Business / Coca-Cola Business Strategy

Coca-Cola Business Strategy

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Autor:  anton  17 May 2011
Tags:  Business,  Strategy
Words: 7787   |   Pages: 32
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1.0 Introduction

Coca-Cola has sold more than one billion servings every day. More than 10,450 beverages are consumed every second. The company achieved earnings of $4,347,000,000 in 2003. It is present on all seven continents and is recognized by 94% of the world population. How did Coca-Cola grow from its humble roots as a home-brewed Georgia-based patent medicine to be the international soft drink powerhouse that it is today? Coca-Cola used numerous technologies to achieve its rise to the top of the soft drink industry, defining new technologies and establishing paradigms that popped the status quo like a cap from a soda bottle. Through technology, Coca-Cola perfected Coke as a beverage and spread it throughout the world. Even today, the US soft drink industry is organized on this principle. "The Coca-Cola Company” is now the largest soft drink company in the world. Every year 800,000,000 servings of just "Coca-Cola" are sold in the U.S alone.

1.1 Company Background

The Coca-Cola Company is now the largest soft drink company in the world. Coca-Cola became the largest manufacturer, distributor, and marketer of non-alcoholic beverage concentrates and syrups which operate in more than 200 countries. Coca-Cola was invented on May 1886 by Dr. John Stith Pemberton in Jacob’s Pharmacy in Atlanta, Georgia. The name Coca-Cola was suggested by Pemberton's book-keeper, Frank Robinson. He penned the name Coca-Cola in the flowing script that is famous today.

2.0 Corporate Vision & Mission

Coca-Cola has been marketed with catching marketing themes such as “Drink Coca-Cola” and “Delicious and Refreshing”. After years of globalization and brand building, Coca-Cola proudly pronounces its Mission Statement “The Coca-Cola Company exists to benefit and refresh everyone who is touched by our business”. And their goals: The basic proposition of our business is simple, solid and timeless. When we bring refreshment, value, joy and fun to our stakeholders, then we successfully nurture and protect our brands, particularly Coca-Cola. That is the key to fulfilling our ultimate obligation to provide consistently attractive returns to the owners of our business. Indeed, it was!

2.1 Evaluation of Coca-Cola’s Overall Strategic Vision & Mission

Coca-cola’s mission “our people and our promise” mainly focuses in Coca-Cola world is to celebrate, refresh, strengthen and protect. Coca-Cola feels that they should offer a soft-drink to the entire global community, which is environmentally safe and accepted. The company’s mission is directed towards its soft drink business and the strategy management changes that will be forthcoming. Coca-Cola appeals to the long term interests of stakeholders particularly shareowners, employees and customers. This helps to support the local populations by offering job opportunities, and it also helps out the local and global economies in which the employees live.

Woodruff’s vision that coca-cola to be placed within “arm’s reach of desire” came true from the mid 1940s until 1960, the number of countries with bottling operations nearly doubled. It is so feasible that the company can reasonably expect to achieve in due time. Coca-Cola strives to find new innovations to better its products and to stay a step ahead of its competitors as what is mentioned in the mission “the action we will take”. This is a key element in the company’s drive to be number one in the industry. Also it is constantly looking for improvements in everything that it does, both in the production and the manner in which the company is run daily.

2.2 Evaluation of the CEO’s Overall Strategic Leadership

Coca-Cola persuaded their former executive, E. Neville Isdell to come out of retirement in June 2004 to steer the company out of their doldrums with new strategic mission and vision being crafted and executed. Over the years, Coca-Cola has experienced different strategic paradigm change ranging from financial re-engineering to offload bottling related debts to product diversification and growth through distribution.

Goals

“That combination infuses all the elements of the strategy that we are implementing to deliver value to our share owners in the year to come, and well into the future:

a) Accelerate carbonated soft-drink growth, led by Coca-Cola;

b) Selectively broaden our family of beverage brands to drive profitable growth;

c) Grow system profitability and capability together with our bottling partners;

d) Serve customers with creativity and consistency to generate growth across all channels;

e) Direct investments to highest potential areas across markets; and

f) Drive efficiency and cost-effectiveness everywhere.”

2.2.1 Responsible Business Model and Good Corporate Governance

In today’s ultra-competitive world, organizations strive to sustain long-term growth by having a distinctive competitive advantage. Coca-Cola believes its long-term success would only be sustained through a responsible business model with good corporate governance. Essentially, this has lead to the setting up of their “quadrant framework” to develop and communicate core values (in the community, market place, environment and workplace) and strategy to its bottlers.

2.2.2 Growth and Collaboration with Bottling Partners

As part of Coca-Cola’s Chief Financial Officer, M. Douglas Ivester led financial re-engineering in 1986. Coca-Cola revamped its strategy to spin off their bottling operation while retaining minority shareholding but with board control. Local partnership has since become an essential part of Coca-Cola’s business equation with great support towards the evolvement of their business structures. Now, wherever Coca-Cola goes, it would tie up with a local bottling partner with interdependent relationship. Whilst Coca-Cola’s business scope is indeed global, it’s remains, at heart, a truly local business (Siewert, 2003).

