Coca-Cola Company Ethical Branding - Assignment Example

Affiliation: Discussion Questions Question One Coca-Cola Company has been the world leading beverage distributor of soft drinks for a long time. The presence of the company in the world in well documented. Despite this reputation and continuous growth rate, Coca cola Vietnam has been on the losing end for the last twenty years of operation. The decision to invest continuously in Vietnam has not reaped any profits for the company. The management acknowledges that the company has lost up to one hundred and eighty-one million dollars by the end of September in 2011. This figure was higher than their investment in the country, which was about 141.1 million dollars. This meant that the operation of the company was on loans from the government or the parent company. In 2010, the company shocked the world when they announced that the company would add three hundred million dollars to the business in Vietnam. By this point in the operation of the business, the Vietnamese government had exempted the company from paying Cooperate Income tax, as the company was not making any profits. The company decided to include the cost of 300 million dollars in the investment in Vietnam as a means to improve the image of the company through upgrading of the flavor of the drink and the increased advertisement and promotion of the company in the region. The company on the basis made the decision that Vietnam is one of the fastest growing economies with a rate of 17.7 percent per year. If the company could tap into this economy, the company would grow with the economy (Linh, 1). The other reason for this investment was based on the many accusations of coca cola tax evasion in Vietnam that had caused a poor image for the company. As a result, the 300 dollars invested would also be used to ensure infrastructure development that would support world-class practices and offer more job opportunities to Vietnamese population. The move was to let the community know that the company was also interested in investing in the livelihoods of the communities around its operations. Even though the move to invest in the Vietnam market was seen as a good investment by the company management, the fact that profits were not realized the same year and that demonstrations against the company practices continued is evidence of misinformed investment. Instead of the investment above, the company should have considered principles of problem solving. Among them is finding out why the company had made losses for such a long time and who was responsible for making bad decision in the management. A cited case is that the parent company had been distributing the primary products to Vietnam Company at a very high cost given that the cost of raw materials in Vietnam is also high. The other principle in consideration should have been gathering enough information why Pepsi, for example, a rival company was doing better in the same environment than Coca cola and why only Coca-Cola had a bad reputation of tax evasion. This information would and should have been the incentive that management needed in making decisions about using the 300 million dollars investment in the country (Froeb et al. 4–6). Question Two Since the first manufacturing done in 186 by coca cola, the company gained a reputation that allowed it to have a lion share in the market of soft beverages. N 1985, over a century after the company began operation, the company introduced a new brand of the “New Coke." This was reputed to be a big success given the test results that had been done in two years prior. Nevertheless, after merely three months, the brand failed terribly, and the market share of the company dropped considerably. The company had noticed an investment opportunity but had misread and misrepresented the desires of the customers. The decision to expand might have been a good decision, but the decision to change the brand and test without consideration of royalty of the original brand was a bad decision. Some of the steps that coca cola should have taken to ensure the success of the new brand would include consideration of the opportunity cost. The question was if it was worth the benefit giving up a brand that the company had spent a century marketing and branding. Many of the company customers for the old drink loved it passionately while those who had supported the new drink during the taste test only liked it for a moment. Coca-Cola had failed to recognize that sentimental value and branding of the product are key elements in making decisions that are to have benefits after costs are incurred (Froeb et al. 62–67). Question Three Coca cola has been on the forefront of increased marketing and expansion throughout the world. The reason that coca cola can afford to sell its produce at a very affordable price even though the content of a 300 millimeters of soda has sugar that is worth more than it costs is that it operates on economies of scale. In the Vietnam case study that has been discussed above, even though coca cola has been on the losing end, it continues to pump more money to the production of soda. The belief is that if they can produce more, the cost of production per will go down, and profits will be raised. Recent financial report from the company revealed that in 2014, coca cola had made profits in Vietnam after years of loss making. The profit that