Pepsi and Coca Cola in India – a Case Study
Date added: 17-09-13
The political environment in India proved to be very problematic for both PepsiCo and Coca-Cola when they entered the market. The government has long enforced a protectionist stance on its economy in order to safeguard the interests of its people. Even with the New Industrial Policy in 1991 (Pathak 2007), that loosened the grip on foreign businesses entering the country, PepsiCo and Coca-Cola still had to jump through many hurdles before they could operate. For example, PepsiCo was limited to selling at most 25% of total sales of their soft drink concentrate to local bottlers (Cateora 2007).
They were also not allowed to use foreign brand names on their products, which meant that PepsiCo had to rename their products Lehar Pepsi and Lehar 7UP. These limitations served to dampen PepsiCo’s advance into the market, as well as tamper with the ‘product’ element of their marketing mix by getting rid of the brand’s established name. Coca-cola on the other hand, was forced by the government to relinquish 49% of the company’s shares in order to purchase the local bottling plants (Cateora 2007).
What made it worst was that at the time the company was pleading with the government to waive the ruling; there was a change in the bureaucratic in the government that left all past lobbying efforts in vein. This lack of solid institutions not only makes it hard for companies to manage the enviroment, but also gives way to corruption. Unfortunately, even if the two companies had extensively researched the situation and performed comprehensive environment analysis, they would have not foreseen many of the problems.
This is due to the unstable and unpredictable nature of the political and legal environment resulting from a lack of a solid foundation of law. While PepsiCo entered India in 1988, Coca-Cola only managed to properly re-enter the Indian market in 1993, a whole 5 years after its rival. Both companies’ ventures faced some strict conditions from the government. However, Coca-Cola’s initial entry decision to buy out local company Parle would eventually result in some heavy repercussions for the company. Those 5 years really made a difference to PepsiCo. It allowed the company a firm grasp in the market.
According to the case study, by 1993, the company had already managed to hold 26% of market shares and this was even before Coca-Cola entered the market. Carbonated drinks require low involvement and are often convenience purchases. These kind of purchases are often based on whatever is on the consumers evoked set at the time; something which takes a lot of effort to change (Mathur 2006). Entering early gave Pepsi the upper edge in this respect. During the time, India’s regulations regarding international business and trade were also constantly changing (Pathak 2007).
At the time of PepsiCo’s entry, the government’s policy on international trade were more open and rules for operating with local businesses were more forgiving. Unfortunately for Coca-Cola, by the time it entered the county, the Indian government had changed it policies again to reinforce its stance in protecting local businesses. While the government allowed Coca-Cola to buy out Parle to use their bottling factory to manufacture their products, it gave the company five years before it had to release 49% of its shares to the locals. India’s population is over 1. billion over a very large geographical spread. The cultures within India are also dissimilar from one part to another as well as varying levels of income depending on the region. While there are some uniform interests, marketers should not assume that one marketing mix within a region will work in another region. The southern region of India is more rural and households there have less income compared to other regions. In order to serve these markets better, both Pepsi and Coca-Cola sold their drinks in extra small 200ml bottles in these regions to promote an increase in frequency of purchase.
These cheaper bottles made consumption more affordable to those who didn’t have the disposable income. PepsiCo also offered refills for their 300ml bottles at a lower cost to promote re purchasing. PepsiCo and Coca-Cola also kept releasing new products to keep up with the changing of consumer tastes. Both started off with products that were familiar to the consumer base such as cola drinks, lemonade and fruit juices and when they deemed the market to be ready, they released new products such as diet versions and bottled water. Both Coca-Cola and Pepsi big promotional campaigns targeted the common interests of the Indian people.
For example, Cricket. Pepsi used the cricket matches as a stage to launch an ad campaign featuring various popular national players, as well as sponsoring the Indian team (Emmett 2009). Pepsi managed to tap into the pride of the country for its national team and this is something that is easily relatable to everyone no matter their background or circumstance. The two companies frequently made use of celebrity endorsement to promote their products. Pepsi employed famous Bollywood actor Amitabh Bachchan (Shatrujeet 2001), whereas Coca-Cola sought the appeal of Aishwarya Rai; just to name a few.
