for a procedure through a period is not second-hand up and doing Stock accounts for production may be maintain where all the output produced/finished in a course throughout a age is not likely off also by move to the after that course or by sale. Where the productivity applicable to a process is sold not together from organism transfer to the next process, it generates revenue. These revenues relevant to a process are normally record by means of the procedure explanation or the store explanation. Feature of Process Costing The product of one process becomes the contribution otherwise unprocessed objects of the next process; There is a permanent stream of the same production; It is complicated en route for make out a price tag item because each cost unit is part of a process; It is difficult to cost a cost unit hence we can only find the typical rate for each item over period of time; price centre are set happy and costs are composed by the cost centers; It is possible that combined goods may be produced in the processes; misuse may arise during dispensation e.g. due to vanishing, etc . A person is usually liable for a process. An account called a method version is maintained for each process. All costs-materials, labor and overheads; fragment productivity opportunity work-in-process finishing work-in-process transfer from preceding process Losses or gains Comparisons Similarity among job order and process estimate take in: Both systems have the similar fundamental reason-to work out unit cost Together systems use the similar developed financial records The flow of costs from side to side the developed financial records is on the whole the same. the other hand, there are a few significant differences between job order and processing costing as describe under. Job Order Costing Process Costing every job be special every one products be matching Costs be accumulate through job Costs be accumulated through section Costs be captured on a job cost slip Costs are accumulated on top of a subdivision making report Unit costs be compute via job Unit costs be computed by means of department . These resolves require a journal access such the same as Work in Process Department B Work in Process Department A When the products are finished they are transfer as of the final meting out sector to completed supplies. Companies using process costing arrange departmental production reports. The production report consists of three parts as follows:   Ã‚  Ã‚   1.   A quantity schedule which shows the current of units from end to end the branch and a   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   subtraction of comparable units   Ã‚   2.   A calculation of expenses per correspondent unit   Ã‚   3.   A understanding of all cost flows into and elsewhere of the department Process Costing Systems What is it and when is it used? Weighted-average method First-In, First-out Method Common Mistakes with Transferred-in Cost Process Costing Systems What is it and when is it used? A process-costing scheme is a estimate organization in which the cost of a creation or repair is obtained by transmission costs to a lot of like or comparable units. Unit costs are then computed on an average basis. Process-costing systems are second-hand in industries that create approximating otherwise parallel units which are repeatedly crowd produced. In these industries, products are pretend in a awfully parallel system The companies habitually use the equivalent sum of direct materials, direct industrialized labor costs and industrialized overhead costs. Industries that use process costing systems are for example: substance dispensation, oil cleansing, pharmaceuticals, plastics, element and tile developed semiconductor chips, beverages and banquet cereals. The disparity flanked by job estimate and course costing is the degree of averaging second-hand to work out unit costs of produce and armed forces. The cost article in job estimate is a job that constitutes a noticeably individual produce or service Weighted-average method The weighted-average process-costing procedure assigns the regular corresponding unit cost of every job done to date (regardless of when it was done) to alike units complete and transferred out, and to equivalent units in finish inventory. The weighted-average cost is purely the usual of different the same unit costs ingoing the occupation in process account. First-In, First-out Method The First-in, first-out (FIFO) process-costing technique assigns the cost of the first equal units accessible (preliminary with the equal units in beginning work-in-process inventory. This method assumes that the earliest equivalent units in work in development school assembly account are done first. Common Mistakes with Transferred-in Costs Here are a few frequent pitfalls to stay away from when secretarial for transferred-in costs: Keep in mind to comprise transferred-in costs on or after preceding departments in your calculations. Such costs be supposed to be treated because if they were an extra type of direct material additional at the start of the process. In other language when consecutive department are involved, transferred units from one division develop into all or a part of the through materials of the next division; though, they are called transferred-in costs, not shortest materials costs. In scheming costs to be transferred on a FIFO foundation, do not fail to see the costs assign at the commencement of the era to units so as to be in process other than are at the present built-in in the units transferred. Unit costs may vary flanked by periods. Consequently, transfer units could hold batches accumulate at dissimilar unit costs. Example of an area where Process Costing is applied A general example of an industry anywhere practice costing may be applied is Sugar Manufacturing Industry. http://www.futureaccountant.com/process-costing/images/sugar-process.gif The processes in this production are Cane Shredding The cane is busted into little pieces to allow easier group through the milling machine. Milling The torn cane is approved from side to side rollers which squash them to extract cane juice. Heating and adding lime The extracted juice is then heated to make it a concentrate and lime is added to the heated juice. Clarification Muddy substance is removed from the concentrate through this process Evaporation Water is removed as of the juice by vanishing. Crystallization and Separation Sugar crystals are developed on or after the waterless juice think in this method. Spinning Molasses are alienated as of sugar with Centrifugals in this method. Drying Sugar is obtained by freshening the wet raw darling obtains in the revolving method.

Seperate And Unequal, Frederic Essay examples -- essays research paper

Separate and unequal: Blacks and White women. Many may say that blacks and white women had more in common than people thought they did in the pre civil war era. A point worth arguing is that there are a few similarities and too many differences to list. No matter how you twist reality to make it seem the worst for women, they were at least treated as humans and not like barn animals. Before 1861, many white males valued their farm animals higher than their slaves. Although white women were not treated with the equality to white men that we see in the world today, they should not even be classified with blacks of the pre civil war era. Blacks and white women were treated in a common manor, because neither group was really free. Both had to listen to what the white males told them to do without haste or incompetence. At the time, it would be safe to say that America was for the white males. Because they were the only people who had any say in the rules that governed peoples lives. Even from day one, the Constitution of the United States of America contradicts the way that things were and the way they would continue for some time. The first amendment grants freedom of religion, speech, and assembly. It states â€Å" Congress shall pass no law respecting an establishment of religion, or prohibiting the free exercise, thereof; or abridging the freedom of speech†¦or the right of the people to assemble.† (Primis, 95). Even with this being law both blacks and white women were not allowed to choose what church to attend or allowed to voice their own opinions; both conditions violate the 1st amendment. The 9th amendment also states something contradictory to the way life actually was, it says: â€Å"The enumeration in the constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.† (Primis, 96) This means no person can deny any other person his or her rights given in the Constitution of the United States of America. Evidently the forefathers who founded our government did not consider white women or blacks to be members of our country. But each state sure decided to recognize them when it came time to decide the number of delegates that each state would have in congress. Although blacks only counted as 3/5 of a person they were being acknowledged as members of our society and were denying them their freedom given to them in th... ...south. They were free, except their ideas, thoughts and property became under their husbands control after marriage. According to feminist Sarah Grimke, a South Carolina Quaker, â€Å" the very being of a woman is like that of a slave, is absorbed in her master. All contracts made with her, like those made with slaves by their owners, are a mere nullity†(Primis, 141). She feels like a slave. Why? It is because her husband now owns what she used to before they wed. But how many white women were actually treated like slaves to say that the very being of a woman was like that of a slave? None, if any. What husband would make his wife eat dough out of ashes or sleep on the clay with only a blanket to cover her? To say that white women had even half of the injustices and struggles that blacks had would be unfair to the accomplishment achieved through their fight for equality. Although there are many arguments saying that blacks and women had more in common in the pre-civil war era than normally assumed, I think that there is more than enough evidence to state the opposite. Blacks had so many more injustices than women did and the similarities between the two groups are few and far between. Seperate And Unequal, Frederic Essay examples -- essays research paper Separate and unequal: Blacks and White women. Many may say that blacks and white women had more in common than people thought they did in the pre civil war era. A point worth arguing is that there are a few similarities and too many differences to list. No matter how you twist reality to make it seem the worst for women, they were at least treated as humans and not like barn animals. Before 1861, many white males valued their farm animals higher than their slaves. Although white women were not treated with the equality to white men that we see in the world today, they should not even be classified with blacks of the pre civil war era. Blacks and white women were treated in a common manor, because neither group was really free. Both had to listen to what the white males told them to do without haste or incompetence. At the time, it would be safe to say that America was for the white males. Because they were the only people who had any say in the rules that governed peoples lives. Even from day one, the Constitution of the United States of America contradicts the way that things were and the way they would continue for some time. The first amendment grants freedom of religion, speech, and assembly. It states â€Å" Congress shall pass no law respecting an establishment of religion, or prohibiting the free exercise, thereof; or abridging the freedom of speech†¦or the right of the people to assemble.† (Primis, 95). Even with this being law both blacks and white women were not allowed to choose what church to attend or allowed to voice their own opinions; both conditions violate the 1st amendment. The 9th amendment also states something contradictory to the way life actually was, it says: â€Å"The enumeration in the constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.† (Primis, 96) This means no person can deny any other person his or her rights given in the Constitution of the United States of America. Evidently the forefathers who founded our government did not consider white women or blacks to be members of our country. But each state sure decided to recognize them when it came time to decide the number of delegates that each state would have in congress. Although blacks only counted as 3/5 of a person they were being acknowledged as members of our society and were denying them their freedom given to them in th... ...south. They were free, except their ideas, thoughts and property became under their husbands control after marriage. According to feminist Sarah Grimke, a South Carolina Quaker, â€Å" the very being of a woman is like that of a slave, is absorbed in her master. All contracts made with her, like those made with slaves by their owners, are a mere nullity†(Primis, 141). She feels like a slave. Why? It is because her husband now owns what she used to before they wed. But how many white women were actually treated like slaves to say that the very being of a woman was like that of a slave? None, if any. What husband would make his wife eat dough out of ashes or sleep on the clay with only a blanket to cover her? To say that white women had even half of the injustices and struggles that blacks had would be unfair to the accomplishment achieved through their fight for equality. Although there are many arguments saying that blacks and women had more in common in the pre-civil war era than normally assumed, I think that there is more than enough evidence to state the opposite. Blacks had so many more injustices than women did and the similarities between the two groups are few and far between.

