Coca-Cola Case Study the Global Strategy
Coca-Cola Case Study the Global Strategy
Coca-Cola is currently at the leadership position in the beverage industry and it has been successful through its strong brand image, exceptional outsourcing strategies and efficient supply chain management. However, there are still some issues that Coca-Cola needs to solve.
This report is segmented into three main parts. The first part discusses market position, market share and product through research. The second part focuses on the current issues, core competence and future plans of Coca-Cola. Recommendations are provided in the third part in order to resolve the issues brought up earlier and to provide guidance towards its future global strategies.
The report aims to provide recommendations to solve a number of issues that Coca-Cola has been facing in terms of water issues, health issues and environmental issues. Firstly, globalisation and localisation should be balanced. Secondly, the market leader position can be maintained by employing defensive strategy. Thirdly, the brand perception can be changed by investing marketing budgets on healthy beverages such as juice and water. In addition, health issues can be improved by penetrating into a new market, such as producing healthy food with low calories. Fourthly, the water quality can be solved by developing new technology or seeking non-contaminated water supply. Last but not least, Coca-Cola can contribute to the sustainability through developing environmental friendly packages.
Coca-Cola is one of the most popular beverage companies across the world. It was invented in the late 19th century by John Pemberton as a patent medicine at first. Griggs Candler is a famous salesman who transformed Coca-Cola from an invention into a business and then registered trademark of The Coca-Cola Company in the United States since March 27, 1944. Today, Coca-Cola is a company which marketed in more than 200 countries and there are 59,000 branch companies and 71,000 workers in the world. Coca-Cola has taken up a quarter of the sales revenue in the beverage industry, comparing with the 11.5% of Pepsi, which was due to its successful implementation of its globalisation strategy. The purpose of the report is to provide recommendations to the directors of Coca-Cola by researching and analysing the market position, product, market share, current issues, core competence and future plans of the company.
Market Position and Market Share
Coca-Cola is one of the most well-known beverage brands across the world and it has become the market leader in the beverage industries (Allen et al. 2012). Coca-Cola aims to bring joy and happiness to consumers with its products. Coca-Cola also markets itself with consistent communication and offers high quality products. It is a company which has a high level of brand equity and unlimited financial resources (Allen et al. 2012), although it has experienced both growth and decline in 110 years since 1902.
Coco-cola’s objective is to hold its market position and keep their sales revenues growing through the defensive marketing strategy (Allen et al. 2012). For example, Coco-cola sponsored the 2008 Beijing Olympics to enhance their brand as well as its market position and it has successfully accomplished the campaign. Thus this marketing strategy helps Coco-cola to retain their market share and to maintain its leadership position in the soft drink market in the world among many other competitors.
The beverage market is a perfect competition market (Docstoc 2009), where there are only a few major players in this market. For instance, Pepsi and Nestle are the main competitors of Coca-Cola. Furthermore, it is shown that Coca-Cola and Pepsi have accounted for half of the market share in the soft drink industry. Coca-Cola Company has developed over 3500 products and they have been sold in 200 countries around the world, such as Japan, Canada and China (Kumar 2012).
Figure 1 indicates the global market share of Coca-Cola in 2010, and other best-selling beverages in the world. Based on the statistics, Coca-Cola’s sales revenue accounted for more than a quarter of the global beverage market share, which was 25.9% and followed by Pepsi with 11.5% (Statista 2012). The other leading brands were Nestle and Suntory Holdings, which were 3% and 2.8% respectively (Statista 2012). However, the majority of the beverage market share was taken up by other small brands, which means there are some challenges and opportunities for market development.
Compared with year 2009, Coca-Cola’s market share has increased, due to the increment in the sales revenue, and 77% sales revenue comes from the international market (REUTERS 2010). To be more specific, Coca-Cola’s sales revenue grew by 11% compared with last year in Pacific market, which was the highest increment in all markets. The second highest growth was in Latin American, the increase was up to 7%, which was still really high. However, the market share in North America dropped by 1% compared with the previous year (REUTERS 2010). It is known that the international market share is growing in recent years, while the American market share is decreasing.
Segmentation is about market division into groups of potential customers with similar needs and/or characteristics who are likely to exhibit similar purchase behaviour (Weinstein 2004). Coca-Cola categorises customers based on four segmentations. They are geographic segmentation, place of consumption, product type, and demographics. This helps Coca-Cola to understand their different market features and consumer behaviours, and then come up with different marketing communication strategies. It also aids Coca-Cola to develop new products and products mixes to meet the needs of local markets and lead the change as a result of the increasing health consciousness.
