The Entry of Coca Cola Company Into the Indian Market - Business Plan Example

Table of Contents Chapter Coca Cola’s Entry into the Indian Market and the Five Forces Model.................. 2 Introduction .................................................................................................................2 i. Risk of entry by new competitors............................................................................4 ii. Risk of substitute products .....................................................................................5 iii. Bargaining power of suppliers.................................................................................5 iv. Bargaining power of buyers.....................................................................................6 v. The intensity of rivalry among the established companies in the soft drinks industry ...................................................................................................................7 Chapter I Summary....................................................................................................................7 Chapter 2: Coca Cola’s Marketing Mix.....................................................................................8 i. Product...........................................................................................................................8 ii. Pricing............................................................................................................................9 iii. Promotion......................................................................................................................9 iv. Place and Distribution..................................................................................................10 v. Marketing Research......................................................................................................10 Chapter 2 Summary..................................................................................................................11 Bibliography.............................................................................................................................12 Name Professor Course number Date Chapter 1: Coca Cola’s Entry into the India Market and the Five Forces Model Introduction Over the years, the power struggle in the soft drinks industry has often centred between Coca Cola and Pepsi. However, even as these two industry giants continue to fight it out, both companies have embarked on the process of introducing new product flavours as well as introducing noncarbonated beverages as part of their growth strategy. There are various factors that come into play in the soft drinks industry such as the five competitive forces, economic factors, key industry factors, and industry trends. Coca Cola is a classic example of a soft drink company that has transformed itself from a carbonates oriented company into one that is beverage-oriented. The company has grown to occupy a leading position in soft drinks by registering a 43 per cent of volume sales (Anderton, 48). In India, the company is the leading brand in terms of carbonate sales, with a market share of 26 per cent. As part of its competition strategy, Coca Cola India saves on the operational costs such as import duties by using more local raw materials and by upgrading its bottling technology. Its primary position is a drink for any occasion. In addition, the company has often followed a strategy of low capital investment game in India. Its vision for the future has often been pegged on repackaging and repositioning to reinforce affordability for the highly price-conscious population. The soft drinks industry in India consists of different forms of products such as carbonates, concentrates in liquids and powder form, fruit flavour based juices, and specialty drinks in the form of coconut and lemon water. The demand for soft drinks has been growing by the day since the pesticides contamination controversy. Coca Cola shrugged of the controversy by putting in place effective rebuttals in their advertisements that reposed trust in its brand. Moreover, the company has put in place initiatives such as introduction of new flavours, reduction in pack sizes, and maximizing on the growing number of number of children and their natural preference for carbonated drinks (Burton, 77). Nevertheless, India’s soft drink industry has often had a peculiar supply chain structure, which has made it difficult to define its industry structure. First, there are owners of the brands of soft drinks such as Coca Cola and Pepsi. In the case of Coca Cola, it basically supplies the concentrates and owns the brand. Even this being the case, the company bears a sizeable portion of promotion and advertising expenditure. Coca Cola India five forces model analysis While Coca Cola is trying to win and maintain its sizeable market share in India, the company ought to analyze competitive forces within the industry environment in order to identify opportunities and threats. The company often uses the Five Forces model to analyze the market as well as shape competition in this rather competitive industry. The Five Forces model is made up of elements such as the risk of entry by potential competitors, the intensity of rivalry among established companies within the soft drinks industry, the bargaining powers of buyers, the bargaining power of suppliers, and the closeness of substitutes of the products in the soft drinks industry. Much as Coca Cola India is dependent on these forces for market analysis, they often tend to limit the ability of established companies to raise prices and earn greater profits. Hence, the company is tasked with the role of recognizing how changes in the five forces give rise to new opportunities and threats, and coming up with appropriate strategic responses (Saxena, 118). Furthermore, it is possible for the company through its choice of strategy, to alter the strength of one or more of the five forces to its advantage. Risk of entry by new competitors Currently, India has about five brands in the soft drink industry fighting out for the existing market share. These brands include: Coca Cola, Pepsi, Maaza, Mountain Dew, and Nimbooz. Of these, Coca Cola dominates a huge chunk of the Indian market. In fact, there is a low threat of new entrants in this rather competitive industry. This is because new entrants will be forced to incur fixed costs on labour, production, marketing, trucks, and warehouses. Since bottlers in the Indian market are not many in number, new entrants may be compelled to put up their own bottling plant which often calls for additional