Coca-Cola Company - Global Marketing Strategies - Case Study Example

FINAL REPORT: THE COCA-COLA COMPANY Name Course Date EXECUTIVE SUMMARY Coca-Cola is one of those brands that are recognisable in every corner of the globe. In existence for more than a century, the Coke brand, and its company the Coca-Cola Company, is currently enjoying the success of being the number one brand in the world. Much of this success can be attributed to the Company’s sustained and aggressive promotional campaigns to thrust the product to its present position, but a look at the Company’s international marketing strategy through the years showed that its approach was inconsistent and can be, in fact, considered as flip-flopping. A strategy that was once considered phenomenal with respect to its results suddenly became ineffective forcing the Company to shift to the opposite direction, but its inability to deliver ushered in the adoption of strategies that had already been discarded and left for dead. Nonetheless, the seeming flip-flopping is not reflective of the Company’s hesitance or lack of resolve, but merely mirrored the realities of the times and the fact that the Company was willing to backtrack, move on and reverse position when the business climate dictates it. The Company experience in international marketing proves that failed strategies are not necessarily bad per se, but may have only failed because it was incompatible with the business climate at the time it was implemented. Moreover, it also proved that international marketing strategies cannot be static, but should be dynamic and evolving, especially with the onset of globalisation that is complicating the conduct of international businesses. CONTENTS Introduction 1. The Coca-Cola Company 1.1 History 1.2 International Venture 1.3 Evolution of Global Marketing Strategies 1.4 Coca-Cola Today 2. Analysis 3. Recommendations 4. Conclusion References INTRODUCTION The Coca-Cola Company is one of the most established household names not only in the United States, where it originally came from, but worldwide. The Coca-Cola brand name is one of the select few whose recognisability is universal and does not distinguish types of demographics. The universal appeal of Coca-Cola did not happen by chance or by sheer luck, but is a product of consistent, unwavering and unrelenting search for the best strategies that would put it above and beyond the reach of competitors. A scrutiny of the strategies that Coca-Cola used from the time it put out its name in the international market, however, showed that it had changed its course from time to time adopting one and relinquishing the other and ultimately, reviving the old and putting a new twist to it. This seemingly indecisive approach at handling the international market is actually illustrative of the Company’s resolve to find the best way to approach the international market as well as its flexibility to evolve with the times when needed. The Coca-Cola case showed that in establishing a solid presence in the world market – one that will last for a very long time – flexibility, rather than rigidity, in strategy without losing the organization’s fundamental objectives will more likely bear the much desired results. 1. THE COCA-COLA COMPANY 1.1 History In 1886, a pharmacist named John Pemberton invented by chance – because he was just experimenting with coca leaves to create the perfect medicine for digestion – the beverage the world now knows as Coke. A mixture of basically coca leaves, soda water, lime and Brazilian shrub weeds, Coca-Cola was first marketed in a soda fountain inside a pharmacy in Atlanta, Georgia where Pemberton worked. The name Coca-Cola, however, was not from Pemberton, but was suggested by a close associate named Frank Robinson, who later became one of the organizers of the company that was set up to market the beverage. The beverage became popular, but this did not deter Pemberton who, for one reason or another, sold the formula in 1891 (Petretti 2008; Ford 2007). In the hands of Asa Chandler, the new owner, and his associates, the beverage became more popular and was garnering sales ten times more than in the hands of Pemberton. The reason for this was that Chandler actively pushed the beverage in the market through advertisements. In addition the group established a company to market the beverage calling it the Coca-Cola Company. The venture was so successful that four years after Chandler bought the beverage’s rights from Pemberton all states were already selling it. In its early years, Coke was marketed as tonic drink with medicinal benefits and thus, various slogans such as ‘Delicious and Refreshing’, ‘Ideal Brain Tonic’, ‘Cures Headache’ and ‘Relieves Exhaustion’ were associated with the drink. There came a time, however, when the Company dropped all medicinal claims of the drink simply marketing it as a delicious and refreshing beverage (Petretti 2008). 1.2 International Venture It was during Chandler’s helm that the Company first ventured out of its home country. The Company established bottling facilities in Canada, Cuba and Panama in 1906 and later in the Asia Pacific region starting first with the Philippines in 1912. By 1916, however, Chandler ran and won as mayor of Atlanta and turn over the business to his family, but this did not deter the Company from further expanding abroad even after the Company was sold to the Woodruff in 1919. In fact, the Coca-Cola Foreign Department was especially created in 1926 to supply concentrates to its bottlers abroad as well as the Coca-Cola Export Corporation to market the beverage overseas. In addition, it began sponsorship of the Olympics in 1928 when the games were held in Amsterdam. The WWII did not stop the Company from operating, but rather significant positioning had made the product relevant to the war efforts. By entering into a compact with the US government to sell Coke to the troops for a nickel and sending out portable bottling plants to Asia, Europe and Africa where the war was being fought, the Company had made itself a relevant part of the war campaign. After WWII and the end of the Cold War, Coca-Cola had already established itself in Africa, Eastern Europe, Russia, East Germany and the rest of the world (The Coca-Cola Company 2011). 