Reflections 4: Network Effects

Reflections 4: Network EffectsSoft drink consumer industry has been dominated by two players Pepsi and Coke for a very long time. While there have been several competitors in other markets like ThumsUp, Goldspot in India, at some point of time all of them have bowed out to these two. The reasons are not difficult to comprehend. Pepsi and Coke have invested in creating an association with the brand. The advertising has focused on how association with the soft drink triggers a joyous feeling, something to cherish for. Further they have associated themselves with multiple restaurants like KFC, McDonalds, and Subway which helps them in increasing their sales. However having soft drinks on regular basis does lead to health issues which have been published The sales model is based primarily on the outsourcing the manufacturing to a local bottling plant with a quality control check in place ,while the marketing and distribution is handled by the primary company(PepsiCo and Coca-Cola ) themselves. Its not a two sided market since the two distinct network groups (PepsiCo and Coca-Cola) do not provide each other network benefits. For a new entrant like SodaStream, having an innovative product alone is not sufficient. They need to ensure consumers are able to associate themselves with the brand. They need to associate themselves with multiple vendors so as to provide users with an experience. Example: Partnership with a fast food chain to serve SodaStream along with fries/burger.

Additionally, they need to go for innovative marketing campaigns .Example a family gets together having sips of SodaStream while laughing and chatting around.From a revenue perspective to get a critical mass, they can provide the vending machine free or at a minimal cost with the refills being sold only through the authorized distributor or company suppliers.