Coca Cola’s Strategic Management Process

In 1886, John Pemberton was able to make replacement product of alcohol by adding CO2 with sugar and other components such as caffeine and cocaine named the mixture Coca-Cola. He may have been inspired by the formidable success of Vin Mariani, a European coca wine. At the beginning, they consider it as a medicine to relieve headaches and gain energy. They were believed that carbonated water is good for health so the first sales were at Jacob’s Pharmacy in Atlanta, Georgia. In 1888 Coca Cola drinks were sold by three different companies. But John Pemberton died in 1888 without realizing the success of the beverage he had created. Atlanta businessman Asa Griggs Candler secured rights to the business for a total of $2,300. Candler would become the Company’s first president, and the first to bring real vision to the business and the brand. (Atlanta Beginning, 2006-2011)

Asa G. Candler was a salesman and he was the one who put a good marketing strategy for introducing the product to the people by distributing apothecaries with clocks, urns, calendars and apothecary scales bearing the Coca-Cola brand. So the people were able to see it everywhere and that will attract them to buy Coca-Cola drinks. In 1895, Candler had built the first Coca-Cola factories in Chicago, Dallas and Los Angeles. (Atlanta Beginning, 2006-2011)

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In 1900, the company started to sell their product outside the country to England then they sold it in Canada and Mexico. In 1916, the product arrived to France, Jamaica, Germany and Cuba. In addition to that, the first factory for Coca-Cola Bottling in the Middle East was in 1944 in Egypt. Furthermore, there were many factories opened in the mid-20th century such as Iraq and Saudi Arabia to produce Coca Cola drinks. (Coca-Cola Offical Website, 2012)

Industry, Segment, and Type of Products

Coca-Cola is a global leader in the beverage industry; nowadays Coca-Cola Company provides more than 500 brands including soft drinks, fruit juices, sport drinks and other beverages in over 200 countries or regions and serves over 1.7 billion servings each day. Coca-Cola drink consists of:

• Carbonated water
• Sugar
• Caffeine
• Phosphoric acid
• Caramel color
• Natural flavorings

The original copy of the formula which considers a secret formula for the drink held in safety box in SunTrust bank in Atlanta. Coca-Cola drink contains material that only produced in the main Atlanta factories Georgia, United States. Then the company distributes it to other Coca-Cola factories around the world. (Coca-Cola Offical Website, 2012)

The target market for the Coca-Cola is all age group especially male and female teenagers, it is sold all around so that everyone can buy it and drink it. Furthermore, we could find on their TV advertisement that they target families to choose Coca-Cola drink as favorite family drink.

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Locations of operated company

The Coca-Cola Company headquarters are in Atlanta, Georgia, and the United States. In addition, Coca-Cola Company has rights to operate across Europe which means they have rights to operate in 24 European countries. They sell their products in 200 countries all over the world. In other words, Coca-Cola Company is served all over the world (locations, 2009).

Company Mission

Their Roadmap starts with their mission which is enduring; it declares their purpose as a company and serves as the standard against which we weigh our actions and decisions:

• To refresh the world…
• To inspire moments of optimism and happiness…
• To create value and make a difference. (coca cola, 2012)

Macro-environment (PEST) Analysis

PEST Analysis

PEST analysis identifies the changes in the market that occur because of the economical, political, technological and social factors.

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Political analysis: The Non alcoholic beverages such as Coca Cola are under the Food and Drug Administration. In terms of the regulations, the government controls over manufacturing procedure of the products. There are some factors that affect the operations of Coca Cola such as the changes in the laws and regulations (taxation requirements), accounting standards and environmental laws. Moreover, changes in the non alcoholic business era like pricing policy and competitive product pressures and ability to maintain sales in worldwide market compare to its competitors. Political conditions in international markets like governmental changes, civil conflict and restrictions on the ability to relocate the capital across borders. Its ability to enter developing market depends on political and economic conditions and their ability to form strategic business alliances with local bottlers effectively and to improve their distribution networks, production amenities, sales technology and equipment. So in some countries coca cola has problem in business expansion due to government regulation. (political and technological analysis)

Economic analysis: Economic analysis examines the world, national and local economy impact. The recession that was in 2001 has impacted the operations of many companies, however, due to the aggressive actions of the US economy it returned to grow positively in 2002. The rise in the rate of interest also depressing business and it causes lower spending levels and redundancies. Because of the global recession, Coca Cola can borrow the capital and invest in the other products easily due to lowered interest rate. In addition, it can borrow to advance its research for new technology and products. Researching of the new products is cost effective and the company can sell its products at lower price so that its customers would buy more Coca Cola products at lower price. (Sociological and Economic analysis)

Sociological analysis: It analyzes the ways how the changes in society affect organization such as changing in attitudes and lifestyles of the market (Sociological and Economic analysis). Most of US citizen are practicing healthier lifestyles. This has affected non alcoholic beverages industry mostly. Customers are switched to diet colas like Coca Cola Zero or light and bottled water instead of beer and alcoholic beverages. Time management has also increase and it is 43% approximately of all households. The need of bottled water and other healthy products are important in the day to day life. Middle aged customers are more concerned with their nutrition. This will continuously affects non alcoholic beverages industry by increasing overall demand and in healthier beverages also.

