DVC Business Porters Five Forces Case Study

Mid-Term
? When: Wednesday, Feb 2nd, 5pm
? Where: online on Canvas, available on Feb 2nd, 5pm (Pacific Time)
? Length: the mid term takes approximately 3 hours and you need to submit the assignment back to Canvas by
8pm on Feb 2nd
? Counts for 25% of your final grade
? 5 (short) essay questions (each 5 points), individual assignment
? Material:
? Class Handout Sessions 1-4 (available on Canvas)/ Asynchronous material on google.drive
(Canvas?Home?Key Links?Video Lecture Material)
? 7 Papers/cases
? Case: Cola Wars Continue: Coke and Pepsi in 2010
? Case: AirBnB, Etsy, Uber: Growing From One Thousand To One Million Customers
? Porter, M. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review.
? Kim, W.C., & Mauborgne, R. (2015). Red Ocean Traps. Harvard Business Review.
? Hagiu, A., & Altman, E. (2017). Finding The Platform In Your Product. Harvard Business Review
? Stringham, E., Miller, J., & Clark, J. (2015). Overcoming Barriers To Entry In an Established Industry: Tesla Motors.
California Management Review.
? Westerman, G., Bonnet, D., & McAfee, A. (2014). Our undergraduate office has uploaded this article to the library?s
E-reserves which students may freely access, as the library has a subscription to MIT Sloan Management Review.
https://sloanreview.mit.edu/article/the-nine-elements-of-digital-transformation/
? Open notes/open book/Individual assignment
1
For the exclusive use of S. Weng, 2022.
9-711-462
REV: MAY 26, 2011
DAVID B. YOFFIE
RENEE KIM
Cola Wars Continue: Coke and Pepsi in 2010
For more than a century, Coke and Pepsi vied for ?throat share? of the world?s beverage market.
The most intense battles in the so-called cola wars were fought over the $74 billion carbonated soft
drink (CSD) industry in the United States.1 In a ?carefully waged competitive struggle? that lasted
from 1975 through the mid-1990s, both Coke and Pepsi achieved average annual revenue growth of
around 10%, as both U.S. and worldwide CSD consumption rose steadily year after year.2 According
to Roger Enrico, former CEO of Pepsi:
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 on 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.3
That relationship began to fray in the early 2000s, however, as U.S. per-capita CSD consumption
started to decline. By 2009, the average American drank 46 gallons of CSDs per year, the lowest CSD
consumption level since 1989.4 At the same time, the two companies experienced their own distinct
ups and downs; Coke suffered several operational setbacks while Pepsi charted a new, aggressive
course in alternative beverages and snack acquisitions.
As the cola wars continued into the 21st century, Coke and Pepsi faced new challenges: Could
they boost flagging domestic CSD sales? How could they compete in the growing non-CSD category
that demanded different bottling, pricing, and brand strategies? What had to be done to ensure
sustainable growth and profitability?
Economics of the U.S. CSD Industry
Americans consumed 23 gallons of CSDs annually in 1970, and consumption grew by an average
of 3% per year over the next three decades (see Exhibit 1). Fueling this growth were the increasing
availability of CSDs and the introduction of diet and flavored varieties. Declining real (inflationadjusted) prices that made CSDs more affordable played a significant role as well.5 There were many
________________________________________________________________________________________________________________
Professor David B. Yoffie and Research Associate Michael Slind prepared the original version of this case, ?Cola Wars Continue: Coke and Pepsi
in 2006,? HBS No. 706-447. This version was prepared by Professor David B. Yoffie and Research Associate Renee Kim. This case was developed
from published sources. 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 ? 2010, 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be
digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Sunny Weng in Winter 2022 MGT 112 CASES (Zimmermann) taught by Rady Undergraduate Programs, University of California – San Diego from
Dec 2021 to Jun 2022.
For the exclusive use of S. Weng, 2022.