2.2.3 Product Diversification

Coca-Cola continues to explore new beverage categories, keeping the tradition of expanding on their current portfolio of brands and products. Coca-Cola is the proud producer of more than 300 beverage brands with core focus on brand Coca-Cola, Diet Coke, Sprite, and Fanta. Branching out from its traditional carbonated soft drinks, Coca-Cola Co. ventured into sports-drink segment in Powerade and Full Throttle and non-carbonated niche offerings such as Mad River teas and Planet Java coffee. However this strategy has taken a back seat due to the lukewarm response from consumers. Nevertheless, Coca-Cola is moving towards the direction of becoming a beverage-snack company.

2.2.4 Development of New Alliances

Coca-Cola Co. is divided into six operating units which include:-

• North America Group

• Latin America Group

• Greater Europe Group

• Middle East and Far East Group

• Africa Group

• Minute Maid Group

The distribution of Coca-Cola has reach to more than 200 countries around the globe. With such a vast and spread out consumer base, Coca-cola’s marketing strategy focuses on getting their consumers to reach for their drinks more regularly as put up by the mantra coined by legendary Coke Chairman Robert W. Woodruff, “putting a Coke within an arm’s reach of desire”.

To continue with the expansion, Coca-Cola joined in the bandwagon to take up a piece of the action in once closed economies such as China, East Germany and the Soviet Union. Venturing into these new territories, Coca-Cola employs the same strategic trait in collaborating with local bottler as partner.

2.2.5 Corporate Citizenship and Responsibility

Coca-Cola realized the need to give back to the society that they serve and in doing such in a sustainable way. It gives birth to the Coca-Cola Foundation with the purpose to serve those in need. Over the years, Coca-Cola has started education programs in Malaysia (e-learning for life), Philippine (Little Red Schoolhouse) and China (Project Hope), microenterprise partnerships in Vietnam and environmental rainwater harvesting project in India. All these community projects by Coca-Cola continuously improve the quality of life of those people touched by its business.

3.0 Environmental Scanning

All businesses operate under two broad environments, namely the external environment where entrepreneurs have no control over it, and the immediate industry and competitive environment. Coca-Cola’s strategy and operation are greatly affected by these environmental factors.

3.1 Effects of External Environmental Factors

The external environmental forces exist in every part of Coca-Cola’s global business, and exert influence on Coca-Cola’s business strategy and operation. No one business is capable of being “immune” of such external forces.

3.1.1 Economic Factor

Slow economic growth in the United States has greatly adversely affected the sales and consumption of Coca-Cola soft drinks. Coca-Cola’s market has declined 0.7% and 0.9% in 2003 and 2004. It also suffered from negative growth of 2%, 3% and 1% from 2002 to 2004. Hence, the company has been working very hard to expand its presence in the fast growing economies, such as China, India and Middle East countries.

3.1.2 Political / Legal Factor

Coca-Cola has faced difficulty in gaining vast market share in India, as consumers are skeptical of the health effects of its products. The company also faces U.S. government foreign policy constrain where it is not allowed to operate in Israel (Wikipedia). The opening of China market, which was once inaccessible, has presented Coca-Cola vast opportunity to capture the soft drink market in the country. However, the company still needs to struggle to manage the country political, currency and cultural risks (Raman Muralidharan, 1996).

In the United States, soft drink ingredients have to be tested and certified by the Food and Drug Administration (FDA) before they are allowed to be used in the production.

The torn-down of Iraq has urged Coca-Cola to make a come-back after 37 years. During the international sanctions against Iraq period, Coke products were traded unofficially. Now Coca-Cola has official arrangement with the local Iraqi bottlers. However, the company is facing two great challenges: the unstable and dangerous conditions in the country and strong presence of Pepsi in the Middle East market. (BeverageWorld, 2005)

3.1.3 Technological Factor

The advancements of technology in the fields of soft drink raw material, production, information and communication technology (ICT) and logistics have great positive impacts on the operation of Coca-Cola. The availability of new soft drink ingredients enables Coca-Cola to introduce new variants of its products to its existing consumers, not forgetting to attract the new consumer groups. The use of the latest information technology has made the company “colonized” the new generation of soft drink consumers with the latest features of song downloading. The presence of company website enables the world to “keep in touch” with the latest developments of Coca-Cola. The Digital Sotrytelling Theater, located in Las Vegas tells stories of Coca-Cola through the use of short video vignettes developed by multimedia technology.

3.1.4 Social / Cultural Factor

In recent years, there have been voices of anti-Coca-Cola being aroused in the world marketplace. The most recent case is the call for Coca-Cola to stop its sponsorship of Live 8 in India. Such negative sentiment is due to severe water shortages and underground water pollution caused by Coca-Cola production activities, and distribution of its toxic waste to local farmers as fertilizer. Top level management shall review their sponsorship policy and business ethics in foreign countries (Indymedia UK).

