"Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world?" In 1983, Steve Jobs said this to John Sculley, then president of PepsiCo. It was an irresistible pitch. So Sculley came to Apple as CEO. But the story ended with Sculley kicking Jobs out of Apple two years later due to disagreements over business management. This former Pepsi president was a tough guy. Of course, Pepsi was not just a simple sugar-water company in Jobs' eyes. Today, we won't discuss the Apple saga between Jobs and Sculley. We'll talk about Pepsi and its century-long competition with Coca-Cola. It's fascinating. I believe the business tactics they used in this competition over the past hundred years may offer some inspiration and lessons for your own business.
-01- Phase 1: Coca-Cola Crushes Pepsi For a long time, in the cola beverage sector, there was only Coca-Cola and other colas. Many people even referred to cola as Coca-Cola. At that time, Pepsi was one of those "other colas." These other colas included Afri-Cola, Ameri-Cola, Anla-Cola, Blima-Cola, Capo-Cola, Candy-Cola, Kappa-Cola, Chera-Cola, and so on. The list could go on endlessly. Seeing such a long list, one might ask, why were there so many competitors wanting to be in the cola business? And what kind of business is cola, exactly? First, it's high-frequency. As a beverage, people drink it often. Second, it has repeat purchases. Once people get used to a taste, they don't easily change. The best dishes are mom's cooking; the best tastes are from childhood. Third, production costs are low. Its main ingredient is water. What do high frequency, low cost, and repeat purchases mean? It means that once a consumer chooses a product, they are likely to keep buying that brand and not switch. Take Warren Buffett, for example. It's said that even in his 90s, he still drinks Coca-Cola every day. Imagine how much Coca-Cola Buffett has consumed in his lifetime and how much profit he has contributed. So, finding ways to get new customers to start drinking Coca-Cola becomes crucial. How do you get people to start? Marketing. Asa Candler, known as the father of Coca-Cola, focused on advertising Coca-Cola everywhere in the early days. He said:
If you give me $250, I'd spend $249 on advertising. If you give me a $250 budget, I'll spend $249 on ads. Keep advertising, advertising, advertising. More and more people will start drinking Coca-Cola. And once you start, there's a high chance you'll drink it for life. So, for businesses like cola, how to advertise and market becomes the core and most important thing. Asa Candler saw this clearly, and under his leadership, Coca-Cola was invincible, defeating one competitor after another, one imitator after another. Besides these three advantages, the cola category also has a disadvantage. That is, the product is heavy, leading to high logistics costs. If cola were produced in factories and shipped worldwide, costs would be extremely high. How did Coca-Cola solve this? Franchising. With franchising, Coca-Cola could be sold at nearly the same cost across the country. Coca-Cola's continuous marketing investment made it a national beverage. Even during World War II, it became strategic material like weapons and equipment. During WWII, Coca-Cola sold 10 billion bottles and built 64 bottling plants globally. Coca-Cola's ads at the time said: "Wherever American warships go, the American way of life permeates, and Coca-Cola is there." For many in other countries, Coca-Cola was the embodiment of America. So, in the early days, Pepsi, facing this behemoth, could only survive in the cracks. Moreover, during this phase, Pepsi approached Coca-Cola three times to be acquired, but was rejected each time. This shows how strong Coca-Cola was and how difficult it was to challenge it. That was the first phase of the century-long war. What lessons can we learn from this phase? First, we learned that cola is a high-frequency, low-cost, repeat-purchase business. How to win this competition? Advertising. Advertising. Advertising. If you have $250, spend $249 on ads. Second, products with low production cost but heavy weight should be produced locally through franchising, not centrally and shipped. That's why we see bottling plants worldwide. These are the early lessons from the cola war. What about the middle phase? What lessons does it offer?