1.3 Evolution of Global Market Strategies The Coca-Cola global market strategy can be characterised as continuously evolving and shifting. Before the 1980s, the Company’s thrust in its global marketing was basically to allow local operators to manage their respective operations in the way they deemed the most suitable approach. However, upon the assumption of Ricardo Goizueta, a Cuban-born chemist who fled Cuba after Fidel Castro threatened to take over the Coca-Cola operations, the localisation strategy was dropped for the centralisation approach. He saw the Company as too conservative and immediately announced sweeping changes claiming the need for it to take risks. One of the first acts he did was to gradually divest the Company of non-core businesses leaving it with the business of selling bottled carbonated soft drinks (Riaz 2008). In a speech he delivered before quality assurance staff, Goizueta promoted the value of flexibility, risk taking and adaptability: Don’t wrap the flag of Coca-Cola around you to prevent changes from taking place. It is important that you show some insensitivity to your past in order to show the proper respect for the future (cited in Raiz 2008). Goizueta believed that the only difference between the US and the global markets was that the former was well penetrated by the Company and hence, its products were well established. At that time, the international market’s share of the colas when compared with that of the home markets was only 10%-15% of the latter. Goizueta’s approach was to focus on the flagship brand together with its extended brands, such as Cherry Coke and Diet Coke, of the Company. This entailed an approach in the international market patterned after that of the home market, including advertisements (Hill and Jones 2010). In short, every aspect of the Company’s activities was standardized with the Atlanta headquarters calling all the important shots, which was characteristic of a one-size-fits-all approach (Hill 2012). Goizueta’s approach, which carried the tagline ‘think global, act global,’ resulted in increasing the international market’s share of the Company’s revenues to 67% and profits to 77%. At the end of his 16-year tenure in the Company, its stock price has risen to 5,800% (Riaz 2008). After his death in 1997, his successor Douglas Ivester continued Guizueto’s strategy, but unlike the latter, he did not give much importance or faith in the ability of others, and in fact, alienated not only senior management, but also major customers, such as Walt Disney and Wal-Mart. He believed in solving problems on his own rather than giving leeway to executives to think of solutions to problems. In addition, he made a change to Goizueta’s tagline by substituting ‘act local’ to the ‘act global’ part of it. This means that Ivester subscribed to the idea of a global product that adapted to local realities (Riaz 2008). By 1999 the Company’s stock lost $70 billion after earnings significantly decreased. Ivester tendered his resignation and he was succeeded by Douglas Daft in 2000. Unlike his predecessor, Daft was known for his consensus-driven approach as well as being a culturally-conscious person – using the principles of feng shui in interior designing and arrangement of office materials as well as removing flags that customarily flew in the grounds of the Atlanta headquarters (Riaz 2008). Daft’s tagline was the complete opposite of his predecessor. Instead of the ‘think global, act local’ philosophy promoted by Ivester, he instead fostered the ‘think local, act local’ approach. It was believed that Coke’s declining sales was due to local products gaining entry into and competing in the market (Ghemawat 2003), prompting Daft to shift his approach towards a more localised one. To realise his goal, Daft trimmed the Atlanta headquarters from ‘unnecessary’ fat eliminating in the process some 6,000 positions and gave local managers space to institute programs best suited in their respective markets (Hill 2008). Local managers were given the authority to customise promotions in local events. Nonetheless, the ‘think local, act local’ approach was not working after two years as the Company’s uninspiring performance continued (Ghemawat 2003). In 2004, Neville Isdell took over the reins of the Company. Since the Company’s performance was not spectacular under Daft, it was only natural that Isdell would craft a new approach to increase the sales of its products in the global market. Once again, Coca-Cola’s strategy reverted from localisation to centralisation, but with a difference. Isdell surrendered some powers to the local managers, such as operating and marketing strategies, but retained supervisory powers over them, which imply that the Atlanta HQ had the power to veto and disapprove the local managers’ decision. In addition, Isdell believed that products that made good in one region should be introduced in other areas and this happened in the case of Georgia, a coffee-flavoured product of the Company that was a big hit in Japan, Italy’s Illycafe and an orange-based drink developed by Coca-Cola China (Hill 2010). Under Isdell’s helm, international revenues grew stronger steadily. He looked to new markets, such as that of China and India, for significant growth whilst expecting old ones to continue growing (Riaz 2008). 