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Non-CSD beverage Non-CSD beverage setback and Pepsi ar attacking these categories themselves, each trying to become a total beverage company. Will this approach lead to brand dilution? Do CPs risk change state a less profitable business if they do not extend the brand? No faithful answers yet to these questions Pepsi, so far, has had more success and has been more aggressive with non-CSDs. 7/20/2011 32 seance take by Prof. J. K. Mitra, FMS, Delhi Non-CSD beverage Non-CSD beverage The business pretending for non-CSDs is somewhat different from the classic CSD model (pp. 1-14) The supply chain and bottling requirements add complexity to the value chain, compared with the relatively simple CSD model. 7/20/2011 33 Session led by Prof. J. K. Mitra, FMS, Delhi Non-CSD beverage Non-CSD beverage The basic principles of the business remain the same Coke and Pepsi own the brand and control product development Dedicated bottlers leverage economies of scope in dispersion (selling to sam e outlet, same trucks). There are exceptionse. g. , Gatorade is delivery through food wholesalers. As niche products, non-CSDs carried prices and margins that are higher for everyone in the value chain. /20/2011 34 Session led by Prof. J. K. Mitra, FMS, Delhi The Implications of Bottled pee The Implications of Bottled Water Will Coke and Pepsi be able to repeat their success with CSD in the water segment, or go away a new competitive dynamic emerge? (page 14) 7/20/2011 35 Session led by Prof. J. K. Mitra, FMS, Delhi Bottled Water Bottled Water Repeat of CSD New (less attractive) Industry Structure Economies of home in publicize Hard to create brand loyalty Barriers to entry in distribution Highly fragmented, competitive building Similar economics of concentrate firm High price sensitivity Little differentiation (e. . , taste) 7/20/2011 36 Session led by Prof. J. K. Mitra, FMS, Delhi Bottled Water Bottled Water Unless Coke and Pepsi can reelect brand loyalty and establish their brands, water is more likely to become a commodity-like product, where despite the scale and barriers in distribution, most of the profits will be extracted by the distribution channel (retailers) rather than by the concentrate companies or (especially) the bottlers. 7/20/2011 37 Session led by Prof. J. K. Mitra, FMS, Delhi Summary of the shieldSummary of the Case 1. One of the clearest examples on how firms can create and exercise market power. 2. To really scan the opportunities for strategy, we have to look at the underlying economics of the firm and the industry, and its related (upstream and downstream) parts. Without deduceing the economics of the CP and bottler, we cannot understand the motivations and the likely success of moves like vertical integration. 7/20/2011 38 Session led by Prof. J. K. Mitra, FMS, Delhi