GlobalEconomic Environment and Marketing: Coca Cola Company
Executive Summary 3
Global Economic Environment and Marketing: Coca Cola Company 4
Economic Factors Affecting Coca Cola Company Future, Summary 4
Impacts of Economic Factors on Marketing Strategies 5
Competitive Advantage 5
Entrant Threats 6
Substitute Threats 6
Supplier’s Power to Bargain 6
Buyer’s Power to Bargain 7
Industry Rivalry 7
Coca-Cola’s Competitive Strategy and Growth 7
Segmentation, Targeting, and Positioning 10
Impacts of Economic Factors on Customer Behaviour and How it Might Change 12
Growth Opportunities 13
Coca-ColaCompany is the leading firm within the sector of soft-drink industry.It uses distinct branding, which makes its product unique among theconsumers. Its operation is global, with the distribution chainspresent in at least 200 countries of the world. Coca-Cola is one ofthe companies that survived the adverse effects of economic downfallof 2007 to 2009 period. However, with the constant rivalry observedin the beverage industry, that situation may change in the nearfuture. Therefore, the report provides details on financial downturnas an economic factor that may affect the future of Coca-ColaCompany, how the factor impacts the marketing strategies regardingcompetitive advantage, segmentation, targeting and positioning, andconsumer behaviours.
GlobalEconomic Environment and Marketing: Coca Cola Company
TheCoca-Cola Company was opened in the year 1886 in Atlanta of Georgia.It has since expanded to become the globe’s soft drink venture witha worldwide manufacturing, marketing, and distribution ofnon-alcoholic beverages (Pendergrast,2013).The company’s operations cover at least 200 countries of the world,manufacturing a minimum of 500 brands of non-alcoholic drinks.Because its operations occur in many countries of the world, thecompany is affected by the distinct environmental factors of everynation (Armstronget al., 2012).Therefore, it is an ideal organization to subject to a marketanalysis. Specifically, the report provides details on financialdownturn as an economic factor that may affect the future ofCoca-Cola Company, how the factor impacts the marketing strategiesregarding competitive advantage, segmentation, targeting andpositioning, and consumer behaviours. Finally, the paper examines thegrowth opportunities that the company has, and how it can capitalizeon such to guarantee future sustainability.
EconomicFactors Affecting Coca Cola Company Future, Summary
Thesales by Coca-Cola are affected by a wide array of economic factorsthat are beyond the firm’s control. These factors comprise of theextent of economic growth in the country of operation and thenon-alcoholic beverage industry, rates of taxation and currencyexchange, interest rates, and the costs of labour among others. Forexample, the global financial and economic crisis experienced between2007 and 2009 significantly affected the business atmosphere ofCoca-Cola, although at a less severe rate compared to other globalbusinesses. That is because the company’s operations persisted atindustry-front 22 percent regardless of the crisis, but there was adrop in the dividend yield to 2.6 percent. That implies thatCoca-Cola has very effective strategies for managing economic crises.However, the business environment of beverage industry is facingendless competition that may render Coca-Cola vulnerable to futureeconomic disturbances (Stobart,2016).So, how can the company prepare to evade the adverse effects of anyfuture economic downturn?
Impactsof Economic Factors on Marketing StrategiesCompetitiveAdvantage
Tocomprehend the strategies utilized by Coca-Cola to sustaincompetitive advantage in the market, it is imperative to assess itsoverall competitiveness relative to other soft-drink businesses.Hence, Porter’s Framework is utilized. The model has five forcesthat determine the competitiveness of a company as shown below:
Figure 1: Five forces outlined by Porter
EntrantThreats: Coca-Cola experiences medium pressure with respect to potentialcompetitors because the barriers to entry in the beverage industryare fairly low. There is a rising quantity of new brands emerging inthe market which bear prices that are comparable to those of CocaCola, especially those produced by Pepsi, the major competitor.However, Coca-Cola has established itself not only as a beverage buta brand (Salmons,2012).Therefore, it is holding a very considerable share of the marketcharacterized by loyal consumers who are unlikely to try new brandsfrom other competitors.
