Throwback Thursday: A Tale of Two Sodas

ThGiantse likes of Coke and Pepsi don’t take kindly to competition. Along with other corporate guardians of attractive markets, these giants spend billions in price wars, ad blitzes, and lawsuits to protect their lucrative turf.

But that doesn’t always stop would-be challengers. In the late 1990s, two companies readied to take a swing at the soft-drink market: Red Bull and Virgin Cola. One became a world-recognized brand; the other, a flop. You already know which is which.

The fate of these two soft-drink competitors, say Marriott School researchers, is a lesson for all newcomers taking on attractive markets. Strategy professors David Bryce and Jeff Dyer studied how the Davids of the business world go about tackling their Goliaths, publishing their study packed with tips for the underdogs in the Harvard Business Review in 2007. They researched newbies entering attractive consumer markets—like soda, sneakers, software, etc.—from 1990 to 2000.

The different fates of Red Bull and Virgin Cola stem from their approaches, say Bryce and Dyer.

Virgin Cola, led by Virgin Airlines CEO Richard Branson, attacked head on, declaring war by driving a truck through a wall of Coke cans. Though determined to usurp its competitors, Virgin Cola was never able to score the necessary shelf space and quickly faded into obscurity.

What about Red Bull? CEO Dietrich Mateschitz employed a key strategy the researchers identified in their study: enter the market indirectly and avoid the mainstream consumers, at least initially. Instead of taking the colas head on, Red Bull sought a niche market by initially distributing only in bars and night clubs as caffeine-loaded fuel to get twenty-somethings through sleepless nights. The drink soon grew in popularity and demand, morphing into and still leading its own product category: energy drinks.

The more indirect the attack on the market the more likely it was to work, say the researchers, suggesting challengers to desirable markets take a page from the military’s book: avoid enemy strongholds, and attack only where the competitor is weak.

For more examples of successful attractive-market entrants and the research-backed strategies that helped them succeed, head back to “Wounding the Giants” in the fall 2007 issue of Marriott Alumni Magazine.