CASE: IB-84

DATE: 06/27/08

Professor Wasim Azhar and Davina Drabkin (MBA �03) prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2008 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means �� electronic, mechanical, photocopying, recording, or otherwise �� without the permission of the Stanford Graduate School of Business.

PEPSI COLA PAKISTAN: FRANCHISING & PRODUCT LINE MANAGEMENT1

In July 1991, Irfan Mustafa faced several dilemmas. As West Asia area vice president and chief executive officer of Pepsi Cola Pakistan Incorporated (PCI), Mustafa was charged with developing a strategy to grow share and profitability across PCI sales but focusing particularly on 7-Up. Pepsi Cola International had shifted focus to its global brands and, since acquiring 7-Up International in 1986, had withdrawn all marketing and technical support for Pepsi�s local Pakistani brand, Teem. As a country manager, however, Mustafa was evaluated on profitability, and Teem was a profitable brand. Mustafa knew that he would need to make important decisions about Teem in developing a brand strategy and marketing plan. Considering Teem�s success in Pakistan, Mustafa wondered how he should position the soft drink and whether to continue investing in it despite the loss of international support. With PepsiCo�s acquisition of 7-Up International, arranging for 7-Up and PCI bottlers in Pakistan to merge also became a priority for Mustafa. The ability to coordinate strategies across all bottlers producing PCI brands would be essential. By August 1990, PCI had been able to merge 7-Up and PCI bottlers in three regions. As contracts expired over the next year or two, Mustafa would need to convince the remaining 7-Up bottlers to sell their plants to PCI bottlers as well. With the mergers complete, Mustafa�s next step would be to persuade bottlers to adopt an updated product line. However, since this would entail changes to Teem, a strong Pakistani brand that outsold 7-Up in some regions, Mustafa anticipated resistance.

PEPSICO INC.

Pepsi Cola International was owned by parent company, PepsiCo Inc. In 1990, PepsiCo�s numerous food and beverage brands were available in nearly 150 countries and accounted for an

1 Unless otherwise noted, information in this case comes from interviews with Irfan Mustafa, West Asia area vice president and chief executive officer, Pepsi Cola Pakistan Incorporated (PCI), or data provided by PCI.

Pepsi Cola Pakistan IB84

p. 2

estimated $44 billion in retail sales. Net sales were almost $18 billion and net income was over $1 billion.2 In 1990, PepsiCo operated in three markets:

• Soft Drinks: Pepsi Cola Company and Pepsi Cola International • Snack Foods: Frito Lay Inc. and PepsiCo Foods International • Restaurants: Pizza Hut, Taco Bell, and Kentucky Fried Chicken (KFC)

PepsiCo described itself as �first and foremost a growth company.�3 The company had a good year in 1990, demonstrating double-digit growth in all three of its markets (soft drinks 14 percent, snack foods 16 percent, and restaurants 26 percent). One out of every five sales dollars was from outside of the United States and, in every line of business, the company saw global potential that �equals or exceeds the explosive growth that occurred when our domestic industries were in their infancies.�4

Soft Drinks: Pepsi Cola International

Pepsi Cola International represented PepsiCo�s soft drink business outside of the United States. Pepsi Cola�s first international expansion was in 1934 when it formed a Canadian subsidiary. Over the following two years, Pepsi established subsidiaries in Cuba and England. By 1956, Pepsi Cola was produced by 149 bottlers in 61 foreign countries. In 1972, Pepsi sealed a production agreement with the Soviet Union and then, in 1981, reached a bottling agreement with the People�s Republic of China5 (see Exhibit 1). Pepsi Cola International accounted for almost $1.5 billion in net sales and close to $94 million in operating profit in 1990.6 With nearly 14 billion cases sold worldwide in 1990, the international soft drink market was almost double that of the United States. Compared to the United States, however, international soft drinks consumption rates were fairly low�in most of the world, soft drink consumption was far below the almost 500 12-ounce units consumed annually by the average American.7 In Mexico, for example, the world�s second largest soft drink market, per capita consumption was only about two-thirds what it was in the United States (see Exhibit 2).8 According to John Ferebee, an analyst with Value Line Inc., prospects for the global soft drink business were bright. Overseas consumption levels were well below those of the United States, mainly because of the underdeveloped distribution system. However, as Ferebee explained, "Demand for PepsiCo's beverages is quite high and, as the distribution infrastructure is improved, we think that unit volume will grow rapidly."9

2 PepsiCo Inc. Annual Report, 1990, Operating Overview, p. 9. 3 Ibid. 4 Op. cit., PepsiCo�s Prospects, p. 7. 5 �Pepsi-Cola,� Encyclopedia of Consumer Brands, Vol. 1. pp. 443-444. [check for date] 6 PepsiCo Inc., Annual Report, Financial Review, op. cit. 7 Bruce Oman, �Past, Present and Future. (Soft Drink Industry) (Beyond the End Aisle),� Beverage World, August

1, 1990. 8 PepsiCo Inc. Annual Report, op. cit., Industry Position, p. 10. 9 Edward Clifford, �PepsiCo Seeking to Build Global Market Share,� The Globe and Mail, September 7, 1990.

Pepsi Cola Pakistan IB84

p. 3

Pepsi Cola International held 15 percent of the international soft drink market in 1990, 10 and was intent on increasing its market share. Pepsi had focused on building its brands in high potential markets and had grown its sales by 29 percent in 1990. In the Soviet Union, Pepsi signed an agreement that would more than double its production there over the next decade. In India, Pepsi�s joint venture launched its first product, Lehar Pepsi. In April, 1990, Pepsi Cola gathered bottlers from all parts of the globe in Los Angeles for its first ever international convention, announcing plans to spend more than $1 billion over the next five years to upgrade bottling plants, improve distribution and bolster marketing programs. According to the Wall Street Journal, �The Pepsi convention seemed like an orchestrated attempt to rally overseas bottlers and to convince them once and for all that Pepsi is committed to the soda business abroad. Under the crush of Coke's global strength, some Pepsi international bottlers have felt neglected, particularly as PepsiCo has plunged hundreds of millions of dollars into building its snack and restaurant businesses abroad.� Pepsi also unveiled a strategy to target certain fast-growing market segments that were in their infancy abroad�including diet soft drinks, and fountain and vending machines. The idea was to beat Coca-Cola in establishing a commanding advantage in these segments.11 The international push was largely the result of a slowdown in the U.S. soft drinks market, where annual growth had slowed to 3 percent by 1990 compared to 4-5 percent in the 1980s. The international market, however, was expected to grow annually in 8-10 percent spurts for several years to come. PepsiCo senior management planned to derive 25 percent of sales and profits from foreign markets over the next five years�Pepsi estimated that its new strategy of targeting high-growth segments would more than double its overseas soft drink volume from about 2 billion cases in 1990 to 5 billion by 1995.12 All franchise arrangements and subsidiary companies abroad were to work towards this goal.

