Evaluating Customer Retention Methods used by Coca Cola
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Published: Mon, 5 Dec 2016
A consumer is a person who spots a need or desire, and then looks for the best way to satisfy his or her need either by purchase or acquisition (Solomon et al, 2010). Consumer behaviour as defined by Solomon et al (2006) is “the processes involved when individuals or groups select, purchase, use or dispose of products, services, ideas, or experiences to satisfy needs or desires”. Customer retention is vital these days and organisations are looking for the best way to please and satisfy the interest of their consumers. According to Fill (2009), the understanding of the buyers’ behaviour makes marketing strategies and plan come out successful. The Coca-Cola Company is soft drink industry that has been able to build its brand loyalty with its consumers over its years of operation, despite the highly competitive market (Euromonitor, 2010). But this success would not have been realistic without understanding who the consumer is, what the consumer needs and how the consumer behaves. The Economic recession was a trying time for companies which led to the closures of some and loss for majority, the soft drink industry is not an exception and Coca- cola which falls under the soft drink industry will be analysed on how effective the management of their consumers was to in ensuring their survival in the recession.
1.1 A brief summary of The Coca- Cola operations
The Coca-Cola Company (TCCC) is the largest manufacturer, distributor and marketer of non alcoholic beverage, concentrates and syrups in the world. Coca-cola has a portfolio of more than 3,300 beverages, from diet and regular sparkling beverages to still beverages such as 100 percent fruit juices and fruit drinks, waters, sports and energy drinks, teas and coffees, and milk-and soy-based beverages, which are now sold in more than 200 countries in the world. (Coca-cola, 2010).
Coca- cola first got to Britain in the year 1900, after Charles Candler brought a jug of syrup along on a visit to England. Soon after, in the early 1920s, it went on sale at the London Coliseum and in Selfridges. Since then coca-cola Britain has come up with innovative soft drinks namely: Coca-cola; Diet Coke; Coca-cola zero; Sprite; Sprite zero; Fanta;Fanta Zero; 5 Alive; Schweppes; Schweppes zero; Powerade; Powerade zero; Kia ora; Kia ora(no added sugar); Dr. Pepper; Dr. Pepper zero; Lilt; Lilt Zero; Oasis; Oasis extra light; Glaceau vitamin water and Relentless. (Coca-cola, 2010) With about 4,650 employees, Coca-cola GB claims to have sold 228million cases in 2008.
Pic. 1.1 – The Coca-Cola Company Great Britain brands
Available on this link- http://www.coca-cola.co.uk/brands/
1.2 An overview of the soft drink industry in Great Britain
Mintel (2010) stated that “close to one-quarter of companies in the UK soft drinks market is growing at more than 10% per year”. Some of the main players in the UK soft drink industry include Coca-cola, Pepsi cola UK, Tropical UK, Nestle UK etc to mention but a few. The British Soft Drinks Association’s 2010 UK Soft Drinks Report found that the overall market grew by 1.7% in 2009, with total consumption reaching 14,140 million litres, at a retail value of £13.224 billion” (Mintel, 2010). The British Soft Drinks Assocaition (2010) stated that “it was encouraging to see that the soft drinks market was holding up during the economic downturn”. According to M intel (2010), for the second year running, Coca-cola topped interbrand’s best global brands table, placing it above its competitors in the soft drink industry. The coca-cola company has continued to focus on expanding its business through taking tactical places in niche soft drinks producers, by purchasing a stake in UK smoothie producer, Innocent Drinks (Euromonitor, 2010).
1.3 The recession in United Kingdom
Recessions occur during the down or contraction phase of the business cycle. The term business cycle refers to the familiar ups and downs of economic activity. (Pearce and Michael 2006). Furthermore, Pearce and Micheal (2006) opined that recessions cause significant declines in resources available to the firm because customers spend less, lenders lend less, and competitive rivalry increases. Initially, the behaviour of consumers changes during recessions. They have less money to spend and cut back personal spending in response to the overall decline in economic activity. Industrial and business customers may become disloyal, demand renegotiated contract terms, and alter purchase patterns. Also by Pride and Ferrell (1995), recession is “a stage in the business cycle during which unemployment rises and total buying power declines, stifling both consumers and business peoples’s propensity to spend”.
