Cola Wars
Principle in leadership and marketing
In the summer of 1992 and the second half of the year, my dream came true in Atlanta, GA. The summer intern program was the best fit in the Coca-Cola office, sending me and my family for a temporary relief from a rigorous graduate education at Georgia Institute of Technology. The program had literally pushed me around days and nights to wear me down to pieces. A fizzy drink was a long sought-after dose for quick refreshment. In September after eight-week intern program in Tokyo, the Coca-Cola office mailed me an gratitude letter to employ an MBA candidate after successful graduation. No specific numbers were described in the letter. But I was pleased with the invitation because only half of MBA interns were admitted to work at Coca-Cola Japan from 1993. It was thrilling with little prospects for employment.
In July of 1993, my temporary house was still messy with untidy rooms and boxes unpacked in a high pile. On the first day of Shibuya office, the personnel staff dropped in my mailing box a-page letter welcoming to the Coca-Cola. The gratitude in the letter describes, “Hello, welcome to the world-class marketing firm with top brand. You are the world’s best marketer.” My reaction was a little bit stunned due to the fact that during the intern their instruction was quite clear that my contribution focuses on the efficiency and cost-reduction on the supply-chain operations. I didn’t know that it was a beginning of challenge and severe struggle.
Nearly three decades later, a story of the Economist was published last September, illustrating “Cola wars, Fire-starter” by CEO of PepsiCo, Donald Kendal, who added marketing sparkles to the soft-drink industry. PepsiCo recorded 300-folds growth in returns in four decades while its big rival, Coca-Cola got wind of it but fell behind to set 200-folds in the duel battle of the soft-drink industry.
Pepsi Co made a huge bet on advertising, signing Billy Joel in 1989 and promoting its products with Michael Jackson with 5m deal. In 1993, I recall that there were no records of commercial on TV in Tokyo. No in-house employees in Shibuya could locate any advertising stars in Asia. PepsiCo was headed by Donald Kendall, who started his career from the bottom and became top marketing executives at the age of 35. In his 42 year-old turn, the firm named him CEO to expand its business in the world, including an attempt to deploy the first Western product to Russia. The firm’s sales rose to 40-folds by 1986 and continued to shoot up for years to come.
Pepsi and Coke had distinctive strategies as the former took charge with diversification toward other industries, horizontal integration. The latter stayed stubborn to concentrate on the soft-drink industry, observing the lucrative business in pizza, Mexican food, and snack quietly. Two rivals competed for decades in advertising battlefields. In 1975, Pepsi spent mere $18m to fall short of the bigger rival with $25m. But the picture drastically changed in two decade to depict that Pepsi outspent Coke with $112m over $82m. In advertising fight with figures, Pepsi managed to get ahead in the advertising arms race. What happened since then?
The story explains the four-decade duel and concludes the duopoly results in increased share, more revenues and profits by both rivals. Jokingly, my late-professor of Georgia Tech, a former vice president of Coca-Cola, mentioned in his memory before the MBA class of international business, described the dominant corporate strategy of Coca-Cola America. Three top indicative priorities are profits, profits, and profits. The class laughed with his remark for a moment. I laughed with the class, too.
But the Tokyo office didn’t learn from the business theory in three ways. First, their corporate decision was falling from Atlanta to Tokyo headquarters predominantly. The local staff didn’t’ make any independent and bold decisions for advertising. Advertising was chiefly created by Japanese agencies, Hakuhoudo, and later shifted to Dentsu, a largest and yet notorious for long-hour work incumbent. Secondly, new product development was tightly controlled by headquarters in Atlanta. The coffee line on the store shelves had been rejected by the corporate office for years. One of big bottling franchises, Tone Bottlers, became very furious about the situation and decided to develop their own coffee product line, opposing to the central-decision style. Even at the present day, the local coffee cans are still on sale in the vending machine, the effective 24-hour convenient outlet. Thirdly, the IT solution missed the growth of the opportunity and created unnecessary works for in-house engineers. The data from bottling companies in Japan had been centralized by the mainframe which required the constant upgrade in memories for processing massive data. One senior engineer boasted that the new chip for memory costs us $1m and with his confidence claimed in the machine room that the IT manager decided to purchase two of these chips from the dinosaur. That is a story in 1990’s.
Business principles had been ignored by Coca-Cola, injecting a dose of strange ideas to the proper office for years. At business school, the case described that soft-drink industry would grew with diversification strategy and clearly challenge the conventional industry to upgrade its money-making enterprise for a risky gambit. With an independent study for credit, a professor admitted that I study Frito-Lay, a snack purveyor in spite of the fact that Coca-Cola offered an IT job then.
Pepsi stands in the market to see its return 300-folds in last four decades today and even excel in cola wars above Coke, which shot up 200-folds in total gains. Two rivals have competed in advertising for years but if someone asks me what explains the difference in return, I would say that PepsiCo executed business principles, diversification and aggressive advertising. I would not say that my career would have been better if I was employed by PepsiCo. But it is certainly the one to remember for years.