You’re paused in the soda aisle at the grocery store or on your way into work, in search of your morning latte. Coke versus Pepsi, Dunkin’ Donuts versus Starbucks–which brand do you choose? For you, it’s a split-second decision shaped by years of habit and brand marketing. But for the rival companies, understanding and shaping that decision is a daily obsession that involves thousands of employees and costs billions.
Relentless competition is one of the core principles of our market economy. We’ve come a long way since the 1770s, when Adam Smith extolled the importance of competition to the public good in The Wealth of Nations. Now CEOs engage in Twitter skirmishes, digital marketers battle for Facebook feed visibility, and intellectual property lawyers wage war via patent filings. The weapons have evolved, even if the competitive imperative remains the same.
For some companies, that imperative takes the form of an intense rivalry. Our September issue highlights some of the more recent rivalries to emerge, from Vice versus CNN to Xiaomi versus Apple. Here we examine some of the most influential business rivalries of the late 20th century, along with their lessons for today’s corporate leaders.
Competition, like love, can make us do crazy things. How else to explain Coke’s disastrous effort to tweak its famous formula and introduce New Coke, a sweeter variation on the classic billion-dollar recipe? During the “Cola Wars” in the 1980s, the Atlanta-based company was losing market share to rival Pepsi and feeling the pressure to win back consumers swayed by Pepsi’s famous taste test “experiments,” TV advertisements in which blindfolded consumers voted in favor of Pepsi over Coke.
New Coke flopped, and Pepsi sales briefly skyrocketed. But Coke’s response to the crisis offers a lesson in managing innovation gone wrong. The company apologized to the 400,000 customers who wrote letters of complaint, shipped its old formula to stores as “Coca-Cola Classic,” and gradually reduced New Coke’s distribution. By the time the much-maligned new formula disappeared for good, consumers had all but forgotten that it had ever existed.
Today the pecking order for the major soda brands remains remarkably sticky: Coca-Cola on top, and Diet Coke and Pepsi vying for second place. The challenge is that Americans are drinking less soda, with volume dropping by 1.4 billion cases since 2004, and more of nearly everything else–energy drinks, green juices, flavored waters, artisanal iced teas. In these new categories, Coke has yet to replicate the brand magic that has sustained its sales for decades.
Pepsi, seeing an opportunity, has announced major investments in healthier alternatives to its existing portfolio of products, dominated by empty calories and crave-worthy sweet and salty flavors. The company that succeeds in satisfying our health concerns–and our taste buds–will rake in the profits.
In 1996, competing comic companies Marvel and DC (Detective Comics) issued a joint series in which each publisher’s characters engaged in a series of duels. Aquaman harnesses a whale to take down Namor, Elektra sends Catwoman flying off a building–with each battle, the intensity seems to drive the publishers farther apart. But Marvel and DC had other ideas: In the final story, characters from both universes join forces–in some cases even merging identities, as Batman and Wolverine became Dark Claw–in order to save the day. From rivals to partners: The series ends on a conciliatory note.
Indeed, despite the superhero firepower filling pages, the rivalry between Marvel and DC has largely been a civil one–Marvel even refers to DC as “Distinguished Competition.” Both companies seem to acknowledge the importance of having a worthy competitor, and both have benefited from Hollywood’s interest in bringing their characters to the big screen. Support from corporate owners has facilitated those transfers, with Disney acquiring Marvel in 2009 and DC becoming a part of the Time Warner conglomerate in 1989.
Now their fates are irrevocably tied to Hollywood, with DC looking ahead to the next Batman movie, starring Ben Affleck, and Marvel securing the rights to once again publish Star Wars titles, in advance of the franchise’s new film. Back in the 1990s, Marvel nearly went bankrupt. Today, it’s riding high, with more movies and revenue than its longtime adversary.
The rivalry between McDonald’s and Burger King used to come down to one thing: the hamburger. Which company’s burger was cheaper? Better tasting? More convenient? During the ’50s and ’60s, the golden age of car culture and fast food, the burger chains’ menus told a story of moves and counter-moves in their pursuit of consumers’ loyalty.
First came McDonald’s 15-cent hamburger. Then came Burger King’s 37-cent Whopper, an attempt to compete on quality rather than price. Soon McDonald’s realized it needed a mammoth burger of its own, and introduced the Big Mac. More recently, as consumers’ tastes have shifted, the companies have been arguing over which restaurant’s chicken nuggets contain higher-quality meat.
