Presentation on theme: "Cola Wars in China Case Study Analysis."— Presentation transcript:
1 Cola Wars in ChinaCase Study Analysis
2 Index Competitive Position: Competitive Advantage
Competitive Strategy: The analysis of strategic positionSustainable Competitive AdvantageSources of Cost AdvantageCore competencyEconomies of ScaleExperience Curve EffectsEconomies of Scale ActivityVertical IntegrationValue Chain AnalysisMarketingMarketing Tactics - ActivityMarket ResearchMarket PositioningMarketing StrategyRationale and ObjectivesCase StudyHow to Handle a Case StudyQualitative ResearchBusiness ResearchMarketing researchMarket researchProduct researchWahaha Group – Indicative Research QuestionsIndustry Analysis and Competitive StrategyContext AnalysisIndustry InformationMarket StructuresCompetitor AnalysisPorters 5 ForcesCola WarsWater WarsThe Coca-Cola CompanyPepsiCo, Inc.Industry Analysis and Competitive Strategy ActivityMarket Analysis Activity
3 Index Life Cycles, Turnarounds, Entrepreneurs Life Cycle Analysis
Product Portfolio AnalysisProduct Portfolio Analysis – ActivityCrises ManagementFinancial CrisesPublic Relations CrisesStrategic CrisesEntrepreneursIntrapreneurshipGlobal Strategies and International AdvantageInternational BusinessMultinational CorporationsGlobalisationGlobalisation ActivityInternational TradeSWOT AnalysisWahaha Group’s Strategic OptionsEvaluation and MeasurementMeasuring the Positioning (Marketing)Business CaseBenchmarkingGap AnalysisRisk, Uncertainty and StrategyRisk managementGame TheoryDecision MakingCost-benefit AnalysisRecommended TextsResourcesCase Study Research
4 Rationale and Objectives
The resource covers the fundamentals of case study research and analysis. It focuses on a Chinese soft drinks company, Hangzhou Wahaha Group Co., Ltd and its position in global Cola Wars as well as the issues of business research including research objectives, and methodology.ObjectivesThe objectives of this resource are tooffer a holistic view business and managementdemonstrate the case study research and analysis processes, including methods, techniques and evaluationfamiliarize students with the principles and techniques of qualitative research and strategic analysisdevelop and enhance students’ transferable skills in knowledge management, strategy development and business communications.develop and enhance students’ web research skills.
5 Rationale and Objectives
Required TextStrategy Analysis and PracticeJohn McGee, Warwick Business School Howard Thomas, Warwick Business School David Wilson, Warwick Business School
6 Case StudyA case study is a particular method of qualitative research. Rather than using large samples and following a rigid protocol to examine a limited number of variables, case study methods involve an in-depth, longitudinal examination of a single instance or event: a case.They provide a systematic way of looking at events, collecting data, analyzing information, and reporting the results.As a result the researcher may gain a sharpened understanding of why the instance happened as it did, and what might become important to look at more extensively in future research. Case studies lend themselves especially to generating (rather than testing) hypotheses.How to Handle a Case StudyApproaches to Authentic Learning Experience
7 Qualitative ResearchInvolves investigating participants' opinions, behaviors and experiences from the informants' points of view.Is contrasted with quantitative research in that it does not rely on quantitative measurement and mathematical models, but instead uses logical deductions to decipher gathered data dealing with the human element.Compared to quantitative research, it is more expensive, has smaller sample sizes and is hard to measure.