Coca-Cola, established in 1886 in Atlanta, was first launched at Jacob’s Pharmacy as a fountain beverage by mixing Coca-Cola syrup with carbonated water. With its distinctive flowing type face and classical red colour, Coca-Cola has been known as the world famous brand for nearly a century (Product Descriptions 2012). However, it was until 1995 that the Coca-Cola Company started to provide a wide range of beverage selections and portion sizes for customers under the vision of offering various beverages for every lifestyle, life stage and life occasion.
Nowadays, the Coca-Cola Company owns more than 500 beverage brands, which are sold in 200 countries around the world. Coca-Cola also has over 3,500 different types of products in the beverage industry. For instance, they are generally divided into sparkling beverages, 100% fruit juices, fruit drinks, bottled water, sports and energy drinks and ready-to-drink teas and coffee. The products of Coca Cola are spread globally (Kumar 2012).
1.1 Product Innovation
Product innovation plays a crucial role in many businesses. It is essential for Coca-Cola to create new products in order to enhance its competitive advantage and market penetration. It is generally believed that Coca-Cola is the best-selling soft-drinks across the world. However, the soft drink sector is threatened by the consumers’ increasing consciousness of health issues arising from the possible negative health effects of Coca-Cola such as obesity and inactivity (Ivythesis.com 2009).
Therefore, Coca-Cola has been dedicated to the research and development of new products for many years. For example, after the great success of Diet Coke, the company has released a series of flavour extensions, such as Diet Coke with Lemon, Diet Vanilla Coke, Diet Cherry Coke, and Diet Coke with Lime to meet different needs of consumers. In addition, Coca-Cola in 2005 successfully launched another innovative product- the Coca Zero which carried the same taste of original Coke with no calories (Coca-Cola Facts 2012). Today, Coke Zero has become one of the most popular beverages in the Coca Cola core family, which is available in 130 countries. Product innovation should be considered as the hallmark of the Coca-Cola for the purpose of providing more beverage choices for consumers and keeping up with their changing demands and lifestyles (Ivythesis.com 2009).
1.2 Product Strategy
The fundamental product strategy of Coca-Cola is the rapid product testing and development in each individual market. There is high level of product adaptation and modification in the market it operates (Ivythesis.com 2009). This may be due to the fact of the diverse market trends across different regions. Furthermore, Coca-Cola remains committed to concentrate on consumers’ changing demands and preferences as well as cultural diversity. Besides, Coca-Cola should make effort to enlarge its product offerings in order to be able to survive under the saturated market of carbonated drinks. According to the Coca-Cola case study, it is obvious that Coca-Cola modified its product to match the local conditions in different regions. For instance, Samurai, an energy drink, is only produced and sold in Asian countries (Product Descriptions 2012).Similarly, Vita is an African juice of Coca-Cola and Sprite Green is a sparkling beverage from the United State which is only available in select locations in New York and Chicago (Coca-Cola Facts 2012). Current Issues
There are a number of critics towards Coca Cola. In terms of solid waste and water issue, the communities near the bottling plant in India suffered both health and environmental damages as a result of the passage of sludge as fertilizer. The most significant issue which had an impact upon the community is the depletion of water levels caused by the Coca-Cola bottling plant. As a result, the amount of water that is available for irrigation purpose is dramatically reduced (The Corporation 2009). In addition, the centre of Science and Health in New Delhi in 2003 indicated that both the bottled water and soft drinks contained pesticides which may cause cancer and breakdown in immune system (Centre for Science and Environment 2012). Also, Coca-Cola is accused of having dual standards in USA, Europe and India, with regards to its products and safety measures which would have an impact on human health (The Corporation 2009).
These allegations had a great impact on Coca-Cola through its sales and closure of one of its bottling plants in Kerala, India. In addition, Coca-Cola’s products are also banned in the state of Kerala, India (The Corporation 2009).
Health issues have also arisen towards Coca Cola. It has been alleged towards its acidity in the drink. Frequent consumption of coca cola may also lead to tooth decay through dental erosion (Ehlen et al 2008).
With regards to business practice, in 2004, a large amount of its advertisement was broadcasted during children’s television programs, which may have encouraged children to consume more soft drinks and consequently leads to childhood obesity (BBC News 2004).
Also, Coca-Cola has been accused of bribing the American Academy of Pediatric Dentistry (AAPD) in 2003 as a result of the donation of one million to the AAPD. Critics suggested that Coca Cola has paid the dentists to stop them from discouraging children to drink coke (Union of Concerned Scientists 2012). At the same time, Coca Cola has also been alleged towards employee discrimination due to the fact that black employees remained absent in the top management of the company and they were paid less than white employees. Subsequently, Coca Cola has settled the lawsuit with $192.5 million and agreed to change its management and operating structure (The Washington Post 2012).
