The Coca Cola Company Analysis

7/17/2019 The Coca Cola Company Analysis

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Managerial Policy Term Report

Salahuddin and Iqbal Ali Khan

The Coca Cola Company



The Coca Cola Company 1

Managerial Policy by Shahid Zaki

Table of Contents

1. Executive Summary________________________________2

2. Brief History of the Company_________________________3

3. Market Structure___________________________________4

4. Value Chain Analysis_______________________________5

5. Company Vision___________________________________9

6. SWOT Analysis___________________________________11

7. Quantitative Strategic Planning Matrix_________________19

8. Porter ’s Five Forces_______________________________21

9. The VRIO Framework______________________________26

10. Internal Analysis _________________________________28

11. Conclusion______________________________________33

12. References______________________________________34





Executive Summary

This report evaluates the vision, mission, values, market structure and value chain of the world’s

largest soft drink manufacturer. In addition to that the report briefly analyses the incredible

history of The Coca-Cola Company. This objective of the report is to explicate the current

strategies of The Coca-Cola Company. Through SWOT analysis the report analysis different

types of strengths the company has, its weaknesses, the opportunities that the company can

exploit and the threats that the company faces. The report also proposes a QSPM model for two

types of strategies that the company can develop in order to deal with the current challenges.

These two strategies include portfolio diversification and development of a low-calorie

sweetener. The biggest challenge that the company faces is that of the changing consumer

perception because of the growing concern for health and well-being. The report also explores

the external environment of the company through Porter ’s Five Forces. These five forces

explore the rivalry that the company faces, barriers to entry to the beverage industry, threat from

the suppliers and buyers and, threat from substitutes. Finally the report explores the internal

analysis of the company and the current strategies the company is using to connect to its

consumers and to stay competitive.





Brief History of the Coca-Cola Company

The Coca-Cola Company is an American giant beverage corporation and it produces and

markets nonalcoholic beverage concentrates and syrups in the world. It is best known for Coca-

Cola also famously known as “Coke”. Coca-Cola is a carbonated soft drink manufactured by

The Coca-Cola Company of Atlanta, Georgia, in the United States of America. Coke was

invented by John Pemberton as a medicine in May 8, 1886. But later the brand and formula was

purchased by a businessman, named as Asa Griggs Candler in 1889, who marketed it as a soft

drink, and it has dominated the soft drink market since then. The Coca-Cola Company only

produces the concentrates and syrup for various soft drinks under the corporate brand name of

Coca-Cola, which is sold to different bottlers in the world, who prepare the finish products and

sell it to the final consumers.

There are a number of products which The Coca-Cola Company produces other than Coca-

Cola itself. Fanta and Sprite hold, besides Coke, large market shares in the world non-alcoholic

beverage market. Fanta was introduced at the time of World War 2 and Sprite in 1960s.

Studies have shown that coke is the most admired and best known trademarks in the world. In

fact, “Coca-Cola” is the second most understood term in the world, after “OK”.

The Coca-Cola Company started its business in Pakistan in 1953, with brands like Coca Cola,

Sprite and Fanta. The name used by the company was “Coca Cola Beverage Pakistan Limited”.

It was a joint venture between The Coca Cola International, Fraser and Navees Singapore and

Pakage Ltd.

Coca Cola has been a major player in the beverage industry since its launch and holds second

largest market share of the soft drink market in Pakistan.





Internationally, Coke produces concentrated and sells it to licensed Coca Cola bottlers. The

bottlers prepare the end product in bottles and cans from the concentrate in combination clean

water and sweeteners. But in Pakistan Coke has acquired bottling operations due to quality

control issues from local franchisees.

Market Structure

The beverage market in Pakistan has been vibrant over the past decades. Comprehensive

categorization of the industry includes aerated drinks, juices, milk based drink, tea, coffee, sport

drinks, bottle water and energy drinks. Different categories are dominated different drinks based

on their specialization and target market.

A research conducted by Dynamic Research Consultants in 2013 gives us a comprehensive

analysis of the beverage consumption in Pakistan. The following table shows the details.

The above table shows the difference in the consumption pattern which is present genders and

two age groups. The results show that tea is the most consumed beverage and it is particularly





liked among the adult age group. Females use multiple drinks compared to males, according to

the research done. Unlike the international beverage market, where energy drink consumed in

larger quantity than normal soft drinks, Pakistan market show that energy drinks are the least

used beverage in both categories. But young adults consume energy drinks more than mature

adults. Mature adults prefer drinks based on natural fruits and milk based drinks.

The soft drink market is dominated by PepsiCo with staggering 65% market share and Coca

Cola with 30% market share. PepsiCo held more than 80% of the soft drink market a decade

ago, according to Washington Journal. But it lost share to Coca Cola in the past few years

because of the huge investment Coke made in marketing its product. Both the companies are

involved in aggressive marketing and fighting for market share in beverage industry in Pakistan.

Local players like Gourmet and Amrat hold market share in single digit but are expected to pose

serious competition in the future. These and other small brands, due to their pricing strategies,

are emerging as threat to market leaders.

