Coca Cola: PEST Analysis and Strategy Plans
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Published: Wed, 06 Dec 2017
The battle of the chief soft drink manufacturer has been intense and the coca cola company with its headquarters in Atlanta, Georgia has had the largest market share globally. The company has withstood the test of domination globally from its greatest competitor Pepsi Company. Coca Cola has had a large share of the market capitalization but at times the rival company has emerged strong beating it in market share in other financial periods. Its brands have however remained renowned throughout the world and for them to continue dominating they must focus on the customer needs and preference that is the reason they are in business (Milliken, 2007).
The company boasts of key success factors in its operations which include; capacity to introduce competitive prices, global extensive distribution, effective customer awareness, a wide range of product choices for customers, effective and timely distribution channels and bottlers, and a global system of operation. The Coca Cola Company has been forced to operate under tight competition in the US domestic markets from Pepsi, Cadbury Schweppes, Cott, and AmBev, but in other markets especially in the developing countries it has established zones of duopoly where it remains the dominant company. Its efforts to penetrate the Middle East and China have been risky since the Pepsi Company continues to dominate the markets there (Milliken, 2007).
PEST Analysis of Coca Cola
Politics and legal environment
In many developing countries there has been ease of entry but the countries face a lot of political unrests e.g. coups and violence which may affect the penetration of market or losses for the already established companies.
Other companies have legal barriers that must be addressed before the company establishes itself. The legal showdown of Pepsi and coca cola in India gives a clear view of this fact and especially in the Middle East and Asian markets where Coca Cola seeks new markets.
The Company sells consumer products which are sensitive to buyer disposable revenue. The consumers have viewed the drinks as inexpensive and hence it’s unlikely to forego. Also the disposable income continues to raise hence more purchase to such things as soft drinks. The world currently is going through many financial crises such as the global financial crunch and increasing inflation and companies especially Coca Cola has continued to put in measures such as price adjustments to be able to impact the markets. The strategy of adjusting prices helps Coca Cola to counter the effects of raising costs and hence thus generate enough cash flow that ensures the company productive capability is maintained (Fredrix & Skidmore, 2009).
Soft drink consumption is inversely related to the age of the consumer i.e. most people take more drinks when they are young as opposed to when they mature. In the current generation average age increases and most of the population is made up of the young this gives an advantage of the increase in the market base of the company. This means that the company has a more potential market to sell the products to and thus a strategic plan should be worked to own the markets.
The world is turning to a global village and the age of effective communication gives the perfect atmosphere for business. The world today is easy and convenient to travel, secure and different tastes and preference have emerged (Hannagan, 2002). The powerful brand name of the company becomes a selling point in the franchise of other companies that need to be affiliated to the prestigious brand. Effective communication has also ensured that advertisements and promotions by the company are known world over hence better growth.
The major rival domestically is Pepsi in the United States. The soft drinks industry has continued to be very competitive and major competitors turn to rivals. The promotion of the brands such as Sprite, Coke, and Fanta in many countries has grown at the expense of the many beverages in the markets (Mark, 2000). The company must implement an effective strategy that ensures advertising, sales, innovations, increased efficiency, brands development, promotional program trade mark development are done efficiently to outsmart the rivals.
The Company will always need supplies of raw materials such as fructose corn syrup, and sucrose. The availability of this major raw material at numerous sources has made the company dominate the suppliers, however aspartame has not been available in numerous sites and this can lead to problems if production ceases (May, 1998).
The main buyers are individuals who consume the product. The company however deals with local franchised bottlers who deal with the local markets. After effective bottling of the products the consumer/buyer must get the products through chain supermarkets, vending, and fountain sales. The buyers must have the knowledge of the product and be enticed to consume so that he/she can make the purchase (Mark, 2000).
Threats of substitutes
Many products have emerge to substitute soft drinks e.g. fruit juices and beverages. The company must have attractive offers to ensure that the substitutes introduced in the market don’t interfere with the market share of the company.
Threats of entrants
New companies keep on coming up to compete for a share of the market. The soft drink markets have been mainly dominated by Coca Cola and Pepsi and new entrants find it very hard to penetrate the markets.
Coca cola has continued to globally dominate the market and the regional operational strategy that is centralized production system ensure reduced costs.
Sales and marketing
The area of supermarkets and brand loyalty has played an essential part in the growth of Coca Cola this has ensured profitability and large market share.
The efficient distribution channels i.e. bottling companies has ensured that customers get the product at the right time and conveniently. Automated channel of distribution like the Coca Cola Enterprise that has sales agents and merchandisers in major outlets complement other distribution strategies.