costs. Based on a market research on the expenditure incurred on advertising and market research, it was estimated that companies such Coca Cola and Pepsi spend up to $2.6 billion to promote their products. In addition, the average of cot of advertisement per point of markets was estimated to be at the range of $8.3 million (Wahlen et al, 144). For this reason, new entrants may be unable to stretch their financial muscles to this extent in order to fight it out with the incumbents and at the same time gain some visibility. In other words, the risk of entry by potential competitors is a function of the height of the barriers to entry. These barriers are often the factors that make it costly for companies to enter an industry. The greater the cost new entrants must incur to enter the soft drinks industry, the greater the barriers of entry, and this weakens the chances of having a new market entrant. Risk of substitute products Coca Cola India faces the threat of different substitutes for its products. Some of these substitutes include: sports drinks, coffee, tea, water et cetera. Due to the increasing health concerns, substitute products such as sports drinks and bottled water have become more popular among consumers. Furthermore, these products are being advertised on the platform of them being healthier drinks as opposed to carbonated drinks. The Indian market has also had a close affinity to other substitute products such as coffee and tea because they are a good source for caffeine. Therefore, Coca Cola products are often substituted with blend coffees, which have gained popularity in the Indian market; hence, the rise in the number of coffee stores that provide consumers with different flavours (Cznikota & Ronkainen, 84). The substitute products pose a real threat to companies such as Coca Cola because consumers are often faced with low switching costs. The common denominator between products in the coffee and tea industry and soft drinks industry is that they all serve customer needs for non-alcoholic drinks. The bargaining power of suppliers Bottlers and ingredients suppliers in India are often the major suppliers to Coca Cola. Therefore, their bargaining power is often low. Some of the raw materials that are required to make concentrate include: flavour, colour, additives, caffeine, sugar et cetera. There are plenty of producers in the Indian market who are in possession of these raw materials; hence, they are nor in a position to dictate and/or control the price of their products. This often weakens their bargaining power to the advantage of Coca Cola. Nevertheless, with the recent upsurge in prices for sugar and packaging materials, this has had a direct impact on the profitability of Coca Cola products. Initially, Coca Cola was not involved in any form of bottling activities. This was an area that was left at the behest of independent bottlers. Coca Cola Enterprises, which is the largest bottler across the globe, is tasked with the role of supplying bottles to Coca Cola India and other plants across the world. Coca Cola Enterprises was an independent company where Coca Cola only was a majority shareholder, but devoid of controlling power. However, the soft drink giant absorbed Coca Cola Enterprises in 2010 so as it could better control its distribution networks as well as the need to adapt with the market changes, which are often key elements in keeping up with the ever changing consumer’s tastes and preferences. By doing this, the company further weakened the bargaining power of its suppliers. The bargaining power of buyers The major buyers of Coca Cola products in India are mainly convenience stores, restaurants, supermarkets, and grocers. Coca Cola often distributes the soft drinks to these outlets and the products are later sold to the consumers. Such buyers are said to have a strong bargaining power since they buy the soft drinks in large volumes; thus, it gives them an opportunity enjoy low buying prices. Moreover, the increased awareness among consumers of the health risks associated with soft drinks is often used as leverage for bargaining. The intensity of rivalry among the established companies in the soft drinks industry The intensity of rivalry of Coca Cola and other rival companies has reduced average industry profitability because the rivalry has driven down prices and increased the cost of doing business. Pepsi happens to be Coca Cola’s main rival in the Indian market. On a global scale, Coca Cola boasts of four out of the five brands in the soft drink industry. However, this did not stop Pepsi from being the major player in North America where its sales margin shot up to $22 billion whereas Coca Cola had a sales margin of an estimated $7 billion. Nonetheless, Coca Cola has higher sales margin across the globe. Brand name has had an impact in the intense rivalry among companies in the soft drink industry. The purchase decision of most consumers is influenced by the brand of the soft drink; hence, companies such as Coca Cola will always strive to maintain a solid loyal customer base. The more firms there are in an industry, the higher the chance for greater rivalry. With the increasing rivalry among soft drink companies in the Indian market, the soft drink industry will come closer to matching the conditions associated with perfect competition (Simonson & Schlmitt, 126). Summary All of the five forces are present in the Indian soft drink industry and/or market structure. The intensity of these forces will determine whether they have a significant impact on the profitability of the soft drink industry. The sense behind the Five Forces Model in the Indian market is such that; with the increasing intensity of the Five Forces Model, the soft drinks industry becomes more hostile and overall profitability will be on a downward trend. Chapter 2: Coca Cola’s marketing mix The marketing mix is often considered to be the most critical element of the marketing planning process. It is at this point where a company such as Coca Cola will come up and/or develop the marketing tactics of its soft drinks. This marketing strategy revolves around four factors namely; product, price, place and promotion. It is these four elements that are the backbone of company’s marketing strategy. In the case of Coca Cola, its marketing mix must be designed in such a way that it will satisfy the needs of its target market; that is, consumers in the Indian market, and at the same time achieve its marketing objectives. In order for the company to survive the terrain of the Indian market and continue to be a dominant player in the soft drinks industry, it needs to keep an eye on the marketing