Technological analysis: Many factors influence the actual results of the company to vary from the expected results such as the efficiency of promotional programs, marketing and advertising of company. The new technology like internet and television use incomparable effects for advertising and this makes products more attractive. In the past, entrance of plastic bottles and cans have increase sale volume of company because plastic bottles are easier to carry and can dispose them once they has been used. The technology is advancing continuously by the entrance of new machineries. Due to this, the production volume of Coca Cola has increase sharply in last few years. In Britain, Coca Cola enterprises have six factories those who are using modern equipment to ensure the top product quality (political and technological analysis).

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Industry Five Forces Analysis

Porter’s Model

Michael Porter, belonging to the Harvard Business School, introduced a business plan for industry analysis in the year 1979 known as Porte’s Five Forces. It essentially measures the competitiveness of the market with the sole aim to help the enterprises augment profit and enlarge their markets. The five forces can be used to determine the nature of the competition in the industry. In industry i.e. Coca Cola and the conclusion from the same is used to determine the nature of competition in this particular industry. The Porter’s Five Forces include:

Threat of new entrants and potential competitors: It has been observed that in the beverage industry the entry barriers are relatively low. One can see the frequent emergence of new brands in the market which are usually priced at a rate which is lower in price as compared to Coke products. However, it cannot be denied that now Coca Cola is not seen as a mere beverage but as a brand. Owing to this very reason it cannot be ruled out that it has loyal customers who are unlikely to try any other beverage brand and quit drinking Coke. It is also worth noting that Coca Cola has a very significant market share for a long time.

Threat of Substitutes: It cannot be denied that there are a number of other sodas and energy drinks in the market apart from Coke. But the threat against Coke is low. Firstly, due to the brand loyalty. Secondly, due to the fact that Coca Cola has such a market reputation where it has been successfully differentiating its products remarkably.

Bargaining power of buyers: The third which pertains to the bargaining power of the buyer can be rated as low. It has been seen that the individual has no pressure on Coca Cola. Fountain sales, sales through vending machines, supermarkets, large scale retail sales and the convenience stores attached to the gas stations serve as the main channels of distribution. Pepsi, the main competitor is also priced almost the same as Coke itself. It has been however observed that the vending machines, convenience stores and supermarkets given to the fact that they have not many alternatives, have low bargaining power. It should also be pointed out here that given to the fact that people now are realizing the adverse impacts of the carbonated drink on health, they tend to turn towards fruit juices instead of carbonated drinks.

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Bargaining power of the Suppliers: The fourth which pertains to the bargaining power with the suppliers can be again rated as low. Coca Cola is primarily concerned with the task of supplying either fructose or sucrose and undertakes the bottling work. However, in countries like US Coca Cola buys high fructose corn syrup as its ingredient. As a matter of fact any supplier would not be willing to lose a huge customer like Coca Cola.

Business Rivalry or rivalry among the existing firms: The market is essentially shared by Pepsi and Coca Cola which are always striving for international presence. It is seen that both the brands commit heavily to sponsoring outdoor festivals. Given to the fact that Coca Cola has a longer history, it resorts more to the classical way of advertising in comparison to its rival Pepsi which basically tries to captivate the attention of the younger generation by using Pop Stars as brand ambassadors. (Wright, 1999)

Lifecycle Stage

Coca-Cola has been constantly developing despite of their unrevealed formula that has not changed over the years, which has also been a huge success in maintaining their brand as a number one position. Industries evolve structurally as well as in terms of overall size over time. However, profits do vary throughout the lifecycle. The competitive forces that shape the business keep changing throughout the lifecycle. Hence several stages in the lifecycle of an industry are as follows:

• Embryonic Stage: In this stage where the industry is in its nascent stage faces minimal competition as there are few competitors and no threat from the substitutes due to the fact that the industry is new.
• Growth Stage: In this phase, the number of competitors increases. However, the rivalry between the firms is kept in check given to the fact that demand outstrips capacity of growth. This phase is often associated with profitability.
• Shakeout Stage: In this phase, economies of scale are achieved and due to large-scale consolidation barriers to entry become very high.
• Maturity Stage: In this phase, the focus is not on the growth, however, some competition from the late entrants become apparent. The power of buyer increases while the power of suppliers declines because now the capacity either matches or exceeds demand.
• Decline: In this phase, one can see increase in the power of buyer in sharp contrast to that of the supplier as capacity exceeds the supply. Hence, it can be said that this phase does pose new challenges. It is in this stage that we can see an eventual decline in the rivalry of the firms as the weakest of the competitors tend to withdraw from the industry. (Niemann, Tichkiewitch, & Westkämper, 2009)