-02- Phase 2: Pepsi's Rise The most important marker of the middle phase was Pepsi stepping onto the stage of this competition. What did Pepsi do right to rise? Or, put differently, as a challenger, how would you challenge an incumbent giant in the cola industry? Let's see what Pepsi did during this period. First, differentiated competition. Since you can't win on the frontal battlefield, open a new front and compete on differentiation. So they did. Compared to Coca-Cola, Pepsi focused on youth and targeted young people. Historical trends also helped Pepsi. After WWII, the U.S. experienced a baby boom. This generation didn't experience the war's horrors, were confident and optimistic, eager to try new things, and disliked what their parents used. Pepsi's slogan was:
"Cool youths drink Pepsi; old-fashioned parents drink Coca-Cola." (Pepsi ad) Pepsi's advertising was more provocative than Coca-Cola's. These ads were tailored for the younger generation and were very popular. (1964 Pepsi ad) This generation was even called the "Pepsi Generation." Clearly, Pepsi's differentiation was successful; it found a market Coca-Cola had ignored. That was Pepsi's first method: differentiation. Second, price war. As a new brand challenging an incumbent, many think of price wars. Pepsi didn't shy away from it. So a catchy ad, broadcast globally in 55 languages, appeared. (Video from "Cola Wars") Same money, double the Pepsi. Best taste, less cost. Even today, for the same price, you get a bit more Pepsi than Coca-Cola. That was Pepsi's second method: price war. Third, celebrity endorsements. As mentioned, cola is a high-frequency, low-cost, repeat-purchase business, so marketing and advertising are key. Coca-Cola didn't skimp on spending either. What else could Pepsi do? Pepsi decided to spend big on celebrity endorsements. So they did. In 1983, they paid Michael Jackson a whopping $5 million and promoted heavily in New York. Following Michael's success, Pepsi continued, hiring Madonna, Cindy Crawford, and other stars. Almost any star you can name was approached by Pepsi. (Madonna's Pepsi ad) Take familiar Chinese stars: Andy Lau, Aaron Kwok, Faye Wong, Sammi Cheng, Louis Koo, Jolin Tsai, Jay Chou, Nicholas Tse, Huang Xiaoming, and many more have endorsed Pepsi. (Faye Wong's Pepsi ad) Besides entertainment stars, Pepsi even targeted political leaders for endorsements. At the 1959 World's Fair, Pepsi got U.S. Vice President Nixon and Soviet leader Khrushchev to drink Pepsi. As expected, this was widely covered by media. The leaders of the world's two largest countries, even superpowers from opposing blocs, endorsing Pepsi together created a global sensation. Pepsi reaped huge rewards. That was Pepsi's third method: celebrity endorsement marketing. Fourth, the Pepsi Challenge. After price, differentiation, and celebrity endorsements, what else? Pepsi said, let's go back to basics and compete on product. Blind taste tests. So they did. The "Pepsi Challenge" was born. Here are two colas; you don't know which is which. "Hmm, I don't know, we've never seen them, no." The Pepsi Challenge was compelling. Basically, Pepsi decided to conduct taste tests nationwide and advertise the results. Cola taste, cola test, Pepsi vs. Coca-Cola, that's the Pepsi Challenge. Across America, more people chose Pepsi, repeatedly. (Video from "Cola Wars") This rigorous, scientific test showed that slightly more than half preferred the sweeter first sip of Pepsi. Why did more choose Pepsi? Because in the test, everyone only took a small sip. At that moment, the slightly sweeter Pepsi was more likely to win approval. This was a brilliant marketing move; Pepsi claimed the most important attribute in the category: taste. That was Pepsi's fourth method: the Pepsi Challenge. Fifth, opponent's mistake. Pepsi had used every method from business school and beyond to challenge Coca-Cola. If only Coca-Cola would make a mistake to help Pepsi, that would be even better. And it happened. Coca-Cola did make a blunder. On April 23, 1985, Coca-Cola shocked the world: It introduced New Coke and stopped selling the traditional formula. It was said that in blind tests, the ratio of those preferring New Coke to Original Coke was 3:1, so Coca-Cola was confident. They simply stopped selling the original. Many questioned this. Coca-Cola CEO Roberto Goizueta responded: "We simply call it the surest move ever." President Donald Keough also said: "I've never been more confident than when announcing the formula change." (Coca-Cola CEO Roberto and President Donald Keough toasting with New Coke) But their optimism was short-lived. After launch, Coca-Cola received 5,000 protest calls daily; by June, that number had grown to 8,000. People were furious because they could no longer buy the original cola, the cola belonging to all Americans. Americans took to the streets in protest. They didn't realize the deeper emotional issues caused by changing the formula. (Video from "Cola Wars") On July 11, Coca-Cola finally reacted. They announced they would bring back the "original formula" Coca-Cola, less than three months after New Coke's launch. At that point, Coca-Cola and Pepsi's sales in the U.S. were nearly equal. Through relentless effort, Pepsi finally stood shoulder to shoulder with Coca-Cola. That was the second phase of the cola war: Pepsi's rise. The main lessons from this phase for challengers are: First, use differentiation to capture a niche market. Second, sacrifice some profits to gain market share through price advantages. Third, find the most effective marketing, like celebrity endorsements. Fourth, prove your product's quality through expert and professional evaluations. Fifth, wait for the opponent to make mistakes. These five points are the lessons from Phase 2: Pepsi's rise.