Like the sportsmen of cricket, these actors and actresses are easily identifiable to the general public and many use these celebrities as their reference groups. Again, this concept is something that appeals to everyone from various walks of life. PepsiCo utilized the cultural festivals in India to promote their brand. They gave out free gifts with purchase of their Pepsi and Mirinda drinks, such as Basmati Rice and Kit Kat to promote consumption during the Navratri festival, which is during the summer when carbonated drink consumption is at its highest (The Financial Express 2003).
Coca-Cola attempted to connect with their consumers through ad campaigns that promote drinking Coke a cool lifestyle choice. In order to segment the market, they divided the population into two groups (Rural and Urban population) in order to effectively target both markets (Mohaiemen 2004) with different marketing mixes. While I wouldn’t go so far to say that Coca-Cola had failed in their operations in India, they could have definitely handled the situation much better. However, it wasn’t entirely their fault.
There were some unforeseen factors that played into situation, the most important of which is the political and legal environment of India. Hoping to get a jump on rival PepsiCo and at the same time take advantage of the desperate local businesses, Coca-Cola bought over Parle in order to use their existing bottling plants. The government had issued a ruling that Coca-Cola accepted without hesitation and much thought because they so frantically wanted to regain a foothold in the industry. They assumed that in those 5 years, the market would have flourished and they would have made up their losses.
Unfortunately this is their first mistake. They assumed that everything would go to plan. They assumed that everything will work out, even when they have once failed in India few years back. In the end, it didn’t; the market didn’t grow to accept Coca-Cola’s products as they thought it would and they were making loses every year (Prasso 2008). In the end, they tried to lobby with the government to waiver the rule, but ultimately, they weren’t successful. This problem was caused originally from an unstable time in India’s government.
In the late 1990s, India went through an industry reform and because of that, rules and regulations kept changing and this made the environment very unstable. Coca-Cola was unfortunate that it entered the market at a time when the government was reinforcing protectionist policies only after a few years of having policies that promoted international business. Both Coca-Cola and PepsiCo could stand to learn a few things from their venture into India. For one thing, neither company did terribly well in the early years of setting up shop in the country.
Both had to learn to adapt to a totally new environment; but with this new experience, they are better equipped to enter more emerging markets similar to India. Lesson number 1 is to always know what your costumer wants. For the first few years they were in India, PepsiCo and Coca-Cola fiercely battled out each other for dominance, yet both weren’t seeing profit levels that they had hoped. They soon realized that their competition wasn’t actually each other’s products, but substitute goods such as tea, water and other non-carbonated drinks.
This then prompted both companies to release products to cater those markets (Prasso 2008). This shows that just because a county is in a stage of growth, it doesn’t mean that as they grow, they also conform to western cultures (such as carbonated drink consumption). In conclusion, research and analysis of culture is very important. Secondly, they should always keep in mind that the political legal environment is not a force to be reckoned with. Because Coca-Cola entered at the wrong time, they were forced to follow the governments rulings; rules which could be seen as unfair to them.
However, in saying that, they made the mistake of trying to back out of a promise they had already made, hurting their reputation in the process. They should try not to repeat this in the future. Lastly, both companies learned that it’s better to be proactive when it comes to matters such as the environment responsibility. Coca-Cola only started up an advisory board for their operations after they were accused of having pesticide residue in their products (Business Global 2006). This action was taken too late as the damage had already been done; their image received some pretty bad press due to the issue.
If they had taken a more proactive approach, not only would it have strengthened their image, predicaments such as this would have been avoidable. Bibliography Business Global 2006, 'India: Behind The Scare Over Pesticides In Pepsi And Coke', Bloomberg Newsweek, 4 September 2006. Cateora, PR,JLG 2007, International Marketing, McGraw Hill, New York. Emmett, J 2009, 'Cricket sponsorship drives Pepsi sales surge', SportsPro, 15 July 2009. Mathur, V 2006, Evoked set: myth or reality? - brand name products, New Century Publications, New Delhi.
Mohaiemen, N 2004, 'Thanda Matlab Coca Cola', IMC India, 20 January 2004. Pathak, B 2007, Industrial Policy of India : Changing Facets, Deep and Deep. Petrof, JV & Daghfous, N 1996, 'Evoked set: myth or reality? - brand name products', Business Horizons, May-June 1996. Prasso, S 2008, 'Lessons for the Indian market', Enterpreneur, April-May 2008. Shatrujeet, N 2001, 'Amitabh Bachchan debuts for Pepsi', afaqs! , 5 May 2001. The Financial Express 2003, 'Corporates Revel In Community Festivals', The Financial Express, 23 September 2003.