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Global Placement and Distribution Channels in reverence to Coca Cola Essay

Coca Cola the most valuable brand in the world (77.84 billion $),1 was born in Atlanta, Georgia, on May 8, 1886. Dr. John Stith Pemberton, a local pharmacist, produced the syrup for Coca-Cola, and carried a jug of the new product down the street to Jacobs’ Pharmacy, where it was sold for five cents a glass. Dr. Pemberton’s partner and bookkeeper, Frank M. Robinson, proposed the name and wrote the now famous trademark “Coca Cola” in his unique script.2 Today Coca-Cola Company (TCCC) is the largest beverage company in the world.

They own or license and market more than 500 nonalcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages such as waters, enhanced waters, juices, ready-to-drink teas and coffees, and energy and sports drinks. TCCC owns and markets four of the world’s top five nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta and Sprite.

Finished beverage products are now sold in more than 200 countries. TCCC makes their branded beverage products available to consumers in the world through their network of Company-owned or -controlled bottling and distribution operations as well as independent bottling partners, distributors, wholesalers and retailers (the world’s largest beverage distribution system). TCCC markets, manufactures and sells beverage concentrates/syrups and finished beverages.3 PepsiCo, Inc. is Coca Colas’ primary competitor.4 In the year 2012 TCCC made, with a worldwide manpower of 1509005, a revenue of 48.02 Billion $ and a net income of 9.02 Billion $.6 The stock price on May 13, 2013 was 42.52 $ on the NYSE7. Muhtar Kent is Chairman of the Board and CEO.8 2. The role of distribution in the international market

The developments in technology, revolution of finance and the modernization of distribution channels are main keys of the globalization and make it possible for coca cola to sell their products in almost every country in the world. After a entry mode, to enter a foreign market, has been chosen by a company, a company has to define its distribution channels such as organizations, agents, wholesalers, retailers, etc. who move the product to the final consumer.

The company has also to organize of the physical distribution, which involves logistic activities such as transportation, packaging, inventory, and storage of the product to be exported to another country. Efficient international distribution network shout give the final customers product information and accessibility, maintaining profitable distribution, partner relationship and strengthening the company´s global marketing strategy. The challenging issues which have to be taken into consideration are the competitive structure, the distribution system, the managerial factors and the involvement level of retailers. 3. Factors that influence a company`s international distribution Certain internal and external factors have to be including in the company’s plans to evaluate the most suitable channels in terms of structure, management and control. 3.1 Internal Factors

Important issues when a company makes distribution decision in foreign markets are the company entry mode and the degree of control that the company aims to obtain in the foreign market. The choice of less risky modes of entry, is delegate to diminished level control of the foreign marketing strategy. Intermediate using entry modes are strategic alliances, franchising agreements, joint ventures or Greenfield investments. TCCC uses a franchise system.

TCCC supplies the concentrate as raw material to independent bottlers. The independent bottlers produce based on exact specification the soft drinks. The franchise system offered the assurance that the product Coca-Cola was represented everywhere in the same quality from local businesses. Another main element is the decision of a distribution strategy. Does the producer want to use as many outlets as possible? He will run an intensive distribution strategy with the goal to penetrate their brands to all segments of the population.

A classic example for this is Coca Cola which vend their products in a wide variety of locations comprise grocery stores, convenience stores, vending machines, hotels and many more.9 Coca Cola’s goal is to have their product within 100 feet of every consumer10 A selective distribution strategy is when the producer distributes his products by using fewer but selective intermediaries. In the case of exclusive distribution strategy the producer allowed a small number of retailers the right to sell its products, which usually not sell competitive products. In 2009 the limited edition of a Coke bottle called “Moschino” was only sold in Milan, Italy for a short period.11

Image: Moschino Cola bottle
(http://www.vogue.co.uk/news/2009/10/01/moschino-coca-cola-bottles) The complexity of a product is another factor to consider, because it’s requires extensive information exchange and interaction to solve functional problems. The last important factors that influence the companies’ distribution choice, is the characteristic of the export department’s internal organization, for example its numbers of managers employed, their professional background, marketing skills and their operating budget. 3.2 External Factors

