Do Brands Compete or Coexist? Evidence from the Cola Wars
Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-051
35 Pages Posted: 17 May 2016 Last revised: 28 Aug 2016
Date Written: May 5, 2016
Marketers believe that competition and brand loyalty create a tug-of-war: consumers like competition since competing firms must innovate, improve quality, and lower prices, leading to increased consumer welfare. Brands prefer to minimize competition, as innovation requires costly development while competing on price reduces profitability. Rather, brands quasi-compete, using differentiated offerings to compete yet sustain profitability. We examine marketing’s dominant logic of the service-centered model of exchange (Vargo and Lusch 2004) by looking at brand loyal household purchasing patterns between two substantive brands. With the Cola Wars as our context, we use Markov chain switching probabilities of panel data for two product categories. Across three levels of the branded house (parent brand, category brand, and variety brand), we find that at all three levels between 90% and 95% of households that are brand loyal in one quarter continue to be loyal at each level in subsequent quarters. Despite the commonly held belief that brands compete, we find that brands coexist, competing at the consumption fringes (non-heavy users) instead.
Keywords: brand competition, Cola Wars, Markov switching
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