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Coca Cola was founded by Dr. John Pemberton, a pharmacist from Atlanta, Georgia in May, 1886. inventors.about Coca Cola has achieved a strong and substantial growth in the past 120 years. The table below details the rapid growth of Coca Cola from a small glass of soda beverage to the most popular can of drinks all over the world.
In order to put the company's mission into perspective, the organization conducts their business in a unique fashion and is quite distinguished from its competitors. Rather than going through direct marketing programs and traditional channels to the consumers, Coca-Cola utilizes various bottling partners in order to focus more on beverage creation and marketing.
It is called "The Coca-Cola system". The company starts by manufacturing the concentrates, beverage bases and syrups then distribute them to their bottling partners while keeping ownership of the brands. The company itself is more involved in the marketing activities such as print and television advertising, retail store displays as well as contests and package designs.
The bottling partners on the other hand, comprise of many different entities. They include international and publicly traded businesses and even some small family businesses. These partners are usually responsible for the producing, packaging and distributing of the company's products.
3. External Analysis
The company is able to identify its opportunities and threats in their operating industry, by analyzing the external industry environment. Besides, it is very important to select and formulate an appropriate strategic planning, because external factors have the effects on the organization in different aspects.
The macro-environmental forces surround businesses. The analysis of the macro-environmental forces can be done by using PESTEL model six forces, which include the following:
1. Political Legal
Political/legal is the potential factor that influences the political and legal system. The non-alcoholic beverages fall in the category under the FDA and the government plays a role within the operation of manufacturing these products. In terms of regulations, the government has the power to set penalties for the companies that do not meet their standard law requirement.
In addition, with the changes in laws and regulations, such as accounting standards, taxation requirements and environmental laws, foreign jurisdictions, deregulations, monopolies legislation and general government policy might affect the book of the company as well as their entry in foreign country. However, Coca Cola is continuously monitoring the policies and regulations set by the government.
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, "For major soft drink companies, there has been economic improvement in many major international markets, such as Japan, Brazil, and Germany." These markets will continue to play a major role in the success and stable growth for a majority of the non-alcoholic beverage industry.
Sociological analyzes the ways in which changes in society affect the organization such as changing in lifestyles and attitudes of the market. Since many are reaching an older age in life, they are becoming more concerned with increasing their longevity. This will continue to affect the non-alcoholic beverage industry by increasing the demand for the healthier range of beverages. As the demand for carbonated soft drinks decreases, the revenue of Coca Cola also declines.
Technological force refers to analysis where the introduction and the emerging technological techniques are valued. This creates opportunities for new products and product improvements in terms of marketing and production. As the technology advances, new products are introduced into the market.
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.
Legal aspect focuses on the effect of the national and world legislation. The Coca Cola Company receives all the rights applicable in the nature of their business and every inventions and product developments are always going into the patented process.
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:
1. Threat of new entrants
2. Rivalry among existing competitors
3. The bargaining power of buyers
4. The bargaining power of suppliers
5. Threat of substitute product
3.2.1 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).
3.2.2 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.
3.2.3 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.
3.2.4 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.
3.2.5 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.
3.3 Industry Life Cycle
Change in social concerns, attitudes, and lifestyles are important trends. In the recent century, people are becoming more concerned with a healthy lifestyle. "Consumer awareness of health problems arising from obesity and inactive lifestyles represent a serious risk to the carbonated drinks sector" (Datamonitor, 2005, p. 15). The trend is causing the industry's business environment to change, as firms are differentiating their products in order to increase sales in a stagnant market.
4. Internal Analysis:
SWOT Analysis Using Coca Cola Amatil (CCA) as an example
4.1 Internal Analysis
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.
4.2 Value Creation
The Coca-Cola Amatil (CCA) 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 CCA 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 Premium Closed Door Coolers Open Air Chillers Cashless Machine
Source: adapted from CCA Strategic Review 2007-2012
The major factors that allow CCA 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 CCA to achieve competitive advantage include, strong brand image, strong franchising business model and a diversified product range. Competencies of CCA 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 CCA 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 CCA to operate with lower inventory levels and reducing the costs of storage and warehousing. CCA 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 CCA to improve physical distribution capability, hence lowering distribution and transport costs.
CCA 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, CCA 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 CCA 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.
CCA'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 CCA 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. CCA 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. Major stakeholders include:
6. Coca-Cola Product Line
7. Functional-Level Strategy
To lead competitive advantage a company can either perform functional activities:
ƒ˜ At a cost lower than its competitors.
ƒ˜ Easily to differentiate its goods and services from those competitors.
(Quick MBA 2009)
8. Business-Level Strategy
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:
ƒ˜ Cost leadership; by changing into the lowest cost producer
ƒ˜ Differentiation: by being exclusive and unique in the industry.
ƒ˜ Focus: by selecting a narrow competitive scope within the industry.
Requirements for Generic Competitive Strategies:
8.1. Cost leadership
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)
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.
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)
9. Corporate Strategies
9.1 Vertical Integration
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.
9.2 Diversification Strategy
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.
9.3 Strategic Alliance
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.
On the other hand, Coca-Cola also gained profit by going into joint ventures with other companies. For example, in February 2001, the Coca-Cola Company and Procter & Gamble announced a $US 4.2-billion joint venture to use Coca-Cola's huge distribution system to increase reach and reduce time to market for the P&G products Pringles and Sunny Delight.
9.4 Multidomestic Strategy
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.