-03- Phase 3: Heroes Appreciate Heroes After Phase 2, when Coca-Cola and Pepsi were evenly matched, their battles never escalated into bigger waves. It sometimes felt harmonious, like heroes appreciating heroes. The only frequent entertainment was their ongoing marketing and advertising sparring, which was lively. These might offer insights for marketers. Let's look at how the two market. For example: A little boy, too short to reach the "Pepsi" button, buys two cans of Coca-Cola to stand on. Coca-Cola retaliates in kind: A child, to reach a higher Coca-Cola, opens the fridge and first takes out two bottles of Pepsi to stand on. Another example: (Focus on the floor) On Halloween, Pepsi sent Coca-Cola a sarcastic greeting: "Have a scary Halloween." Coca-Cola responded with the same image: "Every ordinary person wishes to be a hero." (Coca-Cola mocking Pepsi for wanting to be Coca-Cola.) In this third phase, the two evenly matched companies kept innovating in marketing and ads, occasionally provoking each other. In 2011, a Pepsi director even said:
"Nothing attracts consumers' attention more than putting these two brands together." So, compared to Phase 1 (Coca-Cola's growth during WWII) and Phase 2 (Pepsi's rise during the Cold War), to an observer, Phase 3 feels like mutual respect and harmony.
-04- Final Words By now, you might think the competition is over and settled. But both companies now face a new challenge together. What challenge? That is, more and more people are pursuing health, and sugary carbonated drinks are labeled unhealthy. Although both have introduced sugar-free options, they can't change the overall trend. Take the U.S. as an example. In 1998, an average American consumed 53 gallons of carbonated drinks per year, equivalent to 723 cans—astonishing. Today, that number has dropped to 540 cans per year. A significant decline. In this new era where people no longer love sugar as much, both companies have come a long way and now find themselves in the same trench, facing the same challenge. Where will they go? Their answer is to diversify around their core strengths. Coca-Cola now owns 12 beverage brands and has even ventured into entertainment. PepsiCo has integrated 22 beverage and retail brands. Best wishes. Best wishes to both companies for the next hundred years. Finally, back to ourselves. We've spent time reviewing this century-long cola competition. I hope you don't just see it as gossip; I hope you can learn with me from the business and marketing experiments these two companies made. For example: 1. Cola is a business with high repeat purchases, high gross margins, and high transportation costs. 2. Franchising can solve high transportation costs by building plants worldwide. 3. Marketing and advertising to capture consumer mindshare is key to this competition. 4. Pepsi used price wars, differentiation, celebrity endorsements, and the Pepsi Challenge to catch up with Coca-Cola's dominance—methods worth learning. 5. From Coca-Cola's New Coke fiasco, we learn that a brand is a belief. Changing a brand is changing people's beliefs. Let's encourage each other. Source: Liu Run (ID: runliu-pub), Author: Liu Run Tips will be paid 400-2000 yuan upon adoption.