Two takes, Coke and Pepsi

Announcer: Until recently many Americans had not thought of the rest of the world as their marketplace. Perhaps this can be expected because of the size and traditional importance of the U.S. However, while we were looking at our domestic market so was the rest of the world. Business competitors from around the globe targeted our relatively free and wealthy markets and American businesses found themselves facing foreign competitors,..especially from Western Europe and Japan. Such competitors as Mercedes from Germany, Shell from Holland, and Sony from Japan. And recently globalization of the marketplace has accelerated due to the advancements of telecommunications and transportation. We must respond to these competitive threats by seeing and seizing the opportunities in the world market. As we look to the global marketplace we will notice that by 1997, consumer s in 12 countries have higher incomes than we do. When we think of the U.S. as having only 5% of the world’s consumers, we can see the other 95% of the world’s population as an immense opportunity. Many U.S. firms are already in the world market, for instance McDonalds is a successful U.S. company that has been able to see and seize opportunities in Europe and Asia as well as the former Soviet Union. The question marketing managers have to ask is, what do we have to do differently to market goods and services internationally? First, because there are more than 175 different countries, and most firms have limited resources, we have to start with a global market assessment to match firm and product strengths with market opportunities in order to target markets with the best prospects. Next, we have to develop an understanding of which aspects of the 4 P’s can be standardized across countries and which have to be adapted for some or all countries. In domestic marketing we tend to focus on the managing the 4 P’s, price, product, place and promotion with less consideration of environmental variables because these are similar for our home markets. However, in the international markets the differences is in the political, economic or cultural variables from country to country may require the marketing managers to adapt some or all of the marketing mix. Observe how two familiar and successful U.S. corporations have responded differently to this issue of global standardization versus cross national adaptation. Coca-Cola is an example of a truly global company. Coca-Cola leads in sales of soft drinks around the world. IT outsells its closest competitor Pepsi-Cola by more than 3 to 1 outside the United States. For instance consumers in the United Kingdom, France and Germany have made Coke their most frequently purchased soft drink. Since Coke enjoys global appeal, it lends itself to a standardized global marketing strategy. For instance, Coke’s secret formula is used globally and its theme “Can’t beat the feeling” is now a familiar theme in many countries. While Coke is sold in most countries with few changes in its packaging, government legislation in Taiwan and Korea, require Coke to use the national language on all Coke products. The image on Coke’s products varies in markets. For instance, Coke uses the strategy in some countries which promotes the product as an “all occasion” drink to be shared