The UK economy was growing faster than the average for the Euro zone throughout most of this decade. However, an abrupt slowdown began in 2008 and the economy entered a recession in the third quarter. According to Euromonitor (2010), real gross domestic profit fell by 4.9% in 2009, making this the UK’s longest post-war recession. The UK has been harder hit than many countries because of its large financial sector. The fiscal position has deteriorated over the past several years. The deficit was pushed even higher as a result of the bailout of large banks. The number of unemployed also rose by 50% during the recession with 800,000 jobs being lost (Euromonitor, 2010). The recession led to business closures, job losses and a lack of employment opportunities in the UK (Athey, 2009). This first global recession in the new era of globalization, started in the US, spread to Europe, and eventually became global; it’s the worst economic crisis since the great depression. (Stiglitz and Joseph, 2009).
1.4 The Coca-Cola Company and the recession
TCCC’s gross profit margin decreased to 64.2 percent in 2009 from 64.4 percent in 2008, primarily due to foreign currency fluctuations, adverse geographic mix as a result of expansion in their up and coming markets, current focus to steer better reasonable initiatives across different major markets and unfavourable channel and marketing mix in some certain markets. (Coca-Cola, 2010).
Even though there was a slight decrease (0.2%) in their profit margin compared to the previous year, TCCC arguably performed well despite the economic downturn.
The unit case volume in TCCC is one of the measures of the fundamental strength of the company because it helps to measure progress at their consumer level. In Europe, the sales volume of year ended 2009 versus year ended 2008 shows that the unit case volume in Europe decreased 1 percent, caused mainly by the ongoing hard macroeconomic situations in most part of Europe. These hard macroeconomic conditions influenced major markets and caused a decline in the unit case volume of 8 percent in South and Eastern Europe, 4 percent in Iberia and 2 percent in Germany. The volume declines in these markets were partially made up for by 6 percent unit case volume growth in France and 4 percent growth in Great Britain.(Coca-cola, 2010).
Table 1.1- Financial result of The Coca-Cola Company
Year Ended December 31, 2009 2008 2007 2006 2005
(In millions except per share data)
SUMMARY OF OPERATIONS
Net operating revenues $ 30,990 $ 31,944 $ 28,857 $ 24,088 $ 23,104
Net income attributable to shareholders 6,824 5,807 5, 981 5, 080 5, 872
GROSS PROFIT 19,902 20,570 18,451
GROSS PROFIT MARGIN 64.2% 64.4% 63.9%—————–
PER SHARE DATA
Basic net income $ 2.95 $ 2.51 $ 2.59 $ 2.16 $ 2.04
Diluted net income 2.93 2.49 2.57 2.16 2.04
Cash dividends 1.64 1.52 1.36 1.24 1.12
BALANCE SHEET DATA
Total assets $ 48,671 $ 40,519 $ 43,269 $ 29,963 $ 29,427
Long-term debt 5,059 2,781 3,277 1,314 1,154
1.5 Scope of Study
The interest of this study lies mainly with The Coca-cola Company, focusing on Coca-cola Great Britain as the scope of study. This study also examines the level at which the recession affected the sales in coca-cola and the consumers attitude towards the purchase of coca-cola.
2.0 Key Consumer Behaviour Aspects
Three key consumer aspects have been carefully selected from Jiang (2010) as explained in the Consumer Behaviour Lectures; the following aspect of the consumer behaviour may have influenced the continuous purchase of coca-cola products despite the economic downturn- the buying process, Attitude formation and Motivation.
2.1 The Buying process
“A buying decision making process is the selection of an option from two or more alternative choices” (Jiang, 2010). Coca-colas consumers can be explained in Consumer as a Problem Solver (Habitual Decision Maker). A habitual decision maker makes choices that are characterised by an impulse made with little effort and without conscious control (Solomon et al, 2006). Coca-cola’s brands are low involvement products and so require little information search. Most decisions made by people who consume coca-cola are with little or no conscious effort. Coca-cola consumers purchase Coke for example based on a habit that has been formed over time.
