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Coca-Cola's Price Offensive

Pricing, of late, has become part of the cola warfare arsenal. What about the brand game?

By Abha Bakaya

Coke's new blitz

All seemed quiet on the Western front. The annual cola flare-up of the summer was a fading memory, and the two main combatants were thought to be safely back in their trenches. And then, Coca-Cola India (CCI) sprang a surprise. Towards the end of December, it cut retail prices in Mumbai of Coke, Thums Up, Limca, Sprite and Fanta by 15 per cent, to Rs 5 for 200-ml and Rs 8 for 300-ml bottles.

At first, arch-rival Pepsi didn't stir. But then, towards the middle of January, it responded with its own series of price cuts. It has slashed the prices of its 2-litre and 1.5-litre bottles to Rs 50 and Rs 43, respectively, in the North and South. Pepsi's 300-ml and 200-ml fizzies have been cut to Rs 7 and Rs 5, respectively, in Uttar Pradesh. In the rest of the northern region (including Delhi), the 300-ml bottle is available at Rs 8 while the 200-ml bottle sells for Rs 5.

It is not a head-on confrontation, as the geographical variation shows. But the cuts are evidently aimed at snaring sales from each other. Some analysts suspect that the idea is to shore up sales in 'weak territories' -- using price as a weapon where the brand is weak. Also, remember, winter is a low season for sales of fizzy drinks -- and also a good time to experiment with pricing.

However, another explanation might be that the cola battle in India has begun to turn regional, with independent strategic thinking for each region. CCI, for example, has been talking about regional empowerment for quite a while now. The company started a price war in Tamil Nadu earlier this year when it reduced prices all over the state except for Chennai. Pepsi, which was very strong in the area, followed suit, resulting in both Coke and Pepsi being available for Rs 7 for a 300-ml bottle and Rs 5 for a 200-ml bottle.

Yet, there's a larger story to it. A company spokesperson for CCI insists that the price is part of a programme that CCI started last year to tackle issues of availability and affordability. "We are the market leader," he says, "and we don't need to react to what the competition is doing." Indeed, CCI has been using price as a weapon (its 200-ml deal for Rs 5) for quite awhile now -- but for smaller sales territories, not the metros. And its volumes have grown dramatically over the past two years or so.

But isn't it losing money on all this?

Market expansion is the current objective, it seems, and CCI is willing to do what it takes. Pepsi, it appears, has come under pressure to keep its prices in line with Coke's, by and large. It's a peculiar market. A market with strong brands. But not strong enough to offset the effects of a price bait.

That makes a battle of price attrition a very attractive idea. Except that the idea is to use it as a pressure point. So the player that starts it had better be sure that the pressure would tell on the other rather than itself. In this case, CCI is clearly the initiator of the round of price cuts... which could only mean that it's more confident of its brands' charm. It has the leverage of customer preference, with price acting as the purchase trigger (and potently so for first-time cola drinkers).

In other words, the broad cola scenario remains a game of fizz and advertising (not necessarily in that order). Brand enthusiasts need not react to the price cuts in Marlboro Fridayish dismay. The essential battleground is not being reshaped by pricing. Occupying consumer mindspace with brands is still what cola strategists crack their skulls over, and this is what makes the difference between long-term success and failure.

Maybe, just maybe, the economics works out too. After all, larger volumes ought to give the cola players wider leeway on pricing. If this is the case, and the costing structure of the industry is undergoing a shift, then both Pepsi and Coke would be well-advised to reduce prices on the whole, across the entire Indian market. Consistency is a crucial attribute of any good brand, and that means not only quality, but price as well. And at the end, the brands -- and the consistent set of values that they represent -- are what count. Inconsistency in values could lead to brand erosion.

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