The characteristics of the distribution system like logistics and transportation infrastructure influence distribution decision but also product and price decisions. Local intermediary are necessary by inefficient logistic and transport infrastructure, but this means lower control over the final market and the prices. A reason for a diverse distribution system is the stage of the product life cycle. Additional elements witch needs to be taken into consideration are consumers purchasing and shopping habits as well as outlet preferences. In some Muslim countries Coca Cola as a American brand is boycotted and alternative non American product such as Mecca Cola, Parsi Cola, Zam Zam Cola are bought.12

Image: Mecca Cola produced by Al-Madina Company (http://madina.ps/?do=products&cid=3)

Other dimensions which are worth considering are market size and the distribution of consumers across the country. Coca cola and its bottling partners are known for their ability to make their products available in the most remoted places in the world. In developed countries TCCC uses traditional distribution models (trucks or other motorized vehicles) in which large amount of products are delivered to large retailers such as grocery stores, hotels, universities, and other institution. But in developing counties such as Tanzania for example where are mostly small bars neighborhood restaurants, one-person kiosks, and corner stores.

Coca Cola runs a different distribution system called Micro Distribution Center (MDC) model. MDCs are independent entrepreneurs which are colligating to their local bottlers (Coca Cola Sabco). They distribute and sell the beverage from a central pint for warehousing of products in small, specific geographical areas. MDCs usually appear in areas where a lack of stable roads and infrastructure makes it is problematic to deliver by trucks. They utilizing methods such as bicycles, boats, and pushcarts13

Image: Pushcarts and bicycle distribution, see.:

Other important factors that influence the distribution strategy are the choices made by competitors. For example if they have exclusive contracts with local retailers or wholesalers, creating entry barriers that tend to bar the company from some key cannels or if they own their own distribution channel. Dr Pepper Snappe Group, Inc. has a contractual agreement with the Coca-Cola Enterprise to distribute Dr Peppers trademark brands in the United States and Canada, to benefit from the their well established distribution system.14 The company which wants to distribute its product in other countries also has to mention local regulation. India 1977 changes their law restricting foreign equity holding to 40% of total equity.15 In 1978 consequent Coca cola withdraw from the Indian Market till 1992.16 4. Distribution Channels

The distribution channel structure is related to the country’s economic development and government policy. From a company’s perspective, managing a distribution channel requires many decisions based on the evaluation of the advantage and disadvantages of different alternatives: 4.1 Direct versus indirect channels

In a direct distribution channel, the producer sells directly to the final customer. If the company has a limited number of customer, the market can be served directly though a specialized internal sales force or though a global key account organization. Also when the product is technical /complex or a high level of service is necessary, the direct distribution is recommended. In the case of indirect marketing channels a intermediary (agent, wholesaler, retailer) assumes various task like holding inventories, financing, selling, promoting and managing after sales services.

The Intermediaries overcome cultural barriers, simplify the selling process and reduce the number of exchanges, but there is also a risk for the producer that they lose control of the physical flow, the ability to determine pricing policy, inventory payments and promotion. In Germany Coca Cola use independent concession holders, they have the rights to manufacture, fill, and distribute the Coca Cola products.The local concessionaires know their home market Germany well therefore they can take into account local peculiarities and so systematically expand the Coca Cola business. On 1. September 2007 the last free concessionaires joined for one concessionaire for Germany.17 4.2 Conventional distribution channels versus Vertical Marketing Systems