7-Up International

In 1986, PepsiCo Inc. bought 7-Up�s international division for $246 million. PepsiCo had originally offered to buy both the American and international interests of 7-Up for $380 million but the United States Federal Trade Commission blocked that deal on grounds of violating antitrust laws. 7-Up International was the third-largest soft drink company both abroad and inside the United States and operated in more than 85 countries. Adding 7-Up�s international unit boosted PepsiCo�s foreign volume by almost 20 percent. Coca-Cola Company, however, remained the industry leader�that year, Coca-Cola had 39 percent market share compared to Pepsi�s 29 percent in the United States13 and the company outsold Pepsi by three to one outside of the United States.14 10 Ibid. 11 Michael J. McCarthy, �PepsiCo Plans Extensive Ad Campaign to Contest Coke's Overseas Dominance,� The Wall Street Journal, April 2, 1990, p. B6. 12 Ibid. 13 �PepsiCo Buys 7-Up's International Unit,� Los Angeles Times, July 15, 1986. 14 Cotten Timberlake, �PepsiCo Buys 7-Up's Foreign Unit,� The Associated Press, [The Record,] July 15, 1986.

Pepsi Cola Pakistan IB84

p. 4

Robert Beeby, then Pepsi Cola International president, explained:

The addition of 7-Up International will greatly improve our competitive position overseas for a number of reasons. It expands our presence in the burgeoning lemon-lime category: it strengthens our network of franchised bottlers: and it will increase the efficiency of our respective manufacturing, distribution, and marketing systems.15

PepsiCo�s 7-Up acquisition was widely praised. The fast growing lemon-lime category, in which 7-Up was a leading producer in 1986, represented 15 percent of international soft drink sales.16 Emanuel Goldman, a beverage industry analyst with the investment firm Montgomery Securities, commented, "I don't think Pepsi has any pretense of being Coca-Cola overseas." Nevertheless, he added, "It's certainly good for PepsiCo because they do increase their overseas gallonage. � It gives them a world-renowned, lemon-lime product. It fits in very well with their soft drink infrastructure overseas and, with all of that in mind, it will help them make a lot of money." David Goldman [not related to Emanuel Goldman], an analyst with Dean Witter Reynolds Inc., said: "It gives them [PepsiCo] a new lease on life, internationally. PepsiCo is at present almost a noncompetitor abroad. They are an insignificant factor in every market with the exception of Venezuela and Mexico. Although the increment to Pepsi's international volume appears small, it does afford Pepsi a new growth capability. Seven-Up is a rapidly growing brand outside the United States."17 By 1991, five years after purchasing 7-Up International, Pepsi Cola International had expanded 7-Up sales, adding more than 30 additional markets.18 Competitive Analysis The soft drink industry was one of the most competitive consumer product industries. With many competing sources of information, it was often difficult to obtain consistent data, pushing each company to rely heavily on its own research. Pepsi Cola�s main competitor, both in the United States and abroad, was the Coca-Cola Company. With its original soft drink invented in 1886 by a pharmacist, the Coca-Cola Company was the largest manufacturer, marketer, and distributor of soft drink concentrates and syrups in the world. By 1990, Coca-Cola sold soft drink products in almost 170 countries, outselling all other soft drinks in most of these geographies. Worldwide, Coca-Cola sold 9.4 billion cases and claimed 46 percent of the international soft drink market�according to the company, �four times that of any competitor.�19 The company held the lead in the United States as well with 41 percent of the market. In 1990, Coca-Cola boasted over $10 billion in combined domestic and international revenues and almost $1.4 billion in net income20 (compared to PepsiCo�s combined domestic and

15 Terry Dodsworth, �PepsiCo Pays 246 Million Dollars for 7-Up Overseas,� The Financial Times, July 15, 1986. 16 Ibid. 17 Cotten Timberlake, op.cit. 18 PepsiCo Inc. Annual Report, op. cit., p.12. 19 The Coca-Cola Company, 1990 Annual Report, Financial Highlights and International Soft Drinks. 20 Ibid.

Pepsi Cola Pakistan IB84

p. 5

international soft drink revenues of $6.5 billion and operating profits of $767 million).21 Coca-Cola�s international soft drink business grew 8 percent from 1989 to 1990 while Pepsi-Cola�s international sales grew 29 percent. 22, 23 Speaking in 1991, former Chairman Roberto Goizeuta explained that the Coca-Cola Company had been transformed in 10 years from a diversified U.S. beverage company with large foreign business to a well-focused global soft drink company that "just happens to be based in Atlanta."24 Goizeuta affirmed that in the 1990s, Coca-Cola planned to put ever-greater focus on growing business outside the U.S. because "that's where the money is." More than 80 percent of Coca-Cola's net income came from its international business in 1990 compared with slightly over 60 percent in 1981. "In 1981, our market share internationally was 39 percent, last year [in 1990] it was 46 percent and within the next three years, half of the soft drink products sold internationally will be from the Coca-Cola Company."25 According to Goizeuta, per capita consumption of soft drinks outside the U.S. averaged only about one-fifth the rate of the U.S., where the typical person drank 292 eight-ounce servings of Coca-Cola products in 1990. Like Pepsi Cola International, this relative gap in consumption steered Coca-Cola toward the non-U.S. market. Goizueta explained that the tactic of investing in local bottling companies worldwide had given Coca-Cola a greater role in pushing for expansion because "we have a say in management" of the business in various markets. "Prior to 1981, we saw ourselves as suppliers of concentrate and syrups and advertising software to bottlers. We were passive beneficiaries or victims of our bottlers."26 PepsiCo went about its business in a slightly different way than Coca-Cola. While Coca-Cola focused solely on beverages, PepsiCo had diversified from the soft drink business into other food-related lines, most notably snack food giant Frito-Lay (the leading manufacturer of snack chips in the United States), and fast-food chains Pizza Hut, Kentucky Fried Chicken, and Taco Bell (making PepsiCo the world�s largest restaurant company at the time).27 In the United States, Pepsi Cola was solidly in second place in 1991 with 33 percent of the U.S. soft drinks market compared to Coca Cola�s 41 percent (domestic 7-Up and Dr. Pepper, both owned by Hicks & Haas, a Dallas-based investment firm, were in third position with 9.8 percent market share28) (see Table 1, next page). Internationally, however, Pepsi Cola lagged far behind Coca-Cola, with less than one-third of Coca Cola�s international sales. 21 PepsiCo Inc. Annual Report, op. cit., p.37. 22 Ibid. 23 The Coca-Cola Company, op.cit. 24 Richard Walker, �Coca-Cola Aims for More Global Growth,� Reuters News, February 27, 1991. 25 Ibid. 26 Ibid. 27 Edward Clifford, op. cit. 28 Standard & Poor�s Industry Surveys, �Beverages,� June 27, 1991 (vol. Jan. 1992), pp. F23-F26.