The worldwide environmental protectionism has called for the company to the use of environmental-friendly and recyclable products in Coca-Cola production, bottling and packaging. Recyclable olyethylene terephthalate (PET) bottles have been used for its drinks, and Coca-Cola spent over $2 billion in the U.S. and over $5 billion worldwide on recycled content material and supplies (The Coca-Cola Company).

3.1.5 Demographic Factor

The increasing health consciousness and emphasis of healthy lifestyle not only in developed nations, but also in developing nations, have slowed down the sales of Coca-Cola’s carbonated soft drinks. In response to this health consciousness issue, the company introduced Diet Coke in 1982. Such change of consumer life style had also led to the introduction of its bottled purified water – Dasani in 1999.

3.2 Presence of Opportunities & Threats

This section deals with the opportunities and threats faced by Coca-Cola, and its responses towards them in comparison of the actions taken by its rivals. A summary of the opportunities and threats Coca-Cola faces are as below. Each of the elements is dealt with in greater details.

Opportunities Threats

• New products introduction

• Brand is attractive to global partners

• Focus upon core products

• Strength to boost acquired brand and major products link-ups • Competition

• Health issues

• Free trade

• Risk of cannibalizing sales

• Varying growth in non-core categories

• Major rivals also investing in non-carbonated drinks

3.2.1 Elements of Opportunities

The Coca-Cola is a leader in beverage industry and it’s a symbol of America. Brand recognition is the significant factor affecting Coke competitive position. Coca-Cola manufactures, distributes and markets nonalcoholic beverage concentrates and syrups, in markets across the world. Coca cola also manufactures and distributes juice drinks and water products like Dasani. Finished beverage products bearing its trademark are sold in more than 200 countries world wide.

New products introduction

The company introduced a variety of new brands and products in 2003 and 2004. Among numerous examples are Vanilla coke, Diet Vanilla Coke in more than 50 countries and Sprite Remix and Brag’s Floatz in selected US markets.

Brand is attractive to global partners

With its strong portfolio, customer base and powerful marketing strategies, Coca-Cola has been able to attract other globally renowned companies to use its products. For instance, it currently provides Burger King and McDonald with soft drinks. This has provided Coca-Cola with a strong opportunity to boost consumer awareness and the circulation of its products internationally.

To team up with new partner in promoting Coca-Cola brand is definitely a plus. In 2003, Powerade has launched new flavor and promoted with Matrix Reloaded themed packaging and advertising campaign in order to enhanced company profile among younger group. With Coca-Cola already established as a leading brand in the drinks industry, it will always be able to use other industry to market its own products.

Focus upon core products

Whilst the company has had significant success in extending its offering into new markets, there still remain markets in which such a strategy is fraught with risk. The Latin American market is an example of this, but this market also demonstrates that the company’s core products can still be effective if pushed. Besides, total volume declined in Brazil however the Coca cola classic increases by 3%. This represents that Coke has potential in other such markets if the company deemphasizes unprofitable or low- profit volume and seeks to extract value on the core trademarks.

Strength to boost acquired brand and major products link-ups

Purchase of Odwalla has provided the company with new fruit juice brand named ‘Samantha’. Even though fruit juice market in many countries is distinctly slow but it is expected to grow due to health conscious issues. Besides, Coca-Cola has also picked up on the potential expansion in the juice market with ‘Simply Orange Juice Co’. The combination of Coca-Cola’s established position in beverage market and consumer thirst for fresh-squeezed juice offers Simply Orange Juice the chance to win market share from PepsiCo’s Tropicana.

3.2.2 Elements of Threats

Currently, the threat of new viable competitors in the carbonated soft drink industry is not very substantial. The threat of substitutes, however, is a very real threat. The soft drink industry is very strong, but consumers are not necessarily married to it. Possible substitutes that continuously put pressure on Coke and its competitors include tea, coffee, juices, milk, and hot chocolate.

Competition

The non-alcoholic beverages segment of the commercial beverages industry is highly competitive. Competitive products include carbonates, packaged water, juices and nectars, fruit drinks, sports and energy drinks, coffee and tea and other beverages. Non-alcoholic beverages are sold to consumers in both ready-to-drink and not-ready-to-drink-form. Consumer buying power also represents a key threat in the industry. The rivalry between Pepsi and Coke has produced a very slow moving industry in which management must continuously respond to the changing attitudes and demands of their consumers or face losing market share to the competition. Furthermore, consumers can easily switch to other beverages with little cost or consequence.

Health issues

Increasing consumer and regulatory awareness of the health problems arising from obesity and inactive lifestyles represents a serious risk to the majority of Coca-Cola products. As health problems continue to grow, industry legislation and public backlash may both harm the company’s performance going forward.

Relatively narrow product range

Coca-Cola still has a relatively narrow product range. In contrast, competitor like PepsiCo has a far more diverse portfolio, including a substantial snacks division, putting it in stronger and more flexible position to exploit potential growth in the global foods and drinks market.

Risk of cannibalizing sales

Coca-Cola is relying on brand extensions to boost sales growth in old brands. While new products such as Vanilla Coke and diet Coke with Lemon may attract some customers from rival colas, and perhaps even generate more purchases in the category as a whole, there is a strong risk of cannibalizing existing sales in the long term.

