The Importance of Derived Demand in B2B Marketing (Coca Cola) - Essay Example

? The Importance of Derived Demand in B2B Marketing Executive Summary The nature of demand can determine the success of products in a particular market. Demand is highly reliant on the purchasing behavior of customers, and it is significant for any organization to assess the demand of customers in order to make appropriate production and marketing decisions. The supply and the demand enable to initiate the market and accordingly help organizations to apply marketing strategies to fulfill customers’ requirements. The report describes the derived demand of a B2B organization named Coca Cola which deals in beverage industry. The objective of the paper is to analyze the derived demand aspects of Coca Cola along with the segmentation and marketing channel used by the company. Several aspects such as competitors’ products, substitute products, raw materials and demographic factors among others can help to analyze the derived demand for Coca Cola’s products in market. Coca Cola, as a reputed band with operations all over the world, uses different channels in order to market its products. Coca Cola mainly segments its market on the basis of geographic and demographic factors. The report describes numerous business segmentation prospects for Coca Cola in the global market. With its effective marketing and segmentation strategies, Coca Cola can strengthen its brand image in order to fortify the product demand. Table of Contents 1 Executive Summary 2 Table of Contents 3 Introduction- Brief Overview To The Company 4 Drivers of Derived Demand 5 Importance of Derived Demand 5 Derived Demand of Coca Cola’s Products 6 Segmentation Used By The Company 8 Conclusion 12 References 13 Bibliography 16 Introduction- Brief Overview To The Company In the year 1886, John Pemberton a pharmacist in Atlanta created history by forming a soft drink which was named Coca-Cola by his bookkeeper Frank Robinson. Later, in the year 1888, after the death of John Pemberton, an Atlanta businessman Asa Griggs Candler bought the rights of the company for a total of USD 2,300. He became the company’s primary President who brought the real vision to the business and the brand. Thus, Candler’s mission to create the invention of the soft drink into the largest beverage company in the world was being fulfilled, after a century when the company produced in excess of 10 billion gallons of soft drink (The Coca-Cola Company, 2011). Headquartered in Atlanta, Georgia, the Coca Cola Company is the world’s biggest beverage company. It employs approximately 146,200 staffs across six operating groups. The product portfolio consists of above 3,000 beverages which are available in excess of 200 countries worldwide (The Coca-Cola Company, 2011). The main mission of the company and its leaders are to refresh the world. The company through its products wants to bring happiness and encourage moments of cheerfulness among the people of the world. In its large variety of product portfolio, Coca Cola focuses on to make sparkling beverages that will enable the consumers to douse their thirst. Apart from these, the company is also spreading its businesses by developing other products, such as, energy drinks, mineral water and an African juice drink among others. The company’s focus on the soft drink category is evitable as it is selling over 1.7 billion servings of beverage every day all over the world (The Coca-Cola Company, 2011). Soft drinks are non alcoholic beverage that is consumed by larger portion of the age groups, from teens to elders. It is a drink that helps refreshing consumers and brings happiness and optimism in their minds. Thus, the different flavors consisted in the soft drink categories are generally not targeted towards a particular age group or gender, but almost all the population. Statistics reveal that in the year 2011, 92 servings of beverage products were consumed per person worldwide (The Coca-Cola Company, 2011). Drivers of Derived Demand Derived demand is a perception where demand of a specific product comes from or relies on aspects of other products. In B2B marketing, the demand of products or services relies on customer purchase interest of specific products (Rix, 2007). For instance, the demand of bottle can be derived from higher purchase of soft drinks. The use of technology or invention can be a significant driver for several industries including beverage industry. The derived demand is applicable for both customers and manufacturers (Marsh, 1991). The supply or the demand of specific goods determines the aspects of production required for manufacturing. Apart from that, there are other potential drivers such as environment, changes in social system, commercial exercises, and demographics of population and fluctuating work arrangement which can impact on the demand. Thus, these aspects can have an impact on the costs with regard to manufacturing. Importance of Derived Demand The demand for industrial products tends to be more unstable compared to consumer products and services. A certain percentage of change in customer demand can result in larger percentage of change in other related products (Bishop, Graham, & Jones, 1984). Derived demand denotes to the association between the assets used for producing products or services. Derived demand is significant for organizations as it is a vital part of production. According to the observation of Marshall, the resistance of derived demand for an aspect of production relies entirely on the elasticity of the replacement product. These associations are broadly acknowledged and every so often interpreted as guidelines for conducting business. For an organization in competitive market an upsurge or reduction in customer demand can impact on numerous layers of demand. In case of Coca Cola, higher demand of soft drinks has resulted in increased demand of beverages in the retail stores (Peirson, 1988). Derived Demand of Coca Cola’s Products Generally, in case of consumer products such as soft drinks, the decisions of customers regarding purchase are related in the individual level. For example, if a customer purchases a can of Pepsi, he/she might not go for buying a can of Coca Cola. However, the purchase of Pepsi can also have low influence on the decision to obtain other non-Coca Cola products such as Sprite. Although people can