Pepsi Cola Pakistan IB84

p. 6

Table 1: Soft Drink Market Share (%) 1990

United States International The Coca-Cola Company 40.4 46 PepsiCo 31.8 15 7-Up/Dr. Pepper 8.9 N/A

Sources: Standard & Poor�s Industry Surveys, �Beverages,� June 27, 1991 (vol. Jan. 1992), pp. F23-F26; Edward Clifford, �PepsiCo Seeking to Build Global Market Share,� The Globe and Mail, September 7, 1990; The Coca-Cola Company, 1990 Annual Report, Financial Highlights and International Soft Drinks. Christopher Sinclair, former president of Pepsi Cola International, explained, "To be quite candid, Coke has built their international business and invested for the long term. We had a schizophrenic strategy." According to Sinclair, PepsiCo was rushing to make up for lost time, pushing international expansion to the top of the company�s agenda. 29 Lawrence Adelman, an analyst with Dean Witter Reynolds Inc., claimed that PepsiCo's international business accounted for only 16 percent of overall earnings. In contrast, Coca-Cola derived 55 percent of its revenue from international sales. 30 Discussing Coca-Cola�s exclusive focus on beverages, former Coca-Cola Chairman Goizueta explained:

Our Company's sharp focus on, and undivided dedication to, the soft drinks business are yielding handsome worldwide results. Our international business continued its relentless, strong growth during the last quarter, proving once again the effectiveness of our single-minded strategies which support, and are committed to, the profitable global expansion of our soft drink business.31

Not to be brushed aside, however, Pepsi Cola International had strengths as well. It claimed market leadership in parts of the Middle East and Latin America and was also ahead of Coca-Cola in parts of Eastern Europe, where Pepsi began expanding in the 1970s. While most of these markets were only modestly profitable,32 however, Sinclair was confident: "Pepsi can close the gap against Coke internationally just as we did here in the U.S.�33 One way, particularly in Europe, was to leverage soft drinks on PepsiCo's rapidly expanding international snacks business to buoy soft drink sales (PepsiCo bought Britain's leading snack companies, Smith�s Crisps and Walkers Crisps, in 1989).34 Sinclair�s optimism, however, was met with skepticism by industry observers�with Coca-Cola's more than 2-to-1 international market-share lead, analysts doubted 29 �Pepsi Puts a Lot More Fizz into International Marketing,� South China Morning Post, November 10, 1991. 30 Edward Clifford, op. cit. 31 �The Coca-Cola Company Reports 18 Percent Gain in Earnings Per Common Share Driven by Strong Worldwide Volume,� PR Newswire, July 17, 1991. 32 �Pepsi Puts a Lot More Fizz into International Marketing,� loc. cit. 33 In 1990, Classic Coke was the number one selling soft drink in the United States with 19.4 percent market share. Pepsi Cola was in second place with 17.3 percent market share. Standard & Poor�s Industry Surveys, loc. cit. 34 Patricia Sellers, �Pepsi Keeps On Going After No. 1,� Fortune, March 11, 1991.

Pepsi Cola Pakistan IB84

p. 7

that Pepsi could significantly close the gap abroad any time soon. A Coca-Cola spokesman dismissed Pepsi's plans to match Coca-Cola overseas as �dreaming.�35 PepsiCo's margins on international soft drinks sales were less than half those in the U.S. in 1990, contributing only 4 percent of operating profit (compared to approximately 80 percent for Coca-Cola). 36

Table 2: Summary of Key Statistics 1990

Pepsi Coca-Cola International & Domestic Soft Drink Revenues

$6.5 billion $10 billion

International & Domestic Soft Drink Operating Profit

$767 million $1.4 billion37

International Soft Drink Growth 1989-1990

29% 8%

Percent of Revenue Derived from International Soft Drink Sales

16% 55%

Percent of Operating Profit Derived from International Soft Drink Sales

4% 80%

Sources: PepsiCo Inc. Annual Report, 1990., p.37; The Coca-Cola Company, 1990 Annual Report, Financial Highlights and International Soft Drinks; Edward Clifford, �PepsiCo Seeking to Build Global Market Share,� The Globe and Mail, September 7, 1990; �Pepsi Puts a Lot More Fizz into International Marketing,� South China Morning Post, November 10, 1991. The intense competition between Coca-Cola and Pepsi could be described as �a very high-stakes struggle for brand loyalty.�38 The rivals� most valued assets were not their cola formulas, but rather their ability to mold total belief in their products among the public, and total dedication to their organizations from the smallest bottler to top management. The infamous �Cola Wars� in which Pepsi and Coca-Cola used marketing campaigns, price wars, new product launches, and legal maneuvers to win over customers were representative of this struggle. This campaign spanned the globe, encompassing more countries and languages than the United Nations.39 Although Coca-Cola had always held a commanding lead worldwide, by 1979, Pepsi was gaining ground rapidly in the American market. Pepsi�s growing success was largely based on 35 Michael J. McCarthy, op. cit. 36 �Pepsi Puts a lot More Fizz into International Marketing,� loc.cit. 37 Net income. 38 J.C. Louis, �The Cola Wars,� Management Review, January 1985, pp. 52-58. 39 Ibid.