the company made in 2014 was not specified, but the executive vice president Irial Finan said that the company was able to pay off the debt it had (Fan, 18). The economy scale that coca cola practiced was the internal economies of scale. Through the 3000 million dollars investment that the company added in Vietnam, labor, marketing and technical economies of the company were boosted in a period of three years, and the company was able to enjoy the economies of scale. The company still aims to increase the investment in Vietnam to 500 million dollars. This is aimed at expanding the business in the country to enjoy more profits from high production and reduced cost of production per unit. Question Four Companies that produce goods to charge customers differently for the same goods have used pricing discrimination. Whereas they are good for the profitability of the company, the customer may suffer owing to price changes. In 2000, coca cola invented a vending machine that would see the company raise the price its beverages on a hot day and lower the prices on a humid day. As a direct and first-degree discrimination, the company knew the maximum price its customers were willing to pay on a hot day. It can also be considered as a group pricing with direct segmentation where the conditioning of prices was based on direct changes of the environment. In this case, the changes of the environment in different parts of the country attracted different pricing from the groups that live in these countries. It is notable to say that the project was a failure since the greatest competitor of coca cola, Pepsi, was not implementing the same price discrimination. For the success of such a project as undertaken by coca cola, it was necessary that a market test be done that would prove the effectiveness of implementing such a price discrimination. Undertaking such a project in a region where social stratification is a key element in influencing the course of business, the project might have been a success. This means that the company would have considered leaving the price constant for most of its markets and only implementing the project in a region where market changes are an attraction to preference like a rich residential area or a market operation where the monopoly of the market belongs to the company (Yoffie, 28). Question Five Buying and selling in contracts is always affected by the deals that are made by the seller and the bargaining power of the buyer. In the above case, if the buyer attends the closing schedule, the seller is informed of the motivation and importance that the buyer attaches and may not sweeten the deal as much. On the other hand, if the buyer attends as a way of informing the seller that new information has come to light about other better offers, the outcome in terms of price reduction could favor the buyer. The interpretation of the latter reason however depends on whether the seller believes the claim of the buyer of simply regards it as a bluff. The second option of sending an attorney to close the previously negotiated deal is the least preferable. The reason is that the attorney is bound by the previous deal, hence, may not play any role in renegotiating the price of the house. The only possible scenario in this case that can lead to a bargaining is if the buyer authorizes to sign a deal only if the seller is willing to go down of the initial price quoted for the house. Pre-signing all the closing documents assumes that the price agreement that was done between the buyer and the seller was final and that the buyer is convinced that any bargaining could not alter the former agreements. As such, it is not even worth considering as a term of negotiation in this case. The most preferred scenario for the buyer according to the above reasoning is attending the closing ceremony in person (Froeb et al. 21–28). Question Six Coca-Cola Company has been in the focus of unethical practices for a long time. The Burger King franchise in 2002 is an example of malpractice of Coca-Cola. The company management faked test results in a bid to promote the frozen coke promotion using the Burger King restaurants in the country. The source of the asymmetric information was the management, then John Fisher, who paid for the purchase of the beverage worth 10000 dollars to influence the test results. It is clear from the consequences that followed where Coca-Cola was sued for 65 million dollars that the management was misinformed. The wealth creating transaction was that one the test results had proven successful; Coca-Cola would use the Burger King franchise to promote the new coke and influence the market using the restaurants reputation. The advice that could help avoid the unethical moral malpractice in such a renowned company is to change the culture through which the operations of the business are done (Froeb et al. 6–46). Cited works Fan, Ying. “Ethical Branding and Corporate Reputation.” Corporate communications: An international journal 10.4 (2005): 341–350. Print. Froeb, Luke et al. Managerial Economics. Cengage Learning, 2013. Print. Linh, Ngoc. "Coca Cola bubbles with joy over first profits | Corporate News, Latest Business." Vietnam Investment Review. N.p., 16 June 2014. Web. 27 Aug. 2014. . Yoffie, David B. Cola Wars Continue: Coke and Pepsi in the Twenty-First Century. Harvard Business School Publishing Corporation, 2002. Read More