Why Coke May Have Triggered a New Price War This Season

Coca Cola has resorted to the oldest trick in the book. To prise open the market for price-sensitive entry-level consumers it's cutting prices.

Last week, the company cut prices for Coke 200ml glass bottles in ‘select markets’ reported the Times of India. They now sell for Rs8 instead of Rs10. This comes a couple of months before the onset of summer, which is regarded as the busiest time for the industry. Coca Cola and arch rival Pepsico log as much as half of yearly sales in the four months beginning April.

This leaves us with the obvious question: Why cut prices when memories of 2003 when both companies dropped prices and suffered huge losses are still raw?

On the sidelines of an industry event last week Manu Anand, chairman, Pepsico India brushed aside talk of a price war. According to him the company is more focused on new promotions and campaigns for the summer.

But dig a little deeper and it appears there’s more to Coke's move than meets the eye.

First, company insiders say Coke has cut prices across the country and not select markets as previously reported. According to them it is waiting to see how the market responds before the next move. Second, the company plans to aggressively stock these in semi urban and rural markets. So don’t expect them to show up at your neighbourhood supermarket. It plans to be equally selective in supplying them to kirana stores in metro areas.

The message from the top is unequivocal: this time we plan to get in new consumers not get existing ones to down trade. With Indians consuming 11 bottles of Coke a year versus 54 in Egypt and 675 in Mexico the company knows it has a long way to go.

Significantly, this time the price cut is to be restricted only to Coke and that too only on the 200ml pack size. There are no plans to extend this to other brands. Over the years the company has been investing in expanding its reach in rural India. It's now taken a calculated risk to get new consumers in before the onset of summer.

It’s clear that Coca Cola has been planning for a while. On Monday it rolled out a pan India television campaign, in which the company has chosen to soft sell the product to consumers. Noticeably absent is any aggressive communication of the price point. It only shows up in the last frame. And lest there be any confusion on who the target audience is the text in the advertisement appears in Hindi. Rewind to nine years ago when the Rs5 price was aggressively communicated and the contrast is stark.

For now, industry watchers, who declined to be named, believe Coke has the first round advantage. The company has another strong brand Thums Up to fall back on. With 15 percent of beverage sales it is the country’s largest believes it can hold on to a Rs10 price point here. Meanwhile, Pepsi has only one cola brand and as a result has no option but to follow suit and match prices. This has the potential to hurt the company more than it could hurt Coca Cola.

Indeed there are indications that Pepsico has started cutting prices in some markets. Questions sent to the company remained unanswered.

Coca Cola’s fired the first salvo. It’ll be interesting to see how this develops.

The thoughts and opinions shared here are of the author.