Pepsi Cola Pakistan IB84

p. 8

its aggressive marketing tactics and focus on the younger generation. The Cola Wars reached a climax in 1985 when Coca-Cola introduced New Coke (a reengineering of the original Coke formula). Despite the fanfare, New Coke was a massive failure. Within 90 days, Coca-Cola was forced to reintroduce �Old Coke.�40

PAKISTAN

The Indus Valley civilization, one of the oldest in the world and dating back at least 5,000 years, spread over much of what is presently Pakistan. The area underwent successive invasions in subsequent centuries from the Persians, Greeks, Scythians, Arabs (who brought Islam), Afghans, and Turks. In the 16th and 17th centuries the Mughal Empire flourished while the British came to dominate the region in the 18th century. In 1947, British India was divided into the Muslim state of Pakistan (with West and East sections) and largely Hindu India. Pakistan and India subsequently fought three wars; the third of these in 1971 resulted in East Pakistan becoming the separate nation of Bangladesh.41 In 1990, the World Factbook described Pakistan as a poor country �faced with the usual problems of rapidly increasing population, sizable government deficits, and heavy dependence on foreign aid.�42 Pakistan, however, was able to cope with these problems thanks to a real economic growth rate averaging 5-6 percent in the years prior. The population of Pakistan was approximately 114 million people in 1990 and, with a fertility rate of 6.7 children born per woman, was expected to double by 2022.43 The population density varied dramatically�in 1994, about 68 percent lived in sparsely inhabited rural areas while 32 percent lived in dense urban centers. Karachi and Lahore, the two main cities, represented some of the highest urban densities in the world, together accounting for about 30 percent of Pakistan�s population.44 The urban population had been rising substantially, growing by 4.6 percent between 1980 and 1991.45

PEPSI COLA PAKISTAN INC. (PCI)

PCI was a part of West Asia Division of Pepsi Cola International. The West Asia Division comprised three countries: Pakistan, Bangladesh, and Sri Lanka. PCI�s chief executive worked with a team of 12 people to manage local operations in the region. In Pakistan, PCI was divided into five functional departments�franchising, marketing, soliciting companies (bottlers), sales operations, and finance (see Exhibit 3). Irfan Mustafa joined PCI as CEO on July 8, 1990. He held two MBA degrees�one from the Institute of Business Administration, Karachi University, Pakistan, and a second from the 40 �The Cola Wars Continue,� Multinational Business, London: 1986, Iss. 4, pp. 32-34. 41 �Pakistan,� The World Factbook, Central Intelligence Agency, https://www.cia.gov/library/publications/the-

world-factbook/print/pk.html (April 14, 2008). 42 Ibid. 43 Ibid. 44 Wasim Azhar, Lecturer in Marketing, Stanford Graduate School o f Business (May 15, 2008). 45 Peter Blood, ed., �Pakistan: A Country Study,� Washington: GPO for the Library of Congress, 1994,

http://countrystudies.us/pakistan/29.htm.

Pepsi Cola Pakistan IB84

p. 9

International Management Development Institute (IMEDE), Switzerland. Before joining Pepsi, Mustafa spent 14 years with Lever Brothers Pakistan, working his way up from assistant product manager to product manager and finally general manager for the home care and personal wash division where he oversaw $100 million in consumer products such as shampoo, toothpaste, soap, and cooking oils.

Market and Products

The soft drink business could be divided into three main areas: companies such as PepsiCo and Coca-Cola that produced the concentrate for their brands, the bottlers which prepared the products, and the retailers who sold it. For PepsiCo and Coca-Cola especially, however, there was overlap among these three areas�in the United States and various other locations, the two giants had ownership interests in some bottling operations. PepsiCo, owning a restaurant division, also sold its own products at retail.46 In Pakistan, Pepsi�s marketing of carbonated drinks could be broken down into two stages. In the first stage, the concentrate producer (PCI) manufactured concentrate and sold it to bottlers. In the second stage, bottlers added carbonated water and sweetener in specified quantities and then sold the beverage through retail stores and other outlets. The standard quantity of concentrate, known as �unit,� produced 1.8 cases or 24 eight-ounce bottles. In 1991, the per capita consumption of soft drinks in Pakistan was 12 eight-ounce bottles per year, among the lowest in the world. The retail price of a soft drink was PKR47 4 (US$0.18) per individual consumption bottle (25 ml) and PKRs 12 (US$ 0.55) for the 1-liter bottle.48 Average disposable personal income was PKR 682 (US$ 38) per year.49 The carbonated beverage market in Pakistan consisted of three flavors: cola, orange, and lemon- lime. Prior to PepsiCo�s acquisition of 7-Up, PCI�s line of products in Pakistan included Pepsi Cola, Mirinda (orange) and Teem (lemon-lime). PCI had developed Teem as a competitive lemon-lime substitute in order to complete its product line. The lemon-lime substitute allowed PCI to achieve strength and economies of scale in terms of production, marketing, sales, and distribution. With PepsiCo�s acquisition, PCI added 7-Up to its product line, offering two formerly competing lemon-lime drinks in Pakistan. The color drinks, Pepsi Cola and Mirinda, were bottled in transparent glass bottles. Teem and 7-Up, the colorless soft drinks, were marketed in dark green bottles. Coca-Cola�s Pakistani product line included Coca-Cola, Fanta (orange), and Sprite (lemon-lime). PCI divided its market into two segments: on-premise and take-home. The on-premise segment included consumers at restaurants, cinemas, snack bars, parks, and airlines and accounted for 85 percent of the total Pakistani soft drinks market. The remaining 15 percent of the company's consumers were in the take-home segment (see Exhibit 4). 46 Standard & Poor�s Industry Surveys, loc. cit. 47 Pakistani Rupee. 48 In 1990, $US1 = Rs 21.9; International Monetary Fund, International Financial Statistics, 1990. 49 Personal Disposable Income, Euromonitor, 1990.

Pepsi Cola Pakistan IB84

p. 10

As the entire Pakistani soft drink market grew between 1988 and 1990, PCI increased its already large lead over Coca-Cola in Pakistan. In 1990 PCI boasted 58 percent market share, up from 53 percent in 1988, while Coca-Cola dropped from 35 percent to 33 percent. Average annual growth rate for the soft drink segments were: cola 10 percent, lemon-lime 8 percent, and orange 2 percent. PCI�s sales growth rates mirrored this pattern with Pepsi Cola accounting for the highest market share followed by 7-Up, Teem, and Mirinda (see Exhibits 5 and 6). Mustafa observed that the majority of the people who consumed PCI products were young and outgoing�sport enthusiasts and fun-loving people. Although per capita consumption had been growing steadily among other age groups for more than 20 years, teenagers and young adults were the major consumers of soft drinks. Mustafa described a typical young Pakistani consumer as �emotional, conflicted, alienated, seeking identity, and disenchanted. He overreacts to situations and can be categorized as manic-depressive. He considers success in the sporting arena a major battle won. He has a short memory and makes heroes and villains in a minute.�

Lemon-Lime

7-Up was the strongest lemon-lime brand in the world market. Despite problems with ineffective bottlers and inadequate marketing activity and support, 7-Up was also the best selling lemon-lime flavor in Pakistan. According to Mustafa:

7-Up is an old and well-established brand. It was the first international lemon �n lime brand to enter the Pakistani soft drink market. Since it was initially backed by heavy advertising and promotion, it has become a generic name in the lemon 'n lime market. It is still stronger than Teem, but weak marketing efforts for 7-Up have brought the two brands at par with each other. Until 7-Up had been acquired by PCI, the brand was not being promoted aggressively by the bottlers in Pakistan. It had been witnessing stagnant sales over the past two years.