Core competence is defined as ‘communication, involvement, and a deep commitment to working across organizational boundaries’ (Hill 2012). It is an important theory that every company has to take measures to maximize profits. Therefore, improving core competence is the key. Accordingly, the firms should identify core competence and develop competitive advantages in the future (Sabah et al. 2012). There are five main strategies to improve core competence.
Firstly, Coca-Cola has successfully implemented global marketing strategy. Specifically, since the first product moved beyond the United States in 1902, Coca-Cola has marketed in more than 200 countries and there are approximate 71,000 employees who work in more than 59,000 companies all over the world. Accordingly, Coca-Cola has a high market share of 25.9% (Coca-Cola Company 2006), which indicates that Coca-Cola is the best beverage company in the world.
Secondly, successful supply chain management plays a vital role in improving core competence at Coca-Cola. More specifically, the supply chain management is to enhance cooperation between members along the supply chain such as raw material providers, bottling suppliers, wholesalers, and retailers. It also aims to improve productivity and to add value. Therefore, Coca-Cola always delivers the final products to end consumers at the right time, and with right quality. This means consumers will get a higher level of consumer satisfaction and better services (Songini 2004). Therefore, these effective practices of supply chain management would assist Coca-Cola with a better performance in the markets.
Thirdly, Coca-Cola has also employed efficient outsourcing strategy, which is one of the most important strategies in supply chain management. Outsourcing is an activity that passes a part of firm’s business to those outside vendors who can provide better service, higher quality and at lower cost (Rosebush et al. 2012). Coca-Cola is one of the most famous companies for its effective outsourcing strategy. For example, Coca-Cola has outsourced bottling production to foreign companies and contracted out a part of production of goods especially in some emerging countries such as China and India. It is obvious that outsourcing, which is one of the core competences of Coca-Cola, has further built up the business in terms of both product developments and marketing communications at different regions. Clearly, outsourcing has helped Coca-Cola to enlarge the market for products.
Fourthly, the various products categories are absolutely Coca-Cola’ core competence. Not only it provides wide range of products to the world market, such as Coke, juice, coffee and water, but also customises products and product mixes to meet the demands at different local markets. This strategy gives Coca-Cola a major competitive advantage, and helps to increase sales and market share.
Last but not least, the technology innovations and advances play an essential role to Coca-Cola in terms of productivity and product promotion. More specifically, Coca-Cola uses new technology to reduce the transportation costs and boost its logistics efficiency. For example, labour-replacing machinery can augment productivity. Moreover, advancement in technology gives Coca-Cola more channels to promote its products in terms of the Internet and mobile application. Especially, the proliferation of the Internet helps Coca-Cola to become more and more popular.
According to chairman of Coca-Cola, Muhtar Kentin, in the company Annual Review 2011 that Coca-Cola in 2011 fruitfully accomplished four years of productivity program, allowing the company to realise annual savings of more than $500 million USD. Mr Kentin also suggested that for the future he is persuaded with no doubt that some of the key business strategies and developments of the company will come at the meeting point of invention and sustainability because creating long term sustainable and innovative development is essential for any successful business venture (The Coca-Cola Company website, 2012).
Kentin explained that he foresees a lot of prospects for the Company in the near future, and that the company is certainly aware of the fact that its business activities can only remained as strong and sustainable as the societies that the company is serving. Coca-Cola in its power will continue to support the gradual economic recuperation in America and the world at large. Starting from the year 2012 onwards, the company will continue to be a good and responsible corporate citizen by reducing its overall carbon emission and implementing the water sustainability strategy (The Coca-Cola Company website, 2012).
Mr Kent also stated in an interview in The Wall Street Journal that Coca-Cola is planning to spend around $4 billion USD in China for the next three years, making that to be the latest investment as Coca Cola is committed to invest in the world’s second biggest economy. Mr Ken clarified that “the investment would be used to add bottling plants, expand some existing facilities and fund initiatives in distribution, marketing and the development of new cold drinks” (The World Street Journal Website).
China is obviously the third largest global market for Coca-Cola after the US and Europe. Undeniably the company is currently enjoying the rapid growth in its sale as a result of the increase in consumer income in that country. The Company at the moment owned stake in 24 bottling plant joint venture and two factories as result of its localisation strategy (Heracleous 2001).
According to the New York Stock Exchange, Coca-Cola plans to massively invest in sub-Saharan Africa despite the political risk associated with such ventures. Nevertheless, it is generally believed that the higher the risk, the higher the return. The company is hoping to blow Coca-Cola powerful brand name to get more consumers in this particular region. According to the report, Tanzania and Kenya have received portion of the strategic investment so far as Coca-Cola declares its intention to invest $187 billion USD in Tanzania over the next three years. Also, the company would maintain its investment commitment in Africa to build a new bottling plant in Somaliland, which is estimated to be worth $15 million USD. Coca-Cola is intending to launch ‘Pan-African’ marketing promotion known as ‘the one billion reasons to believe in Africa’ so as to sympathetically bond with the African customers (The New York Stock Exchange website 2012).
