Coca-Cola Analysis Essay
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The Coca-Cola Company is the largest manufacturer and marketer of nonalcoholic beverage in the world. The company produces finished product in cans and bottles. The bottlers then sell, distribute and merchandise the resulting Coca-Cola product to retail stores, vending machines, restaurants and food service distributors. Coca-Cola is the most popular and biggest-selling soft drink in history as well as the best-known product in the world. The Coca-Cola Company offers nearly 400 brands in over 200 countries. Throughout this paper we will analyze the competitive advantages of Coca-Cola Company through three analysis methods, including SWOT analysis, Porter’s five-force Model and Porter’s value chain analysis.
SWOT stands for Strengths, weaknesses, Opportunities and Threats. SWOT analysis involves specifying the objective of the business venture and identifying the internal and external factors that are favorable and unfavorable to the company. SWOT analysis is important because they can prepare later steps in planning to achieve the objectives. When the decision makers identify the external factors, which are the threats and opportunities, they should realize the key success factors.
When the decision makers identity the internal factors, which are strengths and weakness, they should realize the company’s distinctive competencies. Strategies can be easily formulated after identifying the key success factors and distinctive competencies. Strengths:
Coca-Cola is the most recognized brand name in the world. The product’s image has become a legend and many people have taken this image deeply in their hearts. Since the highly recognized branding, the consumers have a high loyalty to Coca-Cola. Containing various types of packaging is also one of their greatest strengths. It allows them to conduct business on a global scale while maintain a local approach at the same time. There are so many types of localized packaging and products. Besides the normal coke, they issue Coke Light and Coke Zero to claim they also emphasize people’s health. Weaknesses:
Coca-Cola is well-known that it contains high sugar. Continuous drinking of Coca-Cola may cause health problems such as decayed teeth and diabetes. With today’s constant shift to health products, some products could possibly loose customers. Opportunities:
Coca-Cola Company has tried to produce more healthy drinks since the people in the world are paying more attention to their health. The products, such as Coca-Cola Light and Coca-Cola Zero, contain less sugar and calories. The company should keep a balance on the taste and health on the products. The company can also put more effort and resources to expand the business into the third world countries as the market share is small there. Another opportunity is that Coca-Cola can buy out their competitors when they realize the competitors’ potential. This can turn the threats into opportunities and enhance the sources of revenue. Threats:
Despite the fact that Coca Cola dominates its market, there are still a lot of competitors in the market and they use different strategies to take more market shares from Coca-Cola. For example, Pepsi, which sells a very similar drink, has exclusive contracts with some large retailers, such as KFC, which don’t sell Coca-Cola. Moreover, people are constantly trying to change their eating and drinking habits nowadays due to the health and taste. People would realize Coca-Cola is not healthy or get bored with it and then change to other new drinks. This could directly affect the sale of Coca Cola’s products. Porter’s five-force model:
Porter’s five-force model is to help business enterprises enlarge their market share and their profit. This also makes organizations understand their competitive strengths and weaknesses and then devise suitable approaches to overcome competition. Porter’s five-force model identified five forces which would impact on an organization’s behavior in a competitive market and access the external threats and identifies the opportunities to achieve competitive advantage. The five forces include: * The threat of new entrants
* The bargaining power of buyers * The bargaining power of suppliers * The threat of substitute products * The competitive rivalry between existing firms Cocal-Cola Company applies the five-force model to increase the profitability of their products and consolidate the market shares. The threat of new entrants: The market share of soft drink industry actually has to maintain by spending and investing huge amount of money on advertisement and marketing. The advertising cost of Coca-Cola was $3.3 billion in 2012. Such a high cost makes it very hard for a new competitor to survive in the market and expand visibility. Moreover, due to the highly recognized brand name of Coca-Cola, the strong loyal customers’ base would not easy to switch to a new product. Therefore, it is nearly impossible for a new comer to compete in the soft drink industry. The bargaining power of buyers:
