Coca-Cola: The In-Depth Report on the Market Placement and Strategy

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Table of contents

History and Milestones

Coca-Cola was invented by pharmacist John Stith Pemberton in 1886. The formula and brand was bought in 1889 by Asa Candler who incorporated the Coca-Cola company in 1892 (Coca-Cola facts and history, 2015). In the early 1900s, the company began manufacturing the bottle that is still considered famous today. In 1928, Robert Woodruff, the company’s president at the time, led the expansion of the company to the global market by introducing it during the Olympics. In the 1960s, Coca-Cola decided to expand with new flavors such as Sprite and Fanta. The 1970s brought on the world of advertising with the slogan “The Real Thing”. This strategy really increased the brand value and is still recognized by people today. The 1980s brought on a time of much change and innovation for the company. Diet Coke was introduced, which become the top low-calorie drink in the world. The company's presence worldwide was growing rapidly and year after year Coca-Cola has found a home in more and more places in the world. Today, more than 1.4 billion beverage servings are sold each day, making Coca-Cola the leader of the beverage industry (Coca-Cola facts and history, 2015).

Mission and Vision Statements

Coca-Cola’s vision is “To refresh the world in mind, body and spirit, to inspire moments of happiness and to create value and make a difference.” (Mission, vision and values, 2017). The Coca Cola Company’s vision includes many different aspects. Most importantly, Coca-Cola wants to offer the world a brand of drink that anticipates and satisfy people’s desires and needs. The Coca Cola Company values guide their actions in order to describe their place in the world. These include the following phrases:

If it is to be, it's up to me

Committed in heart and mind

What we do, we do well

The Industry

Coca-Cola is in the beverage industry. The beverage industry refers to the industry that makes beverages, specifically beverages that are ready to drink. The Coca-Cola company produces ready to drink beverages. This includes soda, teas, water and other non-alcoholic beverages.

Key Competitors

The Coca-Cola Company's major competitors are Pepsi, Dr. Pepper, Snapple Inc., Monster Beverage Corp., and Suntory Beverage & Food Ltd. Out of the competitors in the beverage industry, Coca-Cola is the leading provider (Vergis, 2017).

Coca-Cola External Analysis

Pestel Analysis Political

The beverage industry is highly regulated by the FDA. In order to provide a beverage to consumers, Coca-Cola must meet FDA’s regulations. Other political changes that can affect the company include taxes, environmental regulations, and labor laws.

Economic

Coca-Cola’s net worth is over $182 billion (Our Company, 2017). The majority of their profits come from countries other than the United States. The economic crisis in the past couple of years has impacted the prices of goods the company needs for production, but it has not deeply impacted their profits.

Social

Since most of Coca-Cola’s profit comes from other countries (Our Company, 2017), the company works hard to meet the needs of those consumers. For example, Coca-Cola created 30 different flavors to appeal to Japanese consumers (Making a splash, 2017). Americans are searching for healthier drinks. Coca-Cola has worked toward meeting these needs as well, but these needs are not at the top of the priority list.

Technological

Coca-Cola needs to use technology, such as carbonation and processing machines in order to ensure quick production and delivery of its products. The result of having this technology impacts profit and must be kept up to date to stay at the top of the beverage industry. Coca-Cola also uses technology for advertisement purposes, taking advantage of the world-wide web and the ever-growing social media platform.

Legal

Coca Cola retains all rights related to their business, including past and future products (Our Company, 2017).

Environmental

Coca Cola is affected by water scarcity (Water, 2015). A large amount of water is necessary for soft drink production. Water can lower production, hurting the company’s overall profit.

Porter’s Five Forces

Threat of New Entrants: Medium

Entry barriers are low for the beverage industry. Currently, there is no consumer switching cost and zero capital requirement. There is an increasing number of new brands appearing in the market prices similar to Coca-Cola products (Coca-Cola competitors, 2017). Coca-Cola is part of the beverage industry, but has high brand quality. Consumers that are loyal to the brand are unlikely to try other brands. The company has long held a large market share.

Threat of Substitutes: High

Beverages comes with many varieties and substitutes. Examples of substitutes include juices, flavored water, energy drinks, coffee, tea, and other brand sodas. Substitutes provide an alternative when prices, desires in taste, or cultural influences fluctuate.