8 Business ResearchBusiness Research is the systematic investigation of facts, knowledge, and information that relate to businesses or the world of business. There are several major types of business research.Types of business researchMarketing researchMarket researchProduct researchClick on Image
9 Wahaha Group Indicative Research Questions
How will Wahaha’s multinational competitors respond to ‘Future Cola’ and other Future Series carbonated drinks achieving an impressive 18% market share (2002)?How should Wahaha prepare for these responses?How should it continue to increase its maker share?Case StudyBusiness CaseClick on Image
10 Industry Analysis and Competitive Strategy
Objective: to determine the opportunities and threats that exist for firms within a competitive environmentIndustry analysis and competitive strategyContext AnalysisIndustry InformationMarket StructuresMarket AnalysisCompetitor AnalysisCola WarsWater WarsClick on ImageClick on Image
11 Industry Analysis and Competitive Strategy
The Coca-Cola CompanyPepsiCo, Inc.Industry Analysis and Competitive Strategy ActivityClick on Image
12 Context AnalysisContext analysis, also known as environmental scanning, is a method to analyze the environment in which a business operates.Environmental scanning mainly focuses on the macro environment of a business. But context analysis considers the entire environment of a business, its internal and external environment. This is an important aspect of business planning because such an analysis allows the business to gain an insight into their strengths and weaknesses and also the opportunities and threats posed by the market within which they operate.The main goal of this analysis is to analyze the environment in order to develop a strategic plan of action for the business.MethodDefine market or subjectTrend AnalysisCompetitor AnalysisCompetition levelsCompetitive forcesCompetitor behaviorCompetitor strategyOpportunities and ThreatsOrganization AnalysisInternal analysisCompetence analysisSWOT-i matrixStrategic PlanExampleDefine market
13 Industry Information Beverage Digest Beverage World BevNET
National Soft Drink AssociationBeverages (Nonalcoholic) IndustryThe Soda Pop StorySoft Drinks and HealthClick on Image
14 Market StructuresIn economics, market structure describes the state of a market with respect to competition.There are two kinds of market structures that are usually discussed: perfectly competitive market structure and imperfectly competitive market structure. Perfectly competitive market structure is an ideal state of a market in which the competition amongst the buyers and sellers is likely to be perfectly balanced.Click on ImageLarger Map
15 Market StructuresClick on ImageLarger MapThe imperfectly competitive structure is quite identical to the realistic market conditions where some monopolists, oligopolists, and duopolists exist and dominate the market conditions.
16 Market Analysis Market Analysis Related Readings Market Analysis 1
Market Analysis ActivityClick on ImageLarger Map
17 Competitor AnalysisCompetitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potentialcompetitors.Competitor arrayCompetitor profilingMedia scanningNew competitorsSee alsoExternal linksCompetitor Analysis – A brief guidePorters 5 ForcesClick on Image. Sensory profiling can help you to understand how your product differs from the competition's and how to improve it.
18 Cola WarsBackgroundCola Wars is the term used to describe the campaign of mutually-targeted television advertisements and marketing campaigns in the 1980s and 1990s between Coca-Cola and Pepsi-Cola. They first began showing people doing blind taste tests in which they preferred one product over the other, then they began hiring more and more popular spokespersons to promote their products.They focused particularly on rock stars; notable soft drink promoters included Michael Jackson (for Pepsi) and Paula Abdul (for Diet Coke). One example of a heated exchange that occurred during the Cola Wars was Coca-Cola making a strategic retreat on July 11, 1985, by announcing its plans to bring back Coke Classic.Pepsi ads often focused on regular people, particularly the young (and young-at-heart) and those in the future, choosing Pepsi over Coke, supporting Pepsi's Positioning (marketing) as "The Choice of a New Generation."Pepsi Stuff represented a major assault in the Cola WarsClick on Image
