The Impact of Boycotting Campaigns on Coca Cola International Company - Case Study Example

The Impact of Boycotting Campaigns on Coca Cola International Company affiliation: Table of Contents Introduction 2. Coca Cola Company Background 3. Company Competitiveness 4. Coca Cola Boycott in Saudi 5. Effects of the Boycott a) Drops in Sales b) Product Security c) Erosion of Producing Country’s Power d) Steering Away the Best 6. Coca Cola Company reaction 7. Market Entry Strategy a) Social Stratification b) Technology 8. Conclusion Introduction A boycott campaign consists of an intensive social and economic ostracism of a group, individual, or nation to express its disagreements. An English civil servant named Captain Boycott led his employees to refuse any cooperation with him hence the term “Boycott”. These employees had requested for a substantial reduction in rent back in 1880, and he refused. Parnell, a president of the land league recommended that the only to compel Boycott to decrease the rents be by saying no to work together with him. Economic consumer boycotts is now a popular name in the industry, and it means a collective choice of not buying the products. A good example is the Coca Cola boycott in the Saudi Arabia, which is among the biggest Coca cola boycott globally. The boycotts usually constitute for unsatisfied customers expecting the government to react on the issue. This paper studies analytically the conditions under which consumer boycott is successful with Coca cola Company being the case study. Coca Cola Company Background The coca cola company is among the most successful international companies globally. Dr. Penderton was the man behind this great discovery of Coca Cola Company in 1886. By 1994, it became a registered company and today it has spread out to 200 countries with a production of over 500 brands, and 3300 different beverages (Tucker 121). These products vary from juice, water, sparkling beverages, energy drinks, and sports drinks. With its headquarters in Atlanta, Coca Cola has around 92000 employees. This American corporation has specialized in the processing, manufacturing, distribution and marketing of a wide range of non-alcoholic beverages. Since its invention in 1886 by Dr. Penderton in Georgia, the company has thrived, enhance its competitive advantage and expanded its market niche and operations to other lucrative destinations; a move that has enabled it to increase its revenue margin and attain a global recognition. As a result of its outstanding performance in the beverage industry, the company was ranked as one of the leading manufacturer of soft drinks in the world by the World Bank in 2012 (Elmore, 77). In the same vain, the company has participated in many forums and competitions and won several prestigious awards including the 2008 United Kingdom Grocery Award for being the first company to achieve the 1billion benchmark. The winning of this award elevated the Company’s reputation to the international stage. Coca Cola Competitiveness For many years, the company has remained competitive in business cycles and managed to outdo its arch rivalries by expanding its operations. Today, the company is operational in more than 200 territories where it has established its distribution and processing outlets. As a result, the company only derives less than 25% of its total revenue from the domestic market (America). The company has managed to attain this tremendous growth by diversifying its products and services because it deals a wide range of soft beverages including energy giving drinks, tea, coffee, Coke brand and water, to highlight, a few. Blair and Herbert (106) affirm that the company serves more than 2 million customers daily and has employed more than 150 employees. The report indicated that the company has continued to increase its total revenue since 2009. In 2010, the company gathered more than $15 million as the total revenue, which was 13.4% higher than the total revenue of 2009 (Elmore, 720). This significant increase in revenue collection attributed to an increment of about 1.2% in unit rate and 4.8% in volume capacity. The report further projected that the company will increase its current revenue margin by 20% in 2020 following the opening of new markets in other regions. Coca Cola Boycott in Saudi Coca Cola Bottling Company in Saudi Arabia faces a lot of cultural diversity. Tucker (122) noted that between the years 1968-1991, the Arab League had boycotted this beverage to serve as a punishment for the company’s business in Israel. Some of these cultural hindrances seem to challenge Coca Cola. Other cultural diversities include understanding the people’s perceptions, stereotyping, and their expectations and values. Dasani bottled water is a good and it continues to face challenges even in Saudi Arabia. Coca Cola Company tried to purchase Orangima, which is a European soft drink company, but unfortunately, the market regulators terminated. In its further diversification, Coca Cola Company in Saudi Arabia plans to merge with Cadbury Schweppes, which enable the consumer will have all types of drinks at any time whether breakfast, lunch, or even adults drinks at night. Effects of the Boycott Drop in Sales Historically, Coca cola continues to struggle in the Middle East markets especially after the Arab League boycott. According to Tucker and Roberts (121), it is hard to estimate how much this boycott hurt both the company and the country’s economy. However, it is clear that the drop in sales went drastically down within the Arab region. Some of their supply centers had to close down meaning that some people became jobless. This unemployment means that that some people’s lifestyles had to change in order to cope financially. Their rate of spending went down, an economical effect caused by joblessness. During this boycott, the sales of an alternative drink Star Cola went up by 40%. These alternative cold drinks took advantage of the boycott and increased the prices of their products. This increase consequently affected the consumers’ pockets. The above graph shows how the boycott affected the market sales on Coca cola. In addition, most of the Arabs ran the Coca cola operations in the Arab countries, and therefore, the boycott affected them more. A Coca cola official argued that their bottling partner in the Palestinian Authority area employees over 320 members of staff meaning its closer would result to 320 hungry families. Unlike companies like McDonald’s that exposed their losses, Coca cola remained silent. Boycotts tend to bring negative sentiments towards its