Pakistan is an agricultural country and famous for its fruits. Exploiting this fact, different

companies have ventured into the juice industry. Consumers’ associate nutritional value to

products made out fruits and there is no Custom Duty on locally manufactured juice products for

export; these serve additional motivation for companies to exploit the juice market.

Coffee is popular among urban population and it has very small market share in Pakistan. The

major player in coffee market is Nescafe, which is also the earliest coffee brand in Pakistan. The

market growth is sluggish and there has been no innovation to improve the market share so far.

As mentioned earlier, energy drinks are the least consumed beverage in Pakistan. Energy

drinks are different from regular drinks because they contain stimulants which increase brain

activity of a person who consumes it. Energy drinks are quite popular in the west because of the

intensified work schedules and high stress level. People, instead of getting proper rest, resort to





stimulants like energy drinks. But life is Pakistan is slow compared to the West and hence this

trend has not prevalent to a great extent. Redbull holds major share of the market and in 2012 it

held more than 60% in Pakistan. PepsiCo has introduced “Sting” and it has created niche for

itself. The market share of Sting is increasing with time.

Value Chain Analysis

Coke operates in more than 200 geographic locations with more than 3000 products. It is,

therefore, very important for Coke to develop a superior value chain system to reap benefits.

Coke is not just the simple soft drink that is consumed. It is not only the name and product itself

that matters in a company but value chain that helps the company to reach the final product.

Value Chain is model is used to separate into parts pertinent value generating functions or

activities.

Nonalcoholic beverage industry contains 5 activities in their value chain which are given below.

1. Inbound Logistic (Suppliers)

Coke invests a huge amount of money in product quality. Because of that, Coke pays special

attention to the raw materials that are bought. Some of the well-known suppliers of Coke include

Jones Lang LaSalle, IBM, Ogilvy and Mather etc. Besides offering products in satisfactory

conditions, the companies that do business with Coke, also, have to follow a set of strict

guidelines. Suppliers provide materials such as ingredients, machinery and packaging etc to

Coke. This makes sure that the suppliers of Coke follow a pattern of quality. Here are some of

the examples which are required of the suppliers:

- Compliance with laws and governmental regulations

- Strict prohibitions against child labor and overtime work





- Proper health and safety conditions to employees.

Doing this, Coke is trying to create the Coca-Cola quality pattern which is something that can be

extended to all their products.

2. Outbound Logistics (Buyers/Customers)

The most important part of the value chain is the set of activities required to reach customers.

This set includes warehousing, transportation and management of distribution. Coca-Cola has

one of the best distribution systems in the world. Distribution system at Coke can be considered

a strong competitive advantage. Coke owns lease and operation in over 800 plants around the

world. It offers more than 3500 beverage products in more than 200 different geographic

locations. However, Coke cannot achieve it alone. Coke is only responsible for the production of

the syrup that is used in their products. The final product is prepared by bottlers who put the

syrup into bottles and cans. Coke has more than 350 bottling partners in the world, which range

from gigantic companies to small family owned operations. The guidelines that were earlier

mentioned are also valid for the bottlers. The fact that Coke outsources some of its operations is

an important advantage in the distribution channel, because it creates lighter and flexible

company.

3. Marketing and Sales

There is a fierce completion in the industry between different beverage companies. Coca Cola

owns four of the world top selling drink brands in the world. Creativity has paid off Coke in a vital

manner. Coke has attached itself with happiness and has produced some of the best marketing

campaigns in the world. Coke invests up to 14% of its profits in communication. Coke has been

trying to build a lasting and deeper relationship with customers over the past few decades. The





most recent example of it, would be the personalized bottles in Pakistan. The campaign was a

huge success and the sale of Coke increased over the nights.

4. Operations

The main operation at Coke consists of production of syrup, which is used in Coke (Coca Cola

2006). Other than that, along the value chain, bottling operations, distribution and sales are also

impacted by the company. Managing the operations outside the production of syrup becomes

very challenging. Coke addresses this challenge by continuously working with their partners and

lessening the effects through comprehension of the complete environmental impact of their

business.

5. Services

Services include the maintenance and enhancement of value and which includes customer care

and support, installations of machines etc. and training of teams. Coca-Cola has a wide range of

customers from retailers and restaurants to independent businesses and vendors. Coca-Cola

endeavors to provide tailored services to each group of its customers.

Mission, Vision and Values

Mission of Coca-Cola Company:

- To refresh the world in mind, body and spirit.

- To inspire moments of optimism and happiness through our brands and actions

- To create value and make a difference.

Clear and concise declaration of business strategy in few sentences is an evidence of effective

mission statement. Mission statements are present-based statements and the purpose of





existence such statements is to convey a sense of why a company exists, to both members of

the company and external community.