The Bargaining Power of Buyers: Low

The individual buyer has no pressure on the company. For example, if I called Coca-Cola today and stated I was never drinking their product again, it would not concern them. Large retailers have little bargaining power with the company because they order what their consumers want in order to make a profit. Consumer loyalty ensures that a large retailer will not have bargaining power over Coca-Cola.

The Bargaining Power of Suppliers: Low

The main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine. Coca-Cola is the largest customer of any of these suppliers, so there is no concern of pressure from suppliers.

Rivalry Among Existing Firms: High

Currently, the main competitor is Pepsi, which also has a wide range of beverage products similar to Coca-Cola’s (Coca-Cola competitors, 2017). Rivalry is high among the two companies, but Coca-Cola stays at the top of the business industry.

Strategic Grouping of the Industry

Factors such as competitors, market size, and trends in the industry affect Coca-Cola and its strategic decision making. Globally, Coca-Cola is more dominant and has a majority of the global market share (Trefis, 2017). Coca-Cola operates under a non-alcoholic license. The beverage industry is large with several competitors. Coca-Cola’s main competitors in the non-alcoholic beverage industry include Pepsi and the Dr. Pepper Snapple Group (Coca-Cola competitors, 2017). Increased competition and advertising has caused a rise in the beverage industry. Advertisement through social media networks, such as Facebook, has attracted sales for Coca-Cola through “Share a Coke” and “Find Your Name”. Consumers can even have bottles personalized. Although there is a fall in the overall sales of carbonated drinks, the soft drink industry is doing well due to social factors such as consumer preference (Trefis, 2017). Environmental and cultural trends have influenced the direction of the beverage industry in the nutritional value of products and well as development of new and exciting flavors

Opportunities

Coca-Cola’s biggest opportunity is its brand loyalty from consumers. Even though a blind taste test revealed that Pepsi was favored more often, consumers still stay loyal to the Coca-Cola brand (Kinahan, 2017). Coca-Cola can also create new products and add variety to its current products. This would help them profit in the area of the healthy cultural trend that would keep them ahead of their competitors. Another opportunity is the global recognition of the brand. Coca-Cola is in hundreds of countries. This makes it easy for the company to enter new countries and provide products that meet each culture’s preferences.

Threats

The cultural shift toward natural and organic products has led many to opt for vitamin water, fruit smoothies, teas and other healthy options instead of soft drinks (Taylor, 2016). Coca-Cola products are high in sugar, artificial ingredients and preservatives that many consider unhealthy. In addition, medical professionals encourage patients to eat healthier and politicians are working to place high taxes on unhealthy beverages.

Competition is another threat to the Coca-Cola company. Other businesses are offering customers healthier alternatives, choices, and customer loyalty rewards that are not easily matched by Coca-Cola (Coca-Cola competitors, 2017). Consumers will continue to be pulled away from Coca-Cola if the company does not offer healthy options and match the offers of competitors. As mentioned earlier, water scarcity is a threat to the beverage industry as a whole. In addition, access to water that is clean and free of pesticides has become difficult to come by (Water, 2015). This creates a threat to the product as water is needed for production of all of Coca-Cola’s products. It also creates additional expenses for water sanitation and filtering when clean water is not accessible.

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Nutritional influences and trends toward a healthier lifestyle threaten Coca-Cola’s top product. Sugary drinks are in decline and fruit drinks, water, and herbal teas are taking over. Coffee has been considered a healthier alternative to colas with high caffeine but no sugar (as long it’s not added). Starbucks has led the way to threaten the beverage industry with a variety of flavors, coffees, teas, and fruit smoothies that meet the desires of current consumers (Taylor, 2016). It is important for Coca-Cola to offer products that will keep up with the modern trends.

Coca-Cola Internal Analysis

In addition to the external environment, Coca-Cola must also consider its internal environment. An internal evaluation allows a company to look at its strengths and weaknesses and determine what factors are beneficial to help increase revenue (Rothaermel, 2017). Coca-Cola has many weaknesses which attribute to the decline in revenue outlined in this analysis. However, Coca-Cola is also using its strengths to remain at the top of the beverage industry.