Besides Pakistan, Teem was marketed in very few countries, and was not a strong brand internationally. But in Pakistan, with heavy advertising and promotion, Teem had become the second largest lemon-lime flavor�even number one in some areas. Coca-Cola�s Sprite was number three (see Exhibit 6). In early 1990, PCI developed an extension of the Teem brand to better position it in regards to 7-Up and Sprite. Traditional Teem consisted of lemon flavoring�no lime. Since fresh lime was considered a traditional thirst quencher, PCI management pursued a Teem extension that would be a lemon soft drink with the additional taste of fresh lime�a higher percentage of lime than either 7-Up or Sprite contained. Since the lime flavoring gave the new drink a milky look, PCI called it �Cloudy Teem.�

Distribution

According to PCI records, approximately 54,000 Pakistani retail outlets sold soft drinks. Since large stores were practically nonexistent in Pakistan, almost all of these retail outlets were small stores with limited storage capacity.

Pepsi Cola Pakistan IB84

p. 11

Table 3: PCI Distribution by Type of Retail Outlet

Type of Outlet Percent % Grocery stores 34 Hotels/Restaurants 17 Tobacco and kiosk shops 15 Cold drink corner shops 13 Bakeries and confectionaries 4 Chemists (Pharmacies) 3 Others 14

Source: Pepsi Cola Pakistan Incorporated. Soft drinks were highly substitutable�if Pepsi was out of stock, a consumer would likely buy whatever competing soft drink was available. PCI distributors, therefore, had to visit and restock the numerous retailers frequently. This was difficult because while road conditions in urban areas were fair, rural roads were generally quite bad. Although approximately 70 percent of all retail outlets in the country carried PCI products, almost 100 percent did in Lahore, Pakistan�s second largest city. Coca-Cola bottlers sold their products through approximately 65 percent of the retailers throughout the country. In the soft drink business, maintaining the �cold chain��keeping soft drinks cold from production to the point of sale�was key. Reflecting on the fact that 85 percent of sales were for on-premise consumption in the intense Pakistani heat that persisted for half of the year, Mustafa summarized, �If it is cold, it is sold.� Giving out PCI branded refrigerators was one way in which bottlers maintained the cold chain and encouraged retail outlet loyalty. Retailers gained an easy way to keep PCI soft drinks cold, and PCI bottlers used the sides of refrigerators for advertising.

Advertising & Promotion

PCI allocated approximately 15 percent of its budget to advertising and promotion. Mustafa referred to advertising as �theme� (long-term brand building) and promotion as �scheme� (acquiring consumers through mechanisms such as discount pricing, coupons, and reward programs, as well as retailer support through incentives to display or stock up on a product, training programs, and rewards for high sales). Advertising accounted for 60 percent of the spending, and promotions for the remaining 40 percent. Advertising and promotion spending was further broken down as shown:

Pepsi Cola Pakistan IB84

p. 12

Advertising Budget

television80%

print media15%

billboards5%

Source: Pepsi Cola Pakistan Incorporated. PCI had a cooperative marketing budget that it had negotiated with its bottlers. PCI paid for 35 percent of total advertising and promotion expenses while bottlers paid for the remaining 65 percent. Bottlers benefited from selling under the already well-established �Pepsi� brand names as well as receiving more than one-third of their advertising and promotion budgets directly from PCI. PCI�s main objective in advertising and promotion was to achieve volume growth and provide support to its brands. The company employed two agencies to design its advertisements and promotional material. Television and newspapers were the major media used for advertising while, to a lesser extent, magazines and posters were used for promotion. Other consumer and trade promotions included signage, point-of-purchase displays, incentives to sales force, local events, government campaign-related programs, and social work. Social work consisted of student scholarships, health programs, arranging student visits to bottler plants, and fundraising for charity purposes. Bottlers were generally responsible for local events while PCI handled national events. PCI�s consumer promotions included price-off discounts, free items with purchase of products, and collecting bottle caps to win. (See Exhibits 9 and 10 for examples of 1990 advertising and promotional campaigns for PCI products.) In case a brand required special attention, or needed to be revived, PCI management would occasionally use promotions for that particular brand only. Such promotions were generally managed locally. Mustafa considered the following factors key in developing successful company promotions:

• Immediate gratification for consumers • Consumer perceived value higher than the actual price • Promotion timing • Type of item promoted • Promotion reinforcing brand image • Simple communication • Many redemption centers

Promotion Budget

trade20%

point of sale20%

consumer60%

Pepsi Cola Pakistan IB84

p. 13

Mustafa had observed that television was the most effective medium for promoting PCI products. The Pakistan Television Corporation (PTV) consisted of five television stations located in Lahore, Islamabad, Karachi, Peshawar, and Quetta. In 1988, these television stations, along with connected booster transmitters, provided access to more than 75 percent of the Pakistani population (89 million out of 114 million people). Pepsi Cola International generally developed the advertising ideas and concepts for PCI products, which were not necessarily targeted towards the Pakistani consumer. Actual Mirinda and 7-Up advertisements were designed abroad while both foreign and local advertisements were developed for the Pepsi brand. Since Teem was not an international brand, its advertisements were designed in Pakistan.

BOTTLERS

In the early 20th century, Pepsi Cola began using a franchise system to expand distribution with minimal company investment. The Pepsi Cola franchise was a contract assigned by the company to a bottler giving the bottler exclusive rights to produce, bottle, price, and sell the product in a designated area, as long as quality standards were maintained (see Exhibit 7). The tenure of the contract was 10 years with the option to renew for a period of five years. In most cases, bottlers did not have to carry secondary products of the producer and could bottle and distribute other beverages that did not compete with Pepsi products. Bottling was capital-intensive with the bottlers owning plants, trucks, glass and bottles. Bottlers� management reported to Mustafa, the PCI chief executive officer. While evaluating a franchise application for bottling PCI products, PCI assessed the applicant's financial position, stability in business, willingness to invest in future product development, commitment to the beverage industry, and the prestige (i.e., global vs. local) of the brands that the bottler carried. PCI and the bottlers worked as independent entities, with PCI assuming an advisory role and providing marketing and technical support. In some cases, after a thorough feasibility assessment, PCI extended financial support to bottlers that wanted to add another product line or planned to expand plant capacity. PCI management designed the overall goals, policies, and programs relating to brand sales, profit targets, and positioning. Mustafa observed that bottlers had generally been left out of this business strategy and implementation planning�he planned to begin co-opting bottlers in decision making. Heads of bottling companies in Pakistan were generally quite powerful and affluent. Many were either politicians, significant property owners, or had military connections. PCI often chose to partner with bottlers that had political clout in an effort to avoid difficulties with the Pakistani government. Prior to Mustafa�s tenure, competition between the bottlers had been intense�bottlers often sold and distributed in other bottlers� territories to boost their own profits (what Mustafa called �cross-franchising�). Mustafa alleviated much of this fierce competition by engaging the bottlers in PCI decision-making and by changing focus to the outside enemy�Coca-Cola. PCI bottlers, he asserted, needed to work together in order to fight Coke. Thus, to develop and maintain good relationships with bottlers, PCI�s franchise agreement restricted bottlers to selling within a designated area. Cross-franchising was considered illegal and PCI had a process through which bottlers could complain. PCI also monitored compliance and took action against offending bottlers (a series of steps starting with a verbal warning and ending with