In a conventional marketing channel the intermediaries are independent and
running a separate business. In e vertical system intermediaries are linked in a unique integrated system that favors cooperation and synergies. The control can be developed as a corporate, contractual, or administrative VMS. Most of the Coca Cola branded beverage products, are produced, sold and distributed by independent bottling partners. When it is necessary TCCC acquires or takes control of bottling or canning Companies, often in underperforming markets where Coca-Colas resources and expertise can improve performance. Owning compensate limited local resources, help the bottler to focus on sales and marketing programs, assist in the development of the bottler’s business and information systems, and establish a capital structure for the bottler.18 In the corporate VMS the control is reached trough the ownership of the company. In UK 1987 Coca Cola terminate the relationship with two independent well establish bottlers to establish a jointly-owned new one. The Sales doubled in the first five years of the venture.19 In the contractual VMS the control is obtain by contracts with independent firms. TCCC has with their bottlers “Bottler’s Agreements”. The Bottler’s Agreements generally authorize the bottlers to manufacture specified Company Trademark Beverages, to package them in authorized containers, and to distribute and sell the same in an identified territory.20 The administrative VMS can also be coordinated and controlled through the size and power of a company. A vertical system is recommended, when it is necessary to manage a complex product, the company does not find reliable distribution partners, the channel partners operate with very high mark-ups or the retailing format is not suitable for its products. TCCC decides that in future they want bottle their soft drinks itself to get a better access and a better integration to this part of value chain. They bought in 2010 for 12,17 billion Dollars the north American filings activities from the Coca Cola Enterprises(CCE).21 4.3 Multichannel Strategies

Multichannel strategies are closely related to the characteristics of the foreign market, companies define multiple channels. (Direct or Indirect, with different types of intermediaries). They chose the more suitable channel organization. (conventional or vertical).

A very important task of the multichannel strategy is the coordination in order to convey the same message to the final consumer. Andy Warhol (American artist) once said: “you can be watching TV and see Coca-Cola, and you can know that the President drinks Coke, Liz Taylor drinks Coke, and just think, you can drink Coke, too. A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking. All the Cokes are the same and all the Cokes are good. Liz Taylor knows it, the President knows it, the bum knows it, and you know it.”22 4.4 Different types of intermediaries

Agents, wholesalers and retailers are the basical form of intermediaries. Agents do not take title of the good they sell but operate in the companies’ name. They sell the supplier-owned products to retailers and wholesalers. They work for a commission or fee offering a limited service. Wholesalers take title to the goods and sell them to retailers or for business use. Some of their function are sorting, assembling, warehousing, packaging, labeling, contacting new clients, negotiation and selling. TCCC sells concentrates and syrups to authorized bottling partners. They combine the concentrates with sweeteners (depending on the product), still water and/or sparkling water, or combine the syrups with sparkling water to produce finished beverages.

The finished beverages are packaged in authorized containers such as cans and refillable and no refillable glass and plastic bottles and then sold to wholesaler and/or retailers/gastronomy directly.23 In underdeveloped country markets, scattered markets throughout the countryside, where consumers have a limited income and retailers can buy a very limited volume of different products wholesalers play a fundamental role in bridging the gap between demand and supply. Retailers sell the product directly to the consumer. Important retailers’ activities are ordering, storing creating, assortments, presenting goods, packaging, financing and providing after-sells services. Retailing formats can differentiate between countries due to shopping habits, lifestyle, economic progress, and local regulation. 4.5 International Retailing

Internationalization is a growing phenomenon. For the retailing industry it is important to create of a brand value recognized by foreign consumers. The model of value creation is different for all retailers. The global retailers face highly competitive environment due that they have on one hand to make important decisions about standardization on the other hand about adaptation issues on the national cultures. International retailers often settle up for local strategic alliances. TCCC operates as a “multi local” that for decades relies on the insight of local bottle partners.

This is the reason for the adaption of its global strategy which allows its business in more than 200 countries to act according to local need, local laws and local cultures. Particular to the target country coca cola allow differences in packaging, taste, distribution and media. The strategy of thinking globally, but acting locally.24 .For that reason Former CEO Robert Woodruff’s insistence that Coca-Cola wouldn’t “suffer the stigma of being an intrusive American product,”

4.6 Selection of Channel Members Partner selection is a long process, when evaluating potential distribution partners it is important to define contract and relationship development. The most important attributes to evaluate a distributer are its company’s strengths, financial resources, marketing and sales skills, and commitment. Furthermore the existence of facilitation factors such as experience with other exporter and a management culture open to international collaboration. Also relevant are marketing and sales factors when the company must manage not only a product but a brand image abroad.

