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Lessons from Coca-Cola and Pepsi in Venezuela: Market Dynamics and Strategies

This analysis explores the intense competition between Coca-Cola and Pepsi in Venezuela, highlighting Coca-Cola's significant market share increase after acquiring a major bottling company. With Pepsi's long-standing presence and strategy involving vertical restraints, the subsequent market shifts illuminated the importance of distribution control and aggressive marketing tactics. The regulatory landscape further complicated their rivalry, emphasizing legal implications for business practices. This case study serves as a crucial lesson in market penetration and competitive strategy within Latin America.

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Lessons from Coca-Cola and Pepsi in Venezuela: Market Dynamics and Strategies

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  1. Colpe de Cola Lessons from Venezuela November 20, 2001 Jared Fragin Gabriel Tam Katherine Friedman Vatnak Vat-Ho

  2. Agenda • Current State of the Industry • August 22nd, 1996 • Vertical Restraints • Legal Implications • What has Pepsi done? • Next Steps

  3. Current State of the Industry • Coke: America, Asia, and Europe • Minimal market share in Venezuela and most Latin American countries • Looking for a way to gain market share • Pepsi: Latin America • Soft drink of choice in Venezuela by more than a 4:1 margin over Coke

  4. August 22nd, 1996 • What Happened? • Coke bought half of Venezuela’s largest bottling company for $300M • Over one weekend: • 4,000 Pepsi trucks had their logos painted over to Coke • Pepsi stranded without a bottler

  5. Vertical Restraints • Vertical Restraints • Arrangements to reinforce vertical relations without explicit integration • Cisneros had significant power • Near distribution monopoly in Venezuela • Hard to penetrate the market for newcomers

  6. Vertical Restraints • Pepsi refused to help Cisneros expand • Cisneros turned to Coke for capital • Coke achieved in two years what Pepsi had built over 50 years • Market share eventually exploded to 81% • Tapered integration to arrange vertical restraints • Wield influence in input markets, enjoy competition • Vulnerable to competitors buying out your supplier and distributor

  7. Legal Implications • Venezuelan Law • Any business activity which alone increased market share significantly must be approved by Government • Cisneros controlled 80% of the bottling market • Coke’s market share increased from 10 to 50% overnight • Merger did not increase bottler’s market share and was therefore legal

  8. Legal Implications • Coke placed six bottling plants and other assets (or ‘junk’ according to Pepsi) for sale to Pepsi • Cisneros offered to continue Pepsi production at 25% of output for one month to give Pepsi a chance to sign up other bottlers (Cisneros is near monopoly bottler in Venezuela) • Pepsi refuses both options • Coke argues Pepsi is not interested in Venezuelan soft drink market • International arbitration court forced Coke to pay Pepsi $94M

  9. What has Pepsi done? • Marketing Blitz • Installed 50,000 refrigerated display cases: “visi-coolers” • 1,000 delivery routes with 200 more added in 1998 • Polar (SOPRESA) vs. Panamco (Cisneros) • 30% share in SOPRESA • $400M over 3 years • Price War • Discount to retailers • Coca-Cola decided to match aggressive discounting

  10. Next Steps • In Venezuela… • Discontinue price war • Continue aggressive marketing • “Power of One” • Globally… • Defensive • Respect distributor power • Offensive • Look for joint ventures, esp. with distributors

  11. Questions?

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