operations and therefore affect the businesses, and jeopardize the economy. The boycotts contribute to attacks on business and therefore they have to spend more money in ensuring the business’ security. In addition, such boycotts hurt the sales, and therefore they prevent global expansion of the business. During the boycott, people lose their trust on the product and this may have a ripple effect on other American products. The consumers may lose their trust on any of the producer country’s product. A major boycott to a product like Coca cola that helps in strengthening foreign markets has a negative effect on this relationship. However, this may equally have a positive effect because the concerned country, in this case America, may have stronger basis to negotiate terms on the international trade. The boycotters may equally undermine the country’s ability to recruit new talents. The following sections discuss arguments on boycott’s impact on these areas in turn. Product Security Like direct attacks on a country’s businesses and citizens, boycotts of certain products may have similar effects. The economist (3) reported that among other products, Coca cola hurt badly during the expansion of boycotts in Middle East. The report wrote that Coca cola the most valuable brand had its business hurt, and the local businesses as well. Some sources confirm that such boycotts have a big impact on any company’s bottom-line. A report from Middle East argued that the grass roots boycott of these American products organized through newspapers, and internet among others contributed to a 55% decline of the United States exports to Saudi Arabia. The report said that Coca cola products decline by over a half with the reducing marking a 12 year low in America exports to Saudi. Erosion of the Country’s Power Boycotts continuously promote an increased distrust of the country’s business, and branding power turning away the consumer countries. GMI conducted an earlier research in 2004, and out of the 8000 people in survey, nearly 20% did not have the will power to buy the American products after the boycotts. The global consumer attitude change with boycotts. However, a person may ask whether these consumer responses to such polls reflect their behavior in the marketplace. Research shows that most consumers separate politics from their behavior as consumers. The Economist (59) notes that this result is true according to Research International’s study in 2002. This research surveyed 1500 people in 41 countries aged 18-34, and confirmed that political activists separate their politics from consumer behavior. However, branding directly relates to sales with respect to global consumer’s identification of the product, and existence of alternative products. During the Coca cola boycott, the consumers switched to Pepsi among other soft drinks. Nevertheless, with lack of alternatives, there are fewer chances of boycotting the product. However, no cold drink company beats Coca cola, and that is the reason why the boycott did not last. In addition, these countries mostly relied on American products in their economies. This makes it hard to reduce the production power in the producing company. Steering away the Best Boycott undermines the country’s capability of producing alternative products, while recruiting new talents. Sometimes the boycotts become revelations, and the affected companies work hard to look for the alternatives. In addition, depending on the reason for boycott, some companies may opt to higher greater talents in order to improve the product. However, this was not the case with the Coca cola products; hence, there was no need to introduce an alternative. This was a political boycott, and the company only needed to use new marketing strategies to beat the alternative drink in the market, Pepsi. Company Reaction Since the three-decade boycott in the Middle East of Coca Cola had challenges re-entering the Arab markets. Therefore, the company required to adapt new marketing strategies after re-studying the market. Many factors helped Coca cola rise back to the top, and today it covers a third of Saudi Arabia’s soft drink market. One of the factors favoring the coca Cola industry is the hot weather in Saudi Arabia. It is also clear that most of the people in this region do not consume alcohol since their culture prohibits its consumption. This means that during many of their occasions, they prefer having juices instead of alcohol. Research shows that the youth population in Saudi Arabia remains relatively. This becomes an added advantage in the coca cola consumption. Research confirms that 25% of Saudi Arabia’s population is less than twenty years of age. This is the target population although their consumption ration does not compare to United States that is the highest coca cola consumer. The graph below confirms that the Arab region remains the least consumers of the Coca cola products. Coca Cola started by investing over $500million, and infrastructure was the first area of concern. The entire infrastructure included bottling plants, a proper distribution networking, warehouses, refrigerated trucks, and a great sales team. According to White (32), another factor that enabled Coca Cola entry included the many mistakes made by the former soft drink giant, Pepsi. One of the mistakes included their take it or leave it approach towards their clients. They solely dictated the market’s supply chain, which did not work well with the clients. Coca Cola came up with the cooling systems for the retail market, which enticed the customers. Their focus on creating a relationship with their clients saw a boost in their market. As a foreign company, Coca Cola Company in Saudi Arabia penetrated into the people through asking them on their preferred changes. According to Tucker and Roberts (66), the introduction of a very innovative market easily convinces the buyers. Understanding the Saudi’s culture and their people’s needs saw them introducing the cooling system at the grocery and other retailers ensured that every person enjoyed a cold drink. These innovations benefitted not only the consumer, but also the grocers, fast food outlets, restaurants, and other retailers. These clients have an enormous influence on sales hence the need to handle them with care. Research shows that the monopolizing Pepsi Company had no credit facilities for the retailers, and Coca Cola took advantage of that because it is a standard industry practice in purchases. Managing consumer behavior of beverage in Saudi Arabia involves learning the people, groups, and other companies, while