mix and change it when necessary. A change in marketing mix is often as a result of internal and external factors that may have an impact on either of the product, price, place or promotion strategies (Majumdar, 218). Product Coca Cola’s product strategy is concerned with all the elements that make up the soft drinks that are sold in the Indian market. Included in this strategy are all tangible and intangible characteristics. Hence, the company needs to develop its soft drinks on three different levels namely; core product, actual product, and augmented product. The core product is the exact product purchased by the consumer and the benefits that come with it. The actual product involves the characteristics which help to have the core product (soft drinks) delivered in the market. The augmented product is the benefits and services afforded to the consumer after purchasing the product. The augmented level of soft drinks is limited since soft drinks are classified as consumable goods. However, Coca Cola has set up a help line for its Indian customers where they are allowed to lodge a complaint if at all they are not contented with any of the company’s product (Krishnamacharyulu, 44). Pricing The pricing strategy can have a positive or negative impact of Coca Cola’s soft drinks. This strategy will also impact the supply and demand of soft drinks in the Indian market which is so sensitive to price changes. Recent research by the company’s marketing department indicated that while a consumer in the Indian market is making a decision to buy a variety of Coca Cola’s products, the price of the product often comes into play in the consumer’s decision making process (Kuil, 192). Coca Cola is very keen when pricing its soft drinks as this will be the difference that will influence the consumer to choose the soft drink over another of a competing company. While formulating prices for the Indian market, consumers are often a factor of consideration. As for Coca Cola, the pricing strategy goes a long way in determining their sales margins and profit levels. Promotion With the intense rivalry in the soft drinks industry in the Indian market, competition is pegged to be at an all time high among the competing companies. Coca Cola being a dominant player in this industry ought to ensure that it develops an effective communication pattern with the consumers. Through promotion, the company will inform its target market of the benefits of purchasing Coca Cola soft drinks and where they can find the soft drinks. Due to the rapid expansion of the Indian market, there is a need for Coca Cola to develop new products and/or flavours to cater for the market needs. Hence, promotion strategy will be useful at it helps to make consumers aware of the new product as well as convincing them to try out the new product (Hill & Jones, 177). This strategy is often a combination of various elements such as advertising, personal selling, public relations and sales promotion. Although advertising both in the print and electronic media is expensive, it is the most appropriate method of promoting Coca Cola’s products in the extensive Indian population. Place and Distribution The place strategy depicts the distribution of soft drinks to the market. The distribution cycles starts with the producer up to the consumer. Using the place and/or distribution strategy, Coca Cola has employed the use of various distribution channels to transport and sell its soft drinks. More often than not, the choice of the distribution of an extensive market such as that of India is dependent on various factors namely; what product is being transported, the cost of transportation, the time required transporting the product, and the distance to be covered to get the product to the consumers. Since Coca Cola’s products are well known in the Indian market, the company has often used intensive distribution as this helps to ensure that its soft drinks are available at every outlet that a consumer can think of. Coca Cola’s market research Of concern is how Coca Cola decides on the new soft drinks it should introduce in the Indian market and who are its target market. This whole process boils down to market research where the company first looks at the existing market and divides it into segments or slices. By doing this, it helps the company to identify different consumer needs. Through a market research process, the company is able to identify the needs of each market segment. Market research may be classified into primary or secondary research. Primary research is where the company uses new data to understand the market needs whereas secondary involves the use of sources that have already been published. While introducing a new flavour in the Indian market, the market research process is often carried out in five stages. To begin with, there is the desk research which helps to determine if indeed there is a gap in the market. This moves to detailed research which entails the use of small groups of typical consumers in order to identify the exact market needs. Large scale surveys is the third step that involves collecting information to see which type and design of product is likely to have the most appeal. The fourth step involves trial in the test market to see if the consumers like the product. Lastly, the company is obligated to keep tracking the success of the product once it has been released into the market (Duboff & Spaeth, 226). Summary There need to be a marketing audit and/ or information system, which ought to be monitored in order to ensure that decision makers are making informed choices, at a suitably reliable level. Marketing research forms the part of this system and informed decisions or choices need to be made about its reliability and appropriateness. Works cited Anderton, C. Economics. New Delhi: Pearson Education India, 2011. Print. Burton, D. Cross-Cultural Marketing: Theory, Practice and Relevance. New York: Routledge, 2008. Print. Cznikota, M. & Ronkainen, I. International Marketing. Mason, OH: Cengage Learning, 2006. Print. Duboff, R & Spaeth, J. Market Research Matters: Tools and Techniques for Aligning your Business. New Jersey: John Wiley & Sons, 2000. Print. Hill, C. & Jones, G. Strategic Management Theory: An Integrated Approach. Mason, OH: Cengage Learning, 2012. Print. Kuil, A. Strategies of Multinational Corporations in the Emerging Markets China and India. Hamburg: Diplom de, 2008. Print. Krishnamacharyulu, C. S. Cases in Rural Marketing: An Integrated Approach. New Delhi: Pearson Education India, 2010. Print. Majumdar, R. Product Management in India. 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