711-462
Cola Wars Continue: Coke and Pepsi in 2010
alternatives to CSDs, 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. Within the CSD category, the cola segment maintained its dominance, although its market
share dropped from 71% in 1990 to 55% in 2009.6 Non-cola CSDs included lemon/lime, citrus,
pepper-type, orange, root beer, and other flavors. CSDs consisted of a flavor base (called
?concentrate?), a sweetener, and carbonated water. The production and distribution of CSDs
involved four major participants: concentrate producers, bottlers, retail channels, and suppliers.7
Concentrate Producers
The concentrate producer blended raw material ingredients, packaged the mixture in plastic
canisters, and shipped those containers to the bottler. To make concentrate for diet CSDs, concentrate
makers often added artificial sweetener; with regular CSDs, bottlers added sugar or high-fructose
corn syrup themselves. The concentrate manufacturing process involved relatively little capital
investment in machinery, overhead, or labor. A typical concentrate manufacturing plant, which could
cover a geographic area as large as the United States, cost between $50 million to $100 million to
build.8
A concentrate producer?s most significant costs were for advertising, promotion, market research,
and bottler support. Using innovative and sophisticated campaigns, they invested heavily in their
trademarks over time. While concentrate producers implemented and financed marketing programs
jointly with bottlers, they usually took the lead in developing those programs, particularly when it
came to product development, market research, and advertising. They also took charge of negotiating
?customer development agreements? (CDAs) with nationwide retailers such as Wal-Mart. Under a
CDA, Coke or Pepsi offered funds for marketing and other purposes in exchange for shelf space.
With smaller regional accounts, bottlers assumed a key role in developing such relationships, and
paid an agreed-upon percentage?typically 50% or more?of promotional and advertising costs.
Concentrate producers employed a large staff of people who worked with bottlers by supporting
sales efforts, setting standards, and suggesting operational improvements. They also negotiated
directly with their bottlers? major suppliers (especially sweetener and packaging makers) to achieve
reliable supply, fast delivery, and low prices.9
Once a fragmented business that featured hundreds of local manufacturers, the U.S. soft drink
industry had changed dramatically over time. Among national concentrate producers, Coke and
Pepsi claimed a combined 72% of the U.S. CSD market?s sales volume in 2009, followed by Dr Pepper
Snapple Group (DPS) and Cott Corporation (see Exhibits 2, 3a and 3b). In addition, there were
private-label manufacturers and several dozen other national and regional producers.
Bottlers
Bottlers purchased concentrate, added carbonated water and high-fructose corn syrup, bottled or
canned the resulting CSD product, and delivered it to customer accounts. Coke and Pepsi bottlers
offered ?direct store door? (DSD) delivery, an arrangement whereby route delivery salespeople
managed the CSD brand in stores by securing shelf space, stacking CSD products, positioning the
brand?s trademarked label, and setting up point-of-purchase or end-of-aisle displays. (Smaller
national brands, such as Shasta and Faygo, distributed through food store warehouses.) Cooperative
merchandising agreements, in which retailers agreed to specific promotional activity and discount
levels in exchange for a payment from a bottler, were another key ingredient of soft drink sales.
The bottling process was capital-intensive and involved high-speed production lines that were
interchangeable only for products of similar type and packages of similar size. Bottling and canning
2
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Cola Wars Continue: Coke and Pepsi in 2010
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lines cost from $4 million to $10 million each, depending on volume and package type. But the cost of
a large plant with multiple lines and automated warehousing could reach hundreds of millions of
dollars. In 2010, DPS completed construction of a production facility in California with a capacity of
40 million cases at an estimated cost of $120 million.10 While a handful of such plants could
theoretically provide enough capacity to serve the entire United States, Coke and Pepsi each had
around 100 plants for nationwide distribution.11 For bottlers, their main costs components were
concentrate and syrup. Other significant expenses included packaging, labor, and overhead.12
Bottlers also invested capital in trucks and distribution networks. For CSDs, bottlers? gross profits
routinely exceeded 40% but operating margins were usually around 8%, about a third of concentrate
producers? operating margins (see Exhibit 4).