Coca-Cola has an effective mission statement and it covers all the important elements of a good

mission statement. The idea of refreshing the world in mind, body and spirit sends a clear

message about the purpose of existence of the company. Coca-Cola has associated itself with

“happiness” since a long time. The mission statement clearly encompasses happiness as part of

what Coca-Cola stands for. Spreading happiness and optimism has been the core objectives of

Coca-Cola and the mission statement beautifully expresses it. The last of the mission statement

discusses creation of value and making a difference in the lives of the customers. It can be

either by refreshing the minds, bodies or spirits of their customers or by spreading optimism and

happiness. The mission statement elegantly captures it.

The Coca Cola Company Vision

The vision statement of Coca-Cola consists of 6Ps, which are described below.

- People: Inspiring each other to be the best we can be providing a great place to work.

-Portfolio: Offering the world a portfolio of drink brands that anticipate and satisfy people’s

desires and needs

- Partners: Nurturing a winning network of partners and building mutual loyalty

Planet: Being a responsible global citizen that makes a difference by helping to build and

support sustainable communities

- Profit: Maximizing long-term return to shareholders, while being mindful of our overall

responsibilities





- Productivity: Being a highly, lean and fast-moving organization.

A vision statement must not be confused with a mission statement. Mission statement, as

discussed earlier, is concerned with the present-based activities. While on the other hand, vision

statement is concerned with the future-based activities. The core purpose of the existence of

vision is to inspire and give direction to the employees of the company.

The vision statement of Coca-Cola consists of 6Ps, which include people, portfolio, partners,

planet, profits and productivity. This statement is detailed and focuses on all the important

elements of the environment in which the company operates worldwide. It is inspiring and

promises to produce products which will fulfill the needs and desires of the customers. The

vision statement demonstrates that Coca-Cola will collaborate with its partners in order to

maintain a sustainable environment. Coca-Cola promises to keep the environment clean and

great emphasis has been put on nature and it has been kept above profits among the 6Ps of its

vision statement. Finally, the focus is on being productive and efficient. The world energy

resources are limited and Coca-Cola promises to conserve as much energy as possible by

being efficient and productive and investing in latest technology for production and

manufacturing of its products. It also promises to work with its partners to achieve a sustainable

environment.

Besides, the positive characteristics of the vision statement of The Coca-Cola Company, there

are some flaws in it, without which the vision could have been perfect. For example, the biggest

problem with the vision statement is that it is very long. Short and precise vision statement is

better than long and ambiguous one because it helps in understanding the goals and objectives

of the company with great ease. It also helps the internal members of the company to remember

what the company stands for and where it is going to go in the future. The longer the vision

statement the more confusing and vague it gets.





The Coca Cola Company Values

Leadership: The courage to shape a better future

Collaboration: Leverage collective genius

Integrity: Be real

Accountability: If it is to be, it’s up to me

Diversity: As inclusive as our brands

Passion: Committed in heart and mind

Quality: What we do, we do well.

The Coca-Cola Company has a set of 7 values which act as a binding tool for the company. The

culture at the company is formed with the amalgamation of these values. These values help the

company create leaders and employees who help the company grow. The value system

encourages the members at the company to be real and honest with what they do. It also

encourages the members to be accountable with whatever task they undertake. Diversity is

recognized as one of the most important elements for the success of the company and it is

encourage on all levels. Like all businesses need passion to be truly successful, The Coca-Cola

Company has also included in its value system the idea of passion. It encourages its members

to be committed in heart and mind about what they do. It also encourages it customers to do the

same in its communications. The final element in the set of values for The Coca-Cola Company

is about good quality product and services provided to customers. Coca-Cola has a commitment

to make products which are of the highest standards and comply with international and local

laws.





SWOT Analysis

Strengths:

One of the Top Global Brands

Coca Cola is one of the most valuable brands in the world. It preserved its top position for 13

successive years when finally in late 2013 Apple and Google’s brand values surged up to take

the top two positions. Currently, Coca Cola Company is ranked the 3rd

best global brand in

terms of value by Interbrand. Apple and Google occupy the top two positions with Apple being

number one in 2014. Coca Cola has a brand value of $81.56 billion with a 3% increase from

2013 (1).

Strong Marketing

Coca Cola Company has very effective and penetrating marketing capabilities that have helped

the company get an unprecedented global exposure. Wherever you go in the world, chances

are that you would see a Coca Cola ad somewhere, or at least the people of that particular area

would recognize the Coca Cola brand image. The amount of money that Coca Cola pours into

its marketing campaign is unsurpassed by any other rival brand or any beverage company. In

fact, the only company that comes close is PepsiCo. Coca Cola’s robust marketing capabilities

have earned the company both revenue and brand recognition. They have also helped in

introduction of new products and in creation of customer awareness about new offerings and

product features. The Coca Cola Company’s annual advertising spending was $3.499 billion,

$3.266 billion and $3.342 billion in 2014, 2013 and 2012, respectively. Advertising expenses

accounted for 6.9% of total revenues each year.





Advertising budget of key beverage companies

Source: Financial Reports

Largest Market Share in Beverage

Coke controls 42% of the total carbonated soft drink market, compared with Pepsi's 30% in the

US, which is the biggest market for carbonated drinks. Worldwide, Coke controls 25.9% of the

total market share while PepsiCo controls 11.5% (2). Coke is a clear victor when it comes to its

rivals in terms of market share. Despite the decades long war between Coke and Pepsi, Coke

has somehow managed to stay on top and be the market leader.

