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Coca Colas objective is to improve their revenue while ensuring a steady growth in the cold-drinks industry. To realize the company's goals into action, the company runs the business operations in a faboulous way. Coca Cola uses several partners across the world, who in turn sells their product. This way, they do not interact directly with the end-customer, instead they have created leads in every region who will run their business. This ranges from sales to marketing.
This type of a system was nick-named "Coca Cola Marketing System", however, a lot of other companies have followed their path today. Coca Cola produced concentrated liquid (drinks) and send it across to the mixing (bottling) partners around the world. This way, their drink is patented and no one can steal the mix.
Coca Cola heavily relies on strong advertisements as well. Coca Cola focuses on sports ads, banners, television ads, etc.
Coca Cola faces several threats from its industry, especially in their operational phase. Several external factors affect Coca Cola's operations. It is therefore very essential to fabricate a proper strategic plan to avoid any untoward effect of the external factors on the organization.
PESTEL Analysis (Macro Environment)
The analysis of the macro-environmental forces can be done by using PESTEL model six forces, which include the following:
Political is the potential factor that influences the political and legal system. The government plays an important role in the making of these drinks, as this is a non-alcoholic drink, and is defined under the FDA.
Therefore, there are several changes in the rules & regulations of a country, standard of accounting might change, taxation policies differ, environment-protection rules may be implemented, etc might affect Coca Cola while expanding to another country.
Economic factors are analyzing local, national and world economy impact, which also, includes the issue of recession and currency exchange rates, inflation rate, interest rate, personal saving rate, income levels and unemployment levels. As the Standard and Poor's Industry survey indicates, that there has been a huge growth in the economy in several international markets like Brazil, Germany, China, etc. As per the research and business analysts, this growth is expected to continue in the non-alcoholic drinks sector.
Sociological analyzes the methods by which the organization is affected by a changing lifestyles in the market conditions. The study reveals several kind of results. Elder citizens opt for non-alcoholic drinks to stay healthy, which in turn increases the sales for Coca Cola. When the demand for aerated drinks decrease, lesser will be Coca Cola's need in the market.
Emerging technologies are highly regarded and valued. Use of state-of-the-art technologies create new opportunities for launching new drinks in the market. This can also be used to improve an existing product and increase its sales. New products are rolled out parallel to the launch of new technologies.
Environmental factor analyses the local, national and global environmental issues. According to the data of the Coca Cola Company, all of the facilities are strictly monitored according to the environmental laws imposed by the government.
Domestic and International legislations are carefully analyzed. Any invention done by the Coca Cola Company will be patented and sold world-wide.
To analyze the micro-environment and its factors, we use the Porter's five forces model to identify the existing industrial factors, which include the following:
Threat of new entrants
Threat of new entrant is the result of new competitors joining in the industry, causing the company to develop competitive advantage and maintain the market share. Hence, competition within the industry becomes higher. However, to reduce the threat of new entrants, Coca-Cola would need to create a strong brand image. By creating brand image, customers would be more likely to stay with the product and therefore the threat is reduced. As Coca Cola is the dominant player in vending machines in public areas, it is able to create a strong presence for the Coca-Cola brand in public places through its numerous vending machines (Euromonitor International, 2008).
Rivalry among existing competitors
High competitive pressure influences price. Intensity of rivalry is related to the number of competitors, rate of industry growth, product or service characteristics, amount of fixed costs, the capacity, height of exit barriers and diversity of rivals. It is hard to avoid poaching business when competitors are numerous or are roughly equal in size and power. The major competitor for Coca-Cola is Pepsi. To reduce the rivalry among existing competitors, company should try to differentiate their products or even consider buy out competition in order to help them grow. Sutton (1998) cited in Matraves (1999) argued that Coca-Cola has a first mover advantage dating from World War II. It was able to persistently dominate the market through its superior advertising competition. In addition, Coca Cola's market share relative to Pepsi is much higher within the cola segment.
The bargaining power of buyers
The bargaining power of customers is powerful when the buyer purchases larger proportion of seller's products or there is a small negotiating power when there are many similar products in the market. If the company is serving to industrial customers, they should be awarded that those customers tend to be more price sensitive. In addition, cutting off powerful intermediaries is one of the most common ways used by companies to reduce the bargaining of buyers.
The bargaining power of suppliers
The bargaining power of suppliers in soft drink industry is considered strong. Suppliers are powerful when a few suppliers dominate the market rather than an incomplete source of supply where there is no substitute for that particular input. Company could choose to buy over a supplier. By doing so, company could reduce its production cost in long term.
Threat of substitute product
The threats of substitutes are high since the soft drink industry is a highly competitive industry. The threats of substitutes would be high when: the product that the company is offering does not provide any real benefits compared to the other products, customers have little loyalty, the cost of switching and replacing the product is low, and the substitute product offers an attractive price performance trade off to the industry products. If we were to observe erosion in Coca Cola's market share, this would suggest that other firms are successfully convincing consumers that the perceived quality of their products is higher than Coca-Cola.
