Strategic Brand Management: Coca-Cola and Pepsi Brand

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Executive

A brand is a very important marketing tool for any product or service. The brand name of any company acts as the most valuable asset as it is the one that differentiates a company from its competitors. Choosing and establishing a brand is one of the major challenges for management. Apart from establishing a brand, it is imperative to use brand management strategies to manage the brand. This paper looks at brand management strategies as used in Coca-cola and Pepsi brands. Coca-cola has been a successful brand that has allowed Coca-cola Company to dominate in soft drink industry. The brand wars between Coca-cola and Pepsi are common in the media. As seen in the paper, the ability of Coca-cola Company to establish a strong brand and protect it from competitors is one of its greatest successes. Ability of Coca-cola to use brand positioning, pricing strategies, distribution channels, promotions and globalization is contrasted with Pepsi’s. The paper further proposes a strategy that Pepsi can use to counter Coca-cola brand.

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Introduction

Branding is one of the most important marketing strategies. A brand is the principal identity of a product or service. Although in the past companies did not give strong emphasis on branding, its importance of branding is slowly being accepted. While branding was a reserve for major products, today companies offering both products and services are taking advantage of branding for market penetration as well as market preservation (Total media source.com, 2003, par 4). Many of us are familiar with various brands of various products and services. For every brand name, we have a perception of the quality, kind, taste and other aspects of the product or service that is represented by the brand name. Having a brand and brand name is not an end by itself; the brand has to be managed for the benefit of an organization. As is observed in major companies, a lot of resources are used in brand management through advertisement, promotions and other brand management strategies. Increased competition in the market has led to increasing in importance of brand management (Doyne, 1990, p.14). Due to an increase in companies that can provide goods and services, a company that survives is that which is able to penetrate, grow and maintain its market share. Brand management is one of the ways to penetrate and maintain market share.

Coca-cola and Pepsi are the major brands of soft drinks in the world. Almost every individual knows of a least one Coca-cola or Pepsi product. For those who like soft drinks, each individual associates with one or more products from these companies. High competition between Coca-cola and Pepsi has been there for a long time. Brand wars between the two brands have been featured in the media for as long as many of us remember. Of the two brands, Coca-cola has been the stronger brand. Coca-cola dominates more than sixty percent of soft drink markers through its various products while Pepsi shares the rest with other smaller competitors. Brand management strategies of these brands have been the major contributor to the current market share between the two soft drink companies (Holt 2004, p.156). This paper will review brand management strategies of the two brands, show how Coca-cola came to dominates soft drink market and provide a strategy that Pepsi can use to increase its market share.

Overview

Coca-Cola Company has been the major producer of soft drinks in the world. Formed in 1886, the company’s major strength has been its brand that represents products from a secret formula. Coca-cola brand has dominated soft drinks in many parts of the world. Pepsi has been second to Coca-cola. When Pepsi came into soft drink market, it became a major threat to Coca-cola leading to a brand war. In the early years of twentieth century, Pepsi gave Coca-cola very high completion until 1980’s when Coca-cola emerged as a winner in the brand wars (Trout & Rivkin 1996, p. 84). Effectiveness of brand building among business organizations depends on the strategies taken by the company in communicating its brand to the public. There are various strategies and tactics used by organizations in managing their brand. Some of these include brand positioning, pricing strategies and tactics, promotion strategies, and brand extension (Grossman1997, p. 139). Although other factors play a role, Coca-cola’s brand management strategies have been superior to Pepsi.

Brand Positioning

The position of a product is very important in brand management. Brand positioning is the process in which the position of a brand in market is created. Brand positioning entails creating a perception that a brand is superior to other brands in the market (Jones, 2010, par 6). The marketing personnel of an organization plays a major role in brand positioning. To do this, marketing personnel seek to promote the strength of a product over other products with an aim of gaining competitive advantage over the competitors. Communicating the strength of a product to consumers is the main objective of brand positioning (Whipple, Sargent & Associates 2008, and par 9). Coca-cola has a higher position as compared to Pepsi. When referring to the two brands, there is always a perception that Coca-cola is a superior brand to Pepsi. The ratio of market share between Coca-cola and Pepsi is mostly influenced by the perception created on products superiority.