Financial Analysis

Coca-Cola has seen a vast decline in revenue in the last decade. Revenue was at 41.863 billion at the end of December 2016 compared to 48.017 billion at the end of 2012 (KO Key Financial, 2017). To make up for a percentage of this loss, Coca-Cola has reduced its operating income from 10.228 billion down to 8.626 billion. Through this, Coca-Cola’s operating profit margin has increased, keeping them 5% ahead of their main competitor, PepsiCo (Coca-Cola Competitors, 2017). Coca-Cola has a low degree of financial leverage, but this seems to be consistent of ratios across the beverage market. Overall, the price/earning ratio is slightly higher for Coca-Cola than it is for their competitors (Coca-Cola Co. Profitability, 2017). Coca-Cola’s ROA deteriorated from Quarter 1 2017 to Quarter 2 2017, but then slightly improved from Q2 2017 to Q3 2017 (KO Key Financial, 2017). However, despite the improvement in the last quarter, Coca-Cola’s profit ratios are still down 3% compared to last year’s data (KO Key Finanacial, 2017). Compared to their main competitor, PepsiCo, liquidity and profitability ratios were lower, but Coca-Cola’s profit margins are still higher than their competitors and the beverage industry as a whole (Coca-Cola Competitors, 2017).

Coca Cola's Internal Strengths

Coca-Cola’s strengths include strong marketing strategies, brand equity, brand packaging and customer loyalty. These strengths have helped the brand be globally recognized and ensure Coca-Cola stays at the top of the beverage industry. Out of these strengths, creation of strong marketing strategies is Coca-Cola’s biggest strength. It has launched several campaigns that attract customers. The company targets its campaigns to people of all ages and backgrounds. Coca-Cola’s campaigns are diverse and reach out to several people around the world. This sets them apart from their competitors, which do not do as much, if any, global advertising (Coca-Cola Competitors, 2017). These campaigns are uniting different people from across the world and gaining the brand recognition in the process. That falls in line with the next strength: brand equity. Coca-Cola has a strong presence in several countries across the globe making brand equity one of its strengths. The Coca-Cola brand is recognized for its logo in hundreds of countries around the world, the company produces and sells their products.

The company has over 400 brands in its portfolio, representing more than 2,400 beverage products. (Our Company, 2017). In 2016, Coca-Cola introduced a one brand strategy, as a goal to make their brand recognizable globally (Millington, 2016). This strategy has helped improve consumer recognition of the brand instead of several smaller brands within a larger brand. Just as important as the brand, the packaging is important in order to draw the attention of the consumers. The company uses various packaging techniques to target the customers. One of these techniques was the “Share a Coke” campaign with personalized names on their packaging. Other packaging strategies have included holiday and sport packaging and limited edition bottles. Even the one brand strategy has changed the packaging in a way that helps consumers recognize the brand and easily pick what options they want within the brand.

Another strength that has helped Coca-Cola is its customer loyalty. As mentioned earlier, Coca-Cola has a large global presence which allows its products to reach several consumers. Having a large consumer base increases customer loyalty and sales of its products remain high (Coca-Cola Competitors, 2017). The global presence has made many people feel they are part of something unifying. For this reason, people will continue to buy Coca-Cola and will be willing to try new products as they become available.

Coca-Cola’s Internal Weaknesses

Coca-Cola has a limited number of weaknesses but they are just as important to pay attention to. Coca-Cola’s weaknesses include concerns with product quality and health aspects, both which are growing concerns in the United States. Coca-Cola has been under attack with lawsuits over product quality and water management. For example, when Coca-Cola introduced the Dasani brand of bottled water in they UK, they quickly had to recall the product. This was due to a discovery of excess levels of bromate in the product. Bromate could cause side effects including cancer in human beings. This resulted in recall expenses of $32 million in the United States (Trefis, 2017). Another growing concern is the amount of water the company uses in regions where water is scarce (Kinahan, 2017).

Another major weakness that Coca-Cola is facing is the lack of healthy drink options. A few years ago, Coca-Cola tried producing healthy beverage options for consumers. Obesity rates are on the rise, especially in the United States and other first world countries, and so is the need for healthy or diet products. Trying to brand itself as a healthy option has been really difficult for Coca-Cola because the brand has been recognized for so long as providing unhealthy products. Coca-Cola has created products that have no calories or sugar in them, but they include artificial sweeteners, flavors and colorings. There is a hype that these artificial ingredients can cause cancer, even though there is no legitimate scientific proof (American Cancer Society, 2014). This view on artificial ingredients has become a weakness for the brand, especially in the United States.

Conclusion

Coca-Cola has many strengths and weaknesses, but it has the ability to stay at the top of the market by using its strengths. Coca-Cola can use its strong brand equity, market strategies, and customer loyalty to shadow the weaknesses that threaten the company. Through continual use of their strengths, Coca-Cola can overcome their weaknesses.