Also the Evaluation of alternatives can be used to explain the brands resistance to the recession, much of the consumers effort that goes into a purchase decision develops at the stage in which a choice must be made from the accessible alternatives (Solomon et al, 2006). In many cases, there are a number of alternatives (such as water, soft drink or alcohol) a consumer could consider in satisfying a biogenic need, i.e. to conquer thirst. A consumer that has formed a habit overtime to purchase diet Coke for example will always have in mind a diet coke whenever he’s thirsty. Branding can also be an influence on the evaluation of alternatives. In a survey of Global Brands, Inter Brand and Business Week identified the significance for companies to create communities around their products and services, which gives the customers the opportunity to feel as if they own the brand (Solomon et al, 2006). Fill (2009) also supported that “as a brand becomes established with a buyer, so the psychological benefits of ownership are preferred to competing offerings, and a form of relationship emerges” Coke is not only seen as a drink by its consumers, but seen in the light of its heritage and relationship with them( Payne,2007). Brands also create impressions and strong feelings so much that when people see the coke bottle with its red label, and the content, people suddenly feel thirsty and the need to have a drink (Riesenbeck and Perrey, 2007) According to Mintel, (2010), the Interbrand ranked Coca-cola as the number one global brand in the year 2009 and 2010 respectively. Brands can influence a consumers choice in a decision making process, in a study conducted, 51percent of consumers preferred Pepsi over Coke , while in an open test, only 23percent preferred Pepsi over coke(Jenkinson, 1995). In my opinion, Coca-cola consumers have developed a relationship with the brand, which makes them to choose coca-cola’s brands amongst all other alternatives even in a recession. The economic downturn did not affect consumers choices, habits did not change despite the recession; coca-cola consumers did not change their product preferences because a habit has been formed over time.
Table 2.1 – Buying Decision making process
After – purchase behaviour/feeling
Source- (Jiang, 2010)
2.2 Attitude Formation
“Attitude is a person’s learned predisposition, tendency to respond to an object in a consistently favourable or unfavourable way” (Allport, 1935) as cited by (Jiang, 2010). An attitude formed, lasts over a period of time, an attitude towards what a person eats or drink or developing an attitude towards different brands (such as drinking diet Coke rather than drinking diet Pepsi) or also having an attitude towards a general consumption pattern(such as eating twice to eating once in a day) (Solomon et al, 2006).
The Utilitarian Function which is related to the basic principles of reward and punishment will be used to explain why TCCC was not entirely affected by recession. Attitudes are formed based on the presumed product qualities (either pleasure or pain) (Solomon et al, 2006). Attitudes influence a consumer’s decision making and the goal of a marketer is always to create a positive attitude towards a product or change existing attitudes (Fill, 2009).
In a recent research conducted by TCCC to evaluate consumers’ attitudes towards its brands, it revealed that coca-cola is the brand most associated with happiness (Coca-cola, 2010). The result of the survey revealed that over a half of the people that participated in the research said ‘it’s the taste that makes them smile’ others said ‘sharing a bottle of coca-cola with family and friends can provide an opportunity to spend time together’ (Coca-cola, 2010). Coca-cola consumers have developed an attitude overtime, so the recession would not change their product preference but might just alter their consumption pattern (such as reducing the intake of one three bottles per day to two bottles per day). The theme of the TCCC also stresses straight forward benefits (Coca-cola….Open Happiness). TCCC develops strategies to penetrate their consumers’ lifestyle to pass a message. In order to promote Coca-Cola Zero (one of Coca-Cola’s brands),TCCC partnered with the Twentieth Century Fox and director James Cameron’s for his epic-adventure and blockbuster film Avatar. This promotional strategy helped to form an attitude towards Coca-Cola Zero and raise its awareness. They also use promotional activities and sponsorship of events such as sponsoring the premiership in England and Scotland to reach a large and well defined audience (football fans) and consumer’s attitude are formed through these sponsorships in making a purchase decision.