For a long lasting relationship commitments are extremely relevant. Selecting intermediaries is difficult because country’s cultures are different and the company has to evaluate carefully on one hand the cost for commission and margin on the other hand the cost to defining a distribution agreement, supporting promotional expenses and maintaining the business relation. 5. Channel management and control

Relationship management becomes essential when it is necessary to control the product/ brand positioning and performance in the foreign market. In conclusion to that companies are willing to control their distributors, in order to obtain maximum commitment from them by transferring all the knowledge necessary to sell their products. A good and intensive relation with the intermediaries has got affects on sales and terms of higher level of trust which are fundamental for better distribution performance in the long term.

Channel management shout be based on performance management, coverage management, capability-building programs, and motivational programs. Performance management focuses on improving operation performances through the definition of roles, responsibilities and measurable performance goals. Coverage management concentrates on channel structure efficiency and its coordination with the target market. Capability building programs deals with activities that facilitating the operation of the channel members. TCCC develops and introduces new products, packages and equipment to assist the bottlers. They provide promotional and marketing services and/or funds and/or dispensing equipment and repair services to fountain, bottlers and retailers. (6.1 billion $ in 2012).

25 Motivation programs include not only monetary benefits but also transparent relations, providing frequent updates on product, regularly inviting partners to visit the headquarters and etc. Implementation of these channels requires an efficient organization structure, to manage global clients’ homogenous treatment in different countries, and intermediaries which are able to satisfy the manufacturer’s expectation.

The performance evaluation of an international agent or distributor is problematic, on one hand because of the physical distance and cross- cultural communication on the other hand because it is almost impossible to craft an all-encompassing contract that take into account all possible situations that may arise in the course of the relationship. Two specific methods for controlling and influencing distributor relationships have emerged. The one gives precedence to cost second emphasizes the establishment of common values.

The norm-based governance, where manufacturers showed support and involvement with their distributors, had double the impact, raising both the agents’ market performance and manufacturers’ satisfaction of the relationship and there are even more pronounced in unstable markets with high level of uncertainty. Relations can be terminated proactive or reactive. Proactive terminations occur when manufacturer decides to end the distribution agreement because of internal conclusions. Reactive termination happens when either a party finds the other uncooperative or opportunistic. 6. Physical Distribution

Physical distributions targets to manage the movement of finished products from the company to its customers.

Image: Physical distribution of Coca Cola

An effective coordination of logistic activities that include handling, transport, inventory, labeling, and storage are key factors for efficiency and service quality. In some countries alliances with local partners that support physical distribution are necessary because bureaucratic obstacles can become strong entry barriers. As TCCC tried to reenter in the Indian market in 1993 the Indian government set up a law that every international company has to become a partner with an Indian company. The Coca Cola Company solved this problem and acquired popular Indian brands including Mazza, Gold Sport, Citra, Thumps up and Limca.26 Today Coca Cola has establish 7000 distributors and more than 1.3 million retailers in the Indian market27 Another problem to face are poor transportation and logistics standards which are leading to inefficiencies which can significantly affect their costs.

There are two options to improve physical distribution efficiency. The first the critical cost control and the second is two guarantee high quality service and distribute products quickly to customers. “A constant improvement in the logistics systems is an essential requirement in order to reach the necessary speed to respond to customer requests and to reach the capacity necessary to absorb the international growth of the company”. TCCC has a long history of providing world-class customer service, showing leadership in the marketplace and using the talent of their global workforce. In addition, they have an experienced bottler management team. All of these factors are critical to build upon as they manage their growing bottling and distribution operations.28 7. Conclusion

When a company wants to internationalise, it has to determine the most suitable distribution channels in view of structure, management, and control. Several internal and external factors have to be taken into consideration. The distribution channel structure is strongly influenced by country’s economic development. Direct versus indirect channels, conventional distribution channels versus vertical marketing system have to be weighting up to managing a distribution channel. When a company enters a foreign market it has choose between different types of intermediaries.

By entering a foreign market the company have to take into account the differences in the retailing format. When evaluating potential distribution partners, it is important to define contractual and relationship developments. Performance management, coverage management, capability-building programs, and motivation programs are basic factors to a successful channel management practices. Poor transportation and logistics standards influence physical distribution and its costs.

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