Business Report On Coca-cola Company - Essay Example

? Business Report On Coca-cola Company. al affiliation Table of contents EXECUTIVE SUMMARY…………………………………………………… 3 INTRODUCTION………………………………………………......... 4 2. PRICE AND NONPRICE COMPETITION…….................................. 5 3. ACTUAL OR POTENTIAL THREAT OF ENTRY……………............ 6 4. COMPETING PRODUCTS FROM OUTSIDE THE COMPANY…... 7 5. ECONOMIC POWER TO CHARGE HIGHER PRICES…………….. 8 6. STRATEGIES SET TO REMAIN COMPETITIVE………………….. 9 7. CONCLUSION……………………………………………………….. 10 8. APPENDICES………………………………………………………... 12 9. REFERENCES……………………………………………………….. 13 EXECUTIVE SUMMARY This report provides information about the factors that erode the profitability of the Coca-Cola Company, her economic power to charge higher prices and the strategies the company has employed to remain competitive in the ever changing global economy. The information is for the management of the coca-cola company to help them in proper and logical decision making. This report outlines critical reviews and the developments the company has made and proposes the probable measures the company management ought to consider for greater expansion of the business. Three factors which will be discussed in the report will be addressing the erosion of the profitability of the company. The factors include profit and nonprofit competition, actual or threat of potential entry and competition by products from outside the company. The report will also address the extent to which the coca-cola company has economic power to charge higher prices. Last the report will detail the strategies the company has employed to remain competitive in the market. Profit is the financial benefit realized when the difference between income and expenses yields an amount that is capable of sustaining the business activity. Profitability therefore is measured using income and expenses and this is the primary goal on any business venture. Price and non price competition, actual or threat of potential entry by competitors and competing products from outside the company are the immediate concerns in this context and therefore are adequately elaborated. INTRODUCTION The purpose of this report is to provide information for the management of the coca-cola and affiliates about the extent to which price or non price competition, actual or potential threat to entry in the industry by competitors and competing products from outside the company erode the profitability of coca-cola company. The report also addresses the extent to which the company have economic power to charge higher prices and lastly, strategies the company has put forth to remain competitive in the market. Coca-cola Company is a multinational business whose headquarters is in America. Coca-cola manufactures, markets, retails and wholesales non alcoholic beverages and concentrates. The company was founded by Assa Griggs candler in 1892 and its headquarters based in Atlanta,CA. Ever since, the company has been on operation despite numerous challenges she has faced. Five major topics make up this report. To what extent does price or non price competition erode the profitability of the company? To what extent does actual or potential threat erode the profitability of the company? To what extent does competing products from outside the company erode the profitability of the company? To what extent does Coca-Cola Company have economic power to charge higher prices? The strategies the coca-cola company has used to remain competitive in the ever changing global community. All these factors are discussed elaborately and adequately. PRICE AND NON-PRICE COMPETITION. Price competition is a situation where a company cuts the price of the product and instead offers it at a lower rate than usual. The price cut could be due to the company’s own volition or as a result of pressure by the competitors. Companies producing homogeneous goods such as coca-cola and Pepsi.Inc meet this kind of competition. Price competition affects the productivity of companies in the sense that it lowers the revenues of such companies. The companies therefore lean on non price competition and tend to shy away from price competition. (anonymous, 2012) Non price competition is the case when emphasis is laid on other factors other than price. The manufacturer keeps price constant and focuses on product differentiation by improving product quality and marketing methods. (anonymous, 2012)Though coca-cola dominates the global market share by 43% in value, it is still a victim of price competition given that it has a similar format and sell similar product as Pepsi Cola Company. Other non alcoholic drink manufacturers also pose as competitors as shown in table.1 (fmx20, 2008). Changes in product price by competitors have forced the coca-cola company to also adjust her product prices thus lowering her market share. Pepsi and other competitors changed their prices, thus consumer preferences also changed and this led to loss of consumption of coca-cola products. This translated to low sales and diminishing market for coca-cola company. (fmx20, 2008) Non price competition is also evident (fmx20, 2008).coca-cola in an attempt to beat competitors has diverted to producing quality drinks (Table 1). This move forces the company to use more of the corn syrup which is an expensive raw material. Aluminum and plastics used for bottling have to be made of quality and these increases the production costs which demands for elevated product prices. Pepsi on the other hand strives to increase the quality of her products