Pepsi vs Cola

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Harvard Business School

9-387-108
Rev. June 21, 1989

Coca-Cola Versus Pepsi-Cola (A)
Coca-Cola and Pepsi-Cola had been competing for 93 years in 1982, and the rivalry had intensified since the early 1950s. By the mid-1970s, business journalists had labeled this competition "The Cola Wars." The launching of the Pepsi Challenge in 1977 propelled the wars into the 1980s, considerably altering the landscape of the soft-drink industry.

History of Soft-Drink Concentrate Producers
Soft drinks had existed since the late 1800s, when many American druggists concocted blends of fruit syrups and carbonated soda water that they sold at their soda fountains. During the 1880s, the formulas for Coca-Cola, Pepsi-Cola, and Dr Pepper were developed in this way in the southern United States. Coca-Cola Company: History and Growth In 1886, Dr. John Pemberton, a pharmacist in Atlanta, Georgia, formulated Coca-Cola. The drink was sold as a refreshing elixir at the fountain counter of Jacobs' Pharmacy, of which Pemberton was part owner. Eventually, Asa Candler became sole owner of the pharmacy and the rights to the soft drink. Candler sold the Coca-Cola syrup to other pharmacies, established a sales force, and advertised the drink on signs placed in train stations and town squares. The advertising budget reached $100,000 in 1901. Candler granted the first bottling franchise for the drink in 1899 for $1, believing that the drink's future rested with fountain sales. Coca-Cola's franchise bottler network grew quickly, and a standard 61/2 -ounce "skirt" bottle was designed in 1916 to be used by all franchises. This bottle eventually became one of the bestknown images in the world. In 1920, Justice Oliver Wendell Holmes of the U.S. Supreme Court ruled that the nickname "Coke" could mean only Coca-Cola, because "it means a single thing coming from a single source, and is well known to the community. Coca-Cola probably means to most persons the plaintiff's familiar product to be had everywhere." In 1919, Ernest Woodruff purchased the Coca-Cola Company from Candler's heirs for $25 million. In 1923, his son, Robert W. Woodruff, who became the dominant figure in Coke's history, was made CEO. Woodruff began working with the company's franchised bottlers to make Coke available everywhere, any time a consumer might want it. Woodruff tried to motivate the bottlers to place the beverage "in arm's reach of desire," arguing that if Coke were not conveniently available Note: This case draws from "Coca-Cola Versus Pepsi-Cola," HBS No. 9-386-059, prepared by Edward J. Hoff under the supervision of Professor Michael E. Porter. Constance Lynn Irwin prepared this case under the supervision of Professor Andrall E. Pearson as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1987 by the President and Fellows of Harvard College. To order copies, call (617) 495–6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Harvard Business School. 1 Purchased by John Chew (aldridge56@aol.com) on March 08, 2012

387-108

Coca-Cola Versus Pepsi-Cola (A)

when the consumer was thirsty, the sale was lost forever. In 1929, Coca-Cola and its bottlers offered an open-top cooler for bottled Coke to storekeepers and gasoline station operators at extremely low prices. In 1937, the company introduced the first coin vending machine. Woodruff also initiated "lifestyle" advertising for Coca-Cola, which emphasized the product's role in a consumer's life rather than its product attributes. Coke's famous motto during the 1920s and 1930s was "The Pause That Refreshes." The company owned its original bottling operations around Atlanta and bought back a few...
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