SubstituteThreats:The pressure with regards to substitutes is medium to high, andCoca-Cola has to contend what consumers could buy instead of itscommodities. There are varieties of energy drinks, juice, and sodaproducts presented in the market. For example, buyers are likely toswitch to coffee drinking instead of Coke (Pangarkar,2011).Moreover, consumers may also select beverages like the fresh-pressedjuices in disregard to bottled beverages by Coca-Cola due to thehealth risks (obesity) related to their high caloric contents.Coca-Cola has responded by producing low energy diet drinks besidesinvesting in efficient product promotion and motivation of theemployees to facilitate innovation and high-quality customer services(Shaw,2012).
Supplier’sPower to Bargain:There is low pressure concerning the bargaining power of suppliersfor Coca-Cola Company because there is no concentration ordifferentiation of the vendors. Particularly, soft drink rawmaterials are sweeteners, caffeine, phosphoric acid, and carbonatedwater. Coca-Cola has the greatest advantage because it is the leadingcustomer of all the aforementioned ingredients, and that limits thebargaining power of suppliers (Ramanathan,2012).
Buyer’sPower to Bargain:Coca-Cola experiences low pressure with respect to the bargainingpower of consumers as it has many loyal clients who are unwilling totry new brands from the rivals like Pepsi. The individual clienteleexerts decreased pressure. Conversely, large retailers such asWal-Mart enjoy high pressure concerning bargaining power as a resultof bulk buying. However, that power is neutralized by the endclient’s brand loyalty (Dobbs,2014).
IndustryRivalry:Coca-Colafaces high pressure regarding the rivalry among the existingcompanies within the industry. At present, Pepsi is the majorcompetitor of Coca-Cola which manufactures a wide range of softdrinks under its brand (Hassan,Amos & Abubakar, 2014).The two businesses dominate carbonated beverage operations andequally emphasize the funding of outdoor activities and events.Although there are other brands of soda with distinct flavoursemerging, for example, Dr. Pepper, they fail to attain the successenjoyed by Coke (and Pepsi). Coca-Cola’s response to the rivalrystate has been through the production of diet drinks and investmentof more finance to widen its capacity of manufacturing anddiversification in the soft-drink market (Ngobo,2011).
Coca-Cola’sCompetitive Strategy and Growth:FromPorter’s analysis, it is patent to highlight that Coca-Cola has abetter competitive advantage in the market compared to itscompetitors (Magretta,2013).To be able to sustain its competitive advantage during financialdownturns, Coca-Cola utilises strategies of innovation, productdifferentiation, extensive differentiation networks, and Ansoffbusiness growth model. First, differentiation features the companymaking use of a confidential recipe for Coca-Cola, which harboursbetter tastes in comparison to other products (Aaker,2012).Regarding innovation, Coca-Cola is able to develop new products andre-invent old ones the company offers more than 500 brands in atleast 200 countries. On that regard, Coca-Cola enjoys the broadestdistribution channel, making it accessible to millions of buyersglobally (Ferrell& Hartline, 2012).Besides, the techniques utilized by Coca-Cola in production areaffordable, and are readily financed by a small fraction of theselling price, an implication that the company makes a lot ofprofits. On the other hand, Coca-Cola Company makes use of Ansoffmodel to attain high growth and expansion (Sharma& Lambert, 2013).The model, as utilised by the company, is summarized below:
Figure 2: Ansoff Matrix
Undermarket penetration or growth, such processes as cutting costs,investing in advertisement and the slight improvements of existingCola products are observed. In product development, the notion is toattain more money from the buyers while utilizing the presentresources and distribution channels (Hussainet al., 2013).Through research and development, Coca-Cola has developed new brandsto over 500 in number at this stage. The phase of market developmentinvolves Coca-Cola’s endeavours to identify new markets for itsexisting drinks, such as targeting of international markets (Bonnet& Réquillart, 2013).Finally, during diversification, Coca-Cola is involved in taking overa supplier (backward vertical integration) or consumer (forwardvertical integration) to ensure internal control and jointoperations. The table below shows specific example on how Coca-Colahas utilized Ansoff:
Market penetration: diet coke
Product development: Fanta Icy Lemon, Coca-Cola Vanilla
Market Development: Coca-Cola 1.25 litre bottle
Diversification: Power ode, Winnie the Pooh Roo Juice
