PESTEL Analysis of Coke

What is PESTEL analysis?

There are many factors in the macro-environment that will effect the decisions of the managers of any organization. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. To help analyze these factors, managers can categorize them using the PESTEL model.

PESTEL stands for Political, Economic, Social, Technical, Environment and Legislative. It is a strategic planning technique that provides a useful framework for analyzing the environmental pressures on a team or an organization. It describes a framework of macro environmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when conducting a strategic analysis or doing market research and gives a certain overview of the different macro environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. PESTEL factors play an important role in the value creation opportunities of a strategy. However they are usually outside the control of the corporation and must normally be considered as either threats or opportunities.

Kotler (1998) claimed that PESTEL analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The headings of PESTEL are a framework for reviewing a situation, and can in addition to SWOT and Porter’s Five Forces models, be applied by companies to review strategic directions, including marketing proposition.

Political factors - These refer to government policies such as the degree of intervention in the economy. What goods and services does a government want to provide? To what extent does it believe in subsidizing firms? What are its priorities in terms of business support? Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system, Government rules and regulations can also affect a business heavily. Rules and regulations such as environmental regulations, industry specific regulations, competitive regulations, consumer protection and various kinds of employment laws.

Economic factors - These include interest rates, taxation changes, economic growth, inflation and exchange rates, governments spending levels, unemployment, job growth, tariffs, consumer confidence index and import /export rations. Economic changes can have a major impact on a firm's behaviour.

-Higher interest rates may deter investment because it costs more to borrow- A strong currency may make exporting more difficult because it may raise the price in terms of foreign currency  - Inflation may provoke higher wage demands from employees and raise costs - Higher national income growth may boost demand for a firm's products

Social factors - These often look at the cultural aspects and include health consciousness, population growth rate, demographics (age, gender ,race, distribution), career attitudes and emphasis on safety , lifestyle changes, population shifts, education trends, fads, diversity, immigration/emigration, housing trends, fashion, attitudes to work, leisure activities, occupations and earning capacity. Changes in social trends can impact on the demand for a firm's products and the availability and willingness of individuals to work. Today the aging of population has become a huge problem. This has increased the costs for firms who are committed to pension payments for their employees because their staff is living longer. It also means some firms have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on demand: for example, demand for sheltered accommodation and medicines have increased whereas demand for toys is falling.

Technological factors -– Technological factors include ecological and environmental aspects and can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Technological factors look at elements such as R&D activity, automation, technology incentives and the rate of technological change. New technologies create new products and new processes. MP3 players, computer games, online gambling and high definition TVs are all new markets created by technological advances. Online shopping, bar coding and computer aided designing are all improvements to the way we do business as a result of better technology. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organizations providing the products.

Environmental factors - Environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.

Legal factors. These are related to the legal environment in which firms operate. In recent years in UK there have been many significant legal changes that have affected organizations behaviour. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organization’s actions. Legal changes can affect a firm's costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service).

PESTEL Analysis for coke

Coca Cola is the largest manufacturer, distributor and marketer of beverage concentrates and syrups in the world. Coca-Cola is recognized as the world’s most valuable brand. They market four of the world’s top five nonalcoholic sparkling brands, including Diet Coke, Fanta and Sprite. The Company owns or licenses more than 450 brands, including diet and light beverages, mineral water, enhanced waters, juices and juice drinks, teas, coffees and energy and sports drinks. Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy the company’s beverages at a rate of approximately 1.5 billion servings each day. The Company generates revenues, income and cash flows by selling beverage concentrates and syrups as well as finished beverages.

Even Coca Cola, the worlds’ largest beverage company has to consider about their macro environment and its opportunities and threats. They too have to analyze their political, Economical, Social cultural environment and legal factors in order to catch up with the fast changing world.

P: Political change, from one party to another in control- for example the rise in private healthcare and privatizations under Conservative governments.

Political Analysis for Coca-Cola

Non-alcoholic beverages fall within the food category under the FDA. (Food and Drug administration) The government plays a role within the operation of manufacturing these products in terms of regulations. There are potential fines set by the government on companies if they do not meet a standard of laws.

The following are some of the factors that could cause Coca-Cola company's actual results to differ materially from the expected results described in their underlying company's forward statement:-

? Changes in laws and regulations, including changes in accounting standards, taxation requirements, (including tax rate changes, new tax laws and revised tax law interpretations) and environmental laws in domestic or foreign jurisdictions.

? Changes in the non-alcoholic business environment. These include, without limitation, competitive product and pricing pressures and their ability to gain or maintain share of sales in the global market as a result of action by competitors.

? Political conditions, especially in international markets, including civil unrest, government changes and restrictions on the ability to transfer capital across borders.

? Their ability to penetrate developing and emerging markets, which also depends on economic and political conditions, and how well they are able to acquire or form strategic business alliances with local bottlers and make necessary infrastructure enhancements to production facilities, distribution networks, sales equipment and technology.

