This morning it dawned on me that companies engaging in serious competition are not healthy for them. I would like to create a few “what if analysis” on the effect of competition on two well-known and classic competitors, Pepsi and Coca-cola. They are chosen because their products are extremely similar and it is hard to distinguish their product if we were to drink Pepsi or Coke in two identical bottles.
What if Coke were to use the same old packaging style for its soft drinks for the last 50 years while Pepsi changed its packaging design every 5 years?
It is likely that customer would want to buy Pepsi’s product out of curiosity. Also, they may want to appear stylish and trendy to their friends, so they choose Pepsi over Coke. This translates into lost sales and lower profit margin for Coke.
What if Coke didn’t introduce variety into their products unlike Pepsi who did it with Pepsi Twist, Pepsi Max or Pepsi Diet?
Pepsi will create new customers and new market demand for their new products. Sales will increase for Pepsi, economies of scales kick in and Coke will gradually lose the competition.
What if Pepsi spend a lot of money on advertisement and Coke didn’t follow through with an equal monetary commitment on advertising.
Advertising has a direct impact on boosting sales. Under the influence of the media, people would unconsciously buy more Pepsi than Coke. Coke loses Pepsi wins.
In order for Coke to survive, it has to change its packaging every 5 years or less, introduce variety into its products and spend a fortune on advertisement and sponsorship. Consequently, cost will escalates for the company and return on investment will be reduced substantially. Both Pepsi and Coke lost in battle for market share. Again, competition is bad.
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