Branding Innovation of Coca-Cola - Case Study Example

Branding Innovation of Coca-Cola

Introduction

Coca-Cola is one of the world’s leading beverage companies with more 3800 beverage choices for its customers. There are 20 brands enlisted under Coca-Cola including Diet Coke, Minute maid, Gold Peak, etc. (Coca-Cola, 2016a). Starting from nine servings-a-day, the company has reached to the height of success where Coca-Cola is served in more than 200 countries across the world accounting for over 1.9 billion sales per day (Coca-Cola, 2016b). The company has experienced a phenomenal growth but this growth has also intensified competition for Coca-Cola. The prime rival of Coca- Cola is Pepsi Co, but with the increasing demand of health drinks, Red Bull, Rockstar, Amp and Doubleshot have become its indirect competitors (Hoovers, 2016). Over the years, beverage consumption has witnessed a steady growth leading to a rising trend of global beverage sales which is reflected in the following figure.

Figure 1: Expected Growth in the Global Beverage Sales

(Source: Statista, 2016)

In the above figure, it can be observed that expect for 2012, the sales of beverages globally have experienced a steady growth and in 2016, the average sales of beverages are expected to achieve growth of 3.9% (Statista, 2016). The energy drink market is growing but Coca-Cola has failed to establish a strong foot in this market segment of total beverage industry. Although Coca-Cola has tried to enter the market of energy drinks since 2007 when it had acquired NOS by buying Fuze Beverages yet Coca-Cola is nowhere a competition to the energy drink brands (Bhasin, 2012). Coca-Cola had tried to acquire Monster, one of the fastest growing energy drink brands in the market but ultimately only acquired 17% of the company. This has neither made any significant contribution to Coca-Cola’s product portfolio nor has it established the company’s name as a rival in the energy drink market (Stanford, 2014).

Current Trends

Four trends can be sighted with in the beverage industry which will significantly affect the business decisions of the competing firms which are described below.

Change from carbonated soft drink to healthier drinks

According to the market analysts, carbonated soft-drinks are experiencing fall in the revenue due to shift in the consumer preferences towards healthier solutions. In the words of Indra Nooyi, CEO of PepsiCo, the progress of beverage industry cannot be achieved depending only upon soft-drinks. They need to develop fresh healthy beverages keeping in mind the changing preferences of the consumers. Pepsi Co, has made significant investment in their R&D so as to manufacture new products as per the statement of the CEO of PepsiCo America’s Beverages (PepsiCo, 2013). This has been the result of PepsiCo’s strategy to introduce innovation of their products; such as, flavoured water and organic Gatorade (Forbes, 2015). Analysts have observed that the current trend of the beverage industry will shift to manufacturing of soft drinks which will have positive impact on the health of the consumers (Taylor, 2016).

New recipe from past experience

The success of Mountain Dew’s Kickstart can be cited as an example of innovation in the recipe. This new beverage has been developed to provide a low-calorie solution to the consumers with the outlook of a sports drinks (Taylor, 2016).

Reduction in the size of cans

The American Beverage Association had stated that they would decrease the calorie consumed individually in the beverages by 20% till 2025 (American Beverage Association, 2016). The strategy that has been chosen by the manufacturers is to reduce the size of the cans. This will also benefit the firms financially as they would be selling less in volume and yet earn higher revenue. However, this is a temporary solution and the beverage manufacturing companies will have to change their formula of soft-drinks so that the calorie consumed per person can be lowered.

Figure 2: Smaller can size to increase revenue

(Source: Athavaley, 2014)

Development of new products to earn authenticity

The trend in 2016 depicts that companies are going ahead to expand their market of non-alcoholic beverages. This is evident from the rise in demand for craft beverages, for example, PepsiCo has planned to introduce non-GMO labelled juice range under its brand Tropicana (Taylor, 2016).

After analysing the trends in the beverage industry, the researcher feels that that the best strategy for Coca-Cola would be to develop a new energy drink which will comprised characterise the attributes of sports drink and also will be targeting a larger consumer base. This will not only establish Coca-Cola as a brand in the energy drink market but also will lead to the diversification of its sources of revenue. In order to understand different aspects of innovation process the following model can be considered by Coca-Cola.

Figure 3: Energy Drink of Coca-Cola

Current Status of Development

Chain-linked Innovation Model

There are different factors that drive innovation within a company and can be termed as scientific, financial, technological or commercial. This helps a company in producing new and innovative products which are capable of earning revenues. Coca-Cola needs to initiate firm level changes coupled with technological innovation, so that they can make amends to their brand image through new product line. In this regard, the chain linked innovation model can be of great help as it clearly defines the innovation processes adopted by the organisation.