19 Global Cola Wars Global Cola Wars (and other familiar scenes)
Cola wars add spirited edge Move over, hard lemonade and Zima: Jack Daniels and Miller Brewing prepare to debut hard colaOver a Century of Cola Slogans, Commercials, Blunders, and CoupsMarketing in ChinaChinese enter Cola War!Naming in Chinese, the Coca-Cola StoryA turncoat in the Cola WarsThe Yin and Yang of ChipsCompany ProfileClick on Image
20 Water WarsBottled water is a multibillion-dollar growth industry - on its way to becoming the most consumed beverage in America outside of soft drinks. Should you buy it, bottle it, or invest in it? Here's a look at the major players, the outlook for investors and consumers, and even the results of one writer's taste test.The playersOne might salivate over the prospect of investing in this kind of growth. But doing so in any significant way in your portfolio is difficult. Mega-multinationals have taken over the industry so their bottom lines are only affected minimally by water sales.Click on Image
21 Water WarsThe largest player by far is better known in the U.S. for chocolate than water. Nestle S.A.'s (OTCBB: NSRGY) water division sells 70 bottled water brands in 160 countries. Its North American subsidiary sells nine domestic brands, including Arrowhead, Poland Spring, and Deer Park, and five imported brands, including San Pellegrino and Perrier. Nestle Waters North America, Inc. had revenues of $2.1 billion in 2001 (2002's numbers aren't available yet). Its market share is 32.5% and growing.Click on Image
22 Water WarsPepsiCo (NYSE: PEP) comes in second place with its Aquafina product, which currently only has a 10% market share but is the top-selling single-serve bottled water in the U.S. In 2001, Aquafina sales grew nearly 45% and comprised 4% of all of Pepsi's beverage sales.Coca-Cola (NYSE: KO) falls into third place, its Dasani product grabbing an 8.5% market share in 2001. Sales grew a hefty 40% in 2002, however. Coca-Cola also recently entered into a production, marketing, and distribution partnership with France's Groupe Danone, owner of a number of niche water brands, including Evian. Over the last three years, Coke's global bottled water business has grown at a compound annual rate of 59%.Click on Image
23 Water WarsFacts and figures Key figures Executive committee Publications Brands portfolio Nestlé Brands International brands Local brands Our markets North America Europe Middle- East / Africa Asia - Oceania Latin America A rapidly expanding marketClick on Image
24 The Coca-Cola Company Company Analysis Bottlers Products and brands
Brand PortfolioFailuresCriticismsMonopolistic PracticesDiscriminationCoca-Cola in ChinaWorld of Warcraft Coke commercial from ChinaCoca-Cola targets rural ChinaCoca-Cola in IndiaCoca-Cola in UKPraisesHistorySanta ClausCorporate GovernanceAnnual ReportsStockKey NumbersClick on Image
25 The Coca-Cola Company See also External links Coke's Sinful World
Coca-Cola: A ClassicCritical Perspectives
26 PepsiCo, Inc. Company Analysis History Corporate governance
Annual ReportKey NumbersFormer top executives at PepsiCoSocial issuesDiversityPepsiCo brandsPartnershipsMarketingCriticismsLong-term health effectsPepsi in IndiaPepsi in BurmaRivalry with Coca-ColaTroubled popstar endorsementsSee alsoNotesExternal linksGatoradePepsi's New ChallengeClick on Image
27 Top Competitors Cadbury Schweppes Dr Pepper Schweppes 7UP A&W
Canada DryDiet Rite®Hawaiian PunchMott’sSlush PuppieSnappleSunkist SodaWelch’sClick on Image
28 Industry Analysis and Competitive Strategy Activity 1/2
Task 1Identify the key assets that Wahaha Group possesses that might give it some competitive advantage. Think about the physical assets, human assets as well as its image when compiling your list.Related ReadingsMade in ChinaWahaha Claims Top Beverage SpotBased on British Airways Activity byClick on Image
29 Industry Analysis and Competitive Strategy Activity 2/2
Task 2Use Porter's Five Forces model to analyse the market.You will need to think about the extent of the competition it is facing - how this has changed, the different needs of its customers, who its suppliers might be and what influence they can have (think oil prices, for example!) and the nature of the substitutes to air travel (are businesses finding new ways of putting people in touch with each other, for example?)