In conclusion, Coca-Cola has implemented a number of effective global strategies to extend its market share and to improve its core competence. At the same time, Coca-Cola has created various types of beverages In order to meet different demands at different markets.
However, there are some issues to be addressed such as water issues, health issues and other environmental issues. Consequently, it is recommended that Coca Cola may develop new technology for water purification. Also, it is necessary for Coca-Cola to find the uncontaminated water source. In addition, marketing strategy can be modified to focus on healthy beverages such as juices and water. Coca-Cola can also diversify its product offerings and extent to healthy food such as cheese, yoghurt and cereal. Further, defensive strategy can be employed to retain its current market share as well as to maintain its leading market position. This strategy will also help to balance between its globalisation and localisation by preventing excessive investments in either the global market or the regional market.
1.3 Balance The Globalization and Localization
Coca-Cola’s headquarter has been doing a good job to review and guide marketing communication globally. For example, one message – happiness, but different ways to express this message in different local markets. Local managers could work with local advertising agencies to generate creative marketing campaigns that will adapt to local culture and consumer’s tastes.
1.4 Maintain The Market Leader Position
As the best beverage company, Coca-Cola needs to make the continual improvement in order to maintain its market leadership. Coca-Cola should implement the defensive strategy, which indicates of sustaining the current marketing spending to remind consumers, to consolidate and to build more memory cues and brand attributes as well as to keep the brand awareness and brand salience high. Coca-Cola should also consolidate and keep streamlining the supply chain.
It might mitigate the risks in the global supply chain and raise the supply chain efficiency in this fast changing world. For example, Coca-Cola’s third quarter earnings were $1.89 billion or 81¢ per share in 2008, up from 1.65 billion or 71¢ per share in 3rd quarter 2007 (Coca-Cola Company 2009). This great success is generated by implementing the defensive strategy at 2008 Beijing Olympics Games (Allen et al. 2012). Accompanying with the efficient implementation, this strategy not only can defend Coca-Cola’s position in the world market, but also increase the market share and sales further more.
1.5 Health Issue
Health issue is one of the major issues that Coca-Cola has been facing, while its major competitor Pepsi would also have the same problem. However, the media and consumers seem to focus on criticising Coca-Cola for not being healthy, which is based on the perception that consumers have. It can be changed by modification in both products offering and marketing communication. For example, Coca-Cola could spend more marketing budget on healthy beverage such as juice, water and energy drink. Instead of concentrating on the soft drinks, the advertising messages could focus on creating healthy lifestyle with the healthy products offerings. The purpose of this strategy is to change consumers’ perceptions towards Coca-Cola. It will provide long-term strategic benefits to Coca-Cola although it may take a long time.
Additionally, Coca-Cola could penetrate into a new market, which involves healthy food, such as cheese, yogurt and cereal. This strategy helps Coca-Cola to expand its products offering, to improve the image of the company, and to increase sales revenue. It also aids Coca-Cola to compete with Pepsi who is already in the food business.
1.6 Water Issue
Water quality is critical to Coca-Cola’s business, as this report mentioned, pesticide in the water caused serious health problem in India. To overcome this problem, Coca-Cola should seek cleaner water supply. For example, production factory can be built near the source of rivers. This is because the closer to the source, the cleaner of the water supply will be. Alternatively, Coca-Cola could build the factories in the nearest country, like Bangladeshi where there is clean water supply with low costs.
Furthermore, Coca-Cola could cooperate with or invest in research and development centres, such as university laboratories and environmental organisations to develop new technology for water purification.
Water shortage seems like a serious problem. However, if people look at it from another direction, which is the sea water, it would not be a problem at all, at least for hundreds of years. Coca-Cola could invest in development and construction of the desalination plants. This would be a long and hard process, but Coca-Cola is aiming for the long-term benefits. These developments would help Coca-Cola solve the water shortage problem world-wide. Moreover, Coca-Cola should build these plants near major ports with effective and efficient transportation, such as Singapore in Asia, Rotterdam in Europe, Durban in Africa, Panama in Latin America and New York in US. It would reduce various costs and increase the logistics efficiency.
There is an increasing trend of sustainable development in recent years. This is not only because of the consumer’s preferences, but it also helps to cut costs and improve profits. Coca-Cola should work on improving transportation efficiency to reduce carbon footprint by using more environmentally friendly materials for packages, efficient energy consumption. It will also provide safe, health and fair working environment for its employees. For instance, the efficient lighting system uses 50% less energy and provides 50% more light in Canada (Wong 2011).
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University/College: University of California
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Date: 27 November 2016
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