The number of U.S. soft drink bottlers had fallen steadily, from more than 2,000 in 1970 to fewer
than 300 in 2009.13 Coke was the first concentrate producer to build a nationwide franchised bottling
network, and Pepsi and DPS followed suit. 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 Coke, territorial rights did not extend to national fountain accounts, which
the company handled directly. The original Coca-Cola franchise agreement, written in 1899, was a
fixed-price contract that did not provide for renegotiation, even if ingredient costs changed. After
considerable negotiation, often accompanied by bitter legal disputes, Coca-Cola amended the
contract in 1921, 1978, and 1987. By 2009, 92% of Coke?s U.S. concentrate sales for bottled and canned
beverages was covered by its 1987 Master Bottler Contract, which granted Coke the right to
determine concentrate price and other terms of sale.14 Under this contract, Coke had no legal
obligation to assist bottlers with advertising or marketing. Nonetheless, to ensure quality and to
match Pepsi, Coke made huge investments to support its bottling network. In 2009, for example,
Coke contributed $540 million in marketing support payments to its top bottler.15
The 1987 contract did not give complete pricing control to Coke, but rather used a formula that
established a maximum price and adjusted prices quarterly according to changes in sweetener
pricing. This contract differed from Pepsi?s Master Bottling Agreement with its top bottler. That
agreement granted the bottler perpetual rights to distribute Pepsi?s CSD products but required it to
purchase 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 consumer price index (CPI). Over the last two decades, however, concentrate makers regularly
raised concentrate prices, often by more than the increase in inflation (see Exhibit 5).
Franchise agreements with both Coke and Pepsi allowed bottlers to handle the non-cola brands of
other concentrate producers. Bottlers could choose whether to market new beverages introduced by a
concentrate producer. However, concentrate producers worked hard to ?encourage? bottlers to carry
their product offerings. Bottlers could not carry directly competing brands, however. For example, a
Coke bottler could not sell Royal Crown Cola, yet it could distribute 7UP if it did not carry Sprite.
Franchised bottlers could decide whether to participate in test marketing efforts, local advertising
campaigns and promotions, and new package introductions (although they could only use packages
authorized by their franchiser). Bottlers also had the final say in decisions about retail pricing.
In 1971, the Federal Trade Commission initiated action against eight major concentrate makers,
charging that the granting of exclusive territories to bottlers prevented intrabrand competition (that
is, two or more bottlers competing in the same area with the same beverage). The concentrate makers
argued that interbrand competition was strong enough to warrant continuation of the existing
territorial agreements. In 1980, after years of litigation, Congress enacted the Soft Drink Interbrand
Competition Act, which preserved the right of concentrate makers to grant exclusive territories.
3
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Cola Wars Continue: Coke and Pepsi in 2010
Retail Channels
In 2009, the distribution of CSDs in the United States took place through supermarkets (29.1%),
fountain outlets (23.1%), vending machines (12.5%), mass merchandisers (16.7%), convenience stores
and gas stations (10.8%), and other outlets (7.8%). Small grocery stores and drug chains made up
most of the latter category.16 Costs and profitability in each channel varied by delivery method and
frequency, drop size, advertising, and marketing (see Exhibit 6).
CSDs accounted for $12 billion, or 4% of total store sales in the U.S., and were also a big traffic
draw for supermarkets.17 Bottlers fought for shelf space to ensure visibility for their products, and
they looked for new ways to drive impulse purchases, such as placing coolers at checkout counters.
An ever-expanding array of products and packages created intense competition for shelf space.
The mass merchandiser category included discount retailers, such as Wal-Mart and Target. These
companies formed an increasingly important channel. Although they sold Coke and Pepsi products,
they (along with some drug chains) could also have their own private-label CSD, or sell 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 stores. With the warehouse delivery method, the
retailer was responsible for storage, transportation, merchandising, and stocking the shelves, thereby
incurring additional costs.
Historically, Pepsi had focused on sales through retail outlets, while Coke commanded the lead in
fountain sales. (The term ?fountain,? which originally referred to drug store soda fountains, covered
restaurants, cafeterias, and any other outlet that served soft drinks by the glass using fountain-type
dispensers.) Competition for national fountain accounts was intense, especially in the 1990s. In 1999,
for example, Burger King franchises were believed to pay about $6.20 per gallon for Coke syrup, but
they received a substantial rebate on each gallon; one large Midwestern franchise owner said that his
annual rebate ran $1.45 per gallon, or about 23%.18 Local fountain accounts, which bottlers handled in
most cases, were considerably more profitable than national accounts. To support the fountain
channel, Coke and Pepsi invested in the development of service dispensers and other equipment, and
provided fountain customers with point-of-sale advertising and other in-store promotional material.