Attitudes towards coca-cola could also be formed by the yearly coca-cola adverts, as supported by Pearce and Micheal (2006) “aggressive marketing campaigns may be more effective during recessions, as competitors feeling the pinch might attempt to forestall losses by reducing their advertising”. During the recession, TCCC, engaged in massive paid advertising to reinforce their brands in the minds of the consumers. Also towards the end of each year, coca-cola does an advert, using the Christmas theme to convey its message to its viewers. The viewers’ feelings about the context in which an advertisement appears can also influence brand attitudes (Solomon et al, 2006). Liking this Christmas themed adverts would naturally link us to Attitude Formation (three hierarchies of effects), Affect, Behaviour and Beliefs. Affect (like the brand), behaviour (buy the brand), belief (feel satisfied with the brand) or belief (create awareness of the brand), behaviour (buy the brand), affect (like the brand) or belief (create awareness of the brand), affect (like the brand), behaviour (buy the brand).
Attitude formed over time influences a consumers purchase behaviour, in spite of the recession, it can be argued that the attitude of the TCCCs consumers did not change, and there was a continual process in consumers purchase pattern. Coca-cola was not so affected by the recession because of the consumers’ favourable attitudes towards their products
Table 2.2 – Three Hierarchies of Effects
Attitudes based on cognitive information processing
Attitudes based on behavioural learning processes
Attitudes based on hedonic consumption
Source- (Jiang, 2010)
“Motivation is the driving force within individuals that impels them to action, this driving force is produced by a state of tension which exists as the result of an unfilled need” (Jaing 2010). Every action is done for a reason. Motivation refers to the process that cause people to behave as they do, motivation occurs when a need (Utilitarian-consumers practical benefits or Hedonic-consumers emotional benefits) is aroused that the consumer wishes to satisfy. The desired end- state is the consumers’ goal. The degree of arousal is called a drive (Solomon et al, 2006). The purpose of purchasing a drink would be to satisfy a biogenic need, i.e. to conquer thirst. For a consumer to now choose a diet coke because he’s thirsty is called psychogenic. Coca-cola motivates its consumers through its themed message (Open Happiness), and this can be explained in the hedonic needs (Consumers emotional benefits) The survey TCCC conducted for their consumers shows that the ‘taste’ of coca-cola makes them happy. What motivates a consumer might be different compared to the other consumer. A regular coke consumer willing to reduce his sugar consumption will be happy to switch to coke zero which has no sugar and less calories. According to British Soft Drinks Association, (2010), “Consumers are loyal to the drinks they know and trust but remain open to innovative products and brand extensions which meet their ever-evolving needs. The industry’s ability to provide the public with a wide range of enjoyable and affordable drinks will ensure it remains resilient despite the tough economic climate.” TCCC also motivates its consumers by regularly innovating different products to suit specific needs, e.g. no sugar drink (Coke zero). Also viewing it from the Consumer involvement angle, TCCC also motivates its consumers by connecting with millions of them every day through their brands’ Facebook pages, Twitter and influential blogs, creating a dialogue that allows TCCC to build their brand assets and strengthen their consumer relationships. Solomon, (2006) defines” involvement as a person’s perceived relevance of the object based on his/her inherent needs, values, and interests”. Through this Fans page on facebook and twitter, consumers can access their advertisements, Coca-Cola applications and downloads, and get live updates from the company. Also TCCC involves their consumers through the Coca-Cola Freestyle machine, this makes the consumers beverage innovators by giving them choices and variety to make more than 100 different branded beverages at the touch of a button, this provides fun, and a relationship that connects the company with its consumers. (Coca-cola, 2010). TCCC motivates their consumers by associating with things that will be of interest to the consumers, for example; on their website is a calculator used for checking amount of calories and quantity of drinks consumed every week so as to help consumers monitor their calorie intake in having a healthy diet and lifestyle. This can help motivate a consumer to purchase TCCC’s product because they have shown the consumer the consumer that in as much as they want to make profit, they also care about them and their health. The recession did not really affect TCCC’s sales because of the motivation TCCC tries to create and the relationship they have been able to build overtime with their consumers.
Understanding consumers’ behaviour is key to having a successful company; marketers need to deepen their research on their consumers because the consumers are becoming aware of the important role they play in their consumption pattern. Competitors are always also looking for tactics to grow and influence new consumers, and any organisation that does not meet up with consumer’s expectations would be losing a consumer. Companies should look for ways to retain their current customers and also focus on getting new ones “attracting new customers should be a priority in a recession” (Pearce and Michael 2006). Organisations should actively engage their customers more than before.
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