Most Extensive Distribution Channel

Coca Cola operates in more than 200 countries and with this many countries on its serving list it

has to have a far-reaching distribution setup. The company’s servings per day is a surprising 1.9

billion. It manufactures and sells concentrates, beverage bases and syrups to bottling partners

who sell the final product to the consumers (Coca Cola).

Customer Loyalty

Through its marketing campaigns, such as Share a Coke campaign, Coca Cola has brought its

customers together to bring out the company’s essence of sharing happiness. These campaigns

are intended to touch people emotionally and connect with the customers in a way that makes





them feel special. Coca Cola uses ‘happiness’ as an emotional cue to bring its customers closer

to the brand.

Corporate Social Responsibility

Over the years, Coca Cola has engaged in various development programs. The company has

focused on energy conservation, recycling, health and water provision. It has a Corporate

Governance Rating of 8.5/10. Sustainability is one of the main goals of the company and thus it

has engaged in improving its public image in countries where it operates. For example, in 2011,

through their Operational Excellence (OE) projects, the company recycled 571,897 m3 of water

in Turkey, Kazakhstan, Pakistan and Jordan. Furthermore, also in 2011, the company provided

130,915 hours of training regarding health and safety to a total of 18,826 employees in Turkey,

Azerbaijan, Kazakhstan, Jordan and Pakistan (3).

Weaknesses:

Focus on Carbonated Drinks

The consumption of carbonated drinks has shrunk in US, China, Brazil and other countries

because of the increased health awareness amongst the consumers, especially the American

consumers. The number of people who consume Coke soda, which accounts for 70% of the

company’s sales, has declined in US because of the alarming rate of obesity in the country.

People have become more health conscious and are shifting to healthier substitutes such as

fruit juices. There is a fundamental shift in consumer’s taste and, as a result, soda sales are

declining. Sales of soda fell 3% by volume in 2013, to the lowest levels since 1995 (4).





Undiversified Product Portfolio

As the global trends are shifting towards healthier choices, Coca Cola is having a hard time

convincing its customers to consume its carbonated drinks. While its biggest competitor,

PepsiCo, has diversified into snacks and healthy drinks, Coca Cola’s focus has not shifted from

its carbonated drinks. This can be a cause of concern for the company in the long run as

PepsiCo has made a substantial effort in cutting the global market share of Coca Cola.

Brand Failures

Coca Cola is attributed with one of the biggest brand failures. In the 1970s, the company, vexed

by the competition, introduced a new formula and rebranded its product Coke as New Coke.

The public was soon outraged and the company was forced to go back to its original formula.

Today, Coca Cola has more than 500 brands and it keeps on experimenting on new ones.

Some of the failed Coca Cola brands include Surge, Sprite Remix, OK Soda, Citra, Vault, Tab

Clear, and Coca-Cola BlāK (5). Coca Cola C2, introduced in 2004, is yet another famous brand

failure. C2, which was introduced to target 20 to 40 year-old men, had half the calories and

carbs than the original Coke but was soon rejected by the consumers (6).

Strengthening Dollar

In 2013, Coca Cola missed its revenue target and its growth rate declined. One of the reasons

for this decline is accredited to the strengthening of dollar against foreign currencies. The

weakening of foreign currencies has suppressed the overseas earnings of the company.





Opportunities

Bottled Water

Availability to clean drinking water is scarce in many parts of the world. The consumption of

bottled water in the US has grown in the last five years. In 2012, for example, total U.S. bottled

water consumption increased to 9.67 billion gallons from 9.1 billion gallons in 2011 while sales

increased by 6.7 percent in 2012 (7). Again, this growth has come about as a result of increased

health consciousness in the American consumers. Growth in the consumption of bottled water is

not only limited to US but to the rest of the world as well where people do not have easy access

to clean drinking water. This represents an opportunity to Coca Cola for future growth. Coca

Cola has its own bottled water brand, Dasani, which has a thin global market share but has a

strong standing in the US market.

Demand for Healthy Food and Drinks

While growing health awareness is a threat to the company, it also represents an opportunity as

Coca Cola has the financial capability to diversify its product portfolio to introduce healthy

products such as fruit juices and healthy snacks. The company’s biggest market, US, is fighting

obesity and heart related diseases resulting from drinking carbonated drinks and eating fast

food such as burgers. Coca Cola is under pressure due to these changing consumer

preferences, but the company can make use of this situation and introduce healthier options.

Although, the consumers’ perception of the company would be challenging to turn around, but

then again Coca Cola has very strong advertising.





Growing Beverage Consumption in BRIC Countries

Although, the sales of soda are falling in US, they are taking up in emerging markets such as

Brazil, Russia, India and China. In Pakistan, the beverage industry is burgeoning as more and

more people are consuming soft drinks and juices. Coca Cola has the opportunity to focus on

these markets as the demand for soft drinks in these markets has not yet reached the saturation

stage.