After Pepsi entered the fast-food restaurant business by acquiring Pizza Hut (1978), Taco Bell
(1986), and Kentucky Fried Chicken (1986), Coca-Cola persuaded competing chains such as Wendy?s
and Burger King to switch to Coke. In 1997, PepsiCo spun off its restaurant business under the name
Tricon, but fountain ?pouring rights? remained split along largely pre-Tricon lines.19 In 2009, Pepsi
supplied all Taco Bell and KFC restaurants and the great majority of Pizza Hut restaurants, and Coke
retained deals with Burger King and McDonald?s (the largest national account in terms of sales).
Competition remained vigorous: In 2004, Coke won the Subway account away from Pepsi, while
Pepsi grabbed the Quiznos account from Coke. (Subway was the largest account as measured by
number of outlets.) In April 2009, DPS secured rights for Dr Pepper at all U.S. McDonald?s
restaurants.20 Yet Coke continued to lead the channel with a 69% share of national pouring rights,
against Pepsi?s 20% and DPS? 11%.21
Coke and DPS had long retained control of national fountain accounts, negotiating pouring-rights
contracts that in some cases (as with big restaurant chains) covered the entire United States or even
the world. Local bottlers or the franchisors? fountain divisions serviced these accounts. (In such cases,
bottlers received a fee for delivering syrup and maintaining machines.) Historically, PepsiCo had
ceded fountain rights to local Pepsi bottlers. But in the late 1990s, Pepsi began a successful campaign
to gain from its bottlers the right to sell fountain syrup via restaurant commissary companies.22
4
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Dec 2021 to Jun 2022.
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Cola Wars Continue: Coke and Pepsi in 2010
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In the vending channel, bottlers took charge of buying, installing, and servicing machines, and for
negotiating contracts with property owners, who typically received a sales commission in exchange
for accommodating those machines. But concentrate makers offered bottlers financial incentives to
encourage investment in machines, and also played a large role in the development of vending
technology. Coke and Pepsi were by far the largest suppliers of CSDs to this channel.
Suppliers to Concentrate Producers and Bottlers
Concentrate producers required few inputs: the concentrate for most regular colas consisted of
caramel coloring, phosphoric or citric acid, natural flavors, and caffeine.23 Bottlers purchased two
major inputs: packaging (including cans, plastic bottles, and glass bottles), and sweeteners (including
high-fructose corn syrup and sugar, as well as artificial sweeteners such as aspartame). The majority
of U.S. CSDs were packaged in metal cans (56%), with plastic bottles (42%) and glass bottles (2%)
accounting for the remainder.24 Cans were an attractive packaging material because they were easily
handled and displayed, weighed little, and were durable and recyclable. Plastic packaging,
introduced in 1978, allowed for larger and more varied bottle sizes. Single-serve 20-oz PET bottles,
introduced in 1993, steadily gained popularity; in 2009, they represented 35% of CSD volume (and
52% of CSD revenues) in convenience stores.25
The concentrate producers? strategy toward 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. In the 1960s and 1970s, both companies took control of a
portion of their own can production, but by 1990 they had largely exited that business. Thereafter,
they sought instead to establish stable long-term relationships with suppliers. In 2009, major can
producers included Ball, Rexam (through its American National Can subsidiary), and Crown Cork &
Seal.26 Metal cans were essentially a commodity, and often two or three can manufacturers competed
for a single contract.
The Evolution of the U.S. Soft Drink Industry27
Early History
Coca-Cola was formulated in 1886 by John Pemberton, a pharmacist in Atlanta, Georgia, who sold
it at drug store soda fountains as a ?potion for mental and physical disorders.? In 1891, Asa Candler
acquired the formula, established a sales force, and began brand advertising of Coca-Cola. The
formula for Coca-Cola syrup, known as ?Merchandise 7X,? remained a well-protected secret that the
company kept under guard in an Atlanta bank vault. 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.
In its early years, imitations and counterfeit versions of Coke plagued the company, which
aggressively fought trademark infringements in court. In 1916 alone, courts barred 153 imitations of
Coca-Cola, including the brands Coca-Kola, Koca-Nola, and Cold-Cola. Coke introduced and
patented a 6.5-oz bottle whose unique ?skirt? design subsequently became an American icon.