thus shifting consumer preferences and increasing her cut of market share. ACTUAL OR THREAT OF POTENTIAL ENTRY. Potential competitors are those companies that do not compete the said companies at the moment but have the choice of doing so. Most companies which actively exist in the market normally tend to frustrate potential competitors from entering the industry since they pose a very big risk in the market share for the existing companies. Potential entries present risks in the profitability of the existing and established companies. (hill and jones, 2012) The profitability of coca-cola and pepsi.inc are not threatened as such in this context. This is due to the following reasons. The two companies have been operational since time immemorial and thus have established a brand name. It is therefore most unlikely for a new company to enter the market and establish a brand name as the two above. Therefore other companies which would have wished to enter the market shy away. The two biggest manufacturers have a wide distribution channel which may not be easily matched by the new company. The investment cost for constructing factories distribution channel and marketing platforms is high to the extent that the new company may not easily afford thus will stay away. Both the leading manufacturers and distributors enjoy a large economy of scale which may not be a guarantee for the new comer. Therefore actual or threat of potential entry is very low and thus does not affect the profitability of the established companies. COMPETING PRODUCTS FROM OUTSIDE THE COMPANY Competing products from outside the company or substitutes is a real threat to most established companies. This is so because the substitute products hinder them from varying their products prices as they wish lest they lose the market grip. (c.rao, B.rao and sivaramakrishna, 2009.) In the case of patent rights, the company which has a patented idea has the privilege of producing the product solely as a monopoly for only a period of time beyond which the substitutes also get their way into the market and slice the market share. This could reduce the profitability of a company by large percentage. (Botten, 2007) In its recent endeavors, coca-cola has been facing significant challenges in terms of competing products that in turn have created substantial pressure in terms of innovation and continuous up-gradation of its product line. To be specific, all the international soft drink companies tend to have their specialties in differentiating their product range from that of their competitors. However, the recent strategies applied by Coca cola can be observed as highly inspired by the product line designed by the company itself, which indicates that the company lacks in innovation as compared to its major rivals (Gasparro & Warner, 2012). Considering this particular aspect, thus it can be affirmed that influences from its competitive products is non-negligible in contrast to its profitability interests over the long-run period. The threat of substitute products in the soft drink industry is high with bottled water, juices and coffee being substitutes. Non alcoholic drinks are also being considered by some classes of people. Consumption of a substitute product affects the profitability of the coca-cola company to a greater extent. Most people are keener when health issues arise and therefore a majority is shifting to consumption of fruit juices rather than the coca-cola products. Some prefer coffee and tea to soft drinks. In some regions changing climatic conditions have shaped consumer preferences and choices like in cold regions, the sales of the coca-cola company are lowered and as a result, profitability is injured. ECONOMIC POWER TO CHARGE HIGHER PRICES. Monopolistic companies have the power to charge higher prices in the industry. Oligopolistic companies also have a larger market share and thus dominate the market. Monopolistic companies given their market dominance will influence the prices of their commodities since they enjoy large profit turnovers. Once these companies are in a position to control other small companies, they will determine who joins the industry and they will try to limit competition. Coca-cola Company and Pepsi.inc are oligopolistic companies in the market. They have the largest market share and for this reason control prices of commodities. They will therefore set prices that will drive small investors out of the market and keep them locked out altogether. Coca-cola and Pepsi are oligopolistic and they have a cut throat competition. This however does not bar them from controlling the market prices. They do so through a kinked demand curve. Both companies employ the game theory which is a market policy that helps them control prices. both the companies use a low-price strategy in order to maximize profit. The lowered economies of scale exhibits the free entry and exit characteristics of the market, which further indicates to a free market structure of the fast food industry in the global platform. Again, a moderate level of interference from the governmental bodies, immense influences of competitors and a variety of large market players also gives the industry a free market structure. Conceptually, a free market structure restricts the power of one company to influence the prices owing to the huge availability of substitute products and/or services as well as similar market players. In addition, greater bargaining power of the customers also tends to restrict one particular organization to control price