Business Strategy Coca Cola Company - Case Study Example

Business Strategy – Coca Cola Company Introduction (Executive Summary) Cold drink industry has always been highly competitive. Although there are only two contenders in the market Coca Cola and Pepsi the tug of war has been very ferocious (Fox, et al., 2007, pg 56-57). The cola war spread over now on world scale and both the giants are waging it with the newest weapons they have in command. The industry has seen many ups and downs through ages and arrived at the maturity stage. For last four years till 2006 Coco Cola Company had been facing problems in the market that might be cyclical. The company is trying hard to retain the leadership position they had for ages. The business performance of 2007 has shown positive development to the satisfaction of the company. Yet they have to be very vigilant to sustain the up trend in the coming years also. The company needs innovative planning and strategies to sustain the gain of last year to enable them to keep floating always ahead. Situation Analysis (Internal Business Environment) Coco Cola is an old and established brand worldwide backed by a strong team of manpower. Internally they are very stable and strong to provide strong pillars to the edifice of marketing. They enjoy 94% brand recognition and more than 60% market share in the world. They need to be vigilant all the times to keep on appraising the performance and finding the underperformance if any at any level. With the type of expertise and skill they have it is sure to overcome the weakness that might creep in by active communication and crackdown. External Business Environment (PESTEL) Coco Cola is spread to a large domain all over the world market, which is full of complexities. Different people with different tastes, culture, psychology, different lifestyles live in different countries. This is always a challenge to the marketers to satisfy everyone. In India the company faced challenge from the very start and also when Coca Cola entered into this country second time. After Coco Cola had established its foothold in India the change in government gave a fatal blow to the company when the changed government ordered it to wind up and leave India on the ground that the country could not permit an ordinary product which is not high tech and which the country could produce itself. Second time when Coco Cola entered India again with a new government the local brand ‘Thumbs Up’ was thriving in the market that was favourite brand for the local countrymen (Basu, 2006). Coca Cola had to take over that brand and nourish it to claim the large market share it had enjoyed. Even today the brand holds command and contributes sizeable market share to the parent company. The stark competitor Pepsi had entry into the country and with better manipulation of the market and competed coca Cola to be the second in many markets (Rugman, et al., 2006, pg 20). The marketing strategy of the competitor must be better than coca cola or the company might be facing declining cyclical phase. This is a phase that cannot be tackled easily. The company will have to be more aggressive to fight the problem out. The business environment of emerging economies today is very congenial as everyone there is confident of all-round growth and wish to achieve in time. The willing contribution and cooperation to the growth prospectus is guaranteed. The government of the emerging economies are also highly conscious about the growing business cycle and are ready to provide full co-operation toward growth. SWOT Analysis: Strategic situation Strength: The extremely recognisable brand Coca Cola has for centuries created elitist image on the youths who brag of exhibiting the brand on their hearts and taking it, as their romantic partner on the street. The product is known for quality that attracts about 700 million people daily to enjoy with. The large network of bottlers of Coca Cola all over the world is the added strength of the company. Weakness: The brand faced problems in certain markets such as Indonesia, Thailand on account of reduced purchasing power and in India where the product was found contaminated with excessive pesticides and external stuffs (Business Daily from THE HINDU group of publications, 2007). Even markets of Japan, and Latin America where the brand had leadership were not performing satisfactorily for long. There are many people in various countries, who don’t take coke as a good drink to maintain better health. With caffeine and sugar inside many take the drink as problematic for health creating addiction and not proper sleeping syndrome Opportunity: Coco Cola is a big brand and recognition is very extensive. 