A threat that the Coca Cola Company had to face recently due to the changes in the political factors was the War against Iraq made USA and UK very unpopular in Middle East as well as in other Muslim countries. Because Coca Cola is known as the very American company, this had a huge effect on the sales of its products.

E: Economic change, for example a recession creating increased activity at the lower ends of product price ranges. Rate of interest raises depressing business and causing redundancies and lower spending levels.

Economic Analysis for Coca-Cola

Last year the U.S. economy was strong and nearly every part of it was growing and doing well. However, things changed. Most economists loosely define a recession as two consecutive quarters of contraction, or negative GDP growth. In 2008 we are witnessing a global economic crisis which was suggested by several important indicators of economic downturn worldwide. These included high oil prices, which led to both high food prices (due to a dependence of food production on petroleum, as well as using food crop products such as ethanol and biodiesel as an alternative to petroleum) and global inflation; a substantial credit crisis leading to the bankruptcy of large and well established investment banks as well as commercial banks in various nations around the world; increased unemployment; and the possibility of a global recession.

As the inflation rate grows higher and higher consumer buying power also represents a key threat in the industry. The rivalry between Pepsi and Coke has produce a very slow moving industry in which management must continuously respond to the changing attitudes and demands of their consumers or face losing market share to the competition. Furthermore, consumers can easily switch to other beverages with little cost or consequence.

It is said that Coca-Cola's growth will slow in Europe and U.S. due to the economic crisis but the drink company expects to remain as the leader of the beverage market. The company does not hope to cut down prices , even though the consumers purchasing power has grow down. The Coke company says although we will feel the impact we will win the market.

Future Outlooks

The non-alcoholic beverage industry has high sales in countries outside the U.S. According to the Standard and Poor's Industry surveys, "For major soft drink companies, there has been economic improvement in many major international markets, such as Japan, Brazil, and Germany." These markets will continue to play a major role in the success and stable growth for a majority of the non-alcoholic beverage industry.

S: Social change involves changing attitudes and lifestyles. The increasing number of women going out to work, for example, led to the need for time-saving products for the home.

Social Analysis for Coca-Cola

Many U.S. citizens are practicing healthier lifestyles. This has affected the non-alcoholic beverage industry in that many are switching to bottled water and diet colas instead of beer and other alcoholic beverages. Also, time management has increased and is at approximately 43% of all households. The need for bottled water and other more convenient and healthy products are in important in the average day-to-day life. Possible substitutes that continuously put pressure on Coke include tea, coffee, juices, milk and hot chocolate

Consumers from the ages of 37 to 55 are also increasingly concerned with nutrition. There is a large population of the age range known as the baby boomers. Since many are reaching an older age in life they are becoming more concerned with increasing their longevity. This will continue to affect the non-alcoholic beverage industry by increasing the demand overall and in the healthier beverages.

Increasing awareness among consumers, public health professionals and government agencies of the potential health problems associated with obesity and inactive lifestyles represents a significant challenge to the coca cola industry. The company has recognized that obesity is a complex public health problem. Their commitment to consumers begins with the company’s broad product line, which includes a wide selection of diet and light beverages, juices and juice drinks, sports drinks and water products.

Since there are indications that "soda and sweetened drinks are the main source of calories in American diet," most nutritionists advise that Coca-Cola and other soft drinks can be harmful if consumed excessively, particularly to young children whose soft drink consumption competes with, rather than complements, a balanced diet. Coke has got a lot of sugar by which continuous drinking of Coca-Cola may cause health problems. Being addicted to Coca-Cola also is a health problem, because drinking of Coca-Cola daily has an effect on your body after few years.

A common criticism of Coke based on its allegedly toxic acidity levels has been found to be baseless by researchers. The drink has also aroused criticism for its use of caffeine, due to the possibility of physical dependence. There is also some concern regarding the usage of high fructose corn syrup in the production of Coca-Cola. Since 1985 in the U.S., Coke has been made with high fructose corn syrup, instead of sugar glucose or fructose, to reduce costs. In India, there exists a major controversy concerning pesticides and other harmful chemicals in bottled products including Coca-Cola.

T: Technological change - Creates opportunities for new products and product improvements and of course new marketing techniques- the Internet, e-commerce.

Technological Analysis for Coca-Cola

Some factors that cause company's actual results to differ materially from the expected results are as follows:

? The effectiveness of company's advertising, marketing and promotional programs. The new technology of internet and television which use special effects for advertising through media. They make some products look attractive. This helps in selling of the products. This advertising makes the product attractive. This technology is being used in media to sell their products.

? Introduction of cans and plastic bottles have increased sales for Coca-Cola as these are easier to carry and you can bin them once they are used.

? As the technology is getting advanced there has been introduction of new machineries all the time. Due to introduction of this machineries the production of the Coca-Cola company has increased tremendously then it was few years ago

? CCE has six factories in Britain which use the most stat-of the-art drinks technology to ensure top product quality and speedy delivery. Europe's largest soft drinks factory was opened by CCE in Wakefield, Yorkshire in 1990. The Wakefield factory has the technology to produce cans of Coca-Cola faster than bullets from a machine gun.