As the first major soft drink company, Coca-Cola Company was able gain royalty to its products. In fact Coca-cola has been a central element of American culture with most people associating themselves with one or more of its products. As the brand entered other markets outside America, similar sentiments were associated with products (Tutor2u 2009, par 11). As Pepsi came to soft drink, Coca-cola was already established. For Pepsi to penetrate the market, it had to break royalty given to Coca-cola. As the first company in carbonated soft drink Coca-cola had advantage over Pepsi. To consumers’ eyes, Coca-cola is viewed as the leader in soft drinks. Pepsi on the other hand in viewed as second to Coca-cola. The ability of Coca-cola to maintain a superiority image in soft drinks have been one of its strength in brand management. On the other hand, Pepsi brand management has failed to overcome the perception that its products are second to Coca-cola.

Coca Cola major products: Coke, Sprite, Fanta, Diet coke and Coke are classically associated with soft drinks. Many soft drink consumers were introduced to soft drinks through Coca-cola products. When they later taste Pepsi products, they compare it to a previous Coca-cola product. This phenomenon creates an image that Coca-cola is a leader in soft drinks while Pepsi comes second. Having been in beverage industry for a long time, Coca-cola Company has highly skilled personnel who have helped in placing Coca-cola brand highly over other products. Consistent advertisement, promotion, production, packaging and other marketing strategies have helped to maintain the position. On the other hand, Pepsi brand management fails to address brand positioning (Ries & Trout 1981, p 123). Pepsi’s major market entry was pricing rather than creating an image of a superior product. Pepsi’s Coca-cola war started when Pepsi introduced a 12-ounce bottle that sold at the same price as Coca cola’s six-ounce bottle. Although a valid market entry strategy, this approach failed to conquer consumers’ royalty to Coca-cola. Coca cola’s ability to respond to Pepsi’s competition while maintaining a superior image-enabled it to be a leader in soft drinks.

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Pricing strategies and Tactics

Pricing strategies and tactics are vital to brand management. Using an effective pricing strategy helps to create and maintain a brand. There are various pricing mechanisms that a company can use depending on the target market (Kent 2003, p 67). When penetrating a new market, the price quoted on the product leads to consumers developing a certain perception towards the product. Offering a product at a low price when penetrating a new market may lead to consumers doubting the quality of the product (McCrorie 2008, par 6). For a company to set a certain price on its product, it is imperative for the company to consider the price and quality of competing products already in the market. Pricing has been a major area of competition between Coca-cola and Pepsi. Coca-Cola Company uses various pricing techniques when selling its product based on the type of the market.

As the first company in soft drinks, Coca-cola initial pricing strategies were mostly based on cost (Trout 1969, p. 113). The prices were based on the cost of producing the products, cost of distributing the products and the intended profit margin. As other competitors came into soft drink market, Coca-cola started to use competitive pricing strategies. Pricing strategy is used as a major brand management strategy with most prices being determined by the level of competition (Igor, 2010, par 5). Entering soft drink market after Coca-cola, Pepsi used pricing as one of the strategies to enter the market. Pepsi continues to use pricing as one of its brand management strategies. In most cases Pepsi determines the prices of its products by the level of competition in the market (Uncles & Macrae 1997, p. 71). Pepsi products’ prices are known to be very flexible. Prices of Pepsi products change quickly with sometimes the prices going down as low as half. Although this method succeeded in gaining market share, the strategy had great cost on the company. In some cases the drastic price lowering made the company fail to recover its cost. Response in price reduction and other marketing strategies from Coca-cola led to Pepsi pricing strategies to fails to bring about the desired results.

Coca-cola uses various pricing strategies for its products. One of its successes is on use of middlemen and retailers. Coca-cola offers incentives to its middles men and retailers so as to ensure that they sell their products at a fair price while getting considerable profits (Kibitzing 2005, par 4). Use of incentives to manage middlemen and retailers has allowed Coca-cola to penetrate new markets and make its products to be more prevalent in the market. Price promotions have enabled Coca-cola to offer different prices for different seasons. Seasonal prices have enabled Coca-cola to create good relationships with its customers. While Pepsi uses pricing as its major brand management strategy, Coca-cola is able to respond to Pepsi’s prices while using other strategies to maintain its market share.

Promotional strategies and tactics

Promotions are very essential to market entry, growth and maintenance. Before a business embarks on promoting its products, it is imperative for it to determine the target market and clearly understand its needs (Siff, 2005, par 3). This ensures that the company has produced products that best meet all the needs of the target market. When penetrating a market for the first time, a business needs to have a careful plan on how to approach its consumers (Laermer & Simmons 2007, par 5). The manner in which it approaches its consumers in the first encounter determines the perception that consumers develop toward the product. Poor methods of product promotion have led to most brands being weak in the market. The brand may be beneficial to consumers but poor promotion methods lead to consumers not getting information regarding its benefits. Coca-cola and Pepsi are known for their aggressive promotions campaigns.