Varying growth in non-core categories

The popularity of the non-core categories Coca-Cola has invested in vary greatly by country. The fruit juice market, for example, has a high growth rate in the US but is fairly stagnant in many other countries. While Coca-Cola may be able to generate increased interest in the category through a strong marketing push, it is not going to be easy unless the category is growing already.

Major rivals also investing in non-carbonated drinks

As well as being major rivals in the core cola and other carbonated drinks categories, other companies such as PepsiCo and Cadbury Schweppes are pursuing similar strategies in investing in other beverage categories. Cadbury Schweppes, for example, acquired Orangina-Pampryl for Ђ700 million in late 2001. PepsiCo, meanwhile, is attempting to gain ground in the sports drinks category by segmenting the customer base. It plans to target the Hispanic market with a new Gatorade based drink called Xtremo.

3.2.3 Response to Opportunities & Threat

Coca-Cola was in the middle of the Cola War and the company is in need of more market share. Hence, opportunity arises with the presence of McDonald’s. It was the window of growth for Coca-Cola as the strategy was to enter into younger demographic of market and cultivating such branding awareness of Coca-Cola, while this market is still at its infant stage. Hence, product confidence is built at the younger age. Not only that, Coca-Cola was also able to provide McDonald’s restaurant with a portfolio of brands inducing redundancy of other colas. Coca-cola strived further entering into the customer branding awareness through attachments with schools and education institutions, as this was the market penetration method employed. Naturally, people want to have confidence in their favorite beverages. Coca-Cola understands that consumers place priority on being healthy and fit and promotes active living through programs around the world that support physical activity. In addition, Coca-Cola also works with a wide variety of organizations to support health, fitness, and good nutrition, for instance, American Council for fitness and Nutrition (ACFN), Grocery Manufacturers of America (GMA), International Life Sciences Institute (ILSI) and etc.

4.0 Five Forces Analysis

Today, soft drink industry is a very competitive industry to be in. Porter’s five forces model shows us that there is already a strong barrier to entry established by the traditional concentrate producers such as Coca-Cola, suppliers’ bargaining power is strong, buyers’ power is weak, substitutes for beverage products are easy to produce, and the intensity of rivalry is strong since the industry is already facing a slow growth and high industry concentration.

4.1 Suppliers’ Bargaining Power

Suppliers’ bargaining power in this beverage industry is strong. For example, the soft drink ingredient producer - NutraSweet who specializes in producing concentrate sweeteners. Since there is a rising concern in health and safety issues in the soft drink drinking within the consumer market, the healthier sweetener, aspartame, that NutraSweet markets allowed it to have a high impact and input on costs of each bottler’s product costs. Since NutraSweet was the only marketer that marketed the standard aspartame the costs of using NutraSweet’s aspartame is relatively high compare to other substitutes such as sugar.

4.2 Buyers’ Bargaining Power

The Buyers of the software drink industry are the concentrate bottlers. Bottlers of the soft drink industry have a low bargaining power since they form the largest base (the greatest number) of all the elements of Porter’s five forces. Most of the bottlers are Coca-Cola owned before 1980, and almost all of them are under some sort of contractual agreement stating that bottlers must accommodate the programs set up by the concentrate producers’ for the products that they have franchised. High fees are required of the bottlers are such as high start-up costs ranging from $100,000 to several million dollars, paying for two-third of promotional costs, while costs were typically split fifty/fifty for doing consumer promotion and trade. It is also hard for bottlers to identify their own brand identity since their products are made of concentrates and the names that they use are the names of the concentrate manufacturer – Coca-Cola, hence discouraging their own product differentiation.

4.3 Rivalry Among Competing Sellers

There is a strong barrier setup by the traditional concentrate producers. For new rivalry to enter into the market is extremely difficult since the two soft drink giants such as Coca-Cola and Pepsi-Cola have already created a soft drink tradition and branding. Also since the soft drink giants have already created their bottler network and also owned majority of them, it is even harder for new entrants to be gain an absolute cost and competitive advantage. Governmental policies also create obstacles to the new entrants in the cola industry since the word “Coke” is strictly mean Coca-cola.

Current rivalry within the soft drink industry is mainly evolved around the two giants who are Coca-Cola and PepsiCo. The two giants owned most of the spacing for the vending machines, developed most the flavors for the popular products within the market, and occupied most of the soft drink market shares within the industry. They are able to utilize and plane well ahead of other smaller companies within the industry. Other smaller firms are mainly there for competition between the two firms. One example would be PepsiCo’s purchase of Seven-Up’s to expand its product line. Once Coca-Cola is aware of PepsiCo’s expansion, readily they are also willing to purchase Dr Pepper. However since the buyout of Seven-Up’s domestic operations was blocked by the Federal Trade, Coca-Cola also dropped its pursuit on Dr Pepper. In the current soft drink industry, there is a constant battle between Coca-Cola and PepsiCo.