Pepsi Cola Pakistan IB84

p. 14

a withdrawal of the franchise). Given the power and affluence of bottlers, however, Mustafa instead relied more on social pressure among the bottlers to minimize cross-franchising. Since Mustafa had begun bringing management from PCI bottlers together to meet and collaborate, the bottlers had established a sort of �gentlemen�s agreement� to stay within their own territories. PCI sold concentrates to bottlers on the basis of each bottler�s requirements and production capacity�because bottlers managed their own production plants, the capacity among plants varied. PCI assigned production targets to each bottler and, to maintain quality standards, required bottlers to get PCI�s approval before sub-letting, sub-contracting, or selling its franchise to another party. PCI�s bottlers had formed an association which set the retail prices of PCI products. While PCI could only recommend retail prices to the bottlers, it did determine the prices of concentrate, the basic component in soft drinks and the only source of PCI�s income. PCI concentrate prices varied by product line and the distance between PCI�s concentrate manufacturing plant bottler location. When the bottlers� association raised retail prices, PCI tried to increase the concentrate prices in parallel. PCI had a franchise manager who was responsible for coordinating with bottlers, helping to strengthen the link between PCI and its bottlers. The franchise manager served as an advisor to the bottlers and worked with PCI�s technical staff to resolve any problems or issues that bottlers experienced. The company also sent product samples from bottlers to PCI, Tokyo, for quality checks, and employed three engineers to focus on quality control. Each engineer was responsible for a number of bottlers, which he regularly visited to conduct quality assessments.

GOING FORWARD

As Mustafa contemplated the future, he identified his top three priorities:

• Overseeing the acquisition of the remaining 7-Up bottlers and managing the resulting integration.

• Determining the role of each brand in PCI�s portfolio (Pepsi, 7-Up, Teem�both Clear and Cloudy�and Mirinda). Based on the identified roles, developing a marketing plan for 7-Up and Teem that included both marketing strategies as well as budget allocations for advertising and promotion.

• Expansion of Cloudy Teem to the rest of Pakistan if Mustafa determined that it had major growth potential.

Acquiring 7-Up Bottlers One of Pepsi Cola�s main objectives in purchasing 7-Up International was to gain more control and coordination among bottlers. Mustafa thought that combining 7-Up and PCI bottlers in Pakistan would result in expanded capacity within the existing management structure as well as help PCI coordinate strategies and practices across all of its bottlers. PCI bottlers were excited about acquiring and producing a major global brand supported by Pepsi Cola International. While this promised prestige, attention, and support, it also meant capital investments and headaches trying to integrate the two bottling operations (reconciling different practices, skill

Pepsi Cola Pakistan IB84

p. 15

sets, salary scales, etc.). Mustafa�s one major concern in merging the bottlers was the increased power that the PCI bottlers might wield due to their larger size and capacity and what that might mean for PCI�s relationship with them. Keeping the 7-Up bottlers separate would allow PCI to exert more clout while bringing the bottlers together would achieve more synergies. In Hyderabad, Multan, and Sukkur, the 7-Up bottlers had already sold their bottling plants to the PCI bottlers and the plants had been merged. Mustafa�s focus was on convincing the four remaining 7-Up bottlers to sell to PCI bottlers over the next few years as their contracts began to expire. 7-Up bottlers tended think of themselves as entrepreneurs and derived prestige from owning their own businesses. They feared that if merged into the larger PCI bottlers, they and their 7-Up brand could be overshadowed and neglected by PCI�s larger brand�Pepsi. Pakistani entrepreneurs also generally reached their desired level of success (company size, investment in business, time required) at a lower point than what a global corporation might require. These entrepreneurs were content devoting their extra time to family or other pastimes and were not eager to work more hours. Although PCI management mediated between the buyer and the seller, the two bottlers finalized the deal themselves. Mustafa commented on the importance of PCI�s involvement in the negotiations:

Generally, the bottlers lack professional managerial skills and think only in terms of short-term objectives. It is very difficult to convince all of them on any point. They tend to resist the marketing plans designed by PCI. The management of PCI is constantly faced with the challenge of removing the barriers put up by the bottlers in achieving the long-term goals of the company.

Cloudy Teem PCI management came up with the concept of Cloudy Teem based on a local drink referred to as sikanjabin, a traditional Pakistani lime concoction, and formulated the product in 1990. The original idea was to eventually move Clear Teem consumers to either 7-Up or Cloudy Teem, phasing out Clear Teem altogether. 7-Up was the global brand that PepsiCo was supporting. If the Teem brand demonstrated strong growth potential, Cloudy Teem could complement 7-Up, rounding out PepsiCo�s lemon-lime product line and helping to drive market share and profit growth. The three merged PCI-7-Up bottlers already carried PCI�s complete product line: 7-Up, Mirinda, Teem, and Pepsi Cola, and had already replaced Clear Teem with Cloudy Teem. PCI�s six other bottlers, however, were not convinced of the Cloudy Teem�s feasibility and were reluctant to replace Clear Teem. They argued that consumers expected the well-established transparent color of lemon-lime soft drinks and would balk at the milky color of Cloudy Teem�and that making the drink cloudy had given it a �fake� look. They also believed that 7-Up and Teem had similar tastes, and the difference for consumers would only be psychological. With Clear Teem being a rather strong brand across parts of Pakistan, bottlers worried that introducing Cloudy Teem could damage their profits. The focus on switching consumers from Clear to Cloudy Teem or to 7-Up, brands with which PCI bottlers had limited to no experience, could also divert consumer attention away from the larger brands, Pepsi Cola and Mirinda, from which bottlers derived a majority of their profits. Based on Teem�s past profitability, Mustafa planned