Threats

Changes in Consumer Preferences

The market for fast food and carbonated drinks is facing a number of challenges due to

changing consumer preferences. Health awareness around the world has, and especially in the

US, has prompted people to be chary about what they eat. Government administrations have

formulated tighter regulations regarding food labeling and dietary information that is hurting the

sales of calorie, sugar and fat rich food products. Consumers are careful about what they are

consuming and because of the shift in consumer perception, the market for healthy and fresh

food is growing.





Water Scarcity

Water scarcity is a growing concern around the world. Millions of people don’t have access to

clean drinking water, yet the beverage companies are using more and more water to use for

their products. Coca Cola has been criticized for using large amounts of water for its production

in water scarce countries such as India and China. In June 2014, Coca Cola was forced to shut

down one of its bottling plants in northern India after locals censured the company for using too

much water (8).

Product Labeling

Food and beverage companies are legally required to disclose product information on its labels.

Coca Cola’s products are not healthy and they can lead to adverse health issues. Luckily, the

company has finally realized and accepted the negative side effects that arise from consumption

of its products such as coke. In fact, in a recent advertisement they openly confess that Coke is

not healthy for you and that it can make you fat. More strict regulations have forced Coca Cola

to come out as open and forthright about the side effects of its products such as obesity and

diabetes epidemic.

Competition

PepsiCo is taking a head-on competition with Coca Cola. The two giants have been fighting

over market share for more than a century and none of them seems to be willing to give up

anytime soon. Consequently, both the companies have done everything possible to bring their

competition down but so far Coca Cola holds the upper ground. But Coca Cola’s position is

threatened more than ever by its greatest rival due to increased challenges that have served to

strengthen the position of PepsiCo compared to Coca Cola. For example, while Coca Cola was

busy strengthening its position, PepsiCo realized the changing consumer preferences earlier





and diversified its product portfolio to include healthy snacks and drinks. Coca Cola’s position is

vulnerable more than ever and it would have to tweak its strategies in order to stay on top.





Quantitative Strategic Planning Matrix

Key Factors WeightAttractiveness

ScoreTotalScore

AttractivenessScore

TotalScore

Strengths

Portfolio DiversificationDevelop a healthy,

low-calorie sweetener

One of the Top Global Brands 0.15 4 0.6 4 0.6Strong Marketing 0.10 3 0.3 4 0.4

Largest Market Share inBeverages

0.08 3 0.24 3 0.24

Most Extensive DistributionNetwork

0.12 3 0.36 3 0.36

Customer Loyalty 0.10 2 0.2 3 0.3Corporate Social Responsibility 0.10 2 0.3 3 0.3

WeaknessesFocus on Carbonated Drinks 0.15 4 0.6 2 0.3

Undiversified Product Portfolio 0.10 4 0.4 2 0.2Brand Failures 0.05 - - - -

Strengthening Dollar 0.05 - - - -Total 100 3.1 2.7

Key Factors WeightAttractiveness

ScoreTotalScore

AttractivenessScore

TotalScore

Opportunities

Bottled Water 0.1 4 0.4 2 0.2

Demand for Healthy Foods andDrinks

0.2 4 0.8 4 0.8

Growing BeverageConsumption in BRIC Countries

0.1 1 0.1 3 0.3

Key Factors Weight AttractivenessScore

TotalScore

Threats

Changes in ConsumerPreferences

0.2 3 0.6 3 0.6

Water Scarcity 0.15 2 0.3 2 0.3

Product Labeling 0.1 2 0.2 3 0.3Competition 0.15 3 0.45 3 0.45

Total 100 2.85 2.95





Porter’s Five Forces

1. Threat of New Entrants

Beverage industry is largely dominated by Coca Cola and PepsiCo. These two

companies are very well established and have developed extremely strong brands over

the years through their extensive marketing campaigns. Both companies have spent

billions of dollar on advertising alone. Such high expenditure has discouraged

competition from other companies because the competitors know that Coca Cola and

PepsiCo will do everything possible to beat their competition. Therefore, threat of new

entrants is low.

New entrants would have to have huge amount of capital to setup the plant and

advertise their products. There are high fixed costs associated with plant and equipment

such as the cost of trucks, warehouses, production facilities and labor. In the presence

of Coke and Pepsi, it is highly unlikely that new entrants would want to enter this market.

Soft drink market is fully saturated and there is little potential for growth. Yet, small scale

companies that produce soft drinks or water are popping up here and there. These small

companies do not represent any kind of threat to Coca Cola. And in case any company

has enough financial muscle to compete with Coca Cola then Coca Cola will use

retribution tactics.

Coca Cola represents one of the strongest brands in the world and its brand equity is

extremely high. Furthermore, its brand loyalty is also unprecedented. There is not much

incentive for new entrants to compete in this industry because their growth is hindered

by the two market leaders. Coca Cola sells its product through retailers whom the





company pays good incentives to push its products. Retailers are willing to take Coca

Cola’s products because they know it will sell. They won’t be willing to sell the products

of a new unknown entrant. Coca Cola has extremely strong forward and backward

linkages and it would be difficult for new entrants to persuade suppliers or retailers to

break up any type of contract with Coca Cola.