The Key to A Successful E-commerce Site Essay -- Consumerism Business

The Key to A Successful E-commerce Site Despite the rapid growth of E-commerce sites, 43 percent of the them fails, and the difference between the success and the failure is consumer experience, according to Ecommercetimes.com. The Dotcom Survival Guide reported there is still one resource left untapped that can save dotcoms from failure. It's the one resource that historically is most ignored in favor of ads, press, and flashy features yet it's the one resource that can lead dotcoms to survival. That resource is customers. Customers can provide the revenues needed to attain profitability. Customers can give the word-of-mouth marketing to drive traffic. Customers can give the feedback needed to continually improve the website. Customers are a dotcom's most important resource. To survive, dotcoms must improve their customer experience. WHAT IS CONSUMER EXPERIENCE? The customer experience is the combination of everything that the customer sees, clicks, reads, feels or interacts with on a site. Part of this is certainly the usability but so are other components: the site's business goals, its merchandising, the wording and messaging on the site, the use of graphics and color, the flow of pages in core processes, the choice of features to offer or not, and the dot-com's own team and its processes to create and refine the site. The customer experience includes everything from the home page, to the shopping and buying process, to the fulfillment of products. It is the key to a E-commerce site’s survival. WHAT IS THE PURPOSE OF A GOOD CONSUMER EXPERIENCE? The sites that generate the best customer experiences get more "sticky" traffic, higher revenues, and a stronger brand. In contrast, the sites with bad cust... ...ors have a good experience on a site, they'll return as loyal customers and encourage others to do the same. In other words, creating a good customer experience will create a good online brand. CONCLUSION The good customer experience is the key to an E-commerce site’s survive. Companies who learn how to create a good customer experience online will lead, indeed dominate, their respective markets. Good customer experience will help customers experience less frustration, more productivity, and more compassion from the industry; good customer experience will help E-tailers enjoy higher revenues, increase productivity, maintain strong brand, and encourage customer acquisition and retention. REFERENCES www.verticalnet.com www.ecommercetimes.com www.istrategy.com www.creativegood.com www.goodexpereince.com www.visualinsights.ocm

Nokia Strategic Management

Nokia’s Strategic Management Nokia Description of Company Nokia envisions a world where connecting people to what matters empowers them the most of every moment Nokia's CEO Olli-Pekka Kallasvuo Generation of Nokia NOKIA’S FIRST CENTURY: 1865-1967 †¢ The first Nokia century began with Fredrik Idestam's paper mill on the banks of the Nokianvirta river. Between 1865 and 1967, the company would become a major industrial force; but it took a merger with a cable company and a rubber firm to set the new Nokia Corporation on the path to electronics. Generation of Nokia THE MOVE TO MOBILE: 1968-1991 †¢ The newly formed Nokia Corporation was ideally positioned for a pioneering role in the early evolution of mobile communications. As European telecommunications markets were deregulated and mobile networks became global, Nokia led the way with some iconic products. Generation of Nokia MOBILE REVOLUTION: 1992-1999 †¢ As mobile phone use booms, Nokia makes the sector its core business. By the turn of the century, the company is the world leader. In 1992, Nokia decided to focus on its telecommunications business †¢ As adoption of the GSM standard grew, new CEO Jorma Ollila put Nokia at the head of the mobile telephone industry’s global boom – and made it the world leader before the end of the decade. Generation of Nokia NOKIA NOW: 2000-TODAY †¢ Nokia sells its billionth mobile phone as the third generation of mobile technology emerges. Nokia’s story continues with 3G, mobile multiplayer gaming, multimedia devices and a look to the future. Organizational Structure NAVTEQ:Manages digital map consumermobile device and marketing Nokia Siemens Network: Provides sales operational support to the units Services & Development Office. data thechannel,fixednavigation systems, Corporate Software: Develops Gives automotive network Markets: Provides supply chains, wireless and brand portfolio, Devices: Develops and manages for Internet services in 5 mobile navigation devices, messaging and games), applications, infrastructure, corporateof Internet-based mapping platforms to areas (music, maps, media,components. futureservice and worksandand andincludes communications and networks growth opportunities. activities. he sources strategic and explores government services an solutions. professional and business easily, accessible manner to consumers. deliver the services into operators and service providers. Vision of Nokia †¢ The full power of being connected †¢ Enable people to be wherever they want, whenever they want †¢ Life becomes more flexi ble and spontaneous †¢ Innovating, creating and sharing †¢ Technology becomes invisible †¢ Nokia never miss an opportunity to get the most out of life Goals of Nokia †¢ To become the leading provider of mobile solutions, because in the mobile converged internet space consumers expect seamlessly integrated solutions. To deliver these solutions requires continuous relationships with consumers and vibrant ecosystem. SWOT ANALYSIS STRENGTHS †¢Brand awareness †¢Technology leader in manufacturing mobiles †¢Market leader †¢Presence across 150 countries WEAKNESSES †¢Not good at software †¢Performance of Symbian OS is lackluster †¢Increasing dissatisfaction levels with its smartphone †¢Very weak market share in US OPPORTUNITIES †¢Huge loyal customer base †¢Huge presence in developing countries †¢Can use its infrastructure business (Nokia Siemens Network) to educe the bargaining power of mobile THREATS †¢Rapidly c hanging industry †¢Changes of missing Inflection point is high †¢Threat of entry from new business (Nokia Siemens players, Microsoft might Network) to reduce the enter smartphones market. bargaining power of mobile Google has just entered the operators market with Nexus One. Strategy Formulation Product Differentiation ? Applications are the product differentiator ? Nokia’s OVI Store ? Projection: in 2014 6. 67 billion applications would be downloaded ? Increase User Satisfaction Index ? Alliance with software developers ? Increase community strength of Maemo Strategic Objectives †¢ Irresistible solutions and vibrant ecosystems †¢ Direct and continuous consumer relationships. †¢ Best devices – Broadening their geographic reach – Broadening their device base will grow their service business †¢ Smart services – Creating relevant and personalized services – Target: 300 million people using their smart services by 2012 Strategy Formulation Cost Differentiation †¢ Nokia can set an industry enchmark for operating profits †¢ Pressure on competitors †¢ Cost leadership an invincible position against competitors †¢ Fight head-on with Apple Strategies of Nokia †¢ Competitive environment is changing †¢ Consumer needs are changing †¢ The nature of consumers’ relationships with companies is changing †¢ Irresistible solutions & vibrant ecosystem †¢ Transforming into a solutions driven company optimizing user experience. †¢ Laying the foundation for an inclusive and sustainable ecosystem †¢ Direct and continuous consumer relationships †¢ Best devices †¢ Smart services Strategies Evolution of Nokia Competitive Strategy NOKIA NOKIA Broad differentiation strategy Mass Market Low cost mass market strategy Niche Market Low cost niche market strategy Focus differentiation strategy Functional Strategy †¢ Reduce product portfolio †¢ Opportunity for targeting information users †¢ Target specific customers and specific lifestyles †¢ Connect emotionally with the target †¢ Define roadmap of Operating Systems (Symbian or Maemo) Corporate Strategy †¢ Continue divestments †¢ Concentrate resources and energy in smartphone business

Principle of Earth Science Essay

The three stages according from the oldest to the youngest formation are granite, basalt and lastly andesite formation. This will discuss about the formation, composition, type of intrusion and cooling history of each stages. The granite formation is the oldest stage since granite is formed usually beneath the crust about 1. 5 km up to 50 km depth. Primarily, granite is composed of silicon and alumina about 72. 04% and 14. 42%, respectively. The formation of granite occurs through extreme metasomatism. Through metasomatism, elements are brought out by fluids like potassium and calcium to convert the metamorphic rock to granite. According to Himanshu K. Sachan (1999), granite in the northern Himalaya starts its cooling history at 705 Â °C and continued up to 650 Â °C in the range of 1. 2–2. 8 kbar. The next stage is the basalt formation. Basalt is composed of magnesium oxide, calcium oxide and low amount of silicon, sodium oxide and potassium oxide. The formation of basalt occurs when there is a volcanic eruption either under or above the. Mostly the formation of basalt occurs underneath the sea. Through the introduction of water the magma hardens to form the basalt. Basalt forms between 50km up to 100 km depth within the mantle and 150 km up to 200 km for some high-alumina basalt. The next stage will be andesite. The youngest of the formation is the perpendicular andesite. After basalt, the most common volcanic rock would be he andesite. The main composition of andesite is silica about 57%. Andesite is formed either by frictional crystallization or magma mixing with felsic rhyolitic. Melting and assimilation of rock fragments by rising magma to the surface form andesite.