1.4 Coca-Cola Today In its 127th year of existence, the Coca-Cola Company is operating in more than 200 countries all over the world and Coke is considered the number 1 non-alcoholic beverage internationally. It carries about more than 3,500 products worldwide including brands that are valued at $16 billion, such as Coca-Cola, Diet Coke, Coke Zero, Sprite, Fanta, Powerade, Georgia, and Minute Maid, amongst others. It has more than 750,000 system associates all over the world and has earned various recognitions from award-giving bodies, such as No. 4 Most Admired Company 2013 by Fortune, Top 20 Most Innovative Companies 2013 by Fast Company, Top 50 Most Diverse Company by Diversity Inc., and Creative Marketer of the Year 2013 by Cannes Lions. Its flagship product Coca-Cola was ranked by Interbrand as the World’s Most Valuable Brand in 2012 with value of $77.8 billion growing at 3% that same year (Coca-Cola Journey 2013) and by Forbes as the 3rd most valuable brand in a list that largely included only brands in the technology industry (World’s Most Valuable Brands 2013) . Moreover, the world’s market share of soft drinks in 2010 (see Fig. 1) showed 4 of its brands, i.e. Coke at 26%, Diet Coke at 15%, Sprite at 8%, and Fanta at 3%, taking the lion’s share at a total figure of 42% as opposed to its closest rival with a total share of 36% representing 4 of its soft drink brands (Accuval 2010). A look at its profit profile for the year 2012 reveals the following: $48B net operating revenues; $9B net income; $162B market capitalisation, and; 51 years of consecutive annual increase in dividends (Coca-Cola Journey 2013). 2. 3. ANALYSIS The success the Coca-Cola Company is currently enjoying in the international market can be attributed to its ability to shift, back-pedal, move forward, drop and revive strategies without qualms not only to sustain its popularity, but survive the onslaught of challenges coming both from international and local competitors. As can be gleaned from the see-saw changes of its international marketing approach that swung from centralisation to localisation, back to localisation and finally straddling the two spheres in what is now called the ‘glocalisation’ or ‘think global, act local’ approach the Company is presently underpinning its international campaign, Coca-Cola is ready to institute any change even if on the surface it would seem absence of conviction on its part. In short, the Company’s approach is reality-centred and evolving with the time. At the time of Goizueta’s assumption as head of the Company, the spectre of globalization was looming in the horizon and about to take the world by storm. Coca-Cola had difficulty trumping its closes rival Pepsi in the international market despite increasing more than five times its advertising expenses (Eldred 2008). Pepsi was promoting its latest ‘Pepsi Challenge’ campaign strategy that threatened to convert non-Pepsi drinkers into Pepsi drinkers and in many blind-folded taste test, many preferred the taste of Pepsi. This was Coke’s toughest challenge to date and management was worried (Capstone 2013). Goizueta had therefore, had his hands full when he assumed the Company leadership and he proved himself more than worthy. Imposing a centralised approach to international operations meant Atlanta controlled everything, especially promotions and by following a ‘one-size-fits-all’ strategy, which meant that its strategy in the home country was the same strategy used everywhere. This further meant that Coca-Cola allowed people in the international market to feel it was part of the Coca-Cola USA lending its prestige to local operations at a time when being American was associated with wealth, power, and prestige. Carrying the home country association meant an easier penetration of international market, specifically in countries where Coca-Cola ventured for the first time during the period which included China, Russia, Vietnam and East Germany, and especially in places that saw the country as an icon of success and abundance where life was much better than in their own countries. Thus, patronising the product probably meant psychologically partaking of this wealth and abundance. Goizueta’s centralisation strategy also meant that he and the Atlanta headquarters directly controlled how local managers approached local operations. At the time when the Company was embarking on new risk-taking strategies that could do or undo the Company, this move was crucial because it gave the CEO the ability to synchronise operations and steer it towards the direction where he wanted things to go taking care that his strategies were faithfully implemented. It would have been different when strategies had already been put in place and well-established because then there would be no need to guide or supervise local managers. Part of Goizueta’s success as a CEO was his ability not only to embrace change and risks, but also to accept his error and amend it. Despite his ‘tyrannical’ reputation, Goizueta was not an inflexible CEO who stuck to his guns no matter what. When the introduction of a New Coke, which had a more syrupy taste and was meant to change the flagship product’s taste, failed to get off and was in fact made subject to heavy criticism, Goizueta who supported it wholeheartedly, did not hesitate to backtrack. He promptly re-introduced the beverage’s old recipe and gradually phased out the new recipe from the market (Capstone 2013). Goizueta’s general assessment of the situation proved correct as proven by statistics. The company’s phenomenal growth during his time was evidenced by the spectacular rise of the Company’s stock price by 5,800% (Riaz 2008). At the time he assumed leadership of the Company, the latter was only valued at $4 billion, but by the time of his death in 1997 its value was pegged at $145 billion (Capstone 2013). Figures like these do not lie nor can be twisted and therefore, the bottom line is that Goizueta’s approach at