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Case Summary

Coke and Pepsi had a tough time getting into the beverage market in India. However, the venture seemed to be well worth it, since in 1993 about 45 percent of the soft drinks industry consisted of small manufacturers and the business was worth 3.2 million dollars. Coke had previously been in India, but in 1977, it was forced to leave because of a dispute with the Indian government. In 1988, the soft drink industry in India suffered because a government warning was issued that BVO, a necessary ingredient in the drinks, was a proven carcinogenic. Many companies could not afford importing substitutes of this ingredient and withdrew from the industry. This reduced amount of competition, and the fact that India experienced an economic crisis in 1991, allowed Coke and Pepsi to enter the Indian market. The new government turned India into a Big Emerging Market by 1994, which meant foreign investors were welcomed once again in India. However, once they are in India, they are faced with some problems from competitors and with demand. PepsiCo entered India in 1986 as Pepsi Foods Ltd. in a joint venture with local partners. In order to be able to sell their products, they had to follow many new rules, including changing the name of the Pepsi cola because it is a foreign product. But PepsiCo was willing to appease the government to stay in the market. PepsiCo, upon entering India, also made new brands to better compete throughout the soft drink market, including Slice and Teem soda. Pepsi was forced only to compete with local brands until Coca Cola re-entered the market in 1990. It joined with Godrej, an Indian company, and was turned down, so Coke joined forces with snack food company Britannia Industries India, Ltd. and the two became Britco Foods. In July 1993, Parle, the leading soft drink manufacturer decided to sell its leading brands (Coke and Pepsis major competitors) and its main bottling plants in four key cities to Coke. Both Coke and Pepsi chose to advertise and run promotions during important events and times in India. For instance, they both advertise heavily in summer, when the most soft drinks are consumed, and they also advertise heavily during the Indian festival of Navrati. They both also run big television campaigns during cricket and football games, and they also employ big Bollywood celebrities to endorse their products. Pepsi 1 |C o k e a n d P e p s i i n I n d i a

does especially well by sponsoring the cricket, and Coke does well marketing a lifestyle towards Indias youth. Both companies, however, were accused by an environmental organization of having pesticide residue in their products. The companies ran tests that proved their products were safe but it was too late; people were banning and protesting their products. Because neither company came forward to reassure the people, their silence was interpreted by customers as guilt. This hurt their image even more, including in the U.S. The contaminated groundwater incident only expanded further for Coke, and people began accusing the company of using sparse groundwater in its products and taking the water supplies away from the locals and from farming uses. They also accused Coke of making the water toxic, thus threatening health and the environment. Coke decided to stay in an attempt to help find a solution to the increasing problem of groundwater quantity and quality. (Cateora, p 602-606.)

The Political Environment of India


Coca Cola had previously been in India, but when the government in India changed hands in 1977, they were forced to leave along with other foreign companies such as IBM. Coke would not give India its secret Cola recipe, and because the new government limited foreign ownership to 40 percent. These laws were eliminated in 1991 after the Indian government changed hands again, and India began to welcome foreign firms and investments to help the economy boom. (Majumdar, p 92.) Pepsi came to India and followed every rule the Indians gave them. This included forcing Pepsi to distribute and process various fruits and vegetables, and changing the names of Pepsis different brands. Even the classic Pepsi Cola was forced to be changed to Lehar Pepsi and Lehar 7UP to fit in with Indias requests. Their scheme worked, however, because as Coke was trying to get back into the market in 1990, Pepsi was approved while Coke was not, which gave Pepsi the leverage to profit in India. (Cateora, p 603.) Pepsis willingness to do exactly as India wanted has proven to be very beneficial for the company. Pepsi is now also involved in counter trade in India, which has helped them to develop their business in India even further than Coke. They look at a countrys 2 |C o k e a n d P e p s i i n I n d i a

competitive advantages and then build long-term businesses around those strengths. (Fluck, p 19.) In India, this means Pepsi is in the business of creating hard currency to get our partners in soft-currency countries to buy our products, to repatriate our earnings and to get access to foreign markers. (Fluck, p 19.) Now Pepsi has a position in India as a foreign investor that is mutually beneficial to both India and to PepsiCo Worldwide.

