The U.S. Carbonated Beverages Market: A Competitive Profile

Abstract

This is the twenty-second paper—and the 23^rd and 24^th studies--that follow the footsteps of twenty-two studies that have tried to analyze the competitive profiles of U.S. consumer markets: Men’s Shaving Cream, Beer, Shampoo, Shredded/Grated Cheese, Refrigerated Orange Juice, Men’s Razor-Blades, Women’s Razor-Blades, Toothpaste, Canned Soup, Coffee, Potato Chips, Alkaline AA Battery, Facial Tissue, Toilet Paper, Paper Towel, Disposable Diapers, Sanitary Pads, Automatic-Dishwasher Detergent, Hand-Dishwashing Detergent, Household Liquid Non-Disinfectant Cleaner, Heavy-Duty Liquid Laundry Detergent, and Deodorant.

Michael Porter associates high market share with cost leadership strategy, which is based on the idea of competing on a price that is lower than that of the competition.

However, customer-perceived quality—not low cost—should be the underpinning of competitive strategy, because it is far more vital to long-term competitive position and profitability than any other factor. So, a superior alternative is to offer better quality vs. the competition.

In most consumer markets, a business seeking market share leadership should try to serve the middle class by competing in the mid-price segment; and offering quality better than that of the competition: at a price somewhat higher to signify an image of quality, and to ensure that the strategy is both profitable and sustainable in the long run.

The middle class is the socio-economic segment that represents about 40% of households in America.

Quality, however, is a complex concept, consumers generally find difficult to understand. So, they often use relative price, and a brand’s reputation, as a symbol of quality.

The U.S. Carbonated Beverages is a mega-market that had retail sales of $14,178 million in 2008. It had six segments: Cola Regular, Cola Diet, Non-Cola Regular, Non-Cola Diet, Lemon-Lime Regular, and Lemon-Lime Diet. We have combined them in two studies: Cola Regular and Diet Carbonated Beverages, and Non-Cola--Lemon-Lime Regular Carbonated Beverages, with 2008 retail sales, respectively, of $6,639 million, and $5,415 million.

For both markets we have focused our analysis on the 12-Oz size because it was the most popular.

Using Hierarchical Cluster Analysis, we tested two hypotheses: (I) That the market leader is likely to compete in the mid-price segment, and that (II) Its unit price is likely to be higher than that of the nearest competition.

For the Cola Carbonated Beverages market, the data did not support Hypothesis I for both 2008 and 2007, because Coca-Cola Classic Regular, the market leader, was a member of the super-premium segment.

Similarly, the data did not support Hypothesis II for both 2008 and 2007 either, because Pepsi Regular, the runner-up, had a unit price that was higher than that of the market leader, Coca-Cola Classic Regular.

For the Regular Non-Cola--Lemon-Lime Carbonated Beverages market the data also did not support Hypothesis I because Mountain Dew, the market leader, was a member of the premium segment for both 2008 and 2007.

However, the data did support Hypothesis II, because, Dr. Pepper, the runner-up, had a unit price that was lower than that of the market leader, Mountain Dew for 2008 and 2007.

We found that relative price was a strategic variable, as we have hypothesized.

We also discovered two strategic groups in the Cola Carbonated Beverages market, and four in the Non-Cola--Lemon-Lime Regular Carbonated Beverages market.

A pattern is emerging in price-quality segmentation analysis. In thirteen of the twenty-four studies—that exclude Men’s Razor-Blades, Women’s Razor-Blades, Coffee, Toilet Paper, Paper Towels, Disposable Diapers, Sanitary Pads, Liquid Heavy-Duty Laundry Detergent, Deodorants, Cola Carbonated Beverages, and Regular Non-Cola--Lemon-Lime Carbonated Beverages—the market leader was found to be a member of the mid-price segment, as we have hypothesized.

Also, results in eleven markets supported Hypothesis II.