Table1: Example of Ansoff use, Coca-Cola
Figure3: Ansoff application, Coca-Cola
Segmentation,Targeting, and Positioning
Segmentationenables Coca-Cola to identify the appropriate non-alcoholic beveragesfor distinct customer group. The company makes use of various blendsto target varying age groups, ethnic categories, gender, andlifestyles among other diversity issues of its clients. For example,their brand named OASIS is a juice that targets those who are agedbetween 20 years and 30 (Keller,Parameswaran & Jacob, 2011).Because it has realized how health-sensitive the consumer market hasbecome, the company produces such brands as Diet Coke and Coca ColaZero for the health-sensitive category that holds little preferenceto high caloric soft drinks, especially age group 30 and above.Coca-Cola makes use of competitive positioning to outwit its rivalsin the market (Azadet al., 2013).It manages prices through product diversification, economies ofscale, and outsourcing operations. The positioning of Coca-Cola isbetter defined as glocalization, which characterizes the companythinking local in its global operations. In other words, it considersthe nature of local market abroad (culture, age, season, e.t.c.) topresent the most suitable brand that meets the needs of theparticular consumers.
Ofimportance is also the use of market mix of 4Ps to promote and marketits products, and that has helped the company to survive thedetrimental outcomes of economic downturns. The mix comprises ofProduct, Price, Promotion, and Place (Anderson,2013).Concerning product, Coca-Cola enjoys the most diverse commodity basein the soft-drink industry, and that can help it overcome thefinancial challenges of the economic recession as the customers havea lot of products to select from. With respect to price, the companycharge its varied range of products based on geography and market (DeMooij, 2013).Moreover, the beverage sector is oligopolistic it features fewsellers and very many buyers, and that ensures that there is fairpricing in the market. Coca-Cola can work with affordable pricesduring economic decline to prevent its clients from opting forcheaper substitutes. On the other hand, Coca-Cola operates in theentire world with reference to place. If the company can maintain itsglacalisation technique in which it matches the products with thetastes and preferences of the locals in the foreign places ofoperation, then it is safe from the negative effects of economicdownturns because the loyalty of the customers will persist (Reyeset al., 2015).Finally, promotion by Coca-Cola occurs through advertising and othermarketing strategies to establish a higher demand by consideringlifestyle and behaviour (Goyat,2011).Its promotional activities earn it an extended market base, which inturn helps the company to survive economic recessions.
Theconcept of branding entails coming up with relevant names andphysical designs of the products packages that are unique compared tothose of the other competitors. This strategy is required byCoca-Cola during the economic collapse periods to attract morecustomers into purchasing its products (Foster,2012).The company has a powerful brand portfolio with diverse range ofbeverages to its clients, and is on the constant innovation processto develop new brands that are unique. The latest strategy that thecompany has introduced is the ‘one-brand strategy,’ which ischaracterizes by several new graphics that place a modern spin on aclassic logo by outstandingly displaying the Coca-Cola Red Disc onall the brands of trademark coke i.e., Coke Zero, Diet Coke,Coca-Cola, and Coca-Cola life (Fournier& Avery, 2011).The One-Brand strategy is aimed to unite all the brands under onevisual identity, hence making it easy for the buyers to choose theirpreferred brands. A well designed brand attracts consumer loyalty,and they will continue to purchase the products even during economiccrises due to predetermined preference.
Impactsof Economic Factors on Customer Behaviour and How it Might Change
Economicdownturn does not only signal a shift in the economic landscape, butalso significantly alter the behaviour of many customers or buyers(Abdullah& Asngari, 2011).Such are the times when consumers buy goods basing on the urgency orlevel of the needs in their hierarchy of wants. Consequently,companies that sale secondary products suffer most as the consumerswork to fulfil their primary needs like food and shelter. Althoughthe 2007/2009 economic downturn did not impact the consumerbehaviours so much regarding the products of Coca-Cola, the companyshould take precautionary measures given that the businessenvironment is on a constant evolution, and the future may present adifferent scenario (Ronit& Jensen, 2014).
