How Pepsi survived in a Coca-Cola dominated market

Before the Second World War, Coca-Cola dominated America soft drink industry. There was really no second place firm worth mentioning. “Pepsi raised hardly a flicker of recognition in coke’s consciousness.”

Pepsi-Cola was a newer drink that cost less to manufacture and whose taste thought to be less satisfying than coke. Its major selling point was that it offered more drink for the same price. Pepsi exploited this difference by advertising. “Twice as much for a nickel too.

Its bottle was plain and it carried a paper label that often got dirty in transit thereby adding to the general impression that it was a second-class soft drink.

During the Second World War, Pepsi and Coke both enjoyed increased sales as they followed the flag around the world. After the war ended, Pepsi’s sales started to fall relative to Coke’s.

A number of factors contributed to Pepsi’s problems including its poor image, poor taste, poor packaging, and poor quality control. Furthermore, Pepsi had to raise its process to cover increased costs, and this made it less of a bargain than before.

Morale was quite low at Pepsi towards the end of the 1940s.

At this point, Alfred N. Steele came to the presidency of Pepsi-Cola with a great reputation for merchandising. He and his staffs recognised that the main hope lay in transforming Pepsi from a cheap imitation of Coke into a first-class soft drink.

They recognised that this turnaround would take several years. They conceived of a ground offensive against Coke that would take place in two phases. In the first phase which lasted from 1950 to 1955, the following steps were taken;

First, the taste of Pepsi was improved. Second, the bottle and other corporate symbols were redesigned and unified. Third, the advertising campaign was redesigned to upgrade Pepsi’s image. Fourth, Steele decides to concentrate on hitting the take-home market which Coke had relatively neglected. Finally, Steele singles out twenty-five cities for a special push for market share.

By 1955, all of Pepsi’s major weaknesses had been overcome. Sales had climbed substantially and Steele was ready for the next phase. The second phase consisted of mounting a direct attack on Coke’s ‘On Promise’ market, particularly the vending machine and cold bottle segments which were growing fast.

Another decision was to introduce new bottles that offered convenience to customers in the take-home and cold-bottle markets. Finally, Pepsi offered to finance any bottlers who were willing to buy and install Pepsi vending machines. These various steps, running from 1955 to 1960 again led to considerable sales growth of Pepsi.

Within one decade, Pepsi’s sales had growth fourfold!

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