purchase multiple brands, they do not get each of them available in retail stores (Chan, 2006). The demand of Coca Cola’s products is highly seasonal and it can be impacted by weather situation. Coca Cola competes in beverage section of commercial beverage industry, where the demand of other drink products such as juices, fruit drinks, powered drinks, energy drinks and sport drinks can influence the demand of Coca Cola products. These competitive products are marketed through “ready-to-drink” as well as “not-ready-to-drink” form. In numerous nations where Coca Cola conducts its business, the key competitor is PepsiCo which influences on the demand for Coca Cola drinks (The Coca-Cola Company, 2012). The aspects of competitive products which create an impact on the demand of Coca Cola’s products contain pricing strategies, advertisements and brand promotion strategies, product improvement, higher competency in production, creation of new packaging, new marketing strategies and supply tools, and brand and logo development (The Coca-Cola Company, 2012). The raw materials used by Coca Cola for production contain nutritional and non-nutritional elements. Thus, the availability of these products can impact on the demand of Coca Cola. In the United States, the major nutritious element used is “high fructose corn syrup” and is accessible from several national sources. The fluctuations in the price of raw materials can significantly impact on the product price as well as the demand. In terms of juice products, major raw material which determines the demand is fruits and is affected by condition of weather (The Coca-Cola Company, 2012). The market where Coca Cola competes is a high competitive industry with numerous new products developed on a yearly basis. The cost of promotion and advertisement in the beverage industry is symbolic due to the monopolistically competitive characteristics (Gaudet, 2008). With every competitive product in beverage market segment, the impact of substitution is crucial which can derive the demand. According to a research conducted in 1999, it had been observed that soft drink products have lowered the consumption of fruit juice and milk based drinks significantly. The knowledge of such impact is vital in order to recognize the demand trend of customers and observe the fluctuating environment of beverage industry (Pittman, 2004). The demand of Coca Cola products is mainly critical for people who are quite aware regarding their health. Non-alcoholic drinks are crucial providers of calcium and vitamin C in the body. According to a report of “The Journal of American Dietetic Association” people who are aware regarding stamina are quite concerned about consuming soft drink products. Thus, the health conscious behavior of customers can derive the demand of products of Coca Cola such as energy drinks or juice among others (Pittman, 2004). The factors which help to estimate the derived demand of Coca Cola products are nutrition components, race and age group. Several nutrition elements such as amounts of calorie, vitamin and calcium among others are derived from the buying decisions and consumption of non-alcoholic drinks (The Coca Cola Company, 2010). Thus, the information about health consciousness of customers is vital for Coca Cola as it can determine the production of the company. The buying behaviour of customers is also influenced by the demographic characteristics of a nation. Generally, it has been observed that children are less likely to purchase the soft drink products and more likely to purchase milk and juice products. Thus, the demand of soft drinks is derived from teenagers and elder customer segment. Furthermore, the race can also determine the demand of non-alcoholic drinks. The non-white families in the US probably prefer to use bottled water. On the other hand, black families probably prefer to purchase milk products compared to other races (Pittman, 2004). Segmentation Used By The Company In this context, the other viable market segment that Coca Cola could target is the geographic business market segmentation. This particular business market segmentation theory signifies that a particular organization can decide regarding the execution of its business operations in different geographic areas on the basis of the geographic requirements and preferences. The company i.e. Coca Cola can target the market segment by focusing upon the geographic market segmentation theory due to the fact that the requirements of the customers differ according to diverse geographic regions (IGNOU, n.d.). The aspect of geographical market segmentation is viewed as a fundamental form of market segmentation relating to business where the different organizations such as Coca Cola segments their business market which is restricted to a specific geographical area or region. By deeply emphasizing upon the geographic business market segmentation, Coca Cola can sell their products in a particular business market and thus concentrate their efforts significantly which might result in it attaining competitive position over the competitors by a large extent (Thomas, 2007). Furthermore, Coca Cola can target upon the aspect of geographic market segmentation due to the reason that the company can trace their business as well as consumer market demands very easily through using promotional along with the advertisement activities. In this approach, the cost in relation to these activities is quite limited as the company can emphasize upon a specific geographic market segment. In this regard, the organization can minimize its promotional related expenditures as compared with other business related costs that the company faces while operating its business functions (Dolnicar & Leisch, 2004). Thus, it can be stated that on the basis of the above discussed grounds, Coca Cola can target their business market upon the aspect of geographic market segmentation. Contextually, the other significant and viable market segment that could be targeted by Coca Cola can be geodemographic segmentation. This segmentation strategy can be viably applied in Australian market by Coca Cola. It has been recognized that Australian market possesses a multi-ethnic population which can be profitably tapped by Coca Cola. From the perspective of financial aspect, it can bestow the company with large financial returns that would pose noteworthy effect