Marketing Mistakes and Successes, 12th Edition

CHAPTER TWO

Cola Wars: Coke vs. Pepsi

Intense competition between Pepsi and Coca-Cola has characterized the soft-drink industry for decades. In this chess game of giant firms, Coca-Cola ruled the soft-drink market throughout the 1950s, 1960s, and early 1970s. It outsold Pepsi two to one. But this was to change. The “war” switched to the international arena, and it became a “world war.”

EARLY BATTLES, LEADING TO NEW COKE FIASCO

Pepsi Inroads, 1970s and 1980s

By the mid-1970s, the Coca-Cola Company was a lumbering giant. Performance reflected this. Between 1976 and 1978, the growth rate of Coca-Cola soft drinks dropped from 13 percent annually to a meager 2 percent. As the giant stumbled, Pepsi Cola was finding heady triumphs. First came the “Pepsi Generation.” This advertising campaign captured the imagination of the baby boomers with its idealism and youth. This association with youth and vitality greatly enhanced the image of Pepsi and firmly associated it with the largest consumer market for soft drinks.

Then came another management coup, the “Pepsi Challenge,” in which comparative taste tests with consumers showed a clear preference for Pepsi. This campaign led to a rapid increase in Pepsi's market share, from 6 to 14 percent of total US soft-drink sales.

Coca-Cola, in defense, conducted its own taste tests. Alas, these tests had the same result—people liked the taste of Pepsi better, and market share changes reflected this. As Table 2.1 shows, by 1979 Pepsi was closing the ...