Involving Business Strategy and Coca Cola Company - Case Study Example

Case Study Involving Business Strategy: Coca Cola Company By Student Name Course Code + name University Name City, name Date Business Strategy It is not possible for a business to thrive in the prevailing market environment without applying a well-formulated strategy. The evolution of globalization has further, prompted the need for organizations to adopt new business strategies. The business World is rapidly becoming competitive especially with entrants of new players in the market (Olson et al., 2005). It is, therefore, necessary for organizations to devise new ways of remaining competitive in the market. Failure to take the necessary actions will lead to low profitability and a possible exit from the market by some of the industries. All the arguments on business strategy point out that the strategy aims at guiding an organization to achieve its overall objectives (Brandenburger and Stuart, 1996). A business strategy gives directions on actions to take to realize the Company’s goals. The strategy can either be short term or long term depending on the nature of a business. Small businesses usually develop short term strategic plans that are not very formal. On the other hand, large corporations usually make medium to long term strategic plans. In most cases, organizations develop a business strategy to cover a period of five years or more (Teece, 2010). Business strategies usually focus on major issues concerning a particular Company. Some of the issues include resources, for instance, a firm may want to raise funds so as to construct a new plant (Peng et al., 2008). A business strategy also assists an organization in deciding how to allocate resources to various products/services. It would difficult for a firm to decide on how to divide resources between various products/services if there is no strategic plan. Also an effective business strategic should focus on the nature of the various activities of the business. In particular, a strategic plan should clearly show what type of products/services a firm produces and where production takes place. The Five Competitive Forces Theory According to the theory, competition in the market depends on five fundamental forces. These forces play an important role towards the profitability of any organization. The forces work best when used together since they have greater strength when applied collectively. Given the collective strength of the forces, a firm’s strategic plan should be able to use the forces for the organizations. At the same time, the strategy should be able to protect an organization against the forces. To be able to apply the forces effectively, it is important for a Company to understand clearly how the forces work (Vorhies and Morgan, 2003). A business strategy should be able to analyze the source of the forces critically. For example, a good strategic plan should be able to explain what makes it possible for new players to enter the market freely. There must be a demand gap in the industry that existing players are not able to meet. An organization can then take the necessary actions to meet the demand and, therefore, using the forces to make more profits (Kaplan and Norton, 2001).Organizations that understand the sources of the forces stand a higher chance of developing an effective strategic plan. The forces bring out the major strengths and weaknesses of a Company. One of the key forces in the competitive theory is the firm’s position in the market. The position of an organization in the market plays an important role in determining its growth and sustainability. Organizations in the same industry are in constant fight over leadership in the market. Each firm wants to be the leader and, therefore, they ensure that they adopt most effective market strategies (Porter, 2008). The threat of entry into the market is another important force. The existing players in the industry often face a threat from potential entrants. The new entrants usually prepare in advance before making the move to join the industry. The new players are aware of the resistance they are likely to encounter from the incumbent. Therefore, they equip themselves thoroughly do be able to deal with the opposition (McMillan, 2010). However, apart from the opposition the new entrants face from the existing firms, they also encounter other drawbacks such as insufficient funds, small market share and unfavorable market conditions. Therefore, the strength of new entrants in the market depends on several factors. First, it is the reaction of the incumbent to the entrance of the new firms. If the existing firms feel threatened, then they are likely to devise measures for countering the new firms. The new entrants also face the challenge of economies of scale. Most of the existing Companies in the industry operate on a large scale basis and. Therefore, they enjoy economies of scale. These organizations can reduce their cost of production. The new entrants are, therefore, forced to either engage in large-scale production or to incur heavy production cost (Dickson and Ginter 1987). Most of the firms cannot manage to produce in large scale given their capacity at the time. Further, the new entrants face the challenge of product differentiation. Most of the existing firms in the market are aware of their customers’ preference and, therefore, they can differentiate their products to meet the customers’ needs. However, the new firms are not aware of the customers’ specifications given that their customer base is even small. It is difficult for to the new firms to understand clearly the needs of their potential customers. Further, the customers are reluctant to trust the new firms. The new firms, therefore, have a responsibility to win the loyalty of the customers(Anderson and Zeithaml, 1984). Suppliers and buyers also form a strong competitive force. The suppliers have a strong bargaining power against organizations especially if the suppliers are few. The suppliers have the power to increase the prices of products/services. Furthermore, they can decide to reduce the quality of products they supply to the firms (Insinga and Werle, 2000). Therefore, the action of suppliers is essential in determining the profitability of an organization. Several factors determine the strength of a given supplier. The first one is that a supplier is powerful if he dominates the market such that there are few other suppliers in the industry. Also, a supplier is strong if the products supplied are unique compared to other suppliers or if he supplies differentiated products. Further, a supplier is said to be powerful if his products are of high quality and are relatively cheaper. On the other hand, a buyer is said to be powerful if he buys large amounts of