30 Market Analysis Activity
This Activity is designed to give you the opportunity to conduct a market analysis on a business using the PowerPoint Presentation [244 KB] and Mind Map as guides to help you. Look at these resources first and ensure that you understand the meaning of the key terms.TaskConduct a market analysis of Wahaha Group. You will need to consider the points indicated here.Related ReadingsWahaha Corporation – MarketBusterBeverage tycoon plans more expansionClick on Image
31 Competitive Position: Competitive Advantage
Competitive Strategy: The analysis of strategic positionSustainable Competitive AdvantageSources of Cost AdvantageCore CompetenciesEconomies of ScaleEconomies of Scale ActivityExperience Curve EffectsVertical IntegrationValue Chain AnalysisMarketingMarket ResearchMarket PositioningMarketing StrategyMeasuring the Positioning (Marketing)Click on Image
32 Sustainable Competitive Advantage
Companies that compete by selling similar products (or even substitutes) to the same group of customers constitute an industry.A company that is more profitable than its rivals is exploiting some form of advantage.The benchmark for profitability is the company's cost of capital.To consistently make profits in excess of its cost of capital - economic rent - the company must possess some form of sustainable competitive advantage (SCA).ContentsBarriers to entryMarketingStrategic managementMarketing managementCore competencyPositioningMarketing mixMarketing planMichael PorterStrategic planningStrategySynergyPorter 5 forces analysisValue chain
33 Sustainable Competitive Advantage
A firm possesses a SCA when it has value creating processes and positions that cannot be duplicated or imitated by other firms that lead to the production of above normal rents.A SCA is different from a competitive advantage (CA). However, these above normal rents can attract new entrants who drive down economic rents.A CA is a position a firm attains that lead to above normal rents or a superior financial performance.Click on ImageLarger Image
34 Sustainable Competitive Advantage
The processes and positions that engender such a position (CA) is not necessarily non-duplicable or inimitable. It is possible for some companies to, temporarily, make profits above the cost of capital without sustainable competitive advantage.Click on Image
35 Sources of Cost Advantage
Core CompetencyA company's core competency are things that a firm can (also) do well and that meet the following three conditions specified by Hamel and Prahalad (1990).It provides customer benefits,It is hard for competitors to imitate, andIt can be leveraged widely to many products and market.A core competency can take various forms, including technical/subject matter know-how, a reliable process, and/or close relationships with customers and suppliers (Mascarenhas et al. 1998).It may also include product development or culture such as employee dedication. Modern business theories suggest that most activities that are not part of a company's core competency should be outsourced.MarketingMarketing managementSustainable competitive advantage
36 Sources of Cost Advantage
Economies of ScaleBusiness EconomicsClick on ImageLarger Map
37 Economies of Scale - Activity
PlayStations at £115, colour printers for under £30, free scanners, keyboards for less than £10, a mouse for the same price as a mouse mat, CD and DVD players for less that £40! What have all these products got in common? The answer is economies of scale. The firms involved in the manufacture of these items produce them in vast quantities.Image: Sony PlayStation controls - the company have shipped 60 million units since PlayStation 2 was released. Copyright: Patricia BenitezClick on Image
38 Experience Curve Effects
The learning curve effectThe experience curve effectReasons for the effectExperience curve discontinuitiesStrategic consequences of the effectCriticismsSee alsoBooks and articlesExternal linksLearning curve calculatorClick on ImageThe learning curve effect and the closely related experience curve effect express the relationship between experience and efficiency. As individuals and/or organizations get more experienced at a task, they usually become more efficient at them. Both concepts originate in the old adage, "practice makes perfect".
39 Value Chain Analysis
40 Marketing Types of markets The Marketing Mix Four Ps Seven Ps
TechniqueCriticism of marketingList of marketing topicsMarketing Tactics - ActivityClick on ImageLarger MapMarketing, as suggested by the American Marketing Association, is "an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders".
