This paper will discuss three external factors of industry shifting that seriously affect on the profitability level of Coca-Cola the giant of the beverages industry; it will focus on strategic alignment of this company to generate competitive advantage over rivals, marketing mix, and one of the strength, opportunity, weakness and threat that could influence the future success of Coca Cola. Based on the given case study, the strategic analysis of the Coca-Cola illustrated that the beverage industry has been going through challenging time because economic meltdown, changes of customer’s preference, and shifting suppliers have seriously impacted the profitability of the company; however, this company has endeavoured to encounter the situation through its internal capabilities and product diversification strategy.
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Three External Industry Changes
Adeoye & Elegunde (2012) sated that modern organizations are eager to engage their business operation within the more dynamic environment where the external factors have rapid and unpredictable influence on the regular operation integrating with the complex changes and shifting economic variables that necessitates for addressing appropriate strategy to sustain sales revenue and profitability.
The most momentous influence on the organizational strategy is the external industry changes and such strategy would deliberately design to attain definite goals and objectives to overcome the negative impact of the situations that carried out by the external factors and carried out internal changes to encounter with the shifting dynamics (Gamble & Thompson, 2012). Today’s beverage industry operates in a greater environment of the global market and its current business environment has experienced with ever hardly complexities, serious turbulence as well as rapid in change where the industry players must have to pay greater attention on the external environments in order to formulating sustainable strategies for future operation (Gamble & Thompson, 2012). The given case has presented three external industry changes mentioned as follows–
The global financial crisis and its consequential recessionary impact has seriously impacted on the beverage industry; however, it was projected that the industry would reach at US$1.58 trillion by 2009 and would attain a sales revenue of US$1.78 trillion by 2014 due to global expansion of market and introduction of new products and product diversification. However, economic meltdown has presented a serious influence on the projected profitability by hampering steady market growth, reducing purchasing power of customers in both developed, and developing countries; although, the price of all varieties of beverages were higher in the developed countries in relation to the developing countries.
For instance, the case has strongly presented the data that in 2008, the market maturity along with bankrupt economic conditions in the USA has thrown the U.S. beverage industry to turn down at least 2.1 %; however, in 2009, the industry had fallen 3.1% of the overall market globally. At the same time, the sales reduction of the carbonated soft drinks have recorded 2.3% at the measures of sales revenue, it has added that within last five years the customers of the US market has consumed less soft drinks than the previous years, simultaneously, the sales of sports drinks, energy drinks, fruit juices, and even drinking water has reduced.
Changes of Consumer’s Taste and Preference
According to the given case, the changes of consumer taste and preference is another vital external industry changes that have affected the profitability of the companies within the beverages industry and the shifting dynamics of the customer taste and preference has drawn the attention of the market analyst and the managers engaged to identify right strategy fit for the situation. During 2010, the consumer’s taste and preference have shifted to the alternative beverages such as energy drinks, sports drinks as well as vitamin-enhanced drinks (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Coca-Cola 2013, and Norden, Koch and Pronk 2008; Adeoye & Elegunde 2012 and Banutu-Gomez 2012).
However, such diversified drinks were priced fifty to four hundred percent higher than the carbonated soft drinks, the customers in the US marker did not bother to consume (Gamble & Thompson, 2012; Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Coca-Cola 2013, Adeoye & Elegunde 2012; and Norden, Koch and Pronk 2008; and Banutu-Gomez 2012). The dramatic shifts in the consumer’s taste and preference have evidenced with a surprising attributes due to the market raise of alternative drinks and generated new opportunities for the industry players, but the meltdown economy seriously influenced the market with a direct reduction of 12.5% of the sales revenue.
Shifting Alternative Suppliers
From the existing suppliers, to move the alternative suppliers for raw materials is another fundamental external industry change that would affect the profitability of companies within the industry; however, the most prevailing difficulty for beverage distributors is to refill vending machines as well as to offer alternative drinks for special events that Coca-Cola would competent to control over the channels.
The assortment of suppliers of alternative resources for newly diversified product line, such as, colour, flavour, glucose, sugar, and nutritional supplements have essentially engaged in bilateral cooperation to establish a long-term business relationship with the alternative suppliers for steady and sustainable growth. Moreover, for the packaging of new products, there would be an assortment of new suppliers to address the existing and upcoming demand for bottling; ; however, the necessity to establish a strong base of potential suppliers who are able to provide secondary packaging materials in accordance with the specification of Coca-Cola and to practice from the present time.
Strategy of Coca Cola to create competitive advantage over rivals:
From the given case, it has illustrated that the Coca Cola has engaged to follow market driven strategies to create competitive advantage over rivals by engaging its internal resources and innovation where product diversification strategy and new product development strategy have simultaneously engaged to conquer the competition and to ensure sustainable growth. During 2010, the customers of the US market has shifted their preference to the energy drinks and alternative beverages rather than carbonated soft drinks, to address this gap, Coca-Cola developed many new products such as sports and energy drinks and at the same time, the company has diversified its carbonated soft drinks with various colours and flavours.
Such new product development and diversification has evidenced as gigantic success for the company by resolving uncertainty rose from the shifting market dynamics and contributed the company with remarkable competitive advantages; as the new products were essential to overcome the situation, Coca-Cola has engaged to ensure its right use of internal resources without wasting time, and efforts.
The Marketing Mix Elements
Key products of Coca Cola
- According to the report of Banutu-Gomez (2012) and Norden, Koch and Pronk (2008, p.15), this company highly concentrated on the beverages segment, for instance, near 40% of its products linked with carbonated soft drinks whereas only 20% of the products connected with juices.