Candler sold the company to a group of investors in 1919, and it went public that year. Four years
later, Robert Woodruff began his long tenure as leader of the company. Woodruff pushed franchise
bottlers to place the beverage ?in arm?s reach of desire,? by any and all means. During the 1920s and
1930s, Coke pioneered open-top coolers for use in grocery stores and other channels, developed
5
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Dec 2021 to Jun 2022.
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Cola Wars Continue: Coke and Pepsi in 2010
automatic fountain dispensers, and introduced vending machines. Woodruff also initiated ?lifestyle?
advertising for Coca-Cola, emphasizing the role that Coke played in a consumer?s life.
Woodruff developed Coke?s international business as well. During World War II, at the request of
General Eisenhower, Woodruff promised that ?every man in uniform gets a bottle of Coca-Cola for
five cents wherever he is and whatever it costs the company.? Beginning in 1942, Coke won
exemptions from wartime sugar rationing for production of beverages that it sold to the military or to
retailers that served soldiers. Coca-Cola bottling plants followed the movement of American troops,
and during the war the U.S. government set up 64 such plants overseas?a development that
contributed to Coke?s dominant postwar 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
bottlers. Pepsi struggled, however; it declared bankruptcy in 1923 and again in 1932. But business
began to pick up when, during the Great Depression, Pepsi lowered the price of its 12-oz bottle to a
nickel?the same price that Coke charged for a 6.5-oz bottle. In the years that followed, Pepsi built a
marketing strategy around the theme of its famous radio jingle: ?Twice as much for a nickel, too.?
In 1938, Coke filed suit against Pepsi, claiming that the Pepsi-Cola brand was an infringement on
the Coca-Cola trademark. A 1941 court ruling in Pepsi?s favor ended a series of suits and countersuits
between the two companies. During this period, as Pepsi sought to expand its bottling network, it
had to rely on small local bottlers that competed with wealthy, established Coke franchisees.28 Still,
the company began to gain market share, surpassing Royal Crown and Dr Pepper in the 1940s to
become the second-largest-selling CSD brand. In 1950, Coke?s share of the U.S. market was 47% and
Pepsi?s was 10%; hundreds of regional CSD companies, which offered a wide assortment of flavors,
made up the rest of the market.29
The Cola Wars Begin
In 1950, Alfred Steele, a former Coke marketing executive, became CEO of Pepsi. Steele made
?Beat Coke? his motto and encouraged bottlers to focus on take-home sales through supermarkets.
To target family consumption, for example, the company introduced a 26-oz bottle. Pepsi?s growth
began to follow the postwar growth in the number of supermarkets and convenience stores in the
United States: There were about 10,000 supermarkets in 1945; 15,000 in 1955; and 32,000 in 1962, at
the peak of this growth curve.
Under the leadership of CEO Donald Kendall, Pepsi in 1963 launched its ?Pepsi Generation?
marketing campaign, which targeted the young and ?young at heart.? The campaign helped Pepsi
narrow Coke?s lead to a 2-to-1 margin. At the same time, Pepsi worked with its bottlers to modernize
plants and to improve store delivery services. By 1970, Pepsi bottlers were generally larger than their
Coke counterparts. Coke?s network remained fragmented, with more than 800 independent
franchised bottlers (most of which served U.S. cities of 50,000 or less).30 Throughout this period, Pepsi
sold concentrate to its bottlers at a price that was about 20% lower than what Coke charged. In the
early 1970s, Pepsi increased its concentrate prices to equal those of Coke. To overcome bottler
opposition, Pepsi promised to spend this extra income on advertising and promotion.
Coke and Pepsi began to experiment with new cola and non-cola flavors, and with new packaging
options, in the 1960s. Previously, the two companies had sold only their flagship cola brands. Coke
launched Fanta (1960), Sprite (1961), and the low-calorie cola Tab (1963). Pepsi countered with Teem
(1960), Mountain Dew (1964), and Diet Pepsi (1964). Both companies introduced non-returnable glass
bottles and 12-oz metal cans in various configurations. They also diversified into non-CSD industries.