The risk associated with competition has led companies to seek innovation in their organisational structure. The chain linked innovation model incorporates the innovation process and the market reaction of such a change. Thus, this model can be treated as the comprehensive framework of studying the cause and effect of an innovation. There are five paths through which innovation can take place depicted in the figure below.

Figure 4: Chain-Linked Innovation Model

(Source: Léger and Swaminathan, 2006)

The path ‘C’ depicts the central path of innovation which starts with the identification of the potential market and then design of the products based on the analysis of market characteristics. Finally, the new product is distributed for consumption. The paths marked with ‘F’ and ‘f’ explains the feedbacks provided by the customers and suppliers which can be put for further improvement in the products design. The linkage between operation and technology is depicted by ‘K’ which can led to new addition to the production process facilitating radical innovation, ‘D’.

The Coca-Cola maintains its competitive position in the market by being responsive to the market signals. They have segmented the market and identifies the signals that help in making strategies for future growth. For example, according to the market analysis of developing economies, Coca-Cola focussed on reducing price and increasing the sale in terms of quantity (Coca-Cola, 2016c). They have directly connected the regional operational bases with their headquarters. Their entire system of bottling is now dealt by franchises leaving only 4% under Coca-Cola’s direct control. For example, Coca-Cola had worked with the German packaging company to design the bottle which will not only uphold the spirit of the company but will also preserve the carbonation during transits (McMullin, 2016).

The new strategy stands-out

Coca-Cola has not made any formal introduction in the energy drink market. The company has a world renowned brand which will attract customers to its newest addition in the form of energy drink. The 17% acquisition of Monster has created the perfect platform specifically in terms of market awareness and technological know-how. Thus, the company owns the required resources to implement this new business idea. Moreover, the energy drink market in the US and rest of the world has experienced a promising growth. In 2012, the US market achieved 12% growth due to a number of factors, like, innovative product, fresh packaging and popularity among youth and older population. The market is expected to touch $17 billion mark in 2017 in the American economy. This is the correct time for investing in the energy drink market (Nasdaq, 2014). On the other hand, the global market of energy drink is expected to expand and reach net worth of $61 billion (PR Newswire, 2015).

Coca-Cola will be preparing an energy drink which will be fit for all above 12 years of age. It will be alcohol-free and made from only organic products that will be capable for both refreshment and energising the body. The drinks will be introduced in fruit flavours which is not yet provided by any other energy drink manufacturer. According to findings of World Health Organisation, (WHO) majority of the energy drinks are marked down because of their high caffeine content making them harmful for children (NHS Choices, 2014). The other restricting factor is that many of such drinks are alcoholic which are condemned of creating harmful side-effects on the health (PR Newswire, 2015).

Competition

Coca-Cola enjoys the largest market share in carbonated soft-drinks industry. In 2015, the company had a market share of 48.6% which is more than the combined market share of other soft-drink manufacturing firms. This is illustrated in the following figure.

Figure 5: Market Share of Coca-Cola in 2015

(Source: Statista, 2016a)

From the above figure, it can be understood that Coca-Cola is the largest brand in the market which implies that people prefer Coca-Cola over any other brand. Thus, products produced under the brand name of Coca-Cola, will have greater market appeal to the consumers providing the perfect backdrop for the new energy drink. Coca-Cola has a presence in the sports drink market with Powerade but the leading position is enjoyed by the PepsiCo’s Gatorade. The following diagram explains the market of sports/ energy drinks.

Figure 6: Market share of the companies in sports drinks/energy drinks in 2015

(Source: Statista, 2016b)

This shows that the market of energy drinks is ruled by a few big players and Coca-Cola is already a name in the sport drinks market. The new product will be a combination of sports and energy drink and the diversity in flavours is an entirely new angle to it. This gives Coca-Cola’s new product a significant competitive advantage over the existing brands. However, this idea will only be effective until a similar product is launched by one of the competitors of Coca-Cola. In order to prevent such counter-attack, the company can patent its new formula so that it can raise barrier against new entrants.

Target customers

This new product will target to have a wider consumer base. The new energy drink can be consumed by children above the age 12 and it will also be beneficial for older population. Coca-Cola practices market segmentation so that it can retain its market share with a price mix that is according to customers’ spending patterns. Over the years, the demand for nutritional drinks and health supplements has increased. The adolescents and adults are main target consumers who can derive both psychological and physical energy. The contents from energy drinks are mostly based on carbohydrates and caffeine (Jacob, et al., 2013).

