Although the soda industry is made up of dozens upon dozens of beverages choices, chances are good that the soda you last consumed was made by either Coca-Cola (NYSE:KO) or PepsiCo (NYSE:PEP), which absolutely dominate the industry.
To put into perspective just what sort of breadth I'm talking about with the beverage sector, let's have a closer look at industry giant Coca-Cola.
According to a Business Insider report from 2011, more than 3% of all beverages consumed around the world were Coca-Cola product, 94% of the world's population recognizes the Coca-Cola logo (likely having to do with it selling its products in all but two countries worldwide), and its portfolio boasts more than 3,500 products. That sort of geographic and product diversity has allowed Coke a way of marketing to the vast majority of people on this planet with one beverage or another, giving it the impressive cash flow that has allowed it to transform into one of the markets safest investments, and one of Warren Buffett's largest holdings.
But keep in mind that PepsiCo. is no slouch, either. PepsiCo has 22 brands that gross more than $1 billion in sales annually, and its products are consumed more than 1 billion times per day! It's also the largest food and beverage business in the U.S., Russia, India, and a number of other countries.
One similarity between the two soft-drink giants is their steady cash flow growth over the years. PepsiCo has increased its dividend in 42 consecutive years, with Coca-Cola one-upping PepsiCo with 52 straight annual dividend increases. This consistent shareholder return is what drives investors back to the two consumer-goods giants over and over.
Understanding how engagement and loyalty drive growth
But have you ever wondered what really drives consumers to Coke and PepsiCo in the first place? Both obviously have a diverse product pipeline and a long history of meeting of exceeding consumer expectations, otherwise they wouldn't be worth what they're worth today. In other words, determining which brand drives better consumer loyalty isn't as cut-and-dried as it might seem.
However, consumer engagement and customer loyalty are crucial aspects to both brands since consumers will forge their perception of a company from its ads and the how their friends, family, and the public views a product, or number of products. In short, ads are only as effective as Coke and Pepsi's free advertisers: its customers.
Thankfully, a survey conducted annually by research firm Brand Keys did the hard work for us and was able to answer once and for all which soda brand is tops when it comes to customer engagement and loyalty -- at least for 2014. Before I spill the beans, which brand do you believe has the better draw among Americans?
Got your answer?
If you guessed Coca-Cola, you'd be 100% correct!
How Coca-Cola keeps bringing customers back
Based on Brand Keys' Customer Loyalty Engagement Index, Diet Coke and regular Coca-Cola topped both the diet soft drink and regular soft drink categories, with Pepsi sliding into the fourth spot in the diet category and fifth in regular soft drinks, behind the likes of Mountain Dew and Dr Pepper in both categories.
What makes Coca-Cola hands-down better when it comes to garnering return customers? Let's have a closer look.
Perhaps the biggest differentiating factor that makes Coca-Cola the United States' go-to soft-drink is that it's viewed as one of the most patriotic brands. According to a survey conducted last July by Brand Keys as well, Coke ranked as a 97% on an emotional engagement scale that was capped at 100%. This tied it for second with Hershey and placed it behind only Jeep at 98%. That's not bad considering that Brand Keys considered 197 brands for its research. Being an American icon affords Coke the luxury of using its branding power to boost prices when needed, and also gives the company a notable emotional connection with consumers.
Pepsi, on the other hand, tends to redesign its marketing campaign around whatever is trendy, which hasn't given it much staying power with Americans throughout the years. In 2001, Britney Spears was a spokesperson for Pepsi, but you don't hear nearly as much about Britney anymore through the media. This focus of latching onto the latest trend does work for Pepsi, but it can set the company up for engagement peaks and troughs with consumers.
The other big differentiating factor is simply brand awareness. It may not seem obvious at first, with Coke and Pepsi products seemingly competing at every turn, but there's a sizable gap between Coca-Cola and Pepsi when it comes to brand awareness, and even impressions.
Coke, for example, has been the sponsor for the Olympics since 1928, according to Interbrand, and it's scored in excess of 90% brand awareness based on a study by Research Now within the United States. Coca-Cola has also done a phenomenal job of reaching younger generations by promoting its online presence. Currently, Coca-Cola has more than 81 million Facebook likes, which is more than double rival Pepsi at more than 31 million likes. Being a multi-generational brand allows Coca-Cola to forge that bond with Americans young and old, adding incredible stability to its cash flow.
As long as Coca-Cola is able to maintain its commanding lead in awareness and retain its emotional attachment with consumers to American history it's quite likely investors are going to continue to benefit with steady profit growth and many years of rising dividend payouts.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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