Thesecond behaviour by most consumers during the economic crisis relatesto their opting for cheaper products. It is the time they startviewing the lowly-priced products to be of high quality and capableof satisfying their needs. For example, during the 2007/2009recession, at least 33% of those who use bottled water realized theyno longer required most of the advantages the higher-priced brandpresented. Moreover, about 32% of facial of facial-moisturizerclients concurred that they were satiated using the low-priced brandthan before (Hassan& Craft, 2012).
Therefore,as Coca-Cola works on its economic growth and marketing strategies,it must refrain from raising the prices of its drinks during futureeconomic recessions. Although it is enjoying brand loyaltycharacterized by low buyers’ bargaining powers, the high rivalrywithin the beverage sector may trigger total change of customerpreferences during moments of financial crises. For example, if thecompany elevates its prices during such times, then the consumers mayshift to other drinks at low costs to save some money for otherexpenses (Hollensen,2015).However, because Coca-Cola offers high-quality brands, the impact ofshifts in consumer attitudes may only prevail during the crisis time.However, with a returning boom, the brands of the company wouldresume the previous favours of the buyers. Again, the fact that thecompany is globalised exposes it to different geographies with uniqueeconomic potentials. In developed countries, the wealthy class willkeep utilizing the drinks regardless of the economic situation (Issa& Issa, 2014).Therefore, the company should keep working on its branding,segmentation, targeting, positioning, differentiation, and innovationto be in a position to handle future recessions.
UsingPESTEL, the two leading areas of opportunities identified forexploitation by Coca-Cola include socio-cultural and technologicaldevelopments. Socio-culturally, the entire world is experiencingsignificant changes pertaining to lifestyles, demography, and degreeand attitudes of consumerism. First, population is steadily rising inmost of the countries served by Coca-Cola, especially in thedeveloping nations of Africa and the emerging economies like India.That presents an opportunity for the company to increase itsproduction capacity and avail more drinks in the market to meet thedemands of the swelling human populations. Second, the lifestyles ofconsumers are also noting considerable changes around the globe. Forexample, people have become more hygienic, demanding to consumebottled water to evade waterborne diseases. Although some individualsare developing a lifestyle of consuming low caloric drinks, Coca-Colashould use that as an opportunity to produce more diet drinks inorder to meet the demands of the health-sensitive group. Anotheropportunity that the company should capitalise on relates to the factthat the society is increasingly developing positive attitudestowards its products ever since it introduced diet cola. Indeed,there has been a rising degree of consumption of Cola products onthat regard across cultures and age groups. Therefore, it is time forthe company to expand its distribution channels to cover most parts,if not all, of the world. That way, the company will have anexpansive market base that can sustain it even during financialcrises in the future.
Thenthere is the aspect of technology and innovation as an opportunity.With the arrival of the 21stcentury, the business environment has been confronted by theintroduction of technology, especially the use of informationtechnology (Solomon,2014).The introduction of computers, alongside the innovation of socialplatforms such as Facebook and WhatsApp, has made it easier tocommunicate over long distances. Additionally, the currentgeneration, best pointed out as the digital generation, is wellinformed about the use of technology. In tandem with that, Coca-Colais urged to embark on E-commerce to reach out to a large group ofcustomers (Chaffey& Ellis-Chadwick, 2012).Information technology should be the basis of product promotion,marketing, and receiving of feedbacks from the consumers forimproving the products. Innovation is also critical in theimprovement of brand appearance. Additionally, new ingredients,modern delivery methods, unique packaging materials, new innovationsfor water treatment, and the latest technologies for processingbeverage such as sterilisation and pasteurisation are applied. Withall the technologies in place, the customers will be guaranteedquality products and services, and even when cases of financialdownturns arise, the consumers are unlikely to turn away from theproducts of the company.
Indeed,Coca-Cola enjoys maximum competitive advantage in the beverageindustry due to its wonderful market segmentation, targeting, andpositioning. Additionally, it has created high-level customer loyaltythrough its competitive strategies. If the above areas are allobserved alongside the present growth opportunities, then the companywill continue to survive the adverse impacts of economic downturns inthe future.
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