People are turning towards healthier drinks in order to not only stay healthy but also to concentrate in their work at hand. The harmful effects of caffeine have forced consumers to look for substitutes and this is where the new product will make its place among these potential buyers. In a survey it has been found that the consumption of tea among the US consumers has increased by 10.7% from its level in 2012. Besides developed countries, emerging economies like China are opting for healthy beverages which have resulted in the growth of the beverage market by 1% each year (Nielsen, 2015). This implies that customers need substitutes for caffeine which is the main component of energy drinks which is currently ruling the market. Therefore, Coca-Cola’s new energy drink will have a ready market and the marketing department needs to focus on highlighting the features which are demanded by the consumers. This health conscious population around the world would help in establishing the Coca-Cola’s new brand of energy drinks.

Market Analysis

For a company like Coca-Cola, the resources are available for the company to start up a new product line. However, this will require additional investment in developing the formula of new health drink. The company has the objective of increasing productivity but reduce cost at the same time. Due to this reason, they invest more in the marketing of the product, because it not only creates the perfect buzz for the launch of the product but also helps in further expansion of the business, by influencing the purchasing decision of the consumers. Currently, the social media plays an important role in creating consumer awareness related to a particular product. Coca-Cola has already invested $75 billion in the business since 2010 which has been supported by its bottling partner (Coca-Cola, 2016a). This new initiative will require investment in the new technological innovation and clearance on the governmental regulations.

The pricing needs to be adjusted according to the market of the country. For example, in the developing countries like, India and China, the pricing has to be low which can be achieved by simple bottle designs and aggressive marketing. On the other hand, in the developed markets more sophisticated approach needs to be adopted with smart bottling and marketing on the basis of utility. The differentiated regulatory framework will also affect the overall cost of production but company will be able to save on the establishment of brand identity. The efficient logistics will provide the company with efficient distribution of products.

Product development

Concept Board

The concept board works as the incentive which consists of the illustrations of the features of a particular product. The first step of the branding innovation strategy is to create the perfect platform for the new product launch. It will involve lowering in-store promotion and use of social and digital media to attract people aware that a specialised product in the range of energy drink is to be launched in the target market. This will require formulation of an advertising campaign that will focus on the utility of the drink, specifically its non-alcoholic and low caffeine content making it suitable for a wider range consumers. Over the years, the growth of social media has increased making it an attractive option for marketing new products and services.

Mood Board

The mood board can be used to understand the end result of the research and development about a new product or services. It is important to understand that a particular product has been successful in influencing the right emotions of the consumers. This has a direct influence on the purchasing decisions of the potential consumers. For example, with the rising trend, Coca-Cola can introduce small cans so that they can earn greater revenue from the reduced volume of supply. The look of the cans will affect the psychology of the customers. Keeping the preferences of the consumers in mind, the new energy drink needs to be endorsed by athletes and iconic figures belonging to different age group to facilitate quicker acceptability of the product. This reflects the cultural association of brand image as consumers are emotionally attached to their chosen brand (Grant, 2011).

Figure 5: Coca-Cola New Product

(Source: Coca-Cola, 2016b)

Story Board

The story board highlights the main concerns of the consumers from a product. Many studies have presented that the packaging of the product lack information and force them to seek other mediums to understand the products. Social media is one such solution that can not only provide information but can also be a source of customers’ feedback. Peer reviews form as a great source of publicity and have the potential of increasing the loyal customer base. This is highly beneficial for the brand image. The efficient operation of Coca-Cola will bring the product to the market but it will be able to bring revenue after successful customers’ experience of the product.

Conclusion

Coca-Cola can use a new energy drink to innovate its brand image. The company has been in the process of creating an impression in the energy drink market but with little success. Coca-Cola has the resources in market knowledge and the required capital to invest in technological support. People are looking for healthy alternatives to soft drinks and caffeine content drinks on the grounds of harmful health impacts. The new energy drink will be based on low caffeine organic food contents. The target market will involve children above 12 years to older population who want to keep themselves healthy and energised. The availability of energy drink in fruit flavours only adds to its attractiveness to the consumers. This would help in marketing when the latter would present the product’s utility to the audience. With increasing number of people looking for better substitutes, this new Coca-Cola product has high probability of hitting its objective.

Reference List

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