To promote the Coca-cola brand, Coca-Cola Company uses various promotion strategies and tactics. Coca-cola brand is common in various media. The company uses television and radio to promote its brand (Learn Marketing.net, 2009, par 6). Apart from using radio and television broadcasting stations, the company uses other Media such as billboards and designing T-shirts displaying the product. This facilitates in reminding consumers of the availability of the product as well as convincing potential buyers of the benefits of the products. Although Pepsi makes use of promotions, its promotions fail to help create a strong brand. The major disadvantage of Pepsi promotions is Coca-cola strong brand and counter promotions from Coca-cola.

Globalization strategy

Globalization has led to most business organizations extending their products and services to different countries (Teichrib, 2003, par 9). The favorable conditions offered by various countries have facilitated various countries trading with each other. Companies have sent their sales personnel to different countries to represent them in conducting trade in those countries. This has resulted in competing companies looking for various globalization strategies to make them more competitive. One of the strategies that Coca-cola Company has embarked on is direct foreign investment in various countries. The company has extended its services across the globe by opening numerous branches in various countries. This has led to company’s products being sold in many countries across the world. The image of Coca-cola as an American product has changed while the brand is seen as a global brand (Motameni & Shahrokhi 1998, p. 277). Although Pepsi is present in many countries, it usually comes second to Coca-cola. Coca-cola’s high capital base has allowed it to invest heavily in most countries. While Coca-cola products are familiar to many people all over the world, Pepsi products do not have an equal reach.

Proposed marketing Strategy

There is a perception that Coca-cola is superior to Pepsi. Despite concerted efforts to gain a good share of soft drink market, Pepsi still has a small share as compared to Coca-cola. Past Pepsi brand management strategies have not been effective in countering competition from Coca cola. To overcome the stiff brand competition, Pepsi should use different brand management strategies. The strong revelry between the two brands has led to heavy spending on advertisements and other promotions as well as lowering the prices. Pepsi can avoid the high expenses and destructive completion by using other strategies.

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Market differentiation can be effective in Pepsi brand management. It is clear that Coca-cola is an established brand that commands high royalty from soft drink consumers. The combatant’s brand management strategies used in the past resulted in counteraction from Coca-cola. Due to its capital base and market share, Coca-cola emerged as a winner in most of the wars. To be successful, Pepsi should create a difference between its products and those from Coca-cola Company (Powell, 2010, par 8). Pepsi may observe an upcoming market segment, identify its taste and seek to fulfill the tastes. While Coca-cola is a soft drink for people across all age groups, Pepsi may decide to target a certain age group (Kumar 2003, p.29.). For instance, Pepsi may decide to target the teens and seek to fulfill their needs. With differentiation, Pepsi will be able to focus its attention on one area while saving on advertisement.

Coca-cola major strength has been its ability to have a good distribution chain and network of retailers. This has allowed Coca-cola to have high presence in the market such that other competitors find it hard to gain market share. To counter this Pepsi should seek to increase its presence in the market by expanding its distribution chain (Richardson & Leitch 2003, p 1071). For example, Pepsi may seek to distribute its products in school. By introducing Pepsi brand to children at early age, Pepsi will be assured of increased market share in the future. Pepsi should also look for emerging markets and seek to establish strong base in those markets.

Pricing is a very important element in brand management. The best approach is to use both direct and indirect price discrimination (Nagle & Holden 2007, p. 91). Pepsi should be able to offer different prices for different groups of people. By using distribution channel segmentation, Pepsi can be able to ensure its presence to various groups of people while charging different prices for equal volume. Price differentiation will allow Pepsi to be established in a wider market.

Conclusion

A brand is the primary marketing tool for any product or service. A strong brand helps not only in market penetration and growth but also in maintaining a market share. Brand management strategies help to manage a brand in order to guarantee market presence as well as to counter upcoming competitors’ brands. Coca-cola is an example of a well-managed brand. For many years Coca-cola has been able to resist competition from Pepsi. For Pepsi to overcome strong competition from Coca-cola, new brand management strategies are necessary. Market differentiation, expanding distribution channels and price differentiation can help to strengthen the Pepsi brand.

Reference

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Holt, D. 2004. “How brands become icons: the principle of cultural branding”. Harvard Business Press, New York.

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