41 Market Positioning Market Research Other types of business research
Types of marketing researchMarketing research methodsSome commonly used marketing research termsSee alsoStrategic ManagementGeneral approachesThe strategy hierarchyHistorical development of strategic managementBirth of strategic managementGrowth and portfolio theoryThe marketing revolutionThe Japanese challengeGaining competitive advantageExternal LinksMarket PositioningProduct positioning strategyProduct positioning processPositioning conceptsMeasuring the positioningSee alsoConjoint AnalysisFactor AnalysisListsReferencesClick on Image. Source: ©2006 Framework Partners Inc
42 Marketing StrategyClick on ImageA marketing strategy serves as the foundation of a marketing plan. A marketing plan contains a list of specific actions required to successfully implement a specific marketing strategy.
43 Marketing StrategyClick on Image. Larger Image.An example of marketing strategy is as follows: "Use a low cost product to attract consumers”.
44 Marketing StrategyOnce our organization, via our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer's interaction with the low-cost product or service.“Click on ImageA strategy is different than a tactic. While it is possible to write a tactical marketing plan without a sound, well-considered strategy, it is not recommended. Without a sound marketing strategy, a marketing plan has no foundation.Marketing strategies serve as the fundamental underpinning of marketing plans designed to reach marketing objectives. It is important that these objectives have measurable results.
45 Marketing Tactics - Activity
Image: Having impressive adverts may be a useful marketing tactic but the role of the marketing function involves much more than this. Do customers recognise the brand? Is there a unique selling point (USP) that can be used to differentiate your product or service from another? How will the firm manage its cash flow? All these factors and more are part of the tactics that are used in the marketing function. Copyright: Gunter HoferClick on Image
46 Life Cycles, Turnarounds, Entrepreneurs
Competitive strategy: moving from theory to practice Life Cycle AnalysisProduct Portfolio AnalysisBoston MatrixGE MatrixProduct Portfolio Analysis – ActivityCrises ManagementFinancial CrisesPublic Relations CrisesStrategic CrisesNegotiation / Conflict ResolutionEntrepreneursIntrapreneurshipEntrepreneuring / VenturingClick on Image
Wahaha Case Study
QUESTION 1: What “international strategy” and “modes of entry” did COKE/PEPSI use to penetrate the Chinese Market? How effective were these choices? When Chinese markets opened up in 1980’s, Coke/Pepsi focussed on defining several strategies to Differentiate, Market and distribute their Cola products to Chinese consumers. International Differentiation Strategy: Both used two main aspects of this strategy “Branding” and “Cost Leadership“to force local producers to withdraw from the market or establish joint ventures with them.
They invested heavily in Brand recognition and used lots of advertising and sponsoring to support their cola brands. They replicated their global rivalry in China and initially were determined to seize market share from domestic cola producers, even at the cost of profitability. Later, Coke instituted the “Glocal” strategy which means “Think Local, act local but leverage global” but Pepsi instituted its positioning on young consumers. International Marketing Strategy: Coke spent heavily on Marketing to create a sound brand image and included Chinese cultural icons like windmills and dragons in its advertising.
Local films and sports stars were engaged, sponsored National Soccer teams and International Olympic Committee as well with funding up to $1. 1 Billion for Beijing Games. Pepsi also used a great deal of Marketing like using popular entertainers such as Faye Wang, Guo Fuchen as endorsers. Pepsi became the most popular soft drink brand for young consumers due to its focussed Marketing for this demographics. International Distribution Strategy: Both preferred to establish their own distribution networks while setting up Joint Ventures with bottlers and bottlers managing sales in their assigned territory.
They set stringent sales targets for bottlers, and in turn bottlers would set targets for distributors. While in most of the joint ventures, Coke did not have majority shareholding but Pepsi sought a majority share in the joint ventures. Global vs. International Strategy: Coke/Pepsi both maintained a global image and product offerings with a strong level of standardization in terms of Product quality, taste and branding but adapted their marketing strategies as per local market.