Indeed, the challenge facing these two rivals used to be simple: Whichever won the burger won the war. But consumers’ stated preference for healthier options (even if they still order a quarter pounder with cheese) has upended that dynamic and left both companies struggling to define their identities while still feeding millions of families every day, McDonald’s at its 14,300 U.S. locations and Burger King at its 7,400 in the U.S. and Canada.
From cranberry-orange muffins to chicken teriyaki sandwiches, both chains have been experimenting with new ideas in the hopes of winning the trust of health-conscious consumers. But the success of burger upstarts like Shake Shack begs the question: Why aren’t they sticking to their roots and finding ways to do hamburgers even better?
Motor City, 1912: Startup carmaker General Motors opens its doors, just miles from entrepreneur Henry Ford’s stomping grounds. Ford, buoyed by the success of the Model T, was the industry’s leading innovator, bringing cars to the masses by keeping costs low (in 2015 dollars, the cars sold for approximately $21,700). By 1927, Ford had sold over 15 million Model T’s, forever changing American culture by introducing young people to the mythic freedom of the open road.
All the while, GM was steadily gaining market share. In 1931, the younger rival unseated Ford as the world’s leading car manufacturer–and maintained the dominance for the next eight decades. As the ad for one of GM’s Chevy trucks would say: The company’s sales were “like a rock.” The company went through a shaky period starting in 2008, when it dropped to number two in the sales rankings and subsequently filed for bankruptcy. But by 2011, after shedding brands Saturn, Pontiac, and Hummer–and costing U.S. taxpayers $12 billion in bailout funds–GM was back in fighting form.
Now the race is on to break affordable cars to a new set of masses: the rising consumer class in Africa and Asia. Will Ford be able to repeat its history?
Coffee: For many of us, our morning caffeine routine is as close as we come to sacred ritual. Perhaps, then, it’s no surprise that we approach our favorite coffee chains with a near religious fervor–when Dunkin’ Donuts opened one of its first California locations, loyal fans started to camp out over the weekend in anticipation of the store’s Tuesday opening.
Together, Dunkin’ Donuts and Starbucks control 60% of the nation’s coffee market–36% Starbucks, 24% Dunkin’, according to a Harvard report. The two companies coexisted peacefully during Starbucks’s early growth, with the Boston-based Dunkin’ focused on its baked goods and the Seattle-based Starbucks teaching Americans how to say “macchiato.”
But in 2003, sensing an opportunity, Dunkin’ introduced a line of lattes and cappuccinos, while continuing to emphasize its working-class bona fides. “You order [our drinks] in English, not Fritalian,” the company boasted in a 2006 commercial. Recent marketing campaigns continue to emphasize the brand’s sense of humor–“I’ve been craving, I’ve been craving–I get hungry when I see that billboard, baby,” a Beyoncé stand-in sings in the Dunkin’ parody of Queen B’s “Drunk in Love.”
That positioning stands in contrast to serious Starbucks, which earlier this year introduced its #racetogether campaign in the hopes of encouraging customers and baristas to talk about issues of race. Though well-intentioned, the campaign suffered from jeers on social media and a haphazard in-store implementation.
Starbucks had a sense of humor once upon a time–way back in 2004, it triumphed with a TV spot featuring the band Survivor. But marketing aside, Starbucks may well have the last laugh: Last year it earned $9.6 billion in gross profit, versus Dunkin’s $613 million, and sales show no signs of slowing down.
This logistics showdown is all about planes and automobiles. Fedex operates the world’s largest fleet of all-cargo airplanes, with 700 and counting, and UPS leads in ground vehicles, with a fleet of over 100,000 delivery trucks in its signature brown paint. Those fleets are the foot soldiers in the growing e-commerce market, which now represents 7% of U.S. retail sales. Each day, the two rivals move 28 million packages.
For UPS, managing the last mile of package delivery–the notoriously difficult and costly problem of logistics–has become the company’s core strength. (FedEx relies on contractors.) A proprietary software program called ORION (On-Road Integrated Optimization and Navigation), which UPS started rolling out in 2008 after nearly a decade of development, has helped drivers trim miles from their routes and saved UPS millions in fuel costs and other expenses. ORION will become even more mission-critical in the years to come, as e-commerce shifts more deliveries to residential customers.
As for which is the victor in this contest: UPS is well-positioned and remains dominant, worth $94 billion to FedEx’s $51 billion. But the company that manages to secure a foothold in international markets stands to win big.
