Describe about the Innovation and Business Development for Coke and Pepsi.
The innovation performance framework involves the product innovation, which can be considered as an engine that drives a potential prosperity and growth in the particular industry. Coke and Pepsi operate its business in the beverage industry across the world (Forbes.com 2016). In this report, the Pest analysis and Porter 5 forces of Pepsi and Coke will be presented in order to provide an overview of the innovation performance of these companies. This report will explain the business canvas model and ten types of innovation that concentrate on the development of effective innovation by Coke and Pepsi.
According to Boudreau and Lakhani (2013), without innovation, a product of an organisation cannot exist in today’s competitive business world. It is an essential factor for the companies like Coke and Pepsi to understand the business environment before innovation. Even the initiatives of the government policy, private and public research help the innovation process for a specific industry (Mohanty and Mohanty 2012). Various forces may affect the organisational innovation performance. The business organisations engage efficient and potential business experts for searching and understand the factors that may influence the innovation performance of an organisation.
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Political |
· The changes in the regulations, laws and legislations of the country have influence on the innovation performance of Coke and Pepsi. · There are changes in the non-alcoholic beverage industry; therefore, both Pepsi and Coke change the pricing policy and the raw materials of manufactured beverages. · The underdeveloped economy of the country may influence the innovation performance. |
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Economical |
· The international economies have great influence on the organisational innovation process. · The high inflation rates, the indirect process of dealing with the international bottling companies influence the product innovation. |
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Social |
· Both Pepsi and Coke are concerned with the health aspect of the consumers. Therefore, the innovation experts of these companies intend to produce nutritious beverages with low calorie count. · The socio cultural aspects, such as the changes in lifestyle, population growth and trends of a country support the innovation performance of the company. · The health consciousness and the living condition of the consumer also influence the innovation performance of the carbonated drinks (Maital and Seshadri 2012). · The management of Coke has innovated low calorie but flavoured beverages in order to cater the health conscious customers across the world. On the other hand, there are hardly any innovations in the products of Pepsi. |
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Technological |
· The management of Coke creates completely new opportunities for offering the new products to the consumers. · On the other hand, Pepsi fails to come up with innovative products with employing the new technologies in the beverage industry. · There are constant new inventions and development in the beverage industry across the world, which influence the organisational innovation performance of Coke and Pepsi. |
Table 1: PEST Analysis
(Source: Lemley and McKenna 2012)
Threat of new entry:
The economies of scale, differences in the product proprietary and the switching costs can prove a big threat for the entry in the beverage industry (Forbes.com 2016). Even the capital requirements and accessing the distribution channels are considered as a potential threat for the new entry in the beverages industry. The major barriers for an organisation to enter into a new industry involve technology protection. It also take immense time and cost in order to make a successful entry within an industry.
Bargaining power of customers:
The volume and switching costs of the consumer influence the innovation performance of the companies like Coke and Pepsi. Various substitute products in the beverage industry increase the bargaining power of the consumer, which affects the innovation performance of Pepsi and Coke. However, the bargaining power of the customer can be determined by the quality of product, price and performance (Rothaermel 2015).
Figure 1: Porter’s Five Force
(Source: Muhtaro?lu et al. 2013)
Bargaining power of suppliers:
The presence of cheap substitute products in the beverage industry influences the bargaining power of the suppliers. According to Davila et al. (2012), the number and size of the existing suppliers determine the bargaining power of the suppliers. The uniqueness of services is the major power of the suppliers of Coke and Pepsi. Even the costs of substituting often suggest the supplier power.
Rivalry among existing competitors:
Coke and Pepsi encounter a tough completion in the beverage industry as well as from coffee chains like Starbucks, Costa. These companies also face competition from health drink companies like Tropicana and Real. There are large numbers of competitors of Coke and Pepsi in the soft drink industry also. The competitive rivalry can be determined by the differences in the product quality and customer loyalty.
Threats of substitutes:
The performance of the substitutes such as Tropicana, Real fruit juices and gourmet coffees from Starbucks and Costa are excellent in the beverage industry across the world. Therefore, all of these mentioned companies can become a substantial threat for the success of Pepsi and Coke, which produce carbonated soft drinks. However, the prices of the mentioned substitute products are much higher than the prices of Pepsi and Coke.