5 Coke vs Pepsi 21st Century Case Study

op y 9-702-442 REV: JANUARY 27, 2004 DAVID B. YOFFIE tC Cola Wars Continue: Coke and Pepsi in the Twenty-First Century For over a century, Coca-Cola and Pepsi-Cola vied for â€Å"throat share† of the world’s beverage market. The most intense battles of the cola wars were fought over the $60-billion industry in the United States, where the average American consumed 53 gallons of carbonated soft drinks (CSD) per year. In a â€Å"carefully waged competitive struggle,† from 1975 to 1995 both Coke and Pepsi achieved average annual growth of around 10% as both U. S. nd worldwide CSD consumption consistently rose. According to Roger Enrico, former CEO of Pepsi-Cola: No The warfare must be perceived as a continuing battle without blood. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be. If the Coca-Cola company didn’t exist, we’d pray for someone to invent them. And o n the other side of the fence, I’m sure the folks at Coke would say that nothing contributes as much to the present-day success of the Coca-Cola company than . . . Pepsi. 1This cozy relationship was threatened in the late 1990s, however, when U. S. CSD consumption dropped for two consecutive years and worldwide shipments slowed for both Coke and Pepsi. In response, both firms began to modify their bottling, pricing, and brand strategies. They also looked to emerging international markets to fuel growth and broadened their brand portfolios to include non-carbonated beverages like tea, juice, sports drinks, and bottled water. Do As the cola wars continued into the twenty-first century, the cola giants faced new challenges: Could they boost flagging domestic cola sales?Where could they find new revenue streams? Was their era of sustained growth and profitability coming to a close, or was this apparent slowdown just another blip in the course of Coke’s and Pepsi’s e nviable performance? 1Roger Enrico, The Other Guy Blinked and Other Dispatches from the Cola Wars (New York: Bantam Books, 1988). ________________________________________________________________________________________________________________ Research Associate Yusi Wang prepared this case from published sources under the supervision of Professor David B.Yoffie. Parts of this case borrow from previous cases prepared by Professors David Yoffie and Michael Porter. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright  © 2002 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www. hbsp. harvard. edu.No part of this publication may be reproduced, stored in a retrieval system, used in a s preadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. Cola Wars Continue: Coke and Pepsi in the Twenty-First Century op y 702-442 Economics of the U. S. CSD Industry Americans consumed 23 gallons of CSD annually in 1970 and consumption grew by an average of 3% per year over the next 30 years (see Exhibit 1).This growth was fueled by increasing availability as well as by the introduction and popularity of diet and flavored CSDs. Through the mid-1990s, the real price of CSDs fell, and consumer demand appeared responsive to declining prices. 2 Many alternatives to CSDs existed, including beer, milk, coffee, bottled water, juices, tea, powdered drinks, wine, sports drinks, distilled spirits, and tap water. Yet Americans drank more soda than any other beverage. At 60%-70% market share, the cola segment of the CSD industry maintained its dominance throughout the 1990s, followed by lemon/lime, citrus, pepper, root beer, orange, and other flavors. C CSD consisted of a flavor base, a sweetener, and carbonated water. Four major participants were involved in the production and distribution of CSDs: 1) concentrate producers; 2) bottlers; 3) retail channels; and 4) suppliers. 3 Concentrate Producers The concentrate producer blended raw material ingredients (excluding sugar or high fructose corn syrup), packaged it in plastic canisters, and shipped the blended ingredients to the bottler. The concentrate producer added artificial sweetener to make diet soda concentrate, while bottlers added sugar or high fructose corn syrup themselves.The process involved little capital investment in machinery, overhead, or labor. A typical concentrate manufacturing plant cost approximately $25 million to $50 million to build, and one plant could serve the entire U nited States. No A concentrate producer’s most significant costs were for advertising, promotion, market research, and bottler relations. Marketing programs were jointly implemented and financed by concentrate producers and bottlers. Concentrate producers usually took the lead in developing the programs, particularly in product planning, market research, and advertising.They invested heavily in their trademarks over time, with innovative and sophisticated marketing campaigns (see Exhibit 2). Bottlers assumed a larger role in developing trade and consumer promotions, and paid an agreed percentage—typically 50% or more—of promotional and advertising costs. Concentrate producers employed extensive sales and marketing support staff to work with and help improve the performance of their bottlers, setting standards and suggesting operating procedures.Concentrate producers also negotiated directly with the bottlers’ major suppliers—particularly sweetener and packaging suppliers—to encourage reliable supply, faster delivery, and lower prices. Do Once a fragmented business with hundreds of local manufacturers, the landscape of the U. S. soft drink industry had changed dramatically over time. Among national concentrate producers, CocaCola and Pepsi-Cola, the soft drink unit of PepsiCo, claimed a combined 76% of the U. S. CSD market in sales volume in 2000, followed by Cadbury Schweppes and Cott Corporation (see Exhibit 3).There were also private label brand manufacturers and several dozen other national and regional producers. Exhibit 4 gives financial data for Coke and Pepsi and their top affiliated bottlers. 2 Robert Tollison et al. , Competition and Concentration (Lexington Books, 1991), p. 11. 3 The production and distribution of non-carbonated soft drinks and bottled water will be discussed in a later section. 2 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. 702-442 op y Cola Wars Continue: Coke and Pepsi in the Twenty-First Century BottlersBottlers purchased concentrate, added carbonated water and high fructose corn syrup, bottled or canned the CSD, and delivered it to customer accounts. Coke and Pepsi bottlers offered â€Å"direct store door† (DSD) delivery, which involved route delivery sales people physically placing and managing the CSD brand in the store. Smaller national brands, such as Shasta and Faygo, distributed through food store warehouses. DSD entailed managing the shelf space by stacking the product, positioning the trademarked label, cleaning the packages and shelves, and setting up point-of-purchase displays and end-of-aisle displays.The importance of the bottler’s relationship with the retail trade was crucial to continual brand availability and maintenance. Cooperative merchandising agreements between retailers and bottlers were used to promote soft drink sales. Retailers agreed to specified promotional activity a nd discount levels in exchange for a payment from the bottler. tC The bottling process was capital-intensive and involved specialized, high-speed lines. Lines were interchangeable only for packages of similar size and construction.Bottling and canning lines cost from $4 million to $10 million each, depending on volume and package type. The minimum cost to build a small bottling plant, with warehouse and office space, was $25million to $35 million. The cost of an efficient large plant, with four lines, automated warehousing, and a capacity of 40 million cases, was $75 million in 1998. 4 Roughly 80-85 plants were required for full distribution across the United States. Among top bottlers in 1998, packaging accounted for approximately half of bottlers’ cost of goods sold, concentrate for one-third, and nutritive sweeteners for one-tenth. Labor accounted for most of the remaining variable costs. Bottlers also invested capital in trucks and distribution networks. Bottlers’ gross profits often exceeded 40%, but operating margins were razor thin. See Exhibit 5 for the cost structures of a typical concentrate producer and bottler. Do No The number of U. S. soft drink bottlers had fallen, from over 2,000 in 1970 to less than 300 in 2000. 6 Historically, Coca-Cola was the first concentrate producer to build nation-wide franchised bottling networks, a move that Pepsi and Cadbury Schweppes followed.The typical franchised bottler owned a manufacturing and sales operation in an exclusive geographic territory, with rights granted in perpetuity by the franchiser. In the case of Coca-Cola, territorial rights did not extend to fountain accounts—Coke delivered to its fountain accounts directly, not through its bottlers. The rights granted to the bottlers were subject to termination only in the event of default by the bottler. The original Coca-Cola franchise contract, written in 1899, was a fixed-price contract that did not provide for contract renegotiation even if ingredient costs changed.With considerable effort, often involving bitter legal disputes, Coca-Cola amended the contract in 1921, 1978, and 1987 to adjust concentrate price. By 1999, over 81% of Coke’s U. S. volume was covered by the 1987 Master Bottler Contract, which granted Coke the right to determine concentrate price and other terms of sale. Under the terms of this contract, Coke was not obligated to share advertising and marketing expenditures with the bottlers; however, the company often did in order to ensure quality and proper distribution of marketing.In 2000, Coke contributed $766 million in marketing support and $223 million in infrastructure support to its top bottler alone. The 1987 contract did not give complete pricing control to Coke, but rather used a pricing formula that adjusted quarterly for changes in sweetener prices and stated a maximum price. This contract differed from Pepsi’s Master Bottling Agreement with its top bottler, which gran ted the bottler 4 â€Å"Louisiana Coca-Cola Reveals Crown Jewel,† Beverage Industry, January 1999. 