Marketing environment are the actors and forces that affect a company's capability to operate effectively in providing products and services to its customers. The marketing environment consists of microenvironment (customer, competitors, distributors, and suppliers) and the macroenvironment (economic, social, political, legal, physical and technological forces). These shape the character of the opportunities and the threats facing a company and yet are largely uncontrollable.
The major microenvironment that Coca-Cola is facing is its competitor, PepsiCo. Competitors have a major bearing on the performance of a company. It affects a company's capabilities to operate effectively in its chosen markets. For example, Coca-Cola was once successful and was the Wall Street favourite. It created a global brand and outperformed its arch-rival PepsiCo. However, by December 2005, its competitor, PepsiCo, for the first time in the history of the two companies, was valued more highly with a market capitalization of $98.4 billion against Coca-Cola's $97.9 billion. Coca-cola's number one status was starting to look vulnerable. It was losing market share to PepsiCo.
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The major macroenvironment that Coca-Cola is facing is Social/cultural forces. Social/cultural forces can have an impact on marketing decisions by changing demand patterns and creating new opportunities and threats. With the increasing numbers of health-conscious consumers, attitudes towards the demand for beverages are changing. The changes need to be monitored and understood so that marketing management is aware of the changing tastes and behaviour of consumers. Such changes can create demand shifts that can act as either opportunities or threats. In contrast to Coca-cola, PepsiCo considered the change an opportunity for business expansion. For example, PepsiCo diversified away from sugary fizzy drinks into a powerful portfolio of non-carbonated products. It bought the fruit juice business Tropicana and Quaker Oats. With these new businesses, the company has experienced double-digit growth, where as Coca-cola cherish the status quo and resist change.
There are various ways companies can respond to the change in marketing environment, which are: ignorance, delay, retrenchment, gradual strategic repositioning and radical strategic repositioning.
The first response of Coca-Cola to the changing marketing environment before the arrival of Mr Isdell to that of PepsiCo, is where Coca-Cola made no change to its strategy at the beginning after the death of Roberto Goizueta. It continued as normal, ignore its competitor, PepsiCo, which was threatening their existence. During that time, Coca-Cola was facing bungled takeovers, disastrous product launches, contamination scares, and constant feuding between factions within the management and boardroom. It still stayed put to Goizueta's philosophy, that is, it was that nothing could beat the low cost, high-profit -margin business of producing syrupy concentrate for bottlers, under licence. Between the competitions of the two companies, it had made consumers more cola-conscious. However, Coca-Cola rarely saw it like that due to the poor environment scanning. Coca-Cola appears to be internally orientated business, as it did not monitor and seek to understand customers, research competitor and their brands to understand theirs strengths, weaknesses, strategies and response patterns. Coca-Cola did not realize that salient forces are affecting their future prospects.
Apart from the ignorant, Coca-Cola has delayed in their response to the marketing environment change. This can be caused by bureaucratic nature of their decision-making. Marketing myopia can slow response through management being product rather than customer focused. For example, despite the change in consumer tastes, lifestyle and expectations, Coca-cola is still focused on soft drinks where PepsiCo has already well diversified and even enter into snack food business. The result is that PepsiCo generates about 23 per cent of its worldwide profits from the stagnant carbonated drinks sector, while Coca-Cola relies on fizzy drinks for 80 per cent of profits. PepsiCo's diversification programme and its branding-building expertise have made it the world's fourth largest food and beverage company, ranking behind Nestle, Kraft and Unilever. Its sales were more than $43 billion compared with Coca-cola's $32 billion in 2008.
Slowly, Coca-cola has looked into gradual strategic repositioning. This involves a gradual, planned and continuous adaptation to the changing marketing environment. Coca-Cola has slowly and continually repositioned itself in response to its strong competition and the changing marketing environment. It has in fact gradually challenge its competitor by having launched Minute Maid fruit juice to challenge Tropicana, Dasani to take on Aquafina and so on, even though it seems to be playing catch-up.
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Compare to Coca-Cola, PepsiCo has adopted the radical strategic repositioning where it took part and involved by changing the direction of the business according to the change in marketing environment. For example, PepsiCo developed and marketed better alternative, more varieties and healthier beverages.