2. Threat of Substitutes

Beverage industry is teeming with various types of substitutes such as tea, coffee, water,

juices etc. Threat of substitutes is therefore is very high. All of these substitutes

themselves are involved in aggressive marketing campaigns such as Tapal tea in

Pakistan. The intensity of threat is different for different substitutes. This intensity

depends on the culture and geography, for example, coffee is a very famous beverage in

the US and it represents a greater threat of substitute to coke than tea. But in Pakistan

it’s the other way around. These substitutes satisfy the caffeine needs as much as

carbonated drinks and their health benefits are also superior or at least not as

destructive. For example, coffee has actually been shown to contain salubrious benefits

and therefore its consumption is on the rise giving way to big coffee brands such as

Starbucks and Gloria Jeans. Even in countries like Pakistan, where more than 90% of

people drink tea, the market for coffee is increasing as more and more young people are

going to coffee shops.

Healthier alternatives such as fruit juices have threatened the soft drinks industry.

Energy drinks such as, Gatorade, have increased in popularity. The product switching

cost is very low because none of the substitutes are exorbitantly costly than soft drinks.

Anyone at any time can easily switch to any one of the substitutes without any type of





loss. Consumers don’t see much difference in value when it comes to beverages as they

are only differentiated by their taste and promotional activities.

Beverage industry attempts to keep the customers within the industry, which means that

the advertising effort from one company helps to increase the sales of other related

companies. For example, a company that is advertising its coffee will eventually end up

increasing the coffee sales for other companies as well because of the low switching

costs associated with coffee.

3. Threat of Suppliers

Raw materials that are required for the production of beverages include sugar, flavor,

color, caffeine and packaging etc. Most of these are basic commodities which are easily

available. A lot of suppliers are out there selling these raw materials and they cannot

compete over price because the prices of these commodities are fixed. It is very easy for

the company to shift from one supplier to another because of the low switching cost.

Furthermore, these raw materials are standard products that are used by all the other

related companies. For example, there are no alternatives for sugar and the sugar that

one supplier sells is no different from the sugar that another supplier sells. Suppliers

want to keep favorable relations with the companies because the companies usually buy

in bulk and the suppliers don’t want to risk their contracts by trying to get greater

bargaining power. Threat of forward integration is also low because the suppliers cannot

afford the high capital associated with the setting up of an entire production plant.

However, when it comes to packaging and bottling, the situation is a little different. Coca

Cola’s bottling contract is with Coca Cola Enterprises which is the largest bottling





company in the world. Coca Cola owns 36% of Coca Cola Enterprises which includes

the CCE’s entire North American business (Coca Cola). Although, Coca Cola has

acquired 36% of CCE, CCE still has substantial control over the bottling operations.

Coca Cola introduces new products frequently and for every new product it needs new

bottling and packaging. The frequency with which Coca Cola introduces new products

gives CCE significant bargaining power because it has to deal with all the operational

complexity that arises due to new products that require a huge amount of new bottles.

Thus, as far as bottling is concerned, CCE has the greater bargaining power and

represents a threat of supplier because no other company can produce as many bottles

for Coca Cola as CCE does. Overall, the threat of supplier, therefore, is moderate.

4. Threat of Buyers

in large volume. The changing consumer perception, however, has given consumers

more bargaining power as they are now moving towards healthier choices. Consumers

can easily switch to a different brand that suits their demands. However, in some cases,

such as in the cases of vending machines and convenience stores, the bargaining power

of consumers goes down as they are looking for a quick purchase. Also, because the

prices of the substitutes are similar, individual consumers usually don’t make their

buying decision based on price but based on taste and health benefits. The overall

bargaining power of buyers is high because the big buyers of the Coca Cola products

are different types of retailers and these retailers buy in bulk at lower prices. Retailers





carry the products they know would sell, so if the consumers are more inclined towards

buying a product that is healthy then the retailers would want to carry that product. So it

ultimately comes down to the final consumer and the final consumer has the freedom to

choose whichever beverage he/she wants to consume.

5. Threat of Rivalry

The soft drinks market is largely dominated by Coca Cola and PepsiCo. These two

players have the greatest market share both locally and globally. In 2014, Coca-Cola

classic was the number one selling soft drink in the US followed by Pepsi and Diet Coke.

Pepsi has been successful in securing the second position after been third for many

years. Currently, two of the top 5 selling soft drinks belong to Coca Cola (9).

Rivalry from other players apart from PepsiCo is very low. But PepsiCo represents the

greatest threat. The two companies have been involved in a century long war and their

rivalry is legendary with both companies still trying to take the lead. They compete on

advertising and differentiation because competing over price is not a good strategy as

prices are comparable and the rivalry is so intense that if one reduces the price then the

other has to do the same. But the two companies do compete over price in certain

situations, especially when it comes to their global expansion strategies.

