In: Operations Management
Read the case below and answer the questions that follow.
Coke in India, Before and After
BEFORE
Coke in India
PepsiCo was in the Indian market during the mid-1950s,
but pulled out because the business was unprofitable. Coca Cola had
operated in India since 1950 but left in 1977 because the Indian
government insisted on some unacceptable conditions. The Indian
government demanded that Coke reduce its ownership from 100 to 40
percent; that it divulge its formula, and that it use dual
trademarks so that Indian consumers would have a local logo. Coke
was especially adamant about preserving the mystique of its secret
formula and pulled out of India rather than comply.
Coca-Cola's departure gave PepsiCo a great opportunity, but Pepsi
did not begin negotiations with the Indian government until 1985,
and did not get formal permission to return immediately. although
the initial investment Pepsi proposed was only $15 million,
approval had to be given at the cabinet level. There were twenty
parliamentary debates, fifteen committee reviews and 5,000 articles
in the press about the proposed investment over a three year
period. Finally approval was granted under onerous terms. Pepsi
gave too many concessions for too little in return.
Pepsi had to:
1) limit its ownership to 39.9%;
2) it had to promise to export about $150
million over the first ten-year period of operation;
3) soft drink sales could not exceed 25% of total sales;
4) it had to promise to export 75% of concentrate;
5) it had to set up an agricultural research center;
6) it had to set up fruit and vegetable processing plants).
After Pepsi accepted these terms and was readmitted, Coke than
reapplied to reenter India around 1988, but its application was
denied, to Coke's fury and disgust. Then in 1991, Prime Minister
Rao was elected and launched broad economic reforms. Coca-Cola
announced its return to India in 1993.
In order to get permission to return, Coke had to form a 51%-owned
JV with an Indian company named Parle Exports. Coke had to agree to
export three times the value of its imports. It also had to promise
to export plastic beverage cases to compensate for its imports of
concentrate.
After Pepsi became the target of militant protestors in 1995,
Pepsi's second KFC restaurant in New Delhi was closed for a month
by the Indian authorities because two flies were found in its
kitchen.
However, India is a huge potential market and both companies have
preservered. The Indian market has opened up fast in the last
fifteen years and now the two companies are dealing with marketing
issues rather than with a business-unfriendly government. The
government of India has become much more
business-friendly.
Coke’s new strategy in India
With slowdown in developed markets, companies like PepsiCo and
Coca-Cola are looking at emerging markets like India and China for
growth. PepsiCo is aiming to triple its businesses in India over
the next five years (and also setting up a new leadership structure
in India). The Coca-Cola Company (Coke), the world’s largest
nonalcoholic beverage company, is not one to be left behind. Coke
has a new strategy and has renewed its focus on semi-urban and
rural markets in India.
The soft drink consumption market in India is mainly concentrated
in urban cities. Market research data suggests that consumers in
urban cities spend ten times more than consumers in semi-urban and
rural markets. However, Coca-Cola has renewed its focus on the
rural market in India and believes there is huge opportunity with
vast growth potential in these markets. Coke is targeting small
towns (tier II and III towns like Agra, Bilaspur and Lucknow) and
rural markets in India.
Coke’s new strategy involves training retailers (around 6,000 of them) in a program launched by the Coca-Cola University. [In 2007, the company launched Coca-Cola University — a virtual, global university for all learning and capability-building activities.]
The company calls this the “parivartan” program (meaning “Change” in English). Shop owners (traditional retailers) are given training on displaying and stocking products well. The goal of the innovative training program is to provide traditional Indian retailers with the skills, tools and techniques required to succeed in a constantly changing retail scenario. Presentations (including audio/visual technology) in local Hindi language help small retailers (with stores less than 200 square feet in average size) to better understand the concepts involved. Each retailer also receives a Coca-Cola “Certified Retailer” certificate at the conclusion of the program.
Last year, PepsiCo set up a research facility in India.
Last month, Coke too set up an R&D faculty in India to develop
beverages that suit local taste and increase focus on localizing
its portfolio of beverages. Earlier, Coca-Cola India had been
outsourcing all R&D functions from its facility in Shanghai.
Some examples of local flavors include Maaza aam panna by Coca-Cola
and Pepsi has locally-produced flavors under its Tropicana juice
brand (with nimbu pani (lemon water) in the pipeline).
Moving from a price strategy to stepping up distribution In the
past (in 2002-03), Coke had already targeted rural consumers by
bringing down the entry price (Rs 5 a bottle) for its product. Now,
it has stepped up distribution of its 200-ml (priced at Rs 7 and Rs
8 ) returnable-glass-bottles.
Partly from: http://www.casestudyinc.com/coke-strategy-training-retailers (Links to an external site.)
Case Discussion Question:
What lessons can international marketers learn from Coke and Pepsi's experiences in India? Please list up three or four different items.
One of the foremost learnings from both the experiences of Pepsi and Coke in India is the extent to which lasrge business need to coordinate and work with the local governments and a deep understanding of the people and culture is needed in this regard. Business issues can become political/cultural and social issues and it is important for senior leadership to be critically cognizant of that and be judicious about managerial decisions which may otherwise need to factor in only business considerations in smaller companies.
For International Marketers the India story of Coke and Pepsi is a clear case on the degree to which customer tastes can vary across geographies and hence the applicability of business strategies or marketing initiatives from other scenarios as success stories may or may not be valid. The rural push taken by Coke is a very India-specific strategy and does not have parallels across their global experience
In geographically complex markets like India, strategies may also be very supply-chain constraint driven even in very consumer oriented business like foods. This is clearly highlighted by the small SKU strategy taken by both of these companies in making smaller price points that can travel trhough the supply chain deeper both from a channel and a customer perspective.
The importance of local language in the Marketing context also comes through in the experience of these companies as they have effectively used their understanding of this nuance to connect to the Indian consumer better.