4.4 Substitute Products

Threats of substitutes are high since soft drink industry is a highly unstable industry. Switching costs for the consumers are extremely low since the pricing of soft drinks is cheap and consumer’s taste is ever changing. There is no trade-off for the consumers to switch to other products so it is easy for consumers to change their loyalties. One example would be the Pepsi Challenge rose by PepsiCo over the states. The challenged had blinded people over the states tasted different brands of soft drinks and found out that majority of them liked Pepsi over Coke, thus PepsiCo’s Pepsi-Cola was able to gain market share and attracted a larger market share.

4.5 Potential New Entrants

The soft drink industry is an extremely difficult industry to get into. The existing soft drink industry is already dominated by experienced dominant players with over century-long experience, new entrants would have to be truly unique to be able to gain an absolute competitive advantage within this industry. If their products are unique, they would not have to worry about the fear of product substitution. Once the new entrants have gained an absolute advantage within the industry, they would have to deal with the suppliers who may have a strong bargaining power over pricing on the ingredients they need. Apart from that, they would need buyers, which are bottlers in this case. Once they have a base of bottlers with them, then only they have a chance of success in this industry.

4.6 Intensity of the Competitive Forces

Coca-Cola created a very strong barrier to entry for its competitors. New entry into the market is extremely difficult. The two soft drink giants, Coca-Cola and PepsiCo controlled the whole market. In addition, Coca-Cola has already created its bottler network and also owned majority of them, it is even harder for new entrants to gain an absolute cost and competitive advantage.

The threats of substitutes are high since soft drink industry is a highly unstable industry. Switching costs for the consumers are extremely low and there is no trade-off for the consumers to switch to other products so it is easy for consumers to change their loyalties.

4.7 Key Success Factors

Today Coca-Cola is not only US’s most popular soft drink, but it’s the biggest selling of all grocery brands across all categories. From the analysis of Porter’s Five Forces Model has led to the identification of key success factors which Coca-Cola needs in order to gain competitive edge in the beverage industry.

Brand recognition

“Enjoyed more than 685 million times a day around the world Coca-Cola stands as a simple, yet powerful symbol of quality and enjoyment.” (Allen, 1995) Coca-Cola’s product image is loaded with over-romanticizing and this is an image many people have taken deeply to heart. The primary concern over the past few years has been to get this brand name to be even better known. The extremely recognizable branding is one of Coca-Cola’s success factors. The Coca-Cola’s image is displayed on T-shirts, hats, and some collectible memorabilia.

Product diversification through joint ventures

Coca-Cola has joined forces with a number of well established businesses to further its diversification efforts. Coca-Cola’s joint ventures with companies such as Nestle have increased Coca-Cola’s ability to respond closely to develop new markets of iced tea, coffee and fruits juices rapidly. The turnaround of new products stimulates the sales of Coca-Cola to increase dramatically.

Coca-Cola’s purchase of Mad River Traders is another sign on fast growing emerging categories and reducing its reliance on its core product. The company has gained access to a range of Mountain Style Teas, lemonades and juice cocktails. The move shows a continuing and increasing effort towards finding a suitable and more diversified product range with greater youth appeal. Coca-Cola is also planning to launch a new chocolate drink named “Choglit” in the young age market.

Scope for fast, worldwide development

Although Coke is the core product, the company has been able to produce a diverse range of multipurpose drinks appealing to a variety of consumer groups. While the mature Coke market has become a difficult field in which to obtain convincing results, Coca-Cola has taken its focus ways from its biggest earner for a while, developing new drinks for all markets. With the current trend in new age beverage looks likely to continue growing, the company is establishing a sound platform for the next few years.

Effective strides in new markets

A move into nutraceuticals has also helped boost Coca-Cola’s consumer appeal. Various new Dasani drinks include multi-vitamins and vitamin C with zinc for immunity, while the Powerade brand is being heavily marketed to 17-24 year-old consumers with active lifestyles. New packaging and advertising campaigns featuring top athletes performing daring feats have renewed brand awareness. Coca-Cola is in a strong position to cash in on the growing demand for health products.

If Coca-Cola can stick to and cement in their core success factors, even in a turbulent and dynamic marketplace it can also become the leaders of soft drink in worldwide market. Successful companies have to keep succeeding, keep challenging themselves to do better to increase their lead.

5.0 Generic Business Strategy

In order to gain competitive edge in the consumer market, other than responding quickly to the external forces and its internal environment, Coca-cola also looks into its position within the industry. The following figure shows the generic competitive strategies pursued by Coca-Cola.

Figure 5.1 : Generic Competitive Strategies

Low Cost Differentiation

Broad

Overall Broad

Low Cost Differentiation

Strategy

Strategy

Focused Focused

Low Cost Differentiation

Strategy Strategy

Narrow

Coca-Cola is seen to have employed these two competitive strategies: Focused Low Cost and Broad Differentiation.

The company has chosen to serve the consumer drink market and achieved cost savings by means of:

i) Achieving economies of scale in the mass production of all Coca-Cola products lowers its unit cost.

ii) Long learning, knowledge and experience in production and process, as the company existed more than a century.

iii) Efficiency and effectiveness in manufacturing and distribution network.

iv) Sharing of research and development, advertising and promotions cost among the brands carried by Coca-Cola has enabled to achieve economies of scope.