understanding the process they use in selecting, securing, and disposing their products in order to satisfy customer needs. This is possible through different researches whether quantitative or qualitative methods. Holding interviews with different consumers from different locations may help in understanding the Saudi Arabia people’s prevalence. Pepsi had issues with bottling companies that caused major conflicts. However, Coca Cola adapted the method of having just one bottling company in each country to avoid such conflicts. Coca Cola went further and purchased stakes in the bottling plants whereby they invested to prove their commitments. They also felt that these bottling plants lacked experience with soft drinks. This research may include understanding these consumer’s trends, attitudes, and behavior towards beverage consumptions. Coca Cola’s is an international trade because soft drink’s consumption takes 51% of the globe’s beverage consumption. This companies geographic favors all religions, both rural and urban markets, and it was the first soft drink company to identify the market spin-offs in relation to location. Coca cola realized that rural people were more particular on the prices, unlike urban population that considered quality. It is not easy for any company to enter into foreign markets due to regulations. In foreign Direct Investments, companies invest with the hope of benefiting from expertise and other knowledge. Unlike FDI, Coca Cola Company sets up its production with an intention of selling it to the local consumers and not for export. Saudi Arabia is a strict government that may not want foreign companies to engage in FDI since it involves long-term, and they would want to control the foreign investments in order to protect their local resources and industries. The international overhaul of Saudi markets in regards to Coca Cola is a great success. This is because it continues to lead in beverage production and sales. The rate at which Coca Cola seems to expand is amazing, and proves that its market share in Arabia in the next ten years will be among the top international markets. Pepsi seems to lead in the market share because of its monopoly in the earlier years after Coca Cola ban in Arab states. This beverage has an advantage due to the flamboyant lifestyles in Saudi enhanced by the oil revenues. It is clear that Coca Cola’s Saudi markets are tense due to the competition from the Pepsi, which dominated this market for three decades. Coca Cola’s presence in Israel caused this damage. Research shows that Pepsi holds around 80% of Saudi Arabia’s soft drink share. At one time, the Saudi people referred coca cola as the “red coke”. However, Coca Cola continues its fight into this market and its share has gone up to 15%. Market Entry Strategy Social Stratification The Arab world is rich and majority of the people are in either high or Middle class although there is the low class too. Coca cola is able to identify these classes, and offering prices according to class. Throughout history, there is some social stratification or class structure existing among all societies. A consumer’s social class refers to a person’s standing in his or her society, and influenced by several factors including income, occupation, and education. While income may be an indicator of social status, it differs according to cultural interest, residence, and worldview. Social status defines as the division among members of a certain society into a hierarchy of distinctive status classes, whereby each class bears common status with some having high, and others lower status. The middle class desires using products consumed by upper middle class, while the later prefer upper class products. However, this may not have major effect on the Coca cola Company because of their pricing systems. This product ensures that the prices are friendly for all regions and classes, which contributes to its success. On the other hand, Schilmoeller (94) argues that the society plays a big role in dictating what people consume. This happens mainly among the youth due to peer pressure. Once some stereotypes in certain societies decide that Coca cola is the best drink, then everyone else will follow in order to fit in the group. This clearly shows in the Coca cola advertisements, which mainly involve the youth because they are the part makers, and best consumers of soft drinks. The older generation prefers health drinks and although this company has its health drinks, the older generation prefers fresh fruit juices, due to their health-watch. Therefore, one can conclude that society plays the bigger role in determining consumer decision making. Technological It is clear that this comes with marketing strategies mostly and not the production. Globalization affects buying patterns in several ways. Marketing strategies have developed and they are closer to the consumer compared to earlier days. The internet plays the largest role because everyone spends most of the time online and messages are always popping out on new products. Technology identifies not only the new products but also their advantages and disadvantages comparatively. This has not only affecting the products bought but also the places to shop. Modernization means competition and so there are improved products every minute (Elmore 60). This comes with extra expenses because of exposure. The product diversity is extremely wide and so are the temptations. Sometimes one overspends because of the indecisions caused by the wide variety of products in the market. Research shows that Coca cola leads in its advertisements, which are not only global, but they target all demographics. Conclusion Boycotts may have a great negative impact on any product. The research shows that it may affect the economic factors of both the product and the country. The economic factors may include the number of sales, and business relationships among different countries. The Coca cola experienced some boycotts in the Middle East due to the War between the Israelites and the Palestinians. Research shows that the Coca Cola Company remained silent on the types of losses regarding the boycott unlike other companies like McDonalds. However, Coca Cola Company recovered the losses due to the marketing strategy it applied to beat the Pepsi Company that benefitted from the boycott. Therefore, boycotting by consumer products may not be the absolute alternative to pressuring the companies’ productions to favor their requests. References BLAIR, S., & HEBERT, J. (2012). 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