Product Life Cycle
Change in social concerns, attitudes, and lifestyles are important trends. In the recent years, it has been found that consumers are very concerned about health. "Consumer awareness of health problems arising from obesity and inactive lifestyles represent a serious risk to the carbonated drinks sector" (Datamonitor, 2005, p. 15).
SWOT Analysis Using Coca Cola (CC) as an example
Internal environment analysis is the process whereby the strategic strengths and weaknesses within the organization are identified and analyzed to establish the degree of their influence on the key value chain management and the roots of competitive advantage, which include competencies, resources and capabilities.
The Coca-Cola Company is committed to becoming an excellent leader in both customer and distribution services and to continue building value chain excellence. Value creation is a crucial process for attaining and sustaining a competitive advantage. It involves creating and delivering products with features or attributes that customer's value (Hill, Jones, Galvin and Haidar, 2007 p 96).
Examples of what CC has done to create value as described by Favaro (1998) include "increasing and refocusing the company's marketing investment; expansion into new national markets; acquiring and consolidating bottling companies in order to create new, more powerful agents in their supply chain; and reducing their participation in non-beverage businesses".
According to Kitzmiller (2006), innovation is another key factor in value creation. With innovation, Coca Cola is able to satisfy the constantly changing needs of the consumer. Coca Cola continually brings out innovation in their products such as introduction of the Sprite Green, a low calorie sparkling beverage made with natural sweetener and contains 5% lemon juice and the new Coca-Cola mini cans, which contain only 90 calories. They also innovate the cold drink equipment program, which aims to provide high-end solutions to customers.
Glass Fronted Vendor
(Source: adapted from CCA Strategic Review 2007-2012)
The major factors that allow CC to achieve superior efficiency, quality, innovation and responsiveness to customers reflect their possession of competencies, capabilities and resources necessary to outperform its rivals. Referring to the SWOT analysis matrix above, we can see that the key competencies or unique strengths that allow CC to achieve competitive advantage include, strong brand image, strong franchising business model and a diversified product range. Competencies of CC are also derived from its capabilities such as effective inventory and distribution systems, enabling the company to manage resources more effectively and valuable resources owned by the company as shown by its consolidated financial position.
According to Crawford (2004) key capabilities of CC include improvements to their inventory management systems, which mainly aimed to ensure that distributors receive appropriate quantities of beverages and that stock replenishment occurs effectively, thus allowing CC to operate with lower inventory levels and reducing the costs of storage and warehousing. CC also adopted a Co-Managed Inventory system, which electronically monitors inventory levels at Coles and Woolworth supermarkets to ensure suitable stock levels. The utilization of the supply chain-remodeling program "Project Jupiter" also enables CC to improve physical distribution capability, hence lowering distribution and transport costs.
CC is also capable of delivering what their consumers and customers value. With an in-depth knowledge of customer's needs and perceptions and innovations in wireless technology, CC is able to improve service to their customers, by closely monitoring vending machine stocks. This decreases the likelihood that the product will not be available when the consumers intend to purchase and increases consumer confidence in the vending machine channel. It also provides the promotional benefits to CC by creating a strong presence for the Coca-Cola brand in public places (Euromonitor International, 2008).
Factors that Coca Cola owns controls and uses for creating value can be categorized as tangible and intangible resources. These resources must also be organized in order to establish effective and efficient internal organizational structure of the business.
Coca Cola's cola carbonated soft drinks, which have been traded under the most recognizable brand names of all the producers in the industry, are considered rare, unique resource. It has enabled CC to create a competitive advantage in the global beverage market (Hill, Jones, Galvin and Haidar, 2007).
However, the soft drinks sector in Australia appears to start approaching its maturity phase. CC and many other manufacturers have responded to this issue by committing resources to the market with healthier product categories such as fruit juices, bottled waters and energy drinks (Business Monitor International, 2009).
Being the world's largest non-alcoholic beverage company, Coca-Cola is committed to maintain a dialogue with its stakeholders both inside and outside of the company.
Coca-Cola Product Line
BACARDI Bimbo Break
caffeine-free Diet Coke/caffeineCola light
Caribou Diet Coke Plus
Diet Coke Sweetened ericho
V Florida 7
Vanilla Coke Zero
To lead competitive advantage a company can either perform functional activities:
At a cost lower than its competitors.
Easily to differentiate its goods and services from those competitors.
(Source: Quick MBA, 2009)
Three generic strategies identified by Michael Porter such as cost leadership, differentiation and focus. Coca Cola Company applied these generic strategies to create a competitive advantage.