6
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Dec 2021 to Jun 2022.
For the exclusive use of S. Weng, 2022.
Cola Wars Continue: Coke and Pepsi in 2010
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Coke purchased Minute Maid (fruit juice), Duncan Foods (coffee, tea, hot chocolate), and Belmont
Springs Water. In 1965, Pepsi merged with snack-food giant Frito-Lay to form PepsiCo, hoping to
achieve synergies based on similar customer targets, delivery systems, and marketing orientations.
In the late 1950s, Coca-Cola began to use advertising messages that implicitly recognized the
existence of competitors: ?American?s Preferred Taste? (1955), ?No Wonder Coke Refreshes Best?
(1960). In meetings with Coca-Cola bottlers, however, executives discussed only the growth of their
own brand and never referred to its closest competitor by name. During the 1960s, Coke focused
primarily on overseas markets, apparently basing its strategy on the assumption that domestic CSD
consumption was approaching a saturation point. Pepsi, meanwhile, battled Coke aggressively in the
United States, and doubled its U.S. share between 1950 and 1970.
The Pepsi Challenge
In 1974, Pepsi launched the ?Pepsi Challenge? in Dallas, Texas. Coke was the dominant brand in
that city, and Pepsi ran a distant third behind Dr Pepper. In blind taste tests conducted by Pepsi?s
small local bottler, the company tried to demonstrate that consumers actually preferred Pepsi to
Coke. After its sales shot up in Dallas, Pepsi rolled out the campaign nationwide.
Coke countered with rebates, retail price cuts, and a series of advertisements that questioned the
tests? validity. In particular, it employed retail price discounts in markets where a company-owned
Coke bottler competed against an independent Pepsi bottler. Nonetheless, the Pepsi Challenge
successfully eroded Coke?s market share. In 1979, Pepsi passed Coke in food store sales for the first
time, opening up a 1.4 share-point lead. In a sign of the times, Coca-Cola president Brian Dyson
inadvertently uttered the name Pepsi at a 1979 bottlers? conference.
During this period, Coke renegotiated its franchise bottling contract to obtain greater flexibility in
pricing concentrate and syrups. Its bottlers approved a new contract in 1978, but only after Coke
agreed to link concentrate price changes to the CPI, to adjust the price to reflect any cost savings
associated with ingredient changes, and to supply unsweetened concentrate to bottlers that preferred
to buy their own sweetener on the open market.31 This arrangement brought Coke in line with Pepsi,
which traditionally had sold unsweetened concentrate to its bottlers. Immediately after securing
approval of the new agreement, Coke announced a significant concentrate price increase. Pepsi
followed with a 15% price increase of its own.
Cola Wars Heat Up
In 1980, Roberto Goizueta was named CEO of Coca-Cola, and Don Keough became its president.
That year, Coke switched from using sugar to using high-fructose corn syrup, a lower-priced
alternative. Pepsi emulated that move three years later. Coke also intensified its marketing effort,
more than doubling its advertising spending between 1981 and 1984. In response, Pepsi doubled its
advertising expenditures over the same period. Meanwhile, Goizueta sold off most of the non-CSD
businesses that he had inherited, including wine, coffee, tea, and industrial water treatment, while
retaining Minute Maid.
Diet Coke, introduced in 1982, was the first extension of the ?Coke? brand name. Many Coke
managers, deeming the ?Mother Coke? brand sacred, had opposed the move. So had company
lawyers, who worried about copyright issues. Nonetheless, Diet Coke was a huge success. Praised as
the ?most successful consumer product launch of the Eighties,? it became within a few years not only
the most popular diet soft drink in the United States, but also the nation?s third-largest-selling CSD.
7
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Cola Wars Continue: Coke and Pepsi in 2010
In April 1985, Coke announced that it had changed the 99-year-old Coca-Cola formula. Explaining
this radical break with tradition, Goizueta cited a sharp depreciation in the value of the Coca-Cola
trademark. ?The product and the brand,? he said, ?had a declining share in a shrinking segment of
the market.?32 On the day of Coke?s announcement, Pepsi declared a holiday for its employees,
claiming that the new Coke mimicked Pepsi in taste. The reformulation prompted an outcry from
Coke?s