changes. Apparently, these factors also increase the profitability challenges of the coca-cola company as it restricts the company to gain control on product prices. STRATEGIES USED TO REMAIN COMPETITIVE IN THE MARKET. With increased competition, coca-cola company has been focused on creating better alliance between the customer preferences and its market strategies keeping into account the price variations, sustainability demands, variation in the products needs and quality features as well. However, in doing so, the company has been following the footsteps of its major rivals, including Pepsi.Inc (Gasparro & Warner, 2012). This indicates that the company has failed to innovate its unique product line to a certain extent and thereby, differentiating its services and products amid the global customers to attract better profitability as well as sustainability. All in all, the focus on the company to continuously expand and respond to the sustainability issues raised by its stakeholders in the most rational manner have assisted it in enhancing its sustainability level to a certain degree. In the recent years, the company can also be observed to emphasize on reassessing its structure in the various global markets and take measures accordingly towards its reformation (Gasparro & Warner, 2012). Strategically, these factors can be regarded as likely to be beneficial for the company in differentiating its stance within the global industry context. CONCLUSION Coca-Cola Company no doubt has been innovative. They have tried to adjust and adhere to consumer demands forthwith. It is vivid that any international business needs proper strategic planning for competing with the global environment, wherein the role played by global environment factors are also not negligible. The commonly observed boundaries such as political, environmental and social among others have considerable effects on the competitive positioning of Coca-cola as these factors act as the major determinants of the market structure where the company is functioning and likewise, influence its strategic behavior. Coca-cola Company has created job opportunities, provided scholarships and education to the general public. They have improved their marketing techniques and in so doing they are thriving and still will thrive. APPENDICES-A Table.1 40.06 Nov 20, 4:00PM EST Add to Portfolio Competitors Get Competitors for:  Direct Competitor Comparison   KO DPS NSRGY PEP Industry Market Cap: 176.90B 9.71B 233.76B 130.56B 322.36B Employees: 150,900 19,000 339,000 278,000 150.90K Qtrly Rev Growth (yoy): -0.03 0.01 0.05 0.02 0.20 Revenue (ttm): 47.27B 6.02B 101.39B 66.25B 47.27B Gross Margin (ttm): 0.60 0.58 0.48 0.53 0.60 EBITDA (ttm): 13.06B 1.28B 19.21B 12.13B 13.06B Operating Margin (ttm): 0.23 0.18 0.16 0.15 0.23 Net Income (ttm): 8.74B 638.00M 11.56B 6.65B N/A EPS (ttm): 1.93 3.09 3.62 4.26 1.93 P/E (ttm): 20.77 15.66 20.18 19.98 37.84 PEG (5 yr expected): 2.63 1.98 4.93 2.47 2.63 P/S (ttm): 3.74 1.61 2.33 1.97 6.82   DPS = Dr Pepper Snapple Group, Inc. NSRGY = Nestl PEP = Pepsico, Inc. Industry = Beverages - Soft Drinks Nonalcoholic Beverage Makers Ranked by Beverage Sales   Company Symbol Price Change Market Cap P/E The Coca-Cola Company KO 40.06 0.00 176.90B 20.77 Pepsico, Inc. PEP 85.13 0.00 130.56B 19.98 Dr Pepper Snapple Group, Inc. DPS 48.41 0.00 9.71B 15.66 Groupe Danone Water Division Private - View Profile Nestle Waters Private - View Profile ITO EN, LTD. Private - View Profile Red Bull GmbH Private - View Profile Cott Corporation COT 8.61 0.00 811.29M 26.99 Britvic Plc BTVCF 9.37 0.00 2.28B 23.03 Ocean Spray Cranberries, Inc. Private - View Profile Nestl NSRGY 73.05 -0.01 233.76B 20.18 Diageo plc DEO 128.75 0.00 80.57B 20.29 HINKF 69.95 0.00 N/A N/A SABMiller plc SBMRY 52.02 -0.00 82.92B 25.56 Anheuser-Busch InBev SA/NV BUD 103.54 0.00 166.04B 12.39 Suntory International Corp. Private - View Profile Mondelez International, Inc. MDLZ 33.49 -0.01 58.73B 21.90 Pernod Ricard SA Private - View Profile Molson Coors Brewing Company TAP 53.24 -0.01 9.79B 19.70 Grupo Modelo, S.A.B. de C.V. GPMCF 9.20 0.00 40.70B 10.28 Constellation Brands Inc. STZ 69.02 0.00 13.07B 7.40   View Beverages - Soft Drinks Industry Center Beverage Makers Ranked by Sales   Company Symbol Price Change Market Cap P/E   View Beverages - Soft Drinks Industry Center Alcoholic Beverage Makers Ranked by Sales   Company Symbol Price Change Market Cap P/E   View Beverages - Soft Drinks Industry Center Figure 1 Figure.2 References Coca-Cola Amatil hit by Pepsi price war. (n.d.). The Sydney Morning Herald. Retrieved November 21, 2013, from http://news.smh.com.au/breaking-news-business/cocacola-amatil-hit-by-pepsi-price-war-20130507-2j4ra.html Coca-Cola Journey Homepage: The Coca-Cola Company. (n.d.). The Coca-Cola Company. Retrieved November 21, 2013, from http://www.coca-colacompany.com/ anonymous, a. (0). Principles of Marketing. n/a: FK Publications. the coca-cola company. (n.d.). yahoo finance. Retrieved November 21, 2013, from http://finance.yahoo.com/q/co?s=KO+Competitors Hill, Charles W L, and Gareth R Jones. Essentials of strategic management. Australia ; Mason, Ohio: South-Western/Cengage Learning, 2012. Coca-Cola Bottling Co. Consolidated (COKE)." Stock:. N.p., n.d. Web. 21 Nov. 2013 Rao, Appa C., Barvasithwara B. Rao, and K. Sivaramakrishna. "Strategic Management and Business Policy." Google Books. Exel Books India, n.d. Web. 21 Nov. 2013. Botten, Neil. "Strategic Management and Business Policy." Google Books. Elsevier Science & Technology, 2007, n.d. Web. 21 Nov. 2013. Read More