The scope of the competition for Coca Cola is global due to its presence in around 200

countries. To stay relevant both locally and globally, Coca Cola engages in huge

marketing campaigns. These marketing campaigns are well received all over the world

and Coca Cola is considered to be one of the most innovative advertisers. Coca Cola’s

huge investments in advertising has paid off well as it has become the most valuable

brand in the world. PepsiCo is pouring huge amounts of money into advertising as well





as both companies are trying to differentiate themselves. In Pakistan, Pepsi has been

successful in securing its position as the cricket sponsor while coke is focusing more on

music with its coke studio initiative. Pepsi tried to take away Coke’s positioning in music

through its campaign ‘Pakistan Idol’ but coke still has the upper hand. Consequently, the

threat of rivalry is high because of PepsiCo’s resilience and determination to take over

Coca Cola to become the number one beverage company in the world.

The VRIO Framework

Marketing

Valuable Rare Imitable OrganizationYes Yes Yes Yes

Temporary Competitive Advantage

Coca Cola’s marketing skills are very valuable as they serve to deal with external threats

presented by its competitors. Through its aggressive and costly marketing, Coca Cola has been

able to both mitigate external threats and exploit opportunities in the global soft drink industry.

Coca Cola’s marketing is also rare as no other company has the same marketing capabilities as

Coca Cola and the company has created some of the best marketing campaigns for any soft

drink company. However, the marketing capabilities are imitable by its competitors like PepsiCo

that also has some really strong marketing capabilities backed up by financial muscle. The

company has successfully exploited its marketing capabilities to support its organization and

create value for its shareholders.

Distribution

Valuable Rare Imitable Organization

Yes Yes No Yes

Sustained Competitive Advantage





Distribution is an extremely important aspect for Coca Cola and for this reason Coca Cola has

developed the most extensive distribution system in the world. This distribution network is rare

because of its global presence and efficiency. Coca Cola produces syrup which is sent to the

bottlers who then sell the bottled drink to different retailers in different parts of the world. The

company uses the push and pull distribution strategy that is unique when it comes to its far-

reaching network. Such a huge distribution channel is very difficult to imitate as its competitors

would have to spend billions of dollars to develop such a vast network. Coca Cola has

efficaciously exploited its distribution capabilities to enter foreign markets such as India and

Mexico.

Differentiation


Yes Yes Yes Yes

Temporary Competitive Advantage

Coca Cola has a secret recipe for Coke that the company has been using from the beginning

and the company differentiates itself on the basis of taste that has created immense value.

However, there is not much difference in the taste of Coke and its biggest competitor Pepsi; in a

blind test consumers were unable to differentiate between the two. Apart from taste, Coca Cola

has differentiated itself on the basis of creating happiness. Furthermore, the differentiation

strategy is rare because of the brand’s quick recall. Coca Cola has a top-of-the-mind recall and

Coke is the first drink that pops up in mind when one thinks about soda. When it comes to

imitability, Coca Cola’s specific products like Coke is not imitable because of its secret formula.

But there are several sodas available in the market that have similar tastes to that of Coke and

other Coca Cola products. Coca Cola’s differentiation strategy is therefore imitable to a great





extent. Finally, the company uses brand value to manipulate its differentiation through taste and

color.

Brand


Yes No Yes Yes

Competitive Parity

Coca Cola is one of the most valuable brands in the world. It is also the most recognized brand

so there is little doubt about the value of the brand. It is, however, not rare as there are other

brands that have higher values such as Apple. PepsiCo has put in a lot of time and money to

emerge as one of the most valuable brands as well and it’s well underway with substantial

willpower to take the top spot. Coca Cola brand is imitable because other companies can

acquire it or bring a substitute in its place, as is the example of PepsiCo. Finally, the Coca Cola

brand has brought immense value to the organization and through its advertising campaigns the

company has used the brand to expand into new markets and create greater value for the

shareholders. The company is well organized with all the important functions realizing and

working towards in line with the vision and mission of the company.





Internal Analysis – Strategy and Competitive Advantage

Coca Cola has adopted both differentiation strategy and cost leadership strategy to compete in

the global setting and create value for its consumers as well as its shareholders. The company

derives almost 75% of its sales from carbonated drinks and, despite of the declining sales due

to the changing consumer perceptions and preferences, it continues to focus on carbonated

drinks (10). Coca Cola’s emphasis is on the millennials, consumers born between 1980s and

2000s. Millennials are born in the digital age and are largely technology driven. They want quick

and personalized delivery. So in order to stay relevant to this segment, constant innovation is

required because innovation is what the millennials value. Coca Cola is focusing on bringing

innovation by transforming the following areas,

1. Packaging

Packaging has been an integral part of realizing the company’s engagement strategy.

The company has successfully experimented with a number of innovative packaging,

including the personalized coke packaging campaign called ‘share a coke’ that was first

introduced in Australia and became an instant hit. Customized packaging was then

introduced in a number of other countries like Pakistan where the millennials loved it.

Coca Cola has introduced ‘PlantBottle’ packaging that is the first 100% recyclable plant

bottle made partially from plants. The packaging was introduced as part of both social

corporate responsibility as well as to meet the happiness standards of the company.