among friends and family. In others Coke uses a different appeal, [showing of ads here]. Sometimes Coke uses popular teen idols from the foreign country to promote its products in that country [shows ads here]. The Spanish TV ad features Angel Ferreira, while the second ad recently shown in Guatemala, features a Latin American star. Coke uses a very different approach in Thailand. Rather than stressing the familiar themes from other countries, their ad shows young people dreaming about a modern future for Thailand and themselves. The message at the end of the ad means, “from our hearts , Coca-Cola for Thailand”. Japan is also a major market for Coke. The company now has 70% of the Japanese Cola market with its flagship brand and 20% for Coca-Cola Light. Initially, Diet Coke did not sell well in Japan. Japanese women do not want to drink anything clearly labeled as a Diet product. Sales finally took off after Diet Coke was reformulated and repositioned as Coke Light. Contrary to what some people may think, American culture is very popular with young people in Japan. In this ad Coke offers its Cola as a link between Japanese youth and popular American culture. Many firms, such as Coca-Cola’s closest competitor Pepsi-Co Incorporated choose to form strategic alliances, such as joint ventures in international markets. They form these alliances with foreign nationals in order to gain local experience, to deal with different legal, political, economic and cultural environments. While Coke has much higher sales than Pepsi globally, the situation is reversed in Russia, where Pepsi has such an alliance. [Black and white news footage of then President Khrushchev and then U.S. President Nixon cutting an opening ceremony ribbon] Voice of announcer, “1959, the Moscow Trade Fair , Soviet citizens have their first taste of Pepsi-Cola, a soft drink from the USA [President Khrushchev drinking Pepsi at the Fair] among them Premier Nikita Khrushchev who finds Pepsi most refreshing. Donald M. Kendall, then Pepsi-Cola International President knew this event represented something larger. For the next 14 years he dedicated himself to establishing a new kind of bond between the Soviet and the American people. In 1973, the world press announces a unique breakthrough in International Cooperation, Pepsi and the Soviet Union signed an historic counter trade agreement. It opens the huge American consumer market to Soviet vodka exports and establishes the first production and sales of an American consumer product in the Soviet Union. From the Start, the Soviet Pepsi partnership has been dedicated to quality and technological innovation. Pepsi helps Soviet bottling plants arrange financing for the latest equipment to expand production, quality and quantity. [Speaker: Gulyam- Kadir A. Adylov- Bottling Plant Manager Uzbekistan on screen] Adylov (translation): “Pepsi helps us with quality control and we don’t let down the Pepsi trademark”. Pepsi product development experts and their Soviet partners are creating a full line of new soft drinks to meet consumer demand. Pepsi’s lemon soda, Fiesta, developed specifically for Soviet bottlers has become immensely popular with the Soviet public. Soviet bottlers have begun producing “Tanis” a new orange flavored soft drink with Soviet grown white grape juice as a key ingredient. Diet Pepsi marks the Soviet Union’s first production of a sugar- free soft drink. And Pepsi pioneered entertaining commercials on Soviet television. Translation of Anatoly Belichenko, First Deputy Chief of Food Resources in the USSR: “Pepsi has been very flexible, and has helped us with the problem of the non-convertible ruble [Soviet currency]. They worked with us to find products to export from the Soviet Union and they helped us build Pepsi production in the Soviet Union by exporting vodka to the United States”.

The Pepsi- Soviet partnership is a countertrade agreement which protects Soviet hard currency reserves.
Pepsi-Cola is imported as a concentrate for manufacturing into soft drinks by Soviet plants. And concentrate is countertraded for Stolichnaya Vodka, the first Soviet consumer product ever sold in the United States. And in the United States, where Stolichnaya is more commonly known as “Stoli”, consumer response to Soviet Vodka has been excellent. Stolichnaya sales have increased more than 800% since 1972 [until 1989 as shown on graph beginning in 1972 with sales of 20,000] and now exceed over one million cases a year. Donald M. Kendall, the man who brought Pepsi to the Soviet Union: 

“ Well, one thing about the Soviets which I think a lot of people don’t understand is that first of all when you are negotiating with them, they do their homework, so you better make sure you do your homework and better know what you are talking about and what you want to do. The other thing you will find with the Soviets is that they are extremely loyal to companies and people that they deal with. If you establish a long term relationship with the Soviets, they live up to those agreements and contracts. I fact there have been periods where we have operated in the Soviet Union where we had no written agreement”. 

Today, Pepsi-Co has 85 joint ventures scattered throughout the former Soviet Union and other communist and formerly communist countries. It is also a global company, rooted in the Pepsi- Cola international family, Pepsi’s local partners in 150 nations. 

We have seen that one key to success in international marketing is to understand that the environmental variables may interact with the marketing mix differently from country to country, thus requiring some adaptation. Conversely, in some markets, or with some products, similarities may overshadow local differences, allowing for standardization. For instance, Coca- Cola is able to use its secret formula in almost every country, leading to economies of scale. With more than 175 countries in the world, we cannot know in advance of all these environmental variables, and how they will interact with the 4 P’s in each market. But, based on the experiences of Coke and Pepsi, we see that marketing managers have to be sensitive to the important political, economic, cultural or other environmental differences affecting the marketing mix. Discovering the similarities and differences of people and nations around the world, makes international marketing a most interesting and rewarding career. If you are willing to grasp the complexities of the global marketplace, you will be able to help your firm grow, create jobs and make money and friends around the world.