A latest technical achievements made by The Coca-Cola Company and Ardagh Glass was the new environmentally friendly version of the iconic  ‘Coca-Cola' Contour bottle which has won number of awards for its light weight.

E: Environmental changes – The deterioration of the natural environment is a major global concern. In many world cities, air and water pollution, have reached dangerous levels. Marketers need to be aware of the threats, and opportunities, associated with four trends in the natural environment: the shortage of row materials, especially water; the increased cost of energy; increased pollution levels; and the changing role of government.

Environmental analysis for Coca Cola

The Coca-Cola system’s environmental commitments are focused on the areas in which they have the most significant opportunities to make a difference - water stewardship, sustainable packaging, and energy management and climate protection. The company has made progress in each of these areas, but Coca Cola has recognized that there is much more to do.

However, with a system of Coca Colas size and reach, we must also step back and look at how cokes’ local operations add up to a global impact. For example:

• In 2007, the system used approximately 300 billion liters of water. • Coca Cola is one of the world’s largest purchasers of sugar and high fructose corn syrup. • Coke Company is among the world’s largest purchasers of citrus and coffee.• Coca Cola is the largest consumer of aluminum cans, PET bottles and refillable glass bottles in the

nonalcoholic beverage industry. • The company has more than 10 million vending machines, coolers and fountain dispensers in use

around the world.

In 2007, the company used approximately 300 billion liters of water in their plants to produce beverages. To meet their water needs while helping to conserve watersheds and improve community water access; water stewardship leads the list of the companies’ sustainability efforts. In 2007, Coca Cola announced their aspirational goal to return to communities and nature, an amount of water equal to what is used in the company’s beverages and their production. Coca Cola call this water neutrality.The company is moving towards their goal with three objectives:

• Reduce the amount of water used to produce their beverages.• Recycle water used in the manufacturing processes so it can be returned safely to the environment. Replenish water in communities and nature through a global network of local partnerships and

projects.

Coca Colas vision is to advance a packaging framework in which their packaging is no longer seen as waste, but instead as a valuable resource for future use. To realize this zero waste vision, they have been guided by a commitment to continuous improvement. In 2007, the company continued to make strides by advancing packaging initiatives focused on three goals:

• Reduce - To design consumer-preferred packages that use the least amount of resources, while maintaining product quality. Recover - To build packaging management systems to collect post-consumer packaging. Reuse - To use post-consumer packaging and packaging materials again to deliver sustainable value. The company is in the process of setting specific global targets, in addition.

Smaller cap for PET bottles - eliminating 40 million pounds of plastic annually in the U.S. alone

While the company has worked hard to advance community recycling programs, they know that public education is a key to preventing litter. Coca Cola system supports numerous litter prevention and community beautification organizations around the world, including “Keep Australia Beautiful” in Australia, the “Tidy Britain Group” in Great Britain and “Keep America Beautiful” in the United States.

In 2007, the company invested in designing and producing sustainable fashion apparel made from recycled PET bottles. The T-shirts are made from a blend of recycled PET bottles and cotton and feature playful slogans such as “Make Your Plastic Fantastic” and “Rehash Your Trash.” Coca Cola launched their sustainable fashion line of apparel and consumer products at the new World of Coca-Cola in Atlanta, Georgia.

L: Legal Changes – Marketing decisions are strongly affected by developments in the political and legal environment. This environment is composed of laws, government agencies and pressure groups that influence and limit various organizations and individuals. Sometimes these laws also create new opportunities for business.

Here are some of the legal affairs that the Coca Cola Company had to face recently.

In the 1970's, India required Coca-Cola to share its secret formula with the local subsidiary so as to continue doing business there. Coca-Cola refused and halted operations in India for almost 16years.

The European Commission has alerted EU member countries to ban Coca Cola drinks because of recent poisoning of 100 children in Belgium and cause seems to be the wrong carbon dioxide which was used in Coca-Cola soft drinks.

Recently there were demonstrations all around the India, protestors demanded Coca Cola to stop production. Demonstrators believe that Coca Cola is depleting groundwater.

In India, there exists a major controversy concerning pesticides and other harmful chemicals in bottled products including Coca-Cola. In 2003, the Centre for Science and Environment (CSE), a non-governmental organization in New Delhi said Coca-Cola contained toxins including lindane, DDT, malathion and chlorpyrifos - pesticides that can contribute to cancer and a breakdown of the immune system. Recently 1,500 villagers in the Varanasi region demonstrated against Coke for extracting so much water from the ground to make Dasani, Coke’s bottled water, that it was causing water shortages. In the Indian state of Kerala, sale and production of Coca-Cola, along with other soft drinks, was initially

banned, before the High Court in Kerala overturned the ban ruling that only the federal government can ban food product.