For efficient operations the company has a strategy to own the bottlers operations so that they do it more efficiently to be able to distribute the product properly. The procurement of acquiring a franchise chain is done procedurally to ensure qualified people own the process.
Many people have been employed by the company and they have remained loyal. The company has given attractive remunerations and compensations in order to make them perform effectively and efficiently.
Core Resources and competence
The factors that favor the company’s growth and development plans include; markets, costs, governments, and competition. In the markets they are characterized by homogenous customer needs, global channels and global customer needs, transferable and easy to manipulate market approaches. Cost are favored by learning and experience, large scale and scope economies, high resource and development costs, conducive logistics, and efficiencies in sourcing (Mark, 2000). On the side of the government they are responsible for putting in place inductive trade policies, technology standards that are common and manufacture and marketing regulations that are common and do not favor any party but put a level competing ground for all players.
In terms of competition globalization has been favored through presence of interdependent countries that allow competition, and the liberalization of trade in many countries. With the markets giving many incentives to the company to grow then good management policies is all needed to grow and became successful and coca cola has done just that (Kottler, & Amstrong, 2006). It has endeavored in its mission to refresh a thirsty world and creating value to shareholders.
The company brands have continued to be advertised and image enhanced, where the company has also acquired more franchise networks globally. The systems of the company that are based on organizational structure and timely decisions have continued to make the company succeed. The objectives of the company include; customer satisfaction and creation of a loyal system of customers, community development, effective partnership, and valuable shareholding in the company.
The long term goals include increasing cash flow through increased sales, optimizing of profit margins, and global investments expansion in hot spots (Kottler, & Amstrong, 2006). The guiding principle is to have an established production, distribution, and marketing system that can support long term growth of cash flow and shareowner value of Coca Cola.
The Strategic Choices Available for Coca Cola
Product Filling Strategy
Ohmae (1990) states that the product line of a firm is lengthened by the addition of more products within the current range; The implications behind this line filling includes; the reach for profit incremental, satisfying the complaining dealers on sales due to the absence of some items in the line, utilizing the capacity that is excess, to try to be the full time company that is leading the market and lastly, to try to plug the holes hence keeping out the competitors.
Kogut (1985) starts by explaining that, Coca Cola uses this form of strategy of filling the line of production from time to time; during different seasons as it launches its new products. For example to Zerocoke was launched by Coca Cola at the time James Bond released the movie Quantum of Solace forms part of product filling marketing. The product is presented as if it new.
Coca Cola is globally famous for its distribution channels. In India the Coca Cola distribution channel is a bout 6.5lakh outlets by the year 2000 as compared to its competitor Peps Co’s which was 6lakh. The firm has a development of different strategies of distribution strategies for the rural and the urban sectors. The channel of distribution in the Urban adopts the model similar to the direct store distribution, warehouse distribution brokers and vending & food services programs according to Ohmae (1990). This methods ensures savings of margins and encourages quick availability of the item to the retailer
While in the rural, the Hub and Spoke model distribution channel is applied. Where there is a division of different distributor’s categories depending on the area they are covering. This model is utilized by to reach the rural market as the program allows the bigger loads to travel long distances while the smaller ones shorter distances as a result the costs are cut down, as stated by Bate and Johnston (2003).
Khan (2005) explain the point that through there use of modern technology in the present times Coca Cola is able to improve its distribution and management operations logistics reasonably. There are the options of Chilled DSD System that deals relatively with the methods of distributions that are small. Particularly, it deals with juicy fruits products that can easily go bad. The second option is the Hybrid System, where there is collaboration between the firm and the firm of complimentary good so that its channels of distribution can be used for the selling of the product. In this, the example is collaboration Coca Cola and McDonald. This system is actually benefited by the creation of the synergy by the two collaborating firms.
The Social corporate strategy
This is where the firm provides the volunteer services in the community. This strategy with the social work assists in position the firm’s brand name in the minds of the users for the longer time as the brand that is both ethical and social, hence providing the opportunity for the period of growth that is long term. The recent example is the case of Coca Cola social work in India where it has been awarded a golden peacock a ward. Coca Cola has concentrated on water conservation, clean drinking water access and water conservation awareness and other related issues as the firm’s strategy on the stewardship of water.