Massa and Tucci (2013) have mentioned that the Business canvas model involves the key partners, activities, resources, cost structures, customer relationships, value propositions, channels, revenue streams and customer segments. The business canvas model helps Pepsi and Coke to understand the importance of innovation from the leading business thinkers, adequate techniques for designing the business models, re-interpreting important strategies through the lens of business models. The business canvas model has improved the services and products performance of Coke and Pepsi. As both of these concerned companies belong to the beverage industry, therefore, this particular model tailors products to the specific requirements of individual consumers. The business canvas model allows the customised services and products to take advantage of the economies of scale (Kaplan 2012). It denotes the price, cost reduction, accessibility, usability, risk reduction, design, brand and value of the innovative products from Pepsi and Coke. The business model innovation supports the implication of the new technologies. This particular model also promotes the process of innovating channels that describe the process by which an organisation communicates with its customers. Euchner and Ganguly (2014) have referred that the business model innovation raises awareness among the customers in order to deliver a perfect value proposition. The channel phase includes awareness, evaluation, delivery, purchase and the condition of after sales. Both Pepsi and Coke have to understand the illustration of the business canvas model in order to make a perfect financial sense.
The Ten Types Innovation framework is intuitive and simple as it can be used as an effective tool for enriching and diagnosing the innovation process (Keeley et al. 2013). Ten Types Innovation frameworks also help to analyse the existing competition within the particular industry. Ten Types Innovation involves Profit model, network, process, structure, product performance, product system, service, channel, brand, and customer engagement. The profit model suggests the ways to Pepsi and Coke for making money and structure aligns the innovative products with the assets and talents of these companies (Pepsico.com 2016). The product performance of Coke and Pepsi distinguishes the innovative functionality and features in the beverage industry. Coke has extended its brands into sectors, which range from soft drinks to the low calorie flavoured drinks.
Kaplan (2012) has mentioned that there are ten types of innovation, which help an organisation a strong emphasis on environmental sensitivity and sustainability. Both Coke and Pepsi maintain perfect services with controlling their internal core value. Coke involves the efficient business experts for creating the values in order to differentiate own brand. Coke applies potential strategies in the changes from soft drink to flavoured drinks. Both Pepsi and Coke use complementary services and products with the help of innovative distribution channels. Both of these companies maintain distinctive interactions for the customer engagement. At present, Coke holds 56% market share and Pepsi holds 38% market share in the beverage industry (Coca-colacompany.com 2016). Pepsi makes the paper bottles in order to support the process of waste management. With innovative and modern technologies, the management of Pepsi proposes completely different methods of manufacturing.
7. Conclusion
The present times reveal a very promising picture of Pepsi and Coke. Both Coke and Pepsi have been successfully able to build an innovative and creative brand portfolio. Pepsi heavily concentrates on their innovating packaging technologies. The local insights lead Coke and Pepsi to globally valid innovation. With employing potential creativity and innovation, there are large scopes for Coke and Pepsi to retain their current position in the beverage industry across the world. Both of these companies should focus on producing more low calories and flavoured drinks in order to cater the health conscious consumers. There are changes in the consumer preferences with creation of opportunities in the nutrition and health apace. Innovation will help both Coke and Pepsi to make healthy snack bars for the youngsters and kinds in order to increase the present sales revenue.
Reference
Boudreau, K.J. and Lakhani, K.R., 2013. Using the crowd as an innovation partner. Harvard business review, 91(4), pp.60-69.
Coca-colacompany.com 2016 Home Page Available at: https://www.coca-colacompany.com/ [Accessed on Dec 1, 2016]
Davila, T., Epstein, M. and Shelton, R., 2012. Making innovation work: How to manage it, measure it, and profit from it. FT press.
Euchner, J. and Ganguly, A., 2014. Business model innovation in practice. Research-Technology Management, 57(6), pp.33-39.
Forbes.com 2016 News Available at: https://www.forbes.com/sites/maggiemcgrath/2016/11/22/beyond-bubbles-dr-pepper-and-pepsi-spend-big-to-diversify-outside-of-soda/#700f825a3b60 [Accessed on Dec 1, 2016]
Kaplan, S., 2012. The business model innovation factory: How to stay relevant when the world is changing. John Wiley & Sons.
Keeley, L., Walters, H., Pikkel, R. and Quinn, B., 2013. Ten types of innovation: The discipline of building breakthroughs. John Wiley & Sons.
Lemley, M.A. and McKenna, M.P., 2012. Is Pepsi Really a Substitute for Coke? Market Definition in Antitrust and IP.
Maital, S. and Seshadri, D.V.R., 2012. Innovation management: strategies, concepts and tools for growth and profit. SAGE Publications India.
Massa, L. and Tucci, C.L., 2013. Business model innovation. The Oxford Handbook of Innovafion Management, pp.420-441.
Mohanty, A. and Mohanty, S., 2012. Innovation: The Key Driver for Growth & Sustainability in Organisations.
Muhtaro?lu, F.C.P., Demir, S., Obal?, M. and Girgin, C., 2013, October. Business model canvas perspective on big data applications. In Big Data, 2013 IEEE International Conference on (pp. 32-37). IEEE.
Pepsico.com 2016 Home Page Available at: https://www.pepsico.com/ [Accessed on Dec 1, 2016]
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill.
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