5 Calculated from M. Dolan et al. , â€Å"Coca-Cola Beverages,† Merrill Lynch Capital Markets, July 6, 1998. Timothy Muris et al. , Strategy, Structure, and Antitrust in the Carbonated Soft-Drink Industry, (Quorum Books, 1993), p. 63; John C. Maxwell, ed. Beverage Digest Fact Book 2001. 3 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. Cola Wars Continue: Coke and Pepsi in the Twenty-First Century op y 702-442 perpetual rights to distribute Pepsi cola products while at the same time required it to purchase its raw materials from Pepsi at prices, and on terms and conditions, determined by Pepsi.Pepsi negotiated concentrate prices with its bottling association, and normally based price increases on the CPI. Coke and Pepsi both raised concentrate prices throughout the 1980s and early 1990s, even as the real (inflation-ad justed) retail prices for CSD were down (see Exhibit 6). tC Coca-Cola and Pepsi franchise agreements allowed bottlers to handle the non-cola brands of other concentrate producers. Franchise agreements also allowed bottlers to choose whether or not to market new beverages introduced by the concentrate producer.Some restrictions applied, however, as bottlers could not carry directly competitive brands. For example, a Coca-Cola bottler could not sell Royal Crown Cola, but it could distribute Seven-Up, if it decided not to carry Sprite. Franchised bottlers had the freedom to participate in or reject new package introductions, local advertising campaigns and promotions, and test marketing. The bottlers also had the final say in decisions concerning retail pricing, new packaging, selling, advertising, and promotions in its territory, though they could only use packages authorized by the franchiser.In 1971, the Federal Trade Commission initiated action against eight major CPs, charging tha t exclusive territories granted to franchised bottlers prevented intrabrand competition (two or more bottlers competing in the same area with the same beverage). The CPs argued that interbrand competition was sufficiently strong to warrant continuation of the existing territorial agreements. After nine years of litigation, Congress enacted the â€Å"Soft Drink Interbrand Competition Act† in 1980, preserving the right of CPs to grant exclusive territories. Retail Channels NoIn 2000, the distribution of CSDs in the United States took place through food stores (35%), fountain outlets7 (23%), vending machines (14%), convenience stores (9%), and other outlets (20%). Mass merchandisers, warehouse clubs, and drug stores made up most of the last category. Bottlers’ profitability by type of retail outlet is shown in Exhibit 7. Costs were affected by delivery method and frequency, drop size, advertising, and marketing. The main distribution channel for soft drinks was the superm arket. CSDs were among the five largest selling product lines sold by supermarkets, raditionally yielding a 15%-20% gross margin (about average for food products) and accounting for 3%-4% of food store revenues. 8 CSDs represented a large percentage of a supermarket’s business, and were also a big traffic draw. Bottlers fought for retail shelf space to ensure visibility and accessibility for their products, and looked for new locations to increase impulse purchases, such as placing coolers at checkout counters. The proliferation of products and packaging types created intense shelf space pressures.Do Discount retailers, warehouse clubs, and drug stores accounted about 15% of CSD sales in the late 1990s. These firms often had their own private label CSD, or they sold a generic label such as President’s Choice. Private label CSDs were usually delivered to a retailer’s warehouse, while branded CSDs were delivered directly to the store. With the warehouse delivery m ethod, the retailer was responsible for storage, transportation, merchandising, and stocking the shelves, thus incurring additional costs. The word â€Å"fountain outlets† traditionally referred to soda fountains, but was later used also for restaurants, cafeterias, and other establishments that served soft drinks by the glass using fountain dispensers. 8 Progressive Grocer 1998 Sales Manual Databook, July 1998, p. 68. 4 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. 702-442 op y Cola Wars Continue: Coke and Pepsi in the Twenty-First Century tC Historically, Pepsi had focused on sales through retail outlets, while Coke had dominated fountain sales. Coca-Cola had a 65% share of the fountain market in 2000, while Pepsi had 21%.Competition for fountain sales was intense. National fountain accounts were essentially â€Å"paid sampling,† with CSD companies earning pretax operating margins of around 2%. For restaurants, by contrast, fountain sales were extremely profitable—about 80 cents out of every dollar spent stayed with the restaurant retailers. In 1999, for example, Burger King franchisees were believed to pay about $6. 20 per gallon for Coke syrup, but they received a substantial rebate on each gallon in the form of a check; one large Midwestern Burger King franchisee said his annual rebate ran $1. 45 per gallon, or about 23%. Coke and Pepsi also invested in the development of fountain equipment, such as service dispensers, and provided their fountain customers with cups, point-of-sale material, advertising, and in-store promotions to increase brand presence. After Pepsi entered the fast-food restaurant business with the acquisitions of Pizza Hut (1978), Taco Bell (1986), and Kentucky Fried Chicken (1986), Coca-Cola persuaded other chains such as Wendy’s and Burger King to switch to Coke. PepsiCo spun its restaurant business off to the public in 1997 under the name Tricon, whi le retaining the Frito-Lay snack food business.In 2000, fountain â€Å"pouring rights† remained split along pre-Tricon lines, as Pepsi supplied all of Taco Bell’s and KFC’s, and the overwhelming majority of Pizza Hut restaurants. Coke retained exclusivity deals with McDonald’s and Burger King. No Coke and Cadbury Schweppes handled fountain accounts from their national franchisor companies. Employees of the franchisee companies negotiated and signed pouring rights contracts which, in the case of big restaurant chains, could cover the entire United States or even the world. The accounts were actually serviced by employees of the franchisors’ fountain divisions, local bottlers, or both.Local bottlers, when they were used, were paid service fees for delivering syrup and fixing and placing machines. Historically, PepsiCo could only sell directly to end-user national accounts. By 1999, Pepsi had persuaded most of its bottlers to modify their franchise ag reements to allow Pepsi to sell fountain syrup via restaurant commissary companies, which sell a range of supplies to restaurants. Concentrate producers offered bottlers rebates to encourage them to purchase and install vending machines. The owners of the property on which vending equipment was located usually received a sales commission.Coke and Pepsi were the largest suppliers of CSDs to the vending channel. Juice, tea, sports drinks, lemonade, and water were also available through vending machines. Suppliers to Concentrate Producers and Bottlers Do Concentrate producers required few inputs: the concentrate for most regular colas consisted of caramel coloring, phosphoric and/or citric acid, natural flavors, and caffeine. 10 Bottlers purchased two major inputs: packaging, which included $3. 4 billion in cans, $1. 3 billion in plastic bottles, and $0. 6 billion in glass; and sweeteners, which included $1. 1 billion in sugar and high fructose corn syrup, and $1. billion in artificial sweetener (predominantly aspartame). The majority of U. S. CSDs were packaged in metal cans (60%), then plastic bottles (38%), and glass bottles (2%). Cans were an attractive packaging material because they were easily handled, stocked, and displayed, weighed little, and were durable and recyclable. Plastic bottles, introduced in 1978, boosted home consumption of CSDs because of their larger 1-liter, 2-liter, and 3-liter sizes. Single-serve 20-oz. PET bottles quickly gained popularity and represented 35% of vended drinks and 3% of grocery drinks in 2000. Nikhil Deogun and Richard Gibson, â€Å"Coke Beats Out Pepsi for Contracts With Burger King, Domino’s,† The Wall Street Journal, April 15, 1999. 10 Based on ingredients lists, Coke Classic and Pepsi-Cola, 2001. 5 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. Cola Wars Continue: Coke and Pepsi in the Twenty-First Century op y 702-442 The concentrate producersâ₠¬â„¢ strategy towards can manufacturers was typical of their supplier relationships. Coke and Pepsi negotiated on behalf of their bottling networks, and were among the metal can industry’s largest customers.Since the can constituted about 40% of the total cost of a packaged beverage, bottlers and concentrate producers often maintained relationships with more than one supplier. In the 1960s and 1970s, Coke and Pepsi backward integrated to make some of their own cans, but largely exited the business by 1990. In 1994, Coke and Pepsi instead sought to establish stable long-term relationships with their suppliers. Major can producers included American National Can, Crown Cork & Seal, and Reynolds Metals. Metal cans were viewed as commodities, and there was chronic excess supply in the industry.Often two or three can manufacturers competed for a single contract. Early History11 tC The Evolution of the U. S. Soft Drink Industry Coca-Cola was formulated in 1886 by John Pemberton, a p harmacist in Atlanta, Georgia, who sold it at drug store soda fountains as a â€Å"potion for mental and physical disorders. † A few years later, Asa Candler acquired the formula, established a sales force, and began brand advertising of Coca-Cola. Tightly guarded in an Atlanta bank vault, the formula for Coca-Cola syrup, known as â€Å"Merchandise 7X,† remained a well-protected secret.Candler granted Coca-Cola’s first bottling franchise in 1899 for a nominal one dollar, believing that the future of the drink rested with soda fountains. The company’s bottling network grew quickly, however, reaching 370 franchisees by 1910. No In its early years, Coke was constantly plagued by imitations and counterfeits, which the company aggressively fought in court. In 1916 alone, courts barred 153 imitations of Coca-Cola, including the brands Coca-Kola, Koca-Nola, Cold-Cola, and the like. Coke introduced and patented a unique 6. 