upon economic performance of Coca Cola by a considerable extent (Chan, 2006). A Brief Analysis of the Marketing Channels Used by Coca Cola The conception of marketing channel is fundamentally described as a procedure which comprises the individuals and the business organizations in which a particular product or service is made accessible for the consumption of the customers or the industrial users (Rosenbloom, 2011). The wide utilization of marketing channels by the different business organizations is usually viewed as a strong association between the manufacturers and the users. Furthermore, it has been observed that a superior marketing channel design eventually leads the business organizations towards attaining greater market leadership along with overall business success by a considerable level (Edinburgh Business School, 2008). Coca Cola uses different marketing channels in order to sell their products globally. The company mainly sells their valuable products on the basis of marketing channels that include direct and indirect selling. From the perspective of direct selling, Coca Cola sells their broad collection of products in different shops by the use of their own modes of transport. The company possesses significant number of vehicles through which they supply their products to the shops. In lieu of finance, the company attains considerable profit margin through direct selling of their products. From the viewpoint of the indirect selling, Coca Cola trades their valuable products through wholesalers along with different business agencies in order to cover all its potential business areas. As the company operates their business functions globally and covers large area, it deliberately works with the business agencies as well as the wholesalers as a part of marketing channel design. The ultimate purpose of the company for making use of the business agencies and the suppliers as marketing channels is that it desires to make easy availability of its broad array of products for the large customer base globally (Scribd Inc., 2012). The wide distribution of the products belonging to Coca Cola in diverse nations globally is regarded as one of the noteworthy strengths of the company. As a result, the company is much keen towards advancing its level of distribution systems to satisfy its large base of customers. The different marketing channel design or the distribution channels of Coca Cola include the vending mechanisms, retail outlets or stores, wholesalers, fountain retailers and other distribution channels that deliver home and immediate consumptions for the worldwide users. For the intention of distributing their products efficiently, Coca Cola initiated a proficient distribution strategy known as franchisors. In this regard, Coca Cola compels its bottlers to sign a separate documental contract namely “Bottler’s Agreements” which denotes that the bottlers can purchase their overall requirements for making the product from the company and its suppliers. This particular initiative of the company has eventually facilitated the distribution procedure by enabling the bottlers to manufacture different products, maintaining the working standards of the company on their own (The Coca-Cola Company, 2012). The bottlers of Coca Cola have developed broad variety of innovative ways in order to trade along with distributing their products in the business market. The retail stores acting as one of the distribution channels for the company place the kiosks of Coca Cola in the marketplace, universities and other business market places for selling the products of the company proficiently. Moreover, the company has also placed their kiosks in different convenient stores and groceries so that the products can easily be availed by the customers along with complying with all the necessary requirements for serving the different products of the company to its large base of customers. The above discussed distribution systems are established by the company for developing new techniques to draw the consumers along with delivering them with quality products in the most suitable way (The Coca-Cola Company, 2012). On the basis of the new market segmentation that has been recognized for Coca Cola i.e. geographic segmentation in order to target its business market, the company can initiate the aspect of direct selling as marketing channel strategy. The chief reasons for selecting this particular marketing channel strategy i.e. direct selling are that the distribution of the products on the basis of geographic segmentation is quite restricted and the company can sell its valuable products in various shops or retail stores by the execution of their own methods of transportation. Besides, it has been observed that by using the marketing channel of direct selling, the company has significantly attained huge profit margin and thus the direct selling conception of marketing channel strategy would be appropriate for the new identified potential business market segmentation for Coca Cola (Scribd Inc., 2012). Conclusion The derived demand is a significant aspect for marketing the products in any organization. In Coca Cola, the demand is derived from numerous aspects ranging from raw materials to demographic characteristics of people. The competitors marketing strategies also determine the demand of Coca Cola’s products. With several diverse product categories Coca Cola has the opportunity to target numerous customer segments. It uses various marketing channels in order to reach to the target customers. The major marketing channels used by the company are direct and indirect selling approaches. The wide distribution network is a valuable strength of Coca Cola which determines its product popularity in the international market. Coca Cola’s products not only target the teens and aged customer segment, but also are designed for targeting the children as well as family segment. The evaluation of derived demand helps Coca Cola to effectively market the products on the basis of customers’ purchasing trends. References Bishop, W. S., Graham, J. L., & Jones, M. H. (1984). Volatility of derived demand in industrial markets and its management implications. Journal of Marketing, 48(4), pp. 95-103. Chan, T. Y. (2006). Estimating a continuous hedonic-choice model with an application to demand for soft drinks. 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