Group 3 Draft

Topic: Substitutes: Coco Cola and Pepsi

Group members:

Introduction

Substitutes are two goodsc for which an increase in the price of one leads to an increase in

the quantity demanded of the other. However, the underlying factors in selecting substitutes are

availability and price. The carbonated soft drinks industry is majorly dominated by two brands,

Coke and Pepsi. The two soft drinks brands are substitutes in nature such that a consumer has a

preference of buying Pepsi if Coke is not available in stock1.

Both products are successful in the soft drink market. Therefore, Coca Cola and Pepsi are

perfect substitutes yet lacking any noticeable taste difference. Moreover, Cola soft drink product

has a very low involvement in the consumers market. Pepsi and Coca Cola are continuously

increasing their consumer involvement through a number of advertisement crusades and

promotions.

Consequently, a nice look at the marketing actions for the two products as well as the

consumer reactions gives more insights to the products. In high consumption markets, price cuts

on the 300-ml segment as a strategy can help the two products. This is because the 300-ml

1
This chapter is adapted from Moraru, Mădălina. "The “positioning” concept and the fight between two
well-known brands Coca-Cola and Pepsi." Journal of Media Research-Revista de Studii Media 3, no. 07
(2010): 47-62
segment is heavily dependent on returnable glass bottles. And Industry sources indicate that

Pepsi’s latest move to cut its prices was a critical decision meant to increase its volume sales. 2

The price cut by Pepsi to its returnable glass bottle of 300-ml to Rs 6 came during the

summer competition with its close competitor Coca Cola, and the price cut strategy is expected

to be extended to other markets. Whereas Pepsi has embarked on price cuts, Coca Cola still sells

its 300-ml glass bottle at Rs 8. Due to this price cut advantage, consumers are most likely going

to buy Pepsi as opposed to Coca Cola, leading to brand loyalty and continued consumption of

Pepsi. 3

Analyze the demand between Coca-Cola and Pepsi

Coca-Cola and Pepsi represent the same market and offer non-alcoholic beverages with

different flavors. This makes these brands competitive because they have the same target

audience and offer similar products. It is worth mentioning that Pepsi and Coke have been rivals

on the market of soda drinks, and throughout history, both brands used different marketing

strategies to persuade consumers that their products are superior.

Pepsi and Coca-Cola have similar demand curves due to the fact that they operate in the

same industry and set similar prices on their goods. It allows customers to choose the product to

their liking. It is safe to say that both brands are large corporations and do not have many other
2
This chapter is adapted from Mark A. Lemley and Mark P. McKenna. 2012. Is Pepsi Really a Substitute for Coke?
Market Definition in Antitrust and IP. Georgetown Law Journal, 100, 2055. 1 U.S. DOJ and FTC (1992)
3
This chapter is adapted from Moraru, Mădălina. "The “positioning” concept and the fight between two
well-known brands Coca-Cola and Pepsi." Journal of Media Research-Revista de Studii Media 3, no. 07
(2010): 47-62.
competitors on the market. However, Coca-Cola is the leader because they spend more on

advertising, and its market capitalization is over 30% more than Pepsi’s (Lovejoy sec.2). Also,

Coke has more followers on their social media pages than Pepsi. It is crucial because social

media platforms became a crucial tool that helps brands promote their goods and create unique

advertising campaigns that do not require much budget. At the same time, demand for these

brands might be seasonal as people like beverages in warm weather.

As a result, Coca-Cola and Pepsi operate in the same industry and offer similar goods for

similar prices, which makes their demand curves similar. These are two large brands and main

rivals in the beverage market. However, according to statistics, the demand for Coke is more

considerable than for Pepsi. Also, it is worth mentioning that the demand for these products

might be seasonal, as people prefer beverages during hot weather.

Discuss consumer choices about Coca-Cola and Pepsi

Coca-Cola and Pepsi are long-time competitors, and two of the largest companies in the

beverage market. They take a considerable amount of the market share, and as they offer similar

goods, both brands have a similar primary goal, which is to attract customers and convince them

that their products are better. However, even though nowadays companies have more

possibilities for advertising, people tend to choose Coca-Cola over Pepsi more often.

Everybody knows that the Coca-Cola company operates for more than a century now.

Nonetheless, despite Pepsi being created eleven years after their competitor, they are still treated

as a young company, and people assume that younger generations always choose Pepsi over

Coke (Paracha et al. p.7). Both companies provide a wide range of beverages that allows
consumers to choose their favorite brand. The Coca-Cola company even tried to buy the Pepsi

Cola company and united them, but Pepsi declined the offer. According to the research, 259 out

of 400 questionnaires prefer Coca Cola, and 141 prefer Pepsi, which is 64.75% and 35.25%

considerably (Paracha et al. p.9). It shows that Coca-Cola has leading positions on the market. It

is worth noting that questionnaires belong to different populations, including both men and

women, which are students and young professionals.