Coca-Cola Diagnosis

Company Vision

In an ever-changing world, companies must have an ever-changing vision. Coca-Cola’s vision focuses on what they can do today to get ready for the future. There are many aspects to Coca-Cola’s vision and these aspects focus on addressing the major problems facing the company. The goal is to address these problems by the year 2020 (Our Company, 2017).

Coca-Cola’s vision is divided into the following aspects and statements:

  • “People: Be a great place to work where people are inspired to be the best they can be.
  • Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people's desires and needs.
  • Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value.
  • Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities.
  • Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities.
  • Productivity: Be a highly effective, lean and fast-moving organization.” (Mission, Vision and Values, 2017).

Major Problem Areas

Sugar and Calorie Consumption

Governments and people all over the world have growing concerns about obesity. Health organizations and governments have scrutinized the high sugar content in soft drinks and are expecting alternative options for drinks (Kinahan, 2017). While Coca-Cola has developed low and zero calorie drinks to address these concerns, new concerns have arisen over the use of artificial sweeteners (Taylor, 2016). Coca-Cola has and continues to face problems due to growing health trends in many countries. Coca-Cola has been viewed as a high sugar drink and it has been difficult to change consumers’ minds that Coca-Cola can be healthy. Coca-Cola faces a large challenge in creating healthy products and encouraging consumers to drink them.

Emerging Markets

Even though Coca-Cola has, and continues to dominate the beverage market, the company has seen increased competition from competitors such as Pepsi Co. and Starbucks. Pepsi has launched many campaigns and is working to gain influence in the global market (Coca-Cola Competitors, 2017). Starbucks is becoming an even larger competitor in the beverage market by addressing the needs and wants of consumers by offering fruit smoothies and other healthy options (Taylor, 2016.) Since high sugar drinks are in decline, fruit smoothies and health teas are becoming more popular. Coca-Cola has to try to encourage its customers instead of products from competitors that are considered healthier.

Water Scarcity

Water scarcity, as well as the purity of water, has been another major concern for Coca-Cola. Water scarcity continues to be a threat to the beverage industry as a whole. In addition, lawsuits have risen due to the concern of pesticides in water (Water, 2015). The lack of clean water creates a major threat to the product since water is needed to produce all of Coca-Cola’s products. Additional expenses for water sanitation and filtering adds to the company’s threat when clean water is not accessible. This is a growing concern that must be addressed by the beverage industry and Coca-Cola in order to continue to create a quality product that can be consumed around the world.

Opportunities for Improvement

In regards to the growing health concerns, Coca-Cola is encouraging consumers to be healthy and to exercise. They have put a large focus on creating drinks that have less sugar and calories and reminding consumers to drink sugar in moderation and that the only way to beat obesity is through exercise (Kinahan, 2015). Coca-Cola still has a long way to go in encouraging consumers to drink their healthier products, since many consumers are trending toward all natural products. Coca-Cola has worked on decreasing the amount of water they use per liter of product. For example, they have decreased their water usage from 2.7 liters per one liter of product down to 1.7 and in some cases 1.4 liters of product per liter of product (Our Company, 2017). This is a start to addressing the water scarcity issue, but clean water is still difficult to find in many countries that Coca-Cola is trying to make a footprint in.

Conclusion

Coca-Cola has some major challenges facing their future success. The company has taken many steps in the right direction and has set goals to address these concerns. However, there is still much work to do in order to ensure that consumers will stay loyal even with the changing trends and environmental concerns.

Coca-Cola Formulation

Coca-Cola’s major challenges include water scarcity and cleanliness, healthy lifestyle changes, and staying relevant in an ever-changing world. Coca-Cola must recognize these challenges as a threat to their success and what the company can become. Below are some suggested solutions to the challenges faced by the company.

Formulation for Water Challenges

Globally, the beverage industry is continuing to face challenges with water scarcity and cleanliness. In order to be successful, Coca-Cola must address this situation. Without water, Coca-Cola’s products cannot be made. In addition, Coca-Cola saves money by producing its products in the countries where they are sold, thus making the need for clean and sustainable water even more important (Water, 2015). Partnerships and solutions are two possible ways to address this growing concern. One solution is to invest in water funds. Water funds were created through partnerships around the world by The Nature Conservancy to enable users to invest in land conservation and restoration in order to improve water quality and help regulate supply.