Coca-Cola uses Broad Differentiation strategy on the basis of:

i) Offering of wide range of its drink products – around 230 brands are currently being offered in the global market.

ii) High brand image and recognition have resulted in superior product perception among consumers.

iii) Packaging and bottling – The use of contoured shape bottle and the slim curly font have made Coca-Cola an easily recognized symbol.

5.1 Comparison of Coca-Cola’s Generic Business Strategy with Its Rivals

There are numerous competitors, from both carbonated and non-carbonated drinks, competing with Coca-Cola. Among them, the key rival that competes head-to-head with Coca-Cola is PepsiCo. Since 1997, PepsiCo adopts the focus strategy which concentrates its resources in consumer packaged goods and beverage industries (PepsiCo’s Focus Strategy). However, Broad Differentiation strategy is not adopted by PepsiCo, as compared to the wide ranges of brands carried by Coca-Cola.

5.2 Appropriateness of the Coca-Cola’s Generic Business Strategy

Coca-Cola’s pursuance of focused low cost strategy is set out to become the lowest-cost provider of its products in order to compete fiercely in both the beverage industry in general and carbonated drink market in particular. Coca-Cola’s main focus is its beverage industry where its brand image and quality is widely acceptable, and it emphasizes on cost-reduction, rather than price-reduction.

Being a low cost provider makes Coca-Cola a strong contender in the soft drink industry. It also survived a few price wars with its main rival – PepsiCo. Low cost leadership not only increases Coca-Cola’s global market share, it also erects a strong barrier for the potential new entrants to enter into the industry. Coca-Cola also faces a few disadvantages in its pursuance of low cost leadership. Heavy investments have to be made on assets to capitalize on low cost production. The fact changing of technological advancements and consumer tastes will soon erode the low cost benefits enjoyed by Coca-Cola.

Coca-Cola employs broad differentiation strategy for the products that it offers in line with the high proliferation and fast changing of consumer taste, product preference and emergence of different life-styles. It emphases on creating value through uniqueness. Coca-Cola pursues a broad differentiation strategy to capture multiple markets within the drink industry. Consequently, the differentiated products should be designed so that they have wide appeal to many different market segments. As a result, Coca-Cola enjoys the advantages of being able to charge a premium price on its core product – Coke. Strong brand loyalty has been achieved among the drink consumers, which acts as an entry barrier to potential new entrants. The main drawbacks of broad differentiation are such that the product attributes and taste are easily imitated by the rivals. Consumer fast changing product preference is hard for Coca-Cola to keep pace with.

5.3 Recommendation of Coca-Cola’s Future Generic Business Strategy

As Coca-Cola is entering into different market segments of drinks and snacks, it is recommended that the company to pursue an overall low cost strategy in the broad markets that it serves. With this strategy, Coca-Cola will be able to compete with the major rivals by offering its products at competitively low prices, or match the rivals’ price yet earn a higher profit margin.

6.0 Global & Internet Strategy

6.1 Coca-Cola’s Globalization Trends

Globalization is a key factor in gaining market share. Coca-Cola recognized the need to go global very early on in its existence. This has played a significant role in Coca-Cola’s strength today and for the future. Coca-Cola became globally successful only after fourteen years of its existence in 1900, by distributing to England, Cuba and Puerto Rico. From that point on, it continued to expand globally at a rapid pace. Today, Coca-cola is distributed everywhere around the globe. The company is divided into six operating units which include: the Greater Europe Group, the Middle East and Far East Group, the Latin America Group, the Africa Group, the North America Group and the Minute Maid Group.

Coca-Cola’s products are known worldwide. It is a drink that spans all ages, colors, races, and countries. More than 70 percent of the revenue comes from outside the U.S., but the real reason they are a truly global company is that the products meet the varied taste and preferences of consumers all over the world.

The company has become more efficient in how the drinks are bottled, it is able to use recycled materials, and help conserve natural resources. In addition, according to Bettman, et. al, (1998) Coca-Cola's bottling system is one of its greatest strengths. It allows the company to conduct businesses on a global scale while at the same time maintain a local approach.

Besides, the product's image is laden with sentimentality, and this is an image many people have taken deeply to heart. The Coca-Cola image is displayed on T-shirts, hats, and collectible memorabilia. This extremely recognizable branding is one of Coca-Cola's greatest strengths. "Enjoyed more than 685 million times a day around the world Coca-Cola stands as a simple, yet powerful symbol of quality and enjoyment" (Allen, 1995).

6.2 Advantages and disadvantages of Coca-Cola’s Globalization Trends

The advantages of coca cola in adopting globalization trends are first of all with the economic scale that is bigger (talking about the whole entire world instead of one country, as mass marketing) it help coca cola to actually reduce the cost of producing (adjusting to the country where the product is manufactured and price (cutting the cost of transportation, export and import cost as well as tax). It also helps coca cola to gain competitive advantages of a high quality product. The localize system or management help the company to expand the local network with the value creation functions and also established in low cost markets, instead of the country of origins. They also can have a tight bound of long term contract with the low cost supplier in each country.

