How Pepsi got their act together vs. Coke during the Great Depression

By Acquired

Categories: VC, Startup, Product

Summary

During the Great Depression, Pepsi's innovative move to sell 12oz bottles for a nickel - twice the volume of Coke's 6oz bottles at the same price - gave them a major competitive edge, forcing Coke to play catch-up against Pepsi's superior cost structure and consumer value proposition.

Key Takeaways

1. Pepsi was able to undercut Coke's 6oz bottles for a nickel by selling 12oz bottles for the same price, due to their lower cost structure from using recycled beer bottles.
2. Coke could not react to Pepsi's pricing and volume strategy because they had already invested heavily in their 6 and 12 ounce contour bottles, locking them into a less flexible cost structure.
3. For beverage companies, the two main cost drivers are sugar and packaging, with everything else being relatively free, allowing Pepsi to leverage their lower packaging costs to gain a major competitive edge.
4. Pepsi was able to bounce back from bankruptcy multiple times and reinvent itself, while Coke maintained a more consistent corporate identity, highlighting Pepsi's scrappier, more adaptable approach to weathering economic challenges.
5. Pepsi's strategic shift to 12oz bottles for a nickel during the Depression provided them with a compelling consumer value proposition of twice the volume for the same price, which Coke was unable to match due to their own inflexible cost structure.
6. Pepsi's ability to rapidly adapt their pricing and packaging strategy, while Coke remained locked into their existing infrastructure, highlights the importance of organizational agility and a willingness to disrupt one's own business model to stay competitive.

Topics

• Competitive Strategy
• Pricing
• Packaging
• Cost Optimization
• Organizational Agility

Transcript Excerpt

Coca-Cola has been approximately one company all the way through. Pepsi's been bankrupt two, three times and sold to new owners and completely new companies started with the word Pepsi in it. This has been a rocky road for them. >> But this is when it's Fortune's turn. So 1934, they start selling Pepsi in 12 oz recycled beer bottles. They still have the same pricing pressure, you know, and margin pressure from Coke selling in a nickel. But it turns out if you look at the unit drivers of margins ...