For Example, Coke has taken the “think local, act local” approach and localized their marketing activities to be in sync with Chinese consumers. They sponsored National Youth Soccer Team and also extended their sponsorship for Beijing Games to create a sense of belonging among the end consumers. International Collaborative Strategy: Both Coke/Pepsi did collaboration with local Chinese companies and set up joint Ventures which helped them understand cultural, political, competitive and economic differences among various provinces in China.
They were also successfully able to reach end consumers through local companies and create accurate customer profiles which helped them understand complexities in Chinese market. International Diversification Strategy: Product diversification strategy entails any modification of a current product that serves to expand its potential. Product diversification is different from product development such that it involves creating a new customer base, which expands the market potential of the original product. Coke/Pepsi used this strategy quite effectively to widen their customer base and target new segments.
They launched several local products specific to Chinese needs and culture and did marketing in localised manner. For Example: Coke launched Minute Maid Pulpy Super Milky drink and the Sprite Tea drink and both have been regional hits. Both drinks have been developed out by the research and development unit in China. These strategic choices made by Pepsi/Coke were quite effective in China as they had successfully implemented them in other countries and both companies gained combined market share of 71% in Chinese Cola market by 2000.
QUESTION 2: What resources, capabilities and competencies enabled Wahaha to compete successfully against Coke and Pepsi when most other local Chinese soft drink manufacturers had failed? Wahaha was able to successfully compete against Coke and Pepsi due to these factors: Wahaha’s Leadership : Wahaha Group was managed by Zong Qinghou who had a great vision and deep knowledge of markets and consumers in various regions. He had 20 years of sales experience in Chinese rural markets and Wahaha launched Future Cola in rural areas first which was untapped.
Wahaha’s Marketing : Marketing, research and development (R&D) and logistics management were centralized at headquarters, while the subsidiaries were engaged in production. Wahaha’s marketing was clearly home grown and pitched the product as a “Chinese Cola” creating a sense of patriotism among end consumers. Wahaha’s Advertising : Wahaha’s advertising targeted the mass market, and not just the wealthier urban consumers. The prices of its products were usually lower than those of comparable products from its multinational competitors.
They spent half of their advertising on CCTV which had huge rural coverage and credibility among consumers. Wahaha’s Distribution Network: Wahaha had developed unique relationships with distributors over last 10 years and was able to quickly deliver its products, reaching even remote corners of China within days. Wahaha established offices in more than 30 provinces with sales staff co-ordinating operations with the distributors.
Wahaha JV’s and Acquisitions: In order to obtain world class production technology and survive competition from both local and multinational companies, Wahaha chose to partner with French giant Groupe Danone and both established several production oriented Joint Ventures(JV’s) which resulted into revenues and profits growing more rapidly. Wahaha also made several acquisitions such as loss making companies which were larger but poorly managed and it supported geographic expansion and production in local provincial markets.
Wahaha’s R&D : Wahaha co-operated with R&D institutes and leading domestic flavor producers to ensure that its cola would be of a high quality and conducted thousands of taste tests worldwide. Its taste was designed to be close to international colas, but a little bit sweeter and stronger to cater to the Chinese consumers’ taste. Wahaha’s Production: Unlike Multinational companies, Wahaha had set up its own bottling plants as subsidiaries which allowed it great flexibility and also opened 68 production lines over China in various provinces.
Wahaha’s Competitive Edge: The biggest competitive advantage which Wahaha had over Coke/Pepsi is that being a local company it understands the Chinese culture diversity pretty well and also their unique relationship with distributors in even remote parts of China. They identified the opportunity in rural markets which was untapped by big multinationals and advertised heavily on local TV Channels, especially CCTV to create a solid Brand image in minds of Chinese consumers.