Coca-Cola has invested in some water funds globally, but needs to invest more. Investing in water funds helps meet Coca-Cola’s vision to “be a responsible citizen that makes a difference by helping build and support sustainable communities” (Mission, Vision and Values, 2017). Partnerships are also key to identifying and implementing solutions that will last. Any partnership that Coca-Cola can create with communities, governments and other businesses to help secure water and ensure sustainability will benefit the company’s long-term goals. In fact, governments and communities can also invest in water funds. Coca-Cola can encourage others to partner with them to help increase the amount of water being preserved. Through partnerships and solutions, Coca-Cola can obtain sustainable clean water that will provide water for products for centuries to come.

Formulation for Healthy Lifestyle Challenges

Health fads are nothing new. Coca-Cola has overcome lifestyle changes, diets and fads for over a century without ever losing its hold as the leader in the beverage industry (Our Company, 2017). However, Coca-Cola’s lower-calorie drinks and healthier options has not yet won over the challenges faced by new health trends. Even after increasing profit through the introduction of Smartwater, smaller cans and healthier beverages, Coca-Cola continues to struggle globally with accusations of causing obesity. Campaigns and ads that Coca-Cola creates out about being healthy seem like an oxy-moron to consumers who know the “original” brand. It is also counteractive to fight governments on taxes on sugary drinks and laws for health choices while also trying to prove to consumers that the company is pushing for healthier choices and meet their needs.

Looking at the needs and wants of the current target market, healthier choices should be promoted more than the high sugary drinks. The one brand strategy should also apply to the healthy choice items, such as Smartwater. During interviews with consumers at a local gas station, not one realized that Smartwater was a Coca-Cola product (Personal communication, November 27, 2017). Consumers that are loyal to the brand will buy the brand, but buy what they are looking for to meet their current lifestyle needs. If consumers are looking for a healthier option, they will be more apt to buy the Smartwater over a different brand if they know it has the Coca-Cola label. However, if they are looking for a sweet drink, they can buy the original Coca-Cola.

Another solution to address this challenge is to add additional products that meet the health needs and wants of consumers. This will be addressed more in the next section. Supporting governments and local communities in their goals to encourage a healthy lifestyle would be wise considering this is the current trend. It is also likely that this trend will be around for a long time. It would also be beneficial to have doctors, health professionals, and even government officials promote the healthier products for the company, such as Smartwater and low-calorie drinks in order to increase business. Focusing on the needs of consumers, communities and governments will help Coca-Cola improve and flourish in the market.

Formulation for Staying Relevant

When all products in the beverage industry were pretty simple, Coca-Cola did not have to work as much in the innovation department. Add some different flavors and packaging and the company was golden. However, changes in what consumers want have created a major challenge for Coca-Cola. For example, when energy drinks first came out, Coca-Cola could have jumped in and took the lead in this market. Instead, the company took a back seat and paid for it (Competitors, 2017). Coca-Cola has made a step in the right direction by creating a partnership with Green Mountain Coffee Roasters. This is showing that the company is interested in the rising changes in consumer desires. Coffee and tea have become more popular and have threatened Coca-Cola’s sales in the beverage industry (Taylor, 2016).

In order to stay relevant and keep up with the changing cultural desires of new generations, Coca-Cola needs to come up with new products. Coffee and tea have become increasingly popular as well as nutritional shakes and bars. Adding these products to the line will draw in the consumers and even regain previous consumers who are now looking for healthy alternatives. This would be a good time for Coca-Cola to do something that is bold and different. Coca-Cola has never offered food items before and this would be a good time to provide a healthy choice that is not related to beverages, but renews the company’s brand. They need to do something that Starbuck’s is not considering that is the rising competition. Starbucks offers coffees, teas, and fruit shakes, all which focus on the current cultural trends.

However, many of Starbuck’s food items are high in sugar and sweet. Even their coffees are sugary and sweet. This is where Coca-Cola can jump in and offer food items that a healthy as well delicious. This strategy could help the company increase profits and help it gain an advantage over other businesses. By addressing these three major challenges, Coca-Cola could rise to be ahead in the global market to a point that no other company could match it. These are all challenges that the company is hoping to address. These strategies not only address the challenges but meet the company’s vision and mission statements as outlined in previous sections. These formulation strategies will help Coca-Cola meet the company’s goals by 2020 and improve profits and overall brand utilization.

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