Coca-Cola Product Life-Cycle - Case Study Example

Coca-Cola Product Life-Cycle COCACOLA PRODUCT LIFE CYCLE Introduction This paper will seek to conduct a case study on Coca-Cola’s product life cycle. Conducting a product lifecycle is a valuable instrument for marketers in the management of products as they progress through their entire lifecycle. This helps company managers to anticipate changes in the industry, while also having strategies to adapt to every stage of the lifecycle, which means that it helps in promoting a proactive approach to planning (Yang et al, 2007: p943). While every product in the world is unique, including Coca-Cola, they all follow a similar pattern as they go through their lifecycle. This concept holds that the life of any product can be divided into four distinct periods. The first one is the introduction phase, in which the initial sales are made to customers that like trying out new products, although sales in this phase are inadequate to recuperate costs of the product’s development (GečEvska et al, 2010: p209). The second phase is the growth stage, in which the sales rapidly increase with increasing product popularity and profits begin to be generated. The third stage is referred to as the maturity stage, which generates most of the product’s profits and sales and is the longest phase. Most companies seek to prolong this phase to increase profits by implementing extension strategies. The last stage is decline, in which the product sales begin to fall and being profitable. Marketing strategies should be adapted to external dynamics within the marketplace for every stage (Matsokis & Kiritsis, 2010: p789), which Coca-Cola has done to make it the most consumed global soft drink company. Coca-Cola Product Lifecycle Introduction Stage Coca-Cola was founded in mid-1886 by John Pemberton and was first introduced in form of a soda fountain drink (Coca-Cola Company.com, 2012: p1). During this stage, it was sold at 5 US cents for each glass. Because John Pemberton’s partner and accountant Frank Robinson believed that C’s would be attractive in advertising, they settled on the name Coca-Cola. The objective of Coca-Cola during this phase was to generate initial awareness about the product and put it in the market for trial by the public, which exceeded Dr. Pemberton’s initial targets (Allen, 2012: p13). In addition, they only launched a basic product that was not even sold in bottles. Rather, they sold the product from soda fountains located strategically at Dr. Pemberton’s businesses. In addition, the company used a cost plus pricing strategy during this phase and it has been suggested it is most likely they used price skimming in order to recuperate the costs of starting the business. With regards to placement, it was initially recommended that Coca-Cola have a highly selective distribution, explaining why it was only initially launched in Dr. Pemberton’s pharmacies. In order to generate awareness about the product, Coca-Cola was touted as a cure for many illnesses, especially for soldiers returning from war. The product was launched as a patent medicine to encourage potential consumers to try it out, especially driven by the belief at the time that carbonated water helped in maintaining one’s health (Pendergrast, 2013: p55). The first advertisement was in the Atlanta Journal in May of 1886. Growth Stage Dr. Pemberton sold Coca-Cola to Asa Chandler in 1888, after which the new owner created the Coca-Cola Company in 1892. By the year 1895, Coca-Cola was available and was being consumed in all states across the US (Coca-Cola Company.com, 2012: p1). With increased demand for the product, the company increased production and made it available to consumers in bottles, rather than only the previous soda fountains (Watters, 2011: p21). Sales especially increased during the Great Depression, although competition from Pepsi, which sold their drinks at a lower price, soon threatened their dominance. During this stage, Coca-Cola’s main objective was about gaining market share by extolling the benefits of Coca-Cola over the emerging Pepsi, especially with regards to its medicinal properties. As the soft drinks market grew more competitive, it became essential to improve the Coca-Cola product continuously, which was the main reason for changing the shape of their bottle. In order to support their market share objective, Coca-Cola lowered their prices, which was one of the main reasons it remained the preferred drink instead of Pepsi. Placement of the product also changed dramatically during this period, as they required an extensive network of distribution. This was responsible for ending the exclusive sale of the product in pharmacies, making it a mainstream product for consumers, thus increasing sales. In addition, due to the importance of reaching a mass audience in order to retain the consumers captured during the first stage (GečEvska, 2011: p326), Coca-Cola selected to run ads on the radio, which provided an ideal low-cost and high-reach medium. Maturity Stage Coca-Cola is currently at the maturity stage. In order to extend the company’s time in the maturity phase, Coca-Cola has sought to develop various marketing strategies, including improvement of their product and development of new models. In addition, the