Economic Analysis

Economic Analysis

            Coke has dominated the soft drink industry for the most extended period. Pepsi is catching up in the industry by offering competition through their flavored drinks with a natural taste. These companies have been operational to ensure that each becomes a product leader in the soft drink industry. There is an evident power struggle to ensure that each attains competitive superiority gains each other. There are changing lifestyles among the consumers who are opting to purchase healthy products, unlike carbonated drinks. It has led the companies to avoid rivalry in the market and focus on increasing customer frontier.

The soft drinks industry relies on market forces to ensure that customers increase their preferences. The size of the market is concentrated between specific age gaps, with the youth having increased choice. This aspect is based on teens eating at fast food joints, whereby soft drinks are stocked as outlets. Also, institutions have outlets that allow access to these drinks. There is a cafeteria in higher institutions of learning, thus makes the youths a consideration in market size. In terms of geography, the western people and the Middle East have top preferences for soft drinks which are taken during parties; besides, these are made in large quantities in households. Hence, the market size keeps growing (Coe, Kelly, and Yeung, 2019). Coke has outlets known as dispensers, whereby people can find the flavors of their choice. Besides, it ensures the efficiency and effectiveness of prices.

The prices of soft drinks remain relatively constant in the market for a long time. It ensures that companies have to focus on other regions to increase the number of consumers. These products are perfect substitutes in the soft drinks market since the pricing is essentially the same. Also, these two companies use broadly the same brand names differentiated by color on the outside. Coke has coca-cola while Pepsi has Pepsi Cola. Coca-cola outsells Pepsi cola in Australia and New Zealand. Pepsi has been declared bankrupt twice due to the great depression in 1922 when Coke offered an opportunity to purchase Pepsi. It provides Coke a chance to be monopolistic until Pepsi was back in the market. There was a monopoly on profits and products in the market that was settled after fierce competition between the two brands (Wang and Finn, 2012). Pepsi and Coke have spent a lot of income on advertising to outdo each other with information about the customers. There has been an endorsement of celebrity by Pepsi, while             Coke is oriented in the Share of Coke campaign. However, Coke retains the largest market share in terms of profits and customers. Coke is available in broad quantity distribution through dispensation. It is possible through food outlets that ensure they avail of a dispensing machine in such areas. Besides, coke has partnered with SMEs in providing that they are an outlet to the company’s products. They have dispensers at the entry or installs to avail of the variety of flavors to customers. The vending machines have been indicated the trade name of Coke, ensuring that the company products can be identified at any outlet. The largest food joint in the world, mac Donald’s’, Subway, Nando’s sell Coke in their outlets, which ensures that the customers have the only options to coke products. Pepsi is found in supers market and largely dominate KFC.

Consumers will find Pepsi as the second option form Coke when inside a supermarket, whereby they will look for other stalls before settling on Pepsi. It provides Coke the convenience advantage on its available within a small radius over a small area. The convenience advantage is open to the company that has been established in the market in high numbers. Also, it offers exclusive deals to organizations ad customers that make bulk purchases. Thence convenience advantage provides consumers with the option to purchase Coke as the loyal and leading brand. Over time Coke has gained popularity, unlike Pepsi, especially when people are in restaurants and have an opportunity to choose between the two. Food outlets are likely to hold a few brands of choice which are consumed in large numbers by consumers. Hence, in most cases, restaurants will stick to Pepsi and Coke. In such cases, there is a high preference for customers purchasing coke rather than Pepsi. Therefore the monopoly in restaurants to stock coke is based on market demand that has been observed over time.

Brand loyalty is developed when a brand markets the products through strategic availability and tastes. Restaurants are unbiased when they stock the two brands, but consumers choose Coke over Pepsi. A brand that leads will be shared in higher quantities in the inventory, unlike the slow product in the market. Coke has a pricing strategy that ensures that the product is affordable. It is stocked in quantities that meet the consumers’ purchasing power in addition to segmentation in the market (Benstead and Reif, 2017). These two companies are examples of oligopolistic market structure. The companies do not have fixed prices that are the basis of purchase by consumers. Coke and Pepsi regulate their prices individually, whereby there is no collaboration in any manner.

Coke and Pepsi are mutually interdependent on the basis that a decision by one firm affects the other, especially in terms of prices, flavors, and segmentation. When coke cuts product prices, Pepsi had to move in the same direction. The reduction in costs will affect sakes in both companies but invariably in the Coke Company (Nestle, 2015). It takes place primarily in rural areas, whereby these companies are trying to venture. The price elasticity ensures that low disposable income consumers have the purchasing power of the same products that middle income can afford. A rise in demand for Coke leads to an increase in production, whereby it will result in low total average costs that will increases economies of scale to the company. However, it is not the case with Pepsi since the low prices are not equally competitive for the company. Coke has used a pricing strategy for a long time that aims at increasing consumption. Concerning a surge in consumption, the company has to increase its production and distribution.

Soft drink companies resort to non-price competition as the marginal costs fluctuate. The minimal cost of production relies on the amount of money that companies allocate to research and development. It is done to differentiate products and minimize the cots to prove electricity. Coke reduces its prices of products, which increases consumption in the market. However, it is done in the short term. Pepsi prices remain relatively the same, whereby consumers will prefer low-cost coke than Pepsi in equal quantities.

Therefore the two companies participate in an oligopolistic market structure whereby they are offering a homogenous item. The companies have control over the price of their products, whereby they lower the costs as they please. The aim is to achieve increased consumption that delivers high production in the short term (Dauvergne and Lister, 2012). There are following markets in areas whereby Coke has not had high use, especially in developing countries. Coke is providing cut prices on their products to make market entry and find a competitive edge. Besides, a low price strategy leads to an increase in profits whereby there is high consumption.

Moreover, these firms have dominated the soft drinks industry, whereby they act like cartels. Hence entry into this market becomes uneconomical for new entrants. It increases the economic benefits for these companies in the long run.

Therefore, Pepsi is a product follower whereby Coke remains a product leader dominating the marketing with the largest share of consumers and profits. It acquires a competitive edge through pricing strategy and brand loyalty through marketing. Increased competition from Pepsi will reduce monopolistic competition from Coke that has dominated the soft drinks market. Besides, advertising is used to minimize monopolistic power by Pepsi and other companies towards Coke in the market.

References

Benstead, L. J., & Reif, M. (2017). Coke, Pepsi, or Mecca Cola? Why product characteristics affect the likelihood of collective action problems and boycott success. Politics, Groups, and Identities, 5(2), 220-241.

Coe, N. M., Kelly, P. F., & Yeung, H. W. (2019). Economic geography: a contemporary introduction. John Wiley & Sons.

Dauvergne, P., & Lister, J. (2012). Big brand sustainability: Governance prospects and environmental limits. Global Environmental Change, 22(1), 36-45.

Nestle, M. (2015). Soda Politics: Taking on big soda (and winning). Oxford University Press, USA.

Wang, L., & Finn, A. (2012). Measuring CBBE across brand portfolios: Generalizability theory perspective. Journal of Targeting, Measurement, and Analysis for Marketing, 20(2), 109-116.