In 1984, Nike was struggling. After growing fast for a decade, the sneaker company had hit a speed bump, reporting its first quarterly loss. That summer, Carl Lewis won four gold medals at the Los Angeles Summer Olympics while wearing a pair of Nike shoes, but even that stroke of good fortune failed to boost sales. Reebok’s dominance, based on its successful line of women’s jogging shoes, appeared secure.
Enter Michael Jordan, a promising rookie playing for the Chicago Bulls. Nike took a gamble and convinced Jordan to sign on, despite his admitted preference for Adidas sneakers. The first run of Air Jordans went on sale the next year, retailing for the eye-popping $65. Within two months, sales hit $70 million. These days, Air Jordans are still the basketball market leader, generating over $2 billion per year.
Reebok, which sold a popular line of sneakers for joggers at the time the Air Jordan debuted, was never able to recover. While Nike went on to add superstars like Andre Agassi and Tiger woods to its portfolio of brand ambassadors, Reebok fizzled. In 2005, Adidas acquired Reebok for $3.8 billion–a fitting end to a war waged via proxy.
A century ago, on a beach in Florida, the world’s first commercial flight took to the skies, carrying a single passenger who paid the equivalent of nearly $10,000 in today’s dollars. Now, the $160 billion airline industry sells north of 3 billion tickets per year. China, one of the fastest-growing markets for commercial air travel, is in the midst of building 70 new airports and expanding 100 existing ones, according to The Guardian.
That staggering growth has been supported by Airbus and Boeing, the industry’s competing aircraft manufacturers. Over the years, they have traded places as the market leader again and again, along the way trading jabs over the role of military contracts and government subsidies in the other’s success. Secrecy is rampant–even basic information, like the price customers pay for their jetliners, is difficult to obtain. In 2011 a leaked letter addressed to King Abdullah of Saudi Arabia confirmed what observers had long suspected: The companies’ sales are a function of statecraft as much as sales and marketing.
Bottom line: Producing reliable commercial jetliners, on schedule, is an enormously complex undertaking. Both Airbus and Boeing are well-positioned to continue as leaders in this duopolistic industry, and benefit from exploding travel markets in Asia and Africa.
When Mr. Potato Head and Barbie duke it out, you don’t want to be in the room. Those iconic American toys are the creation of Hasbro and Mattel, the country’s leading toy manufacturers. They have dominated this $18 billion industry for decades. Mattel rose to prominence in the 1960s with the release of Barbie, but later lost ground to toys like Hasbro’s Transformers action figures. In 1996, Hasbro rebuffed Mattel’s $5.2 billion acquisition offer, setting the stage for continued clashes.
In recent years, as parents have questioned the gender roles implicit in many traditional toys and children have gravitated toward gaming’s glowing screens, the rivals have struggled to remain relevant. In some cases, customers have questioned products that have been in play rooms for years–one 13-year-old girl, for example, called for Hasbro to produce a “boy-friendly” Easy-Bake Oven. At other times, new releases have reinforced perceptions that the aging companies are out of touch–case in point, Mattel’s 2010 book about Computer Engineer Barbie, who needed help from male programmers in order to save the day.
Mattel shares dipped in July after the company reported weak Barbie sales. The challenge for Mattel, as for Hasbro, will be to shift sales toward the more progressive brands in their portfolios. Parents may pass over the latest Barbie, but there’s a chance they’ll be willing to open their wallets to buy the latest American Girl doll.
Today’s text-happy tweens are too young to remember MCI, but they owe the company a debt of thanks for its role in breaking up AT&T’s hold over the telecommunications industry. MCI sued AT&T in 1974, ultimately winning $1.8 billion in damages and precipitating the dismantling of AT&T’s monopoly. In the years that followed, carriers began to compete on price, making long-distance calls gradually more affordable.
As the industry dynamics became more competitive, innovations in fiber-optic cables and wireless technologies began to change how we communicate and access information.
In the 1990s, MCI ran into trouble after its merger with WorldCom: Company leaders cooked the books to the tune of $11 billion, the second-largest accounting fraud in history. It filed for bankruptcy in 2002, and sold to Verizon for $7.6 billion in 2005.
But MCI’s “creative” approach to its balance sheet extended to its products as well, with ideas like 1-800-COLLECT and a telephone-based music store. The company has been subsumed into its corporate parent, but its legacy of agitating for innovation remains intact.