5ounce â€Å"skirt† bottle to be used by its franchisees that subsequently became an American icon.Robert Woodruff, who became CEO in 1923, began working with franchised bottlers to make Coke available wherever and whenever a consumer might want it. He pushed the bottlers to place the beverage â€Å"in arm’s reach of desire,† and argued that if Coke were not conveniently available when the consumer was thirsty, the sale would be lost forever. During the 1920s and 1930s, Coke pioneered open-top coolers to storekeepers, developed automatic fountain dispensers, and introduced vending machines. Woodruff also initiated â€Å"lifestyle† advertising for Coca-Cola, emphasizing the role of Coke in a consumer’s life.Do Woodruff also developed Coke’s international business. In the onset of World War II, at the request of General Eisenhower, he promised that â€Å"every man in uniform gets a bottle of Coca-Cola for five cents wherever he is and whatever it costs the company. † Beginnin g in 1942, Coke was exempted from wartime sugar rationing whenever the product was destined for the military or retailers serving soldiers. Coca-Cola bottling plants followed the movements of American troops; 64 bottling plants were set up during the war—largely at government expense.This contributed to Coke’s dominant market shares in most European and Asian countries. Pepsi-Cola was invented in 1893 in New Bern, North Carolina by pharmacist Caleb Bradham. Like Coke, Pepsi adopted a franchise bottling system, and by 1910 it had built a network of 270 11 See J. C. Louis and Harvey Yazijian, The Cola Wars (Everest House, 1980); Mark Pendergrast, For God, Country, and Coca-Cola (Charles Scribner’s, 1993); David Greising, I’d Like the World to Buy a Coke (John Wiley & Sons, 1997). 6 Copying or posting is an infringement of copyright. [email  protected] harvard. du or 617-783-7860. 702-442 op y Cola Wars Continue: Coke and Pepsi in the Twenty-First Century franchised bottlers. Pepsi struggled, however, declaring bankruptcy in 1923 and again in 1932. Business began to pick up in the midst of the Great Depression, when Pepsi lowered the price for its 12-ounce bottle to a nickel, the same price Coke charged for its 6. 5-ounce bottle. When Pepsi tried to expand its bottling network in the late 1930s, its choices were small local bottlers striving to compete with wealthy Coke franchisees. 12 Pepsi nevertheless began to gain market share.In 1938, Coke filed suit against Pepsi, claiming that Pepsi-Cola was an infringement on the CocaCola trademark. The court ruled in favor of Pepsi in 1941, ending a series of suits and countersuits between the two companies. With its famous radio jingle, â€Å"Twice as Much, for Nickel Too,† Pepsi’s U. S. sales surpassed those of Royal Crown and Dr Pepper in the 1940s, trailing only Coca-Cola. In 1950, Coke’s share of the U. S. CSD market was 47% and Pepsi’s was 10%; hundreds of r egional CSD companies continued to produce a wide assortment of flavors. tCThe Cola Wars Begin In 1950, Alfred Steele, a former Coca-Cola marketing executive, became Pepsi’s CEO. Steele made â€Å"Beat Coke† his theme and encouraged bottlers to focus on take-home sales through supermarkets. The company introduced the first 26-ounce bottles to the market, targeting family consumption, while Coke stayed with its 6. 5-ounce bottle. Pepsi’s growth soon began tracking the growth of supermarkets and convenience stores in the United States: There were about 10,000 supermarkets in 1945, 15,000 in 1955, and 32,000 at the peak in 1962.No In 1963, under the leadership of new CEO Donald Kendall, Pepsi launched its â€Å"Pepsi Generation† campaign that targeted the young and â€Å"young at heart. † Pepsi’s ad agency created an intense commercial using sports cars, motorcycles, helicopters, and a catchy slogan. The campaign helped Pepsi narrow Cokeâ€℠¢s lead to a 2-to-1 margin. At the same time, Pepsi worked with its bottlers to modernize plants and improve store delivery services. By 1970, Pepsi’s franchise bottlers were generally larger compared to Coke bottlers.Coke’s bottling network remained fragmented, with more than 800 independent franchised bottlers that focused mostly on U. S. cities of 50,000 or less. 13 Throughout this period, Pepsi sold concentrate to its bottlers at a price approximately 20% lower than Coke. In the early 1970s, Pepsi increased the concentrate price to equal that of Coke. To overcome bottlers’ opposition, Pepsi promised to use the extra margin to increase advertising and promotion. Do Coca-Cola and Pepsi-Cola began to experiment with new cola and non-cola flavors and a variety of packaging options in the 1960s.Before then, the two companies had adopted a single product strategy, selling only their flagship brand. Coke introduced Fanta (1960), Sprite (1961), and lowcalorie Tab (1 963). Pepsi countered with Teem (1960), Mountain Dew (1964), and Diet Pepsi (1964). Each introduced non-returnable glass bottles and 12-ounce metal cans in various packages. Coke and Pepsi also diversified into non-soft-drink industries. Coke purchased Minute Maid (fruit juice), Duncan Foods (coffee, tea, hot chocolate), and Belmont Springs Water.Pepsi merged with snackfood giant Frito-Lay in 1965 to become PepsiCo, claiming synergies based on shared customer targets, store-door delivery systems, and marketing orientations. In the late 1950s, Coca-Cola, still under Robert Woodruff’s leadership, began using advertising that finally recognized the existence of competitors, such as â€Å"American’s Preferred Taste† (1955) and â€Å"No Wonder Coke Refreshes Best† (1960). In meetings with Coca-Cola bottlers, however, executives only discussed the growth of their own brand and never referred to its closest competitor by name. 2 Louis and Yazijian, p,. 23. 13 Pe ndergrast, p. 310. 7 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. Cola Wars Continue: Coke and Pepsi in the Twenty-First Century op y 702-442 During the 1960s, Coke primarily focused on overseas markets, apparently believing that domestic soft drink consumption had neared saturation at 22. 7 gallons per capita in 1970. 14 Pepsi meanwhile battled aggressively in the United States, doubling its share between 1950 and 1970. The Pepsi ChallengeIn 1974, Pepsi launched the â€Å"Pepsi Challenge† in Dallas, Texas. Coke was the dominant brand in the city and Pepsi ran a distant third behind Dr Pepper. In blind taste tests hosted by Pepsi’s small local bottler, the company tried to demonstrate that consumers in fact preferred Pepsi to Coke. After its sales shot up in Dallas, Pepsi started to roll out the campaign nationwide, although many of its franchise bottlers were initially reluctant to join. tC Coke countered with rebates, rival claims, retail price cuts, and a series of advertisements questioning the tests’ validity.In particular, Coke used retail price discounts selectively in markets where the Coke bottler was company owned and the Pepsi bottler was an independent franchisee. Nonetheless, the Pepsi Challenge successfully eroded Coke’s market share. In 1979, Pepsi passed Coke in food store sales for the first time with a 1. 4 share point lead. Breaking precedent, Brian Dyson, president of Coca-Cola, inadvertently uttered the name â€Å"Pepsi† in front of Coke’s bottlers at the 1979 bottlers conference. No During the same period, Coke was renegotiating its franchise bottling contract to obtain greater flexibility in pricing concentrate and syrups.Bottlers approved the new contract in 1978 only after Coke conceded to link concentrate price changes to the CPI, adjust the price to reflect any cost savings associated with a modification of ingredients, and supply unsw eetened concentrate to bottlers who preferred to purchase their own sweetener on the open market. 15 This brought Coke’s policies in line with Pepsi, which traditionally sold its concentrate unsweetened to its bottlers. Immediately after securing bottler approval, Coke announced a significant concentrate price hike. Pepsi followed with a 15% price increase of its own. Cola Wars Heat UpIn 1980, Cuban-born Roberto Goizueta was named CEO and Don Keough president of Coca-Cola. In the same year, Coke switched from sugar to the lower-priced high fructose corn syrup, a move Pepsi emulated three years later. Coke also intensified its marketing effort, increasing advertising spending from $74 million to $181 million between 1981 and 1984. Pepsi elevated its advertising expenditure from $66 million to $125 million over the same period. Goizueta sold off most of the non-CSD businesses he had inherited, including wine, coffee, tea, and industrial water treatment, while keeping Minute Mai d. DoDiet Coke was introduced in 1982 as the first extension of the â€Å"Coke† brand name. Much of CocaCola management referred to its brand as â€Å"Mother Coke,† and considered it too sacred to be extended to other products. Despite internal opposition from company lawyers over copyright issues, Diet Coke was a phenomenal success. Praised as the â€Å"most successful consumer product launch of the Eighties,† it became within a few years not only the nation’s most popular diet soft drink, but also the third-largest selling soft drink in the United States. 14 Maxwell. 15 Pendergrast, p. 323. 8 Copying or posting is an infringement of copyright.[email  protected] harvard. edu or 617-783-7860. 