94% of consumers of coke know and recognise this brand all over the world. The company is trying to extend the brand or is trying to create new brands in niche markets to capture new consumers. New beverages and health drinks are being launched in several markets where consumers are health conscious. There is always support from the bottlers who can stand by to launch the new product with their resources at command (Palazzini, 1989, pg 25-27). These bottlers spread in large geographic areas in all countries are the best opportunity for the company. Threat: The principal threat to the soft drink is the fast changing attitude and newer demands from the consumers. Though the two soft drink companies are holding about 40 % of the market share in the world there are many other beverages such as milk, milkshake, coffee, tea. Chocolate drinks that command a sizeable market share. Both the cola companies are conscious about this consumer demand and they are trying to capture the market but the pace is very slow because of the rivalry between the two. Purchasing power of consumers is also a threat, which never remains constant. Many economies are facing downturn and the people have lower income to spend on cold drinks. . In India many alternative brands which are green products based on fruit juice, lemon have come up to satisfy the environmentally and health conscious consumers. In this type of situation of recession and competition from other drinks it is worth wile strategy to sell the cola products at added discounts for volume sale so as to liquidate stocks from the counters and let factory sustain operation. Product Life Cycle: Every product has a life cycle. It is born, grows, matures and dies. The marketing strategies applicable are tuned to the running phase of the product life cycle. Coca Cola is running at matured phase. This is the phase by which many competitors join and challenge the product in the market. Yet Coco Cola has stable market with dedicated consumers. This is the most competitive phase Coco Cola has been facing with non-sleeping nights. In this phase cost management, product differentiations, marketing with brand extension are some of the most important strategies, which fit in. In foreign markets the company is in the growing phase. Market Plan and Objectives A good marketing plan starts with a sound objective around which the company would move and apply their resources to achieve the business target. The objective must be specific, precise, recognisable, measurable, realistic and achievable within the targeted time. The objective of Coca Cola Company is to supply carbonated cold drinks to all and earn profits for its shareholders. The company has to specify clearly to achieve 60% of market share by the end of 2008 in India with 20% profitability. For this the company has to increase it promotional campaign and reach those population, which still considers cold drink as harmful but can afford a cold drink. The company can capture 10% additional world market by focusing their efforts on the emerging countries. Target Market (Present Situation) A cold drink market is very big and one single strategy cannot satisfy the entire market. Coca Cola must choose market segments with greater potentials in terms of penetration and profitability. The company has already targeted its products on different age groups and different consumers’ choice. Differentiated marketing has been the strategic choice for Coca Cola with their Diet coke targeted on weight- conscious people, regular coke, Fanta with lemon taste, Sprite with soda taste, coffee and iced tea (Lindquist & Sirgy, 2003, pg 10-11). PowerAde sports water is targeted on those consumers who are fit and health and participate in sports, Winnie juice drink is targeted on children between 5-12 groups. The Coco Cola products include beverage concentrates, syrups and finished beverages in popular brands like Coke, Fanta, Sprite, Lift, Erutopia and PowerAde. These are available in plastic bottles of 2 1.25 litres and 600, 300 ml and in aluminium cans of 375 ml. Marketing Strategies: Product differentiation strategy to differentiate its products from the competitors is adopted to gain competitive advantage. Brand extension strategy is adopted that extended its coke brand to Coke with lemon and vanilla coke. Marketing Mix is a crucial marketing planning process that enables to develop marketing tactics for product mix. Price, promotion, product and place are the important mix that makes up a good marketing strategy and enables to achieve the market objectives (Luck & Ferrell, 1982, pg 228-229). Product is important component in the mix but it is not the actual core product but the image attached to it matters more. Coco Cola has achieved this high image through product positioning in the target market. Coca-Cola has benefited from packaging the product with incentives and endorsements on the labelling as a promotional strategy. Pricing strategy is going to decide the consumers’ preference to the drink. Otherwise Pepsi looks and tastes alike. Price will determine the volume of sale and the profitability of the company. The pricing strategy focuses on the marketing plans and achieving the objective. It supports the product positioning. Among the five pricing strategies the company adopted Penetrating-pricing towards grabbing the market share. The company adopted competition based pricing method to outwit the competition and through this turned to be market leader with 60% of the market share in 2007, with increased awareness of the product and a ROI of 20%. In India the pricing strategy was different and the objective was to improve its profitability through better margin. The price of coco Cola was kept higher resulting in loss of market. The discount offered on purchase of 2-litre bottle was in terms of extra 600 ml of Thumps up the associate brand rather than price slashing. Pepsi offered direct lower prices on the 2 litter bottle that was more attractive to price conscious consumers (Somer, 2009). This resulted in lower sales volume of Coca Cola in 2006-07 (Coca-Cola Company, 2009). Promotional Strategy: Personal selling, advertising, public relation, and sales promotion are the combination that make up promotional mix. Effective communication with the target market is the most essential factor to attract consumers to the shelf and prompt them to buy the product. Beside the use of TV, radio, magazines and newspapers as means of promotional campaign, the company has used contests, coupons, and free samples for direct contacts with consumers. Publicity campaign such as used in 2003 February at the time of launch of vanilla coke in Sydney through Sydney morning Herald as new brief highlighting the huge business and profit potential helped in strengthening company’s image. Place of Distribution is another factor in the mix to boost sales and create differential image about he product and the company. The Coca Cola Company sells its product to wholesalers and distributors, fountain wholesalers, and some fountain retailers who further sell to retail outlets, and corner stores and milk bars, restaurants and petrol stations. Future marketing Strategy - Conclusion & Recommendation The financial ratios of the coco Cola Company shows that the company remained in downtrend for last 4 years since 2002. It is only in 2007 the performance looked up because of the winning strategy adopted by the company. The international business, led by the emerging markets, continues to drive our overall growth, while stabilizing key markets like Japan, the Philippines and North America underscores our ability to re-energize major markets. The entire attention has to be given to the emerging market only. Thorough market research to understand the fast growing market such as China, India, Brazil, Mexico, and by developing market strategies suitable for these countries will definitely lift the market up (Food & Drink Weekly, 2002). Pepsi has shown that the Indian market is growing to accommodate the Pepsi brand on larger scale. There are still many untapped markets in India to grow up further to accommodate Coco cola as well. 2007 proved to be better year for the brand. In India the market forecast by the Hindu, a very prominent newspaper is as follows: The company will have to go in for niche marketing as well to target health conscious consumers. Their preference is for juice rather than carbonated drinks. The company will have to explore this niche market more deeply to develop products that suit the income, taste cultural profile of these people. Factors influencing consumer choice such as psychological, socio- cultural, economic government, lifestyles, perception, motivation, attitudes, consumer behaviour toward a cold drink, family preference reference group, disposable income, discretionary income and other relevant factors have to be taken into account for deep study before launching the most suitable soft drink in the niche markets. There may be more than one such niche markets. Development of dedicated bottlers and professional high- profile relationship with them will do miracle. The aspiration of these bottlers to earn big, promise of guaranteed returns and personal level relationship will be more practical. The best practical model for consumer focus through these bottlers and retail chain can be developed and applied to all emerging economies with strategic variations may prove wonder to secure the growing market share for the decade to come. The resources required will change accordingly with 1-. A new research team, 2- Bottlers for the health drink, 3- Designing of health bottles with new labels, 4- New marketing team, 5- New outlets and shelves, 6- Promotional team, 7 -New markets in-house team. References: Basu, Indrajit. (23rd June 2006). Asia Times Online :: South Asia news. Coke still floundering in India, [Online] Available at, http://www.atimes.com/atimes/South_Asia/HF23Df03.html. [Accessed 24th April 2009]. Business Daily from THE HINDU group of publications. (14th Aug 2007). EPaper Interview. Sub-prime malaise: Markets jittery, FIs reprice risk. [online] Available at, http://www.gmupolicy.net/southasia/Business%20Daily%20from%20THE%20HINDU%20group%20of%20publications.pdf. [Accessed 22nd April 2009]. Coca-Cola Company. (2009). Company report, financial results, key ratios, income statement. [Online] Available at, http://www.thecoca-colacompany.com/investors/index.html. [Accessed 22nd April 2009] Food & Drink Weekly. (18th March 2002).Coco-Cola Co - Business Briefs.  [Online] Available at http://www.allbusiness.com/retail-trade/food-beverage-stores/129381-1.html. [Accessed on 22nd April 2009] Fox, V., Quesada, V.F. & Allyn, R., (2007). Revolution of hopet. Edition: illustrated. Publisher: Viking, USA. Lindquist, J. & Sirgy, M.J., (2003). Shopper, Buyer & Consumer Behaviour: Theory and Marketing Applications. Edition: 2nd. Publisher: Wiley-India. Luck J, David & Ferrell, O.C. (1982). Marketing Strategy and Plans. Edition: 2. Publisher: Prentice Hall of India. Palazzini, F. S. (1989). Coca-Cola Superstar: The Drink that Became a Business Empire. Edition: illustrated. Published by Columbus. Rugman, M. Alan, Collinson, Simon & Hodgetts, M. Richard. (2006). International Business. Edition: 4, illustrated. Published by Prentice Hall/Financial Times. Somer, N.Y., (April 22, 2009). The Pepsi Bottling Group Reports First Quarter 2009 Results. [Online] Available at http://www.pbg.com/press/pdf/PDF%202009%20Releases/PBG_Q1_2009_Earnings.pdf . [Accessed 22nd April 2009] Read More