Consumers have a wide range of opportunities to choose from, and sometimes it is hard

to predict an outcome and the leader of the market. However, the research shows that 64.75% of

soda drinkers prefer Coca-Cola over Pepsi for various reasons. These reasons might include

taste, advertising, habits, and personal preferences. As the Coca-Cola company spends more on

advertising, it might be a reason why consumers prefer their drinks more often.

Discuss the utility of Coca-Cola and Pepsi

It is no surprise that price plays a crucial role in the decision-making process when

potential consumers think about which product they want to choose. People consider different

factors, which are price, quality, the popularity of the product, taste, and the number of positive

emotions that they expect to have after the purchase. Companies set goals for their revenues, but

both Pepsi and Coca-Cola have similar results.

The term “consumer utility” represents the value that a particular product provides to the

customer. However, when the price does not significantly change between different brands,

consumers make decisions based on other options. For instance, in terms of revenue, Pepsi is a

more significant business, but the Coca-Cola company is more profitable. At the same time, in
2018, Coca-Cola had an operating margin of more than 27% over the past year, and Pepsi had

16.4%, which makes their operating profits similar (Tenebruso sec.3). Also, Pepsi has not much

more considerable amount of free cash flow, which shows that both of these large beverage

corporations have similar balance sheets. However, according to Wall Street, they expect Pepsi

to increase their annual earnings by 7.54% in the next five years, while Coca-Cola's earnings per

share are expected to rise by 7.23% annually (Tenebruso sec.3). Therefore, neither company has

an advantage in future profits.

Both companies are large corporations that know how to maintain their business, as they

operate for more than a century. Even though statistics show that Pepsi has more revenue, still,

the Coca-Cola company is more profitable. It means that considering different options, both

companies have similar balance sheets and the amount of their profits is also similar. As a result,

despite one company being a leader in some financial fortitude and the second being a leader in

another, they are equal.

Derive the income-consumption curve and the price-consumption curve and discuss.
the shape of these two graphs
For Price-Consumption Curve, an increase of the price of Coca Cola makes consumers to buy
less of it and more of Pepsi.

For Income-Consumption Curve, an increase in income makes consumers buy more Pepsi and
Coca Cola.

Conclusion
 Various researches show that people prefer Coca-Cola over Pepsi. As mentioned before,

both companies represent the same industry, offer similar products, and set similar prices.

However, many people cannot tell the difference between flavors and often make the decision to

buy a soda drink based on their preference and loyalty to the brand.

Both companies operate for a long time and are primary competitors in the beverage

market. Also, both the Coca-Cola company and the Pepsi-cola company have experienced a

global expansion of their markets. Often, people consider Pepsi a younger brand that targets

students and children, although Coca-Cola is older for only eleven years. It is worth mentioning

that the Coca-Cola company likes to use this fact as a reference in their marketing campaigns,

which affect consumer’s perception. Coca-Cola spends more on advertising and promotion

campaigns than Pepsi, which results in a more considerable amount of loyal customers and more

social media followers. On the other hand, Pepsi fell for bankruptcy twice during its history, in

1923 and 1931 (Planes sec.1). However, the statistics show that nowadays, Coca-Cola and the

Pepsi-cola companies have similar financial fortitude and are the leaders between non-alcoholic

beverage manufacturers.

Therefore, the choice between Coca-Cola and Pepsi depends on the person’s individual

preferences. As Coca-Cola spends more on advertising, they have more profits, but Pepsi

maintained to get more substantial revenues. It is worth noting that Wall Street expects both

companies to increase their sales by similar percentages in future years, which means that

economists are positive that Coca-Cola and Pepsi are equally successful corporations. Thus, even
though Coca-Cola has a reputation for a more successful company, Pepsi is a decent rival for

them.
 Works Cited

Moraru, Mădălina. "The “positioning” concept and the fight between two well-known brands
Coca-Cola and Pepsi." Journal of Media Research-Revista de Studii Media 3, no. 07
(2010): 47-62.

Is Pepsi Really a Substitute for Coke? Market Definition in Antitrust and IP. Georgetown Law
Journal, (2011): 100, 2055.

Lovejoy, James. “The Coke vs Pepsi Social Presence Showdown.” Brandwatch, 22 Mar. 2015,

www.brandwatch.com/blog/the-coke-vs-pepsi-social-presence-showdown/.

Paracha, Abdul Munam Jamil, et al. “Consumer Preference Coca Cola versus Pepsi-Cola .”

Global Journal of Management and Business Research, vol. 12, no. 12, 2012, pp. 7–10.,

https://globaljournals.org/GJMBR_Volume12/2-Consumer-Preference-Coca-Cola-

versus.pdf.

Planes, Alex. “How Coke Helped Create Pepsi, and Other Historic Market Moments.” The

Motley Fool, 10 Aug. 2013, www.fool.com/investing/general/2013/08/10/the-little-

known-story-of-how-coke-helped-create-p.aspx.

Tenebruso, Joe. “Better Buy: Coca-Cola vs. Pepsi.” The Motley Fool, 20 July 2018,

www.fool.com/investing/2018/07/20/better-buy-coca-cola-vs-pepsi.aspx.