In the other hand disadvantages of globalization trends is that there will be increase in the bureaucratic costs due to centralization. Some of the resources of ingredient still transferred by the head quarter which means that supplies chain or supply control from the head quarter must be very strong. Some other problem that will occur is that local branch will have lack of responsive or creativity or learning to develop different product from the same trademark, due to highly depend to head quarter or copy or have to follow the head quarter instructions. Also, sometimes due to lack of creativity of product development or advertisement will lead to decreasing in product demand and local company hard to create differentiation in the products or expanding.

6.3 Coca-Cola’s Internet Strategy

As Group Director of Coca-Cola, Carol Kruse plays a significant role in the company’s online presence. Kruse develops and executes these internet strategies and plans. At present, Coca-Cola is using the Internet to extend its promotions. One of the most recent promotions Coca-Cola did was around NASCAR and the Coca-Cola Racing Family. On the other hand, The Coke Music Website, which is ever growing, really shows that Coca-Cola can build a compelling online community even on a branded website. As consumers spend more and more time online, therefore taking some time away from traditional media, it’s an important way to reach folks. And in a very interactive way, versus passively viewing a television commercial, consumers can interact with the brand online. The majority of Coca-Cola brands are using the Internet as part of their marketing mix, and they’re doing it with interactive branded sites, not just putting brochure or product information on the site but creating an entreating and interactive site. It’s an area that Coca-Cola is continuously testing and analyzing, and it has some pretty strong results. This is a learning process for the company.

6.4 Recommendation of Coca-Cola’s Internet Strategy

Coca-cola can adopt e-commerce for its website, allowing purchases to be done via its website. For feasibility purpose, this feature should be applicable to its whole-sellers only. By linking the order to its production (automation), it would enhance the efficiency of the supply chain management.

Coca Cola’s Internet strategy has many other options other than e-commerce methods such as e-mail or Internet Telephony or even using video blogging such as Microsoft’s Channel 9 video blog to reach out to its all important business partners, customers and vendors.

7.0 Corporate Strategy & Strategy Implementation

7.1.1 Shaping the Work Environment and Corporate Culture

Coca-Cola Company believes that it is important to give something back to the communities in which it does business. This philosophy grounded in the Company’s value system and become the key part of the corporate culture. Coca-Cola has s strong commitment to the wider community through every aspect of the way the company operates. For instance, the way in which Coca-Cola sponsors sporting activities or its commitment to recycling and minimum use of scarce resources. Philanthropy is a central part of the Coca-Cola culture and contributes to one of the company’s strongest assets - public goodwill. Its goal is to give something back to the communities in which the company operates by supporting the education and community development activities.

Coca-Cola aims to help the environment by “Always trying to give back more than we take”. Coca-Cola is well known for its high-profile sponsorship programs, covering major events such as the Olympic Games, football’s World Cup.

7.1.2 Building a Capable Organization & Marshaling Resources

Coca-Cola’s marketing strategy has become a reality, the product most representative of this process is Coke. Robert Woodruff, former chairman of the Coca-Cola Company stated in 1923 that Coca-Cola should always be “within and arm’s reach of desire”.

The Coca-Cola has always been able to create the most appropriate marketing mix. Coca-Cola has built its business using a universal strategy based on three major principles - acceptability, affordability, and availability. This is to ensure Coca-Cola brands are an integral part of consumer’s daily lives, widely available and products that are value for money.

Coca-Cola can use these few areas to improve their strategy execution and build a more capable organization.

Branding

Coca-Cola posses a number of instantly recognizable brands which go beyond the familiar taste of its product when compare with other products. Coca-Cola benefits from its registered trade mark and its characteristic classic shapes of bottles. Also the highly familiar red and white Coca-Cola can. Coca-Cola also produces others popular flavored soft drink, like Sprite, Fanta, Diet Coke, and Cherry Coke. These products can be mass marketed across the globe using standard advertising and promotions.

Advertising

Advertising is the most effective way in gaining social acceptance for Coca-Cola’s products. The Coca-Cola Company created advertising slogans which are very memorable until today, like 1886-Delicious and refreshing; 1993-Always Coca-Cola.

Coca-Cola’s powerful brand personality can become a vehicle for promotion in its own right.

Global and local sponsorship of sport

The relationship which Coca-Cola has with sport seeks to advance the development of sport overall and to help make sporting competitions possible by supporting. Since 1928, the Coca-Cola Company’s active sponsorship of the Olympic ideal has continually grown in depth. Until today Coca-Cola has a long history of sports sponsorship including the Olympic Games, football, tennis and special Olympic. This reflects the way that the company operates and helps Coca-Cola become the world’s most popular soft drinks.

Worldwide leadership

Coca-Cola needs to continually build on its brand image through successful advertising, promotion and provision of value-for-money products. The company requires consistent expansion and development in its distribution systems. Coca-Cola is enabling to do this effectively due to its strategy of growth which has enabled the company to develop international market leadership.