These are the following three competitive advantages in order to achieve and maintain Coca Cola Company:
Cost leadership; by changing into the lowest cost producer
Coca cola is using a combination of cost leadership and differentiation strategy. The purpose is because of the business is often required facing a variety of segments of the value chain. Coca cola production system is the most efficient in the world therefore it gives them a low cost strategy in the global beverage industry. Moreover, Coca cola has differentiated its products from those competitors on top of the basis of drink designs and flavors. This advantage gives the company ability to charge it price for many of its popular products. (Knowledge Resource Centre)
Differentiation: by being exclusive and unique in the industry.
Recently you can see there is a lot of Coca cola advertising in the summer time. The differentiation strategy is being used by the Coca Cola, which they spends large amount of money to advertise for differentiating and creating a unique image for their products. The different products toward the customers as a result it has been successful in increasing and gaining a leading position against the competitors.
Focus: by selecting a narrow competitive scope within the industry.
The Coca Cola Company aims to be a low cost leader, which will increase unit sales and gain buyer loyalty. However, the expense for covering up the low cost products is difficult to achieve. Therefore, it is very important for the company to communicate its differentiation to its customers. Moreover, the Coca cola needs to implement focused differentiation strategy, which is the way of selecting and choosing profitable markets to them. (Knowledge Resource Centre)
Vertical integration is the process of combining several steps in the distribution chain either the inputs or outputs of the organizational controls. In this case, Coca-Cola started Coca-Cola Enterprises (CCE) and positioned it as an independent bottling subsidiary of Coca-Cola. The parent company would buy other struggling bottlers and resell them to CCE.
Apart from that, the company has also established a long-standing relationship with various distributors and bottlers that would lower transaction frequency. This could in turn lower transaction costs and unreliability. This is done by entering long-term contracts with its counter parties.
Diversification strategy refers to seeking unfamiliar products or markets to develop and exploit. It is a strategy to eliminate the potential risk of a current product or market orientation does not seem to provide further opportunities for growth.
Coca-Cola uses this strategy to explore new drink categories continuously, and it is keeping the tradition of expanding on their current portfolio of brands and products. Coca-Cola has more than 3000 products in over 200 countries of the beverage brands with core focus on brand of Coca-Cola, Diet Coke, Coke Zero, Sprite and Fanta. Branching out from its traditional soft drinks, Coca-Cola ventured into energy drinks segment in Powerade.
The distribution of Coca-Cola has reached all around the globe; it has a huge and wide customer base. Therefore, Coca-Cola highly focuses on enabling their customers to reach their products more regularly. Thus, all partners of Coca-Cola work closely with customers - street vendors, amusement parks, convenience stores, grocery stores, restaurants and movie theaters, among many others -- to execute localized strategies developed in partnership with Coca-Cola.
Globalization is the key concern of Coca-Cola. The company has a total control in cost pressure, so the cost pressure is low. Therefore, Coca-Cola can operate under the Multidomestic Strategy. Thus, by running the local responsiveness of Coca-Cola is high.
However, the features of multidomestic strategy for Coca-Cola are that they mutually extensive customize both their product offering and marketing strategies in different place with different national conditions. In addition, they are operating in seven regional operating groups such as, North America Group, Latin America Group, Europe Group, Eurasia & Africa Group, Pacific Group, Bottling Investments Group and McDonald's Division. The reason is that they are trying to create their value innovation activities by doing the market and product research in different potential national market.
In order to position itself as one of the most socially responsible organizations in the midst of financial downturn, market saturation and climate change, Coca Cola should adopt green strategies and incorporate them into every strategic aspect. They should implement the green strategy into their supply chain by trying to reduce energy costs or use alternative renewable energy sources and encourage suppliers, distributors and employees to operate in a green way.
As Coca Cola, products packaging rely heavily on the use of plastic and aluminum cans the company's research and development team should innovate new and environmental friendly materials to respond to the constantly changing demand of customers for greener and more sustainable products. For example, using plant-based plastic bottles, which are 100 % recyclable and biodegradable. The use of plastics made out of renewable materials not only minimizes the impacts of plastics on health and environment, but also reduces their reliance on the use of petroleum oil.
Coca Cola may also focus on changing and improving consumer perception about their brand image as a high calorie and unhealthy drink by repositioning itself through a more intensive value creation and innovation. To respond to a growing trend of consumer preference for a healthier and more nutritious diet and to allow consumers to make informed decisions on their beverage choices, Coco Cola can include front-of-pack energy information on all of their products and introduce new products with lower calorie.
In order to survive and perform successfully within a highly competitive industry, Coca cola has been able to utilize various corporate and business strategies to align each business unit's objective and goals and act as one whole company. By doing so, the company is able to combine and employ their resources in a more efficient manner.
It is not due to serendipity that Coca Cola has become the world's largest producer and manufacturer within the beverage market. It is obvious that the management of the company has articulately positioned the company within the beverage industry. This can only be done through extensive market research on its customers, its supply chain as well as the company itself.