Pepsi Cola Pakistan IB84

p. 16

to introduce Cloudy Teem into two additional franchise territories by the end of 1991, despite bottler resistance. If Cloudy Teem showed good growth potential, he hoped that the positive experience of the bottlers in Multan and Hyderabad, where Clear Teem had also been a strong brand, would help persuade other bottlers. Brand Portfolio & Marketing Plan Since the acquisition of 7-Up in 1986, Pepsi contributed approximately 60-65 percent of PCI�s sales. Mirinda and Teem contributed about equally to make up a combined 15-25 percent and 7-Up made up the remaining 15-20 percent. Prior to acquiring 7-Up, PCI dedicated the lion share of its marketing budget to Pepsi (approximately 80 percent), with the remaining 20 percent divided more or less evenly between Mirinda and Teem. Going forward, Mustafa envisioned the advertising and promotion budget for Pepsi to be strategically geared towards maintaining market share whereas 7-Up�s budget would be focused on building market share. He thought that 7-Up was performing at less than its potential and with strong marketing support, Mustafa saw opportunity to grow sales. In thinking about how to split the remaining marketing budget between Mirinda and Teem, however, Mustafa first needed to determine what his goals would be for the Teem brand�build it, maintain it, or harvest it (use Teem revenues to support other PCI brands). He was content with a �hold share� strategy with Mirinda which seemed to be yielding its full market potential. Given the possibility that Cloudy Teem might spur growth in PCI sales, Mustafa wondered how to keep the Teem brand alive and how to carry on its national promotional campaign. He pondered whether the answer might lie in the rural versus urban divide in Pakistan. A very significant 68 percent of the population still lived in rural areas where literacy rates and disposable income were lower than in urban areas. Because visual electronic media had poor reach in rural areas, PCI not only did less marketing in these areas, but also relied on less expensive forms of advertising such as radio and point-of-sale campaigns. Mustafa recalled Pepsi Cola�s experience with Thums Up in India�a local brand whose parent company, Parle Exports, dominated the Indian soft drink market with up to 60 percent market share in the early 1990s.50 Parle Exports, which made Thums Up a generic name for cola in India, not only beat out other domestic rivals but also had bested brands with ties to global companies such as Cadbury, Coca-Cola, and even Pepsi Cola.51,52 Was there some way for Mustafa to apply lessons from the success of Thums Up to Teem? Media spend yielded higher returns in urban areas, where television and other forms of electronic media were more pervasive and accepted. Mustafa wondered if he could take advantage of Pakistan�s population divide�for example, to target 7-Up to urban areas where consumers were familiar with and influenced by global brands and promote Teem, the local brand which no longer had support from Pepsi Cola International, in rural areas.

50 �India Gets a Taste of the Great World Cola Battle,� The Financial Times, July 31 1993. 51 Sucheta Dalal, �Fizz Fights: India's soft-drinks market is treacherous,� Far Eastern Economic Review, January

14, 1993. 52 In 1993, the Coca-Cola Company and Parle Exports formed a $20-million joint venture to produce and market

soft drinks in India. �Coca-Cola, Parle Exports Form $20M India Joint Venture,� Dow Jones News Service, September 21, 1993.

Pepsi Cola Pakistan IB84

p. 17

Whatever marketing plan Mustafa pursued for Teem (both Cloudy and Clear), he knew he had to consider the potential impact on PCI�s other product lines�Pepsi, 7-Up, and Mirinda. CONCLUSION Mustafa believed that the well-developed soft drinks market in Pakistan provided PCI with a tremendous future. He commented, �Consumers want to buy soft drinks delivered at convenient locations in the right package. We have to make sure that the market keeps growing annually, and that company products are available everywhere.� With PCI winning the International Quality Award and Bottlers of the Year Award in 1990, Mustafa felt quite optimistic. Although difficult challenges lay ahead, he believed that the way to exploit opportunities was through the implementation of an effective and comprehensive marketing strategy encompassing PCI�s brand portfolio and bottlers.

Pepsi Cola Pakistan IB84

p. 18

Exhibit 1

Pepsi Cola Pakistan Incorporated Pepsi Cola Chronology

Year Activity

1895 "Brad's Drink" appears in New Bern, North Carolina.

1898 First known use of "Pepsi Cola" name; automatic bottle-making machine invented.

1934 Bradham dies; "Pepsi Cola Co. Canada" formed.

1946 Pepsi moves into Latin America.

1956 Pepsi has 120 plants in over 50 countries.

1961 Teem introduced, "Now it's Pepsi...For those who think young" campaign.

1965 Frito-Lay and Pepsi merge; Diet Pepsi catches industry leader in diet market.

1966 Pepsi enters Japan and Eastern Europe.

1972 Pepsi-USSR trade agreement announced.

1977 Pepsi acquires Pizza Hut Corporation.

1978 Pepsi acquires Taco Bell Corporation.

1985 Pepsi enters China.

1986 Pepsi acquires 7-Up International.

1988 Pepsi receives approval for India joint venture.

1989 Pepsi acquires Kentucky Fried Chicken.

Source: Company records

Pepsi Cola Pakistan IB84

p. 19

EXHIBIT 2 Pepsi Cola Pakistan Incorporated

Per Capita Consumption of Soft Drinks in Various Countries

1990

Ranking Country Per Capita Consumption

(8 oz. cans) 1 USA 775 2 Mexico 320 3 Qatar 313 4 U.A.E. 257 5 Argentina 157 6 Guatemala 104 7 Jordan 64 8 Egypt 60 9 Thailand 60 10 Turkey 53 11 Malaysia 32 12 Pakistan 12

Source: Company records

Pepsi Cola Pakistan IB84

p. 20

EXHIBIT 3 Pepsi Cola Pakistan Incorporated

Partial Organization Chart October 1, 1991

Country Manager

Bangladesh

Country Manager

Bangladesh

CEOCEO

Franchise ManagersFranchise Managers

Marketing Manager

Marketing Manager

Sales Operations Manager

Sales Operations Manager

Finance ManagerFinance Manager

Technical Director

(Expatriate)

Technical Director

(Expatriate)

C.R. LahoreC.R.

LahoreS.R.

KarachiS.R.

KarachiAsst.

Marketing Manager

Asst. Marketing Manager

Field Manager

C.R. Lahore

Field Manager

C.R. Lahore

Field Manager

S.R. Karachi

Field Manager

S.R. Karachi

Bottlers C.R.

Bottlers C.R.

BottlersS.R.

BottlersS.R.