international marketing was the correct one at that time and this cannot be disproved even by the formula’s subsequent failure. The ability of the Company to roll with the tides of change was illustrated when its sales slumped in the late 1990s, disproving the one-size-fits-all strategy’s timelessness. If at all this proves that there is no one international marketing strategy that any company can stick to during its existence. Earnings of the Company went down in 1999 and its value significantly decreased pegging the Company loss at about $70 billion (Ghemawat 2003) – despite the same strategy earning the Company phenomenal success in the past. The decision of CEOs, subsequent to Goizueta, to shift gears and drop the one-size-fits-all approach was only correct considering that it was no longer working. So was the decision of Isdell to reverse his predecessor’s strategy of ‘think local, act local’ and craft a hybrid strategy of glocalisation, which in effect, exhumed Iverson’s ineffective ‘think global, act local’ allowing local managers enough freedom to determine local operations, without taking away from the Atlanta headquarters the prerogative to supervise and guide. The success of Isdell’s hybrid strategy only proves that in international marketing, a strategy may fail at one time, but it may also succeed in another and vice-versa. This is because the world and preferences constantly undergo changes so that what may be popular today may become unpopular tomorrow and this can occur in a span of decades or two. International marketing strategies therefore are not constants, but must be adapted to the changes taking place in the international front. They do not operate in a vacuum, but in a living and dynamic world that is dictated by the taste and preferences of an ever-changing consumerism. The lesson that the history of the Coca-Cola Company international marketing strategies can, therefore, impart to the business world is that business strategies are dictated by business climate, which globalisation made more dynamic, unpredictable and fast-changing. Nonetheless, not everything that the Company’s CEOs have done was perfect and certainly there were lapses. Goizueta tried to alter its flagship brand’s taste – one upon which the entire Coca-Cola Company was built on. This was a weak response to the threat of the ‘Pepsi Challenge’ campaign and misapprehension of the fact that it was not the taste of the soda that was at issue, but the better and more effective campaign of its closest rival. Daft’s predecessor Ivester did not hold the job the for long because he was seen as an ineffective leader who was not able to rise to the challenges of his position, but also because he was CEO at a time when a world financial crisis was taking its toll in businesses all over the world. On the other hand, Daft whilst empowering local managers deprived them of the guidance and supervision of the Atlanta headquarters and therefore, the wisdom that only an outsider looking from without has of the bigger picture. Despite the fact that local areas have their own unique culture and taste, there must be an underpinning foundation that must connect and underlie all Coca-Cola operators all over the world, an image that the Company has fostered and promoted in all its years of existence and this must never be lost or relegated to the background. In addition, Daft’s move to eliminate many Atlanta personnel created a backlash creating suspicions that the Company was engaged in discriminatory practices as well as other bad publicities that caused its share prices in the market to tumble (Pendergrast 2013).Fortunately, with Isdell’s assumption of leadership at the Company, he was able to heal the damaged company culture by instituting programs aimed at making amends to its employees. 4. RECOMMENDATIONS Globalisation has created a much more complicated world for the business climate and Coca-Cola’s current ‘think global, act local’ which put focus on local customs and culture is underpinning its current success in the international market. This approach is working because the world is growing and there is an underlying sentiment by various cultures to assert their own identities rather than look up to cultures that have been traditionally attributed as leaders. However, Coke’s primary strength is its image that has already been established and accepted for more than a century and this should not be lost in any marketing strategies. 5. CONCLUSION International marketing strategies should always take into account the changing realities of the times and international marketing managers must bear in mind that that strategies do not exist in a vacuum, but are dependent on the realities of the business climate. The Coke experience is a lesson that illustrates this. The Company’s shift from one strategy to another, dropping one in favour of another it has already discarded in the past and finally creating a new one that embodied the elements of the past ones, showed that no strategy is entirely wrong but its failures may be due to its incompatibility with the business climate at the time it was applied. Goizueta’s one-fits-all strategy may be irrelevant today, but during the time he adopted it the phenomenal results showed that it was the correct strategy to take. The inability of a strategy to be applicable infinitely was also proven when the same strategy caused the Company’s slump in the late 1990s when globalisation was already pervasive and an economic crisis was brewing. A shift to the opposite end did not cause a positive change, but one that revived an already discarded strategy that did not work at the time it was implemented seemed to be now working for the Company further proving that the applicability of a strategy is dependent on external factors. 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