Mostly, the buyers for soft drink are usually from fast food restaurant, vending machines, convenience stores and food stores, etc. The profitability in each place demonstrates the bargaining power of the buyers. The lower the bargaining power of buyers, the higher is the profitability of Coca-Cola Company. For fast food restaurants, the bargaining power of buyers is high because they purchase in bulks. Coca-Cola Company usually sells the products with a lower price to the restaurants. For Vending Machines and convenience stores, they provides products to the customers in retails so the buyers usually have to pay a premium price for the product, so there is a lower bargaining power of buyers. The bargaining power of suppliers:
Most of the suppliers of Coca-Cola only provide basic raw materials to manufacture the product such as flavor, color, caffeine, sugar and packaging etc. The suppliers of these raw materials have very low bargaining power over the pricing of Coca-Cola due to the suppliers are very weak in soft drink industry. All the raw material are basic merchandize and easily accessible. Therefore, the switching cost to suppliers is very low and Coca-Cola Company can easily shift towards the other suppliers. The threat of substitute products:
There are a lot of substitute products to Coca-Cola, such as water, tea, beer, juices and coffee, etc. However, most suppliers of these substitutes need massive adverting, brand loyalty to make sure their brands can be accessible to the consumers and change to buy their products. The direct competitor of Coca-Cola is Pepsi because it sells a soft drink with very similar taste. Pepsi also spend a lot of money on advertisement to enhance their brand. On the other hand, the switching cost of the substitute products to consumers is very low. They can just pick any soft drink and shift towards the substitute products. The competitive rivalry between existing firms:
The soft drink industry is almost dominated by Coca-Cola and Pepsi with a combined market share of 80 percent. The rest of the competitors have very low market share. Therefore, the overall competition in the industry is relatively low. Coca-Cola and Pepsi usually compete on the advertisement and product differentiation rather than on pricing. Both of them spend lot of resources on these two areas to defend their market shares. Porter’s Value Chain Analysis:
Value chain analysis is a systematic way of analyzing a firm to identify its sources of competitive advantage. It does not only consider the individual sources found in different activities, but also assess the linkage between the different activities which contribute to the competitive advantage of the firm. Through the analysis of this model we can gain insight as to how a firm creates their competitive advantage and shareholder value. The value chain of Cocac-Cola Company contains five primary activities. These include inbound logistics, operations, outbound logistics, marketing and sales, and service. Inbound Logistics:
In order to ensure that the raw materials are in satisfactory condition, Coca-Cola has set certain standards that the suppliers must adhere to the “Supplier Guiding Principles”. These include: compliance with laws and standards, laws and regulations, wages and benefits and abuse of labor, etc. Operations:
The main operations of Coca-Cola are to produce concentrate and syrup production. Their system’s bottling operations, distribution networks, and sales and marketing activities have the main impacts on their value chain. Outbound Logistics:
The activities required Coca-Cola to deliver finished products to customers such as warehousing, transportation and distribution management. Their distribution channels can be fast food restaurants, vending machines and convenience stores, etc. The Coca-Cola Company and its 300 bottling partners make up the Coca-Cola System. It is the most extensive beverage distribution system in the world. The Coca-Cola System is defined by its ability to create value for customers and consumers. Marketing and Sales:
Cocal-Cola Company is constantly expanding the range of brands and flavours offered to the customers and consumers across growing non-alcoholic beverage categories, in response to new preferences and tastes. It launches existing brands in new markets and re-launching or reinvigorating existing brands to meet the consumers’ expectation, such as Coke Zero and Coke Light. The company also introduces a range of new packaging solutions, such as using ultra-light glass bottle which results a 33 percent reduction in glass used. Service:
Activities that maintain and enhance a product’s value include customer support, repair services, installation and training. Coca Cola’s customers range from large international retailers and restaurants to smaller independent businesses and vendors. As a result, they provide services tailored to meet their customer’s needs. Coca-Cola has also established Customer Care Centres that provide a single and efficient point of contact between the customers and their leading to improved satisfaction scores.