Coke and Pepsi Campaigns in India


Pepsi and Coke, due to research, found that the summer season and the cultural festival of Navrati are the two times a year that Indians consume the most soft drinks. The summer months last only about 70 to 75 days, from April to June, and the festival of Navrati is celebrated mostly by people living in Gujarat and Mumbai, and is celebrated for about 25 days. A representative of Coke describes its marketing campaign as one that thinks local and act local; they have implemented campaigns such as buy one, get one free, free passes to a dance during the festival of Navrati, and drawings to win trips to places such as Goa. Pepsi couldnt afford to not participate in Navrati as well, and has sponsored big, popular dance competitions called garba dances. Pepsis representatives feel confident about teaming up with Zee Alpha, a popular TV channel amongst the Gujarati, to broadcast the Navrati festival. Also, Pepsi offers some customers the ability to get refills of Pepsi and to get free Basmati rice, which is considered premium quality rice. Both companies take advantage of TV campaigning, and get more involved in regional and local festivals and sporting events around India. Pepsi is especially good with aligning itself with sports, such as cricket. Both companies have also found it important to get Bollywood celebrity endorsers of their product to help align themselves with Indians and lose some of their western feel. Pepsi has run very successful campaigns with cricket, especially the one-day series. In their campaigns, they feature Mohammad Kaif, one of the most popular cricket batters in India, and some of his team-mates. This has helped Pepsi create campaigns and new products using these sports heroes to market their new products. Pepsi has also aligned itself in the same successful way, but with Indian football players (our soccer.) Coke has taken a different approach. They have targeted specific youth lifestyle 3 |C o k e a n d P e p s i i n I n d i a

and habits and aligned themselves with their customers. One group they targeted in particular was 18 to 24 year olds in urban areas. They marketed to them using popular Indian music director A. R. Rahman and Bollywood stars in short films. They also made lounges called Red Lounges which are places where youths can enjoy any of Cokes products and have a hang out spot where they also can play video games, watch TV, and surf the Internet. These campaigns have proven to help Pepsi and Coke make sales, along with sporting different priced and sized products for this diverse market. (Cateora, p 603604.)

Coke and Pepsi Face Issues with Pesticides


In August 2003, an environmental group in India claimed that both Coke and Pepsi had high levels of pesticide residue in their products. New Delhis Center for Science and the Environment tested samples of both products and reported, each sample has enough poison to cause cancer, damage to the nervous and reproductive systems and disruption of the immune system. (Pesticide Pepsi and Cancer Coke, p 5) Both companies denied these allegations, and did plenty of research to determine their products had a negligible amount of pesticides, considerably less than other products being made in India. Either way, they found that their products were safe. This bad press started to negatively affect their 1.2 billion dollar market in India especially when the Indians started to stage protests against the companies that resulted in partial bans across the nation. Local politicians began to immediately attack their brands, making the people doubt the brands even more. Eventually, both companies products were banned from being sold in government offices, schools and hospitals. Coke and Pepsi attempted to ease the peoples minds by staying quiet until all their research had been properly administered and interpreted. However, in Indian culture, staying quiet is the worst thing a company can do in a crisis, since staying quiet is a sign of guilt. Coke eventually stepped forward to try and attack by getting their executives to question the credentials of the companies that accused them. It still wasnt enough and the Indian people continued to protest the brand even more after Coke tried desperately to redeem their image. (Cateora, p 605) Pepsi began a public relations offensive that claimed, Pepsi is one of the safest 4 |C o k e a n d P e p s i i n I n d i a

beverages you can drink today. Their strategy seemed to work better than Cokes desperate attempt to dispute the claims. Pepsi actually stepped forward and said that there were pesticides in Pepsi but it was the same amount that could be found in any other product produced in India. Coke was the company that got the most heat through this situation. An activist group in California got other U.S. colleges to accuse the corporate giant of overusing groundwater, having too many pesticides in their products, and giving farmers fertilizers with toxins in them. All the accusations revolved around one Coke plant located in Plachimada, India. Coke had to renew their permission to be there and they didnt for a while, and the local government began to make claims along the same lines as the Californian activist group. The Coke plant in Plachimada reopened in 2006, which led to Coke products being banned on several U.S. campuses in protest. Coke negotiated with the universities and agreed to fund a research assessment by an organization of the universities picking and the ban on the campuses of Coke products were lifted. (Cateora, p 606.) The report said that there were no pesticides in the Coke, but that the company was guilty of using up all the groundwater in the area. A Delhi-based environmental group asked Coke to shut down its plants, but Coke wouldnt. Instead, it claimed it could do good things by staying around and figure out the water problem instead of running away from it.

Conclusion
There are still a lot of issues that Coke and Pepsi need to resolve when it comes to their image abroad and in India. They both still represent the west, but they need to become better adapted to the different environments they decide to become part of. They need to not just be able to market their product efficiently; they need to show some responsibility when things start to go sour for them. The Indian people continue to steadily buy and consume soft drinks, but the market isnt growing at all. However, Indians in general are consuming a wider variety of beverages and Coke and Pepsi should be willing to expand the options they have available. They already have some fruit sodas, and some bottled water markets, but 5 |C o k e a n d P e p s i i n I n d i a

maybe if they were to make fruit cocktails and other beverages that arent in India already. Coke and Pepsi still have a good chance of being successful in India, but they are only going to achieve their goals by continuing to align themselves with brands, celebrities, sports, and lifestyles that the Indians find appealing. They both need to continuously check on their products to make sure they are safe, or at least appealing to the Indians, and continue to be environmentally and morally sound with their plants, operations, distribution, and products in general. They will probably be able to stay in India for some time, but they really need to become more accustomed to the culture and try to shake off some of their western imperialist feel.

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