The Coca Cola Corporate strategy
The achievements made by Coca Cola in China are a very strong indicator that patience pays. The firm’s strategy and management planned vigorously for the success. The market leadership that it enjoys is rooted on strong capability of reacting in time and accurately to the changing market dynamics. Heller & Bono, (2006) argued that the firm dominates the market not because it came early in the market but because of brilliant short time moves like the concentration on fanta and sprite. Also success comes because of joint ventures. Early on when the investment in beverage industry was restricted it formed partnership with government bodies but no equal share. Latter, it joined with other ventures with equal control hence gained majority equity. The strategic partnership that the Coca Cola firm was being involved was the strategy of positioning itself for the future. The Coca Cola partner serves the number of firm critical goal.
They do share the investment risks in the plant of bottling and it can leverage the political effects its partners to acquire government approvals for the new plants of bottling. The most significant of these new partners allows the Coca Cola management control via the major equal ownership of joint ventures.
This drastically affects sales in a number of ways. The case from Kogut (1985) of Pepsi provides an example of how pricing strategy can affect the market and sales. The firm gained popularity in 1936 by introducing 12-ounce bottle. The earlier price of 10 cents resulted to slow sales. After slashing the price to 5 cents there was a substantial increase in sales. This was due to the Pepsi ability to encourage the price-watching users to switch the Coca Cola 6-ounces standard bottle for the price of 5cents instead of 12-ounces. Pepsi sold at a similar price. The sales in 1939 a lone was 5 million bottles as the profit doubled as the consumption went higher.
The Communication Strategy
Dana and Oldfield (1999) say that after looking at the environment that is changing, Coca Cola calibrated its communication strategy in a way that is very innovative. The works of “imagery” for the carbonated soft drinks, while the work of “functionality” for the rest of the categories. The example that entrenches imagery is the brand for refreshing; the firm introduces the issue of comfort ability.
Brand Development Strategy
The strategy that I believe Coca Cola Company should peruse is the brand development strategy. According to Dana and Oldfield (1999) this strategy has far reached and managed to remain in the limelight ever since it started to be good with these that do not take alcohol. The loyalty of the brand is a significant factor to maintain the number one position. Collins (1991) states that Coca Cola Company enjoys the status of being of the biggest non alcoholic beverage firm worldwide its distribution system is unique from other non alcoholic companies. Over years the company has passed many brand enhancement tests and a point is made for the products under the banner of Coca Cola as it invades the minds of the users continually.
Hamel and Prhalad (1985)explains that the brand development strategy of Coca Cola should involve the redesigning of its brand development policies and the techniques of keeping up with the set minds of its users that is ever changing. In the beginning this brand believed in affordability, being available and being acceptable. However this Coca Cola’s brand development should be changed to include the value of price, preference and pervasive penetration.
Boutzikas (2000) explains that the issue of building brand of the firm is based on the fact that it wants its user’s accessibility, which is to be within the reach of desire of the arm. In the efforts of building the brand identity of the firm, many brand attributes for example 20 are to be tested in every month which may involve as much as 4000 users. The strategy of brand development of Coca Cola is very effective as it has been having the capability of constructing, managing as well as maintaining its brand image since many years ago.
Another reason as to why this strategy should be used is that the brand has unanimously gained the acceptance all round the world because of the fact that it has shown the capability of relating very well with its users. This signifies the brand loyalty. The loyalty of the brand has been very vital in maintaining the brand picture of Coca Cola. It has believed in shelling out the best as a result the users by default are retained as explained by Boutzikas (2000). The enhancement of the frequency of purchase is one of the techniques of building brand. The firm has also made investments in many campaigns of advertisements always involving the services of theses who are the celebrities around the world. On top of the users, there is another category of users, who usually increases the user foundation and they comprises of the brand collectors. They most of the time indulges in the collection of the old and the logos that are upcoming of the Coca Cola bottles and they literary matter.
Collins (1991) says regarding to the development of the brand of Coca Cola zero the firm came out with an advertisement that was some what different from the most common ones. In the concern of this the “no calorie beverage”, it has given raise to three forms of products that include; the Coca Cola Classic, the Diet Coke, and the Coca Cola Zero.
Boutzikas (2000) continues that there are a number of experts who have a believe that these times when Coca Cola the tag of line that states, “the real thing”, it was really meaning that, however, with the invention of different kinds of categories of coke, the statement “the real thing” got changed to the statement that reads “many things”, and the flavor that was there originally is at most times lost. As the result, the building of the brand strategy has to be in such a manner that it will not lead to the people’s confusion and have the capability of retaining users despite the fact that many new manufactures of non alcoholic beverage being on the anvil.
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