BottlingManagerBottlingManager

Country Manager

Bangladesh

Country Manager

Bangladesh

CEOCEO

Franchise ManagersFranchise Managers

Marketing Manager

Marketing Manager

Sales Operations Manager

Sales Operations Manager

Finance ManagerFinance Manager

Technical Director

(Expatriate)

Technical Director

(Expatriate)

C.R. LahoreC.R.

LahoreS.R.

KarachiS.R.

KarachiAsst.

Marketing Manager

Asst. Marketing Manager

Field Manager

C.R. Lahore

Field Manager

C.R. Lahore

Field Manager

S.R. Karachi

Field Manager

S.R. Karachi

Bottlers C.R.

Bottlers C.R.

BottlersS.R.

BottlersS.R.

BottlingManagerBottlingManager

C.R. = central region S.R. = southern region Source: Company records

Pepsi Cola Pakistan IB84

p. 21

Exhibit 4

Pepsi Cola International (PCI) vs. Coca-Cola International (CCI) 1990 (%)

PCI CCI By Channel Retail Trade 85 90 Take Home 15 10 By Package 25 mL (RB) 94 98 Litre (RB) 6 2 By Product Regular Cola 52 55 Lemon-Lime 36 28 Orange 12 17 By Geography Punjab 77 74 Sind 21 16 NWFP 2 10 Balochistan -- -- RB = returnable bottle. Source: Company records

Pepsi Cola Pakistan IB84

p. 22

Exhibit 5

Pepsi Cola Pakistan Inc. Market Share of Cola Companies in Pakistan, 1988-90 (%)

1988 1989 1990 Pepsi Cola 53 56 58 Coca-Cola 35 34 33 RC Cola 5 4 4 Others 7 6 5 Source: Company records

Exhibit 6 Pepsi Cola Pakistan Inc.

Market Share by Various Segments, 1988-90 (as %)

1988 1989 1990 Cola Segment Pepsi 49 53 58 Coke 41 38 33 RC/others 10 9 9 Orange Segment Fanta 50 50 50 Mirinda 45 45 45 Others 5 5 5 Lemon-Lime Segment 7-Up 39 38 38 Teem 27 29 31 Sprite 26 24 24 Bubble Up 8 8 7 Others -- 1 -- Source: Company records

Pepsi Cola Pakistan IB84

p. 23

Exhibit 7 Pepsi Cola Pakistan Incorporated

Franchise Agreement Bottlers' Rights

• To have exclusive right to bottle, distribute and sell in a given territory • To retain franchise for 10 years with option to renew for periods of 5 years • To receive delivery of concentrate by the company • To make no payment for the franchise • To have the company's protection of product quality and reputation • To receive company's share in advertising and promotion expenses • To receive company's advice on quality control, marketing, sales, equipment, etc.

Bottlers' Duties The bottlers' duties were classified into the following four categories: 1. Sales

• To sell no other cola • To push and promote sales at competitive prices throughout the territory • Not to use Pepsi to push some other non-PCI product

2. Advertising and Promotion

• To actively advertise and promote the product • To use approved advertising materials, campaigns and media

3. Product

• To observe company's quality control standards and procedures in terms of the following:

o Water o Supply samples o Access to premises o Tests and records relating to sanitation o Use of approved packages

4. General

• Not to sell outside territory • To respect company's trademarks and help protect them • To follow company's instructions in preparing, bottling, distributing and selling

product • Not to subcontract unless authorized • To expand capacity if required by market needs

Source: Company documents.

Pepsi Cola Pakistan IB84

p. 24

Exhibit 8 Pepsi Cola Pakistan Incorporated

Distribution of 7-Up and PCI Bottlers by Area

Area Number of

Bottlers Ranking of Each Product in Bottlers� Sales

PCI Bottlers1

Teem Mirinda Pepsi 7-Up

Shikarpur 1 -- Islamabad 1 3 2 1 -- Lahore 1 2 3 1 -- Faisalabad 1 -- Karachi 1 2 3 1 -- Gujranwala 1 2 3 1 -- Sukkur 2 1 2 3 1 4 Multan 2 1 4 3 1 2 Hyderabad 2 1 Total 9 7-Up Bottlers 3

Peshawar 1 Islamabad 1 Lahore 1 Faisalabad 1 Total 4 Source: Company Documents. 1: These bottlers carried Pepsi Cola, Teem and Mirinda. 2: Since 7-Up and PCI bottlers had been merged in Sukkur, Multan, and Hyderabad; these bottlers carried Pepsi

Cola, Mirinda, 7-Up, and Cloudy Teem. Clear Teem was discontinued in these areas. 3: These bottlers only carried 7-Up. Source: Company documents.

Pepsi Cola Pakistan IB84

p. 25

Exhibit 9 Pepsi Cola Pakistan Inc.

Profile on Advertising and Promotion during 1990

Thematic Advertising

Expenditure (Rs in 000)

Month Pepsi Mirinda Teem 7-Up January February March 352 April 880 44 May 880 528 176 44 June 792 352 264 July 528 264 264 August 440 220 176 September 352 176 88 October 352 132 November 176 December

Promotional Advertising

Expenditure (Rs in 000)

Month Pepsi Mirinda Teem 7-Up January February March 704 132 176 April 176 44 88 May 880 528 176 44 June 352 88 132 July 792 August 440 88 176 September October November 122 December

Source: Company documents.

Pepsi Cola Pakistan IB84

p. 26

Exhibit 10A Pepsi Cola Pakistan Inc.

�Save 8 Rupees� Promotion 1990

The objective of this promotion was to improve one-litre bottle sales. Two caps of any litre bottle (Teem, Pepsi, Mirinda) could be redeemed for one Signal 2 toothpaste worth PKR 8. The promotion lasted 45 days, August 1 to September 15, 1990. As a result of this promotion, the growth rate in sales increased 15 percent over the previous year.

Pepsi Cola Pakistan IB84

p. 27

Exhibit 10B �Under the Crown� Promotion 1990

The objective of this promotion was to improve off-season sales. The promotion lasted 60 days, October 1 to November 30, 1990. An amount of money ranging between 5 paisa and 5 rupees was printed on the inside of each PCI bottle cap. Customers redeemed their winnings by taking their bottle caps to any retailer selling PCI products. As a result of this promotion, the growth rate in sales increased 15 percent over the previous year.

Pepsi Cola Pakistan IB84

p. 28

Exhibit 11 Map of Pakistan

Source: �Background Note: Pakistan,� U.S. Department of State, http://www.state.gov/r/pa/ei/bgn/3453.htm (April 14, 2008).