702-442 op y Cola Wars Continue: Coke and Pepsi in the Twenty-First Century In April 1985, Coke announced the change of its 99-year-old Coca-Cola formula. Explaining this radical break with tradition, Goizueta saw a sharp depreciation in the value of the Coca-Cola trademark as â€Å"the product had a declining share in a shrinking segment of the market. †16 On the day of Coke’s announcement, Pepsi declared a holiday for its employees, claiming that the new Coke tasted more like Pepsi. The reformulation prompted an outcry from Coke’s most loyal customers.Bottlers joined the clamor. Three months later, the company brought back the original formula under the name Coca-Cola Classic, while retaining the new formula as the flagship brand under the name New Coke. Six months later, Coke announced that Coca-Cola Classic (the original formula) would henceforth be considered its flagship brand. tC New CSD brands proliferated in the 1980s. Coke introduced 11 new products, including Cherry Coke, Caffeine-Free Coke, and Minute-Maid Orange. Pepsi introduced 13 products, including Caffeine-Free Pepsi-Cola, Lemon-Lime Slice, and Cherry Pepsi.The number of packaging types and sizes also increased dramatically, and the battle for shelf spac e in supermarkets and other food stores grew fierce. By the late 1980s, both Coke and Pepsi offered more than ten major brands, using at least seventeen containers and numerous packaging options. 17 The struggle for market share intensified and the level of retail price discounting increased sharply. Consumers were constantly exposed to cents-off promotions and a host of other supermarket discounts. No Throughout the 1980s, the smaller concentrate producers were increasingly squeezed by Coke and Pepsi.As their shelf-space declined, small brands were shuffled from one owner to another. Over five years, Dr Pepper was sold (all and in part) several times, Canada Dry twice, Sunkist once, Shasta once, and A&W Brands once. Some of the deals were made by food companies, but several were leveraged buyouts by investment firms. Philip Morris acquired Seven-Up in 1978 for a big premium, but despite superior brand rankings and established distribution channels, racked up huge losses in the earl y 1980s and exited in 1985. (Exhibit 8a shows the brand performance of top companies, as ranked by retailers. )In the 1990s, through a series of strategic acquisitions, Cadbury Schweppes emerged as the clear (albeit distant) third-largest concentrate producer, snapping up the Dr Pepper/Seven-Up Companies (1995) and Snapple Beverage Group (2000). (Appendix A describes Cadbury Schweppes’ operations and financial performance. ) Bottler Consolidation and Spin-Off Do Relations between Coke and its franchised bottlers had been strained since the contract renegotiation of 1978. Coke struggled to persuade bottlers to cooperate in marketing and promotion programs, upgrade plant and equipment, and support new product launches. 8 The cola wars had particularly weakened small independent franchised bottlers. High advertising spending, product and packaging proliferation, and widespread retail price discounting raised capital requirements for bottlers, while lowering their margins. Many b ottlers that had been owned by one family for several generations no longer had the resources or the commitment to be competitive. At a July 1980 dinner with Coke’s fifteen largest domestic bottlers, Goizueta announced a plan to refranchise bottling operations. Coke began buying up poorly managed bottlers, infusing capital, 6 The Wall Street Journal, April 24, 1986. 17 Timothy Muris, David Scheffman, and Pablo Spiller, Strategy, Structure, and Antitrust in the Carbonated Soft Drink Industry. (Quorum Books, 1993), p. 73. 18 Greising, p. 88. 9 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. Cola Wars Continue: Coke and Pepsi in the Twenty-First Century op y 702-442 and quickly reselling them to better-performing bottlers. Refranchising allowed Coke’s larger bottlers to expand outside their traditionally exclusive geographic territories.When two of its largest bottling companies came up for sale in 1985, Coke moved sw iftly to buy them for $2. 4 billion, preempting outside financial bidders. Together with other bottlers that Coke had recently bought, these acquisitions placed one-third of Coca-Cola’s volume in company-owned bottlers. In 1986, Coke began to replace its 1978 franchise agreement with the Master Bottler Contract that afforded Coke much greater freedom to change concentrate price. tC Coke’s bottler acquisitions had increased its long-term debt to approximately $1 billion.In 1986, on the initiative of Doug Ivester, who later became CEO, the company created an independent bottling subsidiary, Coca-Cola Enterprises (CCE), and sold 51% of its shares to the public, while retaining the rest. The minority equity position enabled Coke to separate its financial statements from CCE. As Coke’s first so-called â€Å"anchor bottler,† CCE consolidated small territories into larger regions, renegotiated with suppliers and retailers, merged redundant distribution and mater ial purchasing, and cut its work force by 20%. CCE moved towards mega-facilities, investing in 50 million-case production lines with high levels of automation.Coke continued to acquire independent franchised bottlers and sell them to CCE. 19 â€Å"We became an investment banking firm specializing in bottler deals,† reflected Don Keough. In 1997 alone, Coke put together more than $7 billion in deals involving bottlers. 20 By 2000, CCE was Coke’s largest bottler with annual sales of more than $14. 7 billion, handling 70% of Coke’s North American volume. Some industry observers questioned Coke’s accounting practice, as Coke retained substantial managerial influence in its arguably independent anchor bottler. 21 NoIn the late 1980s, Pepsi also acquired MEI Bottling for $591 million, Grand Metropolitan’s bottling operations for $705 million, and General Cinema’s bottling operations for $1. 8 billion. The number of Pepsi bottlers decreased from mo re than 400 in the mid-1980s to less than 200 in the mid-1990s. Pepsi owned about half of these bottling operations outright and held equity positions in most of the rest. Experience in the snack food and restaurant businesses boosted Pepsi’s confidence in its ability to manage the bottling business. In the late 1990s, Pepsi changed course and also adopted the anchor bottler model.In April 1999, the Pepsi Bottling Group (PBG) went public, with Pepsi retaining a 35% equity stake. By 2000, PBG produced 55% of PepsiCo beverages in North America and 32% worldwide. As Craig Weatherup, PBG’s chairman/CEO, explained, â€Å"Our success is interdependent, with PepsiCo the keeper of the brands and PBG the keeper of the marketplace. In that regard, we’re joined at the hip. †22 Do The bottler consolidation of the 1990s made smaller concentrate producers increasingly dependent on the Pepsi and Coke bottling network to distribute their products. In response, Cadbury Sc hweppes in 1998 bought and merged two large U.S. bottlers to form its own bottler. In 2000, Coke’s bottling system was the most consolidated, with its top 10 bottlers producing 94% of domestic volume. Pepsi’s and Cadbury Schweppes’ top 10 bottlers produced 85% and 71% of the domestic volume of their respective franchisors. 19 Greising, p. 292. 20 Beverage Industry, January 1999, p. 17. 21 Albert Meyer and Dwight Owsen, â€Å"Coca-Cola’s Accounting,† Accounting Today, September 28, 1998 22 Kent Steinriede, â€Å"PBG Charts Its Own Course,† Beverage Industry, May 1, 1999. 10 Copying or posting is an infringement of copyright.[email  protected] harvard. edu or 617-783-7860. Adapting to the Times 702-442 op y Cola Wars Continue: Coke and Pepsi in the Twenty-First Century In the late 1990s, a variety of problems began to emerge for the soft drink industry as a whole. Although Americans still drank more CSDs than any other beverage, U. S. sales volume registered only a 0. 2% increase in 2000, to just under 10 billion cases (a case was equivalent to 24 eight-ounce containers, or 192 ounces). This slow growth was in contrast to the 5%-7% annual growth in the United States during the 1980s.Concurrently, financial crisis in various parts of the world left Coke and Pepsi bottlers over-invested and under-utilized. tC Coca-Cola was also impacted by difficulties in leadership transition. After the death of the popular CEO Roberto Goizueta in 1997, his successor Douglas Ivestor had two rocky years at the helm, during which Coke faced a high-profile race discrimination suit and a European public relations scandal after hundreds of people became ill from contaminated soft drinks. Douglas Daft assumed leadership in April 2000; one of his first moves was to lay off 5,200 employees, or 20% of worldwide staff.While expressing â€Å"enthusiastic support for the current strategic course of the Company under Doug Daft’s leadership,à ¢â‚¬  Coke’s Board voted against Daft’s eleventh-hour negotiations to acquire Quaker Oats in November 2000. As they had numerous times over the last century, analysts predicted the end of Coke and Pepsi’s stellar growth and profitability. Meanwhile, Coke and Pepsi turned their attention to bolstering domestic markets, diversifying into non-carbonated beverages (non-carbs), and cultivating international markets.Balancing Market Growth, Market Share, and Profitability in the United States No During the early 1990s, Coca-Cola and PepsiCo bottlers employed a low-price strategy in the supermarket channel in order to compete more effectively with high-quality, low-price store brands. As the threat of the low-priced brands lessened, CCE responded in March 1999 with its first major price increase at the retail level after 20 years of flat take-home pricing. Its strategy was to reposition Coke Classic as a premium brand. PBG followed that price increase shortly after. P rice wars had driven soda prices down to the point where bottlers couldn’t get a decent return on supermarket sales,† explained a Pepsi executive. 23 Observed one industry analyst, â€Å"Coke’s growth is coming internationally, and Pepsi’s is coming from Frito-Lay. It is in the companies’ mutual best interest not to destroy the domestic market and eat up each other’s share. † 24 Consumers’ initial reaction to price increases was a reduction in supermarket purchases. When CCE raised prices in supermarkets by 6. 0%-8. 0% in both 1999 and 2000, comparable volumes in North America declined each year (1. % in 1999 and 0. 