Above all, since Wahaha had successfully sold many products like bottled water, flavoured milks, children’s nutritious drinks before launching Future Cola so it had enough experience, network and capital to support its Marketing, advertising expenses unlike other local Chinese soft drink manufactures who failed. QUESTION 3: What were the relative “Strengths & Weaknesses” of the three competitors in the Chinese Cola War? | Strengths| Weakness|
Coke| International ExperienceStrong presence in urban areasExcellent sales force Huge capital to support price warsWide Range of productsIncreased local market knowledge| Weak Rural presenceCross territory sales by distributorsRivalry with Pepsi| Pepsi| International ExperiencePopular among young consumersProven Strategy in other marketsStrong hold on main cities| Weak Rural presenceJoint Venture conflictsRivalry with Coke| Wahaha| Understanding Chinese Culture DiversityRelationship with distributors in rural areas68 Production lines over ChinaJoint Venture with DanonePricing flexibility due to production by own subsidiariesChina’s own Cola| Week attendees in main citiesSales force|
Wahaha seems to be winning the Cola war if they build on the strategies and implement them successfully in urban areas as well where multinationals have strong presence and also continue protect their current market share in rural areas. Another reason why Wahaha seems to be winning over because it has branded its products as “China’s own Cola” Made in China products and which resulted into a sense of belonging and loyalty among the Chinese consumers and it can be successfully implemented in big cities like Beijing, Hong Kong as well. QUESTION 4: Describe the Competitive Strategies and Tactics each company (Wahaha/Coke/Pepsi) used to gain Market Share in China.
Did any company appear to be winning the cola war? Support your answer. We can describe the competitive Strategies and Tactics used by each company to gain market share using Porter’s Five Force model. Industry Rivalry: When Chinese markets opened up in 1980’s, Coke and Pepsi invested heavily in Brand recognition and used lots of advertising and sponsoring to support their cola brands. They replicated their global rivalry in China and initially were determined to seize market share from domestic cola producers, even at the cost of profitability. They either forced local producers to withdraw from the market or establish joint ventures with them.
Wahaha decided to target the rural market first because it knew and understood this market, and because it was not the focus of Coca Cola and PepsiCo. It focussed on the mass market of 1. 1 billion people in rural areas. Suppliers: Pepsi and Coke preferred to establish their own distribution networks while setting up Joint Ventures with bottlers and bottlers managing sales in their assigned territory. They set stringent sales targets for bottlers, and in turn bottlers would set targets for distributors. They used this model successfully in many countries. Their bottlers will map every place where their products can be sold and create one of them most accurate customer profiles.
Coke had 28 bottling plans with Joint ventures (Minority shareholding) but Pepsi had 16 bottling plans with Joint ventures (Majority shareholding). Bottlers had little Supplier Power since they were into joint ventures with Coke and Pepsi. Wahaha did not had any suppliers since it had set up its own bottling plants as subsidiaries which allowed it great flexibility with its sales team and resulting into more price flexibility. It had more than 40 WOS and majority holding companies in 23 provinces. Buyers: Chinese cola consumers were segmented into two broad areas urban and rural, while urban market was captured mostly by Coke and Pepsi and Wahaha had excellent rural reach due to its unique relationship with its distributors in remote parts of China.
Coke target market was large population centres, rolled out its products in cities based on population with up to 85% distribution penetration, Pepsi focused on key markets and cities, youth segment and had 65% distribution penetration but increasing faster than Coke. Wahaha focus initially was on smaller cities and rural areas which was yet untapped by big multinationals. Wahaha priced its products quite lower than Coke and Pepsi since rural consumers had more price sensitivity than urban buyers. It spent heavily on CCTV advertising which had huge rural coverage and credibility among consumers. They did the Marketing of their products as “Made in China” which made consumers more loyal towards it.