- It has already started product differentiation by taste (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; (Coca-Cola 2013, and Banutu-Gomez 2012).
- Coca-Cola offers over 3,000 products though it started with only a soft drink made of syrup and carbonated water (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Coca-Cola 2013, and Banutu-Gomez 2012).
- Valuable non-alcoholic beverage brands includes Sprite, Fanta, Coca-Cola Zero, Diet Coke/ Coca-Cola Light, Coca-Cola Minute Maid, Powerade, Georgia, Glac´eau Vitamin water (Coca-Cola 2013, and Banutu-Gomez 2012).
Price of the products
- The profitability of this company come under threat due to increasing the price of raw materials.
- It introduces effective pricing strategies for different operational zone; however, it asks competitive market price for the soft drinks (Coca-Cola 2013 and Norden, Koch and Pronk 2008).
- To keep the sales rate up, it decreases product prices (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Coca-Cola 2013, and Banutu-Gomez 2012).
- According to the given case, consumer preferences shifted during the 2000s for which this company intended to offer higher price for the alternative beverages, for instance, price of sports drinks and vitamin-enhanced beverages is 50% to 75% higher than its soft drinks.
- Coca-Cola (2013, p.3) stated that finished beverage products are now sold in more than 200 nations; however, it develops the world’s largest beverage distribution system.
- It has already developed strong distribution system to make available its products to its customers (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Coca-Cola 2013, and Banutu-Gomez 2012).
Promotion of Coca Cola
- To conducting own independent advertising and marketing activities, this company provides sufficient funds to bottlers under the terms of agreement on a discretionary basis in most cases (Coca-Cola 2013); According to the annual report 2013 of this company, total budget for promotional and marketing programs was $6.9 billion in 2013 (Coca-Cola 2013).
- In addition, it allocates large investment for sponsoring physical and nutritional education worldwide (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Coca-Cola 2013, and Banutu-Gomez 2012).
- However, it concentrates on the development of physical-activity based clubs, and health camps; moreover, it provides fund to initiate sports activities in many countries.
- This company has enlarged its budgets for the promotional activities for example family events, sports events, trade deals, bonus packs as well as in-store display.
- It creates and implements integrated marketing programs in order to increase sales.
A strength that could help Coca Cola to achieve better performance in the future has discussed below
Supply Chain Management and Distribution Channel
According to this case study, consumers could like to purchase most alternative beverages from convenient stores such as supermarkets, restaurants, hotels, food stores, vending machines, wholesale markets and many other places; however, it is significant to state that consumer used convenient place to buy 75% of the energy drinks sale in 2010. As a market leader of soft drinks industry, it becomes easy for the Coca-Cola Company to introduce alternative beverages and make available these products in the present distribution centres for example, food stores, retail markets, wholesale clubs, and convenience stores (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012 and Banutu-Gomez 2012).
At the same time, top management and the marketers of this company would successfully able to influence the customers to buy the products of this company by ensuring prompt supply chain management (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Banutu-Gomez 2012 and Norden, Koch and Pronk 2008, p.15). On the other hand, smaller producers typically used third parties to overcome the difficulty for food service distributors and to distribute products in the convenience stores and restaurants (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012 and Banutu-Gomez 2012).
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In addition, Coca-Cola Company was able to dominate such channels and beverage distribution systems to deliver sports drinks, carbonated soft drinks and vitamin-enhanced drinks; therefore, from the fact of this case, it can be said that strong supply chain management system and distribution channel is one of the most significant success factors and strength for this company.
An opportunity that could help this company to attain better performance in the future has discussed below
The entire beverage industry had faced worse condition in the recessionary period in 2009, for instance, sales volume was down in the US market for sports and vitamin-enhanced drinks; however, alternative beverage industry experienced gradual growth in the worldwide market. According to this case study, product innovation had been among the most imperative competitive features of the alternative beverage industry; therefore, this Company could gain competitive advantages over other market players by diversifying existing product line. From the fact of this case, it can be said that consumer behaviour had already changed, as they are more interested to purchase alternative beverage items; therefore, it would be great opportunity for this company to be market leader in the alternative beverage industry.
A weakness that could help this company achieve better performance in the future has discussed below
Long addiction of soft and energy drinks of this company could adversely affect on the public health, such as, it can raise number of diabetes patient and damage our teeth (Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012 and Banutu-Gomez 2012 and Curd 2010, p.3). According to this case, the US Food and Drug Administration has not controlled caffeine content of energy shots and energy drinks, but health professionals researched on the effect of the high caffeine content of energy drinks and identified that the most important health troubles linked to large caffeine consumption are ‘heart arrhythmia’ and ‘insomnia’. Nowadays, consumers, administration or health officials become more concerned about the public health issues; therefore, Coca-Cola needs to invest more funds to control quality of products, such as, ensure pure water, reduce effects of HFCS and so on.
A threat that could help this company achieve better performance in the future has discussed below
PepsiCo is one of the major primary competitors of Coca-Cola; however, other important competitors are Nestl´e, DPSG, Groupe Danone, Kraft, Unilever and many other companies (Coca-Cola 2013; Norden, Koch and Pronk 2008; Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Banutu-Gomez 2012 and Curd 2010, p.3). In addition, it has to compete against many regional and local companies or private label beverage brands (Coca-Cola 2013; Ki, Yin & Wai 2011; McWhorter, Chasteen & Davis 2012; Norden, Koch and Pronk 2008; Banutu-Gomez 2012 and Curd 2010, p.3).
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