Current Lifecycle Stage

Currently Coca-Cola is under the maturity stage due to the solidity and capability of keeping a large and loyal group of stable customers. This stage is lasting longer than all other stages when it comes to western countries like the United States and Europe; considering Asia however, it is still in the growth stage. ( Coca-Cola Case Study)

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During the maturity stage, products usually go through a slowdown in sales growth which can affect cost management, product differentiation and marketing in the industry. Therefore, management has to pay attention to products in order to keep the percentage of sales growing, not forgetting the market share is the source of profitability.

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A way to extend its lifecycle being away from declining is to keep developing the product and/or the brand to make it more accessible based on consumer needs, by following some helpful strategies:

Have a constant change in designs of both cans and bottles, for example: colorful cans and labels for bottles with tags on for festive occasions to make them more attractive.

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Produce smaller sizes of bottles and cans with lower calorie and sugar for kids.

When buying packs of coke, they would come with a nice case to carry them easily everywhere.

Produce Coke drinks with additional flavors (e.g. cherry, strawberry, grape…etc.) to grow customers’ demand and interest as well as to attract new consumer groups.

Replacing glass bottles to plastic liter bottles will help increasing consumption.

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Internal Analysis

SWOT Matrix

This section attempts to perform a strategic analysis of the brand which is the number one beverage maker i.e. Coca Cola. This is done by making an internal analysis of the company in order to understand its internal capabilities. This involves the development of such strategies which make Coca Cola distinct from its competitors. To compete in the international market Coca Cola has developed such strategies which creates values for its customers as well as its consumers like that of optimism, rejuvenation, accomplishment and difference. It follows the following path trying to pursue its strategic policies:

• by growing core carbonated soft drink brands at global level
• by growing in other core non carbonated brands like sports and energy drinks
• developing wellness platforms by initially focusing on tea, soy and juice
• by nurturing system health i.e. market by market focus
• Coca Cola should try to take into account the needs of its customers and create a greater customer value
• by creating adjacent business (Coca-Cola Offical Website, 2012)

SWOT Analysis

Coca Cola is the leading manufacturer, distributor and marketer in the beverage industry. However, given to the fact that certain regulations have been imposed in schools have affected the sale of soft drinks which seem to have a consequent adverse effect on the sale and operating margins of the company in the near future.

Strength

Coca Cola has leading market presence which is built on strong portfolio. Coca Cola, Diet Coke, Fanta and Sprite are the world’s top four non- alcoholic beverage brands which are owned by Coca Cola. Minute Maid, Coca Cola Zero, Dasani, Powerade, Simply, Georgia Coffee, Del Valle and vitaminwater. It is the strong brand value of Coca Cola that enables it to be recalled by the customer and consolidate its position in the market.

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• The company’s brand success is attributed to the its strong bottling and customer partnership
• It has a strong global footprints on the emerging nations
• Good financial resources (Coca-Cola Offical Website, 2012)

Weaknesses

• Involvement in product quality issues
• Low health products
• It’s own products are competitor of each other

Opportunities

In today’s scenario an increasing awareness can be seen among the consumers regarding food and drink choices and it is owing to this reason that once can see the increasingly growing demands of healthy beverages and drinks. By taking such needs of the consumer into consideration the company can win the confidence of the consumers. There is good opportunity in health drink segment. Company can make its products healthier.

Threats

The potential threat to the company sales is that in the face of regulations placed on their sale given to the health issues involved. The production costs and capacity can also be affected by the water scarcity and poor quality. Another threat is from government regulations of some countries. (Coca-Cola Offical Website, 2012)

Strategy Assessment

Current Strategy

One of Coca-Cola company goals is to maximize growth and profitability to create value for their shareholders which will also create advocacy for the brand under the following strategies:

Transforming our commercial models to focus on our customers’ value potential and using a value-based segmentation approach to capture the industry’s value potential.

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Implementing multi-segmentation strategies in our major markets to target distinct market clusters divided by consumption occasion, competitive intensity and socioeconomic levels.

Implementing well-planned product, packaging and pricing strategies through different distribution channels.

Driving product innovation along our different product categories.

Achieving the full operating potential of our commercial models and processes to drive operational efficiencies throughout our company. (Strategy and Competitive Advantages, 2011)

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Other effective strategies to achieve the business goals are:

Deliver shared value

Engage the market through storytelling and thought provoking ideas

Be a leader in the cultural dialogue

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Create a network advantage (Creating Advocacy, 2012)

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