products. Customers who purchase products in large volumes have a strong bargaining power against the sellers. Customers are also said to be powerful in the case of standardized products. Standardization of products means buyers can buy the same products from different sellers and, therefore, they are not tied to a specific seller. Another form of competitive force is the substitute products. Sellers in the market have no power to determine the prices of products since buyers can easily shift their consumption to other substitute products. As long as there are substitute products in the market, the market forces of demand and supply will always determine the prices of the goods. The last competitive force is the market position (Insinga and Werle, 2000). There is always rivalry among the existing firms over their position in the market. In most cases, competition over the market position occurs between equal firms regarding capacity. Coca-Cola Company The Company came into existence in 1892 under the leadership of Candler the founder. The firm is the leading producer and distributor of beverages in the World. The Company is involved in the production of over five hundred brands. One of its most popular products is the Coca Cola brand. Reports indicate that the firm’s portfolio includes twenty billion-dollar investments on various brands. Some of its other brands include Fanta, Minute Maid, Dasani, sprite and Fuze Tea (Taylor, 2000). The production of variety of products has enables the Company to reach a large number of consumers. Through its comprehensive distribution system, the firm is able to meets its customers’ demands in over two hundred Countries. Further, the Company is committed to establishing a sustainable society through participation in social activities. The firm is also focused on conserving the environment in which it operates. It does so by ensuring that it does not engage environment pollution activities. Also, Company considers the health of its customers as very important and, therefore, it ensures that it produces safe products. Also, in partnership with its associates, Coca Cola Company provides employment opportunities to over seven hundred thousand people. This is a clear indication that the Company plays a very important role in improving the society. Coca Cola Company faces competition from other industries who also deal with production of beverages. Some of its major Competitors come from the soft drink industry. The soft drink industry is the second leading distributor of beverages after Coca Cola. In fact, research shows that the soft drink industry exceeds Coca Cola Company in some markets in terms of sales. Coca Cola also faces competition from other local brands all across the World. Despite the competition, Coca Cola continues to lead in the market. For example in 2004, the company controlled sixty nine percent of the total share-market in India (Taylor, 2000). The Company applies a competitive strategy in dealing with competition in the market. Coca Cola Company’s Business Strategy Coca Cola Company applies the Competitive Force theory in formulation of its business strategy. One of its strategic objectives is to improve its position in the market. The beverage industry is very competitive and, therefore, Companies must set strategic plans on how to remain competitive in the market (Ritter and Gemünden, 2004). Coca-Cola Company is one of the leading players in the beverage industry. However, the Company faces threats from the existing competitors and also new entrants into the market. To protect its position in the industry, the Company has adopted some strategic measures. One of the measures involves increasing its customer base through the production of a variety of products. Customers usually have preference for a variety of products. Therefore, the Company ensures that it produces different beverages to meet the needs of its growing customer base. The strategic plan of the Company also focuses on meeting the needs of its customers. The Company values the significant role the Customers play in its success. The Company takes advantage of the competitive force of its customers and offers them quality products at an affordable price (Lowenstein, 1996). Also, the Company ensures that its customers enjoy a variety of products. The Company is, therefore, able win the loyalty of its customers. Further, the Company aims at establishing a good relationship with the community. It is the society that supplies the Company with the necessary resources it needs for production. The Company, therefore, uses the competitive force of its suppliers to its favor. Coca-cola Company enjoys economies of scale since it can produce in large scale. The ability of the Company to produce products at a lower cost gives the firm a competitive advantage against its competitors. The firm is, therefore, able to overcome the threat posed by existing firms in the industry and also new entrants. Also, in its strategic plan, the Company aims at producing a variety of products (Deshpande and Webster 1989). The Company’s ability to produce variety of products enables it to overcome the threat the threat of substitute products in the market. Its customers have a variety of products to choose from and, therefore, they are not tempted to shift their consumption to other Company’s products. In conclusion, it is evident from the above discussion that there is a relationship between Coca Cola’s business strategy and the Competitive Force Theory. The Competitive theory focuses on five major forces that determine the success of an organization. The forces include threat of new entrants, substitute products, suppliers, buyers and market position. A Company that is able to take advantage of these forces stands a high chance of succeeding in its respective industry. Coca Cola Company applies the theory to secure its position in the market. It is also able to cope with competition from both existing and new firms. The organization’s ability to produce variety of products enables it to retain and even increase its customers. We can, therefore, conclude that Coca Cola Company applies the concept of Competitive Force Theory in designing its business strategy. Bibliography Anderson, C. R., and Zeithaml, C. P., 1984, “Stage of the product life cycle, business strategy, and business performance,” Academy of Management journal, 27(1), 5-24. Brandenburger, A. M., and Stuart, H. W., 1996, “Value-based business strategy,”Journal of Economics and Management Strategy, 5, 5-24. Deshpande, R., and Webster Jr, F. 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A., 2003, “A configuration theory assessment of marketing organization fit with business strategy and its relationship with marketing performance,” Journal of marketing, 67(1), 100-115. Read More