8% in 2000). In 2001, however, the bottling companies effected more moderate price increases and consumer demand appeared to be on the upswing. Do Both Coke and Pepsi also set about to boost the flagging cola market in other ways, including exclusive marketing agreements with Britney Spears (Pepsi) and Harry Potter ( Coke). Pepsi reintroduced the highly effective â€Å"Pepsi Challenge,† which was designed to boost overall cola sales and draw consumers away from private labels as much as it was to plug Pepsi over Coke.In contrast to the supermarket channel, Coke and Pepsi’s rivalry in the fountain channel intensified in the late 1990s. To penetrate Coke’s stronghold, Pepsi aggressively pursued national 23 Lauren R. Rublin, â€Å"Chipping Away: Coca-Cola Could Learn a Thing or Two from the Renaissance at PepsiCo,† Barron’s, June 12, 2000. 24 Rublin. 11 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. Cola Wars Continue: Coke and Pepsi in the Twenty-First Century op y 702-442 accounts, forcing Coke to make costly concessions to retain its biggest customers.Pepsi broke Coke’s stronghold at Disney with a 1998 contract to supply soft drinks at the new DisneyQuest, Club Disney and ESPN Zone chains. After a h eated bidding war in 1999 over the 10,000-store chain of Burger King Corporation, Coke again won the fountain contract involving $220 million per year for 40 million gallons of syrup soda, but only after agreeing to double its $25 million in rebates to the food chain. Pepsi also sued Coke over access to the fountain market, charging Coke with â€Å"attempting to monopolize the market for fountain-dispensed soft drinks through independent foodservice distributors throughout the United States. Coke persuaded a Federal court to dismiss the suit in 2000. Despite Pepsi’s efforts, at the end of 2000, Coke still dominated the fountain market with 65% share of national â€Å"pouring rights† to Pepsi’s 21% and Dr Pepper/Seven Up’s 14%. tC The Rise of Non-Cola Beverages As consumer trends shifted from diet soda, to lemon-lime, to tea-based drinks, to other popular non-carbs, Coke and Pepsi vigorously expanded their brand portfolios. Each new product was accompanie d by debate on how much each company should stray from its core product: regular cola.On one hand, cola sales consistently dwarfed alternative beverages sales, and cola-defenders expressed concern that over-enthusiastic expansion would distract the company from its flagship product. Also, history had shown that explosions in demand for alternative drinks were regularly followed by slow or negative growth. On the other hand, as domestic cola demand appeared to plateau, alternative beverages could provide a growth engine for the firms. No By the late 1990s, the soft drink industry had seen various alternative beverage categories come and go.From double-digit expansion in the late 1980s, diet CSDs peaked in 1991 at 29. 8% of the CSD segment and then declined to their 1988-level share of 24. 4% in 1999. PepsiCo’s introduction of Pepsi One in late 1998 was partially responsible for the minor recovery of the diet drink segment. Flavored soft drinks such as citrus, lemon-lime, peppe r, and root beer were also popular. In 1999, Mountain Dew grew faster than any other CSD brand for the third year in a row, posting 6. 0% volume growth, but in 2000, its growth slowed to 1. 5% due to competing â€Å"new-age† non-carbs. DoAt the turn of this century, CSDs accounted for 41. 3% of total non-alcoholic beverage consumption, bottled water accounted for 10. 3%, and other non-carbs accounted for the remainder. 25 When measured in gallons, sales of non-carbs rose by 18% in 1995 and 5% in 2000, compared to 3% and 0. 2% respectively for CSDs. The drinks with high growth and high hype were non-carbs such as juices/juice drinks, sports drinks, tea-based drinks, dairy-based drinks—and especially bottled water. In the 1990s, the bottled water industry grew on average 8. 3% per year, and volume reached more than 5 billion gallons in 2000.Revenue growth outpaced volume growth, with a 9. 3% increase to approximately $5. 6 billion, and per capita consumption gained 5. 1 gallons to 13. 2 gallons per person. Pepsi’s Aquafina went national in 1998. Coke followed in 1999 with Dasani. Though Pepsi and Coke sold reverse-osmosis purified water instead of spring water, they had a distribution advantage over competing water brands. 26 Coke and Pepsi launched other new drinks throughout the 1990s. They also aggressively acquired brands that rounded out their portfolios, including Tropicana (Pepsi, 1998), Gatorade (Pepsi, 5 Maxwell. Does not include â€Å"tap water / hybrids / all others† category. 26 Reverse osmosis is a method of producing pure water by forcing saline or impure water through a semi-permeable membrane across which salts or impurities cannot pass. 12 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. 702-442 op y Cola Wars Continue: Coke and Pepsi in the Twenty-First Century 2000), and SoBe (Pepsi, 2000). Both companies predicted that future increases in market share would come from beverages other than CSDs.Pepsi pronounced itself a â€Å"total beverage company,† and Coca-Cola appeared to be moving in the same direction, recasting its performance metric from share of the soda market to â€Å"share of stomach. † â€Å"If Americans want to drink tap water, we want it to be Pepsi tap water,† said Pepsi’s vice-president for new business, describing the philosophy behind the new strategy. 27 Coke’s Goizueta had echoed the same view: â€Å"Sometimes I think we even compete with soup. †28 Though cola remained the clear leader in terms of both companies’ volume sales, both Coke and Pepsi relied heavily on non-carbs to stimulate their overall growth in the late 1990s.In 1999, non-carbs accounted for 80% of Pepsi’s and more than 100% of Coke’s growth. 29 tC At the turn of the century, Pepsi had the lion’s share of non-CSD sales. Pepsi led Coke by a wide margin in 2000 volume sales in three key s egments: Gatorade (76%) led PowerAde (15%) in the $2. 6billion sports drinks segment, Lipton (38%) led Nestea (27%) in the $3. 5-billion tea-based drinks segment, and Aquafina (13%) led Dasani (8%) in the $6. 0-billion bottled water segment. 30 Including multi-serve juices, Tropicana held an approximate 44% share of the $3-billion chilled orange juice market, more than twice that of Minute Maid. 1 With the acquisition of Quaker and South Beach Beverages, Pepsi raised its non-carb market share to 31%, to Coke’s 19% (see Exhibit 8b). No Non-CSD beverages complicated Coke’s and Pepsi’s traditional production and distribution processes. While bottlers could easily manage some types of alternative beverages (e. g. , cold-filled Lipton Brisk), other types required costly new equipment and changes in production, warehousing, and distribution practices (e. g. , hot-filled Lipton Iced Tea). In many cases, Coke and Pepsi paid more than half the cost of these investments.T he few bottlers that invested in these capabilities either purchased concentrate or other additives from Coke and Pepsi (e. g. , Dasani’s mineral packet) or compensated the franchiser through per-unit royalty fees (e. g. , Aquafina). Most bottlers, however, did not invest in hot-fill (for some iced tea), reverse-osmosis (for some bottled water), or other specialized equipment, and instead bought their finished product from a central regional plant or one owned directly by Coca-Cola or PepsiCo. They would then distribute these alongside their own bottled products at a percentage mark-up.More split pallets32 led to slightly higher labor costs, but otherwise did not significantly affect distribution practices. Despite these complicated and evolving arrangements, higher retail prices for alternative beverages meant that margins for the franchiser, bottler, and distributor were consistently higher than on CSDs. Internationalizing the Cola Wars Do As domestic demand appeared to pla teau, Coke and Pepsi increasingly looked overseas for new growth. Throughout the 1990s, new access to markets in China, India, and Eastern Europe stimulated some of the most intense battles of the cola wars.In many international markets, per capita consumption levels remained a fraction of those in the United States. For example, while the 27 Marcy Magiera, â€Å"Pepsi Moving Fast To Get Beyond Colas,† Advertising Age, July 5, 1993. 28 Greising, p. 233. 29 Bonnie Herzog, â€Å"PepsiCo, Inc. : The Joy of Growth,† Credit Suisse First Boston Corporation, September 8, 2000. 30 Maxwell, p. 152-3. 31 Betsy McKay, â€Å"Juiced Up: Pepsi Edges Past Coke, and It has Nothing to Do With Cola,† The Wall Street Journal, November 6, 2000. 32 Pallets are hard beds, usually of wood, used to organize, store, and transport products.A split pallet carries more than one product type. 13 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783 -7860. Cola Wars Continue: Coke and Pepsi in the Twenty-First Century op y 702-442 average American drank 874 eight-ounce cans of CSDs in 1999, the average Chinese drank 22. In 1999, Coke held a world market share of 53%, compared to Pepsi’s 21% and Cadbury Schweppes’ 6%. Among major overseas markets, Coke dominated in Western Europe and much of Latin America, while Pepsi had marked presence in the Middle East and Southeast Asia (see Exhibit 9). C By the end of World War II, Coca-Cola was the largest international producer of soft drinks. Coke steadily expanded its overseas operations in the 1950s, and the name Coca-Cola soon became a synonym for American culture. Coke built brand presence in developing markets where soft drink consumption was low but potential was large, such as Indonesia: With 200 million inhabitants, a median age of 18, and per capita consumption of 9 eight-ounce cans of soda a year, one Coke executive noted that â€Å"they sit squarely on the equa tor and everybody’s young. It’s soft drink heaven. 