Pepsi/Coke made money from sale of concentrate while Wahaha made it from sale of final products due to its own subsidiaries doing production and so Wahaha had high pricing flexibility than Coke/Pepsi and was able to undercut multinationals. Potential Entrants: Coca Cola and PepsiCo’s success against the domestic Cola producers in the early stages and their strong brand name and sales network in big cities formed a high entry barrier for new competitors. However, later Wahaha successfully competed against them due to good knowledge of Chinese culture, sound distribution network and excellent Brand Management and timely launch of quality products in rural areas which was untapped by big companies. But, still sector has high entry barriers there by resulting into limited potential entrants.
Substitutes: There are several substitutes to Cola like Iced Tea, Sports and Energy drinks, Non – Carbonated drinks, juices, packaged water etc which pose a great challenge to Cola Industry and growing at a higher rates up to 10% in comparison to 2-4% growth rate in Cola drinks. This has resulted into Coke, Pepsi and Wahaha launching several other products in these categories Value Creation for Shareholders: While Coke/Pepsi endorsed local film stars, included cultural icons in its advertising and sponsored various Chinese Sports programs to localise their marketing as per Chinese consumers but Wahaha focussed on advertising using TV Ads especially on CCTV which had huge coverage and credibility and also sponsored Soccer World Cup and spring festivals. QUESTION 5: What future strategies should Wahaha consider to compete successfully against such large multinational enterprises?
There should be a Four Step Action Plan which Wahaha should consider to compete successfully against such large multinational enterprises: Step1: Wahaha need to maintain and protect its leading position in Rural market since both multinationals Pepsi/Coke are going to improve their distribution network, product offerings and further localise their Marketing to penetrate rural market. It can do it by increasing Marketing activities in rural areas and projecting its “Chinese Cola” brand image more comprehensively. Step2: It need to target main cities where multinationals have strong presence and fetch market share so that it can maintain its overall market share in case of downside in rural market share. Step3: It needs to explore new markets which are yet untapped fully by multinationals and are similar to Chinese ulture since it can brand its products successfully in similar manner as it did in China Step4: It needs to broaden its product line and enter into other substitutes category like Iced Tea, Bottled water etc which are posing a threat to Cola segment by registering higher growth rates. It can also start research on new product segments like Alcoholic drinks etc to see if market potential exists or not. Strategy| Actions| Protecting and maintaining leading position in Rural Market| * Increase Marketing activities in rural areas( Sponsor for local events and ads) * Offer Bounce system to maintain distributors loyalty . | Market Penetration| * Target Main cities first where Wahaha has good reputation like Beijing, Hong Kong etc. Promotional campaign every quarter for Brand Recall| Market Development| * Expand in neighbour countries with similar Chinese culture since it can use similar marketing and branding strategies in those countries which Wahaha has successfully implemented in China. * Use the Danone JV to enter in markets where Danone has good presence. | Product Development| * Prepare new production line for non – carbonated soft drinks since other substitutes like Iced Tea, Juices, Bottled waters are showing a higher growth rates than Cola segment. * Start Study to produce alcoholic drinks like Beer. | References: 1: International Trade & Academic Research Conference (ITARC ), 7 – 8th November, 2012, London. UK. on “COCA-COLA: International Business Strategy for Globalization” 2: Porter’s Five Force model of Competition: http://www. managementstudyguide. com/porters-model-of-competetion. tm 3: Cola Wars in China: Case Study Analysis Source: Strategy Analysis and Practice 2005 McGraw Hill Education Europe 4: Cola Wars in China : The Future is Here ; Case Study by Nancy Dai at Richard Ivy School of Business. 5: Cola Wars – UTS 21715 – Strategic Management Lecture 3 University of Technology Sydney 6: Alon, I. , Littrell, R. F. , & Chan, A. K. (n. d. ). Branding in China: Global product strategy Alternatives. http://www. aabri. com/OC09manuscripts/OC09002. pdf 7: Espitia E. , Manuel and Ramires A. , Marisa The impact of product diversification strategy on the corporate performance of large Spanish firms. Spanish Economic Review Volume 4 Number 2. P. 119-137 2002.
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