company also made its entry into new segments of the market, such as low sugar drinks for those with obesity and overweight problems (Coca-Cola Company.com, 2012: p1). Also, Coca-Cola increased their distribution channels, incorporating fully independent producers to bottle more than half of its global volume, while they also allowed these independent bottlers to sweeten drinks according to the tastes of local people (Greising, 2012: p71). In this phase, Coca-Cola drinks are more profitable than during the first two phases combined, which has made it a cash cow with the company aiming to make as much profit from it as possible. Because the Coca-Cola brand has now become well established, they have introduced entirely new ranges of soft drinks as an extension strategy, including bottled water and the disastrous new coke drink, to prolong this profitable phase of the Coca-Cola brand. During this phase, Coca-Cola has avoided any price wars with PepsiCo, particularly because this would be risky during a highly profitable and competitive phase. Therefore, Coca-Cola’s price has rarely fluctuated too far from the average market price for soft drinks. Its global distribution strategy, especially the manual distribution centre that operates in cities and other densely populated locations, has allowed Coca-Cola to penetrate developing and emerging economies (Hays, 2009: p45). Coca-Cola’s advertising during this phase has been characterized by attempts to differentiate the brand to position it as a brand for edgier, younger demographics, particularly with the Fanta sub-brand. Decline phase In spite of almost non-ending interest from consumers, especially with regards to the brands that support healthier lifestyles, of which Coca-Cola has been fingered as not being part of, the company’s sales do not show any signs of declining in the foreseeable future (Hays & Yazijian, 2010: p62). However, regardless of this prediction, it is still recommended that Coca-Cola must have strategies in place for implementation in the inevitable event that the product will enter the decline phase. One of the strategies that would be vital is reduction of costs when the product enters decline, which will enable it to remain profitable despite lower sales. They would also look to rationalizing their product range to a few brands that have been popular for a long time, such as Coke and Fanta. This will allow the company to minimize production costs and leverage economies of scale. In addition, they could also further reduce the price of their soft drinks in order to boost sales among consumers who are sensitive about price, while this would also be leveraged as an advertisement cue for the product. Product placement would also have to be returned to its initial selective distribution, allowing the company to concentrate their efforts on the remaining outlets that remain profitable for Coca-Cola. This would mean withdrawing their franchise-like manual distribution system that reduces their profits by outsourcing distribution activities (Elliot, 2014: p1). Finally, they would also look into reducing their sales promotion and advertisement budgets in order to reduce overhead costs. Conclusion The product lifecycle as discussed in this paper refers to the phases or stages through which a product, as well as various categories of a product, passes. This involves a study of its existence from when it is introduced into the market, its growth in brand recognition and sales, its maturity, and its decline as a result of lowered demand for the product in the market. Different products possess differently shaped curves for their product lifecycle with such products as Coca-Cola and its erstwhile competitor Pepsi seemingly in a never-ending phase of maturity. Coca-Cola is different to other products over the last one hundred years that have enjoyed short introduction phase, relatively short maturity stages, and eventually step decline phases. The product lifecycle is especially useful in studying Coca-Cola because it has relatively low risk and uncertainty levels, which has made its progress and strategies more predictable. As seen from the discussion, coca-Cola was not very profitable during its introductory phase, which changed when it expanded and entered a growth phase. As soon as the company had spread across the US and to various destinations overseas, it entered its maturity phase, allowing it to expand further and come up with extension strategies to remain in this phase with its high profit returns. In conclusion, the Coca-Cola product lifecycle as a case study is great for management students to learn from, since it shows the different business strategies that need to be undertaken for a product during the different stages. References Allen, F. (2012). Secret formula: how brilliant marketing and relentless salesmanship made Coca-Cola the best-known product in the world. New York, NY, HarperBusiness. Coca-Cola Company.com. (2012, November 7). Sustainable Pacakaging . Retrieved April 20, 2014, from The Coca-Cola Sustainability project: http://www.coca-colacompany.com/sustainabilityreport/world/sustainable-packaging.html Elliot, S. (2014, April 12). List of Global Brands Keeps Coke on Top, and Apple Jumps Up. 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