7.1.3 Internal Leadership

E. Neville Isdell leads the Coca-Cola Company into the new century with a firm commitment to the values and spirit of the word’s greatest brand. He was named the chairman and chief executive officer in June 2004. Isdell has been described as charismatic by many people with whom he has worked.

“We have very strong values. I also believe that providing clear direction and clear accountability… allows us to do those millions of things that we need to do very well every day in a cohesive matter.”

Coca-Cola can use six styles of leadership to improve their management

• Coercive- demands instant compliance

• Authoritative- motivates people toward a set path

• Affiliative- creates harmonious relationships

• Pacesetting- strives to improve efficiency

• Coaching- helps people develop themselves

• Democratic- gains commitment through participation

7.2 Coca-Cola’s Approach to Diversification

Coke is pursuing related diversification. Coke operates multiple business globally which are linked by common distribution systems and brand name. Coke has diversified through horizontal integration (proliferation of products and markets) and vertical integration (manufacturers, distributes and retails beverages).

To portray corporate growth strategies, Coke adopted Ansoff’s matrix that focus on the firm’s present and potential products and markets. There are total four different growth strategies:

1. Market penetration: A firm seeks to achieve growth with existing products in their current market segment, aiming to increase its market share.

2. Product development: The firm develops new products targeted to its existing market segment.

3. Market development: A firm seeks growth by targeting its existing products to new market segment.

4. Diversification: firm grows by developing new products for new markets.

Existing product New product

Existing Market Market penetration:

• Diet Coke Product development

• Coca-Cola Vanilla

• Fanta Icy Lemon

New Market Market development:

• Coca-Cola Share Size

1.25 liter Bottle Diversification

• Winnie the Pooh Roo Juice

• Powerade

Coke has identified Winnie the Pooh Roo Juice is an opportunity to offer mothers a new product that suitable for children aged 2-5 years. The product and its packaging appeal both to mothers and children, offering diluted pure juice with no added sugar, colorings or preservatives combined with well-loved characters. In addition, Coke created new brand within the sports drink segment called Powerade.

Coke was growing through market penetration (selling more Coke in US and Japan) and now diversifying into new markets (China, India, Russia, Eastern Europe). With the new mantra of at Coke is “think locally and act locally”, Coke adopted decentralizing management. The company will become more responsive to regional needs rather than wait orders from headquarters in Atlanta. Coke’s local managers will have more freedom in setting price, tailor advertising campaigns to local cultures, and introduce new brand. In China, new product such as Nestea Ice Rush and Orange Pulp by Minute Maid launches and drove noncarbonated beverage unit case volume growth of 51 percent. In addition, unit case volume increased 10 percent on top of 22 percent growth in 2003, despite pricing increases in India. In Russia, Coke’s core brands helped drive double-digit unit case volume growth, including 19 percent for Trademark Coca-Cola.

7.3 Evaluation of Coca-Cola’s Current Strategy & Recommendation

Coca cola’s management structure is divided into five geographic groups plus the Minute Maid group. The diversity of the management structure allows each group to tightly control all of the functional areas. The weakness is, we would rather manage a business in nearly 200 countries than to build a business in nearly 200 countries.

In recent years, due to the changing global economies, Coke has taken a less aggressive stand in market place. Coca-cola should always remain dedicated to build a better business. This is the promise that a company makes to its stockholders everyday.

Although Coca cola decentralized its management structure can be a strength and weakness at the same time. The company currently has not set common corporate goals. Instead, each regional management sets their own goals. In more developed countries the system will works very well. Conversely, in economically challenged regions where Coke is not established as a daily attach, Coca cola need to change its internal management structure in order to deal with this problem. Perhaps, a wide common goal of supporting the regions where this problem exists with more resources from the other regions and from corporate headquarter.

Coke has begun to realize that they are capable in expanding into other market besides soft drinks. Minute Maid Group will focus on worldwide juice beverage. This is a very good opportunity for Coke to move into the next level where consumers today are becoming more health conscious. China is definitely a very large potential for growth since it has the largest population in the world and by default, the largest consumer for foods and beverage. In 2004, China achieved the highest growth rate in Asia with 22% in terms of Unit Case Volume.

8.0 Conclusion

The results of analysis of Coca-Cola’s vision, mission, environmental scanning of the drink industry in which it operates, the intensity of each of the Porter’s Five Forces faced by the company, the generic business strategies, global and internet strategies it adopts, the corporate strategy and the implementation give us a full overview of Coca-Cola’s operation and positioning in the drink industry. The ever-changing external environment and the challenges posed by the opportunities and threats in its immediate industry command a significant attention and resources from top management. With the current successful generic business strategy, Coca-Cola should not be complacent. On the contrary, it has to keep an eye on its rivals’ actions and changes in external environment variables, then shift the current generic business strategy to a more appropriate one. The company needs to juggle its corporate strategy and the internal corporate culture in order to achieve a sound strategy execution and implementation.

References

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Bibliography

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