33 By the early 1990s, Coke’s CEO Roberto Goizueta said, â€Å"Coca-Cola used to be an American company with a large international business. Now we are a large international company with a sizable American business. †34 No Following Coke, Pepsi entered Europe soon after World War II, and—benefiting from Arab and Soviet exclusion of Coke—into the Middle East and Soviet bloc in the early 1970s. However, Pepsi put less emphasis on its international operations during the subsequent decade. In 1980, international sales accounted for 62% of Coke’s soft drink volume, versus 20% for Pepsi.Pepsi rejoined the international battles in the late 1980s, realizing that many of its foreign bottling operations were inefficiently run and â€Å"woefully uncompetitive. †35 In the early 1990s, Pepsi utilized a niche strategy which targeted geographic areas where per capitas were relatively establis hed and the markets presented high volume and profit opportunities. These were often â€Å"Coke fortresses,† and Pepsi put its guerilla tactics to work, noting that â€Å"as big as Coca-Cola is, you certainly don’t want a shootout at high noon,† said Wayne Calloway, then CEO of PepsiCo. 6 Coke struck back; in one high-profile coup in 1996, Pepsi’s longtime bottler in Venezuela defected to Coke, temporarily reducing Pepsi’s 80% share of the cola market to nearly nothing overnight. In the late 1990s, Pepsi moved even further away from head-to-head competition and instead concentrated on emerging markets that were still up for grabs. â€Å"We kept beating our heads in markets that Coke won 20 years ago,† explained Calloway’s successor, Roger Enrico. â€Å"That is a very difficult proposition. 37 In 1999, PepsiCo’s bottler sales were up 5% internationally and its operating profit from overseas was up 37%. Market share gains were r eported in most of Pepsi-Cola International’s top 25 markets, including increases of 10% in India, 16% in China, and more than 100% in Russia. By 2000, international sales accounted for 62% of Coke’s and 9% of Pepsi’s revenues. Do Concentrate producers encountered various obstacles in international operations, including cultural differences, political instability, regulations, price controls, advertising restrictions, foreign exchange controls, and lack of infrastructure.When Coke attempted to acquire Cadbury Schweppes’ international practice, for example, it ran into regulatory roadblocks in Europe and in Mexico and Australia, where Coke’s market shares exceed 50%. On the other hand, Japanese domestic-protection price controls in the 1950s greased the skids for Coke’s high concentrate prices and high profitability, and in India, mandatory certification for bottled drinking water caused several local brands to fold. 33 John Huey, â€Å"The World’s Best Brand,† Fortune, May 31, 1993. 34John Huey, â€Å"The World’s Best Brand,† Fortune, May 31, 1993. 5 Larry Jabbonsky, â€Å"Room to Run,† Beverage World, August 1993. 36The Wall Street Journal, June 13, 1991. 37 John Byrne, â€Å"PepsiCo’s New Formula: How Roger Enrico is Remaking the Company†¦ and Himself,† BusinessWeek, April 10, 2000. 14 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. 702-442 op y Cola Wars Continue: Coke and Pepsi in the Twenty-First Century To cope with immature distribution networks, Coke and Pepsi created their own ground-up, and often novel, systems.Coke introduced vending machines to Japan, a channel that eventually accounted for more than half of Coke’s Japanese sales. 38 In India, Pepsi found the most prominent businessman in town and gave him exclusive distribution rights, tapping his connections to drive growth. Significantly, b oth Coke and Pepsi recognized local-market demands for non-cola products. In 2000, Coke carried more than 200 brands in Japan alone, most of which were teas, coffees, juices, and flavored water.In Brazil, Coke offered two brands of guarana, a popular caffeinated carbonated berry drink accounting for one-quarter of that country’s CSD sales, despite rivals’ TV ads ridiculing â€Å"gringo guarana. † tC When the economy foundered in certain parts of the world during the late 1990s, annual consumption declined in many regions. Major financial quakes in East Asia in 1997, Russia in 1998 and Brazil in 1999 shook the cola giants, who had invested heavily in bottler infrastructure. From 1995 to 2000, Coke’s top line slowed to an average annual growth of less than 3%.Profits actually fell from $3. 0 billion in 1995 to $2. 2 billion in 2000. In Russia, where Coke invested more than $700 million from 1991 to 1999, the collapse of the economy caused sales to drop by a s much as 60% and left Coke’s seven bottling plants operating at 50% capacity. In Brazil, its third-largest market, Coke lost more than 10% of its 54% market share to low-cost local drinks produced by family-owned bottlers exempt from that country’s punitive soft-drink taxes. In 1998, Coke estimated that a strong dollar cut into net sales by 9%.Pepsi, with its relatively lower overseas presence, was less affected by the crises. Nonetheless, Pepsi also subsidized its bottlers while experiencing a drop in sales. No Despite these financial setbacks, both Coke and Pepsi expressed confidence in the future growth of international consumption and used the downturn as an opportunity to snatch up bottlers, distribution, and even rival brands. To increase sales, they tried to make their products more affordable through measures such as refundable glass packaging (instead of plastic) and cheaper 6. ounce bottles. The End of an Era? At the turn of the century, growth of cola sales in the United States appeared to have plateaued. Coke and Pepsi were investing hundreds of millions of dollars to shore up international bottlers operating at low capacity. The companies’ overall growth in soft drink sales were falling short of precedent and of investors’ expectations. Was the fundamental nature of the cola wars changing? Would the parameters of this new rivalry include reduced profitability and stagnant growth— inconceivable under the old form of rivalry? DoOr, were the troubles of the late 1990s just another step in the evolution of two of America’s most successful companies? In 2001, non-cola, non-carbs, and even convenience foods offered diversification and growth potential. Low international per capita soft drink consumption figures hinted at tremendous opportunity in the competition for worldwide â€Å"throat share. † Noted a Coke executive in 2000, â€Å"the cola wars are going to be played now across a lot of different ba ttlefields. †39 38 June Preston, â€Å"Things May Go Better for Coke amid Asia Crisis, Singapore Bottler Says,† Journal of Commerce, June 29, 1998, . A3. 39 Betsy McKay, â€Å"Juiced Up: Pepsi Edges Past Coke, and It has Nothing to Do With Cola,† The Wall Street Journal, November 6, 2000. 15 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. Do Exhibit 1 702-442 Copying or posting is an infringement of copyright. [email  protected] harvard. edu or 617-783-7860. No U. S. Industry Consumption Statistics 1970 1975 1981 1985 1990 1992 1994 1995 1996 1998 1999 2000 Historical Carbonated Soft Drink Consumption Cases (millions) Gallons/capita As a % of total beverage consumption 3,090 22. 7 2. 4 3,780 26. 3 14. 4 5,180 34. 2 18. 7 6,500 40. 3 22. 4 7,914 46. 9 26. 1 8,160 47. 2 26. 3 8,608 50. 0 27. 2 8,952 50. 9 28. 1 9,489 52. 0 28. 8 9,880 54. 0 30. 0 9,930 53. 6 29. 4 9,950 53. 0 29. 0 22. 7 22. 8 18. 5 35. 7 6. 5 5. 2 1. 3 1. 8 26. 3 21. 8 21. 6 33 1. 2 6. 8 7. 3 4. 8 1. 7 2 34. 2 20. 6 24. 3 27. 2 2. 7 6. 9 7. 3 6 2. 1 2 40. 3 24. 0 25. 0 26. 9 4. 5 7. 8 7. 3 6. 2 2. 4 1. 8 46. 9 24. 3 24. 2 26. 2 8. 1 8. 8 7. 0 5. 4 2. 0 1. 5 47. 2 23. 3 23. 8 26. 5 8. 2 9. 1 6. 8 5. 4 2. 0 0. 6 1. 4 50. 0 22. 8 23. 2 23. 3 9. 6 9. 4 7. 1 4. 8 1. 7 0. 9 1. 3 50. 9 22. 3 22. 8 1. 3 10. 1 9. 5 6. 8 4. 9 1. 8 1. 1 1. 2 52. 0 22. 3 22. 7 20. 2 11. 0 9. 7 6. 9 4. 8 1. 8 1. 1 1. 2 54. 0 22. 1 22. 0 18. 0 11. 8 10. 0 6. 9 4. 7 2. 0 1. 3 1. 3 53. 6 22. 2 21. 9 17. 2 12. 6 10. 2 7. 0 4. 6 2. 0 1. 4 1. 3 53. 0 22. 2 21. 7 16. 8 13. 2 10. 4 7. 0 4. 6 2. 0 1. 5 1. 2 114. 5 126. 5 133. 3 146. 2 154. 4 154. 3 154. 0 152. 6 153. 6 154. 1 153. 8 153. 6 68 56 49. 2 36. 3 28. 1 28. 2 28. 5 29. 9 28. 9 28. 4 28. 7 28. 9 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 U. S. Liquid Consumption Trends (gallons/capita) Carbonated soft drinksBeer Milk Coffeea Bottled Waterb Juices Teaa Powder ed drinks Wine Sports Drinksc Distilled spirits Subtotal Tap water/hybrids/all others Totald tC opy Source: John C. Maxwell, Beverage Digest Fact Book 2001, and The Maxwell Consumer Report, Feb. 3, 1994; Adams Liquor Handbook, casewriter estimates. aFrom 1985, coffee and tea data are based on a three-year moving average to counter-balance inventory swings, thereby portraying consumption more realistically. bBottled water includes all packages, single-serve, and bulk. cSports drinks included in â€Å"Tap water/hybids/all others† pre-1992. This analysis assumes that each person consumes on average one-half gallon of liquid per day. -16- Cola Wars Continue: Coke and Pepsi in the Twenty-First Century Advertisement Spending for the Top 10 CSD Brands ($ millions) op y Exhibit 2 Share of market 2000 Total market 20. 4 13. 6 8. 7 7. 2 6. 6 6. 3 5. 3 2. 0 1. 7 1. 1 1999 20. 3 13. 8 8. 5 7. 1 6. 8 3. 6 5. 1 2. 1 1. 8 1. 1 Advertisement Spendinga per 2000 2000 1999 share point 207. 3 13 0. 0 1. 2 50. 5 84. 0 83. 6 0. 5 44. 5 NA 2. 7 148. 9 91. 1 25. 5 37. 1 68. 4 71. 3 0. 8 39. 2 NA 2. 9 tC Coke ClassicPepsi-Cola Diet Coke Mountain Dew Sprite Dr Pepper Diet Pepsi 7UP Caffeine Free Diet Coke Barq’s root beer Total top 10 702-442 72. 9 72. 9 10. 2 9. 6 0. 1 7. 0 12. 7 13. 3 0. 1 22. 3 NA 2. 4 604. 2 485. 2 8. 3 707. 6 650. 0 NA Source: â€Å"Top 10 Soft-Drink Brands,† Advertising Age, September 24, 2001; casewriter estimates. aAdvertisement spending measured in 11 media channels from CMR. Brands and total market in 192-oz cases from Do No Beverage Digest/Maxwell. Case volume from all channels. 17 Copying or posting is an infringement of copyright. [email  protected] arvard. edu or 617-783-7860. 702-442 Cola Wars Continue: Coke and Pepsi in the Twenty-First Century U. S. Soft Drink Market Share by Case Volume (percent) 1966 op y Exhibit 3 1970 1975 1980 1985 1990 1995 1998 2000E 27. 7 1. 5 1. 4 2. 8 33. 4 28. 4 1. 8 1. 3 3. 2 34. 7 26. 2 2. 6 2. 6 3. 9 35. 3 2