There is constant innovations when it comes to packaging as the company is trying to

give its products a personalized touch that the millennials value.





2. Partnerships

Coca Cola values its partners and takes constant feedback from them to keep them as a

part of the company’s innovations. The company realizes the importance of its partners

in the creation of its portfolio of innovation.

3. Product and Equipment

Coca Cola has a portfolio of over 500 products and it continually keeps on introducing

new products from time to time. The company likes to experiment with new product

designs and taste. That’s why Coca Cola introduced the FreeStyle machine that enables

various types of flavor mixes. Consumers can create their own unique flavors by

choosing from over 100 different products. This is another effort to create innovation

coupled with customization.

Coca Cola practices high degree of product adaptation because of the large number of

products it serve globally. It has to engage in product testing and development to make

sure that a certain product will work in a particular market. Through a number of new

product development programs, the company has successfully introduced new and

innovative products such as Dasani Plus, a vitamin rich flavored water. It comes with

small sachets that contain different types of flavors that can be added to the water bottle

for people who like flavored water.

Owing to the increased demand for energy drinks, Coca Cola has engaged in a long

term strategic partnership with Monster Beverage Corporation to accelerate growth in

the growing energy drink category.





4. Customer Provocation

The company does not just want to promote happiness, it wants to ‘provoke’ happiness

through social platforms where consumers can share stories that provoke the feelings of

happiness. These stories shared by many others to start a conversation and connect

people. Coca Cola is making use of interactive technologies to bring innovation that can

connect millennials together.

5. Cultural Leadership

Coca Cola takes an authentic, transparent, and sustainable approach to all

communications. The company believes in leading the culture and not just following it.

Thus means that the company promotes constructive change and healthy growth. It

does so by offering low and no-calorie drinks, promoting physical activity and by been

transparent in its labeling.

Differentiation Strategy

Coca Cola has achieved differentiation through perceived superior quality product. The

company’s products are viewed better than its rivals because of the high brand image and

recognition. Differentiation in Coca Cola’s product is not only limited to taste but it goes beyond

to include packaging and promotion as means of differentiation. This is very evident from the

evolution of Coca Cola bottle that has become an extensively recognized symbol around the

globe. One of company’s first priorities was to revitalize the Coca-Cola bottle through global

marketing. Coca Cola has been able to successfully capitalize on its brand name and other

valuable resources such as packaging better than its competitors resulting in a sustained

competitive advantage. Because of these reasons the company is able to charge a premium

price in countries where the economic conditions are favorable. For example, the is a big





difference in the price that Coca Cola charges for its products US compared to a developing

country like Pakistan.

Cost Leadership

The other source of the company’s competitive advantage comes from its cost leadership. The

company has productively achieved economies of scale in its manufacturing system through its

extensive distribution network, research and development and through promotions. Because the

company has been around for more than a century, economies of scale are also achieved

through improved learning and experience.





Conclusion

Coca Cola has enjoyed the top spot for years and its brand value remained unbeatable by a

great margin until recently when Apple surpassed the brand value of Coca Cola to secure the

top position. Today’s contemporary challenges have forced many companies like McDonalds to

change their strategies in order to stay relevant to its consumers. Coca Cola is also facing some

serious issues. Americans are campaigning against obesity as it is known to cause many heart

related problems. Coca Cola’s soft drinks have a played a substantial role in the dissemination

of obesity because of their high calorie contents including sugar. Although, other soft drink

companies including PepsiCo also face such issues, Coca Cola is particularly susceptible

because about 60% of its revenue is generated from the sale of soft drinks. Coca Cola will have

to consider tweaking its strategies in order to save its current position and sustain its

competitive advantage. The two possible strategies that the company can adopt include

diversifying its product portfolio to include healthy snacks and other food items, and introducing

a healthy low-calorie sweetener for its products to address the health concerns of its consumers

without making a major shift in its brand image. There are opportunities present in global bottled

water market, energy drinks market and healthy drinks market.




Web References

1. http://interbrand.com/en/newsroom/15/interbrands-th-annual-best-global-brands-report

2. http://www.nasdaq.com/article/coke-vs-pepsi-by-the-numbers-cm3379093. http://assets.coca-

colacompany.com/51/be/fa1c9a664de5bb38e0304d6ce2af/CCI_CSR_2011.pdf4. https://hbr.org/2011/04/why-most-product-launches-fail5. http://www.businessinsider.com/soda-brands-that-failed-2012-6?op=16. http://www.bottledwater.org/us-consumption-bottled-water-shows-continued-growth-

increasing-62-percent-2012-sales-67-percent7. http://fortune.com/2014/04/01/falling-soda-sales-not-a-trend-but-a-fundamental-shift/8. http://www.ft.com/cms/s/0/16d888d4-f790-11e3-b2cf-

00144feabdc0.html#axzz3abNfj7V99. http://www.caffeineinformer.com/top-10-soft-drinks

10. http://www.wsj.com/articles/SB10001424052702303910404579485442244343248

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The Coca Cola Company Analysis